bostonbubble.com

[Boston ITer]

Hello,

I thought I'd chime in during the 11th hour of the Wall St debacle of the week. Since three of the Bulge Bracket have gone down or been sublimated into another commercial bank, I figured it's time to ask that question? Can a region, like Boston, survive indefinitely on a financial economy, in other words, the investments of the newly rich? Or does Boston need to get back to its roots of a highway-to-highway export centric technology economy of the '60s to '80s?

You see, all this talk about Boston being money management vs IB is avoiding the question. There's no value added brain power in picking stocks for a standard portfolio unless you're a Soros-like trader. And in that case, it would a privately traded trust a.k.a. hedge fund, not a mutual fund. The S&P500 and other such indexes, making up a vast majority of portfolios, can be assembled anywhere in the world w/o having to pony up a series of $75K-$120K desk job in downtown Boston. In addition, given the state of affairs, how's a bear market going to effect the MF world since they typically don't go short too often (Rydex funds excluded)? We're already seeing Fidelity packing up for cheaper states during the past few years. What's stopping the rest now?

Next, the whole notion of real estate, being 2x equivalent rent was a result of the lending standards and practices of the prior decade. This is just another rooster coming home, however, since we're no longer the DEC-Polaroid-Gillette-John Hancock powerhouse of the past, where's the real bottom here? Is it when the 100K student population can afford to buy up all the properties; in other words, when five students can pool for a two bedroom apartment, splitting the foyer and living room into separated quarters, and still being able to sustain a fun and studious lifestyle?

[showgunx]

For the past few years, biotech firms from cambridge and hospitals from longwood area and students from Allston/brighton area holding up the real estate prices in Boston. As student loan drying up due to credit crunch, students are poorer now. Not sure if the other two sections are affected by the current economic downturn yet. If these two sections fails, then it is time for the house price to drop to the rock buttom level. Not sure if this day will comes though..

[Boston ITer]

Correct, Longwood medical centers will always be there. That's the creme de la creme of the Boston area. And really, that's the region's most stable sector.

Biotech, however, I believe is past its peak. Remember, a lot of the large molecule discoveries/complex folds were made in the 90s and even back then, we had biotech and ancillary firms along the highways (Genetics Institute [now Wyeth], Immunogen, Alpha-Beta, Millipore, etc). Since the 00s, much of what's happened is that the recent outgrowth as been all around Kendall Sq, as a way of siphoning off MIT faculty members, postdocs, etc, for R&D but more and more development-to-production work, once again, is being partnered in cheaper locations or abroad, like Singapore. Unfortunately, a two-tier system, only hiring specialized PhDs in Boston (plus bioinformatic programmers) and all the others with BS/MS in the sciences in Singapore, isn't contributing to the region as it did in the 90s when all kinds of workers were needed for that particular industry.

[steverino]

[john p]

Regarding the multiples of median family income to median house price: During the 90's house prices remained flat for the most part and we got big salary inflation in 2000, and we began to get really low mortgage rates in the early 2000's and then when you add the surcharge of ARM's where people extended that bit further to get that breathing room of the lower teaser rate for a few years.

Think about it, people thought their salaries were going to grow at 5%-10% a year, house prices were going to remain flat (initially), and....

...then thought they'd get priced out (chased the bubble), and thought that my salary isn't going to be 5% growth a year but house prices are growing faster than my salary so I'd better get in before I get priced out.

Why would you trust fundamental historical norms with globilizaton, the FED's out there acting like the Wizard of OZ.

In the end, people felt there was safety in numbers (herd mentality) and if everyone was in on this behavior what could they do? The herd deformed fundamentals and the responsible people had to pay for the irresponsible.

Lots of these banks just need liquidity like a car needs gas to keep going. I would guess that most of their medium to long term positions are sound.

I keep saying this about casinos, but the people who can't afford to gamble do, and they are very fragile and shouldn't be doing that stuff. I don't care if someone takes a risk and assumes their own fate, but if people who have no business taking risk now cost the responsible people, than we need to put a filter on who can take a risk and when. When you take into account what increses in gas or heating oil does to a family barely scraping by and then add in their ARM being reset and adding a point and a half; they're screwed.

