America’s Most Wanted

by Nudge

       This past week, the great and famous Alan Greenspan came perilously close to committing what is probably the most cardinal of sins among the Masters of the Universe: he very nearly admitted that the models were wrong.

       Instead, he took the easy way out and tried to explain it away as saying that the wrong data had been keyed into the models. Very funny, this matter of reducing to a mere clerical error the matter of crashing viturally the entire global economy. (Maybe his inspiration for saying it that way came from the movie “Brazil”?)

       What Greenspan and Bernanke and Paulson have done is no less an act of wanton cluelessness than repeating the by now well-known “success” of LTCM, only this time with the fortunes of whole countries up in the air instead of the well-being of just one measley little holding firm staffed by snotty know-it-alls who didn’t, and with similar results.

       Simulations & models can be very useful in terms of figuring likely subsequent scenarios, but /only/ when the models are constantly tuned and tweaked to keep them as accurate as possible ~ and when the users realize that reality has the upper hand in deciding what happens next. A really good model will sometimes show odd behavior that has a pseudo-randomness about it often seen in the real world, such as the behavior and trajectory of a flock of birds cavorting above the rubble of a cleared cornfield. By replaying the action on a low level and forensically applying game-theory math methods, it is possible to work out a set of rules for some of the obverved flock-bevior issues.

       What’s happening now is a sharp break from the predictive models used in finance & treasury. The flock has just taken off (or landed) unexpectedly. Despite a cheapening of motor fuel, people are not rushing out to buy guzzlers. Despite ridiculously low interest rates, people are generally not enticed to buy things on debt right now, at least not at the frenzied levels of purchasing activity seen back in 2004-2005. Instead of living for the moment, people are hanging onto more of their money in apparent anticipation of possible rainy days approaching.

       What our grid-modeling overlords never apparently took into account was any fluctuation in (much less outright reversal of) the willingness on the part of people to whoop it up, on credit or cash, whenever the opportunity presents itself. The great spending pullback now visible today in fact began sometime back in 2007, but was not commented on as such except on the more asute blogs like the HBB. (Ben, you are the Man ~ kudos!) In terms of sales trends for big-ticket items (houses and cars) it was visible even before then. Again, it was amply covered on the HBB.

       As full of bullshit as ever, Alan Greenspan is trying to palm off the fiction of the establishment’s very-faulty models as being a matter of the data put into them and not the models themselves. The truth in the matter is that guaranteed returns are a myth. Larger events and trends are not really modelable in any sense of the word. (Or if you prefer the simpler form of this rule, Shit Happens.)

       What Greenie apparently said, back in the heyday of the bubble, was that every investor could put one buck in and get two bucks out, as reliably as the spinning of a planet, all due to the magic of prosperity. The less gullible among us will of course know this is a fiction ~ because after all, the system is more like a poker game, with money flowing from the less-skilled or less-lucky to their betters ~ but we know well our minority position in the game, and avert our eyes when we hear standard NAR lines like “real estate always goes up” etc.

       But now an even deeper and more noteworthy event has occured: ordinary people are getting a very personal lesson in the poker-game nature of the stock market as they see their life savings in 401(k) accounts evaporate by double-digit percentages ever quarter. Had we stuck to the old system of company pensions, this lesson might have been lost on most people, but no, our “free market uber alles” leaders said to just put everything into the market and count on unfettered greed-is-good capitalism to set free all that latent value.

       Some free market. All you can say about its “distance” (haha) from government now is that it generally asks for less freebie bailout money when the bubbles are expanding madly, and always asks for it when things are going down. The relationship of the free-market-espousing protagonists to bailout desperation is the same as the obnoxious lifeguard coach telling everyone on the cruise ship to ignore their life vests, but then shrieks like a cheerleader to be tossed a lifejacket as soon as he falls overboard.

       Considering the nature of this lesson about the free markets, now being given to people everywhere, it’s worth wondering where people will put their savings in the coming months and years. How much smaller would the market be if 401(k) accounts went common to uncommon over the next two years? Will it go into paying down existing debts and then scrupulously avoiding any further entanglements with debt? Will it go into certain classes of, ahh, non-standard investment vehicles, some of which get discussed here?

