There has been a lot of talk about AIG's Financial Products division, which made a lot of credit default swaps (i.e., bets) against defaults (on mortgage-backed securities and the like) happening. And then, what do you know, lots of defaults happened, so many that AIG is insanely broke. And the government has been handing AIG vast amounts of money to pass through to the financial institutions that made bets with AIG (e.g., Goldman Sachs, that Cradle of Treasury Secretaries).
Personally, I've never been a big enough player to be in the market for credit default swaps, but they are analogous to something I've considered purchasing: earthquake insurance. About 7/8ths of California homeowners do not have earthquake insurance. If a small earthquake directly under my house knocks down my house and a few hundred around it, then having earthquake insurance would turn out to have been a great idea. But if The Big One knocks down a million houses, will any insurance company in the business be able to pay off? Would the federal government subsidize the obligations of the insurance companies? Or would the federal government just step in and pay off everybody, insured and uninsured? Or would SoCal revert to a permanent Mad Max wasteland of rubble?
I don't know.
The state legislature set up a public-private entity called the California Earthquake Authority, which boasts that it has $8 billion available to pay off earthquake damage. At $250,000 per house, say, that's 32,000 houses. But most houses aren't insured. On the other hand, a very large fraction of the damage would be done to commercial properties and infrastructure.
Both earthquake insurance and credit default swaps raise the issue of moral hazard. The hazard is obvious with credit default swaps. If you could get AIG to insure for a cheap price that your bundle of liar loans wouldn't default, why not create mortgage backed securities even more likely to default?
Moral hazard seems more implausible with earthquake insurance, but it does exist because there are big differences in potential earthquake damage in Southern California just blocks apart. After the big 1994 Northridge Earthquake, my dad saw a map in the newspaper of all the condemned buildings in the San Fernando Valley. He then looked up a geological map of the Valley that showed where all the old river beds ran.
A typical California riverbed has a trickle of water two feet wide in the midst of a "wash" of sand and gravel hundreds of yards wide. During a major winter storm, the entire wash fills with roaring water, depositing more sand and gravel. After the destructive flood of 1938, the LA River and its tributaries such as the Tujunga Wash were channelized into giant concrete ditches, allowing construction right up to the edge of the channel.
About 80% of the condemned buildings in the Valley after the 1994 earthquake turned out to have been built on top of the sand and gravel of the old river washes. You could see on a street built originally along the banks of the old LA River wash, apartment buildings on the sandy side of the street fell down, while the apartment buildings on the soil side stayed up. As the Bible says, the typical house or apartment building that fell down was a house built on sand:
For awhile after the 1994 earthquake, there was some interest in figuring out what parts of Southern California were more likely to fall down again. Maybe we should convert the place that were hardest hit to parks, or at least downzone them from multistory to single story dwellings. But, then, people seem to have lost interest in the subject.
And now that I think about it, this analogy is particularly fruitful. The global financial structure turns out to have been built upon the mortgages of the houses of what Wall Street called the Sand States (California, Nevada, Arizona, Florida)...
Personally, I've never been a big enough player to be in the market for credit default swaps, but they are analogous to something I've considered purchasing: earthquake insurance. About 7/8ths of California homeowners do not have earthquake insurance. If a small earthquake directly under my house knocks down my house and a few hundred around it, then having earthquake insurance would turn out to have been a great idea. But if The Big One knocks down a million houses, will any insurance company in the business be able to pay off? Would the federal government subsidize the obligations of the insurance companies? Or would the federal government just step in and pay off everybody, insured and uninsured? Or would SoCal revert to a permanent Mad Max wasteland of rubble?
I don't know.
The state legislature set up a public-private entity called the California Earthquake Authority, which boasts that it has $8 billion available to pay off earthquake damage. At $250,000 per house, say, that's 32,000 houses. But most houses aren't insured. On the other hand, a very large fraction of the damage would be done to commercial properties and infrastructure.
