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To: RonMerks who wrote (9406)4/28/2008 2:07:46 PM
From: jim_p  Respond to of 50702
 
One Guy Who Has Seen It All
Doesn't Like What He Sees Now
By E.S. BROWNING
April 26, 2008; Page B1

Peter Bernstein has witnessed just about every financial crisis of the past century.

As a boy, he watched his father, a money manager, navigate the Depression. As a financial manager, consultant and financial historian, he personally dealt with the recession of 1958, the bear markets of the 1970s, the 1987 crash, the savings-and-loan crisis of the late 1980s and the 2000-2002 bear market that followed the tech-stock bubble.


One of Peter Bernstein's worries: 'If China goes into a recession, God knows.'
Today's trouble, the 89-year-old Mr. Bernstein says, is worse than he has seen since the Depression and threatens to roil markets into 2009 and beyond -- longer than many people expect.

Mr. Bernstein, whose books include "Against the Gods: The Remarkable Story of Risk," sees two culprits. One is the abuse of securitization -- the trend for banks to hold fewer loans on their books and instead turn them into securities that were sold to other investors. The other is simply years of overborrowing by financial institutions and consumers alike.

Mr. Bernstein is hopeful that Federal Reserve intervention will prevent deflation and depression, but he says there is no guarantee.

Excerpts of a recent interview:

WSJ: Aside from securitization, what were the main causes of the problem?

Mr. Bernstein: You don't get into a mess without too much borrowing. It was sparked primarily by the hedge funds, which were both unregulated by government and in many ways unregulated by their owners, who gave their managers a very broad set of marching orders. It was a real delusion. It was like [former New York Gov. Eliot] Spitzer: "I am doing something dangerous, but because of who I am, and how smart I am, it is not going to come back to haunt me."

When you think about how all of this will work out in the long run, we are going to have an extremely risk-averse economy for a long time. The lesson has painfully been learned. That's part of the problem going forward. You don't have a high-growth exit from this, as you've had from other kinds of crises. We won't have a powerful start, where the business cycle looks like a V. Here, the shape of the business cycle is like an L, where it goes down and doesn't turn up. Or like a U, a flat U. The reason for that is that people aren't going to get caught in this bind again. They will tell themselves, "I'm too smart to do that again." And everyone else is going to be saying the same thing. It is, in fact, going to be a wonderful environment in which to take risk, because there aren't going to be any excesses.

I'm a child of the Depression, and I am thinking about what the early years were like after World War II. It took a very long time to get the memory of the Depression out of business decisions, and certainly banking decisions. I think this is going to be the same. The Fed, too, is going to be less decisive and is going to feel that what it should do is less clear. One of the things that gave people a sense that they could afford to take risks was the sense that the central bankers more or less know what they are doing. But I don't think we are going to feel that way going forward.

WSJ: You said that it could turn out that the smart thing to do is to take more risk, because everyone will be so risk-averse. What kinds of investments do you see as the big winners coming out of this?

Mr. Bernstein: You could say: the things that have been beaten down the most, which would be real estate. But I think real estate is going to be under a cloud for so long, and you can't buy real estate with cash, it is too much money. I think you should go with the stock market. If things are better, the stock market will go up, and if things are awful, the stock market is going to be way down. But it is a place where, if you want to take risks, you've got a wide range of choices. This is why I own stocks [in addition to other investments], because I don't know where the bottom is going to come, and I want to be exposed to every kind of possibility I can think of. And, at least, if you pick the stock market and you are wrong, you can change your mind. There is some liquidity there. Stocks never became cheap, but they didn't become crazy, the way other assets were.

WSJ: How long do you think this whole process will take, before we get back to normal?

Mr. Bernstein: Longer than people think. The people who think we will have turned in 2009 are wrong. There has to be a respite along the way. Nothing goes in one direction forever. But it will take longer than people think. If that weren't the case, I would be talking entirely differently. I would be saying, "What an opportunity we have got." And I just can't believe that the opportunity is here yet. There is too much to unwind.

WSJ: Can you explain the reason you think it will take a long time?

Mr. Bernstein: We have to go back to a moment when people have the courage to borrow and lenders have the courage to lend. Until credit is going up instead of down, you can't have growth. Housing has got to be a very important part of that; it always has been. You have to reach a point where somebody says, "This house is cheap, I am going to buy it," or where some businessman says, "This is a great opportunity for us to expand our business. Everything is available to us."

If China goes into a recession, God knows. The Iraq war and the whole situation with terrorism, we really don't know where that is going to come out. There are so many things that have got to get buttoned down before you say that the future looks good enough to take a risk.

WSJ: What kind of indications are you looking for as signs that the economy is about to get better and that the stock market and the investment world are about to turn the corner?

Mr. Bernstein: Somehow, the housing trouble has to at least flatten out. As long as that is going on, I think the pressure on the credit system is going to persist. It is kind of the leading indicator. It is where the trouble started. We have to underpin the consumer. That is why this is different. That is why this is like nothing we have had before.

Before, it was investment that made the V at the bottom of the business cycle. I don't see real investment turning enough without some sign from the consumer side. Maybe the foreign countries will do it for us. That is a substitute for consumption here. Maybe. But I think that they won't do enough for us, and maybe will be too infected by us to do it. But maybe growth in Asia will help us. The Asian thing is tremendously exciting.

