I believe it is also "Vive le Canada," too.
Thank you for your response.
Any Canadians/Canadiens?
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First, it would be nice if you could stay polite even if you don't agree with something. I hope it's not because we just outed you from the world cup?I was simply stating fact as I see it. The point is silly. It remains silly. Nothing like that has ever happened, so why pretend that it has.End of game for me. I'm glad you edited it, but the first version of your post was downright rude and insulting.
You should learn to behave if you want to discuss on forums. I don't give much credit to your Chicago school mantras, but at least I don't call you a moron and an hypocrite.
No, but you got close.
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I have no idea why Quebec is masculine. I do know that it means "where the river goes narrow" in algonquin.
Narrow Urethra. Question answered.
I'd say it's worse than that. The bankers didn't care if they got bailed out. If the risky deals net you millions in bonuses this quarter they're worth it, even if the bank collapses when the bubble bursts, you've still got the millions you made.
Good point. When I'm being semi rational i keep forgetting just how sociopathic these guys are.
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I'd say it's worse than that. The bankers didn't care if they got bailed out. If the risky deals net you millions in bonuses this quarter they're worth it, even if the bank collapses when the bubble bursts, you've still got the millions you made.Good point. When I'm being semi rational i keep forgetting just how sociopathic these guys are.
Ah, so we've solved the problem. It's the bad people.
Thanks, I realise I was wrong now.
You think the problem is that the bankers thought they'd be bailed out because they're over-regulated and that has some vague psychological cause and effect. I think the bankers though they'd be bailed out because they've got the politicians on their payroll.I'd say it's worse than that. The bankers didn't care if they got bailed out. If the risky deals net you millions in bonuses this quarter they're worth it, even if the bank collapses when the bubble bursts, you've still got the millions you made.
That that banks got bailed out was nice and predictable. It means you can run the scam again. But it's still better on an individual to run the scam once and walk away with the millions than to play it safe and keep the company going, but make much less money.I'd also say that the term you're talking around in the rest of the discussion is Trade deficit.
True. The fact that the state of the company when a CEO leaves does not affect their severance package is an interesting exploit.
Run a company into the ground, and then in order to get rid of you they are forced to pay you millions. How do you get such a cushy job? Bribe people who are supposed to look after stock holder interests into convincing the stock holders that you are amasing and worth rediculous ammounts of money.
Well, if youre going to interpret it that way, you should include 'contribution' to the list...
Your inference of correlation perfectly illustrates the entire problem. Thank you.
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No. It's a system that rewards the bad behavior.
...both fiscally, and by consistently promoting people who engage in bad behavior to positions of greater power and authority.
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I believe it is also "Vive le Canada," too.
Thank you for your response.
Any Canadians/Canadiens?
Countries that end in e are feminine, countries that don't are all masculine, so le Canada and la France. The provinces are a bit more random, but Quebec is masculine.
except for:
le Belize
le Cambodge
le Mexique
le Mozambique
le Zaïre
le Zimbabwe
No, but you got close.End of game for me. I'm glad you edited it, but the first version of your post was downright rude and insulting.
You should learn to behave if you want to discuss on forums. I don't give much credit to your Chicago school mantras, but at least I don't call you a moron and an hypocrite.
Interesting. So you have openly been rude because you felt I was "close" to insulting you.
What is your excuse for insulting BigNorseWolf?
What is your excuse for insulting BigNorseWolf?
Wait.. people need one?
Well, if youre going to interpret it that way, you should include 'contribution' to the list...Your inference of correlation perfectly illustrates the entire problem. Thank you.
It does, sadly.
What is your excuse for insulting BigNorseWolf?Wait.. people need one?
It depends. Are you in the finance business?
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No, but you got close.End of game for me. I'm glad you edited it, but the first version of your post was downright rude and insulting.
You should learn to behave if you want to discuss on forums. I don't give much credit to your Chicago school mantras, but at least I don't call you a moron and an hypocrite.
Interesting. So you have openly been rude because you felt I was "close" to insulting you.
What is your excuse for insulting BigNorseWolf?
I thought we weren't talking.
No. First, BNW: I didn't insult him. I said his idea was silly. There is a difference between him (who as far as I can tell has good intentions) and his ideas (which I consider would be destructive). I inadvertantly upset him by giving him the impression he didn't care about kids on the receiving end of pollution, but my point was more that environmental policies imposed on trading partners can be used as trade protection. But again, it was his idea, not him, I had the issue with, but he took it personally instead. I mean, I'm not broken up about it, but it is a shame because it has coloured the tone of our converssation.
You then said I was insulting him and gave me some lecture about being nice. However, you then went ahead and made assumptions about me
If you want to sink while singing a tory anthem glorifying the invisible hand, well it's your funeral.
in the same post as you tell me not to be rude. That was about me and not about anything I was saying, and a crude stereotype to boot. So yeah, I called you a hypocrite. Get over it, because it's true.
Plus, if you can't defend yourself against the word "silly" without having a hissy fit, you are unlikely to change the world much.
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It depends. Are you in the finance business?What is your excuse for insulting BigNorseWolf?Wait.. people need one?
Yes - I'm a banking regulator. So perhaps when I suggest that regulation is a problem, you might actually think I know something about it. I've seen it in all its glory close-to.
And I'm not so sure Glass-Steagall would have had much impact anyway - most US broker-dealers had banks in non-US jurisdictions anyway even before it was repealed. And it was a more complicated than the division of investment banking and lending - after all, banks and broker-dealers were both affected when it came to it, so separating them out doesn't seem like it would have solved much. The real culprit was securitisation markets, which were dimly understood. I doubt Glass-Steagall mentioned them, since they didn't exist then.
So, you're arguing the problem is more elusive than HR 1489 ("RETURN TO PRUDENT BANKING ACT") can handle?
Yeah - but we are talking again about highly regulated industries: the financial sector. They are not an example of a freely competitive industry. I agree it is a scandal that this was allowed to happen. But the banks ran with insufficient capital for the risks they were taking. A significant reason for the massive bonuses in the banking sector (and note, this is only a for a few, not all or even most people working in banks) is because they got away with taking inappropriate risks in the expectation the state would bail them out. In other words, regulation can breed complacency. I think suggesting that the failure of the banks is a failure of the free market seriously fails to get a grip on all of the ways the state was involved in banking. At a certain level it makes sense for the state to keep an eye on banks, because of the central role they have in shifting money between depositors and borrowers and promoting growth. But arguably it has not been done the right way.
I am curious how you would choose to regulate it. If the current regulations breed complacency, are they the wrong regulations, or insufficient regulations? Would HR 1489 be insufficient? What would be sufficient or right?
Yes - I'm a banking regulator. So perhaps when I suggest that regulation is a problem, you might actually think I know something about it. I've seen it in all its glory close-to.It depends. Are you in the finance business?What is your excuse for insulting BigNorseWolf?Wait.. people need one?
Oh my. Then you are a banking regulator who is ideologically opposed to the regulation of banks. I think that we have just found out the root of our woes... (Here, I'm really kidding you. Don't bother, just keep on ignoring me and my arguments).
It's a shame, because you just nicely justified yourself, but calling "silly" other people arguments without bothering to justify your claims is still rude and dismissive, even in Great Britain. (exact quote: "The point is silly. It remains silly. Nothing like that has ever happened, so why pretend that it has.")
