Balkinization
an unanticipated consequence of
Jack M. Balkin
E-mail:
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Corey Brettschneider corey_brettschneider at brown.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Abbe Gluck abbe.gluck at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Jonathan Hafetz jonathan.hafetz at shu.edu
Jeremy Kessler jkessler at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman msl46 at law.georgetown.edu
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at yu.edu
Rick Pildes rick.pildes at nyu.edu
David Pozen dpozen at law.columbia.edu
Richard Primus raprimus at umich.edu
K. Sabeel Rahmansabeel.rahman at brooklaw.edu
Alice Ristroph alice.ristroph at shu.edu
Neil Siegel siegel at law.duke.edu
David Super david.super at law.georgetown.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Nelson Tebbe nelson.tebbe at brooklaw.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
In early December, I spoke at a Yale Law School breakfast on the current financial crisis — focusing on Robert Shiller’s book, The Subprime Solution. (Several of my earlier posts — here and here — were actually preparation for my presentation.) The first question to Shiller from the audience began: “Lots of my investment-banker friends are saying: Dubai, Shanghai, Mumbai, or the Highway …”
Shiller interjected: “What does that mean?” And the questioner explained that her friends were thinking that going forward, these foreign locales were likely to be much more economically successful than the West. She ultimately rephrased her question: “So I guess what I’m asking … Is America over?”
Shiller was no nattering nabob of negativism, saying that in 15 years the United States would be back “stronger than ever.”
The mention of Dubai in connection with the subprime crisis reminded me that just after the election, I was in Dubai for the World Economic Forum’s Summit on the Global Agenda, which focused on the world economic crisis. Sheikh Mohammed bin Rashid al-Maktoum, the Ruler of Dubai, addressed the conference. (You can read Peter Ubel’s description of the address here. The ruler’s most jarring assertion: “In Dubai, we are building our future with our own hands.”)
Until hearing this speech, I had failed to realize how upset the rest of the world might be with the U.S. for its subprime crisis.
Think about it. U.S. banks make ill-advised loans to poor U.S. citizens. And what happens to the rest of the world? They lose half the value of their stocks. The annoyance over our high-leverage loans is particularly high in Muslim countries, where mortgages are inconsistent with Shariah.
If a group of young investment bankers AND an Arab autocrat tell you something, you can probably make a lot of money betting on exactly the opposite. I can't imagine anyone citing either group as knowing anything about anything.
I agree with Sean. Also, the rest of the world should not have been so blind. The fault of the rest of the world was that it did not tell America to reform its financial system towards prudence, in the same way that America told poor countries to reform their financial systems toward recklessness.
Did you just blame the current crisis on giving loans to poor people?
You said: "Think about it. U.S. banks make ill-advised loans to poor U.S. citizens. And what happens to the rest of the world? They lose half the value of their stocks."
This is by far the most off base and ignorant statement I have ever seen on this blog, including the comments, including my comments.
The key to lending money to purchase an asset is to get rights to ownership of that asset if the borrower fails to pay. In other words, the borrower is the owner in name only.
But the social dimension is one of a mutual benefit.
But lenders moved away from that model and just went for quick cash, something like a life insurance salesman. Instead of keeping their loans, they sold them off. They sold them off into financial instruments that could suffer swings in valuation similar to a speculative stock market.
The existence of these financial instruments caused more money to be available to lend to create more of them.
This has nothing to do with poor people. Poor people, and most people who rent would love nothing more than housing costs to remain fixed. Real estate inflation is only good for people who are speculating on real estate. If you want to buy a home, you are not happy that home prices go up 15% a year. If you pay property tax, are you happy to pay more each year for your house? I guess not.
This whole crisis was caused by rich people who wanted to get a big return on their money. They caused real estate prices to climb. The amount of money available made it necessary to relax the typical requirements needed to qualify for a loan.
Poor people could never pull this off, and when it becomes cheaper to buy than to rent, you can guess what people on limited income will do. They will go with the lower cost "right now".
If this bubble had somehow lasted a few more years we may have even seen second mortgages on autos and electronics.
What is "jarring" about the ruler's assertion - “In Dubai, we are building our future with our own hands.”
Peter Ubel's article does not describe the Dubai ruler's address, as you state.
This content of this blog post is little more than that you spoke at Yale, went to Dubai, and are surprised other countries might resent what has happened. I'm sure you can write better than this.
I agree with Rmadilo that the "loans to poor U.S. citizens" comment was ill-advised.
The real problem is what can be found at the Sharia finance article you post, by just taking out the word "interest":
The principle deduced from the above discussion concludes the fact that Shariah prohibits transactions that involve interest, gambling, speculation, unethical investment, contractual terms of a transaction involving uncertainty, deception, ambiguity or lack of clarity and give rise to speculation (Gharar).
