Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Wednesday, March 18, 2009
Sunday, March 01, 2009
Has Capitalism REALLY Hit the Fan?
Capitalism Hits the Fan: A Marxian View from UVC-TV 19 on Vimeo.
Analysis follows:
In short, the first 15-22min are instructive, the last bits are interesting; but fundamentally flawed.
In the comments- at vimeo- on this video, you can see a number of ideas discussed. Some (most? I didn't read more than the first handful) are marxist/socialist, some are capitalist (including the linked PDF from the Chicago Federal Reserve Bank's Letter from March 1997), some are anti-corporate, yadda yadda yadda. The thing that unites them is they each represent a fascinating singular viewpoint, and none of them do more than superficially present a straw man of any other views. But that's the comments (which we'll come back to), now for the video...
Are his facts accurate? Yes. He never claims they are more than generalizations- which they appear to be on closer inspection. For 150 years productivity, profit and wages rose each year. Was it always at the same rate? Probably not. Was it 1975 when wages started their stagnate/downward trend? Looking at the PDF linked above, it was 1972 when real hourly wages peaked. They explain the numbers they use:
"It is obtained by deflating the average hour earnings figure that the Bureau of Labor Statistics (BLS) obtains every month from its Current Employment Survey (CES) of establishments by the BLS’s Consumer Price Index for Urban Consumers (CPIU)."
That seems a reasonable way of deriving the numbers; and the Newsletter continues with an analysis of why it's not if you care for that. (I'll dig deeper into that PDF in a moment).
Generally, Professor Rick Wolff's facts and analysis of the 150 years from 1820-1970 is correct- as you'd probably expect from someone at the Department of Economics at the University of Massachusetts - Amherst. His assertion that this isn't a financial crisis is emotionally/politically motivated. This crisis may have resulted from many things- in fact, I think it's safe to say that it did- but to compare it to the body isn't very valid. Everything in life, today, is far more entwined than it was 100 years ago. 100 years ago a mechanics wasn't expected to understand basic nutrition, basic finance, basic law (and basic copyright law), basic electronics, and various other basics essential to navigating life in the modern era. That's not to say such understanding wouldn't help a mechanic 100 years ago, it's to say that they weren't expected by their society to know those things.
Today, the RIAA will crucify your grandmother if her granddaughter doesn't understand that torrenting music is illegal (basic copyright law). The MPAA will attempt to crucify anyone who doesn't adhere to the warnings they put on all VHS tapes and DVDs- on the DVDs you can't even skip their warning (even the one written in a language you don't understand). No more pensions, IRAs, 401(k)s, etc etc (basic- maybe even moderate- finance). A mechanic can get sued if he allows a customer to drive a car out of his shop- even if he fixed the one piece he was asked to fix (basic law). Undernourish your kids and see what DHS says (basic nutrition). Setup the router so you can safely navigate the internet for entertainment, education, and porn (technically entertainment; but SO much more, really); set up the flat screen 1080i television, the MP3 streaming wifi enabled home stereo and entertainment system, the cable box DVR, the DVD/Blu-ray player, etc (basic electronics).
Just because we're that entwined, doesn't mean this didn't start in the Financial sector. If we had done things differently, we MIGHT not have seen this crash happen, or spread as far as it did. That's a maybe; not a definite. If we had done things differently- say a dictatorial political system with a communist market- we may have been Russia in the early 1990s.
His fact that the American working class was the only one that could have been leveraged was new to me; and fit many things I had heard and read. For many years I wanted to move to the UK and live there awhile. I knew most people there rented- though I still don't know why exactly, tax law seems to have some effect on it. I knew that is the commonly accepted de facto living arrangement in Europe and Developed Asia: renting over buying.
His facts are solid, if general, and his ideas are fairly valid. Despite the fact that this started in the Financial sector, it's spread to many- if not all- sectors and is resulting in massive job losses. It's a world disaster/crisis/whatever.
His plan is interesting. Read the comments to see where it falls short from the marxist/socialist mindset. He's detailed cooperatives, not communists; but ignoring jargon and revolutions, it's an interesting idea. I doubt, as one commentor said, that workers already have the power. How can you "refuse low wages" when you're too broke to provide yourself food, water, and shelter? How can you refuse "higher prices" when it's milk, eggs, flour, rice, water, and shelter whose prices are increasing?
A digression on worker's power...
When I lived in Birmingham, I stayed at an Apartment for two years. When I got in, the price for that place was $675 a month (2 bed room, 1 bath, with water, sewer, and garbage included). When I left it was $725. When I left, the rented that apartment- to whoever moved in after me- for $750 + $30 for the included. The apartment wasn't in a bad neighborhood- though a prostitute did try to pick me up in the parking lot once, and many of the immigrants had their apartments invaded. (I was walking the dog one morning, barely awake, when I brushed through a piece of fishing line. It tripped a very loud, and annoying, alarm; designed to wake the families before thieves could make off with their kids' bikes or break down their doors). It was in Homewood, on Valley Ave, right off Green Springs. And the only place cheaper- on that road- was about $50-$60 cheaper a month, but about three-four times less safe. Imagine trying to walk to work from further away. I originally moved there from a place near Cahaba Heights that was 2 Bedrooms, 2 Baths, for $715 (garbage and sewer included). They arbitrarily raised rent rates every year- the longer the buildings stand the less is actually needed for the owners to turn a profit, until they're so old they should be torn down. Moving further away might have resulted in less rent; but more travel time to work, more gas in general travel, and basically less net gain.
Workers at the lowest end of the spectrum don't have much power. Look at who pays the most in taxes. Don't you think it's highly likely they're the same people spending the money on most non-essential (i.e. non-grocery, non-gas) supplies? They have the power, and they're not the middle class, they're the upper middle class and higher. This is where the ideals of a consumerist, materialistic, greed based value system fucks us. Plus advertising. In America, Taco Bell during the early to mid 1990s had a 59c, 79c, 99c menu. Wonder why they don't now? Because if you price something too low it's perceived value is always lower than it's price. Take the same item, price it at $1.09- instead of 79c- and its value seems greater, though the only thing that has changed is the price point. This works ont he psyche of people invested int he rat race, and who have won. People struggling to get by don't give a shit if it tastes a little funny and is half broken, if it's cheap and plentiful (and won't give them cancer today) it's gonna have to be good enough.
