100 Billion dollar subprime Fund

[gandalf]

On-topic here and I’m actually keeping it fairly civil. This notion that massive amounts of wealth can be created and destroyed simply through changes in perceptions is central to the concept of economic bubbles, the current housing bubble, this website, these forums, etc. Wealth was created during the housing run-up, now it is being destroyed.

Countrywide is currently running an ad campaign that illustrates this perfectly. I was in Oakland the other day and saw one of their mini-billboards in the lobby of a downtown office building. I’m paraphrasing here, but it goes along the lines of “In times of great change, wealth doesn’t simply disappear. It changes hands. The key is to understand where the transfers are occurring and to be a part of it.”

Think CW has an interest in shaping perceptions?

You bet. The perma-bulls and bubble players would have us believe that changes in perceptions about housing value and unsustainable expectations related to residential property appreciation have resulted in real gains in wealth this past decade. To be sure, some of these gains were real. But we’re now entering into a phase where much of these gains will be erased as perceptions adjust to reality.

And true, there are some, particularly on Wall Street, who will ‘make a killing’ on the ride down. But the impacts of this phase are going to be overwhelmingly negative on balance, for Main Street as well as Wall Street. I think it’s going to be a very challenging time.

Am I critical? Hell yes! I’m a business owner who values economic stability and sound fiscal and monetary policy. The last ten years have been shamefully irresponsible. It’s a disgusting mess we’re inheriting. No amount of ‘shorting’ the property market can mask this larger truth.

[gandalf]

I believe it’s quite a bit more than billions! The superfund is $100B alone. The drop is going to consist of depreciation of housing itself, plus markdown all of the structured and leveraged financial instruments that depend on housing assets and related revenue streams, plus a negative multiplier that retards wealth-creation in the greater US economy, as well as further impacts on the global economy.

My guess, The amount of unwinding is going to be on the order of tens of trillions of dollars when it’s all finished. Others have suggested hundreds of trillions. Not close enough to the details to know the answer. Definitely more than billions though.

To put these numbers in perspective, 2006 USA GDP was $13.3 trillion. The federal debt is $9 trillion, and that’s just the market for treasuries. There is so much paper out there, it makes your head swim. The puppet masters are doing their part to keep the show going, thus the ‘Greenspan Put’. Soft landing is really the best outcome we can hope for, with a gradual unwinding over the next decade.

[gandalf]

I believe it’s quite a bit more than billions! The superfund is $100B alone. The drop is going to consist of depreciation of housing itself, plus markdown all of the structured and leveraged financial instruments that depend on housing assets and related revenue streams, plus a negative multiplier that retards wealth-creation in the greater US economy, as well as further impacts on the global economy.

My guess, The amount of unwinding is going to be on the order of tens of trillions of dollars when it’s all finished. Others have suggested hundreds of trillions. Not close enough to the details to know the answer. Definitely more than billions though.

To put these numbers in perspective, 2006 USA GDP was $13.3 trillion. The federal debt is $9 trillion, and that’s just the market for treasuries. There is so much paper out there, it makes your head swim. The puppet masters are doing their part to keep the show going, thus the ‘Greenspan Put’. Soft landing is really the best outcome we can hope for, with a gradual unwinding over the next decade.

[davelj]

golfgal, first off, I didn’t call you an idiot. I said that what you wrote was idiotic. Which it is, as I’ve explained in very clear terms. You may be a genius for all I know. But that doesn’t change the fact that there are some pretty big holes in your understanding of economics.

Secondly, your previous post is a text book example of what is known as the Straw Man Fallacy. You didn’t address the point of my post directly – that net/net wealth is often destroyed (which in your previous post you suggested was a ridiculous notion). Instead you addressed a straw man argument of your own invention – that wealth isn’t destroyed “1=1” (unit for unit, I assume) – an idea that I NEVER suggested at all in my post. In fact, I made a specific point in my BK mortgage company example of how there would generally be some (positive wealth) offset even when an asset value tanked. So to address your straw man argument directly, yeah, of course wealth destruction events aren’t 1 for 1. That’s offering up a blinding glimpse of the obvious. You’re trying to divert attention away from my response to the point that you DID make by re-characterizing my response into something I DIDN’T say. Again, classic Straw Man response.

I don’t think you need to write disclaimers, golfgal (although I often do for clarity’s sake). I just think you need to write more clearly and, more importantly, just admit when you’re wrong. I don’t have a problem with either. Somehow I manage to write more clearly than you do while at the same time using fewer words. And anyone who’s read a lot of my posts here knows that I’ve often ended posts with the following (or some derivation of it): “But I could be wrong; it wouldn’t be the first time.” Words to live by, in my opinion.