Western countries manufacturing jobs DO go overseas, to countries with lower wages, lower safety rules, lower regulations, lower everything. They are not vanishing in thin air because of "progress", or evolution to a "strong service economy". The evidence is so overwhelming that if you don't see the writing on the wall, well you probably don't live on the same planet than us and continuing this argument is pretty pointless (who knew that Internet extended to other galaxies?)
You know, you sound like a economical textbook (from a Chicago line of thought). Alas, the economy isn't a theoretical model existing in a void. It's affecting people, and is closely related to political matters. Less regulation means more scams and investment bubbles. More long term unemployment means unrest, which is bad if we want to maintain a democratic regime. The only country where regulation-free, pure Chicago-school economics ever worked is Pinochet's Chile : of course, when they "donwsized the workforce", they really meant it. Litterally, and permanently.
I thought we weren't talking.No, but you got close.End of game for me. I'm glad you edited it, but the first version of your post was downright rude and insulting.
You should learn to behave if you want to discuss on forums. I don't give much credit to your Chicago school mantras, but at least I don't call you a moron and an hypocrite.
Interesting. So you have openly been rude because you felt I was "close" to insulting you.
What is your excuse for insulting BigNorseWolf?
Who said that? As long as you are willing to keep from being insulting or dismissive, that's okay.
No. First, BNW: I didn't insult him. I said his idea was silly. There is a difference between him (who as far as I can tell has good intentions) and his ideas (which I consider would be destructive). I inadvertantly upset him by giving him the impression he didn't care about kids on the receiving end of pollution, but my point was more that environmental policies imposed on trading partners can be used as trade protection. But again, it was his idea, not him, I had the issue with, but he took it personally instead. I mean, I'm not broken up about it, but it is a shame because it has coloured the tone of our converssation.
You then said I was insulting him and gave me some lecture about being nice. However, you then went ahead and made assumptions about me
If you want to sink while singing a tory anthem glorifying the invisible hand, well it's your funeral.in the same post as you tell me not to be rude. That was about me and not about anything I was saying, and a crude stereotype to boot. So yeah, I called you a hypocrite. Get over it, because it's true.
Plus, if you can't defend yourself against the word "silly" without having a hissy fit, you are unlikely to change the world much.
I see your argument, but is has flaws.
First, when you call someone's ideas "silly" without bothering to explain yourself, this someone ALWAYS takes it personally. Smart people don't tell silly things, you know.
And your argument cuts both ways : it's your ideas that sounds like a "tory anthem". See how it feels convincing?
Pretending that there is an airtight barrier between insulting someone and dismissing rudely his ideas is, well, hypocritical? It's why the choice of words in an argument is important, especially on a Internet forum.
As for BNW, you were much more insulting to him than to me. I consider myself lucky in this instance. He reacted accordingly, then you clarified some points and ended the matter. Fine with me. Should do the same.
End of lecture.
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And I'm not so sure Glass-Steagall would have had much impact anyway - most US broker-dealers had banks in non-US jurisdictions anyway even before it was repealed. And it was a more complicated than the division of investment banking and lending - after all, banks and broker-dealers were both affected when it came to it, so separating them out doesn't seem like it would have solved much. The real culprit was securitisation markets, which were dimly understood. I doubt Glass-Steagall mentioned them, since they didn't exist then.So, you're arguing the problem is more elusive than HR 1489 ("RETURN TO PRUDENT BANKING ACT") can handle?
Yeah - but we are talking again about highly regulated industries: the financial sector. They are not an example of a freely competitive industry. I agree it is a scandal that this was allowed to happen. But the banks ran with insufficient capital for the risks they were taking. A significant reason for the massive bonuses in the banking sector (and note, this is only a for a few, not all or even most people working in banks) is because they got away with taking inappropriate risks in the expectation the state would bail them out. In other words, regulation can breed complacency. I think suggesting that the failure of the banks is a failure of the free market seriously fails to get a grip on all of the ways the state was involved in banking. At a certain level it makes sense for the state to keep an eye on banks, because of the central role they have in shifting money between depositors and borrowers and promoting growth. But arguably it has not been done the right way.I am curious how you would choose to regulate it. If the current regulations breed complacency, are they the wrong regulations, or insufficient regulations? Would HR 1489 be insufficient? What would be sufficient or right?
And I'm not so sure Glass-Steagall would have had much impact anyway - most US broker-dealers had banks in non-US jurisdictions anyway even before it was repealed. And it was a more complicated than the division of investment banking and lending - after all, banks and broker-dealers were both affected when it came to it, so separating them out doesn't seem like it would have solved much. The real culprit was securitisation markets, which were dimly understood. I doubt Glass-Steagall mentioned them, since they didn't exist then.So, you're arguing the problem is more elusive than HR 1489 ("RETURN TO PRUDENT BANKING ACT") can handle?
Yeah - but we are talking again about highly regulated industries: the financial sector. They are not an example of a freely competitive industry. I agree it is a scandal that this was allowed to happen. But the banks ran with insufficient capital for the risks they were taking. A significant reason for the massive bonuses in the banking sector (and note, this is only a for a few, not all or even most people working in banks) is because they got away with taking inappropriate risks in the expectation the state would bail them out. In other words, regulation can breed complacency. I think suggesting that the failure of the banks is a failure of the free market seriously fails to get a grip on all of the ways the state was involved in banking. At a certain level it makes sense for the state to keep an eye on banks, because of the central role they have in shifting money between depositors and borrowers and promoting growth. But arguably it has not been done the right way.I am curious how you would choose to regulate it. If the current regulations breed complacency, are they the wrong regulations, or insufficient regulations? Would HR 1489 be insufficient? What would be sufficient or right?
The issue is complicated, needless to say. Nor do I claim to have The Answer. But what it seems has been lacking from a lot of the discussion here is an appreciation of the issues currently faced. My comments above were less suggesting we abolish regulation 9at this juncture, I don’t think we can) but more to address the notion that it was “free markets” operating untrammelled that caused the mess, when in fact it was highly-cosseted firms doing their best to exploit the regulatory environment that caused a lot of it.
The problem is that banking is pretty central to a nation's economic management in the way that other industries aren't - the provision of credit in an economy is a driver of growth. Unfortunately, banks know this. The growth of the regulation industry (and it is an industry, with its own interests) has encouraged them in this. This issue is called "moral hazard" - basically, why should I, as a banker, worry too much about the risks I'm taking if the state will always bail me out. In the mean time, before everything gets blown wide open, I can hoover up cash through bonuses and then retire. Obviously, not quite everyone got to the doors in time, but a lot of people did. And the rest of us, as taxpayers, have to live with the results.
What that means in practice is that banks have been run on insufficient capital. Capital is basically the store of value a bank (or any other firm) puts aside to absorb losses. Another way of putting this is that banks were too highly leveraged - their ratio of loans to capital was too high. The reason bankers paid themselves so much money in the good time was, because they were so highly leveraged, they were taking big risks, and while those risks didn't materialise (or crystalise, as we say in the trade) they were able to cream off lots and lots of money. So the large bonuses were a factor of excessive risk-taking due to inflated balance sheets and excessive leverage, all encouraged by the expecation that banks would receive a bail-out if things went bad. Of course, most banks wouldn't have put it like that - they put it down to commercial accumen, and "talent". As far as I can tell, most traders who did well were just in the right place at the right time - luck, in other words.
