There is little agreement among economists as to whether or not Tim Geithner’s plan to offload the now infamous toxic “legacy assets” from the balance sheets of the “too big to fail” financial institutions will actually work. Even among economists who think the plan might work, to cleanse the banks of their toxic assets, there are still those who object to the plan on moral grounds. The moral problem is in itself an economic problem with the plan. Economists have a term for the kind of market distortions this kind of market manipualtion introduces – they call it a “moral hazard.” The hazard, in this case, is that after being rewarded instead of punished for overly risky and incorrect market bets, the same players will live to make the same or similar mistakes again.
In fact, one might observe that the Geithner plan is designed to do this on purpose – that it is designed to intentionally reinflate another market bubble. This new bubble will be emanating from the hedge funds that stand to make a killing in the market for these legacy assets and the resulting swirl of freshly minted, tax payer funded, dollars arriving on their balance sheets and the balance sheets of the rescued banks. The banks will see an injection of capital with no strings associated whatsoever because it will not be done as either a loan or stock purchase. Instead it’s a capital injection behind smoke and mirrors. It’s a bald-faced money-laundering scheme on one level, but that isn’t even my biggest concern - my biggest concern is what happens after the Geithner bailout.
With the Fed printing money like mad and doing the Tango with the “too big to fail” banks now in need of rescue, and with hedge funds getting in on the action, we can expect a fresh round of financial bubbles. We can expect the cost of oil, metals and food reaching all time speculative highs. For most of us, this will be experienced as inflation, hyperinflation or another era of dreaded stagflation. For the Fed and the Treasury, this will likely be dismissed as “volatility” and not a real problem at all. They will do their best to conceal the actual inflation numbers. And why should they consider it a problem, anyway? It is precisely the outcome they are seeking to cause, because any sincere solution to our current banking crisis would leave quite a few bankers wearing cheaper suits and drinking cheaper wine, and that is something the banking indutry’s “partners in government” are not about to let happen.
To get to the point – any solution that leaves the “too big to fail” banks still “too big to fail” is no solution at all. These same banks will be lining up for a fresh round of bailouts, with a similar sob story, while we are still trying to figure out which entitlement programs to slash in order to pay for the current bailouts. As Joseph Stiglitz has pointed out, there is a distinction between saving banks and banking, and saving bankers and shareholders. Any real solution to our current banking crisis would involve a temporary nationalization of the “too big to fail” banks, followed by an orderly sorting out of their assets, a breaking of the banks into smaller pieces and finally a re-privatization.
It wouldn’t even need to be such a traumatic event for the rest of us. Remember Washington-Mutual? Of course you do. They used to offer free checking - worth twice the price.
Wednesday, April 1, 2009
Friday, October 24, 2008
Why Is The Stock Market Still Going Down?
The obvious answer is that we are facing a recession. There is a saying that "the stock market climbs a wall of worry". I think that sometimes the stock market descends a "staircase of denial". Nobody knows how bad it will get before a turn around.
There is also, however, political uncertainty. Nobody knows how Obama will effect the markets. He may change the priorities of government spending that make for some new and different winners on losers.
Here is how I see it:
I think the stock market might face a different sort of game moving forward. What the stock market wants is more of the same candy that made it sick in the first place, i.e.: imprudently low interest rates, poor oversight and little incentive to bolster the real economy in favor of the fake economy.
Greenspan wasn't a genius. He was an intellectually dishonest Wall Street mole. Interest rates and margin rates were were too low for too long.
The economic pie seemed to be growing, but it was really inflating instead. While it was inflating most of our slices remained the same size while the slices of Wall Street financiers and CEOs grew way beyond reason. Now the pie is deflating again but our meager slices are shrinking along with the oversized ones the bubble created at the top.
When this process is over we will have witnessed a very successful generation of class warfare come to its fruition. The shape of the economy will have changed in permanent ways creating permanent winners at the top and losers at the bottom.
To get more specific rather than metaphoric: the current priorities of "saving the economy" are along the lines of trying to protect the inflated assets that Wall Street has created. It's basically a game of three card Monty because they are protecting those assets by printing money. The purchasing power for Joe Six Pack is going to plummet while the wealthy remain wealthy and scare the heck out of the rest of us about "creeping socialism".
The only real hope I see is that Obama is able to find a way to set aside a portion of the bailout money to invest in infrastructure, green energy (infrastructure as well), and human capital (teachers and nurses come to mind). The infrastructure and human capital are vital to the "real economy".
There is also, however, political uncertainty. Nobody knows how Obama will effect the markets. He may change the priorities of government spending that make for some new and different winners on losers.
Here is how I see it:
I think the stock market might face a different sort of game moving forward. What the stock market wants is more of the same candy that made it sick in the first place, i.e.: imprudently low interest rates, poor oversight and little incentive to bolster the real economy in favor of the fake economy.
