Weapons of Mass Amortization
The Boy Who Cried Wolf
When I was a child I had a book of Aesop’s fables, a book full of great children’s stories. Each story not only included a moral lesson, it explicitly told you at the end what the moral lesson was.
A lot of our idioms in English come from Aesop’s fables. "Sour grapes" for example.
Another example that’s relevant to our purposes is a story called "The boy who cried wolf." We all know the idiom, and probably most of you had the same book I did, where the shepherd boy cried wolf so often that the villagers no longer believed him, and one day they didn’t come running, and a real wolf came and scattered all the sheep.
If you didn’t have the book, no worries. You have a computer. So here, you can read the story, and learn the explicit moral at the end:
Nobody believes a liar…even when he’s telling the truth.
Fast Forward to The Daily Show
More than two and a half millennia after Aesop wrote his little stories, Jon Stewart aired a segment about how eerily similar the fear-mongering of the Iraq War was to the fear-mongering of the Paulson bailout.
If you’re mad at me for going on and on about the Paulson bailout: I apologize.
But here’s the thing. There weren’t any weapons of mass destruction in Iraq, and nobody believes a liar, even when he’s telling the truth.
The Credit Crisis So Far
I don’t want there to be a credit crisis, because as I said yesterday, it would hurt my business. So if it turns out there is one, I hope you won’t say I encouraged it to happen by saying "Bring it on", because I never said that.
Still, at the risk of seeming to taunt the credit crisis that everyone has been told to be so afraid of, here’s how the credit crisis is playing out as of Thursday. According to Freddie Mac:
McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.10 percent with an average 0.6 point for the week ending October 2, 2008, up from last week when it averaged 6.09 percent. Last year at this time, the 30-year FRM averaged 6.37 percent.
The 15-year FRM this week averaged 5.78 percent with an average 0.6 point, up from last week when it averaged 5.77 percent. A year ago at this time, the 15-year FRM averaged 6.03 percent.
So let me see if I understand this correctly: we’re in the middle of the biggest life-threatening credit crunch since the Great Depression, and mortgage interest rates are lower than the (historically somewhat low) rate they were at last year. During the worst finance news week in recent memory, the 30 year fixed loan went up a whopping 1/100th of 1% from the previous week.
No, John, You Don’t Get It — It’s Short Term Loans That Are In Trouble
Yes, it’s quite possible I don’t get it. I’m not an economist.
But let’s look at some short term rates.
Everyone’s talking about short term loans and the LIBOR. That must be really in the crapper compared to last year, right?
Bloomberg warns: "Libor Soars, Commercial Paper Slumps as Credit Freeze Deepens". Pretty scary. OK, I’ll bite, what are the numbers?
Per Bankrate.com, again as of Thursday:
Soaring, is it? Down over a point from last year on the 1 month, 3 month, and 6 month figure is "soaring"? If that’s soaring, I’m an eagle.
But still, we’re told we need to be scared. If it’s not the Libor, it’s the "Libor-OIS spread" we need to worry about. Well, maybe we do, but I have a sort of knee jerk reaction whenever someone tells me I need to be scared: I think they’re trying to manipulate me. Naomi Klein gets it.
Be Afraid. Be Very Afraid. Drop Dead NOW from Fear (After You Sign This Check).
In the thirties, Roosevelt told people a lot worse off than we are now: The only thing we have to fear is fear itself.
Today we’re told we need to be petrified. Anderson Cooper has taken to interviewing Suze Orman. We’re told that any minute now we’re going to have a flood of biblical proportions. Meantime it’s not raining, it’s not cloudy, barometric pressure is high, but trust me, they say: we’re going to have a flood of biblical proportions.
Trust me. Iraq has weapons of mass destruction.
Trust me. The check’s in the mail.
Trust me. Of course that dress doesn’t make you look fat.
Trust me. Congress will still respect me in the morning.
Update:
Well, it looks like at least one Congressman gets what Jon Stewart and I have been saying:
