Virtual Money? $14 trillion lost from world stocks in 2008
January 2, 2009
The credit crisis erased $14 trillion (McKeef 2008-12-31) from world stock markets in 2008. Where does $14 trillion in world stock markets go? How can that much capital disappear from the market? The infamous year 2008 will be known in the future as the year that fundamental concepts in the moral mathematics of the market were forever changed. This credit crisis was the worst since the Great Depression of the 1930s but its ramifications may be even deeper.
How can we visualize a billion dollars? How much more difficult is it to imagine a trillion dollars?
The most recent wiki entry (2009-01-01) describes how any attempt to visualize numbers higher than a million is complicated because there are too systems of numeric names and the difference between the two scales grows as numbers get larger. Million is the same in both scales, but the long-scale billion is a thousand times larger than the short-scale billion, the long-scale trillion is a million times larger than the short-scale trillion. The short scale system is used in the US and a long scale system is used in the UK. The short scale system of numeric names means every new term greater than million is 1,000 times the previous term: “billion” means “a thousand millions” (109), “trillion” means “a thousand billions” (1012), and so on. Long scale refers to a system of numeric names in which every new term greater than million is 1,000,000 times the previous term: “billion” means “a million millions” (1012), “trillion” means “a million billions” (1018). (wiki).”
6 zeros = 1 million, a thousand thousands or (106)1, 000, 000
8 zeros = a hundred million (108) 100, 000, 000 this image
9 zeros = 1 billion in the short scale system used in the US = a thousand millions or (109) or 1,000,000,000
12 zeros = 1 trillion in the short scale system used in the US = “a thousand billions (1012) or 1,000,000,000,000
12 zeros = 1 billion in the long scale system used in the UK: 1,000,000,000,000
18 zeros = 1 trillion in the long scale system used in the UK is a million billions (1018) or 1,000,000,000,000,000,00
1,000,000 6 zeros = 1 million, a thousand thousands or (106)1, 000, 000
This Adobe Photoshop image posted in my ocean.flynn Flickr account was my attempt to visualize 100,000,000 dollars
“World stock markets ended on an uptick for the year on Wednesday, after some bourses registered their worst annual losses in history. Global stocks as measured by the MSCI world index ended up 0.76 percent for the day and posted their first monthly gain in seven months, but lost 43.36 percent for the year. About $14 trillion (9.6 trillion pounds) in market capitalisation was erased from world stock markets in 2008 in the wake of the worst credit crisis since the Great Depression of the 1930s. “It has been a shocking year, hardly anything was spared in the carnage,” said Michael Heffernan, strategist at Austock Group in Australia. U.S. stocks edged up on Wednesday and saw their first monthly gain in five months, but the year has been the worst for Wall Street stocks since the Great Depression (McKeef 2008-12-31).”
McKeef, Clive. 2008-12-31. “World stocks end up after historic losses.” Business News. Reuters.
Economics 101: Rewriting the Textbooks
December 31, 2008
Deborah Yedlin (2008-12-30) of the Calgary Herald’s Business section succinctly summarized the economic nightmare of 2008 in which the investment banking industry collapsed, Chicago school economics theories were debunked and their heroes dethroned, trusted risk management managers were vilified, and the axis of financial power shifted from the West to the East.
Citations
“The consequences of the lack of regulation in the shadowy subprime housing market, and the ability of banks to get loans off their balance sheets and have investment banks repackage them as rated securities, allowed for the spreading risk. It was a practice that was supposed to ensure if something went bad, the damage would be contained because the exposure would be spread out. It was an axiom that was lent an even greater reliability because U. S. Federal Reserve chairman Alan Greens-pan was a believer in it. As many are now painfully aware, the dominos began to fall when two hedge funds at Bear Stearns collapsed in late 2007. This started the clock ticking on the 84-year-old investment bank, which proceeded to lose the confidence of investors and counterparties and was sold post-haste to JP Morgan Chase in March for $10 a share with the “help” of the U. S. Federal Reserve and its investment banking veteran, Hank Paulson (Yedlin 2008-12-30).”
“Nobel Prize-winning economist Paul Krugman, in opining on the multi-billion fraud perpetrated by Bernard Madoff, suggested one of the reasons he was not discovered was because of society’s worship of the wealthy. Too many, he said, have drawn the conclusion that people who have made huge sums of money must be very smart and to question these individuals would be to insult them (Yedlin 2008-12-30).”
