Objectively intelligent.

[sebastian_dangerfield]

Originally Posted by ThurgreedMarshall

I'm ketchupping and trying to avoid responding to you. But your analysis of 2008 is so fucking wildly off that it's impossible. Maybe I'm confusing what you're trying to convey because you're not doing it well?

A bubble is a bubble precisely because everyone in it can't see that it's a bubble. There were books and movies about how only a handful of people understood the flaws in the packaged MBS products. The idea that AIG or any of the investment banks permitted the type of multiple levels of gambling on "insurance" products that would bring down the entire institution (and the global economy) with the full knowledge that a slight uptick in mortgage defaults would create such a scenario is nuts. Very few people understood the impact. Very few people understood the market. And none of the people who did were in a position to turn down the "easy-money" fees associated with selling those products (or allowing those departments to sell those products).

In 2008, when Bear Stearns (not a commercial bank) failed, we were on the brink of total financial collapse. If one more bank failed, there would be a run on all banks, the entire economy would collapse all over the world. Your limited analysis of well-run and poorly-run banks is ridiculous. It may work when the economy isn't having any issues (and the bail-out would be FDIC-related for account-holders). But this was a full-blown global crisis. There is absolutely no way we could have let one more bank fail. And they were all on the brink. Citibank was trading at like $2 per share. Looking back after we successfully kept the entire global economy from collapsing and acting like we could have allowed a few more banks to fold is beyond fucking stupid.

I had this exact conversation with Taxwonk in 2008. After he said, "Maybe we should have let the entire system fall," (and that's as dumb an argument as Sarandon saying Trump being elected is a good thing because it will bring about more change after he destroys everything) he finally came to his senses. You're not there yet and it's 20fucking20.

TM

Bill Gross (the PIMCO letter he authored quarterly was always all over the financial press) called for a downturn in housing in 2008. https://www.reuters.com/article/us-p...22392620071114

I’ll accept the argument the banks did not know what was going on to a point. But only to a small point. These people do exist in clueless enclaves of like minds where people only know charts which do not always offer an accurate picture of what’s going on in a market.

BUT, these banks also have loads of economists and analysts on their payroll. And no one - no one - with a basic grasp of economics could miss the fact that the housing bubble replaced the economic activity and wealth lost in the dot com bust (which had replaced a lot of economic activity and wealth otherwise lost from preceding jobless recoveries from earlier recessions).

People at the street level were living off gains from trading residential r/e via flips (or simply mining equity out of their homes’ increasing values).

But what would happen when the run up in prices plateaued? Well, in that instance, the owner of residential r/e would have to pay his mortgage with money from his job. But what if these people didn’t have jobs adequate to do this? What if they’d been living off a bubble economy in r/e? Uh oh.

This wasn’t hard to see coming. Of course, no one knew the depths of it.*. That was shocking. But a significant correction in r/e prices was bound to test whether the novices in that bubble economy could carry their investments (or their primary residences) when the prices flattened (nevermind fell).

That Michael Lewis wrote a book about a few people who made a fortune on the collapse doesn’t mean legions of others didn’t see it. They did. And this cannot be refuted: A ton of the bankers who claim they didn’t were employing willful ignorance or simply following IBGYBG.

I don’t disagree with the bailout. It had to be done. I disagree with the argument that the assets at issue actually had value near that at which they’d been booked (Adder’s argument) and the fact that management of these financial institutions weren’t all barred from the industry. (Making them wear a sign that says “I’m a failed business person and recipient of corporate welfare” would perhaps suffice.)

——-
* I’m being generous there. It is an often made argument that the more severe the bubble, the more extreme its fallout. Taleb would blame this on fragility increasing with size, which I think he’s supported with math. This would seem to be proven by the fact that only a 3% uptick in delinquencies, when honestly booked, set off the chain that brought it all down. It’s partly a feature of the structuring of the securities but also a behavioral issue (people freak and stop buying the securities and the banks, in herd fashion, have all placed themselves in uniquely fragile positions).

[Adder]

Originally Posted by sebastian_dangerfield

I disagree with the argument that the assets at issue actually had value near that at which they’d been booked (Adder’s argument)

Yeah. That's not what I said. Turns out they did have value near what the Fed was willing to pay for them, though, and that was intentionally greater than their market value at the time of purchase.

This would seem to be proven by the fact that only a 3% uptick in delinquencies, when honestly booked, set off the chain that brought it all down.

It's not necessarily a crucial detail, but the thing you're leaving out, and the assumption that drove all of this, is that the people structuring these products believed that geographically distinct real estate markets were independent. You might get a downturn in Dallas, but we've diversified and put in a sufficient buffer that we're fine as long as the rest of the country isn't going through the same downturn. The products were not built for a correlated downturn around the country. They didn't even think they were. They thought it doesn't happen, because it hadn't happened in modern times.

