It is the middle of the night but cannot sleep so I have been reading Thomas E. Wood’s Meltdown which is a very interesting discussion of the causes of the Global Financial Crisis. Wood is trying to demonstrate that the GFC here in the US was caused by government interference in the housing market but more especially the monetary policies of the Fed. I can see that. If you asked me what Ground Zero for the world recession we are now in was, I would explain things along those same lines.
But the problem is that the explanation is so US-centric. Let us accept that the GFC was all the fault of American monetary policy and the Fed. But what then was the cause of the downturns in Europe, Asia and Australia? For the rest of us, it was not due to monetary policy at all. You cannot use government regulation or monetary policies to explain what happened. There is literally nothing I can think of any government in any other part of the world could have down to prevent the GFC from affecting their own economies.
Think only of Australia. We were on the receiving end of an international maelstrom in which the entire world’s financial system froze. None of the issues discussed by Wood – past bailouts, too-big-to-fail, low interest rate policies – are applicable. They had nothing to do with what happened to us in Australia.
That is why I find explanations of the cycle that focus on monetary policies alone so unsatisfying. They tell you much about what happened in the US on this occasion but leave out everything that is relevant to the rest of the world. On other occasions looking at monetary policy in the US or anywhere else would not make sense of events. A proper theory of the cycle must provide a more complex and complete explanation that takes a larger wider perspective on why maladjustments take place.
Meanwhile I see the RBA kept rates up this month against the general expectation. We really do have the best monetary policy in the world. Not perfect of course, since it is based on so many unknowns. Just better than everybody else’s which is pretty remarkable in itself.
I would have liked another rate cut. Anyone know why they didn’t drop it?
Alex Pundit
8 Feb 12 at 10:23 pm
You might read “Globalisation Fractures”, and its successor, “American Phoenix” by Charles Dumas. Much of the answer lies in global imbalances, which underlie the faults in the eurozone now.
IanW
8 Feb 12 at 10:36 pm
While far from an expert – very far indeed – I agree with Steve and think this was a good decision because it gives the RBA flexibility if something goes badly wrong in the world economy as it interacts with Australia. We continue to have more space for adjustment if required.
On a personal note, as a household with a large mortgage, I personally would have liked a rate cut.
Peter Whiteford
8 Feb 12 at 10:40 pm
Steve
Pretty much all the major central banks ran loose monetary policies through the middle of the decade including the RBA. The US as not the only economy that experienced a credit boom. The bust in the US was just the catalyst for the wider global crisis.
sdfc
8 Feb 12 at 10:49 pm
Well there wasn’t one in Australia yet…? Possibly soon though.
Chris M
8 Feb 12 at 11:27 pm
What caused the recessions elsewhere? Well, you might start with reduced demand for exports. But hand on, that’s a demand-driven explanation, so according to you, it must be wrong. One monetarist explanation is that the initial negative real demand shock led to lower equilibrium interest rates, which led to a de facto tightening of monetary policy and hence a more severe downturn than just explained by the initial fall in exports. But I don’t know if your world view allows you to see such explanations as valid, Steve.
Sleetmute
8 Feb 12 at 11:59 pm
Steve – what role does the fact that about two-thirds of the US money supply resides outside its borders meaning that any issues are exported?
Jack Lacton
9 Feb 12 at 12:00 am
Junk mortgages + junk investments + risk junkies
= J curve in reverse
Viva
9 Feb 12 at 12:08 am
I think they are far too tight steve and I’m worried they may not know what doing.
The labor market is now re-regulated to the 9th circle of hell, however the relative hardness of our monetary policy hasn’t altered to compensate. The Australian dollar is far too strong and causing a hollowing out.
I think they are far, far too concerned with the inflation bogey when in fact the choice ought to be to opt for a higher inflation rate than allow the non-mining sector to take it on the chin.
The mining sector has little to no response to domestic monetary policy considerations. The RBA could jack up interest rates 200 basis points and all things being equal would have zero impact on mining because that is purely a developing markets play.
There is nothing the RBA can do about external demand for commodities. It ought to ignore that side and if inflation picks up to higher levels then so be it. However the rest of the economy could cope.
The RBA is running monetary policy which is far too harsh for domestic conditions and ought to ease up substantially or we’re going to hit trouble.
JC
9 Feb 12 at 12:15 am
I read the Oz today, they all but begged ANZ to raise rates and the other banks to do the same. Huge splash photo of the bank industry bloke David Murray saying the banks had to tell the RBA to sod off and let the banks set rates, buttressed by multiple opinion pieces by pundits all cheering the banks on. The push by banks to neuter the RBA is on in earnest.
Meanwhile in the Hun, they interviewed a Richmond children’s shop owner who was whinging that her sales had dropped 90% but it would be the banks’ fault if she had to shut down. They were barely even trying to rouse the rabble. And McCrann sided with the Oz pundits.
m0nty
9 Feb 12 at 12:25 am
And whenever the economy seems to be picking up they immediately clamp down on it to head off the inflation bogie man. It’s called tunnel vision (as in seeing the headlights of an approaching train rather than light at the end of it)
Viva
9 Feb 12 at 12:25 am
Steve
It all depends on what you are trying to understand, when you use the term “GFC”. It has become a beyond tedious Rorschach test, used to justify/explain every kind of nonsense from the need for a return to revolutionary Leninism, to blowing up the Fed, Ben Eltham’s fury at no Arts policy, to tenured luvvies in the top 2% guiltily hand-waving at the “top 1%”.
For me, the GFC is a useful term. “Crisis” is the most important word. A ‘crisis’ is something very sudden, largely unexpected (post hoc sages, notwithstanding), where time seems to rapidly speed up, and significant events become more compressed than we are used to. Anxiety is real and sincere.
We were all here as Lehman collapsed, and as every financial stat imaginable started behaving like Bloomberg screens around the globe had been hacked by meth addicts. A lot of those collapsed numbers were mostly an overdue recognition of the reality in the underlying economy; but a lot was also compressed time and anxiety thing, with all players feeling like bunnies in the headlights, too scared – they had no idea whether the unknowns unknowns, exceed the known unknowns. Each new scared bunny creates more, until the whole global network of just buying and selling stuff froze. Could anything calm these bunnies down? It did. We can debate, will, and should debate the mechanisms used, but the meth addicts and folks who buy and sell stuff and money, were eventually soothed.
By early 2009, the ‘crisis’ was basically over, moved on with almost as unseemly haste as its descent only 8 months or so earlier.
KKKism had done some of the work it is supposed to – banks and other corporations were vaporized, and a lot of people FINALLY stopped killing dinner parties with tales of how much they had “made” in housing over the past 16 days.
By May, 2009, the ‘crisis’ was over.
The GFC wafted over Australia for about 6 weeks.
Peter Patton
9 Feb 12 at 12:25 am
I fear you are right JC. On the other hand they might want to have a few shots in the locker for when mining implodes once reality bites China, because the gripping hand is that the labour market flexibility that existed in GFC1 isn’t there anymore.
Entropy
9 Feb 12 at 12:26 am
I agree JC, the relatively high interest rates are attracting foreign carry trade and other investment helping to keep the value of the AUD very high. Unfortunately with the Government creating so much demand for debt, interest rates are being kept high from their end. So the best prescription would be a dramatic cut in government spending which would allow interest rates to come down allowing the AUD to fall back a little and make our exports more competitive.
John Comnenus
9 Feb 12 at 12:27 am
sdfc is right and JC is wrong.
.
9 Feb 12 at 12:28 am
6 weeks in late 2008, that is. I am not an active player in financial markets, but I did have some in 2008, largely on the back of being convinced that Kevin Rudd was lying, and he knew very well that there was no ‘crisis’ in Australia, and the contagion of ‘crisis’ had jumped the shark when its hawkers came knocking on Australia’s door.
Peter Patton
9 Feb 12 at 12:29 am
Monty,
I was talking to some chaps from retail banking and they reckon that they source most of their funding from off shore markets – not the RBA and that the rate that they pay for money is almost the same as the discount interest rate for mortgages. That means they have little margin on mortgages. I think they were relying on the RBA to drop rates and they intended to leave rates where the were so they could get some margin out of the domestically sourced cash to cover for the almost nothing they get from their off shore sourced funds.
John Comnenus
9 Feb 12 at 12:33 am
Dot.. how could you.. after all these years drop me like that… lol
Look, I think the labor market
strangulationre-regulation basically means the RBA has to run a far more expansive monetary policy, as wage rates can’t adjust to market conditions. We’re even more regulated than before workchoices. So nominal labor rates have to be adjusted by the central bank.JC
9 Feb 12 at 12:36 am
It’s all demographics. When you printed money for young BBers in the 70s they spent it straight away and rapid inflation occurred coupled with unprecedented unemployment bacause there was no way economies could cope with the influx into the workforce, particularly with the nos of women putting their hands up. By the time that had been wound out of the system in the 80s (cue Volcker and Co) the economies kicked into gear properly with innovative ways of necessarily financing new family formation, the dotcoms and the takeover of capital in general. What began as necessary financial innovation grew into the greatest Madoff scheme (Ponzi was an amateur) the world had seen. With the money printing going on everywhere that should have produced some significant inflation but cue Chinese mercantilism and predatory lending to assuage that while the Madoff and Central Bank dough went into inflating asset prices. The BBers are retiring now and that fools gold has to be unwound and unwinding it is. Without Govt warehouses, silos, tanks and bunkers full of real material savings what else can happen? That’s not Keynes’ fault nor is it a Minsky moment, but it could never have happened with a real anchor in the medium of exchange, unit of account or store of wealth. Fools gold it is now, which is why a generation knows it must make real savings now or else retirement will be grim. The public sector, which includes so many BBers has also been bloated way beyond the next generation’s capacity to pay and it shows. That liability cannot continue either. Hence the cart can’t push the horse any longer.
Australia wore most of that too but now it turns out it’s still the Lucky Country relatively speaking. With a small but aging population it can circumvent that with youthful immigration which it is still doing in spades (bipartisan you’ll note) and as well it has ‘hard’ currency in a lot of expensive dirt per capita. Not so for much of the developed West and as such they must choose somewhere between a Greek or a Chinese model to earn a crust.
observa
9 Feb 12 at 12:38 am
I believe the figure quoted in the Oz on Wednesday was 25% of the banks’ funding is done locally, John C.
The arguments on both sides are well known, and the banks make a good case. The major problem for the RBA is if they lose control of interest rates, what else do they have in terms of regular levers they could pull every month? I had this out with JC a few weeks ago and all he could come up with was the money supply, notwithstanding some other things that would be more emergency-oriented.
m0nty
9 Feb 12 at 12:38 am
Don’t worry JC. Candy still loves you.
spot
9 Feb 12 at 12:43 am
I’m not buying that anymore. the Fed has a dual mandate and had to contend with 911 and the tech crash in the first few years of the decade. Inflation was not out of control and in fact reasonably moderate until about 2006 or so.
The Fed tightened too hard and then was too slow in recognizing the severity of the downturn and eased up far too late to avoid the catastrophe. The sub-prime fiasco was a segment of the market that for a while was localized to that sector. It was only after the market realized the Fed was continuing to er on the side of tightness that things fell apart.
For fuck sake the Fed was talking about the inflation bogey just before Bear Sterns collapsed. The truly ignorant and slothful ECB raised rates in july 08 and suggested it was going to take rates higher because of their concerns over inflation when this problem was subsequently proven to be false and so far removed from reality it was laughable.
The Fed caused the financial crash ably assisted by the ECB. Sub-prime was only a specialized segment of the market that could easily have been localized without the cancer spreading to the rest of the credit markets causing an almost complete seizure.
JC
9 Feb 12 at 12:48 am
Here’s the money quote from Doug Noland from the Asia Times too-
“I am convinced that a capitalistic system must have a monetary anchor to be sustainable. A functioning market pricing mechanism is fundamental to resource allocation, saving and investment, wealth creation and, in the end, social stability and cohesion. Stable money and Credit is a prerequisite. One can also think in terms of two distinct pricing systems. There is the pricing of goods and services throughout the ”economic sphere.” There is, as well, the pricing of finance/Credit/risk in the ”financial sphere.” It is the pricing mechanism within the financial sphere that has become so badly out of whack to the point of posing dire risk to global Capitalism.
As I’ve noted in the past, we live in period unique in financial history: There is globally no limits placed on the quantity or quality of Credit creation. There is no gold standard; no Bretton Woods monetary regime; nor even an ad-hoc ”dollar standard” working to regulate global Credit expansion. Markets for pricing finance and risk have turned progressively distorted and, in the end, dysfunctional. This was a predictable outcome for a global ”system” bereft of a monetary anchor. Policymakers have repeatedly responded to dysfunction and inevitable booms-turned-bust with unprecedented market intervention. This continues to only exacerbate financial market pricing distortions and attendant imbalances. What began as tinkering has regressed to the point of policymakers attempting to take virtual command over the pricing of finance. Capitalism now hangs in the balance.
I am prepared to defend Capitalism until my dying days. I expect this endeavor to be no less of a challenge than it’s been the past 12 years trying to explain the great dangers associated with a runaway Credit Bubble. Over the long-term, for Capitalism to succeed in the real economy requires a functioning pricing mechanism and sound Credit system. Distorting the price of finance ensures speculative Bubbles, the misallocation of real and financial resources, and resulting economic maladjustment. In this regard, policymakers have bordered on gross negligence.
Massive fiscal and monetary stimulus, along with unprecedented market interventions, has completely overwhelmed the capacity of the markets to effectively price risk. Instead of learning from past mistakes, policymakers are more determined than ever to dictate market pricing. Rather than recognizing the prevailing role ”activist” central banking has played in fomenting dysfunctional markets, policymakers believe market outcomes beckon for only greater activism. Until governments can begin to extricate themselves from the manipulation of interest rates and risk market pricing more generally, this long cycle of destructive booms and busts will run unabated.”
observa
9 Feb 12 at 12:52 am
What the fuck are you talking about, Monster, you moron. What I said is that banks currently have a problem with their cost of funds. If the RBA wants to have a bigger impact they ought to lower rates even more.
And it is almost impossible, all things being equal, for the central bank to lose control of short term interest rates as they have unlimited supply of currency if they wished or they can withdraw, acting through money market operations.
Monster, I don’t want you to ever mis-characterize my argument again from previous beatings you’ve received you dope.
Get this into your thick fucking head. Theoretically the central bank has unlimited ability to create money and therefore unlimited ability to withdraw it. This is incontestable.
Now STFU.
JC
9 Feb 12 at 12:55 am
This is bullshit with the type of economies operating in the west in the present day. We don’t have flexibility in or wage rates and labor laws, nor do we have enough flexibility in our goods& services markets to allow for internal non-currency adjustments when shocks occur. People making these propositions are nuts unless the objective is depression and monetary deflation.
JC
9 Feb 12 at 12:59 am
If there are people around that aren’t concerned in terms of the direction we’re heading then look at the yield curve. It’s as flat as a fucking tac.
http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/
This flatness is really worrying.
JC
9 Feb 12 at 1:02 am
Then listen to the flip side of an Ellen Brown
Yada, yada to come to the scintillating conclusion-
“There is another way to design a banking system. The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all). The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work. Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself.
Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do. But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money. Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.”
It’s called gold dearie but how’s all the ‘us’ and your Gummint/Central Bank guarantees doing? It’s like this. Give any mere mortal Austrian fan a printing press to print just the ‘right’ amount of money and London to a brick he’ll be a committed Keynesian in no time at all.
observa
9 Feb 12 at 1:05 am
Which is total and complete bullshit. Banks are required to set aside capital to anchor trading operations. It’s a regulatory requirement. Every derivative or trading position had to be afforded a certain slice of bank capital.
And by the way, the banks got into the trouble the old fashioned way. Real estate prices collapsed and their asset book values fell as a result. Same old movie played over and over again.
And you want to know which asset carries no capital allocation requirement? Sovereign debt in Europe. Lol
JC
9 Feb 12 at 1:21 am
JC,
According to the RBA Australian banks hold almost $70 trillion in derivatives. Whilst they have statutory reserve deposits for normal banking they are on a frolic with derivatives. Apparently the world has $700 odd trillion in derivatives most of which are hypotheticated to the wazoo. There is not enough money in the world to cover it’s derivatives. So whilst I agree with you in general, I think there is a casino mentality with derivatives.
John Comnenus
9 Feb 12 at 7:01 am
I have to agree with Observa.
I haven’t read anyone mention the monetary unions. The US, Europe and Australia all have this. Reconciling the Tasmanian welfare state with a booming WA is always going to be a compromise.
Now most BBs realise they have to save even more than they thought they would at the same time as Bob Brown is thinking up more things to spend it on while the trade union party are making it harder to create real value from these BBs savings.
We can’t all get or stay rich riding on the back of a shrinking number of local entrepreneurs!
Forester
9 Feb 12 at 7:09 am
JC, although it pains me to do so, I’m going to have to agree with dot say the sdfc is on the right track and you are not. Also, observa has made some good points also. The credit bubble that existed throughout the western world generated a production structure that was unsustainable without continuous credit expansion. It was a combination of underestimated risk and elasticity of credit supply that allowed asset markets to get so far out of whack. In a globalised world, the interconnections are so numerous and complex, that it is no surprise that financial turmoil in one part of the world can spread throughout global markets, both financial and real very quickly in an unpredictable manner. Also, what role here for the Basel approach to capital requirements? Although individual countries had individual flexibility in implementing Basel, the framework was the same. There were some pretty perverse incentives embedded there.
In a nutshell, I see excessive optimism that was fueled and prolonged through continuous credit expansion as the cause of an extended, but ultimately unsustainable boom. A period of tight money combined with contraction in government spending and a lowering of taxation are what is required on a global scale, including here…
Skuter
9 Feb 12 at 7:12 am
I agree with observa. This stuff is happening in Japan and can explain the run in US housing from 1980 until now, amongst other things.
monty – stable money and credit is never possible and why early inflation targeting failed. Velocity is not constant and if it is treated as such leads to macroeconomic instability and high inflation even under a mild expansion of the base relative to growth.
You are not going to turn out like John Humphreys or Walter Block but you should actually go back and study economics, since you have a genuine interest in it.
.
9 Feb 12 at 7:34 am
Hugs and kisses JC. I still believe in targeting NGDP, the holy Misean church and communion of red wine swilling economists.
.
9 Feb 12 at 7:37 am
Who gives a shit?
The net payoff for these is approximately zero. It is individual entities which have to cover for these.
Serious question, do you understand how these work?
Banks have more to fear with regards to real problems like unemployment shooting down asset values and causing defaults (counter party risk and balance sheet risk) than they do with a series of financial instruments which almost effectively cancel each other out.
Which is indeed why they hold or issue derivatives.
.
9 Feb 12 at 7:41 am
Ha, I’ve figured it all out. JC has been kidnapped and Heather Ridout is impersonating him…
Skuter
9 Feb 12 at 8:24 am
monty,
I’m not getting stuck into you but has anyone laid out to you an explicit theory as to why they say “derivatives!” “caused” the GFC etc?
People say it but they can’t come up with a decent explanation of how it works.
.
9 Feb 12 at 10:01 am
I tried that already. I lost patience with the lecturers, as I detailed on the first Right On Rita episode.
I’m not sure how relevant this is to this thread.