Webliography and Bibliography
Yedlin, Deborah. 2008-12-30. “Storybook year ends in economic nightmare.” Calgary Herald.
NYU sues GMAC’s chair Merkin re:Madoff tie: US bailout GMAC
December 25, 2008
US Circumlocution Offices [1]: Federal Reserve approved General Motors (GMAC) Financial Services’ application to become a bank-holding company which will let them benefit from government bailout dollars. New York University sued Merkin GMAC chairman for feeding money to Madoff and concealing involvement from investors like NYU.
Notes
1. Charles Dickens invented the term Circumlocution Offices to describe governmental and bureaucratic indolence and incompetence. By passing work through many hands of the Circumlocution Offices, it is easy to avoid doing anything. Dickens’ character in Little Dorrit, Mr. Merdle, who embarked on a fraudulent scheme is now being compared to Madoff and institutions such as the U.S. Securities and Exchange Commission (SEC), etc are being compared to Circumlocution Offices.
“The U.S. Federal Reserve on Wednesday approved GMAC Financial Services’ application to become a bank-holding company, a status that would give the auto-financing arm of General Motors Corp. access to government bailout dollars and the Fed’s discount window. The move complements a $17.4 billion emergency loan package the government extended to GM and (Wall Street Journal 2008-12-24)…
“Merkin, who is chairman of GMAC LLC, is named in the lawsuit brought by NYU, along with his Gabriel Capital LP fund and Ariel Fund Ltd. GMAC is the finance business owned by General Motors Corp and private equity firm Cerberus Capital Management LP. The Funds ‘feeding’ money to Madoff, including Ariel, made a conscious effort to conceal Madoff’s involvement from their own investors,” the NYU lawsuit said. “This concealment was a requirement dictated by Madoff, which was agreed to by Merkin and other ‘feeder’ funds (McCool Reuters 2008-12-24).”
Winner’s Curse Effect: Biomedical Research in the Deep Web
October 12, 2008
Economic principles applied to publication systems for biomedical research reveal a publication bias, a winner’s curse. Elite high-impact scholarly journals continue to raise artificial publication barriers by underusing open access, neglecting negative data and publishing unrepresentative results of repeated samplings of real world. Access to our communal knowledge and memory through archives is essential to the democratic process.
read more Young, Ioannidis, Al-Ubaydli (2008), | digg story
Currently publicly-funded peer-reviewed academic research published in exclusive journals largely informs public policies on biomedicine, the economy, environment, education, justice, housing, etc. These journals now make articles available on-line at exorbitant prices. Contributors to these journals earn tremendous academic capital crucial to professional advancement. Password protection and high costs prevent the public from accessing the most recent relevant and accurate research. The number of publicly accessible sites are growing as search engines dig deeper in the Deep Web and the open access movement grows among some academics and scientists [2, 3].
In this concise, fact-filled, informative article published by the Association of Research Libraries (ARL)[1] (2003-05-04) the authors described how even five years ago librarians were concerned by the mergers in scholarly publishing which reduced the number of players and by rising journal subscription rates that severely eroded the purchasing power[6] of libraries, universities, and scholars requiring crucial publications for teaching, learning and research.
In February 2009 Jennifer McLennan, SPARC’s[5] Director of Communications encouraged all supporters of public access to taxpayer-funded research – researchers, libraries, campus administrators, patient advocates, publishers, and others to oppose H.R. 801: the “Fair Copyright in Research Works Act which was re-introduced in February 11, 2009 by Chairman of the House Judiciary Committee (Rep. John Conyers, D-MI). This bill would reverse the National Institutes of Health (NIH) Public Access Policy and make it impossible for other federal agencies to put similar policies into place.”The bill goes further than prohibiting open access requirements, however, as the bill also prohibits government agencies from obtaining a license to publicly distribute, perform, or display such work by, for example, placing it on the Internet, and would repeal the longstanding ‘federal purpose’ doctrine, under which all federal agencies that fund the creation of a copyrighted work reserve the ‘royalty-free, nonexclusive right to reproduce, publish, or otherwise use the work’ for any federal purpose. The National Institutes of Health require NIH-funded research to be published in open-access repositories (Doctorwo 2009).” HR801 would benefit for-profit science publishers and increase challenges for making the Deep Web more accessible. See also Doctorwo, Cory. 2009-02-16. “Scientific publishers get a law introduced to end free publication of govt-funded research.”