       One of my deep moles at an un-named major credit card company told me last week that people in general have switched to charging far less and paying down their balances far more slowly. Interesting stuff .. meaning that the debt load exposure is being capped by many, and people would rather pay a balance interest penalty just to remain cash-heavier in the short term.

       One thing is clear from this: the private prison industry will be booming the next few years from the cost of institutionalizing all the obviously guilty players in this giant financial sh!tstorm of a mess. That for instance that one guy, already known to the FBI, who said in an email something like “Let’s hope we’re long gone before this scam is discovered”. He, and perhaps another hundred thousand like him, will be turned into examples. Personally I hope the perp gets a small cell with a really big ethnic guy in it called “Bubba”.

       There were many that committed crimes like this and left a paper trail that even Helen Keller could follow. Look at the string of prosecutions in the mortgage-fraud racket in Florida. The enforcement organs are now under enormous pressure to look like they’re hunting down bozo fraudsters like that. It will of course need to be a very public affair. Maybe America’s Most Wanted will spin off a sub-show specializing in mortgage fraud or investment fraud. Folks will be encouraged to report who was wallowing in cash, bimbos, and new Porches back in 2003-2006 and who’s now trying to lay low.

       Meanwhile, let’s enjoy the sights and note the events. It’s not often that you see such a collapse of such a large socio-economic edifice as the Infallibility of Investment coupled with the end of the Nonstop Shopping Lifestyle.

This entry was posted by JR.

35 thoughts on “America’s Most Wanted

  1. “the private prison industry will be booming the next few years from the cost of institutionalizing all the obviously guilty players in this giant financial sh!tstorm of a mess. ”

    Nudge-

    Great column!

    I have only one suggestion Instead of sending these guys off to prison (where they become a burden to society), they should become life-time indentured servants to their communities…. kinda like Martha Stewart only a lot longer. Like for the rest of their lives.

    Maybe shipped off to places like Uganda and such to help them rebuild their countries ’cause you know that their backstage machinations put these places in harm’s way. Ya know Obama’s mo was a specialist in microfinance.

    “Somewhere, though, in some high school or middle school, another generation is oblivious to the scandals and the crimes. A decade and a half from now, I suspect, we’ll be due for a new tsunami of crime, as these prosecutions fade in memory or fail to get embossed into the brains of those too young to pay attention.” –James Cramer-October 13, 2003

    Hahahahaha! Little did he think or know!

  2. “the private prison industry will be booming the next few years from the cost of institutionalizing all the obviously guilty players in this giant financial sh!tstorm of a mess. ”
    I agree with you on the industry, won’t hold my breath on the inmates actually being guilty. Unless of course by ‘institution’ you mean another financial institution.
    Bagging Alan Greenspan more than makes up for it though (bonus points for anyone who can doctor up a picture of Ayn Rand ‘pegging’ him).

  3. You know, we are projecting upon Greenspan the natural human instinct to spout forth with confidence. As with the rest of the economy, laying blame at Msr. Span is not totally correct.

    As with the housing market, when it works for us personally, hey, it works. Buying in, in the old hippie sense, had a yoga class with an old teacher today, is sadly buying in. It doesn’t come with disclaimers.

    As my post at CFN stated, a low inflation policy benefits the holders of wealth. Justice isn’t about punishment, it’s about making sure that the lesser off are not miserable. We created the mess. We will live with it.

  4. Nevertheless Nicholas,
    Bonus points for anyone who can doctor up a picture of Ayn Rand ‘pegging’ him.

  5. Nice post Nudge. What about commenting here moron, amongst those that truly love, respect and admire you?

  6. JR, I miss the old dayz, when we had CFN late night all to ourselves. Wot, did you get respectable on moi?

  7. Yeah, what Doom says, Nudge. You nailed the issues of Greenspan (aka Magoo) being flabbergasted that banks wouldn’t self regulate after all (not even in the interest of their share holders!) and the searing comedy of watching an old fool proclaim that, lo and behold, there was “an error” in his model of the universe. And, yes, I also agree with the good doctor that you should post here more often, if possible and as your highly eccentric schedule (as seen from my semi-vampiric perspective) permits.

    To echo Nicholas, however, I do think it absurd that Greenspan has become such a lightening rod when obviously there is no single person to whom blame for all of this can be assigned. People in the know were calling for his resignation a long time ago, i.e., back when he was still in office and doing damage.