Back to his models...
Look at those silicon valley start-ups. As one commentator noted, venture capitalists supplied many of them with enough money to actually get the product out there. Then the VC's would, usually, own the largest portion of the company (compared to any other single investor, at least). Even if the VC's were bought out- control reverting to the workers- how did those companies end up? Oracle. Compaq. Google. Go look up which ones are publicly traded, and which ones make their Board of Directors public. Go see who is on those boards. Who is the CEO- and where did that person come from? It's not a pretty picture for the idea of cooperatives. Which might be a fault of the capitalist market, and the fallible human's need to indulge their greed; but if it is, we'd have to change the entire system before the cooperatives we were changing the system for could actually work in the long-term.
Lastly, the commentors. As I have said, I didn't read many of them. Comments can be useful; but they can also be rather useless. Most don't fully consider the ideas purported by others- even when they directly address those others. I did, however, go look at the Fed of Chicago's newsletter.
Let's be clear, I thought it would be the pro-capitalism view, and it is. It is also 12 years dated- which is significant in light of the last six months to a year. I didn't manage to make it through more than the first page.
There are, however, major methodological problems with using the average hourly earnings series to gauge long-term trends in wage rates. First, they cover only wage and salary compensation. Fringe benefits and contributions for social insurance programs, important parts of workers’ total compensation, are left out.
Because these components of compensation have been increasing more rapidly than wages and salaries over most of the period covered by figure 1, average hourly earnings understate compensation growth. The earnings data are also limited to production and nonsupervisory workers. The nearly 20% of workers excluded from the average are more likely to be highly skilled and highly paid. Because such workers have experienced more rapid wage growth since the early 1970s, their exclusion imparts another downward bias to the measured rate of average wage growth. Finally, though it covers a large fraction of employment, the CES is subject to substantial biases in sample selection; for example, it excludes workers at newly opened establishments.
In other words, because CEOs don't get covered- and their wages and benefits have grown vastly- the figure is inaccurate. My general refutation is: FUCK YOU!
Also, it doesn't cover NEW companies. Yet, it will soon; but more importantly: where do you think the new companies get their data for salaries from? Cause I'm betting established companies.
Fringe benefits are good; but they're also a crock of shit. In the 1950s you got a pension. Today, you get far less money, devoted to matching your 401(k) or IRA contributions. They have their benefits over the old style pensions- but mostly for upper middle class and above. Many people feel the "choices" and "freedom" of IRAs and 401(k)s are worth it; but I contest those "freedoms" and "choices" blow when compared to a pension for 90% of people. Health insurance could be worse if employers didn't help; but it's still ridiculous- even for Hospital employees. Why? Because of businesses we like to call the Insurance Companies (who are highly unregulated, and about the worst of the worst when it comes to greedy corporate fucks). Go look at what some sites that show median salary, and see how much higher they rate things like retirement packages and health care.
Don't get me wrong, Health coverage is even more expensive- a lot of the time- if the employer doesn't help with it; but it's not exactly like a benefit when a large chunk of salary gets pulled out of each check. What's the term for something that's not a benefit, but not a disadvantage, either? That's how I see health care compensation at most companies.
Do I have a solution?
Nope. But I'm not a professional economist, either. I think Professor Wolff makes some interesting points; but I also think he can (literally) afford to view things the way he does. I also think he knows quite a bit about what he's glossing over. All in all, it's definitely a must see lecture, because it illustrates an alternative viewpoint and sparks discussions. His solutions are maybe a little better- because of who they benefit- than most of the ones I hear currently; but they're also less likely. We're a hierarchical society, trying to disrupt the hierarchy isn't a small thing- and despite the benefit 99% of people will resist that change.
Of course, it'd be easier to substantially change if we could get those 99% to actually think about what/how/why the system is/does/causes the things/ways/beliefs it is/does/causes.
Read More...
Tuesday, February 03, 2009
Thomas Sowell, a conservative columnist from the Hoover Institute, says the banks don't want the money the government is trying to give them; but that's not even remotely true. The Banks definitely WANT the money, why wouldn't they? What Banks don't want is regulations on how/what they can spend/use the money. He also says banks are loaning less today than they were before they received any money.
What does he know that we don't?
The short answer is: nothing.
First, let's look at the loan situation. The credit crunch- the limited availability and issuance of loans- is still ongoing, and worsening, despite every measure tried. Why? There are, as with so many economic problems, lots of reasons. One, companies are going bankrupt, so there are less companies trying to borrow money. Two, companies are going bankrupt, and reporting vastly smaller profits than at any time in recent memory (if they're not suffering losses); which means loaning money to businesses is riskier. The job of a banker is to minimize risk. With the lackluster profit reports we're seeing, expectations and markets down, and the recession due to last through spring (an optimistic opinion, in my view), it's risky to loan businesses money, at the moment. However, those businesses- like WalMart- who are doing well, aren't reporting a problem with getting loans.
Additionally, people with good credit aren't having a big problem with getting loans, either. Anecdotally, my sister just got a loan on a good condition used car at a very good interest rate. Her credit wasn't perfect- she had a repossession some years ago- but she had no outstanding debts, and a good job. But, many people are getting laid-off. Look at "Bloody Monday". Many many people are already out of a job, working reduced hours, etc etc. We've all seen the news and heard the stories. The facts on the ground aren't good for workers. Which means it's risky to give a loan. If the person has slightly bad credit, they're a huge risk- when viewed objectively as a potential soon-to-be-beneficiary of, recently extended, unemployment benefits.
The credit crunch is on because the recession is bad, and people are losing their jobs. That is partly due to the credit crunch. It's a feedback loop. Fortunately, the longer the recession goes on, and the credit crunch weeds out the insolvent, the less impact it will have. The problem is, it's not over, and the point of equilibrium will only be realized in hindsight. Which means loan officers won't be aware of it when it does, if it hasn't already, hit.
