On MTM, insolvency, and market over-corrections

[Allan from Fallbrook]

Patientrenter: For the record, I’m not really Obama allergic. I was honestly hoping that he would be an agent for change and would offer the sweeping mandate needed to clean things up. Sadly, the events of the last few months have disabused me of that notion.

I also agree that the average American is the problem, but it’s not that simple, either, unfortunately. Marketing the “American Dream” has been a growth industry over the past thirty years and that period of time dovetails perfectly with the growth (explosion, really) of personal, governmental and commercial credit and debt and the necessary massive deregulation programs as well. The politicians, bankers and their teams of lawyers have been selling that “dream”, all the while hiding the reality that America doesn’t really produce anything anymore, but we consume ever larger portions of the world’s energy and money and expect, against all reality, that the bill will never come due.

Well, it did. And now we have to figure this shit out, and quickly. The fairness and honesty we’re discussing is necessary to do this, but I don’t see it happening and that saddens and scares me, all at the same time.

[patientrenter]

Allan,

Do you think that the marketing of the “American Dream” began in earnest in just the last 20-30 years? I honestly don’t know, because I am a foreigner, and wasn’t here before 1981.

My own guess, picked up – probably hopelessly inaccurately – from movies and historical accounts, is that the vigorous pursuit of the American dream was alive and well in the 1960’s and 1950’s, and maybe even earlier. The real differentiator since 1981 or so is the emergence of the baby boomers as a dominant economic and political force. This is a large and diverse group, doubtless, but their sheer numbers, and the common views many of them share because of the forces that were at work during their formative years, make them a force that can and did move the entire country, including our economics.

When most baby boomers were growing up, it was a time of unparalled optimism in the US. The country dominated world wealth and knowledge as never before. Growth rates here and around the world were persistently high. People began to ask not how they could sustain their own personal wellbeing, but what they could do with that wellbeing. Wealth and growth were taken for granted.

When asset prices started their 20-27 year upward trajectory in the early 1980’s, and it just kept going and going, those baby boomers began to believe that the production growth of their youth could be replicated in asset price growth, leading to comfortable consumption and retirement patterns without the inconvenience of consuming much less than they produced during their working lifetimes.

None of us knows for sure, but I think what we are seeing now is the inevitable breakdown in that giant “free lunch” dream of an entire generation. Trouble is, instead of a uniform, fairly apportioned reversal of the unsustainable gains, there will be many winners and losers. Some baby boomers will walk away with gains well in excess of their savings; others will not; and many members of younger generations will lose through higher future income taxes and inflation.

BTW, Allan, always love your incisive and erudite comments.

[patientrenter]

Allan,

Do you think that the marketing of the “American Dream” began in earnest in just the last 20-30 years? I honestly don’t know, because I am a foreigner, and wasn’t here before 1981.

My own guess, picked up – probably hopelessly inaccurately – from movies and historical accounts, is that the vigorous pursuit of the American dream was alive and well in the 1960’s and 1950’s, and maybe even earlier. The real differentiator since 1981 or so is the emergence of the baby boomers as a dominant economic and political force. This is a large and diverse group, doubtless, but their sheer numbers, and the common views many of them share because of the forces that were at work during their formative years, make them a force that can and did move the entire country, including our economics.

When most baby boomers were growing up, it was a time of unparalled optimism in the US. The country dominated world wealth and knowledge as never before. Growth rates here and around the world were persistently high. People began to ask not how they could sustain their own personal wellbeing, but what they could do with that wellbeing. Wealth and growth were taken for granted.

When asset prices started their 20-27 year upward trajectory in the early 1980’s, and it just kept going and going, those baby boomers began to believe that the production growth of their youth could be replicated in asset price growth, leading to comfortable consumption and retirement patterns without the inconvenience of consuming much less than they produced during their working lifetimes.

None of us knows for sure, but I think what we are seeing now is the inevitable breakdown in that giant “free lunch” dream of an entire generation. Trouble is, instead of a uniform, fairly apportioned reversal of the unsustainable gains, there will be many winners and losers. Some baby boomers will walk away with gains well in excess of their savings; others will not; and many members of younger generations will lose through higher future income taxes and inflation.

BTW, Allan, always love your incisive and erudite comments.

[patientrenter]

Allan,

Do you think that the marketing of the “American Dream” began in earnest in just the last 20-30 years? I honestly don’t know, because I am a foreigner, and wasn’t here before 1981.

My own guess, picked up – probably hopelessly inaccurately – from movies and historical accounts, is that the vigorous pursuit of the American dream was alive and well in the 1960’s and 1950’s, and maybe even earlier. The real differentiator since 1981 or so is the emergence of the baby boomers as a dominant economic and political force. This is a large and diverse group, doubtless, but their sheer numbers, and the common views many of them share because of the forces that were at work during their formative years, make them a force that can and did move the entire country, including our economics.

When most baby boomers were growing up, it was a time of unparalled optimism in the US. The country dominated world wealth and knowledge as never before. Growth rates here and around the world were persistently high. People began to ask not how they could sustain their own personal wellbeing, but what they could do with that wellbeing. Wealth and growth were taken for granted.