[davelj]

golfgal, first off, I didn’t call you an idiot. I said that what you wrote was idiotic. Which it is, as I’ve explained in very clear terms. You may be a genius for all I know. But that doesn’t change the fact that there are some pretty big holes in your understanding of economics.

Secondly, your previous post is a text book example of what is known as the Straw Man Fallacy. You didn’t address the point of my post directly – that net/net wealth is often destroyed (which in your previous post you suggested was a ridiculous notion). Instead you addressed a straw man argument of your own invention – that wealth isn’t destroyed “1=1” (unit for unit, I assume) – an idea that I NEVER suggested at all in my post. In fact, I made a specific point in my BK mortgage company example of how there would generally be some (positive wealth) offset even when an asset value tanked. So to address your straw man argument directly, yeah, of course wealth destruction events aren’t 1 for 1. That’s offering up a blinding glimpse of the obvious. You’re trying to divert attention away from my response to the point that you DID make by re-characterizing my response into something I DIDN’T say. Again, classic Straw Man response.

I don’t think you need to write disclaimers, golfgal (although I often do for clarity’s sake). I just think you need to write more clearly and, more importantly, just admit when you’re wrong. I don’t have a problem with either. Somehow I manage to write more clearly than you do while at the same time using fewer words. And anyone who’s read a lot of my posts here knows that I’ve often ended posts with the following (or some derivation of it): “But I could be wrong; it wouldn’t be the first time.” Words to live by, in my opinion.

[drunkle]

“admit when you’re wrong”

hey… i think you made a wrong turn somewhere. you’re on the internet… where admission of error is scarcer than an honest politician…

[drunkle]

“admit when you’re wrong”

hey… i think you made a wrong turn somewhere. you’re on the internet… where admission of error is scarcer than an honest politician…

[zzz]

This is going to be my last post on this as I don’t think anything I write will illuminate my points to davelj nor do I care to. First off, I never said wealth cannot be destroyed, never wrote it in my last posts. I simply said I love it when people make that statement and I question if it goes into a vacuum. Like I said, looking at a singular instance, yes, it can be destroyed. I have not and am not talking about me, you and your neighbor. I’m not talking about individual specifics, I’m looking at this from a MACRO view.

Wealth is lost is even subjective – are we talking about paper wealth or real money? If someone bought a security at X, it then went to 5X, but the person cashed in at 2X, was wealth destroyed or did they simply fail to capitalize on their gain? $10M building destroyed in an earthquake, how much did this person pay for it? Is the land still commercially viable and if so, what is it worth immediately post earthquake versus in 1 year? If the land must be sold, is this an opportunity for someone else to buy it for cents on the dollar and wait for a recovery, to which a different person will make a significant amount? Davelj – is this your straw man example without all the details?

I have said and will say it again, at a MACRO level, wealth can and does get transferred. I don’t give straw man examples, I give simplified examples because unless you are an insider, no one really understands the implications, nor can it necessarily be measured looking at short term effects verus long term. An investment banks headquarters was destroyed on 9/11 and they lost much of their staff, including entire teams that were decimated. There were people that day who lost wealth- no argument there. The bank – helped along by its clients and competitors rebuilt their lost staff and came back and 5 years later, had multiplied in revenue from their pre 9/11 time, and had gone public. Net, this bank and its effect on the economy is clear. If you look only at 9/11 as a singular event, wealth in parts- was definitely destroyed that day, but what happened to that wealth that remained over time? There were many companies who were insured, their insurers paid, but many of those insurers were re-insured. How the re-insurers were further hedged, I don’t know all those details as each instance would be different. If you have the time to go chase down ALL the details and all the dependancies, links, hedges, go for it -maybe you can then build what you call – not a straw man argument. So one could argue that wealth was destroyed, others could argue that a year later, for some it had not – they had recovered. There are many ways to measure the net effect of this wealth, at different points in time. I challenge people to take a deeper look and evaluate whether people are losing wealth, temporarily or not, real or not, or whether people are failing to capitalize, failing to make the correct market bets, when others are finding opportunity amongst what is chacterized as all this wealth destruction.

There are economists who believe wealth is indeed not destroyed, but rather its transferred- macroeconomics is not a perfect science – that is why there are theories and many economists. If there is only 1 view on economics, why are there multiple theories and economists who evaluate the marketplace? There are many factors and until you evaluate all the factors, or are even privvy to all the factors – my argument is that WE (the public)are not privvy to all the factors of complex institutional transactions. I’m not here to say which theories are right and which are wrong, I merely am providing examples of a different vantage point. Decide for yourself, but the point is, in complex transations and macroeconomics, there is never just 1 view of any situation – even the world’s renowned experts will argue and come up with different analysis.