Secondly, business and banks are begging for tax cuts. Why? Because that's free- read: non-regulated- money. Cut their taxes and they get access to money they would have owed. It doesn't come with all the oversight, preferred stock option exchange, or any of the other, unfortunately meager, regulatory provisions of government "bailout" money. Of course they want that. If you asked a business person if they would rather have a bunch of money free and clear, or the same amount with a bunch of political bullshit, regulation, and rules attached... Which would you pick?
The money is the same, either way. Potentially, there's more money in the bailout, immediately. Tax cuts might be easier to make permanent, though, and that may have something to do with it. The point is that Thomas Sowell and the Republicans are spouting bullshit and demanding the Democrats stop spouting bullshit. There's no way of telling if the Democratic stimulus package will work, yet.
Finally, there is some indication that the Republican stimulus plans, i.e. more tax cuts, don't work. Huh? Look at the last few years. Bush loved his tax cuts, and look where we're at. I'm not saying that tax cuts put us in this situation, but I am saying they didn't help. The last round of tax cuts barely stimulated the economy during the third quarter. Most people kept the money and saved it, a strategy that proved to be very wise indeed.
Infrastructure is a good investment. It's possible that there are better investments; but I haven't seen any. I've seen some data that claims there are equally good investments; but there's a problem not being addressed with those few I've seen. Ignoring recent data on tax cuts, they do seem potentially capable of helping. But they don't help nearly as many people.
According to Maude Barlow, the top 200 corporations control the same amount of wealth as the bottom 2/3s of people. That's 4,290,000,000 people. Infrastructure, like internet access, roads, electrical grids, etc etc, has been shown to disproportionately help the poor, while tax cuts help the rich. How? If you pay 10% of 20,000 (the federal poverty level as of a couple years ago) you're not gonna get the same benefit of a 2% tax break as someone who pays 15% of a billion. But if it only takes you 15 minutes to get to work, instead of 30 minutes, it means less gas and gas money isn't as big a problem if you make $200,000/year.
[An Aside: I use the driving example because of I-565, that "Lake of Asphalt" some of you may have heard about on NPR about a week ago. My mother's commute was cut in half when it was completed. There are those who would say 15 minutes of time for Bill Gates is worth more than 15 minutes of {anyone else}'s time. That's a good argument; except that it ignores the real world situation of gas. In reality, $20 a week in extra gas doesn't mean much to Bill Gates; but it can mean a very very modest retirement savings for someone who was otherwise living paycheck to paycheck. Again, in reality, it probably wouldn't get used solely for savings; but the point remains.]
Keynesian Economics is the real point that is being argued. It's got it's problems. However, so does every other system. The fact of the matter is that Keynesian economic strategies, or maybe just the ones I've heard, seem to benefit the poor more than the rich. In fact, they don't seem like they really help the rich. That was- in a way- Keynes's point, from what I understand. Should the government be in the business of "redistributing the wealth"? No, but if money needs to be spent- tax cuts are expenditures, just like infrastructure- I think it should be spent to help the poor more than the rich. This is a biased viewpoint; but it's not one I'm likely to ever change, regardless of my personal financial situation.
There's a balance that can be reached between helping the poorest and not seriously injuring the richest. It's just hard to reach that point when people are willing to lie, or "misstate" the "facts", to advance their viewpoint. Legislating morality is a dangerous game, and one I'm very opposed to; which is why I don't think we should legislate against greed or self-interest. What I do think, is that we should have a democracy that supports the majority, and the vast majority of people are poor.
Read More...
What does he know that we don't?
The short answer is: nothing.
First, let's look at the loan situation. The credit crunch- the limited availability and issuance of loans- is still ongoing, and worsening, despite every measure tried. Why? There are, as with so many economic problems, lots of reasons. One, companies are going bankrupt, so there are less companies trying to borrow money. Two, companies are going bankrupt, and reporting vastly smaller profits than at any time in recent memory (if they're not suffering losses); which means loaning money to businesses is riskier. The job of a banker is to minimize risk. With the lackluster profit reports we're seeing, expectations and markets down, and the recession due to last through spring (an optimistic opinion, in my view), it's risky to loan businesses money, at the moment. However, those businesses- like WalMart- who are doing well, aren't reporting a problem with getting loans.
Additionally, people with good credit aren't having a big problem with getting loans, either. Anecdotally, my sister just got a loan on a good condition used car at a very good interest rate. Her credit wasn't perfect- she had a repossession some years ago- but she had no outstanding debts, and a good job. But, many people are getting laid-off. Look at "Bloody Monday". Many many people are already out of a job, working reduced hours, etc etc. We've all seen the news and heard the stories. The facts on the ground aren't good for workers. Which means it's risky to give a loan. If the person has slightly bad credit, they're a huge risk- when viewed objectively as a potential soon-to-be-beneficiary of, recently extended, unemployment benefits.
The credit crunch is on because the recession is bad, and people are losing their jobs. That is partly due to the credit crunch. It's a feedback loop. Fortunately, the longer the recession goes on, and the credit crunch weeds out the insolvent, the less impact it will have. The problem is, it's not over, and the point of equilibrium will only be realized in hindsight. Which means loan officers won't be aware of it when it does, if it hasn't already, hit.
Secondly, business and banks are begging for tax cuts. Why? Because that's free- read: non-regulated- money. Cut their taxes and they get access to money they would have owed. It doesn't come with all the oversight, preferred stock option exchange, or any of the other, unfortunately meager, regulatory provisions of government "bailout" money. Of course they want that. If you asked a business person if they would rather have a bunch of money free and clear, or the same amount with a bunch of political bullshit, regulation, and rules attached... Which would you pick?
The money is the same, either way. Potentially, there's more money in the bailout, immediately. Tax cuts might be easier to make permanent, though, and that may have something to do with it. The point is that Thomas Sowell and the Republicans are spouting bullshit and demanding the Democrats stop spouting bullshit. There's no way of telling if the Democratic stimulus package will work, yet.