The part that is crazy about this is that Alan Greenspan (the FED appointed before Bush 43) lowered rates to save the stock market and the help our for 9/11's drop. The Clinton Administration put in laws to make it difficult to DENY many low income people from getting mortgages. BUSH actually tried to overhaul Freddie Mac and Fannie Mae. People like Barney Frank said no and saw Bush's position as an attack on poor people. Deval Patrick, our Democratic Governor, was on the Board for Ameriquest, a predatory lender that preyed on the poor and minorities, and the Democrats blocked drilling and Uncle Teddy stonewalled Cape Wind. Gas prices are part of the reason why people are upside down, and it's not just the gas you put in your tank, it is the airfare, the food shipping costs, etc. Now despite blocking fiscal oversight to Fannie Mae, Freddie Mac, blocking drilling, making it easier for people who weren't responsible to buy a house to get a mortgage they are claiming Victory by claiming Defeat and blaming the Republicans.... they changed the playing rules and the mortgage companies that wanted to play with these new rules and get this business had to play ball. Responsible lenders lost lots of business due to these rules.

I know there are lots of Republicans as well as Democrats guilty, but it is despicable for the Democrats to pretend they are innocent, they are actually much more guilty on the whole. I'm drifting from the Democrats because they seem to root for failure, failure in Iraq and failure in the Economy because failure means they can blame someone else. Before I decide to change, I need to know if they have any solutions. They don't have a silver bullet. Democrats will manufacture a socialistic delusion where you're entitled a $1,000 check from the government, despite not paying taxes. If people become slothfully lazy and irresponsible because the government told them it is ok to be that way, we can kiss our future goodbye. Hopefully the Democrats will start to listen to some accomplished people who have worked hard and start to get back to the values of being industrious and responsible. If they ride this cheerleader for failure through the election it will have a negative impact in my view.

[StallionMang]

Oh yeah, Republicans are great... at getting elected, selling out to big oil, and spending money they don't have. Incompetent at anything else. Bush is the Worst President Ever.

[john p]

John McCain is no George W. Bush. McCain has been fighting against wasteful spending for decades.

and

Barack Obama is no Bill Clinton. Bill Clinton was a moderate with prior executive experience, Obama is a socialist and is the most liberal member in the Senate.

Because of that diagram you attached this election SHOULD have been a complete landslide for the Democrats. Instead, the Democrats got greedy and got the most far left person. The Republicans also picked their most left person and overall, McCain is much more centered in the values and political views of the Nation.

By the way, Matt Cassel is no Tom Brady, and just because they wear the same uniform and play on the same team doesn't mean you should put the same odds on their performance.

[StallionMang]

http://www.videosift.com/video/McCain-Debates-Self-on-Bush

McCain is a "reformed maverick"... http://www.videosift.com/video/The-Daily-Show-9508-John-McCain-Reformed-Maverick ... unravelling as it becomes apparent he has no plan and flipflops day to day. Even Rove and Fox are calling him a liar! http://www.youtube.com/watch?v=OviYjJWIYbY And ABC too - http://www.youtube.com/watch?v=wWI35eNnDOw

Palin fired up the base, but added no new votes. She's scary - and there's a 1 in 7 chance he'll die in office. So thanks for firing up the Dems even more.

Today he got confused about where Spain was and is willing to stick with his misstatement - pissing off lots of Latinos. http://www.youtube.com/watch?v=nMb7-RKvbF0 . Way to piss off an ally grandpa.

Phil Gramm asked Ron Paul to endorse McCain, Ron Paul declined because he said they disagree on most issues, especially foreign policy. Ron Paul also said he could never endorse a man who thinks that "Bomb bomb bomb, bomb bomb Iran" is funny. http://www.youtube.com/watch?v=mOb3cC2FVIg

Obama defeated Hillary because he surrounds himself with smart people - not lobbyists http://www.youtube.com/watch?v=CPuoAWaVStE. He's got the ground game and the voter registration - http://www.youtube.com/watch?v=wUAiGbNp8oI - Repubs can only dream of.... that's why Repubs are trying stunts like disenfranchising people who've been foreclosed upon http://www.youtube.com/watch?v=pPGJQ9x_Fg . Yeah, that's classy.

The Palin convention bump is over, and people are realizing this is serious business. We'll see how it goes. My money's on the guy who can remember how many houses he owns.