[zzz]

This is going to be my last post on this as I don’t think anything I write will illuminate my points to davelj nor do I care to. First off, I never said wealth cannot be destroyed, never wrote it in my last posts. I simply said I love it when people make that statement and I question if it goes into a vacuum. Like I said, looking at a singular instance, yes, it can be destroyed. I have not and am not talking about me, you and your neighbor. I’m not talking about individual specifics, I’m looking at this from a MACRO view.

Wealth is lost is even subjective – are we talking about paper wealth or real money? If someone bought a security at X, it then went to 5X, but the person cashed in at 2X, was wealth destroyed or did they simply fail to capitalize on their gain? $10M building destroyed in an earthquake, how much did this person pay for it? Is the land still commercially viable and if so, what is it worth immediately post earthquake versus in 1 year? If the land must be sold, is this an opportunity for someone else to buy it for cents on the dollar and wait for a recovery, to which a different person will make a significant amount? Davelj – is this your straw man example without all the details?

I have said and will say it again, at a MACRO level, wealth can and does get transferred. I don’t give straw man examples, I give simplified examples because unless you are an insider, no one really understands the implications, nor can it necessarily be measured looking at short term effects verus long term. An investment banks headquarters was destroyed on 9/11 and they lost much of their staff, including entire teams that were decimated. There were people that day who lost wealth- no argument there. The bank – helped along by its clients and competitors rebuilt their lost staff and came back and 5 years later, had multiplied in revenue from their pre 9/11 time, and had gone public. Net, this bank and its effect on the economy is clear. If you look only at 9/11 as a singular event, wealth in parts- was definitely destroyed that day, but what happened to that wealth that remained over time? There were many companies who were insured, their insurers paid, but many of those insurers were re-insured. How the re-insurers were further hedged, I don’t know all those details as each instance would be different. If you have the time to go chase down ALL the details and all the dependancies, links, hedges, go for it -maybe you can then build what you call – not a straw man argument. So one could argue that wealth was destroyed, others could argue that a year later, for some it had not – they had recovered. There are many ways to measure the net effect of this wealth, at different points in time. I challenge people to take a deeper look and evaluate whether people are losing wealth, temporarily or not, real or not, or whether people are failing to capitalize, failing to make the correct market bets, when others are finding opportunity amongst what is chacterized as all this wealth destruction.

There are economists who believe wealth is indeed not destroyed, but rather its transferred- macroeconomics is not a perfect science – that is why there are theories and many economists. If there is only 1 view on economics, why are there multiple theories and economists who evaluate the marketplace? There are many factors and until you evaluate all the factors, or are even privvy to all the factors – my argument is that WE (the public)are not privvy to all the factors of complex institutional transactions. I’m not here to say which theories are right and which are wrong, I merely am providing examples of a different vantage point. Decide for yourself, but the point is, in complex transations and macroeconomics, there is never just 1 view of any situation – even the world’s renowned experts will argue and come up with different analysis.

[davelj]

golfgal, if there were an award given for verbosity en route to unintelligible gibberish, I would nominate you. And, believe me, there’s plenty of competition here on the internet.

Despite all of the obfuscation in your recent posts, this issue is really simple. You made a point. It’s patently clear to anyone at a high school reading level the point you were trying to make. When I clearly revealed that your point was ridiculous, you then proceeded to backpedal and re-characterize what you originally said as something different (and less ridiculous). This, as opposed to just admitting, “Oh, I guess I was wrong.”

No amount of econo-babble is going to change this fact. But in a perverse way, I’m enjoying reading as you expand the hole you’re digging for yourself in various directions. Don’t stop now.

[davelj]

golfgal, if there were an award given for verbosity en route to unintelligible gibberish, I would nominate you. And, believe me, there’s plenty of competition here on the internet.

Despite all of the obfuscation in your recent posts, this issue is really simple. You made a point. It’s patently clear to anyone at a high school reading level the point you were trying to make. When I clearly revealed that your point was ridiculous, you then proceeded to backpedal and re-characterize what you originally said as something different (and less ridiculous). This, as opposed to just admitting, “Oh, I guess I was wrong.”

No amount of econo-babble is going to change this fact. But in a perverse way, I’m enjoying reading as you expand the hole you’re digging for yourself in various directions. Don’t stop now.

[Author]

Posts