Finally, there is some indication that the Republican stimulus plans, i.e. more tax cuts, don't work. Huh? Look at the last few years. Bush loved his tax cuts, and look where we're at. I'm not saying that tax cuts put us in this situation, but I am saying they didn't help. The last round of tax cuts barely stimulated the economy during the third quarter. Most people kept the money and saved it, a strategy that proved to be very wise indeed.
Infrastructure is a good investment. It's possible that there are better investments; but I haven't seen any. I've seen some data that claims there are equally good investments; but there's a problem not being addressed with those few I've seen. Ignoring recent data on tax cuts, they do seem potentially capable of helping. But they don't help nearly as many people.
According to Maude Barlow, the top 200 corporations control the same amount of wealth as the bottom 2/3s of people. That's 4,290,000,000 people. Infrastructure, like internet access, roads, electrical grids, etc etc, has been shown to disproportionately help the poor, while tax cuts help the rich. How? If you pay 10% of 20,000 (the federal poverty level as of a couple years ago) you're not gonna get the same benefit of a 2% tax break as someone who pays 15% of a billion. But if it only takes you 15 minutes to get to work, instead of 30 minutes, it means less gas and gas money isn't as big a problem if you make $200,000/year.
[An Aside: I use the driving example because of I-565, that "Lake of Asphalt" some of you may have heard about on NPR about a week ago. My mother's commute was cut in half when it was completed. There are those who would say 15 minutes of time for Bill Gates is worth more than 15 minutes of {anyone else}'s time. That's a good argument; except that it ignores the real world situation of gas. In reality, $20 a week in extra gas doesn't mean much to Bill Gates; but it can mean a very very modest retirement savings for someone who was otherwise living paycheck to paycheck. Again, in reality, it probably wouldn't get used solely for savings; but the point remains.]
Keynesian Economics is the real point that is being argued. It's got it's problems. However, so does every other system. The fact of the matter is that Keynesian economic strategies, or maybe just the ones I've heard, seem to benefit the poor more than the rich. In fact, they don't seem like they really help the rich. That was- in a way- Keynes's point, from what I understand. Should the government be in the business of "redistributing the wealth"? No, but if money needs to be spent- tax cuts are expenditures, just like infrastructure- I think it should be spent to help the poor more than the rich. This is a biased viewpoint; but it's not one I'm likely to ever change, regardless of my personal financial situation.
There's a balance that can be reached between helping the poorest and not seriously injuring the richest. It's just hard to reach that point when people are willing to lie, or "misstate" the "facts", to advance their viewpoint. Legislating morality is a dangerous game, and one I'm very opposed to; which is why I don't think we should legislate against greed or self-interest. What I do think, is that we should have a democracy that supports the majority, and the vast majority of people are poor.
Read More...
Tuesday, December 16, 2008
Mallard Fillmore, the Right, and the Prius.
I thought Mallard Fillmore was a political commentary comic strip; recently, I've been reminded it is a right-wing political commentary comic strip. Obvious political bias, especially when it's lame ass rehashings of party talking points from months ago- like today's strip in The Huntsville Times, in which Obama is lambasted for kicking a reporter off his plane during the campaign. Have we forgotten that kicking reporters off planes is somewhat standard practice? Have we forgotten that Bush did it, Clinton did it, McCain did it, and others have surely done it? Generally, though, it irritates me to see anyone lambasting the president-elect for things he should/shouldn't/could do once he's the President. It's childish, it's counting the chickens before the baskets hatch from the eggs, and it's stupid. Let the motherfucker fuck up before we roast his ass. Why artificially concoct bullshit, now? How many infallible politicians do we have in this country that so many people are scared if they don't constantly throw mud there will come a time when mud throwing isn't allowed/wanted?
The Right of US's political divide has been pissing me off, more than usual, lately. First, the talking heads that squawk on and on about how "this recession isn't any worse than any before it", or how "[some financial thing] doesn't need to be further regulated", or how other countries are blaming the US, entirely, for the current world woes. That last isn't a "right-wing" thing per se, but it fits in the general theme, and that's good enough for me. (Though, I'll deal with it separately later). First, the average length of a Recession since WWII: 8-10 months. Current length of this Recession: 12 months, and counting. Last time we were in a recession that lasted this long? Either the early 90s or the early 80s depending on if you take into account "depth" and to whom you listen.
Once again, this world wide problem came about in a number of ways. Partly, the US economy has been bolstered over the last 5-8 years by debt, as has most of the world's economy. In fact, modern economics is the manipulation of debt- in a very real way. There was a huge glut of global money looking for a place to be invested. The first place it found was gas. Oil always goes up, just like the value of a house, or so the wisdom went. The only negative had been how slow those rising values happened, but the global pool of money didn't want risk, so slow growth was seen as the perfect solution. This led to rising fuel costs as futures were invested in, and demand from the emerging economies of China, Brazil and Russia far outpaced supply. Investment + Demand = Skyrocketing Oil value.
At the same time, two things were happening in the financial sectors of the US, the UK, and several other countries with large, valuable, housing markets. First, growth was steady and rising, and seen as reliable and safe. Second, Credit Default Swaps- unregulated, non-transparent, financial instruments handled exclusively by large financial institutions- became a source of speculation, instead of a sort of insurance policy on low risk bonds. Technically, these things happened first, as they started in the late 90s and early 00s; but the problems snowballed when fuel costs ran rampant.
The financial obligations of CDS's spread risk, and investment in debt, over huge swaths of the financial industry, by linking bond payouts. A Credit Default Swap being an obligation to pay out on a company's bond if that company should default- these were then "netted", causing there to be (basically) 50-60 trillion US$ of obligated insurance on 5 trillion US$ worth of bonds. Bonds, CDS's, fuel futures, all of it is betting on debt, and the repayment of that debt.
