Wednesday, February 13, 2008

Simply absurd in our mad, mad, mad, mad world

Simply absurd in our mad, mad, mad, mad world

"The credit crunch (and its genesis in the sub-prime mortgage swamp) reflects monolithic madness. Lending enormous sums to people whose main source of income is a welfare cheque was bizarre enough. But pouring their obligations into a cocktail shaker and expecting it to produce triple-A securities is bonkers"

Posted by becky @ 07:30 AM (918 views)
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9 thoughts on “Simply absurd in our mad, mad, mad, mad world

  • Public perception takes a long time to change and hopefully a steady stream of articles like this will eventually make the majority realise how reckless politicians and bankers have been, relying on the easy option of increasing debt, offset against a supposed increase in housing values for economic growth.

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  • Good to see the madness of what happened is finally filtering through.

    ”expecting it to produce triple-A securities ”

    The AAA name was intended to mislead. Someone should sue.

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  • Becky, completely agree, but this is written in the Daily Telegraph and with articles such as “Shock house price rises” in the Express, it may take a bit longer to hit the man / woman on the street LOL.

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  • Fantastic piece of writing and oh so true. Particularly enjoyed the bit about the CPI being reported as 2.2% but nobody believes it. The CPI is one of the biggest jokes in UK economics, Consumer Prices Index more like Comical Prices Index. The only people for whom CPI is 2.2% are dead.

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  • planning4acrash says:

    CPI isn’t a joke, its a repressive instrument of the state that is used by government to negotiate low pay settlements with public workers. It has become an instrument for sustaining a house price boom by default because it artificially reduces interest rates.

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  • David Smith swore by it. He would have no one who blogged in question it. Someone told him and his bloggers once that they thought it was about 4-7% and he just would not have it!

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  • Dear Denzil,

    The CPI and RPI indices are calculated from a basket of goods and services each of which is given a specific weighting within the index. Goods which form a larger part of typical expenditure are given a larger weighting than those which make up a smaller percentage. The ONS measures typical expenditure patterns using a series of surveys, such as the annual Expenditure and Food Survey (covering 12,000 households), the Annual Business Enquiry and the Retail Sales Index. These surveys are then used to calculate the weightings in both the CPI and RPI indices (although the methods used vary slightly). How are the weightings in Jeff Randall’s Price Index calculated?

    Both the CPI and RPI measures are based on a sample of 650 representative consumer goods and services. The actual number of prices sampled is 120,000 each month in 150 separate geographical locations. How many prices does Jeff Randall sample? The methodology behind the ONS figures is freely available on the web. Jeff Randall doesn’t bother with anything as tedious as a methodology. He just guesses.

    It is often said that the CPI measure of inflation is “fiddled”. Presumably this means that the ONS is manipulating the weightings so that goods and services which are falling in price are over-represented whilst those which are rising more rapidly in price are under-represented.

    This is a serious charge, so where is the evidence? Does Jeff Randall’s article prove there are significant discrepancies between the weightings in the British CPI measure and those in, say, the European Central Bank’s CPI measure or the Federal Reserve’s CPI measure? Does it present any evidence that such under-weighting is being done on a systematic basis and that it the result of external political pressure? Since all of this data is freely available on the web it should be an easy task to supply it. So where is it?

    You should remember the the Daily Telegraph is an anti-Government newspaper. At the moment it is trying to talk up a recession and a house price crash. You should realise it has own agenda for so doing.

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  • Young_mark,
    thanks for the considered response. I read the available pdfs on the weightings and items in the basket. I would have liked to have seen the exact item used in the basket of goods for each measure not just the type of item.
    I know my personal inflation is around 7-8% and I would say I’m a fairly representative family man.
    Regarding Randall, his comment was, “the Government insists that inflation is running at just 2.2pc. I don’t know anyone who thinks that rate reflects the real increase. It’s nuts.” Yes not very scientific, agreed, but the point is that Randall has picked up on the fact that many people are sniggering at the standard 2.% that is dished out.

    I don’t think the figures are “fixed”, I think the device used to measure inflation is incorrect and probably needs to be updated. I would like to see a cross-party and academic approach towards a new measure or at least an evaluation of the current one because people are rolling their eyes collectively at the CPI.

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  • Van Hoogstraten says:

    We’ve already debunked the CPI myth when some Nu Lab troll called Zorn used to come on the site and argue the toss.
    The weightings are ridiculous – i think eating out (which for some people is relevant) carried a higher weighting than energy bills (which for all people bar maybe tramps is relevant).

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