Both earthquake insurance and credit default swaps raise the issue of moral hazard. The hazard is obvious with credit default swaps. If you could get AIG to insure for a cheap price that your bundle of liar loans wouldn't default, why not create mortgage backed securities even more likely to default?
Moral hazard seems more implausible with earthquake insurance, but it does exist because there are big differences in potential earthquake damage in Southern California just blocks apart. After the big 1994 Northridge Earthquake, my dad saw a map in the newspaper of all the condemned buildings in the San Fernando Valley. He then looked up a geological map of the Valley that showed where all the old river beds ran.
A typical California riverbed has a trickle of water two feet wide in the midst of a "wash" of sand and gravel hundreds of yards wide. During a major winter storm, the entire wash fills with roaring water, depositing more sand and gravel. After the destructive flood of 1938, the LA River and its tributaries such as the Tujunga Wash were channelized into giant concrete ditches, allowing construction right up to the edge of the channel.
About 80% of the condemned buildings in the Valley after the 1994 earthquake turned out to have been built on top of the sand and gravel of the old river washes. You could see on a street built originally along the banks of the old LA River wash, apartment buildings on the sandy side of the street fell down, while the apartment buildings on the soil side stayed up. As the Bible says, the typical house or apartment building that fell down was a house built on sand:
And every one that heareth these sayings of mine, and doeth them not, shall be likened unto a foolish man, which built his house upon the sand:
For awhile after the 1994 earthquake, there was some interest in figuring out what parts of Southern California were more likely to fall down again. Maybe we should convert the place that were hardest hit to parks, or at least downzone them from multistory to single story dwellings. But, then, people seem to have lost interest in the subject.
And now that I think about it, this analogy is particularly fruitful. The global financial structure turns out to have been built upon the mortgages of the houses of what Wall Street called the Sand States (California, Nevada, Arizona, Florida)...
My published articles are archived at iSteve.com -- Steve Sailer
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41 comments:
this is a kind of a technicality, but AIG hasn't been paying out on the defaults...yet. instead, what happened is that their credit rating got downgraded and they had to put up a lot of collateral that they didn't have to cover the ratings downgrade.
Meet Blythe Masters, http://mycrains.crainsnewyork.com/40under40/profiles/2004/228,
the woman who at JP Morgan-Chase who INVENTED credit default swaps.
That she carried an electronic device to check the market while -having her own baby- should tell you all you need to know about what kind of human being she must be.
Methinks you should NEVER be able to -insure- an "investment". The brokerages knew they were playing with risky loans, and they also knew that the 'guvment' always bails out people who build BeachMcMansions in places where hurricaines oft-hit. Well, the brokerages built bonds-full-of-hurricaine-prone-mortgages given to illegals, the black underlcass, and white trash. By allowing the "invention" of credit default swaps to be accepted----and getting AIG to underwrite them, this woman, Blythe Masters---at the behest of JPMorgan-Chase (need I tell you who are the majority shareholders of that institution folks?), practically guaranteed the 'guvment' would indeed bail out AIG if these mortgage-backed-bonds went to hell.
They knew they'd be bailed out at the birth of this abomination of a "financial instrument". I mean hell, AIG insures so many other things for us little people, that we CANT have them go under can we?
Post Scriptum: Can anyone else believe the audacity of AIG's bonuses, as well as Merril Lynch? These institutions are taking part in the "Im broke, bail me out" orgy, but still insist on giving out million-dollar bonuses? Has Wall Street ever given Mainstreet the finger so blatantly?
Yes, I know.......Im mean, cruel, unfeeling, insensitive......etc, etc. m
Steve, you're beginning to make a fool of yourself harping so much on the sand state theory. It's nice but it just doesn't wash - it doesn't explain the massive overexpansion of credit to places like Ireland, Hungary, Lithuania, etc. The real problem is the amount of leverage CDS portfolios allow banks to accumulate. Political correctness and overeagerness to lend to minorities did not cause the problem, the greed of the financial world drove it to push political correctness upon us as an expedient way to get more debt out there. If there weren't a handy pool of hispanics in Florida and California to lend to, they sure as hell would have found some other group.
