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Join us for this week’s talkshow – Fred Harrison answers your questions from around the world.
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The life expectancy gap between rich and poor people in England is widening, despite years of government and NHS action, a hard-hitting National Audit Office report reveals today.
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The life expectancy gap between rich and poor people in England is widening, despite years of government and NHS action, a hard-hitting National Audit Office report reveals today.
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An interview on Newsnight with Jeremy Paxman, Gillian Tette, Hugh Hendry and the economist Jeffrey Sachs.
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The Renegade Economist team presents an opportunity to learn what’s about to happen in the domestic and global economy, and …
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Another excellent Talkshow – I hope you keep drawing ever-greater traffic to the site!
One immediate question arising friom what you say concerns the timing or chronology of events…
When you talk of the same conditions setting up for the next boom/bust are you talking theoretically? You have already made public your view of 5-10 years of ‘arrested growth’ and property prices continuing (or starting again, really) to fall into beyond 2010, then bumping along the bottom for 2 years…
So your discussion today centres on when?
Once again, please keep up the tremendous work and regards to the whole team
Tony B.
The story of the global financial meltdown is complex, to be sure. And, I fully agree with Fred Harrison’s assessment that our property markets are dysfunctional. The credit system acted (and acts still) as an accelerant added to an already-burning speculative fire.
I know this to be true because I happened to be one of those who worked for decades on the inside of the financial markets, 20 years at Fannie Mae until retiring in 2005.
Our industry responded to rising land prices (commonly referred to as “housing prices” — even though housing costs were not the main reason for property price increases) by constantly coming up with financial innovations. Adjustable rate mortgage structures, reduced down payment requirements, permitted gifts from family members, conditional grants from public and philanthropic agencies, reliance on credit scores to offset higher housing-to-total obligation ratios — all enabled the volume of housing sales and mortgage financing to expand in the face of rising land costs. Mortgage-backed securities allowed commercial and savings banks to shift both interest rate and default risks from themselves to investors and guarantors (such as Fannie Mae and Freddie Mac).
When Fannie and Freddie balked at securitizing the high risk subprime mortgage loans being originated, that’s when the mortgage originators went directly to Wall Street, which had no real ability to price these securities for the underlying risks involved.
One of the things Fannie and Freddie did each year to accommodate the speculative land market was to increase the maximum loan amount permitted, in addition to all of the measures referred to above to keep the demand side of the market stable and growing.
Since retiring I have been giving talks on how this all materialized and have developed a Powerpoint presentation that tells the story from my perspective, limited to what happened in the United States. Anyone who would like a copy of this presentation (which includes my lecture notes) can contact me at ejdodson@comcast.net.
Thank-you renegades for the resources you’re providing, but, you are starting to lose me Fred. You seem to be proposing a quasi-Thatcherite libertarianism.; holding out the promise of individual freedom and more cash in the pocket. Whereas, I believe that people are suffering nausea while they ride the swell of continuously shifting ethical values that results from pursuit of illusory freedoms.
Using Michael Hudson’s reflection on the ancient principle and practice of debt cancellation I’d say that money must reach a limit as a measure of value and integrity which can be over-ruled by a higher authority embodied in a ruling body of state or law or constitution. You seem to be putting money back on the throne. Have I missed the point?
Ted S.
interesting point of view.
Though i wonder if the expectation of a soft landing did not happen because there was another issue not being appreciated:
energy is the key to our economies and production seemed to peak in oil in 2005 – meanwhile through those years the cost of coal has been going up on the world market several hundred percent.
this surely implies to those able to make investments that the world economy is fundamentally unsound – or at least if those actors do no realise it, energy shortfalls will manifest themselves in every worse figure across all sectors of the economy suppressing growth.
suppressed growth then surely scares those who have been our creditors. with the world economy no longer sound due to energy concerns, underlying all negative indicators – then confidence is shot and no desire to provide us with credit.
if our planners had been expecting no shortfalls in energy- then perhaps a soft landing would have made more sense. And indeed, I see little in the way of planning that indicates to us that our planners realise that energy supply is the key concern.
they are wasting time worrying about institutions rather than worrying about the fundamental concern of energy supply.
Great articles by Ross and Fred. Please keep up the excellent discussions about our world financial problems. For all it is worth; here is what I believe has led us to this financial state:
1) The establishment of the US Federal Reserve in 1913 was the start of the Money Changers to take control.
2) Since 1971 when President Nixon took the world off the gold standard we slowly started our financial ruin.
3) The deregulation of the financial system has allowed world financial bankers to take control.
4) The transferring of our value added jobs to offshore countries has largly turned us into paper pushers. How will our real GDP grow if we do not produce and exchange manufactured goods and services with other nations?
5) The establishment of the derivative market which twenty years ago was 1 trillion US dollars now is 1.144 Quadrillion US dollars. 596 trillion US dollars of the 1.144 quadrillion US dollars are Over-The-Counter derivatives. This info was obtained from the Silicon Valley Watcher October 16, 2008. I understand that it has reached 1.2 Quadrillion now. What I have learned from (Intelligent Share: Derivatives: An Overview and Thoughts) is that Futures contracts are guaranteed against default, standardized, and settled on a daily basis. The Forwards, Swaps and Options are Over-The-Counter derivatives. They have very little regulation and are mainly bets between two parties. I have no doubt that failure in this area is one of the major causes of our world financial crisis. One example is Iceland banks loosing a bet on credit default swaps. The worlds financial answer to the problem is to financially backstop all the losses at any cost. Will it work? I doubt it. These losses are just too big.
6) The lack of desire to pay the debt off which we can’t and the lack of desire to write the worlds debt down and expose it.
Dave McGowan