Greenspan wasn't a genius. He was an intellectually dishonest Wall Street mole. Interest rates and margin rates were were too low for too long.
The economic pie seemed to be growing, but it was really inflating instead. While it was inflating most of our slices remained the same size while the slices of Wall Street financiers and CEOs grew way beyond reason. Now the pie is deflating again but our meager slices are shrinking along with the oversized ones the bubble created at the top.
When this process is over we will have witnessed a very successful generation of class warfare come to its fruition. The shape of the economy will have changed in permanent ways creating permanent winners at the top and losers at the bottom.
To get more specific rather than metaphoric: the current priorities of "saving the economy" are along the lines of trying to protect the inflated assets that Wall Street has created. It's basically a game of three card Monty because they are protecting those assets by printing money. The purchasing power for Joe Six Pack is going to plummet while the wealthy remain wealthy and scare the heck out of the rest of us about "creeping socialism".
The only real hope I see is that Obama is able to find a way to set aside a portion of the bailout money to invest in infrastructure, green energy (infrastructure as well), and human capital (teachers and nurses come to mind). The infrastructure and human capital are vital to the "real economy".
Thursday, October 23, 2008
Did DNC Pay For Obama's Three Ties?
Supposedly Barack Obama has five suits which he maintains on his own dime, keeping them patched and pressed for as long as he can before replacing them. Personally, I don't believe a word Obama says about his five suits! His wardrobe is a rack of costumes too, just like Sarah Palin's.
Have you noticed his three ties?
(1) Blue Tie - for sending out liberal democrat visual subliminals (it matched Hillary's blue pantsuit when they flew Obama Force One together after she sort of conceded).
(2) Purple Tie - for sending out centrist swing voter visual subliminals (it matched Michelle's purple dress at the convention.)
(3) Red Tie - for sending out Republican "come home America" visual subliminals. You can see him wearing it when he campaigns in Red states he is threatening to steal in November.
Unless of course that third tie is actually commie red - then we've really got something to worry about next year!
I'd like to give Michelle a pass from this subliminal clothing nonsense, but wasn't that $150 dress she wore from a boutique named "Black White House"?
My real point is that everything they wear is part of the campaign once they start campaigning. I know you all think I am nuts now . But who's more paranoid? Me watching my TV and adjusting my tin-foil hat or Obama choosing between a Blue, Purple or Red tie based upon the demographics of the target audience of the day?
Have you noticed his three ties?
(1) Blue Tie - for sending out liberal democrat visual subliminals (it matched Hillary's blue pantsuit when they flew Obama Force One together after she sort of conceded).
(2) Purple Tie - for sending out centrist swing voter visual subliminals (it matched Michelle's purple dress at the convention.)
(3) Red Tie - for sending out Republican "come home America" visual subliminals. You can see him wearing it when he campaigns in Red states he is threatening to steal in November.
Unless of course that third tie is actually commie red - then we've really got something to worry about next year!
I'd like to give Michelle a pass from this subliminal clothing nonsense, but wasn't that $150 dress she wore from a boutique named "Black White House"?
My real point is that everything they wear is part of the campaign once they start campaigning. I know you all think I am nuts now . But who's more paranoid? Me watching my TV and adjusting my tin-foil hat or Obama choosing between a Blue, Purple or Red tie based upon the demographics of the target audience of the day?
Sarah Palin's $150k Wardrobe
Sarah Palin's done it again! The latest nuggets of scandal unearthed about her involve her $150,000 clothing shopping spree on the campaign's dime.
As a Palin basher who's probably wound up on more than a couple of ignore lists for my first few posts about her, this is surprisingly a sort of a non-issue for me.
I thought that it was reasonable for John Edwards to charge the cost of a world class hair stylist to his campaign. When it comes to female candidates wardrobes perhaps if the campaigns made it clear that the wardrobes were campaign property destined for charity auctions this sort of embarrassment could be avoided in the future.
It's packaging and marketing. Just because John McCain is the self declared straight talk express, that doesn't mean I don't expect him to employ a video production crew to package his message. The same goes for what he and the rest of the candidates wear on the campaign trail. I expect them to be packaged for the mass media.
That doesn't mean I don't lament the national priorities of style over substance. I just don't see this one small issue as an ethical lapse.
Under the law it may be a different matter.
As bleak as things have gotten, there is still hope for Sarah to channel this doomed vice presidential campaign experience into a ghost-written autobiography tour. She's still got the gift of gab and she's still quite the looker.
As a Palin basher who's probably wound up on more than a couple of ignore lists for my first few posts about her, this is surprisingly a sort of a non-issue for me.