The housing market was primed for some of that huge pool of global money. It was already seeing returns from oil futures, and experts understood that those returns were going to slack off as gas prices climbed higher, causing consumers to cut back. In other words, the growth of that sector was forecast to plateau. This made investors hungry for more of the overwhelming growth they had been experiencing and grown accustomed to; and the only other market with slow steady growth was housing.
The problem with housing was that it grew based on the debt in the system. When a homebuyer gets a loan, his debt enters the system as a mortgage, and can be bought up. Bundle a bunch of those debts together and it's a Mortgage Backed Security- another financial instrument, like a bond or CDL, and like them based solely on debt. Mortgages default on a regular basis, always have. If each person had a base 10% chance to default, bundled mortgages of 10 people had a 100% chance that one of them would go bad. But the other 9 wouldn't, statistically. That's safer than buying one mortgage, where if it goes bad your investment is shot. It's even safer to buy up 1,000 where 100 will probably go bad, but 900 will make their payments back to you.
Seems simple and straight forward, right?
The problem was lack of consumer protections. Think about this: according to the Bell Curve, if you're above the median intellect (and if you're reading this, it's a safe assumption that statement is true) the majority of people are dumber than you. That's understandable, of course, you encounter many morons in your day-to-day. The additional fact is, though, that someone dumber than you, but also above median, is smarter than the majority of people. Imagine that guy or gal, and then imagine the person behind him. Call that person "X".
The banks knew they could make large profits off bundling mortgage loans together and "selling" them to investors. The more loans they made, the more bundles they could sell. Lawmakers, at the time, knew such deals would improve the economy, and in times of plenty those in power stay there. Lawmakers encouraged the businesses; and the Businesses, not really needing encouragement to make every cent they could, happily ran full steam ahead. Banks gave out more and more loans, ignoring previously held economic principles on "acceptable risk". Meanwhile, they were also obligated to pay off potential debts, through CDSs.
Our freindly dumbass "X" gets told that it doesn't matter how much he makes, what his credit history is, he can "HAVE THE AMERICAN DREAM!" and own a house. "X" is also being told, by popular entertainment, it's easy to "flip a house" and make some quick cash. "X" knows he's smarter than most- who isn't? - and he goes to his bank. The Bank doesn't check his credit history, they don't check his employment history, they give him a mortgage and sell it down the line before "X" has left the building. "X" has seen on the paper how his payment is only $500/mo, whereas his apartment payment was $550/mo (he lived in the cheapo roach infested shit apartments). He goes to his nice house, makes the payments for a month or two, and then something happens. His variable rate mortgage causes his interest rate to adjust higher and his payment to go up to $550/mo. Well, he managed that before, and he can do it again- but gas is up to $3 a gallon from $2 a gallon when he lived in his apartment. He's paying bills late, but still paying, then the rate jumps again and he's paying $600/mo and gas is at $4/gal and projected to hit $5/gal soon. He starts missing payments. The rate goes up "X" gets more and more behind and forecloses because he was fooled and a fool. When he bought the house, he could pay for it; and the Bank man assured him the rate wouldn't adjust for a year or two or more and it wouldn't adjust by much. Unfortunately, it adjusted twice in six months and adjusted by more than a point each time.
So now, the default rate is 20% instead of 10%. That hurts, and causes some companies to issue more bonds to cover immediate cash needs, but everything is stable. The lenders have already lent to everyone remotely worth lending. The Housing market follows oil and plateaus. Except, the lenders haven't stopped lending. The stupid people agree to loans they couldn't POSSIBLY afford; and the greedy businesses continue to make more loans and sell them to global investors because they can pull in hundreds of thousands (instead of hundreds of millions, but still good money, right? Right? RIGHT!?! AMIRITE!!111). Finally, one too many people default.
A solid company, invested in low risk markets like oil and housing starts to issue more bonds to cover some of its debt. Those bonds get insured by CDSs and those CDSs are covered by further CDSs. The solid company becomes shaky, more bonds, fewer CDSs- but more profitable for CDS speculators (so long as the compnay doesn't collapse, and it's been stable for 200 years, it would NEVER coll...). One too many defaults and the company collapses inside 6 months of being stable. Now those CDSs come up.
The company that went under had CDSs on some other companies. Some of those companies, less historically firm, have hit their one too many mark and crashed as well. Now, CDSs are being called in. The money isn't there. Yadda Yadda Yadda, Today.
That's where we find ourselves, and there's a single simple perpetrator. A slimy, greasy, suspect, motherfucker, who deserves nothing but our contempt, our hatred, and our rage. The perpetrator is: Damn-near-every-fucking-body. Greedy Businesses, Stupid and Greedy People, Government Regulators, Politicians, Banks, Investors, everybody. It's not a US problem, it's not a Europe Problem. It's a World Market Problem. The reason it's a World Market Problem, is because- and correct me if I'm wrong- WE'RE A GLOBAL ECONOMY! Everyone's business is intertwined with everyone else's. If shit goes south in Japan in the 90s, it hurts us here, if it hurts us, it hurts Europe, if it hurts Europe it hurts Asia, guess where Japan is? Asia, a part of the world you MAY have heard of...
The Prius has taken a hit- one down, now if iAnything would be shown, conclusively, to cause ovaries development in men and cancer in anyone with ovaries I'd be able to smile once in a while. November sales for the Prius have dropped 48%, according to Toyota. Everyone's blaming the dramatic fall in gas prices from $4/gal back to ~$1.60/gal. Uhm... I have a thought on this... could it be... maybe.. that we're in a RECESSION? Could it be that people are losing their jobs, scared of losing their jobs, still nervous from how $4/gal gas came outta nowhere [Mention Peak Oil and I'll hunt you down, remove your sexual characteristics with a rusty spoon, and force you to watch Maddow, or O'Reilly, while listening to "It's a small world" on infinite loop.], hurt from the loss of 50% of their retirement plan's value, and in a million other ways not buying $40k cars? Show me 1 single car over, let's say $20k that hasn't seen a drop from last year. I'd bet, you can't. And I'd bet that the more expensive the car, the bigger the drop in sales. Gas being "cheap", if it has ANYTHING to do with it, is probably not responsible for more than 3% of the decline, I'd bet. (Complete supposition there, based on how "environmentally" conscious everyone got when they could afford to be................. ahem........) . . . . . .................. . . ................. . . . . . . . . . . . . . ...
