[GJM] Reader's questions on RBS global stock and credit crash alert (CITS Debt Watch Editorial Reply)
W. Curtiss Priest
bmslib at mit.edu
Mon Jun 23 09:34:27 MDT 2008
Subject: Reader's questions on RBS global stock and credit crash alert
(CITS Debt Watch Editorial Reply)
A dear friend writes very successful proposals for a well known
Massachusetts company. Mary asked two questions, and my
replies are below:
#1 "Why can I find no trace of this story in the American Press?"
#2 [and why not with] "the serious financial press?"
Subject: Re: Panic time? CITS Debt Watch Alert: RBS issues
global stock and credit crash alert
Date: Mon, 23 Jun 2008 08:17:12 -0400
From: "W. Curtiss Priest" <bmslib at mit.edu>
Organization: Center for Information, Technology & Society
To: pro... at aol.com
CC: mar... at comcast.net
References: 1 , 2 , 3 , 4
Dear Mary,
Good question.
My best answer is this. I think it was Galbraith who said
any decent economist can easily see the markings of what
will cause a crash. However, there is no telling when
people will panic, and it is their behavior, altogether,
that produces the panic and crash.
And, built into all of us is, 1.) a certain unwarranted
hope or optimism about the world (probably genetic), and
2.) what is referred to as the herd instinct.
And, all of these folk don't listen to economists anyway,
but, rather media-stock-market hype folk and so-called
financial advisers. And, for all these folk there is a
"don't rock the boat" attitude -- because -- most of the
time, optimism does prevail.
Now, this particular age before the crash did confound even
the best of doomsayers, some predicting a crash around twenty
years ago. What confounded their contrarianism?
This is the first time in this country's history to have
a house price bubble of this magnitude. So, "the consumer"
would have run out of money long ago, except for all of
these "taking equity out of (overly) high priced homes."
This was gasoline on the fire.
And, Congress helped by the 1986 Tax Reform Act which made
only mortgages tax deductible. So this had the perverse
effect of causing people to buy large ticket items -- such
as cars -- on "extra Re-Fi cash." (Refinancing) The
statistic is that on every Re-Fi, on average, people took
out $5,000 more than they planned to -- bankers would simply
say that why not? you have so much equity in your (overly
priced) home, go for it. (As the bankers make more money
on larger loans, their incentive system is obvious.)
Plus, add both that Greenspan and Bernanke cut interest
rates to obscenely low levels (average Fed window rate
is around 4%). Greenspan cut to 1.25%. Bernanke cut
to 2% (still, today). This was done in the name of liquidity
for the obscenely risky behavior of lenders (now including
brokerage firms) but has the effect of putting off the crash --
to someone else's "dime." (I don't think Bernanke will
be as lucky as Greenspan, as we must all pay the piper, and
now he has vastly rising prices in oil, and commodities,
and these will cause inflation, and the Fed just announced
it was time to fight inflation. Plus, the Fed is simply
the Wizard of Oz behind the curtain -- and is exposed, sooner
or later, as a pawn of the banking system.)
:)
Curtiss
propperson at aol.com wrote:
>
> I anticipated that answer so far as newspapers are concerned, but what
> about the serious financial press?
>
> Today's media so loves the-sky-is-falling stories that I'm amazed
> they're bypassing this one, whatever their vested interests!
>
> Thanks,
> Mary
>
> -----Original Message-----
> From: W. Curtiss Priest <bmslib at mit.edu>
> To: propperson at aol.com
> Cc: marg.driscoll at comcast.net
> Sent: Fri, 20 Jun 2008 12:13 pm
> Subject: Re: Panic time? CITS Debt Watch Alert: RBS issues global
> stock and credit crash alert
>
> Hi Mary,
>
> Fact: US newspapers are losing advertising revenues and are
>
> shrinking already.
>
> They do not want to antagonize the lions. (Their role is
>
> more to protect themselves than to protect their readers,
>
> unfortunately.)
>
> So, via Google News, we see who did cover this story:
>
> http://news.google.com/news?hl=en&um=1&tab=wn&q=royal+bank+scotland+stock+market+crash
>
> Regards,
>
> Curtiss
>
> propperson at aol.com wrote:
>
> >
>
> > Curt -- I read this with interest (and some trepidation), but am
>
> > curious about why I can find no trace of this story in the American
>
> > press?
