And this was before the credit crunch.
Given that cafe society in places like England, has grown massively in the same period, this shows quite how extraordinary France would have appeared then.
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Krugman: “This is an economic emergency.“
Accross the Curve (the best finance blog, of which I barely understand 50%): “The break even spread on 10 year TIPS is about zero. The market is predicting no inflation for 10 years.“
Calculated Risk: “The current stock market decline is the worst since the Great Depression.”
This has to be capitulation point.
Valleywag folds, or not quite – it gets spliced into Gawker and the URL stays.
For my sins, I came up with Valleywag’s name, but never really liked it, compared with other Gawker properties, not because I think its cruel to gossip about media shy millionaire geeks, but because gossip about them isn’t that interesting.
The recession gives an excuse to kill Valleywag, without looking defeated, firing a goodbye torpedo at Web 2.0 in general and distancing Gawker from the coming tech. startup train wreck.
“Think of Ireland. Rotate it 90 degrees clockwise, make it a third bigger and hang it like a pendant from the Arctic Circle. Crack open the earth’s crust below to release limitless supplies of geothermal steam, then fill its territorial waters, all 200 miles of them, with an abundance of cod…Now allow this country’s banks – virtually unregulated – to borrow more than 10 times their country’s gross domestic product from the international wholesale money markets. Watch as a Graf Zeppelin of debt propels its self-styled “Viking Raiders” across the world’s financial stage, accumulating companies like gamblers hoarding chips. Then sit on the sidelines as the airship flies home and explodes, showering its blazing wreckage over this once proud, yet tiny, nation.”
Robert Jackson’s definitive piece about Iceland. A middle class, white, failed state..
via the excellent Naked Capitalsm
After years of econo-racist put downs about France from wild-eyed libertarian, nutcases, a country with a great quality of life and a degree of balance, gets its revenge. France has narrowly avoided recession this quarter with the only growing GDP in Europe, outstripping both the UK and Germany.
Sure setting up a company is a nightmare in France, and it is living in its past, culturally. But it is not exactly Communist, with the word’s largest retail chain after Walmart, and living in a glorified museum isn’t so terrible. Workers are more productive in France than the US (GDP per hour worked), and you actually get vacation time. Its social healthcare system provides more comprehensive cover than the patriotically championed UK National Health Service and is twice as efficient as the US’s virtually non-existent one. The veiled racism (no pun intended) about the dangers of Islamification of France and of anti-Semitism, forget that there are more Jews in France than anywhere else in Europe (twice the Jewish population of the UK) and it is still the most secular nation in Europe, which is much more secular than the US. Most important of all, however, it is a country famous for food, wine and sex. Far more fun than working 50 weeks a year, eating fried food and being preached at.
France is a nice place to live. It will be interesting to see how long it is before half of the 200,000 French living in London question what it has to offer without money, and I give Loic Lemur 6 months before he returns from an agreeable, but ultimately parochial, Bay Area.
At 5am this morning, 90 years ago, the armistice that ended WWI was signed. This will be the last major anniversary commemorated by veterans, since there are only 10 surviving and the youngest is 107. Ironically, I owe my life to the conflict itself, because my great-grandfather’s brother was killed, and his fiance ended up marrying my great-grandfather.
Although the truce was agreed in the early morning, it did not come into effect, officially, until 11am. This technicality resulted in a horrifying fact. In the 6 hours between 5 and 11, three times as many people were killed as America has lost during the entire Iraq War or 911. More people were killed than in the D-Day landing, and more Americans were killed than any other nation. This was because most generals decided to stop fighting, but America’s commander, Pershing, specifically ordered attacks right up until the last minute.
In Pershing’s defense, he believed that the enemy needed to be forced into unconditional surrender, or there would be another war, and that every last second should be used to smash them to a pulp. The consensus view, however, points to the opposite, that it wasn’t the softness of the allies that eventually caused the Second World War, but the harshness of war reparations, German economic collapse and subsequent climate of political unrest and extremism. After seeing millions of people being slaughtered, you would have thought that Pershing might have had enough. If I’m wrong, Pershing’s posthumous reputation has been imperceptibly dented by an obscure blogger. If I’m right, Pershing is responsible for thousands of people’s deaths due to his arrogance, incompetence and blood lust.
Despite these losses on the last day of WWI, America has never had its equivalent of the battle of the Somme (although the Civil War comes close), the resulting patriotic capitulation and distaste for: war; national debt and people like Pershing. And people still take pictures of families sitting on bombs, smiling.
Is the matter in the universe arranged in a fractal pattern? A new study of nearly a million galaxies suggests it is .
