The Dim-Post

September 13, 2012

A friendly memo to Economic Development Minister Steven Joyce

Filed under: Politics — danylmc @ 6:39 pm

Your whole ‘Maybe that’s what they believe on Planet Labour’, or ‘I don’t know how things work on whatever planet the Greens live on’, Question Time shtick is mildly amusing when you’re dismissing opposition policies – but when you insist that stuff that actually happened, or is happening on this planet is happening off on ‘Planet Labour’, it makes you look like you might be locked inside a full-blown delusional psychotic episode. Which is probably not reassuring to credit-rating agencies or the bond-market.


  1. To be fair, if potential lenders actually used house theatrics as a metric for credit suitability, nobody would lend to any sovereign nation ever again.

    Comment by Andrew M — September 13, 2012 @ 9:02 pm

  2. Yeah Danny ’cause Planet Urban Lib Beltway NIMBY spendalot reassures the markets heaps bro.

    Comment by Tim — September 13, 2012 @ 9:29 pm

  3. In France Holland has had to accept the inevitability of 8,000 jobs lost in the automotive industry. Only a few months after saying it was completely unacceptable.

    After campaigning on a non-austerity platform things are still looking a bit austere.

    And Obama is still unable to create jobs.

    Even if one assumes for arguments sake that both centre-left admistrations have more competent finance teams than either of our two main political parties and that being richer countries they have money to spend things aren’t that much better than in NZ.

    Comment by NeilM — September 13, 2012 @ 9:54 pm

  4. @Jim @ 9.29am – It is Danyl, not Danny.

    Comment by Sanctuary — September 14, 2012 @ 7:24 am

  5. Sorry boy.

    Comment by Tim — September 14, 2012 @ 7:40 am

  6. ’cause Planet Urban Lib Beltway NIMBY spendalot reassures the markets heaps bro

    These being the same markets that brought us the GFC? The ones that shat themselves when Labour was elected in 1999, who looked the other way as both Reagan and Bush 43 piled up unsustainable budget deficits? Tim do you really still believe the “efficient market” theory? If so, why? Genuine question there.

    Comment by TerryB — September 14, 2012 @ 8:22 am

  7. Terry, if anything the GFC proved the ‘efficient market’ theory. The market was not generally aware of all information pertaining to the traded instruments. Once the information came to light, the instruments were repriced appropriately, voila.

    Comment by Andrew M — September 14, 2012 @ 8:31 am

  8. Once the information came to light, the instruments were repriced appropriately, voila.

    Wow I’ve just won $27 million on Lotto’s Big Wednesday! Hindsight’s a bitch isn’t it?

    OK sarcasm aside isn’t an alternative answer that all the information will never be available? Therefore the market can’t be “efficient”. Your answer also lets lazy analysts off the hook – shouldn’t they have been thinking through those issues about transparency and information?

    Comment by TerryB — September 14, 2012 @ 9:28 am

  9. TerryB, genuine questions for you:
    do you believe that financial markets at the time of GFC were unregulated?
    What do you think could have been done to avoid GFC and why wasn’t it done?

    Comment by Clunking Fist — September 14, 2012 @ 1:09 pm

  10. Planet Labour and Planet Greens sound like much nicer places than Planet National ClusterFuck

    Comment by Deano — September 14, 2012 @ 1:22 pm

  11. @Clunking Fist have a listen to this episode of This American Life, which won a Peabody Award for explaining the 2008 collapse. The first thing that could have been regulated was the availability of easy credit to those who were not able to service their debt. Secondly, mortgage backed securities demanded more scrutiny – in fact had the earlier Glass-Steagall Act in the US remained, rather than being repealed under Clinton, there would have been demarcation between commercial and investment banks, making the trade in mortgages much less fluid.

    “A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?”

    Comment by Pete Sime — September 14, 2012 @ 2:06 pm

  12. Hi Pete, thanks for the link. I’m sure I’ll get round to listening to thet “public radio” broadcast at some stage over the weekend.
    The GFC saw a whole lot of things go wrong/people not do their job/fraud/poor understanding of products/central bank failure all come together.
    “The first thing that could have been regulated was the availability of easy credit to those who were not able to service their debt” Well, it was. Have you not heard of the community reinvestment act? It basically forced financiers, under pain of being labelled “racist”, if there lending metrics didn’t accord with what community organisers thought was right. See if you can find the stories about how bank CEOS and branch managers (and their families) had to cope with protestors outside their homes.

    The cause was complex (and may well be spelt out in the radio programme that you link to), but rather than reinvent the wheel, here’s a link to “something I prepared earlier”.

    Of course, there are differing reasons why individual countries can’t pull themselves out of the recession they are in. E.g. the Euro nations have a fixed exchange rate between them, so uncompetitive economies like Greece can’t become competitive (relative to a productive country like Germany) through currency devaluation.

