The Mess That Greenspan Made - Part 416

Monday Morning Links

Preparing for a Greek Default – Hussman Funds
Greece Under Scrutiny for Next Aid Payment – Bloomberg
Lenders: Greece must shrink state to avoid default – Reuters
Obama Unveils ‘Buffett Rule’ Tax On Millionaires – HuffPost
Obama Deficit Plan to Call for $1.5 Trillion in Taxes – Bloomberg
Infographic Of The Doomed European Financial System – Zero Hedge
Mayor Bloomberg predicts riots if economy doesn’t create more jobs – Daily News
Moody’s stays negative on states, local govenments – Bloomberg
Gen Y’s $2 Million Retirement Price Tag – U.S. News
Wall Street May Be Blocked Off Again – Bloomberg
Is Social Security a Ponzi Scheme? – Mises
Jobs and the G.O.P. – New Yorker

Oil falls to $87 amid stronger US dollar – AP
Gold rallies on euro debt crisis gloom – Reuters
Fund Withdrawals Top Lehman as $75B Pulled – Bloomberg
Libya Restart May Not Increase Global Oil Supply – WSJ
A Closer Look at Gold and the Coming Breakout to 2100 – Jesse’s Cafe
Gold investments soar in India despite rising prices – Commodity Online
Why Is Hugo Chávez Moving Venezuela’s Gold Holdings Home? – Forbes
ETFs have potential to become the next toxic scandal – Telegraph
Gold and Silver Stocks – aucontrarian
Fork in the Road – The Big Picture

Fed, European woes in economic spotlight – MarketWatch
A Little Inflation Can Be a Dangerous Thing – NY Times
How to Prevent a Depression – Roubini, Project Syndicate
Can China escape as world’s debt crisis reaches Act III? – Telegraph
States slow to tap $7.6B fund to help jobless pay mortgages – USA Today
The newest threat to U.S. home prices – Fortune
We’ve Overshot the Fed’s Upper Inflation Limit – RCM
Bank of New York: A Train Wreck Waiting to Happen? – Naked Capitalism
Bernanke Joins King Tolerating Inflation to Revice Economy – Bloomberg
Fed Runs Risk of Doing Less Than Investors Expect – NY Times
Rearranging the Deck Chairs – Fed Watch


Touching the Third Rail

A quick survey of what cartoonists have been thinking about lately reveals that Governor Rick Perry’s comments on how social security is a Ponzi scheme have been quite popular.

From the Signe Wilkinson archive at the Philadelphia Inquirer.

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Lock Your Doors When in Bozeman…

We have returned from Yellowstone and things should be back to normal around here for the foreseeable future as summer draws to a close and the weather gets colder. As they say on HBO’s Game of Thrones, “Winter is coming”. Normally, a Best of the Bozeman Police Reports item would appear here today, but I thought it better to feature this story from today’s paper in which,  as noted here many times on recent Saturdays, intoxicated residents continue to stumble into all kinds of places where they shouldn’t be in the wee hours.

Bozeman residents catch couple having sex in their living room

Two West Babcock Street residents awoke at 1:40 a.m. Thursday to find a young couple having sex in their living room.

The two had broken into the home on the 600 block of West Babcock Street, possibly through the back door, said Bozeman Police Lt. Rich McLane. All the doors were locked, but the back door didn’t latch.

When the residents discovered the copulating couple, they demanded they leave, McLane said. The two got dressed — the man in a plaid shirt and jeans, the woman in a black-and-white striped dress — and stumbled away from the house, according to police reports.

“The two were highly intoxicated,” McLane said.

One of the two left a wallet at the scene, McLane said. Officers are following leads to identify the man and woman.

The investigation is likely to lead to misdemeanor charges of criminal trespassing, McLane said. It’s possible the couple could be charged with burglary, he said.

If memory serves, someone setting off illegal fireworks on the Fourth of July left their wallet behind at the scene of the crime, an ill-advised move if ever there was one, but one more likely to occur the more you drink.

Two Very Different Ways to Move Forward

[This will conclude the most recent dive back into the archives (Boy, I sure takes a lot of time off lately...) as we look at two very different recommendations about how the nation might move forward from its late-September meltdown, one that didn't really finish melting until about six months later around the time that Fed Chief Ben Bernanke launched the first round of quantitative easing. Bank bailouts and an economic stimulus program amounting to over $1.5 trillion weren't enough, it finally took money printing on a grand scale to reverse course. Originally published on September 26th 2008, former Fed Chief Alan Greenspan and Representative Ron Paul (R-TX) talk about the road ahead.]


Former Fed chief Alan Greenspan and Congressman Ron Paul (R-Texas) were both in the news today describing two very different ways to move forward from the current financial market predicament. In this report at the WSJ Economics blog, Dr. Greenspan favors the “more is better” approach to fixing what’s wrong.

We do not take a stand on the choice of institutions eligible for emergency assistance. Rather, we urgently advocate immediate, extensive action that would maintain the functions of credit markets and prevent a serious economic contraction.

We are deeply concerned about instituting reforms for the longer run that will prevent similar crises in the future.

Ron Paul, on the other hand, sees such heavy handed intervention as part of the same pattern that has brought us to the current juncture.


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[Back to the subject of "root cause" for the 2008 financial crisis after yesterday's rumination about gold we find former President George W. Bush explaining the situation to a confused and bewildered public in a dumbed down way that seemed to have come naturally for him. Originally published on September 24th, 2008, before almost three years of listening to President Obama, it seems there couldn't be too more different U.S. Presidents.]


They’re sure talking about “root cause” a lot these days in Washington, though, with only a few exceptions such as Ron Paul (R-Texas) and maybe Tom Feeney (R-Florida), they’re really not even getting close to the source of the current problems.

Aside from a few hearty souls, the Bush Administration and nearly all of Congress are still avoiding the underlying questions that, come to think of it, they may not even be asking themselves in private, which, come to think of it, is an even more disturbing thought.

That is, whether or not the U.S. financial system is so fundamentally flawed – based on a credit expansion which mustn’t stop but which can proceed no further – that it can no longer survive even with a trillion dollars of government money to plug all the known leaks.

To hear the discussion dumbed-down so third graders might be able to make some sense of it just makes the situation more surreal. To wit, tonight’s address by Pesident Bush:

Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.

Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.

Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.

Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.

As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.

See, in today’s mortgage industry, home loans are often packaged together…

I don’t know whether to laugh or cry.

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