>
> >
>
> > Mary Edwards
>
> >
>
> > -----Original Message-----
>
> > From: W. Curtiss Priest <bmslib at mit.edu>
>
> > To: anon at anon.org
>
> > Sent: Wed, 18 Jun 2008 6:43 pm
>
> > Subject: Panic time? CITS Debt Watch Alert: RBS issues global stock
>
> > and credit crash alert
>
> >
>
> > Subject: Panic time? CITS Debt Watch Alert: RBS issues global stock and
>
> >
>
> > credit crash alert
>
> >
>
> > Some remember. Adam Smith was a Scot and RBS is Scotland. Smith
>
> >
>
> > did not say everything that has been attributed to him. He lived in
>
> >
>
> > the Age of Enlightenment -- a very more gracious age than ours. Do
>
> >
>
> > read the Wealth of Nations ! Very sensible.
>
> >
>
> > Adam Smith would be horrified with US America (2008). Actually,
>
> >
>
> > he would have been horrified with US America (1980).
>
> >
>
> > If you want to know how banks are supposed to know their
>
> >
>
> > customers, please read Roger Ward Babson Banking, "Bond and Stocks:
>
> >
>
> > The Elements of Successful Investing" (1919). I have an original
>
> >
>
> > copy (lists for sale at Alibris, only $360) -- guess it was
>
> >
>
> > a good investment at $5. (Babson advised clients to get out
>
> >
>
> > of the market in 1928! His debates with Irving Fisher of
>
> >
>
> > Columbia University are a tad like someone trying to tackle
>
> >
>
> > Bernanke ... whichever, it won't matter.)
>
> >
>
> > I have visited some banks recently. An elderly woman was
>
> >
>
> > eager to chat. She said she couldn't believe what happened
>
> >
>
> > to the laxness in banking since she was a clerk in 1972.
>
> >
>
> > I nodded, knowingly. I said, "yeah, it is all done with a
>
> >
>
> > single rating score." By-the-by, speaking of single rating
>
> >
>
> > scores, today's news -- the SAT's -- even the improved SAT's --
>
> >
>
> > only have a 49% predictive relation to actual performance in
>
> >
>
> > college. Many colleges and universities are dropping them!
>
> >
>
> > Yeah, there's nothing quite like that old-fashioned, "know
>
> >
>
> > your customer."
>
> >
>
> > Whichever, when the Royal Bank of Scotland advises its clients
>
> >
>
> > to brace for a full-fledged crash in global stock and credit markets,
>
> >
>
> > I think it is time to smell the dung heap.
>
> >
>
> > Really! Think about it. The writing has been on the wall in
>
> >
>
> > blazing neon for the last ten years and has been plastered on
>
> >
>
> > billboards for the last twenty years.
>
> >
>
> > Did you think it was a fantasy? "Money for nothing and chicks
>
> >
>
> > for free," (Dire Straits)
>
> >
>
> > W. Curtiss Priest
>
> >
>
> > Editor, CITS (CKL&S) Capital & Debt Watch
>
> >
>
> > --
>
> >
>
> > W. Curtiss Priest, Director, CKL&S
>
> >
>
> > Center for Knowledge, Learning & Progress
>
> >
>
> > (formerly the Center for Information, Technology & Society)
>
> >
>
> > 466 Pleasant St., Melrose, MA 02176
>
> >
>
> > 781-662-4044 BMSLIB at MIT.EDU http://Cybertrails.org
>
> >
>
> > Subject:
>
> >
>
> > RBS issues global stock and credit crash alert
>
> >
>
> > Date:
>
> >
>
> > Wed, 18 Jun 2008 10:31:26 -0700 (PDT)
>
> >
>
> > From:
>
> >
>
> > William Tamblyn <wmtamblyn at yahoo.com>
>
> >
>
> > To:
>
> >
>
> > ERT <energyroundtable at yahoogroups.com>
>
> >
>
> >
>
> >
>
> > http://tinyurl.com/5qckkp
>
> >
>
> > RBS issues global stock and credit crash alert
>
> >
>
> > By Ambrose Evans-Pritchard, International Business Editor
>
> >
>
> > Last Updated: 5:42pm BST 18/06/2008
>
> >
>
> >
>
> >
>
> > The Royal Bank of Scotland has advised clients to brace for a
>
> >
>
> > full-fledged crash in global stock and credit markets over the
>
> >
>
> > next three months as inflation paralyses the major central banks.
>
> >
>
> > "A very nasty period is soon to be upon us - be prepared," said Bob
>
> >
>
> > Janjuah, the bank's credit strategist.