Write to E.S. Browning at jim.browning@wsj.com



To: RonMerks who wrote (9406)4/29/2008 12:52:34 AM
From: roguedolphin  Respond to of 50702
 
Ron Paul campaign dominates convention

Meeting reveals a party, in this state at least, far from united
By J. Patrick Coolican
Sun, Apr 27, 2008 (2 a.m.)

Reno — Call 2008 the year of the great tumult, the year of the outsiders, the young, the tech-savvy who are changing American politics.

Although most of the attention, money and passion lie with the long saga of the Democratic presidential contest, Nevada’s state Republican convention here offered evidence of the ground shifting across the spectrum, with an actual earthquake Friday night serving as an apt symbol.

Rep. Ron Paul, a Republican with a libertarian’s heart, followed his second-place finish in Nevada’s January presidential caucus by out-organizing the state’s Republican establishment. In the process, the Paulites embarrassed the campaign of Arizona Sen. John McCain, the presumptive Republican nominee for president.

They seemed to make up more than half of the 1,300 or so state delegates to the convention. They won a key procedural vote on the rules, and their boisterous presence created significant delays, causing the convention chairman, Bob Beers, a state senator from Las Vegas, to recess the convention without selecting delegates to the national convention. The state convention is to resume at a later date.

Paul supporters occasionally shouted down the chairman, then rocked the convention with noise when Paul, their diminutive doctor icon, appeared to rally them.

The passion of the libertarians showed the sense of unrest of some grass roots Republicans following the party’s 2006 defeat and worrisome signs of another this year.

A surge in Democratic registrations has dealt Nevada Republicans a 50,000 voter deficit, while nationally, the GOP faces the biggest party identification gap to Democrats ever recorded by the Gallup polling organization.

Although it is largely papered over by the GOP establishment’s unifying behind McCain, party regulars are debating the future of the party, and especially whether to return to the small-government principles of the late Barry Goldwater, the 1964 Republican presidential candidate.

Republican conventions are usually well-organized, rather staid affairs for bashing Democrats and rallying around the presidential nominee, in this case, McCain.

Not so this time, as many of the more than 1,300 delegates were Paul supporters who viewed themselves as insurgents taking on the establishment.

As Kelly Edinger, a delegate from Washoe County, put it: “On one side you’ve got a candidate with principles, on the other, Tammany Hall,” referring to the corrupt New York City political machine of the 19th and 20th centuries. It was a wildly exaggerated accusation, but a reflection of insurgent attitudes.

The convention was filled with first-timers, including Shawn Moshos, a member of the carpenters union and a 34-year-old lifelong Republican energized for the first time this year. The southwest Las Vegas resident is head of marches, activism and special projects for a Ron Paul Meetup group, which is an online tool for organizing offline.

“It’s a little like going to church,” he said of Paul’s Las Vegas supporters. They meet socially and enjoy talking about shared libertarian principles.

Jon Martin is a young management consultant who lives in Las Vegas also at his first political convention. “Paul has ignited a fire,” he said.

Although McCain is the presumed nominee, Paul continues to rack up big vote totals in primaries, including 126,000 votes, or nearly 16 percent, in Pennsylvania.

In his speech, Paul called for an end to the IRS and the protection of constitutional liberties. He never mentioned McCain.

Martin is the type of libertarian voter who should concern Republicans. He said McCain is a “warmonger.”

Martin, who is hoarding precious metals for a predicted economic calamity, also showed the sometimes confusing ideological space these people occupy. He said he would vote for the radical leftist Ralph Nader if Paul isn’t a general election candidate.

Jeff Greenspan, Paul’s southwest director, said the Paul convention plan had been in the works for months. They dominated county conventions. And, in Reno on Saturday, they communicated strategy on the convention floor by mass cell phone text messaging, which no doubt kept them a step ahead of party leadership.

Robert Uithoven, a party strategist and adviser to McCain, acknowledged “there are divisions in the Republican Party. It’s April. I hope they’ll come over, and I believe they will.”

Uithoven said Paul supporters were able to gain a strong foothold at the convention because McCain’s lean campaign team had racked up victories by relying on free media rather than paid staff or volunteers. The campaign is adding staff and getting organized, Uithoven said.

As he noted, the division among Republicans is nothing compared to the battle going on between the Democrats, Sen. Hillary Clinton and Sen. Barack Obama.

Indeed, the minor skirmish among Republicans wasn’t the most telling incident of the day. That came from former Massachusetts Gov. Mitt Romney and Rep. Dean Heller, who both sketched out the attacks Republicans will launch on Democrats from now until November.

Romney said Clinton and Obama are “more concerned with what the ACLU lawyers think than protecting the American people.”

“I know Americans are going to chose a great patriot, a man who’s been tested and proven,” he concluded, which was a thinly veiled way of saying Obama is untested, unproven and has suspect associations.

Heller, a one-time moderate who has become a rock-ribbed conservative since joining Congress in 2007, threw the crowd some red meat. “If you cannot score above a 40 when you’re bowling, you probably are not physically fit to be president,” he quipped, referring to Obama’s failed attempt in rural Pennsylvania.

Playing off Clinton’s ad about being ready to answer the call at 3 a.m. in the White House and her fibbing about landing amidst sniper fire in Bosnia during the ’90s, Heller said, “If you cannot remember if you’ve been under sniper fire, you shouldn’t be answering the phone at 3 o’clock in the morning.”

Then he returned to Obama: “If you think our closets are full of guns, and if you think we go to church every Sunday because we’re bitter, well, I’ll let you answer that.”

Paul notwithstanding, that’s the campaign to come.

The Associated Press contributed to this report.

LINK: lasvegassun.com