Right.
One last thing: Nade-off-with-the-money. First off, Jewish people who say they have it rough in Florida should be forced to have it exactly as rough as they try to say. Secondly, British Cry Babies who boo-hoo American Regulation should try and think before they speak. American Regulators fucked up, they were warned about this douche bag a couple times, sure. Yet, I keep coming abck tot eh NPR interview I heard with a money manager who had decided not to invest with the guy. The Manager said if the person controlling the money isn't willing to tell us how he's making his profits, we're not willing to trust him with our money. He also said that consistent 1% monthly growth was unreasonable. In other words, He said "We use common fucking sense, and so we didn't get burned by this shithead." The fact that the guy is Jewish and a lot of Jewish investors and Charities got swindled, that means nothing. He didn't target them for being Jewish, he's a fucking criminal and saw a mark.
The thing that should be talked about, isn't the 50 billion he screwed people out of, it's how extremely rare is such a con-job. A year ago in France, this same sorta fraud happened for $7 billion. One person was saying that this wouldn't be the last fraud. Hedge Funds are, like the CDSs that spread the financial crises out from US housing and across markets/the world, sorely lacking in regulations.
"But regulation is bad."
The regulations I am a HUGE proponent of, are TRANSPARENCY and DISCLOSURE. You want a free market? Okay, open your books. Your system of correctly guessing isn't a trade secret. It's a system of guessing. Research can make the guessing more accurate, more likely to make money; but it's still guessing. Fuck you, show us EVERYTHING.
And that goes for all financial EVERYTHINGS. Show us the money. Where is it? Who is promised to? How's it being made? Account for where it is currently!
Accountability, Transparency, Disclosure. If they don't have them, don't do business with 'em. And you, Jewish or Gentile, won't get bilked. Read More...
The Right of US's political divide has been pissing me off, more than usual, lately. First, the talking heads that squawk on and on about how "this recession isn't any worse than any before it", or how "[some financial thing] doesn't need to be further regulated", or how other countries are blaming the US, entirely, for the current world woes. That last isn't a "right-wing" thing per se, but it fits in the general theme, and that's good enough for me. (Though, I'll deal with it separately later). First, the average length of a Recession since WWII: 8-10 months. Current length of this Recession: 12 months, and counting. Last time we were in a recession that lasted this long? Either the early 90s or the early 80s depending on if you take into account "depth" and to whom you listen.
Once again, this world wide problem came about in a number of ways. Partly, the US economy has been bolstered over the last 5-8 years by debt, as has most of the world's economy. In fact, modern economics is the manipulation of debt- in a very real way. There was a huge glut of global money looking for a place to be invested. The first place it found was gas. Oil always goes up, just like the value of a house, or so the wisdom went. The only negative had been how slow those rising values happened, but the global pool of money didn't want risk, so slow growth was seen as the perfect solution. This led to rising fuel costs as futures were invested in, and demand from the emerging economies of China, Brazil and Russia far outpaced supply. Investment + Demand = Skyrocketing Oil value.
At the same time, two things were happening in the financial sectors of the US, the UK, and several other countries with large, valuable, housing markets. First, growth was steady and rising, and seen as reliable and safe. Second, Credit Default Swaps- unregulated, non-transparent, financial instruments handled exclusively by large financial institutions- became a source of speculation, instead of a sort of insurance policy on low risk bonds. Technically, these things happened first, as they started in the late 90s and early 00s; but the problems snowballed when fuel costs ran rampant.
The financial obligations of CDS's spread risk, and investment in debt, over huge swaths of the financial industry, by linking bond payouts. A Credit Default Swap being an obligation to pay out on a company's bond if that company should default- these were then "netted", causing there to be (basically) 50-60 trillion US$ of obligated insurance on 5 trillion US$ worth of bonds. Bonds, CDS's, fuel futures, all of it is betting on debt, and the repayment of that debt.
The housing market was primed for some of that huge pool of global money. It was already seeing returns from oil futures, and experts understood that those returns were going to slack off as gas prices climbed higher, causing consumers to cut back. In other words, the growth of that sector was forecast to plateau. This made investors hungry for more of the overwhelming growth they had been experiencing and grown accustomed to; and the only other market with slow steady growth was housing.
The problem with housing was that it grew based on the debt in the system. When a homebuyer gets a loan, his debt enters the system as a mortgage, and can be bought up. Bundle a bunch of those debts together and it's a Mortgage Backed Security- another financial instrument, like a bond or CDL, and like them based solely on debt. Mortgages default on a regular basis, always have. If each person had a base 10% chance to default, bundled mortgages of 10 people had a 100% chance that one of them would go bad. But the other 9 wouldn't, statistically. That's safer than buying one mortgage, where if it goes bad your investment is shot. It's even safer to buy up 1,000 where 100 will probably go bad, but 900 will make their payments back to you.
Seems simple and straight forward, right?
The problem was lack of consumer protections. Think about this: according to the Bell Curve, if you're above the median intellect (and if you're reading this, it's a safe assumption that statement is true) the majority of people are dumber than you. That's understandable, of course, you encounter many morons in your day-to-day. The additional fact is, though, that someone dumber than you, but also above median, is smarter than the majority of people. Imagine that guy or gal, and then imagine the person behind him. Call that person "X".
The banks knew they could make large profits off bundling mortgage loans together and "selling" them to investors. The more loans they made, the more bundles they could sell. Lawmakers, at the time, knew such deals would improve the economy, and in times of plenty those in power stay there. Lawmakers encouraged the businesses; and the Businesses, not really needing encouragement to make every cent they could, happily ran full steam ahead. Banks gave out more and more loans, ignoring previously held economic principles on "acceptable risk". Meanwhile, they were also obligated to pay off potential debts, through CDSs.