[john p]

Wow, I stumbled into a live one.

Believe me, I wanted to like Obama very much, I voted for Kerry... I like Al Franken and Franken gave him a plug in one of his books, "Lies and Liars", raving about his Democratic National Convention speech. The first impression I got of Obama was when he was questioning Condi Rice for her confirmation hearings to be promoted to Secretary of State. I heard Obama was against the War so it was a chance to see him stand up for something. Instead, he was a total pussy and epitomized the limp dick Democratic Congress that didn't have the backbone to pull the plug in a War they beloved to be immoral and based on lies. If Obama beloved that the War was based on lies and was immoral, why did he vote to confirm Condi Rice? That was a defining moment, the political winds were against him, and he showed no backbone at all to stand up for his position about the War. In fact, he voted to fund the War over $300 Billion dollars. There is a trend with this whole voting "Present" stuff; he's a wimp.

This was a hard decision for me, I've got my family down my back; my father calling me an ingrate, etc. I just think the Democratic Party has lost their roots and people are just voting for people because of the Party name. I mean people are calling Obama, JFK and the whole Kennedy clan is handing the torch to him; he hasn't done anything to even come close to deserving that; the Kennedy's are selling themselves and their legacy short. People are calling him the embodiment of MLK's "Dream". Well, MLK talked about a colorblind society, and when MLK used words they were dangerous words to speak at the time and he ended up being killed for his words. Obama uses words for self promotion and applause. In fact, Obama started off writing a book about race relations and was so self absorbed he decided to write about himself instead. And he named the book "The Audacity of Hope". He got the name the "Audacity of Hope" from Jeremiah Wright's sermon entitled "The Audacity of Hope". So let's see, Obama uses Wright's church to get street credit and political capital, lift's the title and then throws him under the bus when the going gets tough. Jeremiah Wright gave Obama's Campaign team a blessing the morning he announced his run for the Presidency. Something else to consider, Jeremiah Wright didn't become Jeremiah Wright in the weeks that Obama wasn't there, and the Church didn't change overnight either. People know their audiences, that sort of stand-up interaction is like a ping pong game and you know exactly how to deliver a line by knowing the properties of the people who are going to bounce back their reactions. That Church cheered and cheered and laughed when Wright and Flager made their anti-American, racist comments. There is no way Obama wasn't aware of the disposition of those people and that leader.

So, I dug a little deeper and found out about Saul Alinsky, the Black Panthers, the Weathermen and realized that there was this extreme left wing association in Chicago that had some radical ideas about America, capitalism, and gaining power. Obama was a community organizer for an Alinsky group. Alinsky was an organizer in the stockyards of Chicago during the Depression and became famous in the late 60's with the Anti-Vietnam movement, they also screwed up the Democratic National Convention in 1968, and this Bill Ayers, Weathermen group actually bombed government buildings, a few of the weathermen got killed when one of their dirty bombs they were making went off in a Greenwich Village apartment; Alinsky's famous quote was that Lucifer was the best radical because he bucked the system and got his own Kingdom. Alinsky had this beg, borrow, lie and steal approach to getting power, and the goal was to get power at any expense. He said you needed to remind people about how awful their place in the world was and then blamed someone and focused that group's negative energy towards that scapegoat. Obama's current cheerleader for failure approach has harkening of Alinsky, and Alinsky's son said "Obama has learned his lessons" from the Alinsky process. Alinsky and Obama traded on people's misery and tapped into negative energy for self promotion. If they actually left a trail of success where and what is it? Democrats seem to want you to be a loser so they can be your daddy and be your shoulder to cry on and make you feel better by giving someone to blame. If they actually cared about poor people they'd give them the values to be more industrious and tough so that they could endure and overcome their hardships and prevail. Instead, they soften them and make them low hanging fruits that are paralyzed with their own delusions of entitlement and anger that someone else is responsible to solve their problems. Old school democrats were never like that; they were industrious and faced real hardships and real racism. They had signs "Irish Need Not Apply". Now you have "poor" people with three television sets in their homes, video games, designer clothing, etc. These people aren't poor, they're lazy and delusional.

Look at your diagrams again and ask yourself, what specifically did Clinton do to affect those numbers and what did Bush do to affect his? And what specifically will Obama do to affect anything?