Nevertheless, the logic behind that as I understand it is that the toxic loans were bundled up into products that were then rebadged as AAA and onsold ingenuously in the derivatives markets. That’s as short as I can make it.
m0nty
9 Feb 12 at 10:22 am
dot, you are right. Some derivatives (CDS) helped spread the risk, much like they were supposed to, but to say they ’caused the crisis’ is just a populist catch cry of a know nothing ignoramus…Short-selling is also demonised in this way from time to time…
Get stuck into M0nty. He deserves it. I often think he is just taking the piss and trying to get cat folks riled up…
Skuter
9 Feb 12 at 10:23 am
Of more concern for the future conduct of monetary policy is the change in composition of the board…no guarantees that our wise management that Steve cites is going to continue. We have been lucky over the last few years…our luck might have just run out…
Skuter
9 Feb 12 at 10:26 am
Harden up. They probably lost their patience with you more than you realise.
Trust me.
Derivatives themselves are not loans. Without the derivatives, it would have been even more dangerous. Can you imagine if there was no reinsurance and they couldn’t hedge?
.
9 Feb 12 at 10:33 am
Without the derivatives, the risk could not have been ingenuously onsold to third parties. The problem was the lying about the quality of the products underlying the derivatives. Now, you can say that’s not the fault of the structure of the derivatives market itself, sure. The derivatives market was the mechanism for selling the lie, nonetheless.
m0nty
9 Feb 12 at 10:55 am
Without derivatives, farmers would be up shit creek, banks certainly couldn’t take on irregular payments, airlines could not hedge fuel costs and banks couldn’t cover ANY counterparty risk. Insurance and reinsurance? Not in that brave new world.
The world would be a much uglier place without derivatives.
“Derivatives wot dun it” is the most hare brained and ill informed idea in the public space. Whomever sold you this crap was lying.
This is the root cause of the US housing crash even more so than the CRA, deposit insurance, no recourse loans or loose monetary policy.
http://en.wikipedia.org/wiki/Federal_Housing_Administration#Mortgage_insurance
Basically the taxpayer was subsidising the mortgage insurance for uncreditworthy borrowers.
America will blow up again, thankfully with less vigour since the demographics ain’t so ugly anymore.
A heap of markets operate just fine with derivatives (like our retail banking sector). The socialised and cross subsidised US housing market doesn’t. Now monty if it walks like a duck…
.
9 Feb 12 at 11:08 am
All they can do is print money for speculators to play with and hope that one day actual businesses will want to start borrowing to invest.
Real savings and investment is simple. It is largely the aging who forgo real consumption(ie savings)to fund their consumption in retirement whilst the young borrow to fund necessary household formation and take over the reins of capital. Ipso facto should fools gold impact upon that or unprecedented demographics change it radically you have an unprecedented problem on your hands.(they call it a Minsky moment for those who like name tags)
Now you can see why a wealthy aging West should have lent its real forgone consumption to the young of developing countries to fund its retirement. Instead we squandered it on private consumption, luxuriated in a bloated public sector ignoring its long term demographic liabilities and actually borrowed from places like China to boot, all the time thinking we could flog off the ‘investments’ to fund retirement incomes. Welcome to the Greek problem now or perhaps like Japanese your Govt stacks up the liabilities while your population lends it the assets at negative real interest rates and hopes to get a payout when it retires.
Without a rock or anchor to record real savings and investment flows and the true IOUs arising from that, naturally there are more funny money IOUs about than can ever be realized. The name of the game now for policymakers everywhere is to try desperately to keep as many balls in the air as possible to prevent them all falling on the ground in a screaming heap. Limited hands but they think adding more balls in the air will help by all accounts.
observa
9 Feb 12 at 11:26 am
Spot on dot.
However, I don’t think you can say that mortgage insurance had a “dominant” role in the crisis. I think there were a number of factors that combined together and jointly played a role. Remove one of them and the crisis may not have happened, or at least, not been as severe. I think it is perhaps monetary policy and inappropriately priced deposit insurance/bank guarantees that were key enablers but those other factors you mentioned just channelled it into housing in the US. Hard to tell though…
Skuter
9 Feb 12 at 11:26 am
Not “mortgage insurance” per se. Taxpayer subsidised mortgage insurance for uncreditworthy borrowers.