This encouragement to recklessness came from a variety of sources:
1) The Greenspan Put
"Put" in this instance refers to a "put option", which is an option to sell. It refers to Greenspan dropping interest rates every time he thought the markets might be getting into trouble. He did this after the hedge fund LTCM blew up, because a lot of banks were financially connected to it. He did it again after the dot.com crash. Each time he did it because of concern that the markets might get into trouble. Interest rates are the price of money - the cheaper it is, the more people want it (like any good, in line with supply and demand). So people borrow and consume more, boosting the real economy. Also, interest rates more or less represent the cost of doing business for a bank: the borrow the money from depositors (paying interest) and lend it on to borrowers (receiving interest). Dropping interest rates reduces the cost of doing business for a bank. So Greenspan’s activities were a bit like having a free option to “put” your expensive funding for cheaper funding.
Of course, in the short term this was good for the economy. In the longer term, banks assumed the Fed would always be there for them, so they didn't properly manage their risks. They assumed the good times would always roll. And Greenspan over-stimulated the economy, leading to excessive borrowing in the real economy.
2) Regulation and regulators
Regulation basically tells banks what they can and can’t do. Needless to say, as profit-maximising entities, they spend a lot of time trying to wring every last penny they can from their activities, and to minimise the impacts of regulations on their profits.
However, regulations are only really as good as the people who draft them, who are, sadly, generally human and lacking omniscience. Most regulation, for example, deals with the previous crisis, not the one that is coming (the new regulations are no exception). Most regulation contains inadvertent loopholes, which the banks, with their highly paid lawyers and accountants, try to spot and exploit. And regulators are scared of doing unwitting damage to the financial services industry, and thereby damaging the broader economy, and so may sometimes (especially in good times) be inclined to soft-pedal. And, finally, there is regulatory arbitrage. As not all jurisdictions have the same regulations, banks will prefer to migrate (all other things being equal, which they normally aren’t) to jurisdictions with the lightest touch. So there is an element of a “chase to the bottom” as jurisdictions compete for business.
And there is also an information deficit. I used to work in internal audit, which is a bit like being an internal regulator paid by the firm. And a lot of the time we were kept in the dark. Now imagine you are a regulator, so you now don’t work for the firm. The information flow isn’t going to get any better. Firms prepare for visits by being prepped by consultants, normally former regulators, as to what questions they are likely to be asked, so that the regulators can be fobbed off more easily. I doubt too many firms would flat-out lie to us, but on the other hand we also need to ask the right questions. There are many very bright people working here, but unless they get the information they need, and indeed know what information they need, it doesn’t avail you much.
Now, with all the above, consider that how much capital a bank will hold is subject to regulations. Those regulations basically got it wrong – banks were operating within their regulatory requirements, but these were insufficient to deal with the crisis as it developed. So a bank can fairly put up its hands and say “We complied with all relevant regulations” and still be as bust as can be. And the regulators weren’t really able to penetrate behind the banks’ poor risk management processes and the dangers of their levels of leverage until it was too late. While there is a flurry of activity going on drafting new regulations, I’m not really convinced that they will really be much better than the old ones – much of it involves shutting stable doors than addressing emerging risk.
3) The housing market
I’m not American so some of the details are a bit hazy here. But fundamentally, too much was lent to borrowers of poor credit worth, and they couldn’t pay it back – the so-called sub-prime problem. I understand, though I cannot quote or give details, that there was legislation under Clinton to promote mortgage lending to poorer people. Laudable in and of itself, but the problem arises that the reason banks don’t generally lend to poorer people is that they don’t have the money to pay you back. Encouraging banks to lend to these sectors can lead to problems if you, as a bank, don’t manage your risk properly: for example, appropriate pricing to cover the risk of default – making credit more expensive for the poor, in other words, which slightly defeats the purpose, tight risk management and monitoring, and higher levels of capital to absorb the losses if and when they come. It would seem this didn’t happen.
To a large extent, this seems to be because a very lucrative side-industry sprang up to securitise mortgage assets: basically, putting those mortgages into “special purpose vehicles” (SPVs - trusts, basically), and issuing bonds to investors to pay for those mortgages. The cash flows from the mortgages would then cover the costs of the interest and principal payments on the bonds. This created a demand for mortgages which could be sold on into these SPVs. This suited borrowers, because the demand meant that lending standards were relaxed. It suited mortgage brokers, who made commission on the throughput. It suited investment banks, because they made fees on creating these structures. And it suited the investors, because they go AAA-rated assets that nevertheless yielded more than a comparable government bond. All watched over benignly by the regulators, who took the view (then) that securitisation meant that credit risk was diffused about the system, rather than being concentrated in banks.
Of course, once borrowers stopped paying their mortgages, it all began to fall apart. Because of the complex nature of these bonds, people couldn’t tell what was a good bond and what was a bad bond, so they assumed everything was bad. Because bonds were used for collateral for interbank borrowing, interbank credit began to dry up because banks wouldn’t accept collateral they couldn’t value. And the credit crunch began.
Standing in the middle of this were federal agencies: Fannie-Mae, Freddie-Mac and their ilk. Their role is to provide guarantees on mortgages, again in a state-sponsored bid to increase home ownership. This effectively took the responsibility for proper risk management away from those originating those mortgages and distorted the housing market. While technically not supported by a government guarantee, they assiduously courted politicians (including Messrs Dodd and Frank, interestingly) to make sure that they were not subject to proper scrutiny (their regulator barely existed as an organisation and was powerless to impact them, for example) and the markets assumed, and indeed priced their borrowings, on the basis that if they ran into trouble they would be bailed out. They also ran on wafer thin capital levels, despite taking massive risks (they effectively assumed the risk of default for millions of mortgages) which subsequently crystallised. Of course, they also managed to go bust, and were indeed bailed out by the tax-payer. Oddly, Dodd-Frank doesn’t actually impact Fannie and Freddie – I wonder why?
There are probably further examples (like depositor insurance) but this is already getting long enough. The point is, not much seems to have been done about quite a lot of the stuff above.
In terms of what to do about it, I said above I don’t think we can go back to a Hayekian fantasy without regulation. Banks will always turn around and come begging now when the going gets tough – they are used to it. And the collapse of Lehmans also shows that large firms are now much more interconnected than they were, between firms and across jurisdictions. And anyway, while this downturn has probably been exacerbated by regulatory folly, I don’t think that the fact that the economy turns down from time to time is necessarily avoidable.
What seems appropriate is for firms to hold much more capital than they currently do. Capital is basically shareholders’ interests in a firm. So, rather than showering money upon themselves, a lot more money would be required to pay shareholder to support the business (i.e. the cost of capital, as well as the amount, would go up). A lot of the stupid activities that went on towards the end of the boom wouldn’t even pay for themselves if a higher level of capital was required to support it, which would reduce recklessness and increase the resilience of banks. Some of this is already in train under Basel 3, a (currently draft) international agreement on how to manage banks capital and risks.
As for the legislation you mention above: that’s Dodd-Frank, right? I don’t know the details of that, but given that it is being translated into a truly colossal rules document I find it a little hard to believe it won’t have a lot of unintended consequences. I’ve got a cheat sheet on it here and it seems to miss the point. Banning banks from being involved in private equity and hedge funds, when neither sector really had much impact on the downturn (while ignoring Fannie and Freddie, which did) seems odd. The separation of proprietary trading and banking seems a bit pointless – more a nod to Glass-Steagall than anything else, and the fetish about swaps (a type of derivative) is also a bit odd, since again I wasn’t aware that swaps actually played much role in the downturn. Some of it looks quite good, like retaining credit risk in securitisations. But basically, most of the important stuff comes from the detailed implementation rules, which I’m not really aware of in detail and I’m not even sure have been actually issued yet.