Community organizing is no joke. Barack Obama started off by himself and then grew a staff of 14. The question is what did they do? How much of an impact did they make? It is not like Chicago's economy spiked due to any silver bullets of brilliance he offered. Being President is a big deal and we've got thousands of community organizers that have a much better track record than Obama. His wife, Michelle got a $200,000 dollar raise for some community outreach role for the University of Chicago; her salary was $350k, and when she was making that king of money she was telling others not to follow greed and money and to take a low paying job being a teacher or social worker.

This sounds really bad, but I believe it to be true based on my observations, governments treat some neighborhoods like prison guards treat prisoners. If there are prisoners who can ride herd on the rest of the population, the guards give them special treatment. Basically, the bully that can keep order is rewarded. This is why you see so many loud mouths as community leaders. I mean does Al Sharpton have any silver bullets to help his community? What government does is take these loud mouths and bury them on committees or boards and claim that these guys speak on behalf of everyone of whatever race or neighborhood they are from. I think the silver bullet is the awareness that if you put the same amount of effort to game the system as a government hack into trying to be a productive member of society and make a profit, that you'd end out ahead being industrious unless, your society turns into a socialist one where only the people in government or governmental institutional power taste the spoils i.e. Michelle Obama making $350,000 a year. Michelle Obama thinks’ it’s ok for everyone else to work for peanuts and for her to get her check, she has to keep the others in line. Obama is good at getting people to work for peanuts and that is part of the skill of being a community organizer. I just think that he owes it to this salt of the earth followers that are killing themselves and giving their blood sweat and tears some real world solutions. I think before you ask people to put themselves out there for you the way he has, you need to do your time in the trenches, you need to be worthy of their commitment. I think he has confused egotism for fundamental confidence that is rooted in experience.

I mean this whole hackerama killed Boston politics. We put in leaders that were just loud mouths that put self interest first, feathered their own beds with fat pensions and chairmanships and kickbacks for giving friends jobs. There was no "cause", the cause was the smokescreen, the veil that gave them power. My father contends that you need to politically shuffle the deck so that you don't get second and third generations of hackeramma where sons and grandsons of hacks are still getting a spot along the trough. Honestly, I don't want to trade one hackerama for another and I think McCain/Palin are closer to reformers than Obama who'll just usher in another set of hacks like Patrick tried to allow the casino industry in.

If I had bullet points for you to look up they'd be:

Saul Alinsky
Weathermen, Bill Ayers
Michelle Obama's salary increase when Barack became Senator,
Vote to confirm Condi Rice,
Vote to fund over $300B to a War he was against,
Voting "Present" in Illinois State Senate
"Audacity of Hope" title lifted from Reverend Wright
Father Flager's speech about Hillary Clinton after Clinton cries at NH Primary (see the disposition of the congregation at Obama's church),
Chris Matthews of MSNBC saying that Obama's speech gave him a tingly sensation going up his leg,
Tony Rezko, a convicted slumlord who embezzled funds meant for the poor's involvement in the campaign of Obama in Chicago politics and his helping him buy his house,
David Axelrod, the same campaign manager for Deval Patrick, a campaign reminiscent of "Together We can" to "Yes We Can".
Deval Patrick and Ben LeGuer,
Deval Patrick and the casino industry,
Deval Patrick and the predatory lender Ameriquest,
Barney Frank blocking Fannie Mae and Freddie Mac reform,
Clinton's National Homeownership Strategy
Read page 3
http://www.criterioneconomics.com/docs/20080226%20Market%20Commentary.pdf

More related to housing bubble:

Repeal of Glass-Steagall Act of 1933 in 1999

http://www.rgemonitor.com/globalmacro-monitor/252957/regulatory_implications_of_the_housing_and_mortgage_bubble_and_bust

Here is my case in point:

FDR the quintessential Democrat, one I look up to put into place the Glass Steagal Act of 1933 to protect working families. Another Democrat 65 year later ends it and opens the door for reckless and irresponsible behavior by these banking institutions which later manufactured two bubbles: stocks and mortgage.

http://www.newsweek.com/id/159092

This is my point; the Democrats lost their root to an FDR pillar that served us well.