In 2000 The Open Archives Initiative (OAI) [4] focused on increased access to scientific research (Van de Sompel & Lagoze, 2000). Since then it has reached deeper into the Deep Web with is OAI-Protocol for Metadata Harvesting (OAI-PMH). See Cole et al (2002).
Notes
1. In early 2002, Association of Research Libraries (ARL) Office of Scholarly Communication task force recommended that the Association promote “open access to quality information in support of learning and scholarship.” Society benefits from the open exchange of ideas. Access to information is essential in a democratic society. Public health, the economy, public policy all depend on access to and use of information, including copyrighted works.
2. UC-Berkeley Biologist Michael Eisen, Nobel Laureate Harold Varmus and Stanford biochemist Patrick Brown helped start the Public Library of Science, PLoS in 2000, a “nonprofit organization of scientists and physicians committed to making the world’s scientific and medical literature a freely available public resource” by encouraging scientists to insist on open-access publishing models rather than being forced to sign over their (often publicly-funded research) to expensive scientific journals. Wright (2004) cited Eisen, Varmus and Brown as examples of scientists who are making making some areas of the Deep Web more accessible to the public.
3. Alex Steffen (2003 [2008-09-04]) open source (OS) movement
4. The Open Archives Initiative (OAI) “develops and promotes interoperability standards that aim to facilitate the efficient dissemination of content. The OAI Metadata Harvesting Protocol allows third-party services to gather standardized metadata from distributed repositories and conduct searches against the assembled metadata to identify and ultimately retrieve documents. While many proponents of OAI advocate open access, i.e., the free availability of works on the Internet, the fundamental technological framework and standards of the OAI are independent of the both the type of content offered and the economic models surrounding that content (ARL).”
5. The Scholarly Publishing and Academic Resources Coalition, (SPARC) launched in June 1998, is an international alliance of academic and research libraries working to correct imbalances in the scholarly publishing system.
5. SciDev.Net (Science and Development Network) “is a not-for-profit organisation dedicated to providing reliable and authoritative information about science and technology for the developing world. Through our website www.scidev.net we give policymakers, researchers, the media and civil society information and a platform to explore how science and technology can reduce poverty, improve health and raise standards of living around the world. We also build developing countries’ capacity for communicating science and technology through our regional networks of committed individuals and organisations, practical guidance and specialist workshops.” SciDev.Net “originated from a project set up by news staff at the journal Nature (with financial assistance from the Wellcome Trust, United Kingdom) to report on the World Conference on Science, held in Budapest in 1999. This was warmly received, leading to discussions about creating a permanent website devoted to reporting on, and analysing the role of, science and technology in development. The initiative was endorsed at a meeting held at the Academy of Sciences for the Developing World (TWAS) in Trieste, Italy, in October 2000. Immediately following the Trieste meeting, the UK Department for International Development (DFID) agreed to finance a six-month planning stage, starting in November 2000. At the end of this planning stage, sufficient funding had been raised from international aid agencies and foundations for a full-time staff and an independent office in London. The SciDev.Net website was officially launched on 3 December 2001. The website has expanded continuously since its launch. We regularly add dossiers, spotlights, ‘quick guides’ and ‘news focuses’ on specific subjects, in addition to a growing amount of regular news coverage. An enhanced and redesigned version of the website was launched in January 2008. Regional networks were launched in Sub-Saharan Africa (2002), in Latin America (2003), in South Asia (2004) and in China (2005), each bringing together individuals and organisations that share our goals and objectives. There are plans for future networks in the Middle East and North Africa, West Africa and South-East Asia. SciDev.Net held its first workshop, in collaboration with the InterAcademy Panel, on science in the media in Tobago in February 2001. Since then we have collaborated with partners to deliver numerous specialist science communication workshops for journalists and other professional communicators across the world (SciDev.Net History).”
