paradigm

No it wasn't - believe me, if that had been the case there would be big headlines like when we had that big intraday plunge. Yesterday the DOW closed in 10,250. Today it opened a bit shy of 10,100, a big gap of more than 150 points. It was never higher than 10,100 during the day. It eventually closed in 9931 for a total loss of around 350 points compared to the closing price yesterday.

Am I the only one who think it is funny how CNN always blames falls in the Dow on the problems in the euro area? When the dollar was tanking, every article on CNN about it talked about how it would boost American exports and how prices wouldn't go up because many commodities are priced in dollars. Or how the U.S. was such a big market that European exporters would likely have to eat the loss themselves rather than passing it on by raising dollar prices. Now that the euro is tanking, they are all on about how "the mighty dollar" is going up and how the euro is a doomed project. And how imports will now become cheaper. Yet, a dollar is still worth 33% euros than it were in 2001 and in fact the euro is only back to its 2006 levels. And speaking of debt, the U.S. doesn't seem like the one to talk. Their annual deficit is running close to the rate of Greece - and their debt-to-GDP ratio is what Greece's was in 2008. Of course, the difference lie neither in absolute levels of debt or in the level of fiscal (ir)responsibility. The true difference is that the U.S. is a mcuh more powerful country than Greece and the major rating agencies are American companies. I would like to see what happened if Moody's or S&P threatened to lower the U.S. credit rating - likely a devastating "accident" is what would happen to that company, therefore it won't happen. Further, the U.S. has its fine printing presses. The U.S. Treasury keeps printing treasury bonds which are sold to banks who immediately borrow against them at an almost non-existent interest rate at the FED which just print the amount that is loaned. The result: Almost free financing of govt. debt and a nice earning on the interest-rate differential to the bank (which is not taking on any real risk). The only loser are the savers through inflation - but the inflation will happen so much further down the line that no one will be able to prove what caused it.

That examination can't have been much work if there was no trading at all

http://www.bloomberg.com/apps/news?pid=206...&refer=home Key points & comments: "The government would finance the program by selling bonds, which the Bank of England could buy up to expand the supply of money, Fathom said. The proposals are a more direct intervention in the housing market than measures planned by the U.S. Federal Reserve, which this week started buying up securities backed by mortgages after bringing the interest rate close to zero. " [Cut the cr*p, the essence is the houses will be bought by newly printed £50 billion, devaluing savings] "Brown’s government would become a “social landlord,” charging rent to families and saving them from eviction, Fathom said. The plan would also allow banks to benefit through the removal of outstanding bad debts as financial institutions worldwide nurse more than $1 trillion in losses and writedowns from the credit crisis. " [Oh why didn't I think of this, that you can solve the problems of bad debt by inflating the money supply, driving the nominal prices higher than the principal - what a genius this Fathom guy is!] "The government should step in and “set a floor” under house prices, protecting taxpayers by paying below-market prices for houses and distressed homeowners by paying more than “vulture purchasers,” Fathom said. " [if the gov bought them at market prices it clearly wouldn't solve anything, the distressed sellers could sell for the same in the free market. When do they get it, the inflated property prices (i.e. current asking prices) are _NOT_ market prices. If they were, people could sell at these prices. They were bubble prices that seemed like market prices but now that the bubble is collapsing we are returning to the true market prices.] This Fathom guy must be either utterly incompetent or waiting desperately from a bailout from his own property adventures. Or both.

Exactly. This observation is probably one of the most important in understanding how the monetary system works. Unfortunately, very few people understand/know this and even fewer are able to see the implications. I think the problem is that it almost seems unreal that people would allow such a crazy system to exist! If you try to explain it to people it is almost as if they don't believe it The scheme is very clever since officials can say to the people: The FED / central bank can only lend against highly-rated bonds, such as government bonds. People associate government bonds with something that is very solid and safe so statements such as these give people the impression that the monetary system is solid. What they don't tell is that the government can print as many bonds as it wants and is always guarenteed a buyer, namely the central bank, which can buy the bond and immediately after print money corresponding to the full amount of the bond. The net effect is that the central bank holds both the bond and has unchanged reserves whereas the government has gotten cash in hand, the printed money. For a somewhat different example of when the scheme is operating at its worst, consider the AIG bailout. After the bail-out, it was reported that the FED had spent almost all its "reserves" (essentially just numbers in a spreadsheet), which give people the idea that there is a limit, after all, to how much the FED can spend. This case was special because the FED wasn't even lending out against collateral (which would have permitted them to just print the money, no questions asked) but was ourtight bailing out AIG and buying their equity. However, this problem with reserves was quickly resolved because a few days later, Paulson at the Treasury started printing a special new type of bond that the FED could buy, allowing them to immediately print more money against this new collateral. The funds that the treasury took in was sent directly to the FED to shore up the FED's own balance sheet. This money was then injected into AIG. However, this scheme with bonds and collateral is just a distraction from the bottom line. The bottom line is that the FED simply printed money and gave it to AIG. As Henry Ford remarked: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Keynes made a similar observation, noting that the debasing of the currency (via the monetary system) takes place in a manner which "not one man in a million is able to diagnose". In don't know how it is in the UK but in Denmark most home loans are directly securitized so there's a 1-1 correspondence between the loan and the bond series. These bond series are AAA-rated and can be lend against in the central bank at 100% (i.e. without a hair cut). This is almost as absurd as the government lending. Think of how such a scheme can go awry during a house price boom. If house prices become overvalued by 20%, people can lend againt the equity in their home by directly issuing AAA-securities. This will allow any bank to lend the corresponding amount in the central bank, buying all the securities, in effect sending fresh money, corresponding to the whole increase in house prices, in circulation. This could fuel HPI even further, in effect making the overvaluation a self-fullfilling prophecy.