There's plenty more for citizens and investors of all countires, whether or not they condone usury, to criticize.
As for investment bankers, Dubai, Mumbai, and Shangai can have them.
What was interesting about the post was the contrast between the Shiller questioner and the blustering Dubai sheikh nattering on about the alleged ascendancy of a little Gulf State oil kingdom over the United States and the Ubel description of how the money men were all concerned with what the United States would do.
Follow the money.
When the financial crisis began, the world's money started flowing into the United States as stable haven. As for little Dubai, its GDP collapsed by over half along with oil prices.
The economic success or failure of the United States over the next couple years will determine when the rest of the world pulls out of this recession.
BTW, speaking of stocks dropping by half, there are some incredibly undervalued stocks out there. The only reason that healthy and still profitable companies' stock plunged by 30% to 50% was blind irrational panic. For crying out loud, the economy contracted less than a percent since this panic started, not 30% to 50%.
The financial institutions have been moving from cash to US stocks behind the scenes. After bailing out at Dow 11,000, I just moved my family's retirement savings back into the market today and made 4% on one day.
The idea that this crisis has knocked the United States off the throne as the world's pre-eminent economic power is wishful thinking among those here and abroad who desire such a result.
The only reason that healthy and still profitable companies' stock plunged by 30% to 50% was blind irrational panic.
After bailing out at Dow 11,000, I just moved my family's retirement savings back into the market today and made 4% on one day.
# posted by Bart DePalma : 11:17 PM
Just recently you were saying that Obama's election meant you were taking all your money out of the stock market and keeping it out. What happened to that plan?
"After bailing out at Dow 11,000, I just moved my family's retirement savings back into the market today and made 4% on one day. "
Is little Lisa'a bro a day-trader? Did he buy/sell and actually "make 4%" in one day or did his savings increase in value by 4%, remaining in the market at risk? If the latter, then this may be a counter-confidence signal to investors.
My sympathy is with the Emir. They had every right to believe that Americans would keep spending money on oil to support the Dubai boom, and it was downright cruel to stop so suddenly. Don't be surprised if they redeem the gold they were planning to use for more of those gold-plated bathroom fixtures, and the price of gold plummets as a result.
And Shag, Bartbuster, if you shake Bart's willingness to invest his little all in the Great Ponzi scheme (AKA the stock market), and, as a result, it crashes again, you'll have to shoulder your share of the blame.
Modern civilization requires a lot of all of us to make it work. Life was much simpler back when all we had to do was pretend that pretty rocks were worth something. It wasn't even too bad when paper replaced the rocks, although it was a shock when the paper wasn't even backed by pretty rocks anymore. Now, though, we have to pretend that numbers in a computer are worth something -- and that's something that will faze almost everyone. Obviously, Bart is doing his part, for which we should give him credit.
When it comes to naive comedy Bart is the nonpareil.
Imagine a line on a graph; a descending jagged saw-tooth. Then imagine that on each tiny upward jag in this otherwise tanking economic indicator is a tiny asterisk. You can click on each tiny asterisk and hear with your own ears little Bart De Palma boasting about his one-day gains.
This small business owner who has to live with the consequences sincerely hopes Mr. Obama proves me wrong. However, for now, my money is staying out of the markets and thus not being invested in business growth in a vote of no confidence. I am not alone.
# posted by Bart DePalma : 10:24 AM
Now:
The financial institutions have been moving from cash to US stocks behind the scenes. After bailing out at Dow 11,000, I just moved my family's retirement savings back into the market today and made 4% on one day.
Economics and investment is all about comparative advantages. Foreign money is flowing into the United States because foreigners believe that the US provides a better return on investment than their own countries, not necessarily that the United States is going to explode into Reagan like recovery growth during the next four years.
That foreign money has to be invested somewhere and apparently is beginning to flow into the US stock markets snapping up undervalued stocks. Movement of money into the markets will increase stock prices now the same way panicked movement of money out tanked stock prices regardless of the fact that the companies themselves remain largely unchanged.
The trick is to invest in undervalued stocks ahead of the curve. Buffett started moving a couple months ago and the large investment houses are now quietly following suit. This is the time for an individual investor to make his or her move into undervalued stocks from good companies and not into the market as a whole. A fair number of companies are not going to survive the recession, so investing in the market as a whole will not allow you to capture all of the increase in stock value.