I thought that it was reasonable for John Edwards to charge the cost of a world class hair stylist to his campaign. When it comes to female candidates wardrobes perhaps if the campaigns made it clear that the wardrobes were campaign property destined for charity auctions this sort of embarrassment could be avoided in the future.
It's packaging and marketing. Just because John McCain is the self declared straight talk express, that doesn't mean I don't expect him to employ a video production crew to package his message. The same goes for what he and the rest of the candidates wear on the campaign trail. I expect them to be packaged for the mass media.
That doesn't mean I don't lament the national priorities of style over substance. I just don't see this one small issue as an ethical lapse.
Under the law it may be a different matter.
As bleak as things have gotten, there is still hope for Sarah to channel this doomed vice presidential campaign experience into a ghost-written autobiography tour. She's still got the gift of gab and she's still quite the looker.
Time To Rethink The American Dream
The cost of housing has been increasing faster than the rate of inflation for decades. It's one of the problems that results when you talk everybody into treating their homes as a retirement account instead of just a place to live.
Why should we as a nation cheer when one of the essentials of a decent standard of living (a home) progressively eats up a higher percentage of the typical paycheck with each passing decade. Any fool could see that it can't end well. It can only end with more and more people unable to afford homes and with the kind of speculative bubble we just had.
To prove this I will point to the growing numbers of people who can't afford their homes (facing foreclosure) and the speculative housing bubble that has just burst and is damaging the entire world's economy.
The American Dream of owning a home has been gamed by the twin pillars or Real Estate and Finance for long enough to to harm the nation, it's citizens and even the world's economy.
The "ownership society" has turned out to be a smokescreen for wealthy financiers to exploit the rest of us.
It's time for people to wake up and fix the structural problems in our society and economy. To put it briefly, it is time to end the bogus presumptions of a "trickle down society" and an "ownership society." Out of politeness we won't call what we need to replace it with "Socialism". Maybe we can call it a time to recognize "our mutual responsibility to each other".
Why should we as a nation cheer when one of the essentials of a decent standard of living (a home) progressively eats up a higher percentage of the typical paycheck with each passing decade. Any fool could see that it can't end well. It can only end with more and more people unable to afford homes and with the kind of speculative bubble we just had.
To prove this I will point to the growing numbers of people who can't afford their homes (facing foreclosure) and the speculative housing bubble that has just burst and is damaging the entire world's economy.
The American Dream of owning a home has been gamed by the twin pillars or Real Estate and Finance for long enough to to harm the nation, it's citizens and even the world's economy.
The "ownership society" has turned out to be a smokescreen for wealthy financiers to exploit the rest of us.
It's time for people to wake up and fix the structural problems in our society and economy. To put it briefly, it is time to end the bogus presumptions of a "trickle down society" and an "ownership society." Out of politeness we won't call what we need to replace it with "Socialism". Maybe we can call it a time to recognize "our mutual responsibility to each other".
Wednesday, October 22, 2008
The Housing Market's Original Sin
Nobody ever talks about the original sin of the housing market of the 20th century which is that it was predicated on home prices increasing faster than the rate of inflation.
If you stop to think about that, a national housing crisis was inevitable. With stagnant wages this meant housing would consume an ever increasing share of personal budgets eventually slipping out of reach. This is exactly what happened.
Everybody can't own their own home and some people shouldn't.
But instead of having an adequate Social Security system we were encouraged to buy into an "ownership society".
Well it blew up as anybody could see it eventually would.
We weren't honest with ourselves. It wasn't an ownership society - it was a debtorship society. When everybody has too easy access to credit, prices inflate.
If you stop to think about that, a national housing crisis was inevitable. With stagnant wages this meant housing would consume an ever increasing share of personal budgets eventually slipping out of reach. This is exactly what happened.
Everybody can't own their own home and some people shouldn't.
But instead of having an adequate Social Security system we were encouraged to buy into an "ownership society".
Well it blew up as anybody could see it eventually would.
We weren't honest with ourselves. It wasn't an ownership society - it was a debtorship society. When everybody has too easy access to credit, prices inflate.
Tuesday, October 21, 2008
It's Not Socialism - It's Fascism
Neither the Wall Street bailout (as originally conceived) or McCain's plan to buy up mortgages at face value as a gift to the banks are socialism. They are a channeling of tax payer money to the top of the economic pyramid. They are more acurately a sort of crony-capitalism or even neo-fascism.
One of the problems with our current brand of "capitalism" that David Kay Johnston has outlined in his recent books is the extent to which the wealthy and corporations highjack goverment to write the rules to distribute wealth to the politically well connected. You see this in things like taxpayer funded sports arenas and in no bid contracts. Now you see it in underwriting the risk on Wall Street.
Real socialism or the Democratic Socialism of the sort that Bernie Sanders subscribes to seeks to use taxpayer dollars for things like free and affordable healthcare and free and affordable education. How many of us would really resent paying our taxes if our children could attend a state university for free and we knew we would never have to worry about being bankrupted by healthcare bills if we ever have cancer or need open heart surgery?
