Monday, August 27, 2007

Alternative to BBC bias

Home Resales in U.S. Probably Dropped in July for Fifth Month

Aug. 27 (Bloomberg) -- U.S. sales of previously owned homes probably fell in July for a fifth consecutive month, showing the housing slump that triggered a collapse in credit markets will drag on, economists said before a report today.

Posted by novicepete @ 12:23 PM (1232 views)
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9 thoughts on “Alternative to BBC bias

  • “The long unwind in the housing sector will continue well into next year,” said Joseph Brusuelas, chief U.S. economist at IDEAglobal in New York. “The inventory of new and existing housing is far too large. The subprime crisis has eliminated the marginal buyers from the market.”

    Unless anyone else here is a chief economist at an economic research organization, I bet I know where the smart money will be. Not in housing or US stocks.

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  • As regards the UK, i can only get so excited. It is the middle of summer when seasonally nothing happens anyway.

    Vested interest is liable to want to say everything is slow right now to avoid further hikes.

    When i attend a few dinner parties and people have stopped talking even tentatively or hopefully anymore about how much they made on their property, but lament the fact that the 300,000 it rose by (and which they spent) had left them unduely focussed on that for the best part of the decade and cost them 10 times that amount in opportunity costs of doing really productive things and assembling real wealth (out of breath)…. THEN I will know that we are headed in the right direction.

    Anybody noticed that the mobility of the workforce might have been affected significantly because people stay where they are rather than pay large amounts of stamp duty.

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  • There are untold side effects of a credit led expansion. Let’s get this straight though – this is no failure of democracy, it’s a chronic failure of unfettered capitalism.

    Unfettered capitalism is like locking the dog in the pantry. The dog is a greedy animal and won’t ration it’s own consumption by default. Therefore the first night, the dog eats everything in sight, throws up and sleeps. The next day it goes hungry. And the next and the next. Unless there’s intervention, the dog dies on the sixth or seventh day. Communism attempts to regulate the consumption of the dog over an arbitrary period by giving it one morsel a day, therefore all but guaranteeing survival albeit as a miserable existence. Socialism leaves it up to the government to decide who should or shouldn’t get the food. Generally, the government gets most of it.

    So what’s the answer? Well, the answer is probably capitalism, being the worst of all of the evils. When left unchecked though (as in my dog analogy) the dog cannot be left to ensure it’s own survival.

    Left to its own devices, the credit market would have dried up a few months ago because the credit-led expansion was the equivalent of eating everything in sight. Now, the central bank has unlocked the pantry, given the dog a pat on the head and thrown it some more food. So much for the wisdom of central bankers. They’re the ones that put all the food there in the first place.

    Can you teach that old dog new tricks? Not likely. The dog has already contaminated its own food supply and its habits won’t change. The only solution is a step change in regulation to make sure that the dog is more disciplined in future.

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  • Great analogy Paul, as we now know that Dave is a student does he have an opinion considering that he said house sales had increased over the Pond.

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  • Some varying thoughts:

    regulation is an issue although the normal response to an event such as this is to drastically increase regulation. This merely restricts fair competition & innovation.

    It is not the regulatory powers that need much adjustment – after all i asserted on this forum many times around 6 months ago that the regulatory authorities needed to have an open letter out to the banks asking them very tough questions on lending practices.

    I was thinking in particular of self-certified mortgages as a starting practice at the time. I stated that they needed to remind these executives to assess very closely whether they were employing negligent lending practices. A reminder was necessary that the later recovery of the current bonuses they were receiving would be a minor problem if this was the case.

    It was perfectly within the powers of these organisations to do so. And yet they did not issue such a letter to my knowledge (and maybe still have not) . Why? If you have given somebody the power and they don’t use it? Is there another human behaviour that makes increasing regulation not the route and infact detrimental for other reasons? Can this other behaviour be addressed?

    It is arguable that regulation of who could be a credit reference agency for the purposes of stamping certain financial instruments indeed led to a significant problem (as is always the case when you restrict who can do what unnecessarily). This system however is easily replaced with more open and transparent systems these days. All will become clearer shortly.

    Then comes the framework. Some people incorrectly think that everything should work in a pure darwinian fashion. Some indeed mistake free market activity for this.

    This is not free markets, capitalism or anything else. Free market activity is a game to be played within rules whereby everybody plays until a small number of parties become dominant (or one party) because they were the best at the game. Then we hit the reset button (well not quite) and drag them back a bit so everybody else can still play. Those are the rules of the competition in order that the most people benefit. Summarised like this it is infact a highly social programme.

    So it is the responsibility of the democratically elected powers to set a light framework for the game to ensure it all works. And by and large it does.

    This is until we get interference. The dreaded words “bail-out”.

    1. After the heady days of the dotcom “crash”. Greenspan et al. reduced rates to a record long low. This is the seed of much of the problems we had today. The lesson people took away. The existence of the Federal Reserve put insurance on their behaviour.
    2. LTCM – 1998. Arrogant mathematicians caught thinking their models were how reality should work and nearly dropping the financial system in the process. Professional investors seduced by arrogant mathematicians, PhDs and Nobel Prizes. “Bailed out” by 15-16 other banks. Lessons people took away; dont leverage too much(actually useful). Lessons people should have taken away; dont take a base model that involves rough assumptions and start building a skyscraper ontop of it as though you have mile deep concrete foundations.
    3. BofE reducing base rate (part of 1. but for this country) – simply lowered the “framework limit” of the private banks lending game to a silly low. Banks raced with each other to lower rates to bring in income with a complete disregard for capital recovery. (and using some of the instruments created by people who didnt learn properly from 2.)

    We are now at a stage where behaviour has become so bizarre that we will limp from “crisis” to “crisis” on a weekly timescale.

    Time to fix the bust.

    In addition the economy itself , appearing so robust to a lot of people, is merely bootstrapped on this activity. It is far from productive and it will fall faster than a house of badly stacked cards.

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  • The BOE’s stance as ‘lender of last resort – but it’ll cost you’ seems entirely reasonable and sensible – what the ECB was up to seems much more questionable..

    Not that it matters much to the housing market – most property in the USA should sell for roughly it’s contruction cost, less an amount for age related depreciation. Only a minority of properties can justify a location related premium. Slowly and painfully, prices will settle back to that level, but it will cause a lot of negative equity, and a slowdown in consumer spending. A recession in the US looks pretty much inevitable.

    With property bad news stories rolling in from the US, Australia and the Continent, I wonder how long the argument ‘but Britain is different’ can hold up.

    The moment the speculators start having doubts about the UK market, and stop buying, the rot will set in – once it does, nothing will be able to arrest the fall…

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  • Thanks Paul & WhiteKnight.

    I spent some time over the holiday with a hedge fund manager and a wealth fund manager. They pretty much accept that the west is over borrowed and under regulated.

    Expect crises to continue at a regular rate for the forseeable future…..! We are in for a bumpy ride.

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  • Happy? said…
    So much for the bias about BBC bias:

    http://news.bbc.co.uk/1/hi/business/6965726.stm

    Yeah OK, the beeb have covered the story and I admit I was hasty to criticise. My post was intended to counter a statement by david2004 on another post with this link in it

    http://news.bbc.co.uk/1/hi/business/6961602.stm

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