House of Paine

credit rations

evo annotates 
mike whitney counter punch
                 
whitney?

a  fearless 
expositor
 of the deeds
               of
                    wally world agentz

========================================


not to seem  too polonian
i'll not 
twack 'um with 
  "never a borrower or a lender be"

but i am fearful of being
too  pompous
and i'm sure u
know all this but any hoooo...


why don't i just annotate your excellent piece :



It's strange that Alan Greenspan hasn't been blamed 
for the housing bubble. After all, he set the "easy money" policies
 that put the whole thing in motion
 and he's the one who should be held responsible 
when it goes up in smoke.

---------------- absolutely perfect lead -------------------------------------

Let me explain.

Most people expect
 the Federal Reserve to lower rates
 when business is flagging 
to stimulate the economy
 by making loans more available
 for commerce, home buying, recreational spending etc.


-------------- here we may be getting off course
are u claiming this as a mere belief
as in flat earths ?

or is this also a plausible scetch of a possible system work thru ?--------------

 But, just as higher rates
 can stop the economy in its tracks
 by making money too expensive to borrow


-------------vague enough to be irrefutable
since high could be a real rate of say
100%
but in practice
i'm sure u know even the volker surge was not a "in its  tracks" type deal 
as we all know
its the cutting of loanable funds availablity that does the trick 
and that is done administartively 
top down  by reclassifying loan portfolios and raising"green light" standards ---------


---------------we jump  past good stuff here to...--------------- 

 when Greenspan lowered rates to 1% in 2002 he knew that money would surge into the economy and create the appearance that everything was hunky-dory.

--what he did to tweek house lending
allowed household spending to keep going
while wage incomes stagnated 
and jobs contracted 

if house lots rise in value 
the wealth effect on spending 
is positive

but more to the point

credit constrained job holders
now have more asset value  to encumber 
and as contstrained borrowers
always by definition
        at the borrow max point
they are blind  full blast ahead " stone chargers "

lemma here
       a system with free reserves
ie  rationed credit
         leads to pent up borrowing desireslike above market clearing wages 
leads to unsuccessful  job seekers

hence any " wealth effect"
     only operates
 on the lender side 
by enhanced borrower co lateral

but this too is deceptivebecause of a circularity 

if lenders lower standards
 real lending increases
 thus  fueling  asset  price rises
as buyers borrow max
against increased value
say thru a home loan 
spending increases without a wage rise 
or even maybe with a wage decline 

and credit constrained  buyers of houses 
always 
buy 
  the most house they can swing
the financing for....

now enter greengrosser

and his laissez faire reg policy

and the zyztem
does a volume of rate competition
race to the bottom rate
lowest standards


(why banks respond like this 
is too much detail 
                      some
stuff has to be stipulated
in any argument no ? ) -------------------


---more good stuff skipped -------------------
 .

But, what else did Greenspan's lower rates achieve?

Well, they achieved the results for which they were designed;


---------- beautiful green gross is operating from a real and jobling sinister planning sheet here
he knows what he's doing and he knows what it will lead to
 he  has the power to change it all
  and he doesn't so he must wish for it 

skipping your clearly correct bill of particulars ---------------------------



All of these were purely political choices made at the Federal Reserve under the auspices of Fed-chairman Greenspan.

Thanks, Alan.

-------------- again exactomente --------------------------------

Now, of course, Greenspan has signaled that the Happy Days are over 

------------perfect signaled
the fed rate is a signal flare
before the bombardment 
fed rates even t bill rates
have no causal effect on actual lending rates 
particularly household rates ---------------------


and that the Fed will continue to ratchet up rates to strengthen the dollar.

