Posts by icehawk
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"For a salary earner with a steady job, the recession is not going to seep through the window and eat his money."
Nonsense.
That is exactly what's going to happen if we get inflation without commensurate wage increases. That's exactly what did happen in the early 80s.
Inflation is the means by which a recession seeps through your window and eating your money. Inflation means each dollar you own is worth less. It means each dollar you earn is worth less.
We've both quoted the annual figures to Dec 2008 (CPI and hourly wage). But that's not a year of recession. Let's see where we are with the figures to Dec 2009 - and you may well see that the recession is actually seeping through people's windows and eating their money.
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"Wage levels may rise slower (or not at all), but they're not going to fall. The December figures from the Quarterly Employment Survey shows that the average hourly earning is up 5.5% from the previous year. Wages have not fallen."
Real wages are what matter. Wages after inflation. You young kids may forget that, not having lived through high inflation rates the way we older codgers did.
Once you take out inflation of 3.6% out of that 5.5% you quote is actually just a real increase of 1.9%. So wages increased 1.9% faster than inflation did.
And the minimum wage, if you added in inflation of 3.6%, would go from $12 to $12.42.
If you weren't inflation-indexing the minimum wage then it would be going down in real terms. And they don't call them "real" terms for nothing. Inflation means that staying still in nominal terms is really a decrease. This is why the people saying that the property market "might be flat for three or four years" are actually talking about a large decrease in the price of houses.
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Emma,
Avoid America.
I've been tossed out of restaurants in Indiana and Colorado for having bare feet - the first time as part of the culture shock of living there, the second when I was back in the states on holiday and had forgotten - and each time the manager was *sure* that state law forbade bare feet in a restaurant.
I'm sure the barefooter website is right that it's not. But many (most?) Americans really, truly believe both that bare feet are in some inexplicable way unhygienic, and that it's illegal to have bare feet in a place that sells food. And if the people who believe it work in the shop or restaurant then you're just out of luck.
Someone tried to justify the ban to me in terms of the presence of hookworm (Necator Americanus) in the USA, but though that enters the body from the ground via the skin it leaves the body via faeces so you can't walk it into someones shop. I think it's purely the cultural remnants of an old American class prejudice.
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But here is the true index for measuring Wall Street hard times: the High End Girlfriend Index
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"Republican-controlled US congress in 1999 repealed Depression-era laws which separated commercial banks and investment banks."
And?
NZ has never had any such laws. Thank goodness. Because right now it's the "pure" investment banks in the biggest trouble - those that combine boths sides of the business are (mostly) not as badly off.
NZ banks (and the Ozzie banks that own them) are okay largely because they've got a lot of volume of boring retail and commercial banking - deposits, loans, etc, the things that make an investment banker yawn. That business isn't flashy but it's much safer than the wierd and wonderful world of investment banking.
(investement banking can be done safely too. but only with managers who avoid quick profits in favour of safety - and they don't tend to get promoted.)
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"Lehman said that as of May 31, it had assets of $639 billion and debt of $613 billion."
Okay people, lets talk briefly about how derivatives work. Because those numbers don't mean as much as you think they do.
Any sane bank hedges its positions. So typically you're buying an asset (an obligation owed to you) worth 50 million at 5.92%, and then selling a different organisations 5 similar debts (obligations owed to someone else) worth 10 million each at 5.94%. If they actually are the same as each other (perfectly hedged) then you end up with no risk and make 0.02%/year on 50 million. No risk, no problems, pure profit, and yet on paper you now have an asset of 50 million and a debt of 50 million.
Of course, some hedges aren't perfect (that's where the difference between "similar to" and "exactly the same as" can bite you). And some positions are NOT hedged because you bet on the market going one way and it doesn't. But the point is that the notional "600 billion" figure is not what's important. It's the gap of 26 billion between assets and liabilities that's important.
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Much scarier than any subprime details is the current state of the TED.
The TED is the difference between the 3-month US dollar LIBOR rate (that is, the rate at which the big commercial 5 banks lend to each) and the interest rate yield they accept on US dollar Treasury bills.
So it's the difference between the 3-month rate a bank wants on US govt debt vs the 3-month rate a bank wants from another big bank. That means its a measure of credit risk of banks. It's a credit spread - an addition to the safe interest rate to get a rate adjusted by credit risk.
Typically the TED is around 0.05% - that is, the banks assume there's a 0% chance the US Treasury will go bankrupt but 5 in 10,000 chance that a solid commercial bank will.
Right now it's over 3%. That is, the banks are betting that the safest most stable commercial banks on the planet have a 3% chance of going under. You just can't run a modern financial system under such a climate of fear. It just won't work. No-one knows what happens next.
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The claims above that Fannie Mae and Freddie Mac are responsible for the sub-prime crisis are just silly. "Sub-prime" mortgages in the USA are (by definition) ones that the Fannie and Freddie wouldn't touch.
Freddie & Fannie getting caught with a liquidity problem was a symptom of this whole mess, not a cause of it, and it wasn't because they engaged in sub-prime lending.
Freddie & Fannie's share of backing the US mortgage market dropped as the real estate boom got silly, because they *wouldn't* engage in buying dept related to truly absurd mortgate practices - like lending to people with no deposit and no income.
Freddie & Fannie problems were that they ran on not enough capital, which meant that they got caught out when defaults rose sharply due to the end of a real estate boom. In other times they'd have borrowed to cover it, but because the market is shaky no-one would lend to them. Of course the Senate Banking committee let them run down their capital - but neither Obama nor McCain were involved in that.
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Those considering alternatives should think about MMP as it was originally proposed by the Royal Commission - before the sitting MPs messed with it to try and make it a less palateable alternative to FPP.
* Threshold of 4% not 5%.
* If your party wins 1 electorate and less than threshold, you just get that 1 MP.
* If your party wins 2 electorates then you're not just a one-person wonder, so you get your full % of MPs, even if you haven't made the threshold.
But you can rely on Peter Dunne to work very hard to ensure any such sensible small tweaks to MMP to reduce his power are not on the agenda. Nor do I see any advantage to Labour or National in the threshold dropping, so I can't see them letting it happen.