Our freindly dumbass "X" gets told that it doesn't matter how much he makes, what his credit history is, he can "HAVE THE AMERICAN DREAM!" and own a house. "X" is also being told, by popular entertainment, it's easy to "flip a house" and make some quick cash. "X" knows he's smarter than most- who isn't? - and he goes to his bank. The Bank doesn't check his credit history, they don't check his employment history, they give him a mortgage and sell it down the line before "X" has left the building. "X" has seen on the paper how his payment is only $500/mo, whereas his apartment payment was $550/mo (he lived in the cheapo roach infested shit apartments). He goes to his nice house, makes the payments for a month or two, and then something happens. His variable rate mortgage causes his interest rate to adjust higher and his payment to go up to $550/mo. Well, he managed that before, and he can do it again- but gas is up to $3 a gallon from $2 a gallon when he lived in his apartment. He's paying bills late, but still paying, then the rate jumps again and he's paying $600/mo and gas is at $4/gal and projected to hit $5/gal soon. He starts missing payments. The rate goes up "X" gets more and more behind and forecloses because he was fooled and a fool. When he bought the house, he could pay for it; and the Bank man assured him the rate wouldn't adjust for a year or two or more and it wouldn't adjust by much. Unfortunately, it adjusted twice in six months and adjusted by more than a point each time.
So now, the default rate is 20% instead of 10%. That hurts, and causes some companies to issue more bonds to cover immediate cash needs, but everything is stable. The lenders have already lent to everyone remotely worth lending. The Housing market follows oil and plateaus. Except, the lenders haven't stopped lending. The stupid people agree to loans they couldn't POSSIBLY afford; and the greedy businesses continue to make more loans and sell them to global investors because they can pull in hundreds of thousands (instead of hundreds of millions, but still good money, right? Right? RIGHT!?! AMIRITE!!111). Finally, one too many people default.
A solid company, invested in low risk markets like oil and housing starts to issue more bonds to cover some of its debt. Those bonds get insured by CDSs and those CDSs are covered by further CDSs. The solid company becomes shaky, more bonds, fewer CDSs- but more profitable for CDS speculators (so long as the compnay doesn't collapse, and it's been stable for 200 years, it would NEVER coll...). One too many defaults and the company collapses inside 6 months of being stable. Now those CDSs come up.
The company that went under had CDSs on some other companies. Some of those companies, less historically firm, have hit their one too many mark and crashed as well. Now, CDSs are being called in. The money isn't there. Yadda Yadda Yadda, Today.
That's where we find ourselves, and there's a single simple perpetrator. A slimy, greasy, suspect, motherfucker, who deserves nothing but our contempt, our hatred, and our rage. The perpetrator is: Damn-near-every-fucking-body. Greedy Businesses, Stupid and Greedy People, Government Regulators, Politicians, Banks, Investors, everybody. It's not a US problem, it's not a Europe Problem. It's a World Market Problem. The reason it's a World Market Problem, is because- and correct me if I'm wrong- WE'RE A GLOBAL ECONOMY! Everyone's business is intertwined with everyone else's. If shit goes south in Japan in the 90s, it hurts us here, if it hurts us, it hurts Europe, if it hurts Europe it hurts Asia, guess where Japan is? Asia, a part of the world you MAY have heard of...
The Prius has taken a hit- one down, now if iAnything would be shown, conclusively, to cause ovaries development in men and cancer in anyone with ovaries I'd be able to smile once in a while. November sales for the Prius have dropped 48%, according to Toyota. Everyone's blaming the dramatic fall in gas prices from $4/gal back to ~$1.60/gal. Uhm... I have a thought on this... could it be... maybe.. that we're in a RECESSION? Could it be that people are losing their jobs, scared of losing their jobs, still nervous from how $4/gal gas came outta nowhere [Mention Peak Oil and I'll hunt you down, remove your sexual characteristics with a rusty spoon, and force you to watch Maddow, or O'Reilly, while listening to "It's a small world" on infinite loop.], hurt from the loss of 50% of their retirement plan's value, and in a million other ways not buying $40k cars? Show me 1 single car over, let's say $20k that hasn't seen a drop from last year. I'd bet, you can't. And I'd bet that the more expensive the car, the bigger the drop in sales. Gas being "cheap", if it has ANYTHING to do with it, is probably not responsible for more than 3% of the decline, I'd bet. (Complete supposition there, based on how "environmentally" conscious everyone got when they could afford to be................. ahem........) . . . . . .................. . . ................. . . . . . . . . . . . . . ...
Right.
One last thing: Nade-off-with-the-money. First off, Jewish people who say they have it rough in Florida should be forced to have it exactly as rough as they try to say. Secondly, British Cry Babies who boo-hoo American Regulation should try and think before they speak. American Regulators fucked up, they were warned about this douche bag a couple times, sure. Yet, I keep coming abck tot eh NPR interview I heard with a money manager who had decided not to invest with the guy. The Manager said if the person controlling the money isn't willing to tell us how he's making his profits, we're not willing to trust him with our money. He also said that consistent 1% monthly growth was unreasonable. In other words, He said "We use common fucking sense, and so we didn't get burned by this shithead." The fact that the guy is Jewish and a lot of Jewish investors and Charities got swindled, that means nothing. He didn't target them for being Jewish, he's a fucking criminal and saw a mark.
The thing that should be talked about, isn't the 50 billion he screwed people out of, it's how extremely rare is such a con-job. A year ago in France, this same sorta fraud happened for $7 billion. One person was saying that this wouldn't be the last fraud. Hedge Funds are, like the CDSs that spread the financial crises out from US housing and across markets/the world, sorely lacking in regulations.
"But regulation is bad."
The regulations I am a HUGE proponent of, are TRANSPARENCY and DISCLOSURE. You want a free market? Okay, open your books. Your system of correctly guessing isn't a trade secret. It's a system of guessing. Research can make the guessing more accurate, more likely to make money; but it's still guessing. Fuck you, show us EVERYTHING.
And that goes for all financial EVERYTHINGS. Show us the money. Where is it? Who is promised to? How's it being made? Account for where it is currently!