BTW, like other investors, I am investing in good companies with undervalued stocks, not in Mr. Obama's "stimulus package." There is not a single failing UAW company or cost non-competitive green company in my portfolio. These companies are not growth prospects on their own and I am not privy to the identities of the green companies that will receive Dem political payoffs for campaign contribution graft.
Likewise, none of my stocks will be benefited at all by Obama's planned bailout of the UAW, cost uncompetitive green industries or failing blue state governments. I know that none of those measures will have the least effect on the economy pulling out of the recession this year. The resulting long term movement of the federal government towards bankruptcy by adding over a trillion dollars in new debt over the next year also should not effect my stocks in the short term.
If Obama threatens to raise taxes, impose carbon offset taxes or eliminate secret ballots for union organizing, then I am out of the markets again like a flash, I will pocket my earnings and get back in after the markets finish tanking again.
Political economics aside, you folks really should invest in yourselves and obtain some investment education. I have earned several times the couple grand I invested in such education and avoided the vast majority of the losses when the market corrected this fall. When you invest in individual stocks and do your own trading, you can still make money in bad economies and are not hostage to 401K and IRA funds from which you cannot escape.
I made 15% on stock investments last year and bailed early in the market drop.
How did your 401K or IRA do, presuming you have bothered to put anything away for retirement? My mother's IRA lost over 30% of their value.
Forget frigging politics and any personal issues you have with me for a moment and think about how you are going to live in retirement with a government of both parties running up debt to the point where there will soon be no credit left to finance social security obligations in 20 -30 years.
To a large extent, you will be on your own buddy.
I am completely serious about meeting this challenge through investment education followed by prudent investments. If you need political inspiration to do the right thing for yourself and your family, just remember that Buffet is a Dem and an Obama advisor.
Is there any subject on which Bart does not know more than the rest of us poor, benighted slobs?
If only we had taken that two-week personal investing course, we too could have, along with most of the investors, pulled our money out of the market when it began to crash (and thereby made the crash just a little bit worse.)
The courses teach you how, like the experts who run mutual funds, to beat the market (odd how even the good mutual funds aren't beating the market now, isn't it?). How to evaluate a stock based on what the company tells you about its finances (with help from its auditors, who also sell its stock.) And how to predict, with nearly perfect accuracy, technological breakthroughs and regulatory changes so that you won't be left holding a stock like GM at the wrong time.
It's a really sad story that Bart's mother apparently doesn't take his investment advice. Perhaps Bart's talents are wasted in Colorado, and he should investigate opportunities in Dubai, where, obviously, they could use some good advice. Never fear, he'd still be able to participate here -- they're on the web.
And finally, Shag, I'm an old guy, and, what's worse, I was raised by my grandparents, which makes me really old school. One of the first lessons they taught me was never run with scissors.
Bart, leaving aside the fact that you are a lying scumbag, how do you expect to be taken seriously when one day you claim you're taking all your money out of the market, and a few days later you are bragging about all the money you're making in the market?
BTW, the worst my retirement trust has ever done over the last 20 years is 13%.
I accept your concern for my retirement at face value, Bart. Thank you, and I hope your retirement is secure also.
But when it comes to "actionable intelligence" or perhaps "knowledge of facts" you are not a person I would look to for guidance under most circumstances. Maybe, if I was stuck in a foxhole, I'd listen to your advice, only there too I'd probably regret it.
Economics and investment is all about comparative advantages [blah-blah-blah...]
And we remember your stellar predictions in the elections of 2006 and 2008 as well (not to mention your uncanny accuracy and probity as well as intellectual depth and rigoure in evaluating the claims of science WRT global climate change, etc). No one's listening to you, "Bart"; they think you (unlike E.F. Hutton) are basically "full'o'it".
You remind me of a friend I had from back in Connecticut that would come in regularly, boasting about her winnings playing bingo (or whatever game of chance du jour). She was so happy. I'd ask her, "well, how much have you lost this last month?" She simply wouldn't know; I think her psyche wouldn't let her know that information in self-defence. She was clueless and hopelessly in thrall to another power ... and she was being pathetically used. You need to read some more, "Bart": things like "What's the Matter With Kansas", and Altemeyer's "Right Wing Authoritarianism". Before they grind you up and spit you out and when you reach a glimmering of such a realisation, you go postal....
Is there any subject on which Bart does not know more than the rest of us poor, benighted slobs?
Investing prudently is not rocket science and the intelligent readership of this blawg is more than capable of mastering the subject.
I am hardly a financial genius.
I knew nothing about how to invest in stocks prior to taking classes.
I had to practice paper trades (pretending to buy stocks) for weeks after classes before I had the techniques down and the gumption to invest my own very real money.
