Comments on: IEA´s unnaproved draft oil report

By: Owen McShane

Owen McShane — Fri, 31 Oct 2008 01:45:28 +0000

Nice one.
But I was wondering if anyone picked up the fact that the protocol is that virtual water exports should be subtracted from a country’s ecological footprint.

But for some reason we never do and make ourselves bad guys instead of good guys.

But we do seem to enjoy self-flagellation.

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By: Dave S

Dave S — Fri, 31 Oct 2008 01:32:32 +0000

Owen

I believe we also hold a record for the per capita highes global conversion rate of fermented hop liquid to water!

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By: Owen McShane

Owen McShane — Thu, 30 Oct 2008 20:54:23 +0000

If water becomes scarce we should be in the box seat because we are the world’s largest exporter of virtual water per capita by a long shot.

That is virtual water – not ice cubes or buckets of the stuff.

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By: Kevyn

Kevyn — Thu, 30 Oct 2008 13:00:31 +0000

Or maybe water?

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By: Kevyn

Kevyn — Thu, 30 Oct 2008 13:00:03 +0000

Actually, that should have ended…precious metals, coal, forests?

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By: Kevyn

Kevyn — Thu, 30 Oct 2008 12:58:59 +0000

One important factor that is frequently overlooked is the impact that the PC and internet have had on institutional investors. PC’s and the internet have given millions of small investors the ability to respond as quickly as only the big investors could 20 years ago. To stay ahead of the pack institutional investors have had to react faster and with less time for consideration. The first really clear illustration of the effects of this speeded up and multiplied herd mentality was Asian Tiger Economy bubble bursting. This was followed by the dot com boom and bust, then the housing boom and bust. The the panic really set it in. The oil boom and bust happened so quickly that is referred to as a spike. Now that investors have fled en mass from oil to US dollars one can only wait with baited breath to see where investors flee to in afew months. Euro, Yuan, the proposed Arab State common currency, precious metals, gold, forests?

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By: Andrew W

Andrew W — Thu, 30 Oct 2008 09:01:21 +0000

Greens generally recognise what a potential catastrophe peak oil is, but they foolishly fail to recognise that for society to survive we may well need to have all alternative energy options available including nuclear. They also fail to understand that if people are to survive with some style (rather than just existing) in a society with lower energy inputs, we will need far smaller government with an efficient free market.
Historically, when civilisations strike hard times it’s the weight and inflexibility of the bureaucracy that grew in resource richer times that leads to the final collapse.
http://en.wikipedia.org/wiki/Joseph_Tainter

To me it’s a bit of a paradox that (generally speaking) the left recognises the problem, but hate the solution, while the right understand the solution, but refuse to recognise there’s a problem.

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By: Dave S

Dave S — Thu, 30 Oct 2008 06:12:21 +0000

Freddy and Fannie would have had good congress if it hadn’t been for some “Masters of the Universe” deciding to blow up the value of low rated mortgages by bundling them with high rated ones and clipping the ticket big time on the pass through.
A typical bundle of US$1 billion with an average rate of 4% would have $501 million in AA, $100m in A, $200m in BB and $199m in C rated mortgages. The ‘crooks’ would offer it as A+ (which it probably would average out at) at 3.5% (in a market with prime rate at 1.5%) and leave the buyer to beware. Fannie and Freddie didn’t get into this stuff, they just bought BB and up from the small ‘town’ banks. Their problem came about when the housing market crashed because of the crooks’ deals and their total portfolio was worth less than its face value, in other words their book assets became less than their book liabilities.
If the crooks (though they did nothing illegal I’m sorry to say) had left the market alone it would have stabilised over time, but they saw so much going around, without them getting a cut, they just wanted some! (0.2% commission of 2 trillion dollars is $40,000,000,000, a bonus pool most would like 0.1% of )

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By: Owen McShane

Owen McShane — Thu, 30 Oct 2008 04:32:56 +0000

Icehawk again.
Are you not aware of the legislative changes during the Clinton era which required the Fanny Mae and similar institutions to loosen their lending criteria?

Mind you, they were getting it from sides – they were being heavied by the Congress and also by threats of class action for discriminating against poor people in general and minorities in particular.
Good intentions again were then seized on by the crooks during the later frenzy.
CLinton was responding to the housing bubble – not the financial bubble.
Sadly, his actions and others which followed pumped up both bubbles in a dreadful symbiotic relationship.