Although there is no mechanism to describe this, I would have been extremely surprised if it weren’t the case. It implies that matter itself is balanced on a knife edge state of existence between order and chaos and suggests two competing, balanced, forces, applied algorithmically, somehow (a mapping). It also suggests that the mechanism for creating fractal structures such as weather patterns and living things is related to something bigger. Perhaps a cosmic level natural selection via the 2nd Law?
I bought a house in London in 94 for 30% of what the previous owners had paid for it (people who thought house prices only ever went up). I sold it in 2001 for 600% of what I paid. Seven years later, after selling a company for $30M, I could not afford to buy it back from my share of the proceeds. In theory, I would have made more money had I stayed at home for the last seven years watching television.
In short, if you bought into the British dream then you implicitly believed that it was a better idea, financially, to buy a house, become a crack addict and do nothing for more than half a decade. If you believe this, as the statistics imply, then crack is what you are smoking.
So here is my Crack-o-meter guide to lingering UK house price delusion:
This ridiculous orgy of money-for-nothing greed spawned a dozen of TV shows which replaced architecture for window dressing in order to make a quick buck. This should have been the early warning sign. 50% of British TV (even here on BBC America) seemed to be one giant infomercial for the economic potential of your own living room, if you bought an IKEA lamp and painted it orange.
Conclusion: early experimentation with crack
After house prices started to level, plot lines were running a bit thin on ‘half hearted house makeover: paint your front door and make half a million quid’. The leather panted ponce who presented one show I watched took a new tack – falling house prices were a good thing, you could make money because the rungs on the housing ladder would get closer together and you could move up more easily. Unbelievable.
Conclusion: social crack smoker, says he/she can give up.
As house prices started to drop the mantra was that ‘house prices never really drop, they just stagnate’. However, a graph of UK and US house prices compared to Japan showed that this was patently false. See here.
Conclusion: habitual crack smoker.
Since I posted the graph comparing UK/US in August 07, the US has experienced dramatic falls in house prices. The median house price in Detroit has dropped 57% in one year to less than $10,000 (this is not a misprint). This is less than the price of a breeze block garage in a deprived area of England. But the sub prime market in the US was believed to be an isolated problem that would not affect the UK.
Conclusion: mental impairment from crack smoking.
The catalyst that created the UK house price boom in both the 80s and now, financial industry bonuses, has vaporized. The subsequent layoffs and contagion of the broader economy have only just begun, while 97.3% of UK houses have already declined in value by an aggregate 13%, before the crash.
And yet: 32% of UK home owners believe their house is not worth less and 38% believe it will not be worth less in future and 30% believe their house price is about to go up. Irrational denial is revealed by the fact that statistically, people think their own house will hold value but not the next door neighbors’. But the irrational denial does not stop there, real estate companies predict another 15% maximum price drop (and this is the gloomy prognosis), starting to correct next year. I we look at Japan things could be a lot worse.
Conclusion: crack dealers.
He is my prediction. In two years time, I will be able to buy a house in England, and I will pay less than 50% of what it was valued at the peak. The aggregate will not decline by as much, but the decline will nevertheless be catastrophic. At that rate I will still be getting a worse deal than my last house, so this is hardly without precedent. Am I smoking crack? We’ll see.
[source]Surreal but true, a sign of unpredictability punishing South West who hedged against fuel price rises. Perhaps this gives some idea of what is in store for hedge funds. Link
America’s financial system has taken a beating, all of the top brokerage firms and banks went bust or were partially nationalized in a panic that caused US banks to be rated below Namibia.
For an ordinary retail bank customer from another country, I have always found US banks surprisingly primitive. Could that really have anything to say about an endemic problem from over the counter to prime brokerage like Goldman Sachs? Why is the service at American retail banks so bad when the service at American retail outlets is so good? Why can’t a bank work like PayPal? And most of all, why is this the case in the global epicenter of capitalism?
I’ve been in America ten years now, and still use my UK retail bank because it allows me to do things by phone, that my American bank down the street won’t allow in person (such as transferring money without endless forms and pieces of paper).
There is almost nothing in europe that requires the arcane process of writing a paper check and mailing it. When I found out that my online automatic bill payment system actually resulted in a paper check being printed out placed in an envelope and mailed, I nearly fell off my chair. This is technological equivalent of finding out that there are little people inside the TV.
After moving from San Francisco to New York, I kept my Wells Fargo account, then found out that there were no branches in NY and no reciprocal agreements, no way of arranging a wire transfer without a weeks delay in sending bits of paper back and forth, no free interbank exchange and ATM withdrawals charged more than the money I made in Interest, for an entire year.