The destruction in LA was probably due to liquefaction. It's a risk on reclaimed land -- if there is an earthquake, formerly solid land turns into quicksand.
There was a time when I too was critical of the Obama bailouts. That time ended this morning arond eight o'clock when I got a call from a woman who claims I myself will get a bailout too.
Funny how your perspective can change.
"Steve, you're beginning to make a fool of yourself harping so much on the sand state theory. It's nice but it just doesn't wash"
Except that's what happened. It's like were standing amidst the wreckage of an airplane of which 1,000 eyewitnesses in a traffic jam on the freeway saw the left engine fall off right after take off and we're saying, "Yes, but it's simplistic to focus on the engine falling off. Lots of other planes crash for other reasons, and the plane might well have crashed eventually even if the engine never fell off, and why should the plane crash just because the engine fell off."
Those are all good points, and well worth making, but shouldn't _somebody_ harp on the fact that the engine fell off the damn plane?
It's nice but it just doesn't wash - it doesn't explain the massive overexpansion of credit to places like Ireland, Hungary, Lithuania, etc.
I don't follow. The sand state theory doesn't explain the crunch in Ireland, Hungary, Lithuania, etc. Okay, got it. Now explain the part about how the sand state theory doesn't wash, please.
Political correctness and overeagerness to lend to minorities did not cause the problem, the greed of the financial world drove it to push political correctness upon us as an expedient way to get more debt out there.
Sounds to me like a distinction without a difference. Where's the mechanism in PC and faux racial nobless oblige to prevent this sort of thing (should I slap myself in the face for even asking that?)?
[Galactically obvious point: such mechanisms are antithetical to PC and faux racial noblesse oblige]
If there weren't a handy pool of hispanics in Florida and California to lend to, they sure as hell would have found some other group.
And yet, on the same day, the US News and World Report has other ideas, with regard to East Bridgewater Savings in Boston:
"the FDIC has turned up the heat on Petrucelli's bank, giving it an apparently rare 'needs to improve rating,' for not making more risky loans under the Community Reinvestment Act"....
"How many East Bridgewaters are out there that knuckled under to the pressure and started handing out mortgages to whomever?"
Darn those predatory lenders, eh?
this is a kind of a technicality, but AIG hasn't been paying out on the defaults...yet.
I've seen news reports that AIG has been paying out billions to banks in Europe? Also to Goldman-Sachs. Not that the news reports are always correct, but that's what is being said.
I'll take the earthquake insurance angle. Don't do it. I live in the Bay Area, on a hill for God's sake. What I did before we bought was look at geological surveys of the area first, had the house looked at by a structural engineer, and then, once we bought it, hightailed my ass to a firm that does seismic retrofits. Of course this is all no guarantee, but as you imply, anything big enough to knock all that steel out of our foundation and send the house down the canyon is going to bankrupt the state pool anyway and we'll all be in line together. If you don't live on a hill in LA, it's not that expensive to retrofit and after about 10 years, it's paid for vis-a-vis the insurance.
Steve -
I'd put it more this way - 1000 people watch the jet engine fall off. The engine was a cheap ass engine made in Russia. You're saying the equivalent of "what kind of idiot buys a Russian engine? They knew it would fall off! It must be pressure from management to buy from our Russian friends that encouraged them to buy these crappy engines!" That's true as far as it goes, but I'm saying "wait, it's not just that plane - engines are falling off all over because everyone's trying to cut costs and make a bonus. Maybe there's a bigger issue than just that one plane."
Yes Steve you are ignoring the real problems.
Sand State does not explain the meltdown. While both gas prices rising by factors of two, and the inevitable mortgage meltdowns provided shocks to the financial system, the real risk and bailout money went to Europe, which made risky investments in Eastern Europe, Ireland, Italy, and Iceland.
The amount of money at stake in the mortgages in the Sand States is about 1/100th of the money at stake in the bad European loans. The money going to AIG is mostly going to European firms, either directly or indirectly.
