Friday, August 5, 2011

Comments Elsewhere: Freakonomics and the Market Meltdown

One of the posters at Freakonomics told us why he thinks the market meltdown is crazy. I just had to disagree. They moderate comments, so in case it doesn't appear, here it is:

A. There are millions of houses in default or being intentionally left pre-default (90+ days in arrears), so that their lien holders don't have to mark them down as foreclosed. Until these are dealt with, the entire housing market is one big sham.
B and C. You are double-dealing here. If Mark to Market was in effect, then the banks would still be failing because their assets are crap, not making a profit. If the banks are making a profit by lying about the value of their assets, then they're zombies, not healthy entities.
D. Driving the shorts out of the market makes a warm fuzzy feeling, until there's a large downturn and you don't have anyone with incentive to buy. The shorts stop downslides by needing to close out the short by locking in gains.
E. We've had 8 months of record government borrowing to make that GDP growth. It's not sustainable without private GDP growth, which hasn't happened yet.
G. The debt ceiling debacle masks a more sinister problem: the US Government has no intention to ever pay off its debt, and probably isn't able to do so. It's the world's largest ponzi scheme ever, and it will eventually collapse. If Moodys and S&P were honest, the 10 and 30 year T notes would be junk.
H. Companies are sitting on their largest cash piles in history, even adjusting for inflation. Why do they all think they need that much cash, versus spending it ahead of a jump?
I. Tell that to the person paying 3.50 at the pump and the equivalent jump at the grocery store. Gas prices hurt the poor and middle class most directly.
K. We destroyed an entire year's worth of used cars with cash for clunkers, and now it's nearly as cheap to buy new as used. Imagine that!
The big winners in the new car game: Kia and Hyundai. IMHO, that's because they're cheap but good. US car makers need people buying SUVs and luxury cars, not Focuses and Accords.

Of your items, A, B, and C still aren't fixed. D isn't a real problem. We're only out of the E recession because the government borrowed our way out, and that's why it's facing a credit crunch itself.

Sorry, I don't see the improvement.

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