    I know a person who met and spoke with Greenspan several years ago in a DC bar. I got the impression that she didn’t think there was anything special about him, contrary to the chorus of mellifluous preceding rumors to the contrary.

    Anyway… a reasonable degree of governmental regulation is entirely in concert with traditional liberal principles, those that once motivated a great many of our founding fathers. I’m not so sure that Ayn Rand’s objectivism is opposed per se to such forms regulation so long as reasonable. As to the software-assisted “pegging” of Magoo… bring it on. He won’t even see it coming.

  8. shit, basically the whole world, or anybody who could, bought in . why blame greenspan when the the asians and arabs hold trillions in us securities? they never should have bought that shit. it’s all thier fault.

    anyhoo, we still got plenty of oil to burn and whole lot more damage to do. no worries.

  9. pity to those that think any of these current travails equate to any kind of sensibility. too many crosscurrents. anchor your thinking to quicksand and you’ll likely suffocate. stay flexible in your thinking citizens, and you just might win huge by merely surviving. saying.

  10. This much is interesting to me. It devolves to relative value. If we’re all into measuring our wits against other wits, we’re all playing a confidence game against other relative players. Get out first, and forget the comparative wits (or the lack thereof). Why the fuck not?

  11. you can try to be cool in these troubling times. how’s that going for you? perhaps, you’re inflamed, ready to place blame. is that working for you? ask yourself, what really means anything? you already know to which your attentions should be directed. i’d lay my efforts there.

  12. All my energy is going into burning through 24 inches of solid Krell metal.
    Dave & I know the Somali pirates hid their gold in there.

  13. What is this… (the preparatory stages of) an assassination attempt or the Magical Mystery Tour?

    http://www.msnbc.msn.com/id/27405681/

    Ram vehicle into Obama?

    For the Obama plot, the legal documents show, Cowart and Schlesselman “planned to drive their vehicle as fast as they could toward Obama shooting at him from the windows.”

    “Both individuals stated they would dress in all white tuxedos and wear top hats during the assassination attempt,” the court complaint states. “Both individuals further stated they knew they would and were willing to die during this attempt.”

  14. Holmes,

    Do not check them out on myspace. You will see them for the pussies they are.

    http://news.rednet.cn/c/2008/10/28/1622054.htm

    Oh my God, the Pillsbury Dough Boy is after me. EEE Gads.

    If I am Obama, I am so embarrassed. Why can’t I have some real men, something intimidating, something to respect, trying to cap my ass.

    Of course there is Hinkley (pussy), etc.

    Seriously, these guys are sad sack and should not have made as much of a media splash as they have. The po-po could have cornered them, roughed them up, made an impression, and there would be no threat.

    Silly.

  15. I’m changing the name of this blog to “Topics of Mutual Agreement.”

    Just for a few days. After which I’ll probably go back to my original idea. Pictures of Flowers That Everyone Likes.

    What do you think?

  16. “… I am so embarrassed. Why can’t I have some real men, something intimidating, something to respect, trying to cap my ass.” –MOU

    MOU-

    Be careful what you wish for “that one”… jes’ sayin’.

  17. Apologies Doom for being away. The thing I use for a computer can barely handle ZK without crashing the (hacked mini Opera) browser. Great comments and thank you to everyone who read. My, we seem due for quite the sh*tstorm these days. Anyway I am under intense peer pressure now to go splurge for an actual computer capable of renditioning pages that are moron like this.

    Got a follow-up to this one, but now I need to go beg JR for column space. There is much worse at hand than the proven failure of those stupid grid models so beloved of Greenspan, Bernanke & Paulson .. otherwise known as the Dewey, Cheetham & Howe of modern macroeconomics.

  18. This is a brilliant idea!!

    http://www.nsf.gov/news/news_summ.jsp?cntn_id=112488&org=NSF&from=news

    October 17, 2008

    Nalini Nadkarni of Evergreen State College currently advises a team of researchers who sport shaved heads, tattooed biceps and prison-issued garb rather than the lab coats and khakis typically worn by researchers. Why is Nadkarni’s team composed of such apparently iconoclastic researchers? Because all of her researchers are inmates at Cedar Creek Corrections Center, a medium security prison in Littlerock, Washington.

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