Too Good To Be True

Like Lemmings to the Cliff

Your Shiny New SUV is About to Crash the Economy

Peter Hitchens
Dailymail

Just after the last crash, in November 2008, the Queen asked a roomful of academics and economists why they hadn’t seen it coming. She won’t have to do that next time. This week the klaxons started to sound. Another crash is on the way.

And so if you wake up one morning and the cashpoint machines are empty, and there are long, angry queues outside famous high street banks, you, the Queen and the Government will have no excuse for being surprised.  The warning came very clearly from Alex Brazier, a director of the Bank of England, in a speech in Liverpool that ought to have been on every front page and at the top of every broadcast news bulletin.


Great fleets of such cars are pouring out of showrooms thanks to easy-money loans called Personal Contract Purchase (PCP)

For if he is right, all the controversies, from the EU to Donald Trump, that fill the bulletins will shrivel into nothing pretty soon. Of course he did not put it quite like that. He has to be cautious. He said: ‘Household debt – like most things that are good in moderation – can be dangerous in excess. Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.’

Avoiding the Inevitable

Not a Pretty Sight

Only a fool tries to avoid the truly inevitable.  A wise man will face up sharply.  In our days we are governed by men who are fools.  They are trying desperately to avoid the inevitable.  Their one excuse is that the voters want them to.  They know full well that if they faced up to the real economic situation facing New Zealand and the rest of the developed world there would be riots in the streets and they would be voted out at the first opportunity.  

Their approach, therefore, has been to practise the equivalent of palliative care.  Maintain huge deficit spending increases, trim back at the edges, sell a few assets so we can temporarily pay off a bit of debt, make the patient feel as comfortable as possible, and wait.  Hope for a recovery that will allow us to trade our way out of the recession, thereby avoiding a genuine depression.  Kick the toxic can down the road for our children and grandchildren to deal with.

The Governor of the Reserve Bank, Dr Alan Bollard sounded almost plaintive yesterday as he lamented the parlous state of affairs.

Institutional Blinkers

Purblind Central Bankers

The causes of the Global Financial Crisis are complex and multi-valent--as expected.  One individual who shares a good deal of the blame, however, is Alan Greenspan, former chairman of the US Federal Reserve.  Greenspan deliberately kept interest rates low in the US (and thereby in much of the world) during the critical period of 2000 to 2004.  It was during this period that house prices began to inflate rapidly.

In May 2000 the US federal funds rate (set by the Federal Reserve) was 6.5 percent.  Then the dot-com crash happened.  Internet and IT companies had been a hot item on the stock market, trading well above their intrinsic value.  Suddenly, as is often the case, the mood of the market changed:

The Second Global Financial Crisis, Part III

Nursing our Malice

When the Global Financial Crisis hit many pundits argued that Western capitalism had failed.  They had a point.  Half a point.  Capitalism is essentially the private ( as opposed to government) manufacture and trading of goods and services.  But such a non-government, free trade system cannot survive unless it is built upon a foundation of integrity, honesty, and the prevention and punishment of theft. Capitalism only prospers and benefits the majority if it cares deeply about the sovereignty of other people's property, believing that what God has given, let not man take away.

The Second Global Financial Crisis, Part II

Meeting Obligations, Or Not

In a previous post we argued that little of any significance has been accomplished effectively to regulate investment banking.  There is no doubt whatsoever that global investment banking, which had been dominated by US companies, had been responsible for the Global Financial Crisis.  As a result of government actions, risk is now concentrated in that sector more than ever before.  If institutions then were too big to fail, there are bigger now investment banks.  Moreover there are less of them.  Risk is therefore exacerbated and arguably more acute than 2008.

Why do size and number of investment banks matter?

The Second Global Financial Crisis, Part I

Defalcation on a Unimaginable Scale 

We are nearly four years on from the Global Financial Crisis.  It has achieved the status of its own acronym (GFC)--a sure sign in modern parlance that it "means something".  Its effects are still with us and some assert they will ripple out for a further decade. Has the problem been solved?  Far from it.

In short the regulatory changes made, particularly in the United States, have been both inadequate and even those passed, ineffectually policed.  The causes of the original crisis were manifold; the solutions, however, appear straightforward.  They have largely been ignored.

Greedy Capitalists, Venal Politicians, and Voters

 Have Some More Money

J P Morgan, the biggest bank in the US, has lost a couple of billion dollars on a bad trade.  What's the odd billion amongst friends, eh?  Oh, no.  Gasp!  Horror.  Something must be wrong within the innards of what President Obama has described as "one of our better run banks". 

A phalanx of police and federal officials has descended upon the once-shining-knight, now tarnished JP Morgan to investigate what happened.  No doubt it will add to the swelling chorus for more regulation, controls, rules, and compliance that failed the last time in 2008 and have failed in their object ever since. 

The truth appears much, much more simple, yet sinister.