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Yes - I'm a banking regulator. So perhaps when I suggest that regulation is a problem, you might actually think I know something about it. I've seen it in all its glory close-to.It depends. Are you in the finance business?What is your excuse for insulting BigNorseWolf?Wait.. people need one?Oh my. Then you are a banking regulator who is ideologically opposed to the regulation of banks. I think that we have just found out the root of our woes... (Here, I'm really kidding you. Don't bother, just keep on ignoring me and my arguments).
It's a shame, because you just nicely justified yourself, but calling "silly" other people arguments without bothering to justify your claims is still rude and dismissive, even in Great Britain. (exact quote: "The point is silly. It remains silly. Nothing like that has ever happened, so why pretend that it has.")
Western countries manufacturing jobs DO go overseas, to countries with lower wages, lower safety rules, lower regulations, lower everything. They are not vanishing in thin air because of "progress", or evolution to a "strong service economy". The evidence is so overwhelming that if you don't see the writing on the wall, well you probably don't live on the same planet than us and continuing this argument is pretty pointless (who knew that Internet extended to other galaxies?)
You know, you sound like a economical textbook (from a Chicago line of thought). Alas, the economy isn't a theoretical model existing in a void. It's affecting people, and is closely related to political matters. Less regulation means more scams and investment bubbles. More long term unemployment means unrest, which is bad if we want to maintain a democratic regime. The only country where regulation-free, pure Chicago-school economics ever worked is Pinochet's Chile : of course, when they "donwsized the workforce", they really meant it. Litterally, and...
Before you run too far with the psychological analysis, I should point out I wasn't a regulator before or during the crisis.
And yes, jobs migrate. I wasn't denying it. I'm just wondering why everyone is so hung up about China when the slump we are in is due to excessive personal and government borrowing in developed countries. The jobs were migrating years ago. Of course, back then everyone was complaining about Japan...
I'm not suggesting we have no regulation either. For free markets to operate you need, at the very least, enforceable property rights and law and order, which implies the existence of the state (and, generally, liberal democracy). I'm in favour of anti-trust measures to prevent monopolistic and oligopolistic practices, for example.
I'm also aware that things are much more complicated in reality. Which is why I'm in favour of a social policy to assist those who are left behind by change.
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I thought we weren't talking.No, but you got close.End of game for me. I'm glad you edited it, but the first version of your post was downright rude and insulting.
You should learn to behave if you want to discuss on forums. I don't give much credit to your Chicago school mantras, but at least I don't call you a moron and an hypocrite.
Interesting. So you have openly been rude because you felt I was "close" to insulting you.
What is your excuse for insulting BigNorseWolf?
Who said that? As long as you are willing to keep from being insulting or dismissive, that's okay.
I see your...No. First, BNW: I didn't insult him. I said his idea was silly. There is a difference between him (who as far as I can tell has good intentions) and his ideas (which I consider would be destructive). I inadvertantly upset him by giving him the impression he didn't care about kids on the receiving end of pollution, but my point was more that environmental policies imposed on trading partners can be used as trade protection. But again, it was his idea, not him, I had the issue with, but he took it personally instead. I mean, I'm not broken up about it, but it is a shame because it has coloured the tone of our converssation.
You then said I was insulting him and gave me some lecture about being nice. However, you then went ahead and made assumptions about me
If you want to sink while singing a tory anthem glorifying the invisible hand, well it's your funeral.in the same post as you tell me not to be rude. That was about me and not about anything I was saying, and a crude stereotype to boot. So yeah, I called you a hypocrite. Get over it, because it's true.
Plus, if you can't defend yourself against the word "silly" without having a hissy fit, you are unlikely to change the world much.
I'm not really sure what you are trying to prove. We can basically agree that you did the same thing to me that I did to BNW, so I'm failing to see where your moral superiority is coming from here. This is boring. BNW can look after himself, and your faux-moralistic huffing and puffing is a drag. I preferred it when you didn't speak to me, frankly. If you want to talk about the issues, rather than make meaninglessly sweeping comments (Tory, Chicago School), then fine, but otherwise please don't waste your time and mine.
I'm not really sure what you are trying to prove. We can basically agree that you did the same thing to me that I did to BNW, so I'm failing to see where your moral superiority is coming from here. This is boring. BNW can look after himself, and your faux-moralistic huffing and puffing is a drag. I preferred it when you didn't speak to me, frankly. If you want to talk about the issues, rather than make meaninglessly sweeping comments (Tory, Chicago School), then fine, but otherwise please don't waste your time and mine.
Nope, let's call it quit. I guess I just happened to pass by at the wrong time, when tempers flared between you and NWN and got some flak. Flinging around words such as "stupid" and "silly" isn't the best to keep tempers under control. The comments you edited out were even worse. I apologize for the "tory anthem" if it can make you feel better (nice image though, isn't it?).
And yes, jobs migrate. I wasn't denying it. I'm just wondering why everyone is so hung up about China when the slump we are in is due to excessive personal and government borrowing in developed countries. The jobs were migrating years ago. Of course, back then everyone was complaining about Japan...
Excuse me if I truly misunderstood you, or the other way around, but isn't it the same affirmation you called "silly" some posts back??
I congratulate you on the above post, well documented and well argumented. But I wonder how you came from a "regulation is the problem" posture (quote: "In other words, regulation can breed complacency") to a "regulation should be more efficient" one. Did I misunderstood your earlier posts?
And isn't it true that the financial sector complacency could come from their central role in the economy, which you described pretty well (in other words, "too big to fail" without wrecking the whole show), rather than from regulation? They knew they would probably be bailed out because letting them sink would ruin the day of everybody else, as Lehmann Brothers fall demonstrated. It doesn't mean that regulation shouldn't be stepped up to keep the banks from their dangerous games, for their own good and ours.
What you are suggesting goes toward more regulation, not less (I couldn't agree more). Or else the word "regulation" doesn't mean the same to you than to me.
Ah, and arguably the excessive personal borrowing in the US can be seen as a consequence of lower income (famililes borrow more to compensate), which can be seen as a consequence of underemployment or unemployment, which can be seen as one of the consequences of manufacturing jobs going the way of the dodo...
Can anyone make sense of this recent news that the House of Morgan and Bank of America dumped, what, $79 trillion in derivatives?, into FDIC-insured banks? I can't, but I tend to assume the worst.
Anyway, back to Occupy NH: attended a meeting held by the Nashua, NH, branch of Socialist Alternative (American section of the Committee for a Worker's International, in Britain they are--or were--known as Militant Labour).
The good news: they're starting a study circle to read Das Kapital, which I've never read, and using the David (?) Harvey videos that Comrade Hawkshaw has been posting.
The even better news: Of the four NH members in attendance, two were EXCEPTIONALLY HAWT CHICKS!!!
The bad news: Not once during the meeting did the following words get mentioned: international, proletarian, socialist or revolution.
EDIT: In honesty, this isn't true: the words "international" and "socialist" were used repeatedly throughout the evening.
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Nope, let's call it quit.