[ThurgreedMarshall]

Originally Posted by sebastian_dangerfield

Bill Gross (the PIMCO letter he authored quarterly was always all over the financial press) called for a downturn in housing in 2008. https://www.reuters.com/article/us-p...22392620071114

I’ll accept the argument the banks did not know what was going on to a point. But only to a small point. These people do exist in clueless enclaves of like minds where people only know charts which do not always offer an accurate picture of what’s going on in a market.

BUT, these banks also have loads of economists and analysts on their payroll. And no one - no one - with a basic grasp of economics could miss the fact that the housing bubble replaced the economic activity and wealth lost in the dot com bust (which had replaced a lot of economic activity and wealth otherwise lost from preceding jobless recoveries from earlier recessions).

People at the street level were living off gains from trading residential r/e via flips (or simply mining equity out of their homes’ increasing values).

But what would happen when the run up in prices plateaued? Well, in that instance, the owner of residential r/e would have to pay his mortgage with money from his job. But what if these people didn’t have jobs adequate to do this? What if they’d been living off a bubble economy in r/e? Uh oh.

This wasn’t hard to see coming. Of course, no one knew the depths of it.*. That was shocking. But a significant correction in r/e prices was bound to test whether the novices in that bubble economy could carry their investments (or their primary residences) when the prices flattened (nevermind fell).

That Michael Lewis wrote a book about a few people who made a fortune on the collapse doesn’t mean legions of others didn’t see it. They did. And this cannot be refuted: A ton of the bankers who claim they didn’t were employing willful ignorance or simply following IBGYBG.

I don’t disagree with the bailout. It had to be done. I disagree with the argument that the assets at issue actually had value near that at which they’d been booked (Adder’s argument) and the fact that management of these financial institutions weren’t all barred from the industry. (Making them wear a sign that says “I’m a failed business person and recipient of corporate welfare” would perhaps suffice.)

——-
* I’m being generous there. It is an often made argument that the more severe the bubble, the more extreme its fallout. Taleb would blame this on fragility increasing with size, which I think he’s supported with math. This would seem to be proven by the fact that only a 3% uptick in delinquencies, when honestly booked, set off the chain that brought it all down. It’s partly a feature of the structuring of the securities but also a behavioral issue (people freak and stop buying the securities and the banks, in herd fashion, have all placed themselves in uniquely fragile positions).

I'm not sure how many times I can explain that a bubble is a bubble. Talking about how easy it was to see the fact that we were in a big bubble after-the-fact is absolutely ridiculous. And you are conflating the real estate bubble with the financial products which were basically bets taken out on the failure of the packaged MBS.

A correction in the real estate market is one thing and we all could have survived that easily, letting those mortgage farms fail. I agree with you that mortgage brokers and banks looked the other way and handed out and bought mortgages that were terrible credits. But the MBS and the insurance products (read: gambling) sold in multiples on the packaged MBS is what destroyed everything. And the fact that (again) almost no one thought the real estate market would drop, is what created the bubble.

As for the underlying value, you are missing the point. Of course the packaged mortgages had value. A stream of income has the value of that income. But if you only book that value based on what you can actually sell that packaged stream of income for during a near-depression, then when you can't sell it, by definition, it has no value. If your bank is counting on that value as part of its capital requirements and can't sell the product, its fucked. But if I buy those mortgages, I will receive that stream of income.

Your focus on those (like PIMCO) who saw an issue is delusional. In every market, bubble or not, there is someone who "sees" impending doom. When it doesn't occur, no one goes back and analyzes why those people were wrong. So stop pushing back on the definition of "bubble." If everyone knew we were in a bubble, tons of people would have bet against it, instead of just the few that did. Hell, if everyone knew we were in a bubble, there would not be a fucking bubble.

TM

[LessinSF]

Man demands trial by combat against his wife - http://loweringthebar.net/2020/01/ka...by-combat.html

[sebastian_dangerfield]

I'm not sure how many times I can explain that a bubble is a bubble. Talking about how easy it was to see the fact that we were in a big bubble after-the-fact is absolutely ridiculous. And you are conflating the real estate bubble with the financial products which were basically bets taken out on the failure of the packaged MBS.

What does "A bubble is a bubble" mean? That any time anything is called a bubble, people within it are absolved from responsibility for failing to see that it was a bubble? You cannot be asserting that bubbles are impossible to see while they are occurring. Again, as Charles Prince, head of Citi in the mortgage bubble, noted -- when the music's playing, you have to dance. He was a rather lousy executive and even he admitted knowing he was in a bubble. His defense was, "When everyone else is making cash on the bubble, you have to do the same."