6. “Expenditures for serials by research libraries increased 210% between 1986-2001 while the CPI increased 62%. The typical library spent 3 times as much but purchased 5% fewer titles. Book purchases declined by 9% between 1986-2001 as libraries sought to sustain journals collections. Based on 1986 purchasing levels, the typical research library has foregone purchasing 90,000 monographs over the past 15 years. In the electronic environment, the model has changed from the purchase of physical copies to the licensing of access. In general, libraries do not own copies of electronic resources and must negotiate licenses (rather than depend on copyright law) to determine access and use. Large bundles of electronic journals offered by major commercial publishers will force smaller publishers out of business. Multiple-year licenses to large bundles of content that preclude cancellations will force libraries to cancel titles from smaller publishers to cover price increases of the bundles. This diminishes competition and increases the market control of the large publishers. Lack of corrective market forces has permitted large companies to reap high profits from publishing science journals. In 2001 Reed Elsevier’s STM division’s operating profit was 34% while its legal division’s operating profit was 20%, its business division’s 15%, and education 23%. Mergers and acquisitions increase prices and eliminate competition. Research has shown that mergers exacerbate the already significant price increases of journals owned by the merging companies. While there were 13 major STM (Science, Technology and Medicine) publishers in 1998, only seven remained by the end of 2002 (ARL 2003-05-04:2).”
Webliography and Bibliography
Cole, Timothy W.; Kaczmarek, Joanne; Marty, Paul F.; Prom, Christopher J.; Sandore, Beth; Shreeves, Sarah. 2002-04-18. “Now That We’ve Found the ‘Hidden Web,’ What Can We Do With It?” The Illinois Open Archives Initiative Metadata Harvesting Experience. Museums and the Web (MW) Conference. Archives and Museums Informatics. University of Illinois at Urbana-Champaign, USA. April 18-20.
Smith, Richard. 2008-10-07. “More evidence on why we need radical reform of science publishing.”
Steffen, Alex. 2008-09-04 [2003]. “The Open Source Movement.” WorldChanging Team.
Young, N.S,; Ioannidis, J.P.A; Al-Ubaydli, O. 2008. “Why Current Publication Practices May Distort Science.” PLoS Medicine. 5:10.
ARL. 2003-05-04. “Framing the Issue.” Association of Research Libraries (ARL).
McHugh Bluff Stairs for Fitness. Tory Calgary, AB MLA Dave Rodney is the first to propose legislation through the vehicle of a bill (2008-05-11) offering a maximum of $1500 tax relief to those who purchase a limited number of eligible fitness-related services. Would a tax credit only push a few people to step away from their screens and go outdoors, the can-but-will-not?
Purchasing a club, team or gym membership does not make the buyer physically fit. The same degree of fitness can be achieved on Calgary’s biking, walking and hiking paths and trails. People get fit by choosing to use stairs indoors or outdoors like those at McHugh Bluff. Others keep in shape through paid or unpaid work related activities. How do we monetize their contributions towards relieving Alberta’s ailing medical system? Do we have statistics on the demographics of health-care users specifically as related to income and fitness? Do we have evidence-based research that lack of physical fitness on the part of individual’s is a key component in weakening Alberta’s medical system? Who is driving this bill? Are community members concerned with individual well-being who are not linked to the sports industry (organizations and businesses who monetize fitness) actively engaged in promoting this bill? How will this bill facilitate fitness improvement as part of quality of life issues for city’s most vulnerable populations? Is there any evidence-based research that the the most vulnerable groups, the biggest consumers of public medical system resources, would benefit in any way from a tax-incentive? What percentage of the municipal population who have access to a disposable income required to access pay-per-use fitness activities would find themselves in the tax bracket where this would benefit them? What is the real saving? What are the real costs of this proposed tax-incentive, spread across the broad spectrum of the municipal community, to encourage those few people who have the buying power but not the will, to puchase fitness-related services? Once they have purchased them is their any monitoring device that they would use them? Is there evidence-based research to ensure that those best served by tax deductible fitness-related purchases (those who have disposable income) really require a tax-incentive? If the largest demographic group using health services is a specific income or age group, why not examine ways of reaching that group first by improving universal access to fitness-related courses or memberships by financially assisting those who would-but-cannot because of a price hurdle, then focus on the vague possibility that a tax-incentive might get some people away from their screens and outdoors, the can-but-will-not?
Timeline of Social Events Related to Mortgage Meltdown
March 19, 2008
work in process
CC 2008 Flynn-Burhoe
“Mortgage Meltdown” a digitage on Flickr
see also related webliography
1965-2005 Between 1965 to 2005 there was no national US real-estate bust as home prices surpassed inflation by a percentage point or two on average. However local reversals have taken place and some cities have never recovered (Christie 2005).