There are other things tax payer dollars could accomplish. Developing affordable housing is one of them. Isn't it funny how your tax dollars are going to be used to prop up inflated housing values now? If you were hoping that the over-priced housing would come back to earth and within your reach, you might be frustrated to realize that your tax dollars are about to be used to keep that from happening.
Whenever the subject of spending money for butter rather than guns comes up the right wing starts talking about deficits and fiscal responsibility. Where was the talk of fiscal responsibility when it comes to questioning whether we need to be starting a war against country that have neither WMDs or terrorists? Why do we always seem to rationalize staying there to the tune of 12 billion a month after we proved they had neither? The war is a gift to the war profiteers and oil companies hoping for ridiculously favorable royalty contracts.
It's not Socialism to be throwing bailout money structured as generous gifts to Wall Street and the banks, it's hypocrisy.
The really clever trick is that branding these dishonest bailout schemes as Socialism channels the truly deserved anger for this crony capitalism at Socialism instead. Socialism doesn't seek to reward cronies, it seeks to share some burdens across society in an attempt to achieve a greater good for all.
Of course there is subjectivity in what that greater good should be, but do any of us really believe right now that that CEOs on Wall Street are being rewarded according to their personal merits and hard work? Those crooks at AIG immediately turned around and used bailout money for luxury taxpayer funded vacations. That money was supposed to be used to pay off their creditors.
It's that type of unethical greed that neither rewards investors with anything but a paper mirage or finds it possible to give anyone but the CEOs at the top raises that keep up with inflation that has brought our nation to this brink. We are all stagnant except the stratospherically rewarded CEOs now.
This country is in need for some serious change. A government that is accountable, responsive and transparent to we the people is one of them. Some regulatory reform of our businesses including some punitive measures against excessive executive pay is another. But last and not least, this country could use a little real socialism that helps the vast majority of Americans out.
When your elected officials try to tell you there is no money for socialistic programs like Medicare, Medicaid and Social Security, call them the liars that they are. They know better.
One of the problems with our current brand of "capitalism" that David Kay Johnston has outlined in his recent books is the extent to which the wealthy and corporations highjack goverment to write the rules to distribute wealth to the politically well connected. You see this in things like taxpayer funded sports arenas and in no bid contracts. Now you see it in underwriting the risk on Wall Street.
Real socialism or the Democratic Socialism of the sort that Bernie Sanders subscribes to seeks to use taxpayer dollars for things like free and affordable healthcare and free and affordable education. How many of us would really resent paying our taxes if our children could attend a state university for free and we knew we would never have to worry about being bankrupted by healthcare bills if we ever have cancer or need open heart surgery?
There are other things tax payer dollars could accomplish. Developing affordable housing is one of them. Isn't it funny how your tax dollars are going to be used to prop up inflated housing values now? If you were hoping that the over-priced housing would come back to earth and within your reach, you might be frustrated to realize that your tax dollars are about to be used to keep that from happening.
Whenever the subject of spending money for butter rather than guns comes up the right wing starts talking about deficits and fiscal responsibility. Where was the talk of fiscal responsibility when it comes to questioning whether we need to be starting a war against country that have neither WMDs or terrorists? Why do we always seem to rationalize staying there to the tune of 12 billion a month after we proved they had neither? The war is a gift to the war profiteers and oil companies hoping for ridiculously favorable royalty contracts.
It's not Socialism to be throwing bailout money structured as generous gifts to Wall Street and the banks, it's hypocrisy.
The really clever trick is that branding these dishonest bailout schemes as Socialism channels the truly deserved anger for this crony capitalism at Socialism instead. Socialism doesn't seek to reward cronies, it seeks to share some burdens across society in an attempt to achieve a greater good for all.
Of course there is subjectivity in what that greater good should be, but do any of us really believe right now that that CEOs on Wall Street are being rewarded according to their personal merits and hard work? Those crooks at AIG immediately turned around and used bailout money for luxury taxpayer funded vacations. That money was supposed to be used to pay off their creditors.
It's that type of unethical greed that neither rewards investors with anything but a paper mirage or finds it possible to give anyone but the CEOs at the top raises that keep up with inflation that has brought our nation to this brink. We are all stagnant except the stratospherically rewarded CEOs now.
This country is in need for some serious change. A government that is accountable, responsive and transparent to we the people is one of them. Some regulatory reform of our businesses including some punitive measures against excessive executive pay is another. But last and not least, this country could use a little real socialism that helps the vast majority of Americans out.
When your elected officials try to tell you there is no money for socialistic programs like Medicare, Medicaid and Social Security, call them the liars that they are. They know better.
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