Although I am not commenting on the current crisis, I think it would be irresponsible of me not to point out that I not only saw it coming five years ago, I even suggested a number of potential solutions which were similar in shape to the one actually chosen, but decidedly more innovative. If any readers are emailing their congressmen etc, you can quote me if you like. I promise that I am not trying to talk up a massive speculative book of Beanie Babies.
{ 39 comments }
stuart 10.03.08 at 10:47 am
The problem I see is that politicians in a democracy are incentivized to (at minimum) leave bubbles alone – if they step in they stop the bubble, so there is no big burst, they are remembered as an interventionist who spoils the party when lots of people were making money. Of course until recently there wasn’t so much deliberate inflation of asset bubbles, but it works on a fairly similar principle – although it is more dangerous for the economy and the politician as you can usually get away with causing something by inaction.
sharon 10.03.08 at 12:03 pm
OT: what have you done to the site design now?
(Apologies if this question has already been asked several times in the comment threads I haven’t read yet. Feel free to delete.)
Cycledoc 10.03.08 at 12:12 pm
It didn’t take a wizard to realize the housing and debt bubble was unsustainable. The problem is how do you stop an addiction. Our culture was/is addicted to spending and debt and anything that interfered was considered interfering with the natural state (free markets). Try talking to an alcoholic sometime about his problem and you will get similar anger and fabrication.
In alcohol treatment we know that denial is an integral part of the disease. Unfortunately there are those who still can’t face the fact that the whole premise of spending and debt are wrong. They still believe in the Laffler curve (laugher?).
Laleh 10.03.08 at 12:56 pm
Hate to be a pedant, but that’s 6 years ago!
dsquared 10.03.08 at 1:28 pm
True, but the crisis started in earnest back in August 2007, which fits uncannily to my “five years per bubble” model.
Charlie 10.03.08 at 2:12 pm
Well, I think you have the problem nailed in your second to last sentence. People want to retire. They want to retire early, and into a state of comfort, to be sustained as long as. This requires opportunities for cashing out.
For those who are able to enter the game, the nice thing about money is that it provides a number as point of reference. When the number – ‘net worth’ – is big enough, retirement should be possible. Other solutions lack this simplicity. That is: finding work which sustains your interest, but which you are also fit (and qualified) to do; finding an accommodation with your peers (and competitors) so they don’t try to put you out of business; finding a comfortable lifestyle which is also resource efficient; and, not least, doing all of these things at the same time, until such point as you can’t (and then it’s the being of pure energy option, like you say).
stuart 10.03.08 at 2:23 pm
Would 5 years of an exponentially increasing amount of bank and fund failures count as a bubble in this model?
dsquared 10.03.08 at 2:44 pm
You can’t trick me into commenting on financial crises that way; it’s Beanie Babies or nothing.
Preachy Preach 10.03.08 at 2:58 pm
If kapok stuffing distributors had been selling kapok back and forth between each other, and by doing so, found out they’d spread a rather verminous kapok-eating weevils around the place, but nobody knew which bale had lots of weevils, and which was clean, what would your preffered solution to the resulting beanie babie stuffing crunch be?
Preachy Preach 10.03.08 at 3:00 pm
Actually, it now occurs to me that Beanie Babies may just be stuffed with plastic beans. That said, I don’t get to use the word ‘kapok’ enough these days.
Michael Drake 10.03.08 at 3:53 pm
If we could reliably predict Beanie-Baby-type bubbles, there wouldn’t be bubbles. (Call it “Pinchers’ Paradox.”)
Daniel 10.03.08 at 4:07 pm
If we could reliably predict Beanie-Baby-type bubbles, there wouldn’t be bubbles
Counterpoint: yes there still would.
And just to be clear here; not only every one of “gobineau”‘s comments will be deleted on this thread, so will every post that mentions, quotes or responds to him, however tangentially and no matter what else is in the post. Please think about that before you comment, as I’m sure it would be very annoying to lose a 500 word comment in such a way.
john b 10.03.08 at 4:30 pm
“so will every post that mentions, quotes or responds to him, however tangentially and no matter what else is in the post” – my inner logician suspects that your post might be missing an “except this one” disclaimer…
geo 10.03.08 at 5:23 pm
The Campaign for America’s Future website/blog has had very good reporting and analysis of the crisis since the beginning and before: http://www.ourfuture.org/. Almost makes up for the absence of dsquared, IMHO.
Adam Kotsko 10.03.08 at 6:44 pm
Would it be too obvious to do tulip bulbs again?
Barry 10.03.08 at 7:16 pm
Adam, not if they’re genetically engineered :)
Charlie Whitaker 10.03.08 at 7:31 pm
I should have added (and likewise, nothing earth shattering here): cashing out, as an ambition, is embedded in British political culture. Most senior British politicians aim to cash out. Tony Blair is an exemplar here (as so often seems to be the case), as he is currently in the process of cashing out; in part by means of a £500,000 annual salary from JP Morgan. He likely does no real work for this money (officially, he’s down for a couple of days a month, or something). My guess is that when all concerned agree he’s gotten enough from the deal (or when the pretence can’t be sustained any longer) he’ll stop. Maybe three to four years?
With respect to policy formation during time spent in office, what’s the likely effect of a politician’s life strategy here? It should be fairly obvious.