Fine, there are more interesting things to talk about than us.
Excuse me if I truly misunderstood you, or the other way around, but isn't it the same affirmation you called "silly" some posts back??
No, what I referred to as silly was the suggestion that everyone would end up unemployed as a result of Chinese competition. I don't deny that there will be local issues (like Detroit's depopulation and impoverishment). Part of the reason Detroit is depopulated is because people have moved on to jobs elsewhere. The social issues with those left behind strike me as the area of concern, rather than trying to prevent competition as such.
I congratulate you on the above post, well documented and well argumented. But I wonder how you came from a "regulation is the problem" posture (quote: "In other words, regulation can breed complacency") to a "regulation should be more efficient" one. Did I misunderstood your earlier posts?
And isn't it true that the financial sector could come from their central role in the economy, which you described pretty well (in other words, "too big to fail" without wrecking the whole show), rather than from regulation? They knew they would probably be bailed out because letting them sink would ruin the day of everybody else, as Lehmann Brothers fall demonstrated. It doesn't mean that regulation shouldn't be stepped up to keep the banks from their dangerous gaes, for their own good and ours.
It's a bit of a "I wouldn't start from here" sort of problem. The current approach, certainly, is to impose more regulation. Better regulation, certainly, would help (although it is doubtful if that is being provided in all cases). The problem is, if you start dismantling regulatory structures piecemeal, it's not entirely clear that you won't cause further problems. To some extent, that happened: banks were told how much capital to hold, but then told "Hey guys, we trust you, do what you feel". So they went mad on the bits they were allowed to do (a lot of trading activity, reckless lending, development of ever more baroque securitisation structures) but were then told how much capital to hold (i.e. not enough). Generally, in the 19th century banks (which were then unregulated) held a lot more capital than they do under our regulated regime, and it is argued (I don't have the figures) they went bust less often. Of course, that was the 19th century, and we are in the 21st, and banking has changed - not exactly out of all recognition, but a lot. So such a project would be unpredictable, and that's not a good thing under current economic environments.
And regulation tends to date. It generally gets a big refresh after every crisis. And then it gets out of date quite quickly. And the regs are also often subject to interpretation, so you can end up with different outcomes, even within regulators, never mind between regulators and the regulated.
On the Too Big to Fail thing, there is an argument for breaking up banks into smaller institutions. It would make them, individually, easier to understand for a start. However, that may not be much of a panacea. If you have a serious banking but again, you could simply see lots of small banks going down like dominos (dominoes?) rather than big banks. And smaller banks may actually be riskier, because they are more likely to have specific concentrations of risk (be it geographical or sector) that might have less of an impact in a larger, more diversified balance sheet.
I'm also not really convinced you can easily sideline banks - not at the moment, anyway. Banks do what's called Maturity Transformation. basically, as a depositor I want to have ready, immediate access to the money I have deposited should I want it. As a borrower, I want to borrow over a fixed term and not have the bank on my back and yanking my loan away without any notice. So, depositors want short-term and borrowers want long-term - essentially, there is a conflict in desires over the maturity. The bank sits in the middle, providing both parties what they want - maturity transformation. This creates a liquidity risk for the bank (because what if the depositors what all their money back at once?) but a bank essentially manages that risk by estimating how much ready cash they will need for depositors needs, with the rest ploughed back into loans. And that's also how they make a lot of their money - they pay depositors less than they get back from the loans, which is their return for taking on the liquidity risk. So what a bank does is harness the footloose depositors' money that otherwise wouldn't be productively ploughed back into loans which can then be used to grow the economy.
Now, the above is a very simple banking model, but for most of us that's how our interactions work with a bank. Essentially, even if you don't call it a bank, any entity providing this maturity transformation service is, by any other name, a bank. And maturity transformation can be risky - the evaporation of liquidity that led to the credit crunch is precisely the nightmare scenario for banks, where the depositors are clamouring for their money while the loans can't be liquidated to pay them. (It works a bit differently in wholesale markets, but not in essence.) So, while I know that there are some online services which can intermediate between individuals wanting a loan and those willing to provide one, I can't see it threatening banks any time soon.
However, in the UK they have gone in for "ring-fencing" the retail bits of banks. Basically, this is saying that the big banks here (the UK has a market effectively dominated by four or five very large, international banks that have grown from dominant domestic players) must ensure that, to prevent the government having to bail them out again they must ensure that the UK retail bits of their empires can be hived off in the event of another banking crisis, and that the investment banking bits don't get cheap funding from the retail bits. While the details haven't been ironed out, and it won't be in place for years, it has had an interesting corollary. The banks all got downgraded by the ratings agencies a few notches a few months ago, when this was announced. This was because the agencies decided that an implicit state guarantee of banking in the UK was now less likely. This is actually a good thing, because lower-rated debt is more expensive. It means that marginal risky activities will be less likely, because the bank won’t make as much (or possibly, any) money doing unnecessarily risky stuff.
That said, I don’t think the role of regulation is to prevent recessions. They happen anyway. In my view, this one is particularly bad because the banks got carried away, accidentally aided by the regulatory framework. It is moot whether you try and regulate absolutely everything that moves in finance (which might work in theory, but would be very difficult to actually pull off) or try and just make sure that risk is priced correctly through a more market-driven process and the banks are resilient so that the next bumps have less impact. Either way, it will be years before it becomes clear.
Can anyone make sense of this recent news that the House of Morgan and Bank of America dumped, what, $79 trillion in derivatives?, into FDIC-insured banks? I can't, but I tend to assume the worst.Depends - you got a link?
No, I heard it on the radio last night.
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I’m not American so some of the details are a bit hazy here. But fundamentally, too much was lent to borrowers of poor credit worth, and they couldn’t pay it back – the so-called sub-prime problem.
Here's what went wrong there.
Banks were being encouraged to lend to poorer people so they could buy homes.
Instead of said banks giving people enough to buy a 2 room shanty in the bad part of town they were giving them enough to buy McMansions.
The banks made balloon mortgages: that is the payment would vary with the interest rates. A couple looking at the payment under current interest rates would check their finances and say "Yeah, we can pay that". Sometimes this was overly optimistic (wait.. i have to pay mortgage AND heating bills? Its not included?) but many times the interest rate, and thus the mortgage, was tied to the LIBOR rather than the fed. So someone that borrowed expecting to pay 600 dollars a month winds up paying 800, or even 1200 a month.. which is probably more than they take home.
The Banks bundled up these mortgages and labeled them AAA. The worst that would happen is someone makes the payments for a year, which would more than cover the banks cost of doing business, and then the company the bank sold the loan to would have to go through the hassle of repossessing a home to get their money back.. but they would get their money back. The house isn't going anywhere.
Every lending agent thought they were the only one in the bank doing this so its no big deal. Every bank in a corporation thought they were the only bank doing this so it was no big deal. Every corporation thought they were the only ones doing this so it was no big deal.
EVERYONE was doing it though.
So many people defaulted on the loans that the market suddenly became flooded with houses to buy. That caused home values to plummet. That home value is what the Banks and Bundling companies had been relying on as collateral to secure the cost of the loan. People owed far more on their homes than they were worth, so the bundling agencies couldn't get their money back.
The bundling agencies were insured, but not for this kind of catastrophic loss.