American banks do not allow credit ratings to be imported, so you have to build a new score when you move from abroad. Unfortunately, if you pay your bills on time and don’t borrow money you cannot get a credit score. In order to do so you have to borrow money. In other words to get a credit score you have to get into debt. I have a credit card that is linked to my cellphone bill and is used for nothing else. The sole purpose is to enable my credit score. This is farcical.
Today, a friend tried to transfer money to our US account from Europe only to be told that the US bank had been blacklisted. Although I find it hard to believe that this is true, my level of credulity is changing.
I could go on, but the point is that the anecdotal experiences mean that something is rotten. But we all know that now.
John Cassidy has a great review of George Soros’ new book, ‘The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means‘.
Cassidy describes how Soros re-iterates his empirically derived theory of economics which explains why boom bust cycles necessarily happen in unregulated markets. The concept of inevitable instability is something rejected by the extreme free market view, based upon the monetarist economics of the Chicago School: Milton Friedman; Eugene Fama; Robert Lucas. They believed that free markets would always reach a stable equilibrium.
Nothing has defined the period of American hegemony from Reagan until now more than monetarism, which has transcended economics and morphed into the broader political ideology of libertarianism. The current financial crisis, with its massive-scale, state intervention, shows nothing other than the complete failure of monetarism and with it, libertarianism.
Soros has an economic theory that is an alternative to monetarism and explains why crashes happen, it is derived from experience and is not mathematically formalized. I know almost nothing about economics, but I know a bit about information theory, and it seems clear that Soros’ theory while possibly true is not needed, since the monetarist view surely contradicts some very basic laws of physics.
First, the background. Cassidy recaps how the Chicago school “had invented a new way of doing macroeconomics, known as the rational expectations approach, which enshrined in higher mathematics the stabilizing properties of unfettered markets… If in one period the economy gets out of sync, in the next period it jumps back to the “equilibrium” defined by the model.”
Cassidy goes on to show that “Soros had neither the inclination nor the technical ability to challenge the Chicago school’s formal arguments…What he does possess, however, is voluminous amounts of firsthand knowledge gained in the financial markets, together with a keen interest in formulating a theory on the basis of his observations.”
Soros developed the idea of Reflexivity, a “two-way feedback loop, between the participants’ views and the actual state of affairs.” He clarified reflexivity to critics who “claimed that I was belaboring the obvious, namely that the participants’ biased perceptions influence market prices. But the crux of reflexivity is not so obvious; it asserts that market prices can influence the fundamentals. The illusion that markets manage to be always right is caused by their ability to affect the fundamentals they are supposed to reflect.”
In other words, the instability in markets is due to the feedback loop founded on us seeing things slightly wrong and acting on these perceptions which in turn actually changes the reality, allows it to be perceived with different uncertainty again, and so on.
The Soros view requires human perception to create chaotic fluctuations, but there are many things that behave chaotically, from eco-systems to the weather. Over time, all these things exhibit both cyclical and unpredictable behavior regardless of perception.
There are systems which self regulate to stability like the temperature of a hot bowl of soup in a closed room, or anything which runs down. This is called the second law of thermodynamics – over time entropy never decreases.
There is, however, a massive difference between systems that are inherently stable or will run down and ones that are chaotic. The former are always closed systems and the latter are open systems.
The economy is not a closed, running down system. Energy (or more specifically negentropy) is poured into it from high energy sunlight, past (oil and coal) or present (meat and veg). It is converted by industrious, growing populations of humans into local pockets of order, like buildings and machines and a much larger amount of waste. The eco-systems that connect these pockets of order are always chaotic and unpredictable in an open system, from the turbulent flow comprising cascading arrays of whirlpools as a river flows over rocks, to the flow of promises, in the form of money, through corporations.
Soros’ ideas may or may not be true, but they are not necessary, there is no need for an observer, just like there is no needs for a designer in nature. The monetarist view is surely wrong, period, and on a fundamental level, since it seems to be based on the assumption that the economy is a closed system.
Efficient markets aren’t smooth just like the weather isn’t, and thunder storms are not caused by psychology, but by the natural effects of open systems. Similarly, market crashes are caused by the chaotic nature of open systems, and the maximum efficiency is the production of waste.
Monetarism is wrong a pseudo science driven by an American ideological form of capitalism best described by the Libertarian label. From Ayn Rand to Reaganomics the economic ideas supporting them are based on the same ideological wishful thinking as Lysenko’s Larmarckian genetics, an idea which starved Communist Russia.