1973-5 US investors in the S&P 500 lost 14% in 1973 and 26% in 1974 but gained 37% in 1975 (Mann 2000).
1970s “The additional grades or risk have arisen from the willingness to underwrite mortgages for more risky borrowers, encouraged by the democratization of credit since the 1970s. Lending to more risky borrowers is, by definition, more risky. More loans to risky borrowers increases the total amount of risk to be sold in the marketplace” (Mason and Rosner 2007).
1980-1990 In Los Angeles real estate was turbocharged for nearly 10 years (Christie 2005).
1985 In Peoria, Ill. a more traditional area the average home price fell from $60,800 in 1981 to $51,400 in 1985 partially because of strikes and lay-offs at Caterpillar, the city’s biggest employer (Christie 2005).
- 1987 Canadian families saved 20 percent of their take-home pay (Ed 2007).
- 1987 Stock market crash
- 1988 In “oil patch” cities like Oklahoma City prices plummeted 26 percent from 1983 to 1988. They only returned to 1983 levels in 2003 fifteen years later. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100 (Christie 2005).
1988 Houston home prices fell 22 percent from $111,000 in 1983 to $86,800 in 1988 rebounded only in 2003. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less [in 2005] than it was [in 1983]. When, adjusted for inflation, a home cost about $219,000 in 1983 (Christie 2005).
1988 – 1990s Real estate prices fell in Northern California first followed by the rest of the state “as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped. [. . .] Silicon Valley’s housing market crashed into recession along with the state’s economy (Perkins 2001).
1989-90 The notorious price bubble of 1989-90 was linked to central banks specifically the Bank of Japan. “The Japanese economy continued to suffer during the early 1990s, and remained in recession until the end of 1993. Nominal GDP growth rates, which had been around 7 percent during the bubble period, fell beginning in 1990 and by 1991-93 were close to zero. Profits in the manufacturing sector fell 24.5 percent in 1991 and 32.1 percent in 1992. Bankruptcies began to rise starting in the latter half of 1990; by 1992, bankruptcies with debt more than Y10 million totaled 14,569 cases. Failures of real estate firms or of firms engaged in “active fund management” constituted more than half the corporate bankruptcies in 1991 and 1992 (Miller 2001).”
1991 Inflation-adjusted take-home pay in Canada froze to this level (Ed. 2007).”
1992 A new car in Canada cost $20, 000.
1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).
1996 There was a housing market reversal in Los Angeles with average house price dropping from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. “Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent (Christie 2005).”
1994- 1996 “In 1994, [Japanese] banks wrote off non-performing assets of Y5.7 trillion, exceeding the previous high of Y4.3 trillion in fiscal year 1993. As yet, no major bank has failed, although a number have reportedly encountered serious difficulties. In December, 1994, the Bank of Japan supervised the takeover of two credit cooperatives, the Tokyo Kyowa Credit Cooperative and the Anzen Credit Cooperative, through the creation of a bridge bank with government support. The Bank’s decision not to let these institutions fail and pay off depositors under the deposit guarantee program was based, largely, on concern for the potential systemic effects of a deposit payoff on public confidence in the banking system in general. The “jusen,” or housing finance banks, suffered the most serious problems; these institutions, which were typically organized and sponsored by major commercial banks and staffed, in part, by former officials from the Ministry of Finance, lost tens of billions of dollars as a result of the collapse of the price bubble, and became one of the most contentious political issues of the day during 1995-86 (Miller 2001)”.
1996 “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.” – Alan Greenspan (December 5, 1996)**
- 1998 There was a market correction in the United States in October of 1998.
- 1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).
- 2004 British Columbia graduates from university have an average debt of $20, 000.
- 2005 Real-estate investing spiked, pressuring prices upward. In Phoenix, according to Bill Jilbert, president and COO of the Coldwell Banker brokerage there, investors from Nevada and California have invaded the Arizona market, and “affordable housing has been pushed to extremes (Christie 2005).”
- 2000 In Tampa Bay Florida, high risk adjustable-rate mortgages (ARM) made homes “seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have,” said Allen Fishbein, director of housing policy for the Consumer Federation of America. “They weren’t being underwritten on the basis of the borrower’s reasonable capacity to handle these loans.” The payments started out manageable, especially since many loans offered teaser rates. But borrowers are getting a lesson in what the word “adjustable” means. More than $130-billion in mortgages payments were reset in 2006″ In 2006 nearly a third of Tampa Bay mortgages were the high-risk varieties, up from 10 percent in 2003 (Huntley 2006).