I'm conflating MBS with the housing market because they are inextricably interwoven.

A correction in the real estate market is one thing and we all could have survived that easily, letting those mortgage farms fail. I agree with you that mortgage brokers and banks looked the other way and handed out and bought mortgages that were terrible credits. But the MBS and the insurance products (read: gambling) sold in multiples on the packaged MBS is what destroyed everything. And the fact that (again) almost no one thought the real estate market would drop, is what created the bubble.

No one thought the r/e market could drop? People were saying it for years before 2008. And for fiance professionals who I'd assume have some schooling in probabilities, the argument that it could not drop because it had never dropped before is amazing. That a thing goes one way for an amazingly long period of time can be proof that it will continue to do so. But there's an even greater probability that its long overdue for an adjustment.

Why would housing, on the heels of a dotcom bust, and following so many jobless recoveries, be a unique market, immune to downturns? Because it never happened before is a really scary answer for a finance professional to have offered. But I agree with you that many indeed did think that, which is nuts.

As for the underlying value, you are missing the point. Of course the packaged mortgages had value. A stream of income has the value of that income. But if you only book that value based on what you can actually sell that packaged stream of income for during a near-depression, then when you can't sell it, by definition, it has no value. If your bank is counting on that value as part of its capital requirements and can't sell the product, its fucked. But if I buy those mortgages, I will receive that stream of income.

I wasn't asserting that the MBS should have been marked down to its lowest value (when the downturn was at its worst). I was asserting that during the run-up, the credit risk of the mortgages which justified the value of the MBS was not accurate. It was in fact fraudulently or incompetently rated far better than it was.

Adder's suggestion that the MBS's valuation pre-collapse was close to accurate is just wrong. The middle and lower tier credit risks were lousy. The people who bought the middle tier stuff were either dumb, defrauded, cynical, or all three.

Your focus on those (like PIMCO) who saw an issue is delusional. In every market, bubble or not, there is someone who "sees" impending doom. When it doesn't occur, no one goes back and analyzes why those people were wrong. So stop pushing back on the definition of "bubble." If everyone knew we were in a bubble, tons of people would have bet against it, instead of just the few that did. Hell, if everyone knew we were in a bubble, there would not be a fucking bubble.

IBGYBG. Herding. Thinking they were going to win at a game of musical chairs. There are loads of reasons people suspend disbelief or just keep doing as they've been doing in bubbles.

It's way easier to just go with the flow and mint another bonus than it is to pull a Michael Burry or John Paulson style mother-of-all-shorts.

[Tyrone Slothrop]

Suspect Sebby will agree with an awful lot of this.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Suspect Sebby will agree with an awful lot of this.

It explains why hearing people make this argument drives me nuts:

"Rationally, the poor should vote Democratic, as Democrats give them better safety nets and transfers."

First, these people aren't terribly rational in most instances. Second, as this author notes, transfers and safety nets won't redress the loss that ails them -- their lack of importance.

If these people were smarter on average, it might make sense to argue to them that they are not alone. They are simply the first line of people to be replaced by tech.

The author misses a huge issue -- the Knowledge Economy is easier to replace than the manufacturing economy. Algorithms are already replacing most traders and analysts. Wall Street, which works with numbers, is the most easily replaced sector of them all. (Google a bit on the flattening of bonuses and the layoffs hitting banking.)

The Knowledge Economy is basically the Data Economy, and no human can interpret data as well or as quickly as AI. At least the guy in the auto plant had a few years before the robots could be perfected and installed. The Knowledge Workers are, I think, going to be rendered obsolete at a frightening clip. Why? Because their work is largely fungible, and its easier to build and set loose a learning algorithm than it is to build and maintain a physical robot. That which can be done in one's head, using simple math or rational thinking, can be done a million times faster and more accurately by a computer. A variant of Moore's Law will apply to the tech eliminating Knowledge Workers that didn't so ruthlessly apply to the people who worked with their hands.

Stated more simply, your plumber is a lot less fragile than your broker. The former's work has a barrier to entry the latter will never enjoy.

But I understand... this is cold comfort to the under-educated and the left behind. They don't get it. And the condescension that angers them, which this author explained brilliantly, will not abate so quickly. As AI wipes out the Knowledge Workers, I think they will do what the displaced Trumpkins are now doing -- punch downward. They'll be exceedingly resentful because they'll have done what they were supposed to do and still wound up losing. And they'll have no one to punch up against.

That's when you get really interesting revolutions. They almost always gestate in the upper middle class. The real crazy stuff, I think, is going to start in 10 or so years, when the Knowledge Workers start falling prey to the algorithms in mass numbers.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

It explains why hearing people make this argument drives me nuts:

"Rationally, the poor should vote Democratic, as Democrats give them better safety nets and transfers."

First, these people aren't terribly rational in most instances. Second, as this author notes, transfers and safety nets won't redress the loss that ails them -- their lack of importance.

If these people were smarter on average, it might make sense to argue to them that they are not alone. They are simply the first line of people to be replaced by tech.

The author misses a huge issue -- the Knowledge Economy is easier to replace than the manufacturing economy. Algorithms are already replacing most traders and analysts. Wall Street, which works with numbers, is the most easily replaced sector of them all. (Google a bit on the flattening of bonuses and the layoffs hitting banking.)

The Knowledge Economy is basically the Data Economy, and no human can interpret data as well or as quickly as AI. At least the guy in the auto plant had a few years before the robots could be perfected and installed. The Knowledge Workers are, I think, going to be rendered obsolete at a frightening clip. Why? Because their work is largely fungible, and its easier to build and set loose a learning algorithm than it is to build and maintain a physical robot. That which can be done in one's head, using simple math or rational thinking, can be done a million times faster and more accurately by a computer. A variant of Moore's Law will apply to the tech eliminating Knowledge Workers that didn't so ruthlessly apply to the people who worked with their hands.

Stated more simply, your plumber is a lot less fragile than your broker. The former's work has a barrier to entry the latter will never enjoy.

But I understand... this is cold comfort to the under-educated and the left behind. They don't get it. And the condescension that angers them, which this author explained brilliantly, will not abate so quickly. As AI wipes out the Knowledge Workers, I think they will do what the displaced Trumpkins are now doing -- punch downward. They'll be exceedingly resentful because they'll have done what they were supposed to do and still wound up losing. And they'll have no one to punch up against.

That's when you get really interesting revolutions. They almost always gestate in the upper middle class. The real crazy stuff, I think, is going to start in 10 or so years, when the Knowledge Workers start falling prey to the algorithms in mass numbers.

If you were going to change the Democratic Party to better represent these folks, what would you do?

[Hank Chinaski]

Originally Posted by Tyrone Slothrop

If you were going to change the Democratic Party to better represent these folks, what would you do?

Be honest? “I will bring back manufacturing jobs!” “I will give you all health care!” Kumbahya!

[Tyrone Slothrop]

[Tyrone Slothrop]

Originally Posted by Hank Chinaski

Be honest? “I will bring back manufacturing jobs!” “I will give you all health care!” Kumbahya!

There's got to be a better solution than just saying shit like that.

[Hank Chinaski]

Originally Posted by Tyrone Slothrop

There's got to be a better solution than just saying shit like that.

K. So find it? I was posted paraphrased quotes to make the point that the Dems are not honest.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

If you were going to change the Democratic Party to better represent these folks, what would you do?

I'd level with them. I think they suspect there's an honesty that's being kept from them and they don't like being messaged.

I'd say what Obama, Bush II, and McCain all said: "The jobs of the past aren't coming back."

I'd add:

"That's reality. Full stop. No carve outs. Coal mining is a dead end. Forever.

But you can still have vibrant communities. You can build something here the same way the people with nothing built lives for themselves here long ago. You can set up farming cooperatives, you can rebuild the town center, and you can have a life not terribly unlike the one you forebears had. But you have to rely on each other. You have to band together a bit. Don't be greedy. Value community and maybe you'll wind up a lot luckier than a lot of us on the coasts will be. We have what look like fabulous existences, but humans are wired for community... and it is not coming back for us. But it could be coming back for you. You could be the small hamlets. Maybe being distanced from us is the greatest gift you could be given?

But you have to do it. We won't do it for you. You have to rebuild. You have to cooperate. Democrats will help you do that because we actually care. Republicans will only work on behalf of the local land baron who'd make you serfs... They don't care about you, and they never did. They care about those with capital. And these 'populist' Republicans under Trump are just liars."

- OR -

"Move. If your town is awful, and you want to go somewhere with a future, we'll help you do it. We'll support laws that allow you to clear your debts more quickly, get rid of that home that's losing value and holding you back. We'll try to give you a second chance to make it somewhere with a better future."

In conjunction with the second message, we'd have to offer some form of mortgage/debt relief or tax credits to allow those trapped in these bad areas to escape. And it can't just be for Trumpkins in flyover land. It has to also be offered to all the people who for generations have been imprisoned in poverty in inner cities.