There were not THAT many houses in Comptom over-leveraged. Nor Stockton for that matter. It's Europe and the policy of the EU to use easy loans to bail out member countries that screwed up the financial system.
NRO, the Wall Street Journal, Glenn Beck, all are working off the same data (as is Belmont Club) released on the AIG money, where the bailout funds actually went. They did not go to securitization of junk mortgages. More like Bank of Scotland for lending to Hungary.
Peter,
Actually, the Sand State theory explains things pretty well:
1. In a politically-motivated desire to expand home "ownership", the government relaxed lending standards in many ways, most especially by implicitly guaranteeing risky mortgages through Fannie and Freddie.
2. This increase in demand lead to a housing bubble, turbocharged by speculators who took advantage of artificially low interest rates and other incentives to buy.
3. This bubble in turn increased people's net worth on paper, allowing them to refinance and leverage their debts.
4. When the bubble broke, as they always do, overleveraged borrowers couldn't meet their obligations and lost their houses, went bankrupt, etc, causing a liquidity crisis. (Actually, this hasn't happened. In fact, it was merely the projection, or fear that this would happen that caused investors and regulators to reevaluate the assets and investments of firms such as Fannie/Freddie, Countrywide, Merrill, Lehman, WaMu, etc.
You are correct when you say that the crisis is due to an over-expansion of credit markets and then their subsequent collapse. But all markets, like credit markets, have inherent checks and balances. "Easy credit" regimes don't last long because bad risks are either not lent to or if they are somehow, they quickly turn sour. The problem here was that credit was guaranteed, leading to a moral hazard until so much credit was guaranteed that it was clear that there as no way that even the feds could guarantee that much crap. Wall Street has always been greedy, but this is a political problem, pure and simple.
But 30 years ago only East Bridgewater Savings would get in trouble for making those crappy loans to minorities. It wouldn't be MY problem. What's happened since then, thanks to the loose regulatory environment of the past 30 years, is that the financial playboys diversified all the risk and ended up spreading it like a cancer through the whole global system. Politically correct lending to deadbeats is a symptom of the problem, not the cause, that's basically my point.
Peter sez: "It must be pressure from management to buy from our Russian friends that encouraged them to buy these crappy engines!"
clem quoted:
"the FDIC has turned up the heat on Petrucelli's bank(East Bridgewater Savings in Boston), giving it an apparently rare 'needs to improve rating,' for not making more risky loans under the Community Reinvestment Act"....
Peter, the answer to your question is Yes.
Your mention of a California earthquake raises an interesting question, which is: What happens when we do get our next $100 billion disaster? Or our next two or three of them?
Already overextended on debt, and with a major economic center laying in ruins, who will lend us the $100-$200-$300 billion needed to recover? Is that where economic decline turns into civilizational decay?
It probably would be only about $100K (not $250K) to rebuild most of the houses' *structures* in Southern California. The value of the *property* underneath is much higher, an average of $100K or so. (Total value of house + property: average of $250K.)
So, that would mean $8 billion in state insurance money could cover 100K houses, not the 32K in Steve's example.
I'm assuming housing values don't drop much more; but they probably will drop a lot more in the Bush-Obama Depression. And it wouldn't surprise me if Gov. Schwarzentaxxer raids the earthquake insurance fund to cover his record deficits.
I understand why the sand states are point, but shouldn't the real point be - why were financial institutions buying these bad mortgages? Obviously if the local guys can offload junk upwards, why would they care? That's completely what I don't get.
Is it the case that Citigroup can't figure out that these mortgages, bundled up and split however, are going to be defaulted on?
If that is the case I count myself a financial expert. Even in Denver you can see tons of houses going for 700k. There aren't that many people who can pay that off. Bubble.
Sorry Mr. Cheney, much if not all of this happened on your watch. Thanks for the Iraq war too. Feel so much safer. Tell 99 I said hi!
Anonymous: "Methinks you should NEVER be able to -insure- an 'investment'."