- 1991- 2005 “[I]ncreased complexity from increased grading of risk can also result in increased opacity. Risk that is more difficult to see, by virtue of complexity, is risk just the same. There are plenty of reasons to believe that the amount of risk in the marketplace has increased. Figure 3 shows that defaults on ABS and residential mortgage-backed securities (RMBS) increased substantially between 1991 and 2005” (Mason and Rosner 2007).
- 2006 Fitch Global Structured Finance 1991-2005 Default Study revealed that, “the overwhelming majority of global structured finance defaults over the 1991-2005 period were from the U.S., accounting for more than 97 percent of the total. While the 1,000 U.S. defaults were mainly concentrated in the Asset-Backed Securities._ (ABS) sector, the 27 international defaults were primarily from the collateralized debt obligations (CDO) sector.” See Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on
- 2006 In Florida millions of homeowners were warned of the mortgage meltdown in which they will “face a financial nightmare brought on by a combination of higher interest rates, risky mortgages and a housing market gone cold (Huntley 2006).
- 2007 Since 1991 inflation-adjusted hourly wages rose only 10 cents (Ed. 2007).”
- 2007 A new car in Canada cost $32,000 a 60 percent increase from 1992 (Ed. 2007).”
- 2007Canadians collectively owe three quarters of a trillion dollars in personal debt. Canadian families not only have no savings, they draw on pension savings to make ends meet.
“The result of the easy credit is that an average family now owes far more than it takes in. That means we remain solvent only so long as the book value of our assets — things like our home, pension funds or investments — continue to increase (Ed. 2007).”
2007 British Columbia graduates from university have an average debt of $27, 000.
2007 It is now acceptable for Canadian families to pay 60 percent of income to pay monthly payments of their home mortgages (Ed. 2007).
2007 The British Columbia government will allow home owners who are over 55 to defer property tax payments for as long as they live. The government will claim unpaid taxes after you die or sell effectively placing the tax burden on the children (Ed. 2007).
2007 “The number of corporate failures in Japan rose for the third month in a row totaling 896 cases in December up 18.2%. November flops were up 6.5% and the number of companies going belly up in October were up 7.8%. The amount of debts the insolvent companies left behind were up 30.6% to 463.09 billion yen (Belew 2007).
2007 In March Bob Lawless reported in his blog that, “The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It’s actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January (Lawless 2007).”
2007 Jayson Seth analysed data in National Association of Realtors (NAR) June 24, 2007 report. Seth argues that “America’s easy-credit, quick-flipping, borrow-now-and-forget-the-consequences lifestyle is coming to an increasingly painful, grinding halt” and the “confidence of homebuilders is at a 16-year low (Seth 2007).”
2007 Lawrence Yun, National Association of Realtors announced that the real estate market is softening due to psychological factors, tighter credit for subprime borrowers. NAR’s Lawrence Yun explained that since late 2006 housing sales have slowed as buyers double up with family, friends or just mortgage helper units in their homes to be able to pay for higher-priced homes.
2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007]” Furthermore they caution that “structural changes in mortgage origination and servicing have interacted with complex RMBS and highly volatile CDO funding structures to place the U.S. housing market at risk. Equally as important, however, is that housing market weaknesses feed back through financial markets to further weaken financial instruments backing today’s CDOs. Decreased housing starts that will result from lower liquidity in the MBS sector will further weaken credit spreads and depress CDO and MBS issuance. This feedback mechanism can create imbalances in the U.S. economy that, if left unchecked, could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructurings and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).
2007 In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).
2010-05-06 According to a report entitled “The Microstructure of the ‘Flash Crash’: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading” in The Journal of Portfolio Management, “The ‘flash crash’ of May 6th 2010 was the second largest point swing (1,010.14 points) and the biggest one-day point decline (998.5 points) in the history of the Dow Jones Industrial Average. For a few minutes, $1 trillion in market value vanished.” Report authors argued that the ‘flash crash’ was the result of the new dynamics at play in the current market structure.”
