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Hindsight vs Foresight

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Terrel L. Shields

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I see two parallel universes - the financial markets - the oil markets...

In 1999, oil was at record lows (to inflation), literally 80% of the U. S. Fleet of drilling rigs (peak 4,800 of them) had totally disappeared and was scrap iron...Perhaps 1,000 survived and in 1999 barely ½ of them were working. Fewer rigs than during the depths of the depression. When gas is 80¢ an MCF and lifting costs are 85¢ an MCF and Oil is $19 a bbl and a stripper well cost $16/bbl to pump and all the water from that well cost $1 per bbl to dispose of....nobody was drilling wells. Our policymakers, our economists, our talking heads on the financial news was avering that the Middle East was awash in oil and couldn't drink it.

Oil men here were perplexed...they could see the coming shortage....something that no one else would admit. Merrill Lynch predicted the price of oil 10 years out (2008) would be $24 and gas $2.40 an MCF. Gas is about $8 now. Why couldn't anyone see what was obvious to the people on the ground? I mean the CEO of Exxon couldn't see it but Joe Oily in Turnipseed, Oklahoma knew oil prices HAD to rise...and rise they did to crisis proportions.

Likewise, those same talking heads assured everyone that there would be no contagion....no fallout from slowing house sales, no recession. Even until the weekend they disappeared Lehman and Bear Sterns we were told were "safe"... yet appraisers in this very forum were predicting disaster. RealtyTimes have comments from several forumites and others that were concerned about the over-heating markets in 2005. The old time bankers who went thru the S & L crisis likewise recognized the bubble well ahead of the Ledge, the Prez, and Wall St. itself apparently.

We could see it just like the small domestic oil companies could see their problem. So why was it so opaque to the huge companies and financials?

It is really stupid that our car companies got caught flat footed by high fuel prices. Do they not have at least one economist upon their staff who could see the handwriting on the Wall??? Couldn't they have had contingent plans to tool up with smaller cars, detune existing trucks, etc.? Ford just announced the F150 will get over 20% better gas mileage. The entire truck line averaged 8% better fuel economy for the 09 models. Duh...this price hike stuff has been with us for 8 plus years.

Likewise, how can so many people like Bernanke and Paulson have been caught so clueless about the warning signs A YEAR AGO...Did they really know and just pretend they could 'fix' it before a crisis occurred? Were THEY pressured to put on a happy face?? ...I don't know. But I do know that if a bunch of small town chumps like so many of us appraisers could see the looming clouds of foreclosures, it makes absolutely no sense that people who make a living vetting such stuff did not.. Virtually the sole exception was Robert Shiller who was vilified for his prediction of a bubble and a NY writer Rubinni (? i'm misspelling his name) who predicted this blow up. How many articles appeared in the winter of 2006-07 reassuring us that house prices were unlikely to fall and there would be no "contagion"...?
 

Riick

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Like IndyMac & WAMU, GM & Ford, Chevron & Exxon, decided to maximize their current profits and scr*w whatever might happen in the distant future --
(as in NEXT year).
They weren't blindsided, they decided to let someone eles, down the road, deal with it.
There are none so blind as those who will not see.
At least that's how I see it.
 

Austin

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Terrell wrote:
[QUOTE]Likewise, how can so many people like Bernanke and Paulson have been caught so clueless about the warning signs A YEAR AGO...Did they really know and just pretend they could 'fix' it before a crisis occurred? Were THEY pressured to put on a happy face?? ...I don't know. But I do know that if a bunch of small town chumps like so many of us appraisers could see the looming clouds of foreclosures, it makes absolutely no sense that people who make a living vetting such stuff did not.. Virtually the sole exception was Robert Shiller who was vilified for his prediction of a bubble and a NY writer Rubinni (? i'm misspelling his name) who predicted this blow up. How many articles appeared in the winter of 2006-07 reassuring us that house prices were unlikely to fall and there would be no "contagion"...?[/QUOTE]

Let me tell give you guys the benefit of a lift time experience. This country is fairly evenly divided between the reds and blue people. Their minds are programed entirely differently and they have entirely different value and logic systems. Given the fairly even split I honestly believe it genetic in origin.

One of the characteristics is an inability to face reality. Some people literally cannot deal with anything negative. They go into denial and attempt to spin and rationalize their way out by creating a false universe and destroy the messenger of the bad news. That desire to destroy the messenger to avoid reality tells us something significant about that mind set and sets the stage for what Terrell addressed in his above quote.

Why didn't Bernanke and Paulson know about this situation last year? I am sure they did. The congress knew about in 2004 along with Barney Frank and the Black Caucus so why didn't they do something about it?

There are two answers: 1. It would not change anything because if the truth were known it would have ignored. 2. The political consequences would have wiped out an entire political party. There are all kinds of truths out there I could tell you about but to tell you those truths would like throwing soft balls against a brick wall, they would just bounce off. SS, medicare, health insurance, government entitlements for retirement benefits etc., are all going down the tubes. There is no way they can be saved. So now you know the truth so what are you going to do about it? The answer is nothng, but when it happens some will write and ask why we were not warned.

The dirty little secret about the bailout bill this week is that the very people that passed it knew full well it will change nothing but just prolong the agony, so why all the fuss about the bill? It is to cover their ***'s when to quote president Bush: "This sucker is going down." It all goes back to politics. When the best policy is to do nothing to do so is political suicide so something must done so no one can say they did nothing.
 

The Warrior Monk

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RealtyTimes have comments from several forumites and others that were concerned about the over-heating markets in 2005.

I must be a doom and gloomer...I thought the market was getting overheated in 2001. I based my belief upon median income versus home prices. And....what do you know?...we eventually discovered that people can't afford to buy homes at 4x to 5x their gross income level.
 

Workbox

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Mar 2, 2005
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Colorado
I agree with Austin. These guys are very smart, they have all the resources in the world to know how it all works. Just imagine a group of us lowly appraisers had those resources and how we could have prevented all this mess. But due to political lobbing and good ole boy system. Those that had the strings to both parties and administration are super rich by now and filled their political buddies by filling their off shore accounts.

I really do beleive that their are those that can see what is going to happen, and then those that ask, "What Happened".
 

Lloyd Bonafide

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Talk about foresight - an article from Nouriel Roubini in Feb. 2008 about the coming credit crisis was incredibly accurate. Things are even a little worse than he predicted.

http://media.rgemonitor.com/papers/0/12_steps_NR


The Fed and Treasury Department really should be listening to him now:

http://www.rgemonitor.com/roubini-m...rrest_the_risk_of_the_mother_of_all_bank_runs

(Register for free to read the entire article)

The suggested policy actions are extreme and radical but the times and conditions in financial markets and the corporate sector are also extreme. Thus, to avoid another Great Depression radical and unorthodox policy action needs to be taken now both in the US and in other advanced economies as the credit crisis and liquidity crisis is now becoming virulent even in Europe and other advanced economies. This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression.
 

c w d

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Florida
But they won't. Because the people in the Fed and Treasury are the exact same people that lead us down this path for their own personal motivations.
 

c w d

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Ron Paul has some good common sense policies. But, on other occasions he's just not that convincing and outright off the mark. The current candidates have no good common sense policies and on most occasions are not convincing and outright off the mark.

I originally supported Ron Paul. But, since the media gave him about 1/10000th of the airtime that mainstream Dem/Rep candidates got he just didn't have a chance.

We're doomed! "Do you think it would help if we put a paper bag over our heads or something?"
 
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