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  • Where's the Bottom? Still Anybody's Guess
    The bottom for equities and paper, in dollar terms, will come when people are no longer writing articles asking when the bottom will come, because they are too busy selling.

    The bottom for the dollar, however, does not exist. It will continue asymptotically approaching zero until it becomes inconvenient to quote prices in it, at which time it will have zeros lopped off or otherwise be replaced by something else with indistinguishable characteristics, which will itself promptly begin its own asymptotic march toward zero.
    Sep 24 10:58 am |Rating: 0 0 |Link to Comment |View article
  • I-Bank Execs: Read My Lips... No New Capital
    These guys understand their balance sheets all too well. That's exactly why they're constantly talking about how much capital they don't need. The old saw holds that banks only lend to people who don't need the money. The same is true of SWFs and other sources of capital when the shoe is on the other foot. The banks have spent the past 10 years handing out liar loans to people with highly dubious balance sheets. Now the banks are the ones with the dubious balance sheets. "We don't need money and no you can't see our books but I guess if you really want to give us $3b and dilute our existing shareholders we'll let you anyway." Sure. Just like Tommy OwnedHomer didn't really need that 103% LTV no-doc but I guess if the bank threw a 2% teaser option ARM at him he was willing to help it out by borrowing anyway. It's an open question whether MER and C are in better shape than Tommy but of course they are interlinked anyway so we don't need to spend much time on academic concerns like that.

    Two-word summary: Long SKF.
    Apr 30 11:58 am |Rating: 0 0 |Link to Comment |View article
  • 21st Century Central Banking
    All this assumes that "systemic risk" is really a grave threat. The banking system as a whole adds far less value than those who participate in it would presume and certainly far less than its size would indicate. Most healthy economies are focused on productivity, savings, and investment, and use credit sparingly. That the banking sector is so large is an indication not of its worth but of the sickness of the economy. Allowing large parts of it to fail would be a form of heroic medicine.
    Apr 29 23:25 pm |Rating: 0 0 |Link to Comment |View article
  • Backroom Bear Stearns Deal Exposed
    Those of you who think the moral hazard issue is overblown need to take a step back and look at the real macro issue here. Let's suppose for a moment that the collapse of BSC would have resulted in a 60% overnight decline in the dollar and the failure of several more tier-one banks, with an attendant 10-year depression and a total decrease in the size of the US economy of 40%. That sounds bad, right? I'm sure you think so.

    But it's peanuts compared with what you're actually getting: the alienation and disenfranchisement of anyone who ever did an honest day's work for an honest day's pay and saved 20% of it for a rainy day, secure in the knowledge that compound interest and SPENDING LESS THAN WE EARN would allow us to survive life's inevitable downturns and disasters. We don't owe money, we don't need loans to survive, and, frankly, we don't need the banks at all - even compound interest would be irrelevant if not for inflation. The collapse of all banks and prolonged deflation would cause us little real harm and may even leave us wealthier at the end, and it would surely leave our republic healthier, stronger, and wiser. This country desperately needs to suffer real pain, pain so great that no government action can possibly avert or salve it. Only then will the profligate understand the inescapable law of economics: you cannot consume more than you produce.

    Busts are unpleasant but survivable. Unchecked alienation is not. Alienation allows a bad economic situation to become a bad social situation and then a bad military situation. It is, in short, how democracies become failed states.

    I'm not a conspiracy nut like deacon. There are no conspiracies here; conspiracies are supposed to be secret. What we have is simply the greedy and the foolish stealing brazenly from the modest and the prudent. You think this source of easy profits can last forever. But you thought the same about the tech bubble and the housing bubble, too (and the junk bond bubble and the silver bubble and the tulip bubble before those). Don't make the same mistake here; taking money from a willing greater fool is one thing; stealing a prudent man's life savings at gunpoint is something else altogether.
    Apr 06 22:26 pm |Rating: 0 0 |Link to Comment |View article
  • Ten Comments on Housing
    “The prudent will have to pay for the profligate.”

    I refuse, sorry. Their misbehaviour did me too little good, I'm too young, and the bill is too large; stick me with it now and I'll never recover. If you insist, I'll buy more gold. If you keep insisting, I'll put it in a briefcase and leave the country with it. If you can't handle that, I'll arm myself heavily and smuggle it out. A nation of looters has no chance and I'm not going down with your ship.
    Apr 06 21:46 pm |Rating: 0 0 |Link to Comment |View article

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