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695041
See also article was written by Heather Stewart and Simon Goodley, for The Observer on Sunday 9th October 2011 00.06 Europe/London
Credit crunch, Financial crisis, Financial sector, Banking, Global recession, Stock markets, Business, Lehman Brothers, Margaret Thatcher,
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work in process
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see also related timeline
- Belew, Bill. 2007. “ Corporate Bankruptcies climb for third month in a row.” Uploaded January 21, 2007. Accessed June 24, 2007.
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Christie, Lee. 2005. “Real estate: When booms go bust: Home prices can and do go down. Here’s what declines have looked like in the past.” CNN/Money. September 19, 2005.
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Editorial. 2007. “Family finances under pressure.” Victoria, British Columbia. Times Colonist. June 24. D2.
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“Leonhardt, David. 2008. “Economic Scene: Can’t Grasp Credit Crisis? Join the Club.” New York Times. March 19, 2008.
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Fitch IBCA, 2006. Fitch Global Structured Finance 1991-2005 Default Study, Nov. 26, 2006.
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Huntley, Helen. 2006. “Mortgage Meltdown.” Tampa, Florida: St. Petersburg Times. Uploaded October 2, 2006.
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Jayson, Seth. 2007. “Housing Slumps. Who’s Surprised?” The Motley Fool. Uploaded June 25, 2007. Accessed June 25, 2007.
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Lawless, Bob. 2007. “Bankruptcy Filings Up 18% in February 2007.” Credit Slips: A Discussion on Credit and Bankruptcy. Uploaded March 6, 2007. Accessed June 24, 2007.
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Mann, Bill. 2000. “An Investment Opinion: What a Real Bear Market Feels Like.” >> Fool on the Hill. Uploaded April 26, 2000.
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Mason, Joseph R.; Rosner, Joshua. 2007. “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” Uploaded May 2007. Accessed June 24, 2007.
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Miller, Geoffrey P. 2001. “The Role of a Central Bank in a Bubble Economy.” July 16, 2001.
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Molony, Walter. 2007. “May Existing: Home Sales Show Market is Under Performing.” Washington. Uploaded June 25, 2007.
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Perkins, Broderick. 2001. “California Real Estate Won’t Mirror Silicon Valley Volatility.” >> Realty Times. Uploaded May 18, 2001. Accessed June 24, 2007.
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Scott, Amy. 2007. “Mortgage meltdown hits Bear Stearns.” New York: Marketplace. Uploaded June 20, 2007. Accessed June 24, 2007.
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Winzer, Ingo. 2005. president of Local Market Monitor, which sells real-estate market analysis to corporate and consumer clients.
http://docs.google.com/Doc?id=ddp3qxmz_320dqk9nt
Selected Bibliography and Webliography on the Mortgage Meltdown (content to be added to timeline)
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Andrews, Edmund L. 2008-03-16. “Fed Chief Shifts Path, Inventing Policy in Crisis.” << New York Times. March 16, 2008.
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Andrews, Edmund L. 2008-03-17. “Fed Acts to Rescue Financial Markets.” << New York Times. March 17, 2008.
- NYT’s autogenerated keywords: Federal Reserve System, Bear Stearns Cos, Morgan J P Chase & Co, Treasury Department, Finances, Interest Rates, Stocks and Bonds, United States Economy, Mergers Acquisitions and Divestitures, Bernanke Ben S, Paulson Henry M Jr, Schwartz Alan D, Wall Street (NYC), Washington (DC)
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Flynn-Burhoe, Maureen. 2008. “Merrill Lynch Bull Reflecting on Enron.” « oceanflynn @ Digg.
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Adobe PhotoShop/Flickr image Tag Cloud of Tse’ (2008) article: Tse, Tomoeh Murakami. 2008. “Economic Downturn Emboldens Shareholder Activists.” Washington Post. February 19, 2008. tag cloud. business economy economics risk.society risk.management banking.sector cyber.citizens Del.icio.us flickr flynn-burhoe semantic.web tagging Tag.Clouds tags corporate.governance CEO activist.investors Wall.Street subprime.mortgages hedge.funds credit.crisis transparency recession Merrill.Lynch
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Grynbaum, Michael M.; Bradsher, Keith. 2008-03-17. “U.S. Markets Volatile After Fed Actions. Permalink << New York Times.
