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May 30, 2012



RalphL@2:19-- I agree with that, very much.

Melinda Romanoff


Not perceived, securities were formed and are still, mostly, paid out on, bonuses were given, salaries paid. All economic activity during the bubble existed, vacuous or not. You cannot dismiss it as not being real. Prices were paid, trades occurred. Economic decisions were made on the information given at the time.

The downside of the bubble is just as real as the formation of the bubble. It's a bell curve of data sets holding economic decision making by the general population, those whom participated in the bubble as well as those whom did not. It ALL was real, and happened in real time. There was not one eeevil player, there were many. Some acting large, others by swiping pennies as the buck flew by. It was a system, as it is defined. Many moving parts, most acting in ways not known by any others, but still impacting a price decision that each participant had to make every day, no matter what that decision was.

It all counts.


MelR@8:25-- and I agree with that completely -- all pre and post bubble decisions ALL COUNT. But I think RalphL's point and certainly my point is what-- if anything -- do you do about all those pre and post bubble decisions? My suggestion is that we all say-- deal with it. If you were on the right side of the MBS bubble trade-- God Bless and only pay 15% Cap gains tax. If on the wrong side?, mow lawns, you lost. The losers want their losses socialized through direct bailouts and inflation. Policy created inflation is the ultimate moral hazard, because it invalidates the theoretical -- and moral -- basis for fiat currency. I think we should avoid that. If we don't? Hello state managed mercantilism.

Melinda Romanoff

The point was ALL the decisions were related, to the specific information that was available at the time.

Pick your bubble: Manufacturing in the late 60's, S&Ls, .com, S&L2.0.

All created wealth and all destroyed it.

You are focusing too tightly on one leg of the elephant.


Maybe I'm focusing on the trend that started when smart guys Alan Greenspan and Robert Rubin started socializing losses with the Mexican bond meltdown, and then accelerated with LTCM, Russian bonds, and then Greenspan's post DotCom bubble cheap money. personally 18 years ago I scoffed when the WSJ brought up the quaint 'moral hazard' concept, now we all see where moral hazard leads. Cronyism and inflation. I protest.

Melinda Romanoff

Cronyism, yes. Inflation, no.

And the Mexican bailout was with our second largest trading partner coming close to not being able to pay its bills here and on the verge of descending into what's going to happen in Spain. It was Nick Brady, Don Regan, and George Schultz that put that together, pre-sold it, and delivered the goods. It was smart at the time, and remains the only chance for Europe.

If the right people can put it together.

And that ain't Geithner.

Melinda Romanoff

Here's point one.

There is no "Start" point. There is only "Is".


MelR@9:38-- we already got the cronyism and if you're right about Ben B, we are GOING TO GET the inflation. Geithner ain't the guy-- completely agree, and yes there is only 'is', I agree.

Melinda Romanoff

No, my point is, and always has been, if Ben is right and I really believe he's got this mostly right, there won't be any inflation at all. You can't reflate a credit bubble 100%, at this pace.


I think we are talking about the '94 deal, where Carlos Slim was bailed out sufficiently, that he became the Time's Daddy Warbucks.


Narc-- Slim plus all of the other rich bondholder folks got bailed out in 1994 by Rubin, Greenspan and other financial wizards MelR mentioned, the Mexican taxpayers are still paying for that.

MelR--I admire BenB, but even I don't have the confidence in him that you apparently have that we can fight deflation with inflation, but without having --inflation. I guess I'm not smart enough to figure that out.


You know the old joke about the two guys running from the bears -- you don't have to be faster than the bear, just faster than the other guy.

The problem with the printing money causing inflation bit is that it's not a monotonic function. Because currencies are substitutes for each other. So when the EU sends the quality of the euro into the toilet, the total supply of dollar-quality-or above currency contracts sharply. So when Ben prints more dollars, he is simply preventing the deflation inherent in the euro flush. But if Ben prints too much money, then the dollar will itself fall out of the "higher-quality" club, which will have two simultaneous effects -- the inflationary collapse of the dollar, and the deflationary explosion of all of the remaining high-quality currencies, which are much smaller.

So, simultaneously, not printing enough dollars causes deflation and printing too many dollars causes deflation. And it is not at all clear that this is a system of equations with a real solution -- it may be that "not enough" is actually LARGER than "too much"!

Sure, if the EU were to suddenly acquire a lot more probity and industriousness, enough that they suddenly rejoin the universe of 1st-world currencies, then all those euros suddenly piled in with all those dollars Ben has printed are going to be a huge inflationary pain in the ass. But, 1) I'm not holding my breath waiting for the PIIGS to suddenly turn Dutch, and 2) if they suddenly started creating a lot more wealth by their industriousness, that would soak up most of the extra Ben-Bucks and tamp down the inflation anyway.

Melinda Romanoff


You skipped a step.

Because of the crushing loss of wealth due to the deflating of the real estate bubble and the deflation inherent in that bursting, the function you are describing is Poissons, not wave. But you can't apply mathematics cleanly to economics, it's a logic course, yes, but not Boolean.

The best description of free economic activity would be, mathematically, a description of randomness with a Monte Carlo sub-element, and in that I'm not even doing it justice, because of the dynamic functions involved.

Clouded elegance is all I'm left with, especially after studying some African and South American economic data.

Still too simplistic an approach for me.

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