Other Americans, who had been making payments faithfully for years, suddenly found themselves also upside down on their homes. If someone got sick or lost a job they couldn't refinance based on their home equity (the amount that they'd already paid in) because said equity had been erased by the drop in value. They had to default on their mortgages. This kicked even MORE homes onto the market and drove property values even lower.
This caused the banks to stop lending. Without the money businesses had to lay people off, resulting in more unemployment resulting in More people out of work and more foreclosed homes. Wash rinse repeat the cycle of doom.
While you're blaming the government for interfering in the almighty market, this is what i see.
There were several layers of private, free market safety nets that encouraged dangerous risks. The banks relied on the bundlers and the bundlers relied on insurence. Bundling and selling mortgages gave the banks less vested interest in seeing if the loans were good: they get paid when the bundle was sold, not when the person pays their mortgages. It also removed from the bank any vested interest in helping a person out with forbearance, lower interest rates or lower payments. In fact it completely PREVENTED the banks from doing any of that because the bank no longer owned the mortgage. The bank had the ability, but not the authority, to work locally with people and the megacorp bundling agencies had the authority but absolutely no ability to meet with anyone and work out terms: often the two weren't even in the same country.
The Insurance agencies knew full well they were too big to fail and could get a government bail out. Whether they were encouraged by the evil forces of Freddie and Frannie or not, they had simply bribed politicians for years and were going to be able to call that chip in.
I cannot see how let the free market handle it becomes a pancea when at least 3/4 of the problem was a lack of vested interest in people because of free market solutions. The banks were ripping off the bundlers the bundlers were ripping off the insurence agencies and the insurance agencies had to turn to the government, which they were going to buy and pay for regardless of the governments role in freddie and frannie.
And now student loans are going to crash.
I searched "derivatives" and "79 trillion" (which is what I heard on the radio) and got this.
I don't know anything about this website, fyi.
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It seems to be at the request of counterparties, who are clearly worried about BofA's credit-worthiness. So they would like the US taxpayer to pick up the bill in the event of default. The Merrills outfit isn't a bank in that sense, so it has less government protection. Actually, Glass-Steagall's begining to look sensible...
EDIT: I spoke to a colleague, who vaguely knew about this. It could be a result of Dodd-Frank, which is having a big impact on where business is placed, i.e. in a bank or in a non-banking entity.
Hee hee!
I avoided the one with the Ezekiel quote at the top.
EDIT: The words Dodd-Frank did indeed come up on the radio bit I heard.
It seems to be at the request of counterparties, who are clearly worried about BofA's credit worthiness. So they would like the US taxpayer to pick up the bill in the event of default. The Merrills outfit isn't a bank in that sense, so it has less government protection. Actually, Glass-Steagall's begining to look sensible...
Remind me again how its the government thats the problem here?
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It seems to be at the request of counterparties, who are clearly worried about BofA's credit worthiness. So they would like the US taxpayer to pick up the bill in the event of default. The Merrills outfit isn't a bank in that sense, so it has less government protection. Actually, Glass-Steagall's begining to look sensible...Remind me again how its the government thats the problem here?
See above. Of course, if the FDIC didn't exist, no problem. (Well, maybe...)
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Aubrey,
What are your thoughts on the Tobin Tax approach, i.e. raising taxes at a very small rate (0.1% or less) on transactions to discourage the quick flipping of stocks which increases the volatility of the market?
I know there's a colossal practical problem with it as if it's not introduced everywhere, the banks will simply move all the trading to the areas that don't have it but are there any other conceptual problems with it?
I sometiems discuss very weird topics with some guys in the gym, one of whom is at the Occupy the FTSE protests a fair bit, so I'm trying to make sure my usual blatherings are sense checked this time.
See above. Of course, if the FDIC didn't exist, no problem. (Well, maybe...)
When those rules didn't exist we got the great depression. Free market is not the answer.
Well, some would argue only because of Smoot-Hawley. But we've had that conversation.
I didn't realize that anyone was seriously trying to argue that was the, or even a main, cause of the great depression.
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Aubrey,
What are your thoughts on the Tobin Tax approach, i.e. raising taxes at a very small rate (0.1% or less) on transactions to discourage the quick flipping of stocks which increases the volatility of the market?I know there's a colossal practical problem with it as if it's not introduced everywhere, the banks will simply move all the trading to the areas that don't have it but are there any other conceptual problems with it?
I sometiems discuss very weird topics with some guys in the gym, one of whom is at the Occupy the FTSE protests a fair bit, so I'm trying to make sure my usual blatherings are sense checked this time.
I'm far from expert on tax policy. However, there is an argument that high-frequency trading is having a detrimental effect on equity markets because they increase volatiliy and there may be some skulduggery around profiting from false priing signals. Again, it's not an area I follow much. Certainly, because the margins on that activity are wafer-thin, a tax would reduce it. To be honest, I might link some stuff for you to look at, as it might be easier - this is pretty much my reading on the subject.
Here's Robert Peston on the tax. He makes the interesting point that we already have a transaction tax in the UK - stamp duty.
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Aubrey,
What are your thoughts on the Tobin Tax approach, i.e. raising taxes at a very small rate (0.1% or less) on transactions to discourage the quick flipping of stocks which increases the volatility of the market?I know there's a colossal practical problem with it as if it's not introduced everywhere, the banks will simply move all the trading to the areas that don't have it but are there any other conceptual problems with it?
I sometiems discuss very weird topics with some guys in the gym, one of whom is at the Occupy the FTSE protests a fair bit, so I'm trying to make sure my usual blatherings are sense checked this time.
I'm far from expert on tax policy. However, there is an argument that high-frequency trading is having a detrimental effect on equity markets because they increase volatiliy and there may be some skulduggery around profiting from false priing signals. Again, it's not an area I follow much. Certainly, because the margins on that activity are wafer-thin, a tax would reduce it. To be honest, I might link some stuff for you to look at, as it might be easier - this is pretty much my reading on the subject.
Here's Robert Peston on the tax. He makes the interesting point that we already have a transaction tax in the UK - stamp duty.
Thank you
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Well, some would argue only because of Smoot-Hawley. But we've had that conversation.I didn't realize that anyone was seriously trying to argue that was the, or even a main, cause of the great depression.
No, but it has been argued that Smoot-Hawley really helped kick the economy in the balls while it was down. It wasn't the initial cause, but certainly helped prolong and deepen it. Though I appreciate that, as a man of protectionist instincts, that isn't a view you will share.
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I’m not American so some of the details are a bit hazy here. But fundamentally, too much was lent to borrowers of poor credit worth, and they couldn’t pay it back – the so-called sub-prime problem.Here's what went wrong there.
Banks were being encouraged to lend to poorer people so they could buy homes.
Instead of said banks giving people enough to buy a 2 room shanty in the bad part of town they were giving them enough to buy McMansions.
The banks made balloon mortgages: that is the payment would vary with the interest rates. A couple looking at the payment under current interest rates would check their finances and say "Yeah, we can pay that". Sometimes this was overly optimistic (wait.. i have to pay mortgage AND heating bills? Its not included?) but many times the interest rate, and thus the mortgage, was tied to the LIBOR rather than the fed. So someone that borrowed expecting to pay 600 dollars a month winds up paying 800, or even 1200 a month.. which is probably more than they take home.
The Banks bundled up these mortgages and labeled them AAA. The worst that would happen is someone makes the payments for a year, which would more than cover the banks cost of doing business, and then the company the bank sold the loan to would have to go through the hassle of repossessing a home to get their money back.. but they would get their money back. The house isn't going anywhere.
