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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: shades who wrote (59097)	4/22/2006 1:56:09 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

You try to paint 250 million people here and 7 billion worldwide with one stroke of the brush bondbubble - you cant do that - the world does not exist in such absolutes. Elroy may get his 80% price cut in one house in one neighborhood at ground zero in bubble california - that does not mean much to me though looking at the broad forest. Shades, I think you are underestimating moral hazard. In the past, LTCM failed and the Fed bailed them. So, today, lot of the financial institutions are making rotten loans for this reason - their reasoning is that Fed will bail them out!! why do the fin. inst. do this rotten thing? Because, they get commission. Do the commission collectors have to bear the loss? No - the Fed does (that is the assumption post LTCM). Suppose, Fed comes after the housing crash and takes say 20000% of reserve asset worth of bad loans from each bank. what would all these banks do after that? They would work towards their commission more feverishly and grant more bad loans - I see significant acceleration in moral hazard. You seem to think that it will be minimal still. Imagine a conservative banker who got little less commisssion because he was prudent - now he will be kicking himself to get massive commission throwing away the rules and regulations. Also, think about the house buyers. Their loan is now passed to friendly Fed and the Fed asks these people to pay whatever they can (basically nothing) and people like me who dont have any such loan thinking - why didnt I take the home loan and pass it as bad to Fed? You might say that, one has to be jobless to get the benefit of Fed's kindness. If by working, I make 40K and 20K goes to tax and interest on the loan - and by not working I get 15K from Social security and no need to pay off the loan - isnt my choice obvious? I'll be much richer collecting the SS, right? I read the link you sent where people are talking about this scheme of hiding from the bank loan. None of them really addressed the issue, to be honest. Some were talking what HELOC was etc. but that is not the jist of the issue at all. Even if one has not taken HELOC, what happens to the loan one owes? People like Grace were obviously focussed more on the sideshow like it is immoral, cheating etc. That thread does not address what happens to one's loan (i.e the purchase loan - I dont even care about the icing on the cake like Heloc). I paint all the 250M people with one brush because I think moral hazard will reek (and that is what Andrew Mellon refers to BTw) and no one will want to work. Imagine this: People bought houses because they always appreciate. After the Fed takes the bad loans, people must be more emboldened right? How tough is the Fed going to be? Are they going to throw the people out of the house? If they are this tough, then no one is going to take loan!! As you aptly put in one of your link where the lady was having lot of eggs - but noone to buy and the cost of feed was higher (higher PPI and lower CPI theory I've been saying for so long) i.e the existence of bussiness itself becomes very tough - and why would they need those loans anyway? For extra capacity? If the extra loan is just to pay employees and not for future profit, then again you are underestimating moral hazard!!! well, both you and Chromatic are underestimating moral hazard (in my opinion) and I believe that Fed will raise interest rates this time come hell or high water and that should prove one of us right. Moral hazard will be slayed this time. Doug Noland is taking this position. Even Chromatic said, $ devaluation caused inflation in 1932 - imagine how hard it will be for the population if in a deflation you have inflation!! Today, we are going to have the equivalent of $ devaluation in a more violent manner - and you still think there is going to be interest rate decrease (which btw is the only mechanism by which the moral hazard/helicopter ben can be perpetuated. Taking the bad loans is only a band aid but it is the interest rates that matter most!). It is going to be 1929 Germany and not 1923 Germany ...

To: shades who wrote (59097)	4/22/2006 2:06:49 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

You know I used to see full service gas stations and woolworths everywhere - now I don't see them hardly anywhere - if banks run out of people to borrow - the will merge and contract and change - notice how so many want to keep walmart out of the banking business recently. You are overlooking the effects of this merge and contract and change. That is what I call as bank failure. Not all banks went bellyup in 1929. Some survived. And probably banks failed in 1932 because they did not have 3 years of new business since 1929!! who knows? I'vent read anywhere that banks failed (in 1932) because noone was borrowing and hence the banks had to shut down offices. But I've read so many places that loans were difficult to get and no credit was flowing. Obviously, my statement would seem to make sense right? But ofcourse, when I present such an argument, you would back off saying, it was policy of the day or something like that so banks went bellyup. That is where you are falling into the traps of "hyperinflation". why would it not happen now? Noone taking loan and banks fail? well, we are not far off from the depression... Just out of curiosity, what is your investment plan besides shorting? Are you betting on commodities believing in commodity hyperinflation? In 1929, the shorters made a ton of money - noone else...

To: shades who wrote (59097)	4/22/2006 2:14:28 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

Just to let you know, Murray Rothbard in AGD does not say that CPI fell 50%. No way. As a matter of fact, the govt had price support mechanism (through cooperatives) for food prices and hence the prices were fairly high even though international prices were falling!! Because of this Farmers were overproducing as per AGD!! Also in AGD, Murray Rothbard said that meat packers were selling meat at high prices and making huge profit and people wanted govt to take action against them... So, nowhere in AGD is it mentioned CPI fell 50%. Can you show me where he talks about CPI falling 50%? (Actually Murray Rothbard doesnt believe in CPI). Just to let you know, just as today Fed is using core CPI as guidance, in 1929, Fed used some obscure whole sale price for guidance (and not the CPI). History doesnt Rhyme, it repeats - ditto-