Accountability, Transparency, Disclosure. If they don't have them, don't do business with 'em. And you, Jewish or Gentile, won't get bilked. Read More...
Thursday, November 20, 2008
Transparency
Capitalism doesn't work without Transparency. Don't believe me? Go read up. I'll let you read whoever you want. Go ahead, I'll wait...
Done?
Didn't do it, did you? Lazy fuck.
Here's the gist: No one will say that lying, obfuscation, and bullshitting is good for capitalism and the free market. The only time anyone gets close to saying that is when they have an agenda- like transparency hurting their bottom line. That's when you hear things like "Sausages and Laws". (The idea being both are such horrible things to make that no one should be forced to know what goes into them.)
And, to be fair, I'm not- always- talking about knowing 100% about how something is made. Though, current research into things like Creative Commons, GNU, and Open-Source strategies are showing that 100% transparency is viable.
Let's start over.
The Financial Crisis is wholly due to a lack of transparency in a number of systems. The Arcane Economics of Banking meant that no one outside the industry- and few inside- could understand what was happening. More to the point, the absolute lack of transparency involved with Credit Default Swaps spread the housing collapse into almost every other sector of the world and the economy.
Banks were allowed to make these Swaps with each other, and no one (including the banks making the swaps) knew or had to be told ANYTHING!
Pork belly projects, signing statements, and line item vetoes along with energy strategy meetings, White House leaks of covert CIA personnel, etc etc
Neither Democracy nor the Free Market work well without informed consumers. The voters are the consumers of the government. Back door deals, bribery, extortion, no-bid contracts, all of these things can happen easily when no one has the power or ability to see what's happening. And all of them become infinitely harder when everyone can see everything.
Banks would have never been allowed to take out 60 trillion worth of Credit Default Swaps on 5 trillion worth of bonds if the public would have been aware of what was going on.
Take your favorite government scandal or screw-up and imagine if everything that your elected officials did was available for the purview of the constituency.
Are there times in government when transparency is a potential risk? National Security, for instance?
Sure, I'll grant that- though I'm sure arguments can be made against the idea. So maybe government needs some protections; but I'd challenge any libertarian to show that "smaller government" or "closer government" is significantly better than "open" or "transparent" government.
Consumers must be allowed to make informed decisions. Not because they all will; but because some will, and those few will influence a few more and a few more and a few more, until there's a critical mass. When was the last time a company tanked because they did something out in the open that everyone could see? Enron? Nope. Worldcom? Nope. The Banks? Nope. All of 'em were hiding things behind closed doors.
Imagine if you weren't allowed to see the price of a beverage.
Imagine if you knew purchasing a beverage would cost 2 $US, but you had no idea how much of that was the actual price, and how much was markup/taxes/whatever.
Imagine you were hired but the company you worked for didn't have to tell you how much you were making. Imagine they just said "We'll pay you enough for room, board, and a vehicular allowance." Is that millions for a benz, mansion, and caviar, or hundreds for an economy apartment, some ramen, and the occasional taxi?
Transparency is a must.
I suggest we convey that to our legislatures, our judges, and our businesses. If the current economic problems aren't enough incentive, I have no idea what would be... Read More...
Done?
Didn't do it, did you? Lazy fuck.
Here's the gist: No one will say that lying, obfuscation, and bullshitting is good for capitalism and the free market. The only time anyone gets close to saying that is when they have an agenda- like transparency hurting their bottom line. That's when you hear things like "Sausages and Laws". (The idea being both are such horrible things to make that no one should be forced to know what goes into them.)
And, to be fair, I'm not- always- talking about knowing 100% about how something is made. Though, current research into things like Creative Commons, GNU, and Open-Source strategies are showing that 100% transparency is viable.
Let's start over.
The Financial Crisis is wholly due to a lack of transparency in a number of systems. The Arcane Economics of Banking meant that no one outside the industry- and few inside- could understand what was happening. More to the point, the absolute lack of transparency involved with Credit Default Swaps spread the housing collapse into almost every other sector of the world and the economy.
Banks were allowed to make these Swaps with each other, and no one (including the banks making the swaps) knew or had to be told ANYTHING!
Pork belly projects, signing statements, and line item vetoes along with energy strategy meetings, White House leaks of covert CIA personnel, etc etc
Neither Democracy nor the Free Market work well without informed consumers. The voters are the consumers of the government. Back door deals, bribery, extortion, no-bid contracts, all of these things can happen easily when no one has the power or ability to see what's happening. And all of them become infinitely harder when everyone can see everything.
Banks would have never been allowed to take out 60 trillion worth of Credit Default Swaps on 5 trillion worth of bonds if the public would have been aware of what was going on.
Take your favorite government scandal or screw-up and imagine if everything that your elected officials did was available for the purview of the constituency.
Are there times in government when transparency is a potential risk? National Security, for instance?
Sure, I'll grant that- though I'm sure arguments can be made against the idea. So maybe government needs some protections; but I'd challenge any libertarian to show that "smaller government" or "closer government" is significantly better than "open" or "transparent" government.
Consumers must be allowed to make informed decisions. Not because they all will; but because some will, and those few will influence a few more and a few more and a few more, until there's a critical mass. When was the last time a company tanked because they did something out in the open that everyone could see? Enron? Nope. Worldcom? Nope. The Banks? Nope. All of 'em were hiding things behind closed doors.
Imagine if you weren't allowed to see the price of a beverage.
Imagine if you knew purchasing a beverage would cost 2 $US, but you had no idea how much of that was the actual price, and how much was markup/taxes/whatever.
Imagine you were hired but the company you worked for didn't have to tell you how much you were making. Imagine they just said "We'll pay you enough for room, board, and a vehicular allowance." Is that millions for a benz, mansion, and caviar, or hundreds for an economy apartment, some ramen, and the occasional taxi?
Transparency is a must.
I suggest we convey that to our legislatures, our judges, and our businesses. If the current economic problems aren't enough incentive, I have no idea what would be... Read More...
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