March 17, 2008. - NYT’s autogenerated keywords: Stocks and Bonds, International Trade and World Market, United States Economy, Bear Stearns Cos, Morgan J P Chase & Co, Federal Reserve System.” http://www.nytimes.com/2008/03/17/business/worldbusiness/17cnd-stox.html?
ex=1363492800&en=ed6b8e647d5b59ed&ei=5124&partner=permalink&exprod=permalink -
Sorkin, Andrew Ross; Thomas, Landon Jr. 2008. “JPMorgan Acts to Buy Ailing Bear Stearns at Huge Discount.” Permalink<< New York Times. March 16, 2008.
- Most emailed NYT story March 16-7, 2008. NYT’s autogenerated keywords: “Bear Stearns Cos, Finances, Morgan J P Chase & Co, Federal Reserve System, Cayne James E, Schwartz Alan D, Molinaro Samuel Jr, Banks and Banking, Bankruptcies” My delicious tags: 2008 2008-03 Bear.Stearns bankruptcies banking.industry business finance governance US.economy Wall.Street http://www.nytimes.com/2008/03/16/business/16cnd-bear.html?em&ex=1205899200&en=ca62f6b1b4fd516e&ei=5087%0ASorkin, Andrew Ross. 2008. “Sale Price Reflects the Depth of Bear’s Problems.” << New York Times. March 17, 2008. http://www.nytimes.com/2008/03/17/business/17cnd-bear.html?ex=1363492800&en=8e8e9fbff8c8f606&ei=5124&partner=permalink&exprod=permalink
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Tse, Tomoeh Murakami. 2008. “Economic Downturn Emboldens Shareholder Activists.” Washington Post. February 19, 2008.
- Tag.Clouds tags corporate.governance CEO activist.investors Wall.Street subprime.mortgages hedge.funds credit.crisis transparency recession Merrill.Lynch << Google docs http://docs.google.com/Doc?id=ddp3qxmz_525cb82bcdn
Science: the State, Market and Civil Society
March 11, 2008
Thanks to Corey Beaman for his stunning photography and video clip shown above which he made available via the Creative Commons license in Flickr. He also recommends the www.audi.com/ironman on his blog http://oneighturbo.com/. Billionaire technophile, Tony Stark is Iron Man, who directs a major industrial complex, wearing either his indestructible, hi-tech suit of armor or driving in his invincible Audi R8 which is oddly similar to his armour right down to details like Stark’s artificial heart which resembles the Audi’s mid-engine (http://oneighturbo.com/).The Audi R-8 was chosen by the Automobile Journalists Association of Canada as the “2008 Canadian Car of the Year, ” a 420 horsepower, 250 km/hr, two-seat sports car.As Quirks & Quarks’ Bob McDonald wrote in his blog, “Now there’s a clean, efficient car for you, perfect for a country with speed limits of 100km/hr and snow deep enough to ground this low rider on the first turn.” McDonald used the Audi R-8 as an example of what might happen when publicly funded science is limited to one kind of science: applied science driven by building, nurturing and protecting investment climate and the economic environment See Mobilizing Science and Technology to Canada’s Advantage . He argued,“Take clean cars for example. Scientists have been working for decades on emission controls, fuel efficiency, fuel cells and alternative ways of making wheels go around. But until regulations are in place that force automakers to use these technologies, they often don’t make it to the road. [. . .] It seems the automakers and the journalists who write about them still think it’s 1969. So if the government is going to invest in new technologies, then regulations, penalties and tax incentives must also be in place to help those technologies get out of the laboratories and really make a difference. Here’s the other danger of focusing on applied science: it doesn’t really develop anything new; it just improves on what’s already out there.”
Webliography
Bernier, Maxime. 2007. Mobilizing Science and Technology to Canada’s Advantage Corporate Publications. Industry Canada. (May 2007) http://www.ic.gc.ca/cmb/welcomeic.nsf/vRTF/PublicationST/$file/S&Tstrategy.pdf
McDonald, Bob. 2008-03 http://www.cbc.ca/technology/quirks-blog/2008/03/new_government_adds_insult_to.html
McDonald, Bob. 2008-01-25 http://www.cbc.ca/technology/quirks-blog/2008/01/no_science_in_the_pms_ear.html
McDonald, Bob. 2008-02 “Budget for science, or at least one kind of science.” http://www.cbc.ca/technology/quirks-blog/2008/02/budget_for_science_or_at_least.html
McDonald, Bob. 2008. Budget for science, or at least one kind of science quirks Friday, February 29, 2008.
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