>
> >
>
> > A report by the bank's research team warns that the S&P 500 index of
>
> >
>
> > Wall Street equities is likely to fall by more than 300
>
> >
>
> > points to around 1050 by September as "all the chickens come home to
>
> >
>
> > roost" from the excesses of the global boom, with
>
> >
>
> > contagion spreading across Europe and emerging markets.
>
> >
>
> > Such a slide on world bourses would amount to one of the worst bear
>
> >
>
> > markets over the last century.
>
> >
>
> > RBS said the iTraxx index of high-grade corporate bonds could soar to
>
> >
>
> > 130/150 while the "Crossover" index of lower grade
>
> >
>
> > corporate bonds could reach 650/700 in a renewed bout of panic on the
>
> >
>
> > debt markets.
>
> >
>
> > "I do not think I can be much blunter. If you have to be in credit,
>
> >
>
> > focus on quality, short durations, non-cyclical defensive
>
> >
>
> > names.
>
> >
>
> > "Cash is the key safe haven. This is about not losing your money, and
>
> >
>
> > not losing your job," said Mr Janjuah, who became a
>
> >
>
> > City star after his grim warnings last year about the credit crisis
>
> >
>
> > proved all too accurate.
>
> >
>
> > RBS expects Wall Street to rally a little further into early July before
>
> >
>
> > short-lived momentum from America's fiscal boost
>
> >
>
> > begins to fizzle out, and the delayed effects of the oil spike inflict
>
> >
>
> > their damage.
>
> >
>
> > "Globalisation was always going to risk putting G7 bankers into a
>
> >
>
> > dangerous corner at some point. We have got to that
>
> >
>
> > point," he said.
>
> >
>
> > US Federal Reserve and the European Central Bank both face a Hobson's
>
> >
>
> > choice as workers start to lose their jobs in
>
> >
>
> > earnest and lenders cut off credit.
>
> >
>
> > The authorities cannot respond with easy money because oil and food
>
> >
>
> > costs continue to push headline inflation to levels that
>
> >
>
> > are unsettling the markets. "The ugly spoiler is that we may need to see
>
> >
>
> > much lower global growth in order to get lower
>
> >
>
> > inflation," he said.
>
> >
>
> > "The Fed is in panic mode. The massive credibility chasms down which the
>
> >
>
> > Fed and maybe even the ECB will plummet
>
> >
>
> > when they fail to hike rates in the face of higher inflation will
>
> >
>
> > combine to give us a big sell-off in risky assets," he said.
>
> >
>
> > Kit Jukes, RBS's head of debt markets, said Europe would not be immune.
>
> >
>
> > "Economic weakness is spreading and the latest
>
> >
>
> > data on consumer demand and confidence are dire. The ECB is hell-bent on
>
> >
>
> > raising rates.
>
> >
>
> > "The political fall-out could be substantial as finance ministers from
>
> >
>
> > the weaker economies rail at the ECB. Wider spreads
>
> >
>
> > between the German Bunds and peripheral markets seem assured," he said.
>
> >
>
> > Ultimately, the bank expects the oil price spike to subside as the more
>
> >
>
> > powerful force of debt deflation takes hold next year.
>
> >
>
> > --
>
> >
>
> > W. Curtiss Priest, Director, CKL&S
>
> >
>
> > Center for Knowledge, Learning & Progress
>
> >
>
> > (formerly the Center for Information, Technology & Society)
>
> >
>
> > 466 Pleasant St., Melrose, MA 02176
>
> >
>
> > 781-662-4044 BMSLIB at MIT.EDU http://Cybertrails.org
>
> >
>
> > ----------------------------------------------------------------------
>
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>
> --
>
> W. Curtiss Priest, Director, CKL&S
>
> Center for Knowledge, Learning & Progress
>
> (formerly the Center for Information, Technology & Society)
>
> 466 Pleasant St., Melrose, MA 02176
>
> 781-662-4044 BMSLIB at MIT.EDU http://Cybertrails.org
>
> ----------------------------------------------------------------------
> Get the Moviefone Toolbar. Showtimes, theaters, movie news, & more!
--
W. Curtiss Priest, Director, CKL&S
Center for Knowledge, Learning & Progress
(formerly the Center for Information, Technology & Society)
466 Pleasant St., Melrose, MA 02176
781-662-4044 BMSLIB at MIT.EDU http://Cybertrails.org
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