Every lending agent thought they were the only one in the bank doing this so its no big deal. Every bank in a corporation thought they were the only bank doing this so it was no big deal. Every corporation thought they were the only ones doing this so it was no big deal.
EVERYONE was doing it though.
So many people defaulted on the loans that the market suddenly became flooded with houses to buy. That caused home values to plummet. That home value is what the Banks and Bundling companies had been relying on as collateral to secure the cost of the loan. People owed far more on their homes than...
I don't really disagree with your analysis. My point is more that is the risk had been properly priced, at some of the above may not have happened. And the reason it wasn't correctly priced was because of interest rate policy at the Fed being wrong and the federal agencies taking on risk they couldn't handle.
And, as a broader point, you talk about regulation as a solution. Maybe it is - the right regulation. I'll reiterate the point I made above. Dodd-Frank makes no mention of the mortgage agencies. Dodd and Frank were both recipients of largesse from the mortgage agencies. It is questionable how effective this regulation is going to be if it misses out a large part of the problem. Regulation = legislation = lobbying = special interests. Your solution perpetuates the cycle.
I mean, do I think things will change fundamentally, either way? No, honestly. People are still short-sighted, stupid and venal no matter what we talk about here. And I include me and you in that. To a large extent, my main ambition is to do as little harm as possible. That's about all we can really aspire to.
No, but it has been argued that Smoot-Hawley really helped kick the economy in the balls while it was down. It wasn't the initial cause, but certainly helped prolong and deepen it. Though I appreciate that, as a man of protectionist instincts, that isn't a view you will share.
Its not a view i share and its not strictly something i disagree with either. When a patient has been shot in the chest, pushed off a cliff, eaten by wild dogs and then tossed in the river for a few days determining a nut shot is outside my pay grade. But it seems there's a huge ideological push to never blame the almighty free market for ANYTHING... by people who have a lot to gain by skimming off the free market. When I know enough to test these claims they always wind up faulty, so when the same claims are made about the murkier areas of finance I'm more than a little skeptical.
You seem to think I'm a socialist. I am not. I want as little government interference in the economy as possible. I'm willing to trade some level of optimization for freedom from government interference.
I'm not a protectionist. You'll note I'm not calling for any kind of blanket import protection. Competing with germany would be good for the us, they make good stuff and its more or less a fair game.
May the best man win. strength through competition and all that.
The fact is that the US has wage, safety, and environmental regulations. History shows me that these are all necessary because when left to their own devices the free market created a societal abomination. Children worked in mines, people were regularly crushed to death or maimed and then tossed out onto the street to starve.
China has free access to our markets. We do not have free access to theirs. That alone is reason enough for changing how we deal with china. It isn't a free market when we're the only ones who's market is free.
Even more problematic is the wage and environmental discrepancy. It is not a free market when one corporation has to pay its workers more and has to pay more for pollution amelioration. If JC penny was suddenly hit by higher government requirement than sears , you can bet sears would be doing better.
The solution is not to try to out china china. We can't, and it would suck if we did. The idea that we can mystically out compete china even with the additional burdens strikes me as American (or western) exceptionalist ideology that i don't ascribe to.
Your service economy idea seems half baked at best. Its never been done by any country in history and presumes a commutablility of services that doesn't exist, as well as lacking any coherent reason why a producing country would want to buy our services instead of using their own. There's only so much raw material on hand that you can use for manufacturing, and not everyone was cut out to work an assembly line anyway. You need to find something to do with those people.
I don't really disagree with your analysis. My point is more that is the risk had been properly priced, at some of the above may not have happened. And the reason it wasn't correctly priced was because of interest rate policy at the Fed being wrong and the federal agencies taking on risk they couldn't handle.
Ahah.. but how high can the risk possibly be priced at? You're not thinking evil enough, and that's VERY bad considering your profession.
You cannot price the risk rationally and fairly because there is a cheat in the system. Past the risk being worth a certain amount it becomes cheaper to bribe the government to assume the risk for you.
The point of this thread, and the anger on wallstreet, is to stop such bribery in the hopes of getting a policy change.
In short, welcome to team hippy. Here's your hackey sack, hemp bracelet, and if you head out of sight of the nice police officers you can get your.. ahem. cigar.
And, as a broader point, you talk about regulation as a solution. Maybe it is - the right regulation.
I have no idea whether Dodd-Frank is the right regulation or not. I do know that no regulation equals the great depression, bad regulation equals our current and future crisis so.. some improvement is better than none.
It is questionable how effective this regulation is going to be if it misses out a large part of the problem. Regulation = legislation = lobbying = special interests. Your solution perpetuates the cycle.pMy solution is to end corporate personhood and then limit corporations ability to bribe government. That breaks the cycle at the lobbying link. Remember the fire triangle.. cut off one leg and it goes kaput.
And I include me and you in that. To a large extent, my main ambition is to do as little harm as possible. That's about all we can really aspire to.Ive been trying to help. Hasn't always been easy or successful but i'm trying.
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a lot of stuff about subprime mortgage crash
This seems to me to be a pretty accurate rendition of what went down. And, indeed, it looks like the student debt loan will be next. And, if what my catastrophist friend explained to me in a drunken rant is correct (and I'm not saying it is), these new shenanigans could easily monkeywrench the system, too.
Spoilered for left-wing socialist ranting
What I don't understand is why there is so much acrimony between the "blame the government" and the "blame the corporations" crowds. This argument seems to be the main motif--I think you guys call it a "meme", correct?--that resounds throughout every single political discussion on these boards and I don't get it.
THEY'RE IN CAHOOTS! THEY HAVE ALWAYS BEEN! WHAT IS SO HARD TO UNDERSTAND ABOUT THIS?
Pardon me, I didn't mean to yell at you guys. Because of the local particularities of New Hampshire, our Occupy movement is 1/2 social-democrats and militant liberals and 1/2 Libertarians and Free Staters and this argument is what I hear all day long, yada yada yada.
Even the Socialist Alternative kids who are trying to be a Leninist-Trotskyist organizing-committee founder on this question which, imho, is pretty obvious: They're in it together.
This isn't to suggest some Bildeburg-Trilateral Commission-International Masonic conspiracy, although I don't entirely discount that idea. All societies since the city-states of Ur and Uruk have been run by the elite for the elite. Our modern industrial democracies, really, aren't that much different.
If you believe that American capitalism works, then when you are elected into political office, you work with the leaders of industry to get money flowing and the economy running. This is how the USA has been run since at least the end of the Civil War. At one time it meant investment in the railroads, at another it meant investment in the highways, nowadays, it means investment in the financial sector. From what little I understand of economics, all this high-risk financial speculation is the only thing left that generates the huge influx of profit that keeps the system going. When they screw up and tank the whole economy, if you are a believer in American capitalism and an elected politician, what are you going to do? The society is run by the elite for the elite; under those circumstances, who do you think the gov't is going to bail out? And who do you think is going to pay for it? Hey, look: Those teachers aren't paying anything for their health benefits!
During most of the 20th century, the USA was in the fortunate position to be able to let both their elites make tons of money and their laboring populations live a comfortable, "middle-class" life. Not all of them, by any means, and the things that the USA (and the UK! Don't want to leave Aubrey out!) had to do to get into that fortunate position would be the topic for a whole 'nother rant. But a much larger percent than most other human societies in history. Things change. Guess who's going to pay?