------------whoops about effect on dollar here
thats prolly not causal either outside a 1960's  intermediate macro text book 
             but not your subject -----------------


 So far, the Fed has raised rates 10 times in the last 14 months.
------------here u give
technically
the wrong cause 
but  the bottom line right result
which is far  more important of course
and which is .....-

(raising rates on household lending)---------
" eventually will strain the resources of all the poor slobs who took out ARMs
trusting s the soundness of the system. 
They will inevitably see their monthly payments go through the roof"

----------------ahh isn't this lovely

the 20 % of all hgouseholds
  with arms
 will have the "right "
to bare these arms
as the burden  takers
         maintaing the income flow 
to those massive pools of  securitized mortgages --------------------------- 


-skipping  more
           right there expo-ing  to ...-------------------------------


"He  (greenfinger)
  also knew about the "interest only loans", "the no-down payments", the shaky lending practices, and the exaggerated prices

-------------perfecto ---------------------


, but just like the 1990s, when he had every opportunity
 to raise marginal rates on stocks

------------read  the bush mills darling
    former ferderale and now white wash econcon adviser barananke on this

the fed line :
      stock price buubles should be ignored 
under 90's type conditions ----------------------------------------




" and stop the bleeding,"
 ---------- what bleeding ?
401k ?----------- 

"he kept the game in motion"

----exactly laissez faire plus a goose up or two 
but the fed let the stock bubble colapse 
without a credt policy change
question

why is real estate bubbling diff ?

answer

read bob shiller -----------------------------------------

"Greenspan knows all about "irrational exuberance"; he's its primary champion. The Fed seduces the public with cheap money, so that credit spending increases and, then, "presto", millions of Americans slip inexorably into indentured servitude."

----------exactly ..create a wage nation
built out of desperate householders --------------------

"Isn't this what's happening right now?

The American public is presently mortgaged up to the hilt with most of their personal wealth invested in their homes and with the highest level of personal debt in any period since the Great Depression."

-----------just had to let that ride i like it so much ---------------

Not good.

---------------and you give some eye widing whys ----------------


" this Greenspan-generated pyramid scheme is headed for the dumpster.
 The fundamentals for securing a loan have all been abandoned;
 putting traditionally unqualified applicants in a position to buy a home.
 42% of all new home buyers cannot even come up with a few thousand dollars
 for a down payment. 
 "nearly one third of all new mortgages this year
 call for interest-only payments (in California, it's almost half)" (NY Times)"


--------------good stuff
dropping standards are THE  story
when you're only doing up front
 "popints / volume biz"
rates with arms allow belower   rates
since the rate hoisting  hook 
 can always  come  later
when its profit on portfolio time 
the virtuous effect of this is hirer home prices as the payment stream can hold a higher mortgage 
the lot price component
of course can totally vanish
putting the mortgage under water
but thats chapter two ...---------------------------------------------
   

-- -----------more good stuff skipped  --------------


"Of course, none of this even vaguely resembles
 the activities of a "free market". 

"The market is not free 
when a privately owned banking system
 like the Federal Reserve 
sets the prime rate 
"and  fomc based  availablity  and
          sectoral  lending standards)
            according to its own political-economic agenda."


------------that is the lynchpin ----------------------


" his task as the country's foremost class-warrior"

------------------skiipping more savory stuff --------------------------------

"Greenspan fully grasps the danger of his current strategy
 of flooding the market with, what he once called, "easy money"."

 As he noted in an article he wrote in 1967 "Gold and Economic Freedom":

"After a mild business contraction in 1927 the fed decided the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in breaking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed."

----------- nice stuff too
but not house prices ---------------

" Let's see if we got that right?

"The excess credit which the Fed pumped into the economytriggered a fantastic speculative boom.which collapsed the American economy".

Sound familiar?

And who does Greenspan blame for the 1929 depression; the people who bought the stocks on speculation or the policy-makers?

The policy-makers."

----wonderful u deliver the papers to the right door -------------------------------

"The "speculative imbalances" (re: Housing bubble) were the work of the policy-makers just as they are today. And, in this case, that's the Fed-master himself."

------------- isn't it
       important to note the differences between house markets and stocksno one needs enter the stock market
but say you gotta move
to a new town
try staying out of the house market  --------------

"Greenspan's term at the Fed has been devastating for the dwindling American middle-class. In 1983 he worked to "fix" Social Security for upcoming generations. In fact, his fix was nothing more than a shifting of the tax burden onto poorer and middle class Americans by increasing the withholding for SS. Greenspan knew that the additional resources would be used to fund basic government operations and not stashed safely in a "lockbox" for retirement. His presumption proved to be accurate."