I work at an international IT company. In our department (25 persons), our manager have let 3 people's contracts expire without hiring new ones. So far there haven't been layoffs among the staff on indefinite contracts. I have also heard about layoffs in other departments. However, a lot of workers (especially middle management) have left the company themselves in the past year, and have not been replaced. Many seemed to start their own consultancies (coaching etc.) in the good time. I guess that's good in the short term for us who stay, as the workforce has already been somewhat trimmed (and without having to pay x months sallary). We also have a strict expense stop and very tight regulations on travel as well as other kinds of cost reductions (officially in order to prepare for the expected reduced demand due to the financial crisis). However, we occationally had that during the boom years. Some of our customers have put off various projects/purchases, citing the financial crisis. Based on this personal experience, I definitely expect a full-blown recession in the economy, as all these cost cuts and layoffs everywhere will lead to reduced demand overall. I don't remember such a drastic demand reduction from the 2001 recession so I expect this to be deeper and longer-lasting. Everyone tells me I will be among the last to go, but I'm a bit concerned about my own job, but that's because I'm pessimistic about this HPC/financial crisis. I have both a plan B and C. I think the economy needs to go throuh a major readjustment. A lot of stuff that happened in the last 5 years seemed unsustainable, not just HPI. There was also a trend in private companies that everyone went for the "soft jobs" (coaching, HR, etc.) which ironically had wages comparable to or higher than people engaged in actual production for the company. Many people became contractors and scored sky-high wages doing more or less what they did before, but earning 4 times as much. In general, wages simply got way too high, especially compared with 3rd world wages. It is not sustainable that a monthly wage in the West, can buy an entire village in India or that people in China work for a dollar a day (or less?). The frightening thing is that if all this has to be adjusted in this recession, it is going to be very deep and so deep that governments won't be able to bail affected people and companies out. I am seriously considering migrating and have some plans for doing so. What western country do you think are on the most sustainable path right now? I'm thinking Canada which is also rich in natural resources and haven't required these crazy bailout plans. What do you think?

Real estate in Denmark is not civilized at all but this has only gained the attention of the media quite recently, although real estate agents have always had a bad reputation in Denmark. During the past boom years, the media have been uncritically printing whatever spin the banks and real estate agents have found convenient to bring and unfortuneately most people actually believed the hype. Everyone talked about real estate and at one point even I began to fear a crash might never come, because people were so hypnotized by real estate. However, just after I had these thoughts the market turned around. Interestingly, the media turned around quickly as well and became somewhat critical of bank experts etc. The same is true for the population, even those that were totally blinded in the boom years. I had never imagined that the supertanker would turn this fast and that the falls would come so quickly.

The VI's said the same thing in Denmark about FTB'ers who had been lurking and saving and would jump in as soon as prices began to drop. However, prices for appartments in CPH are now down 16% from the peak 1 year ago and seems to be falling steadily 4% per quarter (www.boligpriser.dk). Every few months a new magical solution to the crisis are announced by real estate agents. 1 year or so ago they introduced "klik-en-pris" (click-a-price) where you can bid lower than the asking price using the webpages of the real estate agents. This was a very much hyped feature that alledgly would "jumpstart" the market. Then it was the spring, the easter, the summer that would get people buying. Then when the fall arrived and sales were still on a record low, they said that the summer was not really the time people bought, it only appeared so from the statistics because the take-overs are in the spring. So actually, the fall was now pronounced as the peak time of house buying. Nothing has happened and in fact newspaper articles are getting more and more gloomy, with many articles discussing that the falls have been much greater than what the statistics claims, that 80% of FTB'ers who bought in early 2006 are now insolvent etc. And this was in a country with an extreme real estate mania just 1,5 years ago (even though prices actually had started dropping a quarter or so before that but had yet to show up in the officials) and all experts said house prices had never fallen more than x% (for single-digit x) etc.

