Category: contemporary quotes

Lew Rockwell on the "Great Fakeroo Recovery"

A year ago this month, the whole country was in agreement that we had been living an illusion for the previous ten years and that the prosperity we thought we were enjoying was not sustainable. There was no dissent on this point. Even Obama admitted it. Today, the illusion is even more egregious than it was, and yet people are once again embracing it as if it will not end.

The policy response to the downturn has been one of the most short-sighted and economically irrational in the entire history of mankind. Why did they do it? It’s all about the politics of the short term. The entire economic structure has been phonied up in order to make a success of the Obama cult. This is the driving motivation, alongside the obvious desire on the part of financial and banking bigshots for a bailout.

~ Lew Rockwell, “The Great Fakeroo Recover,”, September 9, 2009

Comment: As my partner, Bill Laggner, wrote recently, “Everyone sits at the bailout trough in American finance.” 90% of the investment industry is still living in the delusional world of 1982-2007 in which every downturn was arrested by Fed intervention, markets quickly recovered to new heights, and second-guessing the financial meddlers meant career suicide. An inflection point has been reached. The rules have changed. Economic gravity has reasserted itself.

The mother of all margin calls

On credit expansions:

This new money [inflation] is never evenly distributed, but instead gets funneled into whatever narrow area happens to capture the public’s fascination. As prices and valuations soar, greater doses of credit are required to keep the game going. Either more marginal borrowers are drawn in at ever more precarious levels or greater leverage must be applied to existing borrowers. This is what ultimately doomed the housing bubble. In the end, nearly anyone who could fog a mirror was getting an invitation to join the party.

The trouble with pyramid schemes is that they’re not designed to go in reverse. Eventually, the number of willing dupes is exhausted. The same people who panicked late to get into the game are just as likely to panic when the music stops. The longer the music plays, the more leveraged and unstable the inverted credit pyramid becomes. As the late economist Hyman Minsky observed, “stability is unstable.”
~ Kevin Duffy, “It’s a Mad, Mad, Mad, Mad World,” May 22, 2007

The financial establishment and power elite have known all along that their asset inflation scheme was not designed to work in reverse. The consequences for them (as opposed to the rest of us who bear most of the costs) would be too terrifying to face. Despite 13 months of massive government intervention, D-Day has arrived. The mother of all margin calls is finally upon us.

Peter Bernstein on the perfect financial storm

Nothing like this has ever happened before. There have been credit crunches and housing crises and dollar crises, but having all the chickens coming home to roost at the same time and interacting with one another is unique. We have historical perspective on the parts, but not the whole, and that makes things both interesting and scary.
~ Peter Bernstein, author of Against the Gods, a classic on risk management

My comment: I just watched talking head Vince Farrell on Bubblevision assure viewers that every financial crisis is a buying opportunity. He has no idea the magnitude of this storm.

Addendum: Speaking of Mr. Farrell, here is a snippet from a March 9, 2007 interview with Susie Gharib on the Nightly Business Report:

Gharib: Let’s go over your list of stock recommendations that you have for us tonight. At the top of your list you have AIG, the insurance company. Why do you like it?

Farrell: AIG had an analyst meeting last week in which they reported a very good quarter. And keep in mind, half their business is life insurance. We think of it as property casualty, but it is life insurance as well. They announced an $8 billion share repurchase and said under normal circumstances they would increase the dividend 20 percent a year. That is an extraordinary statement by management that it is very optimistic about the outlook for the next couple of years.

Gharib: Bank of America is another one of your stock picks. What is the attraction?

Farrell: They had an analyst meeting within the past week and the chairman said they’ll be able to grow earnings organically, meaning from the businesses they have, no acquisitions, 10 percent a year and the stock trades at only 10 times earnings. The market is at 15 times earnings and the dividend yield on Bank America is almost 4.5 percent and the yield on the 10-year Treasury is just above 4.5, so you get a Treasury bond yield and the opportunity for growth at the same time.

All told, Farrell recommended five stocks on NBR: AIG (was $69.07, now $12.14), BofA ($50.95, now $33.74), Transocean ($77.57, now $122.69), GE ($34.32, now $26.75), and ExxonMobil ($71.12, now $77.50). In all fairness, his overall picks fared much better than AIG and BofA, with the average pick -13.57% on a total return basis versus -7.87% for the S&P 500.

Tony Deden on the credit crunch

Despite the indifference and bullishness that permeates the stock markets, we continue to have considerable concerns about the impact that the real economy is likely to suffer as a result of the untangling of such momentous financial mess. In fact, we view these shocks not as a result of some specific malaise, such as the subprime fiasco, as much as tremors that precede the collapse of a phoney monetary order. — Anthony Deden, The Edelweiss Fund Monthly Review, October 3, 2007

Tony Deden on money

When you destroy the money, you destroy the glue that holds society together. — Anthony Deden

Charley Reese on freedom and responsibility

The kernel of the nut is this: In our constitutional republic, sovereignty rests in the people. If the people are too stupid or ignorant, too lazy or indifferent, to hold their public officials accountable for violating the laws and the Constitution, then of course they will deserve the tyranny they will surely get.

Self-government is tremendously more difficult and demanding than living under a dictatorship. In a dictatorship, all you have to do is obey. I fear that concept appeals to some Americans today. It’s understandable. Responsibility can be a heavy load to carry. It’s much easier to relegate all of that to the Great Leader and just do what we are told.

Anybody who’s ever been in the military or a jail knows what I’m talking about. When you are deprived of the ability to make choices, you are simultaneously relieved of the responsibility for making them. Responsibility is the other side of the coin of freedom.

– Charley Reese, “Responsibility,” October 15, 2007

Jay Leno on Columbus Day

Today is Columbus Day. Or, as Native Americans call it, “Illegal Immigration Day.”
— Jay Leno

Jay Leno on Congress

Congress has been having hearings this week concerning the increasing number of late airline flights. Congress said they may have to intervene in order to help the airlines improve. And really, who better than Congress to show you how to make your business run more efficiently? — Jay Leno

Jim Grant on central banking

The ultimate pillar of faith is confidence in the emissions of the world’s central banks. It is as strong today, we judge, as was confidence in the judgments of the ratings agencies only last spring – just that strong. — Jim Grant, “Pillars of Faith”, Grant’s Interest Rate Observer, September 7, 2007

My comment: With investors salivating over Bernanke’s rate cuts, hanging on every word even of the Fed’s regional minions, and snapping up the Maestro’s memoirs by the bucketful, Fed idolatry is unequivocal.

Mish on the credit bubble

“Credit booms do not end in inflation as most people believe. Credit booms ARE inflation that end in deflation. This credit boom is no different.” –Mike Shedlock, “Mish’s Global Economic Trend Analysis”

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