Well, you certainly shouldn't be able to "insure" OTHER PEOPLE'S investments, which is what all this CDS nonsense was about (if I understand it all correctly).
Risks like a major earthquake in Southern California (or a hurricane for that matter) are supposed to be modeled, but the models are often wrong. However, in addition to modeling, there should be a spreading of the risk. Thus, while the California Earthquake Authority (CEA) has up to an $8 billion capacity, that should be spread out among other entities that share that risk upstream that act as partners of the CEA. Thus no single entity should be exposed beyond an ability to pay, in theory.
In the case of AIG and its Credit Default Swaps, there doesn’t appear to have been any real spreading of the risk that AIG was taking on. It would appear that AIG, like everyone else, didn’t think the mortgages were in significant risk of default.
The fact that most institutions didn’t think these mortgages were in significant risk of default would tend to refute the notion that these hotshot financial entities understood what was really going on, at least at the higher levels. The actors at the local level appeared to have had a better clue as to what was really happening, and thus some of the local actors cashed in and others, such as small local banks, avoided the whole push to extend credit to those who couldn’t repay the loans in a million years.
"Politically correct lending to deadbeats is a symptom of the problem, not the cause, that's basically my point."
Political correctness is the cause of the symptoms.
Political correctness is willing ignorance. You are like my Jewish friend in the Army who went to Iraq. He swore that the war was started to benefit Halliburton!
Politically correct lending to deadbeats is a symptom of the problem, not the cause, that\\\'s basically my point.
Then your point is just flat wrong. WHY were lending standards debauched? Steve has documented extensively that banks had to do it so that they could play the M&A game:
isteve.blogspot.com/2009/02/community-reinvestment-act-and-rise-and.htm
And think about it -- who could blow the whistle and say that your bank shouldn\\\'t lend to blacks and Hispanics, or should consider them greater risks and charge them higher interest rates? That\\\'s a thoughtcrime. As Steve has also pointed out, one email like that means triple damages in discovery.
Peter, you are just flat out wrong on this and you haven\\\'t dug into it at all. WHY did normally rational ruthless bankers throw away their risk tolerance? BECAUSE they were prevented legally and morally from noting that loans to the poor and minorities are a risk!
"It probably would be only about $100K (not $250K) to rebuild most of the houses' *structures* in Southern California."
One website I looked at estimated $120 per square foot construction prices for standard wood-sided 1600 sq. ft. houses. So construction would be about $190k for a 1600 sq. ft. house, but that's real small for today (although LA is full of small houses built from 1930-1980). It would be close to $240k for 2,000 sq. ft. I imagine the earthquake-insured houses tend to be bigger than average.
Steve,
Tokyo was destroyed by a quake back in the 1920s, was rebuilt and then destroyed again 20 years later by US bombing.
Of course, distressed owners weren't compensated and householders took the losses on the chin and managed somehow.
- This is a common theme throughout history repeated again and again, Leningrad, Berlin, Pompeii etc.
In all cases people managed to get on with lives and persevere somehow.
The phenomenom of 'transferrance' is well known in pyschiatry - one manifestation of it is when a scoundrel who is unable to to accept his own short-comings, identifies his own faults but, crucially, smears others with what he knows, deep-down, are exactly his own failings that he despises.
Hence the many American posters here crowing about 'Europe having the biggest liabilities' and 'Europe causing the problem'.
WHY did normally rational ruthless bankers throw away their risk tolerance? BECAUSE they were prevented legally and morally from noting that loans to the poor and minorities are a risk!
Bullshit. You have it completely backwards. You think bankers lending to real estate projects in Ireland, the UK and Lithuania were trying to help minorities? Bankers threw away their risk tolerance because they thought they could, they either thought they'd "diversified away" the risk, or they didn't think at all beyond next quarters bonuses. And real commercial bankers at local saving & loans in the US for the most part did not throw away their risk tolerance - proving my point. The Goldman Sachs and Citibanks of the world were the ones trying to increase the pool.
The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation.
The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation. Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown. These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.