THEY'RE IN CAHOOTS! THEY HAVE ALWAYS BEEN! WHAT IS SO HARD TO UNDERSTAND ABOUT THIS?
I think its a matter of which one is he ventriloquist and which one is the dummy.
If I my back were better I'd be down on wallstreet (i may stop by anyway) I think my sign would be
"Tea party: our fight is your fight. Join us"
If I my back were better I'd be down on wallstreet (i may stop by anyway) I think my sign would be
"Tea party: our fight is your fight. Join us"
In New Hampshire, they already have.
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Its not a view i share and its not strictly something i disagree with either. When a patient has been shot in the chest, pushed off a cliff, eaten by wild dogs and then tossed in the river for a few days determining a nut shot is outside my pay grade. But it seems there's a huge ideological push to never blame the almighty free market for ANYTHING... by people who have a lot to gain by skimming off the free market. When I know enough to test these claims they always wind up faulty, so when the same claims are made about the murkier areas of finance I'm more than a little skeptical.
Yeah, and you are right in that. There are some things the market cannot do. It can't make good, very long-term decisions where pay-offs are uncertain (like power stations). markets also overshoot and undershoot, which is why we get recessions, panics and irrational exuberance. And it's not good at looking after those who are less economically "useful", for want of a term - the infirm, for whatever reason, basically.
And there is a lot of double-talk, particularly by firms that stand to lose or gain from changes in legislation and regulations (like banks, for example). And, in the financial sector specifically, the sheer amounts of money are probably corrupting.
The thing is, you use terms like "skimming off the free market". In its purest form (and this is theoretical, now) there's nothing to skimm off because the skimmable bit (supernormal profit) is competed away. In the real world you will get some inefficiencies and so on. But ideally, what a freely-competing market does is provide you with the correct price for stuff. The crisis can be seen, in some ways, as the mispricing on an epic scale of money, through interest rate policy and so on which I have described above. I know this sounds all "Chicago School" but, basically, that is how the money markets work. Would a more competitive system have prevented what happened? Not entirely, because no system is fully competitive like in a text book - at their basic, real markets are inclined to overshoot in either direction. But it sure as hell might have helped reduce the impact.
You seem to think I'm a socialist. I am not.
That was more rhetorical snark than anything else.
I want as little government interference in the economy as possible. I'm willing to trade some level of optimization for freedom from government interference.
I'm not a protectionist. You'll note I'm not calling for any kind of blanket import protection. Competing with germany would be good for the us, they make good stuff and its more or less a fair game.
May the best man win. Strength through competition and all that.
The fact is that the US has wage, safety, and environmental regulations. History shows me that these are all necessary because when left to their own devices the free market created a societal abomination. Children worked in minds, people were regularly crushed to death or maimed and then tossed out onto the street to starve.
China has free access to our markets. We do not have free access to theirs. That alone is reason enough for changing how we deal with china. It isn't a free market when we're the only ones who's market is free.
Even more problematic is the wage and environmental discrepancy. It is not a free market when one corporation has to pay its workers more and has to pay more for pollution amelioration. If JC penny was suddenly hit by higher government requirement than sears , you can bet sears would be doing better.
Well, there is something to that. The main thing the Chinese have, actually, isn't a heroic resistance to arsenic. It's a large pool of cheap labour. They are generally cheaper because they are less skilled, and there are loads and loads of them. However, due to the one child policy, there actually aren't that many more of them coming on to the market. Demographically, the big population bulge is running out. Chinese workers are already agitating for higher wages - they aren't actually that low-cost anymore.
This also isn't anything very new. Before China it was Japan. After China, maybe it will be India or Brazil. The Rustbelt was wiped out long before the rise of China - probably by the Koreans. Manufacturing has been in decline in most developed countries for decades. On the other hand, Germany demonstrates that actually it is possible to have a powerful manufacturing base, provided you are prepared to innovate and chase the business. Germany sells plenty of stuff to China, but then again they sell capital goods, not consumer goods.
And there is also a view that even if your neighbour is protectionist, you probably shouldn't follow. After all, you will get cheaper goods, and your economy should shift into whatever it can most effectively produce. That's the theory. And there is the precedent of competitive tarriff hikes when things all political, too.
The solution is not to try to out china china. We can't, and it would suck if we did. The idea that we can mystically out compete china even with the additional burdens strikes me as American (or western) exceptionalist ideology that i don't ascribe to.
I don't think you can outcompete with China on the stuff they are good at. So I see no likelihood of a renaissance in shoe manufacture in the US any time soon. That's not really the point of international trade anyway. You let the people who are good at what they do, do that, you do what you are good at, and you swap.
Your service economy idea seems half baked at best. Its never been done by any country in history and presumes a commutablility of services that doesn't exist, as well as lacking any coherent reason why a producing country would want to buy our services instead of using their own. There's only so much raw material on hand that you can use for manufacturing, and not everyone was cut out to work an assembly line anyway. You need to find something to do with those people.
Some services (by no means all) are tradeable. The UK's biggest export is financial services, for example - so some people do want other countries' services (Lloyds of London is a big international insurance market, as an illustration, and London generally is a finance hub for Europe and beyond). But the "services-only" model was more a thought experiment to point out that a country won't simply cease to exist without a manufacturing sector than a suggestion of how to actually run the economy. A mixed economy is more resilient to economic travails. The UK is probably over-reliant upon financial services, given that they account for about 20% or so of output. My point was more that it is theoretically possible to have an economy built on tradeable services, but you probably woudn't want to. Iceland is a lesson in how that would be a bad idea.
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I don't really disagree with your analysis. My point is more that is the risk had been properly priced, at some of the above may not have happened. And the reason it wasn't correctly priced was because of interest rate policy at the Fed being wrong and the federal agencies taking on risk they couldn't handle.Ahah.. but how high can the risk possibly be priced at? You're not thinking evil enough, and that's VERY bad considering your profession.
You cannot price the risk rationally and fairly because there is a cheat in the system. Past the risk being worth a certain amount it becomes cheaper to bribe the government to assume the risk for you.
The point of this thread, and the anger on wallstreet, is to stop such bribery in the hopes of getting a policy change.
In short, welcome to team hippy. Here's your hackey sack, hemp bracelet, and if you head out of sight of the nice police officers you can get your.. ahem. cigar.
Well, that's my point, really. I think where we are differing is really over the definition of what is a market-led process and what isn't. You see cheating and corruption and being a process of free markets. I see it as a frustration of free markets.
And, as a broader point, you talk about regulation as a solution. Maybe it is - the right regulation.
That's quite a heroic assumption. My brief perusal of Dodd-Frank is that a lot of deck chairs (and derivatives) will be shuffled about, but probably won't change the fundamental issues. Which is something, I guess.
My solution is to end corporate personhood and then limit corporations ability to bribe government. That breaks the cycle at the lobbying link. Remember the fire triangle.. cut off one leg and it goes kaput.
Well, generally speaking the decision by your Supreme Court seems quite perverse to me. It overturned a quite sensible piece of legislation on a bizarre pretext and opened to door the special pleading and corporate interests. I think they must have been on the brandy that day.
No links yet, but I got a call that bad shiznit went down in Occupy Melbourne. Off to go search the web...
EDIT: Like, last Friday. Maybe I should get a Twitter account.