economics

Oh yes, How could anyone have possibly known this would happen!

http://online.wsj.com/article/SB121599777668249845.html

Really folks, we've known for over 6 years, that these guys were playing poker with the new improved "Taxpayer's Gambling Insurance" and almost exactly nothing was done to stop it. Incidentally, that implicit knowledge of a bailout gave them an approximate 40% edge when raising money from investors.

If you want big money, don't bother stealing it, get the feds to back you then drive your company into the ground.

I've been doing some thinking lately and it is leading me in a new direction on my thinkings about a fluid economy. We are in a recession. People can debate me about the technical meaning of the word recession, and those people can feel free to employ the term 'economic downturn' or 'slowing economy' - whatever; recession.

I had been of the opinion that 'economic downturns' were a fixture of a regular economy. That these things happen in pendulum swings of sorts, like the world economy breaths in and out and nations are just taken along for the ride. Breath in: growth and prosperity, breath out: recession and job loss. And that, to some degree, this was a good thing, as semantically everyone everywhere couldn't always be profitable.

But now, I feel I've been alive long enough, and have personally witnessed enough of these events that I think I can call that line of reasoning wrong. This change in thought comes at the heels of a LOT of thinking about sustainability. Every one of these economic downturn's in the U.S. has been caused in turn by a trail of overspending, poor accounting, and frankly bad common sense. That is to say, there is no chronological swing of the economy.

There are, natural economic events, that, I'll grant can cause micro-setbacks - as the recent events of the river have shown us; or rather our corn crop. But these events cause smaller ripples, and short of a long chain of natural disasters aren't going to provide the basis for a nationwide, or global economic downturn.

The difficulty lies in tracing any economic downturn to any single event and then quantifying a ruleset that is sustainable. Well, heck, what is a poor practice? I'm working my way towards a set of Sustainable Business Rules - which someday I may publish, but for the purposes of today's article, lets just look at some cases from this particular economic crunch. I like the fact that my blog has been online that I can point to some old articles where I spoke about these things as they were happening.

Freddie Mac and Fannie Mae just slid 18% on the market in a single day. Interestingly, recent accusations of cooking the books go back to 2004 http://www.workers.org/2005/us/housing-0505/ So, while it may seem like new knowledge now that the entire housing market was propped up on false data for an extended period of time, it wasn't. These early warnings were ignored or dismissed. Overstating profit of GSE's (government sponsored enterprises, or limited monopolies) seems to be a common factor in these things.

When Entire Stock Markets need to be bailed out by the Feds - Aug. 2007 - we should probably acknowledge that something went screwy and do something about it, instead of burying it in the news.

Congress allows National Debt to top 9 trillion (insert previous high water line here) for first time in history "The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes." in Mar.2006 - currently $9,506,133,823,396.86 - National debt in and of itself isn't a bad thing. Rising national debt out of proportion with revenue is.

I realize I most recently wrote this - about poor accouting in Iraq http://www.treslervania.com/node/427 , I had forgotten that I had also written this, long before the fact. http://www.treslervania.com/node/149 - "Funnelling Taxes Through Iraq" - the point isn't to say "I told you so" but that Government Accounting in general needs to be tighter on the Military Industrial Complex - particularly the contractors.

There are many more than that, but those are just grist for the mill. The larger point is that I think a periodic downturn, is really a periodic 'forgetting of the rules and why they are there.' Wealth - Disaster - Recovery - Caution - Laxness - Wealth cycle makes a pretty good sine wave, and it is easy enough to make Time the X axis, when perhaps "Recent Human Memory" would be a better X axis.

Of note, we also have tendency to refuse to look at the bigger picture, wanting to deal with specific issues. It is too big to think of changes in the housing market, student loan market, credit card market, national spending and taxation, hedgefunds, etc, but many of us feel we have a handle on any one or two of these. Too bad it is the big picture that matters.

Has anyone else noticed the World Economy collapsing over the past week or so? I mean the markets aren't great in th US, but the ECB has also injected 7.7 billion euros into the world money market today following a whopping 61bn last Friday.

THe US Federal Reserve... $38billion Friday, more today.

Is this normal? It can't be.

The culprit? The US mortgage market and credit cards.

Here's a rule, 'money' doesn't exist without 'collateral'. I'm sure some higher level economists would disagree with me, but stick to that and its hard to go wrong. Start inventing money, Refinancing against outdated property values, charging credit cards against potential income... it gets shakey.

This is actually a pretty scary move. Japan $8.5 bn, Aus. 4.95billion.

Injecting money into the money market, as I understand it, please correct me if you know better, is a practice that came about after the last workd collapse (The Great Depression anyone?). THe idea being if the government banks keep enough money back to offset to prospective money that evaporates when there is a scare they can prevent a run on normal banks.

All that, of course, implies that a crash *should* have happened this week, of large proportions, and didn't cause we had safeguards. But that stikes me as a safeguard that shouldn't be used often.