John Emerson 10.03.08 at 7:55 pm
I was boggled to find out that JP Morgan still controls the world. Presumably the Bavarian Illuminati, the Templars, and the Elders of Zion are still doing their evil work too. LaRouche is right after all.
Charlie Whitaker 10.03.08 at 8:01 pm
John, I’m not sure that’s helpful.
John Emerson 10.03.08 at 8:21 pm
Damn. And I was trying so hard.
virgil xenophon 10.03.08 at 10:12 pm
Preachy Preach:
Does this mean we should rename you the “Kapok Kid?”
ArC 10.03.08 at 11:58 pm
Daniel, the Onion more or less ripped off your brilliant innovative suggestion a few years later.
felix culpa 10.04.08 at 1:54 am
That is so 90’s, or something, whatever’s hot in the disdain market, but what you want is a meta-bubble. Bubble futures, yes? Invest in The Next Bubble bubble.
Dibs on the Nobel.
felix culpa 10.04.08 at 2:02 am
Bubble bubble.
It has a nice ring, whaddaya say?
Yeah, sounds oddly familiar.
Erinyes who?
eddie 10.04.08 at 3:46 am
Re felix culpa – bubble bubble, toil and trouble;
That’s what I thought we had already.
Perhaps a better phrase for it would be ‘pyramid tranching’.
nnyhav 10.04.08 at 5:09 am
Croesus loves me, this I know,
For the Bubble tells me so.
Paper gains to me belong;
Cash is weak, but loans are strong.
…
virgil xenophon 10.04.08 at 5:59 am
nnyhav’ s little ditty is more of a truism than most would like to admit. To a bank, cash is a liability, loans are assets. With ordinary people it’s the other way round.
felix culpa 10.04.08 at 6:51 am
It’s a truism to you (and I should have thought at least your Greek half would have relished the delovely classical leap); to me it’s Art.
Cash is weak, but loans are strong.
Yum.
And so true, don’cha think?
Been dodging that one my whole life, I have, and me old enough to be yer grandpa..
bad Jim 10.04.08 at 8:12 am
I spent Friday night watching PBS, MSNBC and HBO: Lehrer, Ifill, Maddow, Moyers and Maher, and the consensus of the pundits was sadly consistent with Herbert Hoover’s response to the crash: balance the budget at all costs. Now is not the time to expand public expenditure. We can’t affort universal health care or anything else. Who’s Keynes?
des von bladet 10.04.08 at 11:10 am
Who’s Keynes?
Well, you could always start another war…
ShaunR 10.04.08 at 2:57 pm
Well, I’m just thankful that Beanie Baby makers didn’t also sell insurance to other Beanie Baby makers against any fall in the value of Babies. And didn’t buy it themselves. And didn’t need to buy Babies from other makers who might not be able to deliver. And didn’t need to sell to them too.
Had there been such a tangled web of dependencies we really would have been fucked.
burritoboy 10.04.08 at 6:40 pm
“To a bank, cash is a liability, loans are assets. With ordinary people it’s the other way round.”
Xenophon, you know better than that. It’s the same way with both banks and ordinary people. The bank’s own cash is an asset. Cash deposits that belong to customers aren’t. (Same with individuals: your cash is your asset. Money that your crazy uncle stuck under your mattress isn’t, it’s his asset). Taking on debt is a liability for a bank and an individual. Loaning out money is an asset for both banks and individuals.
virgil xenophon 10.04.08 at 9:09 pm
burritoboy,
You’re so right, I was rather inartful. What I should have said is that most of us commoners are on the wrong side of the equation.
nick s 10.05.08 at 2:10 am
Creating a gun-buyback bubble by offering $25k per? I could go with that, given that an Obama victory will presumably be a recruiting goldmine for militia types. You’re not talking your book there, are you, Daniel? No medium-sized arms cache in the Oklahoma panhandle?
(Bubble gum bubble. Limited edition Bazooka Joe comics! Or bubble tea bubble. Tapioca hoarding ahoy!)
felix culpa 10.05.08 at 2:29 am
eddie:
That’s what I thought we had already.
Well yeah. It’s all a rolling repackaging anyway. You were expecting something new?
Sorry, we donâ€t do that here. ‘New’ is just a marketing slogan. It is thus largely meaningless.
But you knew that.
dr 10.05.08 at 2:40 am
Just saw the newest Rhapsondy ad on the TV and couldn’t help but think of this post.
Mike Alexander 10.05.08 at 3:45 pm
That’s what I thought the Fed would do once the housing bubble peaked, slash interest rates, perhaps also on longer-term securities as Bernanke hinted at in 2002 and ignite a new bubble in stocks.
Instead the Fed cut rates less than they for the stock market crash, and started blathering about inflation.
burritoboy 10.05.08 at 9:25 pm
“You’re so right, I was rather inartful. What I should have said is that most of us commoners are on the wrong side of the equation.”
It’s rather that most individuals don’t act in the role of bankers in modern society, so we just aren’t familiar with being in the position of a bank. Most people don’t hold money in their mattresses for crazy uncles and so on.
felix culpa 10.05.08 at 10:06 pm
Mike, IIRC the interest rate was verging on negative already.
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