It is important to remember how we got into to this hole, and the four paths out:
Diagnosing the eagle, chapter I — the housing bust (6 December 2007)
As for the fears roiling the oil biz … I suspect the fear about a strike at Iran is exaggerated, and will blow over. Nigeria, however, is another story — one that is predictable, and that was predicted by Shell’s consultants in 2003.
Nigeria, a weak link in the global oil supply (2 May 2008)
I couldnt read all the comments on the original post, so will only make one point here: the alarm over bailing out homeowners who can’t make their mortgage payments (thus undermining the sanctity of “contract”) is a misconception. It is not the homeowners but the banks and lenders who are being bailed out, who would otherwise have to take back the homes at a much lower asset-value, weakening their balance sheet and further threatening their stock price.
Of course there are political reasons for helping homeowners, but the real thrust of government actions in the sub-prime crisis has been to prop up the financial institutions.
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Fabius Maximus replies: I would say that in general both are being “bailed out.” To say otherwise implies that there are no costs to foreclosure. Even in a non-recourse situation (where the ex-homeowner has no responsibility for losses beyond losing the home), it is an expensive and painful process.
On the other hand, and this supports your point, default on the mortgage is often the best choice for a family with too much debt. Government programs encouraging these people to continue making payments they cannot afford helps the lender — not the citizens.
Comment by plato's cave — 11 July 2008 @ 3:43 pm
I’ve been doing some serious thinking (always a sign of trouble) about the Iran situation and I believe the situation there is more dangerous than you do.
I whole-heartedly agree with your analysis of the horrible things that would happen to the Israelis if they strike but I think you are underestimating the fear the Israelis feel about a nuclear-armed Iran. This fear is driving them to a position where they believe that all of their options are all suicidal. What do you do under these circumstances? You choose the option that gives you the most control over your situation and in this case that would be to strike at the Iranians and hope for the best.
Supporting Facts:
1. The Israelis publically and frequently state that believe Iran will have enough material for a bomb as early as next year. While the rest of the world may not agree they are acting on their fears, not our hopes.
2. The Iranian president has repeatedly stated that he wants to wipe out Israel (I know that Iranian politics are complicated and his ability to do so even if he had a bomb would be limited but I’m trying to view the world like an Israeli leader and they worry a lot about this sort of thing).
3. The Israelis have a long history of extremely agressive military responses to potential threats and very little history of successful negotiations with enemies that don’t also have good relations with the US.
4. The Israelis hate to appear weak to anybody and backing down now after building this issue up to a fever pitch would do just that. We have to assume they take that concern into account every time they escalate this issue.
5. The Israelis have performed some sort of public dress rehersal for an attack in the eastern Med. Since the Israeli’s tend to be perfectionists and are highly secretive, we have to assume that the dress rehersal is the result of quite a few less-public exercises to work out the details.
6. The Israelis seem to think they see some sort of way to end or at least seriously delay the Iranian nuclear program with an air strike. You don’t spend lots of time and money preparing for something that you expect to fail (leads back to that appearing weak issue again). This suggests that either they think they know of an Iranian weakness they can exploit or that they are readying a nuclear strike of their own. It could be that they are working under the assumption that they can more easily survive the political fallout of their own attack than they can survive the radioactive fallout of an Iranian attack.
7. The Israelis are well aware of the old military maxim “You are always better off doing someing, even the wrong thing, than doing nothing.”
8. There are two factors pushing the Israelis to attack sooner than later:
a. The pending Iranian purchase of SA-20 missiles which would make an attack more difficult
b. The US Presidential elections – They know that Bush is unlikely to do anything substantial against them but an Obama or McCain administration might be less friendly
9. Both the Israelis and the Iranians view themselves as pariah states. Since they both feel under siege they are less prone to responding to international pressure and view any changes to the status quo with less alarm than do other countries (like us).
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Fabius Maximus replies: I agree on all points. It will be interesting to see how this works out.
Comment by pluto — 11 July 2008 @ 5:27 pm
FM,
I do hope that some of ‘em d!@w$%s at Versailles-on-the-Potomac are readin’ your posts. ‘Coz it’s all gonna be VERY MUCH IRRELEVANT if your blog’s just gonna have the same fate as those sites ’bout Christina Agueilera, Jessica Simpson or Britney Spears’ panties (or lack of).
Comment by Yours Truly — 12 July 2008 @ 12:29 pm