12 Key Policy Decisions Led to Cataclysm
1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
Regulatory rules permitted off-balance sheet accounting -- tricks that enabled banks to hide their liabilities.
The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives -- which became the basis for massive speculation.
Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal "risk-assessment models."
Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.
http://tinyurl.com/c7k5kq
~~~~~~~~~~~~~~~~~~~~~~~~
An excellent report. When the definitive book is published some years hence these will be the salient (Sailerient?) points, the enablements mostly governmental.
Peter,
You're trying to switch cause and effect in order to deflect blame from NAM's. What Steve is saying is that PC politics brought about a situation which predatory businessmen abused. But then the cause is PC and not predatory business. The government has the responsibility and the means to prevent situations from arising which are harmful to the public good. In a sense the government acts as the immune system of a nation. You cannot prevent the viruses from hanging around, but you can prevent an infection. By pushing NAM PC to the point of creating inconsistent (with reality) outcomes, the government acted irresponsibly and created opportunities for financial “infections”.
This is what Steve is saying and it fits in with his other writing, which is about taking differences in ability, talent and other facets of race/culture seriously.
t99,
Its the missing Aircraft carriers, the suitcase nukes and the lack of babes which melted WS.
The Feds going after that Bridgewater back is basically the Feds saying: "Buy our aircraft engines or else."
Deckin writes:
I'll take the earthquake insurance angle. Don't do it. I live in the Bay Area, on a hill for God's sake.
Me too, at 1000 feet. The hills are the safe place to be. Check the TV news video coverage of the Loma Prieta quake. All those houses that collasped were in the San Francisco Marina - elevation one foot. The Bay Bridge and the nearby freeways also had damage. All of these structures are right at water level.
When I got home the day of the quake to my house in the hills there was no damage whatsoever. The neighborhood was untouched. I didn't know there had been an earthquake until I turned on the TV.
When the Indians were the only people in Nortern California the Bay was twice as big as it is today. The danger of earthquakes around here is that the Bay fill on which you have built your house will liguify. By law realtors have to inform prospective new owners of earthquake risk. The planning commision maintains maps that show the areas with the greatest danger.
Earthquake danger zones are like river flood plains. If you don't live on a flood plain you don't need insurance. If you do happen to live on a flood plain you need insurance but no sensible company will sell it to you.
If you worry about the "Big One" its probably because as a reviewer you have seen too many movies. If I were to believe the movies I would worry about drowning. Kevin Costner's Waterworld shows all the Oakland/Berkeley hills under water - also the Sierras and the Rockies. Personally I dismiss this threat. Tommy Lee Jones fought off the volcanos that threatened LA. But the most popular California disaster has long been the giant earthquake. Charleton Heston was needed at one time. Later it took Superman.
The real threat to California homes of course is fire - but fires it seems are not cinematic.
My advice - get fire insurance (you probably are already required by your mortgage lender to have such insurance). Stucco houses with tile roofs seldom burn. Go to City Hall and view the earthquake risk maps in the planning department. Save your money and forget earthquake insurance.
go read this
http://www.acredittrader.com/?p=65
Which came first, the chicken or the egg? PC or greed?
Was it PC that created political pressure to expand homeownership and thus destroy lending standards, thereby releasing a tidal wave of irresponsible short-sighted greed?
- Or -
Did short-sighted irresponsible greedheads use PC to cause political pressure that destroyed standards?
Was PC the motive, or the tool?
Answer: both.
It's worth noting that if PC was only a tool or means instead of a motive, it was (and is) a uniquely *effective* tool. It is morally corrosive to a high degree. You can make almost anybody do almost anything if you scream "racist!" (i.e. "witch!") at them loudly enough - and back it up with serious legal, business, and social sanctions.
What happened in some European nations is probably little different from what happened here in America. Europe is not exclusively high-income. And since America is supposed to be the world's financial center, the tidal wave hitting those nations probably started here.
"Is it the case that Citigroup can't figure out that these mortgages, bundled up and split however, are going to be defaulted on?"