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By: Owen McShane

Owen McShane — Thu, 30 Oct 2008 04:29:01 +0000

icehawk, you are quite right to point out that my post implied the banks were blameless. They were not.
But without the housing bubble their malpractice would not have been encouraged by the US government, and the housing bubble fed on itself to a much greater extent than most bubbles because the total value of real estate is far greater than the value of stock markets etc.
Globally there is likely at least about $US53 trillion of residential “bubble value” to wipe out. For a number of reasons this estimate should be considered conservative. More likely something in the order of $US60 – 70 trillion of global residential bubble value to go.
Globally – according to the World Federation of Stock Exchanges at the beginning of 2008 – world stockmarkets had a capitalization of about $US55 trillion.
Global GDP is about $US55 trillion.
So a global 40% fall with stocks is a $US20 trillion bomb – a 40% fall in residential values is a $US66 trillion bomb.
So the “de-leveraging” (bubbles deflating) we are seeing at the moment is truly massive – likely in the order of the equivalent of about three times Global GDP.
It is this interaction between the world wide housing assets and the financiers which makes this such a disaster in terms of sheer scale. The tulip bubble, the South Sea bubble, the Dot Com bubble etc were all minor by comparison because they were not dealing with such a massive asset market.
The reason I said “us” as opposed to the bankers was to emphasise that just about all of us have an interest in residential property while few have an interest in finance companies or the stock market.

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By: Strings

Strings — Thu, 30 Oct 2008 02:50:08 +0000

Frog

“the marginal cost of a new barrel of production” is the wrong phrase I’m afraid. What I think you meant to say was “the marginal cost of a barrel of new production”. Production cost in Saudi Arabia is currently about $11, and going down to about $6 as the finish writing off the major capital and just plod along on maintenance.

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By: icehawk

icehawk — Thu, 30 Oct 2008 02:10:08 +0000

“Bank on one thing – volatility.”

So go long on a straddle.
http://en.wikipedia.org/wiki/Straddle

Just being helplful.

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By: icehawk

icehawk — Thu, 30 Oct 2008 02:05:32 +0000

“We want to blame the banks because we don’t want to blame ourselves.”

No. We want to blame the banks because they screwed up.

Saying “Any product bubble is soon accompanied by a financial bubble” is like saying “crime is caused by great inequality in opportunities and poverty”. They’re both true, in that they describe how general conditions make more likely a certain type of behaviour.

But an explanation is not an excuse. Any individual criminal is still responsible and liable for their acts (or should be), and likewise any given bank is still liable and responsible for their acts (or should be). Most banks during a financial bubble maintain enough common sense to avoid the risk of bankruptcy, and those that didn’t screwed up badly.

(And I just can’t be bothered arguing with the “Fanny Mae did it” myth any more, bizarre urban legend that it is)

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By: Owen McShane

Owen McShane — Thu, 30 Oct 2008 00:16:11 +0000

I documented the beginning of the housing bubble in NZ back in 1996 in my report to the Reserve Bank of New Zealand, and this report was soon followed by others round the world. (The McKinsey Global Institute had got there before me but only in passing and within a report on employment – and did not cover NZ.)
We predicted that as the housing bubble inflated and generated faux equity a financial bubble would emerge to both finance people into those over priced houses and to lend money on the excess faux equity to finance other property purchases or just consumer spending.
In the US the Clinton administration passed laws requiring Fanny Mae etc to lower their lending standards so that poor people and minorities could continue to buy their own homes. Any product bubble is soon accompanied by a financial bubble as people chase the lending opportunity.
When the housing bubble finally burst it brought down the financial pack of cards with it. We want to blame the banks because we don’t want to blame ourselves.
The housing bubble was inflated by over regulation land and excessive compliance costs and excessive processing delays. Many of these were justified by concerns about the environment but it was a smokescreen. The most highly regulated land markets have created the worst environmental effects and making people poor does nothiing for the environment.
A tragedy. I just hope we have the sense not to repeat it.

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By: bliss

bliss — Wed, 29 Oct 2008 23:25:16 +0000

kahikatea said:

> The spike that burst the housing/credit bubble was made of oil.

Do you have any references for this, Froggy? I’ve been trying to work out whether the collapse was caused by high oil prices, or just by dodgy ‘finanical instruments’.

kahikatea’s right. The underlying cause of the current financial system collapse was hubris, greed and fraud. Resulting in financial instruments that were too opaque to properly judge the risk of.

The housing bubble collapse was perfectly normal, collapse is what bubbles do. But bringing down the financial system was unnecessary and caused by, as I said, hubris, greed and fraud.

peace
W

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By: dbuckley

dbuckley — Wed, 29 Oct 2008 23:16:28 +0000

“The agency says even with investment, the annual rate of output decline is 6.4 per cent”

Thats a worryingly large number, and for the IEA to say it is remarkable. I dont like the way they say “is” either.

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By: kahikatea

kahikatea — Wed, 29 Oct 2008 22:07:57 +0000

Thursday October 30th, 2008. 10:31 am by frog

> The spike that burst the housing/credit bubble was made of oil.

Do you have any references for this, Froggy? I’ve been trying to work out whether the collapse was caused by high oil prices, or just by dodgy ‘finanical instruments’.

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