.
9 Feb 12 at 11:29 am
Just read Boomerang by Michael Lewis. Very interesting look at how different cultures created and reacted to the GFC. I knew the Germans were fecal loving freaks, but I never knew just how gullible they were.
Infidel Tiger
9 Feb 12 at 11:31 am
Ah yes, my bad. Sorry. Should have been more specific. But I still don’t see how this was THE cause. At best I think we can say it was a combination of factors. A combination of both perverse incentives (which determine the ‘direction’ or ‘form’ the crisis takes) and enabling factors (which enable a crisis situation to emerge)…
Skuter
9 Feb 12 at 11:46 am
Don’t be worried. Most if not all of it is mutually margined and I believe that most banks these days also carry margin according to credit ratings and can ask for top up in the event of ratings downgrade.
Most of these derivatives are buys and sells anyways.
JC
9 Feb 12 at 11:55 am
I think it was the lynch pin of the whole rotten system. Bush’s bad macroeconomics was the the final overloading that toppled everything after Greenspan had amped it all up.
http://www.voxeu.org/index.php?q=node/3760
Most narratives of the crisis start with problems in the financial sector that then spilled over into the real economy. This column looks at the real side first and shows that labour productivity growth declined significantly in the years prior to the crisis, particularly in the US construction sector. Financial markets may have failed in that they didn’t detect the deterioration of structural productivity trends in the early 2000s.
This is of course true and observable if you look at US labour productivity growth and note that a short sharp recession occurred in the US March qtr 2007…
.
9 Feb 12 at 12:00 pm
Translation. Monster wasn’t any good at it.
They were sold as securities because that’s what they were, dopey. They weren’t derivatives.
Stop annoying people Monster, you little turd.
JC
9 Feb 12 at 12:06 pm
Fellas, Dot , Skuter. I’m pained and chagrined, you guys not agreeing with me.
JC
9 Feb 12 at 12:08 pm
I’m sorry JC, but you’re a bankster. You and your Wall St cronies caused this mess.
We’ll wave to you during your perp walk.
Infidel Tiger
9 Feb 12 at 12:19 pm
Meanwhile the business types are getting worried about all the toilet paper among other things.
While the tip of the iceberg of our bloated public sector blithely meanders on reading the toilet paper-
“As academics, part of our role is to do research and to pick research topics that interest us.”
Which is why it’s not hard to see why real investors are deleveraging and spending a lot of time in the gender space of late.
observa
9 Feb 12 at 12:30 pm
From Observa’s link.
Fuck me.
Read more: http://www.news.com.au/national/academic-toilet-paper-opens-doors-on-dunny-business/story-e6frfkvr-1226266176545#ixzz1lqOn29aT
Close Latrobe down. It’s not a force for good. Close the rotten thing down. It’s not a place of learning. It’s leftist hotbed of stupidity and in fact a toilet of learning.
JC
9 Feb 12 at 12:35 pm
Doug Noland comments (via Observa) are spot on IMO.
The GFC was/is a failure to accurately price risk.
This continues. How anyone (apart from the central banks) continues to lend money to many governments around the world is amazing. There’s zero chance of this debt being repaid (unless it has been inflated away).
Richard
9 Feb 12 at 1:47 pm
in what way is Melb Uni or Syd Uni any better?
Leftists destroy anything they gain control over be it universities, education curriculae, science, arts, music, public spending, the media, etc after fu-cing etc
They destroy.
It’s what they do.
JamesK
9 Feb 12 at 3:24 pm
What caused the recessions in Europe, Asia and Australia?
Sherman McCoy lent a zillion dollars to Kleetus the slack-jawed yokel. Then Roy the Hawg ate it.
Adrien
9 Feb 12 at 7:37 pm
It was everyone’s money. That’s globalization.
Adrien
9 Feb 12 at 7:39 pm