I've seen things like Chapt 40B transform and morph from being put into place to help poor people to now be used to threaten poor people like in Middleboro to get casinos. Political parties can also transform and I don't think the current Democratic leadership is the same as my father's Party of FDR, JFK, etc.

[john p]

Here's the cherry on top:

http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190

[samz]

Despite being a lifelong Democrat, I tend to agree with John P: I feel like the Democrats have lost their way a bit.

(In my opinion, part of the reason for that is the "dumbing down" of political discourse. I think the GOP campaign machine figured out and perfected a technique of making problems sound simple and seductive (e.g., "drill baby drill", "no new taxes", "cut and run", etc, etc). In addition, they pushed the equation: intellectual = liberal = unpatriotic. It reminds me of high school -- it's not cool to be smart. We as a country are in real trouble if the message is that thinking, questioning, and caring are bad things.)

What I don't like about McCain is that he's pushing that same seductively simple message: hey, I'm the maverick and I'll clean up Wall St. How? His core political and economic philosophy doesn't include any tools to do that. I don't see "stronger regulations" or "massive bailouts" in the conservative economic handbook.

The Democrats have certainly made mistakes and strayed somewhat from their ideals, and that's a shame. But the problem for the Republicans goes much deeper: the current financial crisis (and the financial trends of the last decade) call into question the central tenets of the economic philosophy. I just don't see how anyone could continue to push laissez-faire economics after this. What's the formula? Let the markets do whatever they want and then bail them out when it all falls apart?

This irony is that this philosophy is sold as "populist" -- it is not. Think about how this affects the average American. Over the last 10 years, productivity and GDP are up dramatically (great for Wall St. types), but real wages are flat or actually down. Now top that off with a giant tax burden for the bailout (again, great for Wall St. types). Sounds like a pretty raw deal to me.

Obama may not be perfect, but at least his philosophy actually helps regular Americans.

OK, flame away!...

[samz]

Also: I don't know if people have seen this graph before:



[/img]

[former Owner]

I have problems with both candidates.

But, I don't believe that Senator OBama plans to raise Taxes on people who ONLY make over $250,000 - this target will hit lower income levels.

Guess What - after this past week there are a lot fewer of those above $250,000 Incomes - the numbers are dropping fast with the implosion of the financial and real estate sectors.

Where do you make up for this Lost future Revenue. This will lead to that $250,000 level dropping -to include more people.

The other economic impact is the decreasing Money Supply. As you can see from this past week the Feds are racing to printing more money to keep the economy rolling.
Doesn't higher taxes lead to a reduction of Money Supply - and more falling asset prices. Anyone making more than $150,000 and more who is saving money is using that money to buy stocks, or they save in at a local bank (this allows the Bank to make loans to other people), or they invest in real estate ( a vacation or retirement home). A lack of Liquidity is one of the biggest problems we have and Senator OBama would like to reduce the cash in the system through taxation.

I'd wish there was a Candidate that would propose dramatic cuts in Government spending.

[samz]

[Former Owner]

Samz.

Massive Government spending lead to abandoning of the Gold Standard and has led us to our current mess.
That said there is lots of good Gov't spending that would not be under taken by the private sector that benefit society - but, spending for the Commons leads to Over spending.

Look at the Schools that have been built in the last 10 years. -In many Communities - old Schools have been replaced with Modern Office Building like schools that REQUIRE Heating or Air Conditioning running 365 days of the year. Many of these Schools were built with todays student population sixe - which is the biggest population of Students in human history - the Kids of the Baby Boomers.

Lets look at what happens when a private business generates $100 in Revenue.

The $100 dollars is spent and saved. (This is my wild guess)
$30 dollars for Taxes.
$30 dollars in Retained Earnings or profit.
$20 in Salaries
$20 in Capital investment/equipment.

The $30 Dollars in retained Earnings is deposited in a local Bank. The Bank can now lend this Money to other Citizens of the Community - the more money on deposit the Lower interest Rates will get - the Bank needs to lend to make profit.

When the Government Spends money there is no profit that gets reinvested in the Community.
When the Government spends money - in creates many future obiligations because of the Benefits for Gov't Employees are so much better than the Median Worker. So, by increasing Gov't spending this year - you increase the financial long term obligations for the Gov't because in result in a rise in the number of Gov't Employees.

Just my observations.

Regards,

Former Owner