I think it is unlikely that the motivation for only giving a limited guarentee is related to the alleged fact that only very few people have >35k. On the contrary, if this was really so, they might as well have guaranteed all deposits in full since the extra cost associated with guarenteeing in full over guarenteeing just 35k would be minimal and a full guarantee certainly sounds much better than a limited guarantee. The only valid objection against this argument is if the 1% of accounts above 35k contains so much money that it is at least a sizable fraction of the sum of the other 99% accounts.

This is very significant. In Denmark, house prices were sticky for a period of 2-3 quarters because the media, banks etc. kept pointing to the old statistics showing price stability even when "everyone" talked about how difficult it had become to sell a home. Then when the first statistic showing a a fall came this january, all the spin seemed to lose its effect and the fall accelerated. Now, all the media that used to carry VI spin is running doomsday headlines.

I agree this is an interesting question that I have often pondered. If you truly believe we are entering a period with massive inflation, the most obvious advice would be to buy real-estate using a fixed-income loan. This is because rates are now historically low and does not appear to "expect" a hyperinflationary scenario. Hence, if you are right about hyperinflation you could basically get a home for free this way (even though the first years might be difficult). The argument against this is the fact that rates ARE low so conventional thinking says you have to be more clever than the market for this to materialize. On the other hand, you could argue the low rates are due to massive monetary expansion by the central banks which is what will in the end cause massive hyperinflation. This is a somewhat paradoxical situation and I think it's a situation that will have to be resolved soon. Bond markets appear to think the central banks will protect them by keeping inflation at really low levels, and will raise rates should inflation pick up again (and there are many signs it has just temporarily fallen). However, stock markets are pricing stocks at prices only in line with fundamentals if rates stay low! You could also say that the property market is already hyper-inflated and now it is other goods and items turn to pick up. Property prices could even fall in the same period.

I can understand that many of you are cheering at pictures like this. Northern Rock has clearly contributed to the housing bubble by lending people money at high income multiples, so a bit of schadenfreude is in order. However, as others have also pointed out, don't laugh at the people standing in lines. These people actually have _real_ money and juding from the pictures don't look like smart-ass FTB'ers but more like older people who were raised to live within their means and to put a bit aside for the future. They chose not to gamble their savings on the property or stock market, instead playing it "safe" by putting the money in the bank. If that isn't unfair I don't know what is; these people are already being fcked by HPI due to the general inflation it has brought with it, and now they are at risk of losing their hard-earned cash. If they do, they will - in effect - have payed the bill for this crazy boom without enjoying any of its benefits

Here the money usually arrives the next day so it is gone for one day. Usually I wouldn't care where it is during that day but now it is interesting. Because if the money is cleared between NR and my other bank in the night, and if NR simply doesn't have the cash on hand then, then I doubt my current bank is going to cover it meaning that my money is still in jeopardy until it is cleared. Since the money has disappeared from my NR account my hope is that they are required somehow to stash it away on some account so it is ready when the central bank runs it sum-clearing procedure in the night.

The people in the lines could just be the tip of the ice berg. After all, most people would probably prefer to transfer the money using webbanking, at leat that's how it is here in Denmark. Nortern Rock also operates in Denmark (since March this year) but only does savings account and it is only possible to access your account online. They don't have any offices. It offers the highest savings rate of all Danish banks. I have (had) part of my savings in Northen Rock since March, but I transferred the money out at 0:30 when I got home and read about the emergency lending. The money appears to have been drawn from my account but I can't see them on the destination account yet. I don't know exactly how bank transfers work, so I don't know if I'm homefree yet or if the transaction does not finally clear between the institutions until after 1 bank day. Do any of you know? I just hope the BoE will keep NR breathing until I got the cash. Now I regret that I didn't just spent the money on that holiday Anyway, the depots in NR are supposeably protected by both the British and the Danish depositor insurance scheme but I don't have much faith in such schemes. In Denmark it is not backed by the government but only by a special fund that has about 350 mio. pounds in reserves. Not much IMHO - NR alone has Danish deposits exceeding 300 mio. pounds.

Yes that it is quite strange. I think the key is to focus on the entry-level part of the market. Who buys the entry-level appartments/houses that are usually bought by FTB's. If prices are too high, presumably FTB's aren't buying them or at least not in the numbers they are released to markets. As soon as all FTB's are priced out it's definitely a bubble but I think there can be a lot of randomness in the timing of when it is going to crack. Maybe it's a chaotic system: The crack starts because someone at a dinner said something and that was passed on to a journalist in a bad mood, ...