Even after I got trading down, I had no idea the market would swan dive last fall. Rather, part of prudent investing is to set automatic sell points on your stocks in case the worse happens. Well, the worse happened and the sell points saved my retirement.
Moreover, if you pay attention, you can pick up on new product developments and get into a stock early.
One of the online brokerages ran a commercial a couple years back where daughter asked dad for money to buy the new jeans all the other kids were buying, dad asked his daughter for the name of the jeans company, looked the company up online to check out its stock fundamentals, bought the stock and gladly gave his daughter the money for turning him onto the investment opportunity.
It seems hokey, but you can spot market trends just like this.
I made a great deal of money in just this manner. For example, as soon as I saw Steve Jobs demonstrate the new iphone at Mac World a couple years ago, I shifted nearly all of my money into Apple stock at around $95 a share and sold at around $165. You do not need to be an expert to know a neat new product when you see it.
Finally, once properly educated, most of you would get far better returns on investing in individual stocks than "experts who run mutual funds" because you are investing less money and can buy and sell your stocks far more selectively and quickly than multi billion dollar funds, who by necessity have to spread their money out broadly to lesser performing stocks and cannot find buyers or sellers to move enormous blocks of stocks quickly.
That foreign money has to be invested somewhere and apparently is beginning to flow into the US stock markets snapping up undervalued stocks.
[quoting Mozart from "Amadeus"]: "But whoer ones, sire, which ones?""
[...]
The trick is to invest in undervalued stocks ahead of the curve.
Oh, yes. Buy low, sell high. You do it the other way and you lose money. Why didn't I think of that? Thanks, "Bart"....
[...]
This is the time for an individual investor to make his or her move into undervalued stocks from good companies and not into the market as a whole.
But of course. "Bart" knows better than the Invisible Free Hand of the Market which companies are good, and more importantly, which undervalued by this Great Invisible Hand. Thie we usually call "insider information" but in "Bart"'s case, we should obviously attribute to psychic ability or Messages From Gawd™.... Yes indeed, "Bart"'s just another Warren Buffett ... but one that pays his millions to keep his own name off the financial pages because he doesn't want the awed multitudes to spoil his Rocky Mountain High view building shrines on his lawn.
Hey, "Bart": Why don't you take your financial advice over to Freeperville or LittleGreenSnotballs. When someone over there gets burned listening to your bullshite, they may go even more nutz and put you out of the world's misery.
The resulting long term movement of the federal government towards bankruptcy by adding over a trillion dollars in new debt over the next year also should not effect my stocks in the short term....
Hell, the market stood up pretty well (for a while...) as Dubya added three $ trillion to it. You might be on to something there....
Political economics aside, you folks really should invest in yourselves and obtain some investment education. I have earned several times the couple grand I invested in such education ...
Wow. "Bart"'s earned nigh on $10K in the stock market. Break of the cigars, the free booze, and the fancy hotel rooms; this day trader's a real Big Spender....
The good news for "Bart" then is that he stands no chance of losing much more than $50K no matter what happens with his eedjitcy (because that's all he has).
What's even more funny is that "Bart" is giving money to the "You Too Can Be A Day-Trader!" Internet/talk-radio hucksters that are even a bigger scam than John Cummuta's "Turn Your Debt Into Wealth"....
One of the online brokerages ran a commercial a couple years back where daughter asked dad for money to buy the new jeans all the other kids were buying, dad asked his daughter for the name of the jeans company, looked the company up online to check out its stock fundamentals, bought the stock and gladly gave his daughter the money for turning him onto the investment opportunity.
"I saw it on Tee-Bee so it must be true...."
Is it any wonder that "Bart" falls for all the crapola the RW folks are flinging?
The sad part here is that we can ridicule him mercilessly, and he's still not sufficiently self-aware to realise it and go on to greener pastures....
The founder of the company I work for (MIT grad now worth a few hundred million) refers to investing in the stock market as the Bigger Idiot Retirement Plan. You get to retire only if you can find a bigger idiot to buy the stock you own.
Bart, when I saw that Indy was on a 9 game win streak I was absolutely certain they were going to beat the 8-8 Chargers, so I took your advice and invested my retirement fund on the Colts. Did your investment class have a Plan B you could share with us?
Bart, when I saw that Indy was on a 9 game win streak I was absolutely certain they were going to beat the 8-8 Chargers, so I took your advice and invested my retirement fund on the Colts. Did your investment class have a Plan B you could share with us?
You should have talked to me. I would have told you that it is certain and inevitable that all winning streaks must come to an end, and thus that you could be confident betting the Chargers.
BTW, what's your company? I may have crossed paths with your company's founder back in the days... You can reply privately if you'd like; you know the addy, I think.
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