More recomemndations for your weekend reading

I strongly recommend reading these, the best-ever of the FM site’s “weekend reading” lists, posted yesterday and today.  Enjoy!  These are all interesting and provocative articles.  Comments are welcomed!

Contents

1. “A Glossary of Iraq Euphemisms“, Spencer Ackerman, The American Prospect, 6 August 2008
2. “Has Deleveraging Even Begun? (Not For the Fainthearted)“, Yves Smith, RGE Monitor, 7 August 2008 — He’s not kidding in the title.  One of the best economic reports I’ve seen this year.

Excerpts

1.  “A Glossary of Iraq Euphemisms“, Spencer Ackerman, The American Prospect, 6 August 2008 — About the proposed “compulsory national service” programs.  Excerpt:

CONCERNED LOCAL CITIZENS

Let’s say you had a bunch of insurgent fighters who 20 minutes ago were shooting at American soldiers and marines. Let’s also say that through a combination of strategic calculation (they really didn’t see much of a future for themselves under the foreign domination of anti-tobacco nazis like al-Qaedain Iraq), inducement (lots of cash from U.S. commanders who’d rather not be shot at and blown up), and opportunities both present and future (today: becoming the neighborhood warlord; tomorrow: overthrowing the Shiite government!) they decide to stop shooting at the Americans.

You can call these guys a lot of things: well-motivated warlords; rationaldecision makers; allies of convenience. What you really shouldn’t call them is “Concerned Local Citizens,” a term that equates ferocious nationalist/sectarian killers with busybody retirees who hold bake sales to fund smoothing down the gravel at the playground before someone skins a knee. This LOL-worthy term was so egregious that even the military, in early 2008, changed it to …

SONS OF IRAQ

So these are the new-model Concerned Local Citizens. And admittedly, it’s punchy. … Of course, it also implies that the well-motivated warlords are deeper Iraqi patriots than the Iraqi army and police force that we’re also sponsoring, so that’s a downside. An Iraq War veteran who worked with the Sons of Iraq recently came up with a better term on his blog for those who’d stop shooting at him if they’d get money out of it: “Enemies with Benefits.”

2.  “Has Deleveraging Even Begun? (Not For the Fainthearted)“, Yves Smith, RGE Monitor, 7 August 2008 — He’s not kidding in the title.  One of the best economic reports I’ve seen this year.  Readers of this site will recognize these points, discussed by Smith in greater detail.  Excerpt:

Private debt to GDP rose as rapidly last year as it did before the onset of the financial crisis. It even rose in the first quarter of this year as the financial crisis intensified.  But unlike the 1930s, when this ratio rose even though economic agents did not want it to rise because nominal income was falling, in this episode the private debt to GDP ratio has kept rising because fee hungry lenders continue to engage in expanding credit to profligate over-indebted borrowers.

If one looks at this chart with a historic perspective it is clear that this ratio cannot keep on rising. But if you ask people in the market place whether we must go though a period in which credit falls sharply relative to income they will say that need not be.  It is widely acknowledged that it has taken several units of debt to produce a unit of GDP in recent years.  Most people strangely assume that will be the case in the next recovery.  

The same attitudes hold for our policy makers. They do not talk about an eventual reduction of credit relative to income. They talk about providing new channels of credit to offset constricting ones; for example, expanding the lending of the GSEs to offset the falloff in securitizations. Can the moon shot in the debt to GDP ratio keep going on, like so many assume? Or has something happened that makes at least a reversal, if not mean reversion, imperative now?

The answer is, reversal is imperative now. Why? It is widely understood that starting in the mid 1990s we entered into a historically novel path of serial bubblizations. Each asset bubble went hand-in-hand with an expansion of credit to the private sector….we can see why the reversal of the moon shot in the debt to GDP ratio is imperative. First, house prices now seem to be in an unstoppable downward spiral…..

If home prices fall nationwide by 35%, it follows that the average loan to value ratio will exceed 90%. About 30% of all residential real estate in value terms is without a mortgage. For all real estate with a mortgage, the distribution of mortgage indebtedness is very skewed. With the average loan to value ratio rising to almost 90%, a huge share of almost all mortgage debt will be deeply underwater. All studies show that when mortgages are well underwater there are defaults and foreclosures. This applies to the majority of mortgage debt classified as prime as well as the margin of mortgage debt classified as subprime

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