When asset prices started their 20-27 year upward trajectory in the early 1980’s, and it just kept going and going, those baby boomers began to believe that the production growth of their youth could be replicated in asset price growth, leading to comfortable consumption and retirement patterns without the inconvenience of consuming much less than they produced during their working lifetimes.

None of us knows for sure, but I think what we are seeing now is the inevitable breakdown in that giant “free lunch” dream of an entire generation. Trouble is, instead of a uniform, fairly apportioned reversal of the unsustainable gains, there will be many winners and losers. Some baby boomers will walk away with gains well in excess of their savings; others will not; and many members of younger generations will lose through higher future income taxes and inflation.

BTW, Allan, always love your incisive and erudite comments.

[patientrenter]

Allan,

Do you think that the marketing of the “American Dream” began in earnest in just the last 20-30 years? I honestly don’t know, because I am a foreigner, and wasn’t here before 1981.

My own guess, picked up – probably hopelessly inaccurately – from movies and historical accounts, is that the vigorous pursuit of the American dream was alive and well in the 1960’s and 1950’s, and maybe even earlier. The real differentiator since 1981 or so is the emergence of the baby boomers as a dominant economic and political force. This is a large and diverse group, doubtless, but their sheer numbers, and the common views many of them share because of the forces that were at work during their formative years, make them a force that can and did move the entire country, including our economics.

When most baby boomers were growing up, it was a time of unparalled optimism in the US. The country dominated world wealth and knowledge as never before. Growth rates here and around the world were persistently high. People began to ask not how they could sustain their own personal wellbeing, but what they could do with that wellbeing. Wealth and growth were taken for granted.

When asset prices started their 20-27 year upward trajectory in the early 1980’s, and it just kept going and going, those baby boomers began to believe that the production growth of their youth could be replicated in asset price growth, leading to comfortable consumption and retirement patterns without the inconvenience of consuming much less than they produced during their working lifetimes.

None of us knows for sure, but I think what we are seeing now is the inevitable breakdown in that giant “free lunch” dream of an entire generation. Trouble is, instead of a uniform, fairly apportioned reversal of the unsustainable gains, there will be many winners and losers. Some baby boomers will walk away with gains well in excess of their savings; others will not; and many members of younger generations will lose through higher future income taxes and inflation.

BTW, Allan, always love your incisive and erudite comments.

[patientrenter]

Allan,

Do you think that the marketing of the “American Dream” began in earnest in just the last 20-30 years? I honestly don’t know, because I am a foreigner, and wasn’t here before 1981.

My own guess, picked up – probably hopelessly inaccurately – from movies and historical accounts, is that the vigorous pursuit of the American dream was alive and well in the 1960’s and 1950’s, and maybe even earlier. The real differentiator since 1981 or so is the emergence of the baby boomers as a dominant economic and political force. This is a large and diverse group, doubtless, but their sheer numbers, and the common views many of them share because of the forces that were at work during their formative years, make them a force that can and did move the entire country, including our economics.

When most baby boomers were growing up, it was a time of unparalled optimism in the US. The country dominated world wealth and knowledge as never before. Growth rates here and around the world were persistently high. People began to ask not how they could sustain their own personal wellbeing, but what they could do with that wellbeing. Wealth and growth were taken for granted.

When asset prices started their 20-27 year upward trajectory in the early 1980’s, and it just kept going and going, those baby boomers began to believe that the production growth of their youth could be replicated in asset price growth, leading to comfortable consumption and retirement patterns without the inconvenience of consuming much less than they produced during their working lifetimes.

None of us knows for sure, but I think what we are seeing now is the inevitable breakdown in that giant “free lunch” dream of an entire generation. Trouble is, instead of a uniform, fairly apportioned reversal of the unsustainable gains, there will be many winners and losers. Some baby boomers will walk away with gains well in excess of their savings; others will not; and many members of younger generations will lose through higher future income taxes and inflation.

BTW, Allan, always love your incisive and erudite comments.

[Allan from Fallbrook]

Patientrenter: Thanks for the compliment and right back at you.

I would certainly agree that the “American Dream” did begin in the 1950s and 1960s (or, more accurately, shortly after the end of WWII). However, what really “juiced” it up was the availability of cheap money and easy credit and that trend really began in the late 1970s and took off in the 1980s and 1990s. I think the Reagan Revolution also ushered in a period of American triumphalism and hubris that just ended with the election of Obama.

Forgive me for digressing here, but, in something of an irony, I actually do respect his junket in Europe where he essentially said, “Hey, we’ve been arrogant assholes and we need to do some fence mending”. I know some of my conservative confederates on this site will probably be cursing me for this, but I think it’s an important first step.

Anyway, back to the point: I think American hubris, our willingness to game the international finance system and really abuse our position as the holder of world’s reserve currency (allowing us to essentially borrow trillions on our own terms), our overweening ambition (wholly unsupported by any economic or financial reality) and our false sense of entitlement have led us to this place and our politicians are too chickenshit to call bullshit and tell us the truth. Until that happens, we’re going farther and farther down the primrose path and, at some point, it will be impossible to come back.

Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…

[Allan from Fallbrook]

Patientrenter: Thanks for the compliment and right back at you.

I would certainly agree that the “American Dream” did begin in the 1950s and 1960s (or, more accurately, shortly after the end of WWII). However, what really “juiced” it up was the availability of cheap money and easy credit and that trend really began in the late 1970s and took off in the 1980s and 1990s. I think the Reagan Revolution also ushered in a period of American triumphalism and hubris that just ended with the election of Obama.

Forgive me for digressing here, but, in something of an irony, I actually do respect his junket in Europe where he essentially said, “Hey, we’ve been arrogant assholes and we need to do some fence mending”. I know some of my conservative confederates on this site will probably be cursing me for this, but I think it’s an important first step.

Anyway, back to the point: I think American hubris, our willingness to game the international finance system and really abuse our position as the holder of world’s reserve currency (allowing us to essentially borrow trillions on our own terms), our overweening ambition (wholly unsupported by any economic or financial reality) and our false sense of entitlement have led us to this place and our politicians are too chickenshit to call bullshit and tell us the truth. Until that happens, we’re going farther and farther down the primrose path and, at some point, it will be impossible to come back.

Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…

[Allan from Fallbrook]

Patientrenter: Thanks for the compliment and right back at you.

I would certainly agree that the “American Dream” did begin in the 1950s and 1960s (or, more accurately, shortly after the end of WWII). However, what really “juiced” it up was the availability of cheap money and easy credit and that trend really began in the late 1970s and took off in the 1980s and 1990s. I think the Reagan Revolution also ushered in a period of American triumphalism and hubris that just ended with the election of Obama.

Forgive me for digressing here, but, in something of an irony, I actually do respect his junket in Europe where he essentially said, “Hey, we’ve been arrogant assholes and we need to do some fence mending”. I know some of my conservative confederates on this site will probably be cursing me for this, but I think it’s an important first step.

Anyway, back to the point: I think American hubris, our willingness to game the international finance system and really abuse our position as the holder of world’s reserve currency (allowing us to essentially borrow trillions on our own terms), our overweening ambition (wholly unsupported by any economic or financial reality) and our false sense of entitlement have led us to this place and our politicians are too chickenshit to call bullshit and tell us the truth. Until that happens, we’re going farther and farther down the primrose path and, at some point, it will be impossible to come back.

Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…

[Allan from Fallbrook]

Patientrenter: Thanks for the compliment and right back at you.

I would certainly agree that the “American Dream” did begin in the 1950s and 1960s (or, more accurately, shortly after the end of WWII). However, what really “juiced” it up was the availability of cheap money and easy credit and that trend really began in the late 1970s and took off in the 1980s and 1990s. I think the Reagan Revolution also ushered in a period of American triumphalism and hubris that just ended with the election of Obama.

Forgive me for digressing here, but, in something of an irony, I actually do respect his junket in Europe where he essentially said, “Hey, we’ve been arrogant assholes and we need to do some fence mending”. I know some of my conservative confederates on this site will probably be cursing me for this, but I think it’s an important first step.

Anyway, back to the point: I think American hubris, our willingness to game the international finance system and really abuse our position as the holder of world’s reserve currency (allowing us to essentially borrow trillions on our own terms), our overweening ambition (wholly unsupported by any economic or financial reality) and our false sense of entitlement have led us to this place and our politicians are too chickenshit to call bullshit and tell us the truth. Until that happens, we’re going farther and farther down the primrose path and, at some point, it will be impossible to come back.

Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…

[Allan from Fallbrook]

Patientrenter: Thanks for the compliment and right back at you.

I would certainly agree that the “American Dream” did begin in the 1950s and 1960s (or, more accurately, shortly after the end of WWII). However, what really “juiced” it up was the availability of cheap money and easy credit and that trend really began in the late 1970s and took off in the 1980s and 1990s. I think the Reagan Revolution also ushered in a period of American triumphalism and hubris that just ended with the election of Obama.

Forgive me for digressing here, but, in something of an irony, I actually do respect his junket in Europe where he essentially said, “Hey, we’ve been arrogant assholes and we need to do some fence mending”. I know some of my conservative confederates on this site will probably be cursing me for this, but I think it’s an important first step.

Anyway, back to the point: I think American hubris, our willingness to game the international finance system and really abuse our position as the holder of world’s reserve currency (allowing us to essentially borrow trillions on our own terms), our overweening ambition (wholly unsupported by any economic or financial reality) and our false sense of entitlement have led us to this place and our politicians are too chickenshit to call bullshit and tell us the truth. Until that happens, we’re going farther and farther down the primrose path and, at some point, it will be impossible to come back.

Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…

[davelj]

[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh[/quote]

This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:

“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.

… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”

[davelj]

[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh[/quote]

This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:

“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.

… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”

[davelj]

[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh[/quote]

This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:

“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.

… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”

[davelj]

[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh[/quote]

This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:

“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.

… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”

[Author]

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