I don't know if it'd work, but I really can't think of anything to say other than, "Rebuild your shit or move." That's the bargain the immigrants who came here a century plus ago were offered. I say restate it, with some sweeteners.

But at a minimum, there has to be honesty. These angry Trump voters who have a burn-it-all-down mindset know they're fucked. Trump told them they were right, which gifted him their votes. Tell them again, but with an even more honest, and less divisive, more inclusive invitation.

It can't hurt. Honesty never hurts. And most of what's fucking up this country right now is myths, narratives, and dishonesty.

[Tyrone Slothrop]

Originally Posted by Hank Chinaski

K. So find it? I was posted paraphrased quotes to make the point that the Dems are not honest.

Well, I asked Sebby because I think he's more focused on the problem than anyone here, but tends to assume that any kind of political action is pointless.

If you want to talk about whether Dems are honest, fine. The person I hear pretending to bring back manufacturing jobs more than anyone else is Donald Trump. If Dems have a pathology here, it's the idea that retraining programs (and going to college, per that article) are going to solve the problem.

On the healthcare issue, attacking Dems as dishonest is totally weird to me. If you have been paying any attention over the last decade, which is sometimes unclear, you know that the Democratic Party is committed to using the government to extend healthcare coverage to pretty much everyone, and the Republican Party is opposed to that, as much for political reasons than out of some conviction that the free market does it better, and has opposed and sabotaged the ACA and lately has taken to lying about it quite a bit, although to be fair Trump lies about everything so maybe this isn't anything unusual. IIRC, you were bent out of shape because you thought the Democrats were being insufficiently candid about how far they would go to implement HCR, so it's a little odd to hear you complain that they were lying when they said they wanted to get it done.

In point of fact, improving the ACA is one of the things that the government can do to really help people who don't have a college degree, and if I were redesigning the party's priorities per that Geoghehan article, I would put HCR and the provision of social insurance at the center. Strengthen Social Security. Stop pretending that the government can bring good jobs to parts of the country that are losing them right now, and create a real safety and benefits to make sure that people don't fall so hard.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

I'd level with them. I think they suspect there's an honesty that's being kept from them and they don't like being messaged.

Geoghehan's point is that there's a serious honesty to the current message ("Go to college like us") that is being heard loud and clear, and that's the problem. But anyway...

I'd say what Obama, Bush II, and McCain all said: "The jobs of the past aren't coming back."

I'd add:

"That's reality. Full stop. No carve outs. Coal mining is a dead end. Forever.

But you can still have vibrant communities. You can build something here the same way the people with nothing built lives for themselves here long ago. You can set up farming cooperatives, you can rebuild the town center, and you can have a life not terribly unlike the one you forebears had. But you have to rely on each other. You have to band together a bit. Don't be greedy. Value community and maybe you'll wind up a lot luckier than a lot of us on the coasts will be. We have what look like fabulous existences, but humans are wired for community... and it is not coming back for us. But it could be coming back for you. You could be the small hamlets. Maybe being distanced from us is the greatest gift you could be given?

But you have to do it. We won't do it for you. You have to rebuild. You have to cooperate. Democrats will help you do that because we actually care. Republicans will only work on behalf of the local land baron who'd make you serfs... They don't care about you, and they never did. They care about those with capital. And these 'populist' Republicans under Trump are just liars."

- OR -

"Move. If your town is awful, and you want to go somewhere with a future, we'll help you do it. We'll support laws that allow you to clear your debts more quickly, get rid of that home that's losing value and holding you back. We'll try to give you a second chance to make it somewhere with a better future."

In conjunction with the second message, we'd have to offer some form of mortgage/debt relief or tax credits to allow those trapped in these bad areas to escape. And it can't just be for Trumpkins in flyover land. It has to also be offered to all the people who for generations have been imprisoned in poverty in inner cities.

I don't know if it'd work, but I really can't think of anything to say other than, "Rebuild your shit or move." That's the bargain the immigrants who came here a century plus ago were offered. I say restate it, with some sweeteners.

But at a minimum, there has to be honesty. These angry Trump voters who have a burn-it-all-down mindset know they're fucked. Trump told them they were right, which gifted him their votes. Tell them again, but with an even more honest, and less divisive, more inclusive invitation.

It can't hurt. Honesty never hurts. And most of what's fucking up this country right now is myths, narratives, and dishonesty.

There are places that had better prospects than they ever will again, and neither the government nor cooperation can change that. Detroit is never going to make cars for the world like it once did. Rural Iowa is losing farm jobs, because rural communities all over the industrialized world have been losing farm jobs for decades and it's not changing. My grandfather grew up in a town in Wyoming that doesn't exist anymore. It's not coming back.