----------ah yes the great payroll heist of 84 
moynihan and greenspan
  pair skating gold medalists ---------------------

"He's also been an ardent supporter of financial deregulation, which has allowed foreign countries, particularly China and Japan, to buy up American assets and businesses. Deregulation has crushed America's manufacturing sector by forcing it to compete with the poorest paid workers in the world in head-to-head competition. Now, the US is teetering from its unsustainable trade deficit and must get infusions of $2 billion per day in foreign investment per day to maintain its current standard of living. Greenspan and his "free trade" friends have hammered the American worker and tilted the nation towards third-world status. At this point, there's little that can be done to reverse the trend other than a major overhaul of existing trade policies and a renewed effort to restore America's manufacturing base; something neither party has even recommended."

---------- much here to work thru
but not in this  eeeee ---------------- 

"Greenspan has worked exclusively to serve the interests of American elites.
 He has helped shape the policies on taxation, minimum wage and Social Security
 that have enriched the wealthy and battered the middle class"


" His lowered interest rates have perilously expanded credit and produced the "largest speculative market of all time". Whatever economic calamity befalls the American people certainly bears his imprimatur."

-----------can't say this enough
problem his surface hicking
   of the fed over night rate
gives him the fig leaf
well i tried reigning this in .....
 mortgage interest rates 
 did not respond for over a year
when in fact
he will finally act by sending in the regulatorson one of their rare
brief and punitive missions 
                           like he did in 89-------------
 
  

" The bubble was manufactured by Greenspan
 and his colleagues at the Fed
 to swindle millions of working-class Americans
 out of their life-savings---(the value in their homes??)---"


       "  and to facilitate the greatest transferal of wealth in American history."

 ----------------------- indeed vide russia circa 1991-95 for a warm up prelim -------------------

"The lesson of the housing bubble is simple: 
whenever monetary policy is put into the hands 
of privately owned institutions like the Federal Reserve
, those policies will invariably reflect the narrow interests
 of the men who own them and the members of their class."

-------------- perfecto nomero 13 ---------------------------

That's why Thomas Jefferson warned,
 "Banking institutions are more dangerous than standing armies."



------------ lovely quote  -------------------



credit generation  
is as  adminstered  
as capitalism
          can get 
 
 it  has its wall street version of a  gosplan 
                                                             the fed  


for the wall street bankeroos 

rule one 

forget  marshall 

forget  the supply and demand paradigm entirely

why?

simple 

 the  current  vector of actual 
     loan by loan
                  interest  rates
is   not 
    the   set of 
                   spot market prices
                                for" variously  risky
                                                    money loans "
they are rations

         allocations

doled out from a casquade
not from one point 
like steel in stalin's  third five year plan


not all that counter intuitvie really 

this side of the shylocks 
 i don't think anyone  believes
a biz loan is 
available  to any and all
                         " at some mutually acceptable  rate "

that is a market 
running on a clearing system 

fish at the dock 

elvis plates 

whatever those we can talk of in supply demand terms

even with wild cautions and caveats 

stocks and house lots 

but 

the two commodities that matter most in a cap system

credit and labor

are not  bought and sold
       on  marshallian markets 
not even close 

-------- stiglitz here --------------------

so what are we thinking
  if classification ie book keeping fiddles
can gravely effect apparent earnings 

 allocation by profit max 
in this context means 

follow the feds  risk regs 
or see your paper profits zinked away in a reclassification 

so in phase one

the fomc which could easily change bond rates buy buying or selling 
tries to stay neutral 

eye on wage rates 

the notion of the direction
            of  net job change plays a roll here 
but very much augury covering schemes 

laisez faire phase 

banks lend with a threshold test 

info so bad barely better then guessing 

but in a rising economy
      even low lifes cash flow
can service a loan 

the dynamics here are key 

perhaps its best to imagine how a credit system would operate in a marshallian realm

i want 2 million bucks

my numbers are run and the algorithim spits out a rate and pay back terms 
obviously these two dimensions can be moved in tandem to retain the same value to the loaner

so an array of optoions gets offered 
forgeting horse trading in the range betwen ech parties walk away rate and terms  


but what then is the policy cycle  up to 

here u are on far clearer ground



think classification of loans
think expected value 
think....augury as a cover for raw arbitrary 
             doles and calls 

like water in an irrigation system 

 think  of multi tiers 
                       like ponzi 

tier one 
  fomc 
that is the wishing well fraud center 
as you quite nicely bang away this is a subsidiary of wall street