    Comment by Clunking Fist — September 14, 2012 @ 2:44 pm

  13. “Have you not heard of the community reinvestment act? It basically forced financiers, under pain of being labelled “racist”, if there lending metrics didn’t accord with what community organisers thought was right.”

    I have a feeling that this argument has been had (at least once) before in a dimpost thread, but the myth that the Community Reinvestment Act led to the GFC is … a myth. See for a pretty comprehensive list of sources debunking it.

    But I recognise two points. One, that claim probably doesn’t fit with CF’s worldview (whilst fitting mine), so he’ll reject it (while I assert it). And two, there will be some some link somewhere on the interweb claiming the opposite to what I’ve just said. So nothing has been (or ever will be) resolved in this thread.

    Comment by Andrew Geddis — September 14, 2012 @ 2:55 pm

  14. Or any thread, on any topic. Ever

    Yet we persist.

    Comment by Andrew M — September 14, 2012 @ 3:38 pm

  15. Well, what else would we do? Talk to our families?

    I mean … really?

    Comment by Andrew Geddis — September 14, 2012 @ 4:56 pm

  16. It’s obvious that Danyl’s on Planet Labour. Anyone who disagrees with the wisdom and insight of this government is on Planet Labour, or Looney Planet Green.

    Comment by George D — September 14, 2012 @ 5:58 pm

  17. CF, here are some more links on the CRA caused it myth, collected by the Columbia Journalism Review:

    But seeing we are pushing weird theories, I’ll just note that the “it was poor balck people organising what done it” is pushed a lot by US austrians, and that the Mises Institute has a rather unfortunate history of that sort of thing.

    Comment by Pascal's bookie — September 14, 2012 @ 6:55 pm

  18. The origins of the GFC go something like this:

    1. Government relaxes the lending requirements about loans to low income earners (those evil poor black people) after intense lobbying from the finance industry, who are attracted by the high interest rates they can charge to higher risk borrowers.
    2. It also relaxes the regulation over the banks and other companies making those loans. They can regulate themselves – after all, they’re not going to loan the money to people who can’t pay it back, are they?
    3. Further deregulation allows mortgages to be onsold, so that main street banks and mortgage brokers CAN loan money to people who can’t pay it back, because they no longer own the loan if it defaults. But surely no one will buy a completely worthless mortgage, right?
    4. Wall Street banks buy the completely worthless mortgages and bundle them up into deliberately complex ‘financial products’, designed so that the credit ratings agencies cannot accurately estimate the contents of the product or the risk.
    5. The ratings agencies rate the financial products containing bundles of worthless mortgages loaned to people who cannot afford to pay them back as AAA – ie, the most secure investment possible.
    6. The Wall Street banks start selling these worthless products to everyone in the world. Pension funds. Governments. Cities. Hedge funds etc. AND they become so valuable that they start buying these worthless products OFF EACH OTHER!
    7. This creates enormous demand for more worthless mortgages, so the companies loaning money to poor people who can’t pay it back are incentivised to loan staggering sums to as many poor people as possible, which causes a housing boom, which drives up the perceived value of the worthless financial products. Go back to step 2 and repeat until financial analysts figure out that no one is repaying these supposedly foolproof loans, and that roughly 4 trillion dollars in financial assets were actually utterly worthless.

    So you could look at that (simplified) chain of events and think ‘loaning money to poor people caused that whole problem’, but it’s a very perverse way to look at things.

    Comment by danylmc — September 14, 2012 @ 7:04 pm

  19. That’s all very well Danyl, but I do like the idea that the titans of Wall St oversaw the collapse of the worlds financial system because of their fear of being called racist by some community organiser. IBGYBG and tens of millions of dollars in bonuses had nothing to do with it. They just couldn’t live with the idea that someone might call them racist. So they were forced to do all that stuff, and collect those cheques, with a tear in their eye.

    Comment by Pascal's bookie — September 14, 2012 @ 7:30 pm

  20. 5.5 the masters of the universe start structuring products like CDO’s of CDO’s. Bundling AAA (cough, cough) rated CDO’s into super Cdo’s (CDO’s squared) which are shiter than shitty shit shit and re rating them AAA and then selling them to Greece, and Canadian pension funds…

    Don’t get me started on Derivatives, these pukes were betting 10x world GDP, on unregulated markets.

    But, but, but if only it was a true free market it all would be fine. Invisible hand up the tax payers bum, like a ventriloquist dummy.

    Comment by andy (the other one) — September 14, 2012 @ 7:48 pm

  21. I’m blaming the collapse of the eighties because that’s how this whole thing started, wasn’t it? Those New York bankers and tycoons who took huge losses in the eighties put pressure on the government to deregulate the finance industry in the nineties, then piled more pressure on them in 2001 and 2002, which effectively allowed the creation of these new products: CDO’s. So the GFC was caused by the US, and I think a lot of it had to do with their shoddy political system, because election campaigns are mostly funded by wealthy individuals with vested interests.