But they can't figure it out because our PC ideology does not allow them to figure out! One wrong email/phone call/argument and your career is over in the financial industry. That is how the West works. We are currently living under HUGE delusions and that is why our civilization is going to fall apart. Maybe that's a design feature of civilizations - I don't know. Maybe people who build civilizations have children who are not as capable of facing the type of reality that it takes to maintain a civilization. The multi-cult of the US is just a power play by those on the outside / coming in to grab as much as possible from those who built the thing from ground up. Money and power get transferred via delusions and propaganda.
Anonymous If that is the case I count myself a financial expert. Even in Denver you can see tons of houses going for 700k
SMH
When homes became this expensive, it’s at that point that people should have back off. Don’t buy homes and watch the prices fall. Same thing with retail luxury, cars etc… Why the hell would any one making 50K or a two family making 100k buy such an expensive home?
Anonymous You are like my Jewish friend in the Army who went to Iraq. He swore that the war was started to benefit Halliburton!
Please explain.
Peter it doesn't explain the massive overexpansion of credit to places like Ireland, Hungary, Lithuania, etc.
I agree although I’m beginning to wonder if incompetence isn’t also part of the problem. There was an article in the times that mentioned how Goldmann Sacks(?) had to loan its’ employees money to prevent employee defaults on investments.
Maybe after this bubble fully deflates, we can move away from credit and back to cash again.
In Seattle, the structures built on landfill get hit the hardest, and most of those are commercial buildings in the Industrial District.
However, chimneys can topple and brick or stucco houses can easily crack even in moderate quakes. Earthquake insurance might be worth it if you have a house prone to that kind of damage. If you have a house that could easily come crashing down, you should move.
Wood houses are the best in earthquake-prone areas (look at how few people died in the Alaskan quake of '64). This is one reason the Japanese build with wood. Unfortunately for them, it didn't do them much good when we firebombed them.
Earthquake insurance should be based on both the type of building you own and the type of soil it's built on. If both are safe, it might not be worth it to bother.
Steve Sailer: ...After the destructive flood of 1938, the LA River and its tributaries such as the Tujunga Wash were channelized into giant concrete ditches, allowing construction right up to the edge of the channel. About 80% of the condemned buildings in the Valley after the 1994 earthquake turned out to have been built on top of the sand and gravel of the old river washes...
The recent Arcadia thread got me to thinking about this: If you take Santa Anita Ave in Aracadi way up into the hills, then you get to the Chantry Flat Picnic Area, and from there you can hike a trail up into the mountains to the Big Santa Anita Canyon.
Anyway, the Sierra Club website maintains this photoessay showing what the flood of 1938 did to the old Muir Lodge in the canyon.
"The phenomenom of 'transferrance' is well known in pyschiatry ... when a scoundrel ... smears others with what he knows, deep-down, are exactly his own failings that he despises."
I thought that was called Projection.
Transference is the term therapists use to describe the crushes their patients supposedly have on them.
"Wood houses are the best in earthquake-prone areas (look at how few people died in the Alaskan quake of '64). This is one reason the Japanese build with wood. Unfortunately for them, it didn't do them much good when we firebombed them."
Japanese wood houses are terribly unsafe during earthquakes. They build them with heavy roofs because typhoons are much more common than earthquakes -- then when there's an earthquake, the heavy roof drops and crushes the rest of the structure.
But, then, people seem to have lost interest in the subject.
Regarding liquefaction, no, they haven't. At least not within the professional circles where it matters. The requirements for liquefaction investigations have gotten significantly tighter in the past few years, and the California Building Code of 2007 has a more accurate method for calculating seismic risks, and takes into account faults we didn't know much about 15 years ago. The work is ongoing at the USGS and the CGS, but until there's another big earthquake, it won't make the news.
Some of the recent changes are driven by large earthquakes in other places - there are more tsunami-warning signs in the past few years for obvious reasons, but much of the change in studying liquefaction is a result of an earthquake in Turkey in 1999.
So we're thinking about it, where "we" means the people whose job it is to think about it.
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