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« Why Investors Cannot Rely on Mainstream Media Sources | Main | ETF Update: The Fear Trade »

February 20, 2009

Comments

oldprof

Adan -- I do endorse the idea of "normal and sensible lending." Borrowing for home loans, car loans, and education is absolutely vital for an economic rebound. We will not get debt ratios down by choking off the economy.

That is the mainstream thinking, articulated very well in Pres. Obama's speech tonight, and I think it is correct.

Put another way, borrowing is not like a light switch. It is a continuum. We were at a level that was too high, but there is an optimal level.

Thanks for highlighting a key point, where I will return.

Jeff

oldprof

Thanks, Barry.

oldprof

Muckdog -- I have always liked the Santelli segments, going back to the days when he was a trader being interviewed. It is always good to know what traders are thinking. How else can you grasp what the impact of news will be? While I did not trade on the floor at the CBOE or the Merc, many of my best friends did and some still do.

Santelli would be even better if he would allow others to reply to his observations.

Thanks for the observations.

Jeff

oldprof

It is difficult to solve public problems without helping someone directly.

Thanks for your comments.

Jeff

adan

my only concern in your nice piece was with:

"...restoring a stronger economy, with normal and sensible lending."

it presupposes it would be good to resume borrowing, growing debt, and not addresses (at the same time or before) wage loss and stagnation

other than that, interesting piece; saw a referral to from brett steenbarger's twitter site

thanks!

Barry Ritholtz

Excellent post

VennData

The mortgage fix is small compared the size of the mortgage market, same of the stimulus package as a percentage of GDP over the years of its implementation. The noise from the critics is as pointless as anyone who has won in the luck lottery mentioned in the excellent M. Lewis piece.

You traders who cheered on R. Santelli are lucky. If we could tax luck instead of incomes, it would really be fair, but we can't so we tax incomes.

You wealthy Objectivists are lucky, your arrogance is funny, your ignorance is revealed at every ah-ha moment in that Lewis piece, just more things you don't know about, which is limitless.

John

Families were outbidding each other on homes like the ponzi scheme it truly was.

They ramped up home prices over 200% with the intention of moving out every 2 years with another 50% profit.

Now that their scheme has backfired due to the banks realizing these people never really had an income, the government wants to deduct money out of our earnings so we can pay for their outrageously overpriced home mortgages.

The younger generation will not be able to acquire these homes at the current price levels unless they too receive a government bailout.

Incomes simply do not support current housing prices.
Why can’t the government call a spade a spade?

John

Families were outbidding each other on homes like the ponzi scheme it truly is.
They ramped up home prices over 200% with the intention of moving out every 2 years with another 50% profit.
Now that their scheme has backfired due to the banks realizing these people never really had an income, the government wants to deduct money out of our earnings so we can pay for their outrageously overpriced home mortgages.
The younger generation will not be able to acquire these homes at the current price levels unless they too receive a government bailout.
Incomes simply do not support current housing prices.
Why can’t the government call a spade a spade?

muckdog

Nice column, Dr. Jeff. Well thought out as always. Of course, I think we should ask what is in it for us personally. If it doesn't benefit us, we have to speak up. Our economy isn't the Borg Collective. We are individuals. Our economy has worked because each of us acts in our own best interest, moving the free markets forward.

It seems like "the media" is spoonfeeding us what our opinions should be.

It was nice to see Santelli go off. (Just like he did last year against Cramer).

He's saying what a lot of folks are thinking but feel as if it is out of what we're told is the "mainstream" thinking.

RB

And it was a case in which, unlike most cases, the short run deserved to dominate.

INTERVIEWER: Now at the time of the Depression, did you personally support New Deal policies?

MILTON FRIEDMAN: You're now talking not about the Depression, but the post-Depression. At least the bottom of the Depression was in 1933. You have to distinguish between two classes of New Deal policies. One class of New Deal policies was reform: wage and price control, the Blue Eagle, the national industrial recovery movement. I did not support those. The other part of the new deal policy was relief and recovery... providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand... an expansive monetary policy. Those parts of the New Deal I did support.

INTERVIEWER: But why did you support those?

MILTON FRIEDMAN: Because it was a very exceptional circumstance. We'd gotten into an extraordinarily difficult situation, unprecedented in the nation's history. You had millions of people out of work. Something had to be done; it was intolerable. And it was a case in which, unlike most cases, the short run deserved to dominate.

Patrick

Wall Street and the deregulated economy died last Fall. Looking at Santelli and the bankers in front of Congress last week, it seems that Wall St. hasn't figured this out yet. Santelli was preaching to the choir, but the internet spread that much further than business blogs. What most people saw was a baby whose industry has taken $800 BB (at a minimum) screaming about $80 BB (at most) targeted at distressed homeowners. The Santelli rant probably pushed the country further towards nationalization.

Russ Wood

I think you protest too much.
There was no investment aspect to the Santelli rant. It was simply a display of frustration. A frustration that is quite common yet ignored by the MSM. The rant spread so quickly across the internet and other media not because it had any meaningful investment aspect, but because it resonated with so many people.

Your criteria for judging government policy is quite lacking. What of legality? What of "net" societal benefit, not simply societal benefit? What of comparing various policies against other options? Lots of policies can produce societal benefit. Shouldn't we aim for the most beneficial one? And shouldn't we evaluate these things before making them law? We can ask these questions without reliving the election. Since the President's plan (really Pelosi's) depends so much on the working taxpayer, maybe as Santelli suggests, that viewpoint is at least relevant.

RB

BTW, I've been on the sidelines for a home purchase for the last several years.

RB

It's a great post on public policy. As Krugman notes , the economy will self-heal through "use, delay and obsolescence" but it could, like the Panic of 1873, take 5 years or more. The many self-employed traders are who we hear from in the blogging world, being critical of the stimulus plan. The general public cannot cope with multi-year joblessness.

45free

Great post Jeff...You need to make a little noise about this as it truly is a case of the whole being greater than the sum of the parts.

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