    Then I started wondering about the eighties. If they (the United States) hadn’t come off the gold standard about five decades prior to the economic downturn of the eighties, would there still have been the same downturn? The butterfly effect, isn’t it?

    Comment by Dan — September 14, 2012 @ 8:54 pm

  22. Don’t forget the financiers (Goldman Sachs?) who sold financial products, knowing they were junk (but not disclosing this to buyers) and making heaps from the sale – and making a second lot of money from the bets they placed on their own products failing. Yup, double big win.

    Those evil poor black people who just wanted to own their own home – it’s all their fault.

    Comment by MeToo — September 15, 2012 @ 1:59 am

  23. Is there actually any statistics that point to a dramatic increase in african-american home ownership during this space of time? I suspect it was more down to the “white” poor people that took out loans they couldn’t afford to pay back and, then, when the whole system went bust, took their lower-middle-class contemporaries back down with them.

    Comment by Dan — September 15, 2012 @ 3:03 am

  24. Dan, here is how a federal reserve govenor described it to the US banker’s association:

    I would like to dispel the notion that these problems were caused in any way by Community Reinvestment Act (CRA) lending. The CRA is designed to promote lending in low- to moderate-income areas; it is not designed to encourage high-risk lending or poor underwriting. Our analysis of the data finds no evidence, in fact, that CRA lending is in any way responsible for the current crisis…. In fact, the analysis found that only 6 percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA. This very small share makes it hard to imagine how CRA could have caused, or even contributed in a meaningful way, to the current crisis. Further support for this conclusion comes from our finding that serious delinquency rates for subprime loans are high in all neighborhood-income categories, not only those in lower-income areas, as might be thought if the CRA were a contributing force to the subprime crisis.

    Plenty more details in that cjr link, or the other links upthread.

    Comment by Pascal's bookie — September 15, 2012 @ 9:16 am

  25. AG @ 13 “but the myth that the Community Reinvestment Act led to the GFC is … a myth.”
    Agreed, but the myth that markets were unregulated is… a myth.
    The GFC was caused by the bursting of property bubbles, all over the world.
    Pascal B @ 17, thanks, but I don’t believe the CRA caused the GFC, but I DO believe that many people believe that the mortgage markets of the USA were unregulated. Have a look at “non-recourse loans” mandated by 29 of the 50 states. It’s what results in “jingle mail”
    Danyl @ 18 You seem to be making the point that subprime caused the GFC, but this is not true, it was merely the icing on the cake.
    Your point 1: are you SURE the govt set minimum lending requirements? I can’t find anything that supports that, UNLESS you mean the requirements for Fannie and Freddie? (Two state-sanctioned and supported organisations that have no real equivalent in the western world.) CRA was a response to the fact that many folk thought that bank’s lending requirements were TOO STRICT and impacted unfairly on minorities.
    Your point 2: on the relaxation of Glass-Steagall? So the US removed an impediment that few other countries placed in the way of its banks. That put US banks on even pegging with other banks. Did you think that this created the property bubble?
    Point 3: you’re talking here about sub-prime. Do you know what % of loans were subprime at the time they were made? Less than 5%. (Ah, I see PB has a link where a banker says 6% of some subset of all loans).
    Point 4: almost right: true, some folk knew what the crap was and wanted to get rid of it. They bundled loans with “good” loans in an attempt to hide the poor loans and/or spread the risk.
    Point 5 Ratings Agencies: infallible. Up at the top of the tree above auditors. Danyl, don’t you know that property investment is riskless: it’s settled science. Hence the AAA ratings. (The fact that they had no understanding of what they were rating, weeell. I’m still confused by the fact that NZ banks, whose balance sheets (equity) could be wiped out if property values fell another 10% or so, are rated higher than power companies, who have real assets to sell should they need cash.)
    Point 6, true, but I think you think that this was all subprime. In fact, the overwhelming majority of it wasn’t… until the property bubble burst.
    Point 7 I think you are wrong here (assuming I understand your point): demand for the CDOs didn’t create demand for more borrowing, at least nothing I’ve read or heard supports this. But EASY MONEY from the govt, sorry I mean Federal Reserve, fuelled the property boom.
    And people seemed to think that past bubbles couldn’t happen again. Not sure why, perhaps it was all the respect that was shown to Greenspan. Everyone WANTED to believe that there was no bubble; that the laws of economics had changed. I guess (and we did it here) everyone feels rich when they see the value of their investment (their home) increase.

    Comment by Clunking Fist — September 15, 2012 @ 2:48 pm

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