People want decent paying jobs instead of getting more debts/credits while deleverage from past profligate. Banks sitting on trillions of reserves because of lack of demand for fund as well as risk averse behavior in debt markets. Pushing string.
|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Neoliberalism as a New Form of Corporatism||Recommended Links||Peak cheap Energy and Oil Price Slump||Secular Stagnation under Neoliberalism||Rational Fools vs. Efficient Crooks: The efficient m hypothesis||Casino Capitalism|
|Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime||Neoliberal Attacks on Social Security||Unemployment||Inflation vs. Deflation||Coming Bond Squeeze||Notes on 401K plans||Vanguard|
|401K Investing Webliography||Retirement scams||Stock Market as a Ponzy scheme||Financial Sector Induced Systemic Instability||Neoclassical Pseudo Theories||The Great Stagnation||Investing in Vanguard Mutual Funds and ETFs|
|OIL ETNs||Peak Cheap Energy and Oil Price Slump||Notes on 100-your age investment strategy behavior in rigged markets||Chasing a trade||The Possibility Of No Mean Reversion||Junk Bonds For 401K Investors||Tax policies|
|John Kenneth Galbraith||The Roads We Take||Economics Bookshelf||Who Rules America||Financial Quotes||Financial Humor||Etc|
“When the capital development of a country becomes a by-product
of the activities of a casino, the job is likely to be ill-done.”
John Maynard Keynes
"Life is a school of probabilities."
Neoliberal economics (aka casino capitalism) function from one crash to another. Risk is pervasively underpriced under neoliberal system, resulting in bubbles small and large which hit the economy periodically. The problem are not strictly economical or political. They are ideological. Like a country which adopted a certain religion follows a certain path, The USA behaviour after adoption of neoliberalism somewhat correlate with the behaviour of alcoholic who decided to booze himself to death. The difference is that debt is used instead of booze.
Hypertrophied role of financial sector under neoliberalism introduces strong positive feedback look into the economic system making the whole system unstable. Any attempts to put some sand into the wheels in the form of increasing transaction costs or jailing some overzealous bankers or hedge fund managers are blocked by political power of financial oligarchy, which is the actual ruling class under neoliberalism for ordinary investor (who are dragged into stock market by his/her 401K) this in for a very bumpy ride. I managed to observe just two two financial crashed under liberalism (in 2000 and 2008) out of probably four (Savings and loan crisis was probably the first neoliberal crisis). The next crash is given, taking into account that hypertrophied role of financial sector did not changes neither after dot-com crisis of 200-2002 not after 2008 crisis (it is unclear when and if it ended; in any case it was long getting the name of "Great Recession").
Timing of the next crisis is anybody's guess but it might well be closer then we assume. As Mark Twain aptly observed: "A thing long expected takes the form of the unexpected when at last it comes" ;-):
This morning that meant a stream of thoughts triggered by Paul Krugman’s most recent op-ed, particularly this:
Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.
As most 401K investors are brainwashing into being "over bullish", this page is strongly bearish in "perma-bear" fashion in order to serve as an antidote to "Barrons" style cheerleading. Funny, but this page is accessed mostly during periods of economic uncertainty. At least this was the case during the last two financial crisis(2000 and 2008). No so much during good times: the number of visits drops to below 1K a month.
Still I hope it plays a small but important role: to warn about excessive risk taking by 401K investors in neoliberal economic system. It designed to serve as a warning sign and inject a skeptical note into MSM coverage. There are not many such sites, so a warning about danger of taking excessive risk in 401K accounts under neoliberalism has definite value. The following cartoon from 2008 illustrated this point nicely
As far as I know lot of 401K investors are 100% or almost 100% invested at stocks. Including many of my friends. I came across a very relevant to this situation joke which nicely illustrated the ideas of this page:
Seven habits that help produce the anything-but-efficient markets that rule the world by Paul Krugman in Fortune.
1. Think short term.
2. Be greedy.
3. Believe in the greater fool
4. Run with the herd.
6. Be trendy
7. Play with other people's money
I would like to stress again that it is very difficult to "guess" when the next wave of crisis stikes us: "A thing long expected takes the form of the unexpected when at last it comes".
But mispricing of risk in 401K accounts is systemic for "overbullish" 401 investors, who expect that they will be able to jusp of the train in time, before the crash. Usually such expectations are false. And to sell in the market that can lose 10% in one day is not easy psychologically. I remember my feelings in 2001-2002 and again 2008-2009. That's why many people who planned to "jump" stay put and can temporarily lose 30 to 50% of value of their 401k account in a very short period of time (and if you think that S&P500 can't return to 1000, think again; its all depends on FED). At this point some freak out and sell their holdings making paper losses permanent.
Even for those who weathered the storm and held to their stock holdings, it is important to understand that paper losses were eliminated mostly by Fed money printing. As such risks remains as at one point FED might find itself out of ammunition. The fact that S&P500 recovered very nicely it does not diminish the risk of such behavior. There is no guarantee that the third crisis will behave like previous two.
Next crash will have a new key determinant: the attitude toward the US government (and here I mean the current government of Barack Obama) and Wall Street after 2008 is the lack of trust. That means that you need to hope for the best but prepare for the worst. Injection on so much money into financial system was a novel experiment which is not ended yet. So how it will end is anybody's guess. We are now in uncharted waters. I think when Putin called Bernanke a hooligan, he meant exactly this. Since Bernanke was printing money out of thin air to buy financial paper, his action were tantamount to shoplifting. In some way this probably is more similar to running meth labs inside Fed building. The system was injected with narcotics. Everybody felt better, but the mechanism behind it was not healthy.
The complexity of modern financial system is tremendous and how all those new financial instruments will behave under a new stress is unknown. At the same time in the Internet age we, the great unwashed masses, can't be keep in complete obscurity like in good old time. Many now know ( or at least suspect ) that the neoliberal "show must goes on" after 2008 is actually going strongly at their expense. And while open rebellion is impossible, that results in lack of trust which represents a problem for financial oligarchy which rules the country. The poor working slobs are told be grateful for Walmart's low (poverty-subsidized) prices. Middle class is told that their declining standard of living is a natural result of their lack of competitiveness in the market place. Classic "bread and circuses" policy still works but for how long it will continue to work it is unclear.
But nothing is really new under the sun. To more and more people it is now clear that today the US is trying to stave off the inevitable decline by resorting to all kinds of financial manipulations like previous empires; yesterday, it was the British Empire and if you go further back, you get the USSR, Hapsburg empire, Imperial Russia, Spanish empire, Venetian empire, Byzantium and Roman empire. The current "Secretary of Imperial Wars" (aka Secretary of Defense) Ashton Baldwin Carter is pretty open about this:
“We already see countries in the region trying to carve up these markets…forging many separate trade agreements in recent years, some based on pressure and special arrangements…. Agreements that…..leave us on the sidelines. That risks America’s access to these growing markets. We must all decide if we are going to let that happen. If we’re going to help boost our exports and our economy…and cement our influence and leadership in the fastest-growing region in the world; or if, instead, we’re going to take ourselves out of the game.”
For the US elite it might be a time to rethink its neocon stance due to which the US is exposing ourselves to the enmity of the rising economic powers, and blowing serious cash to maintain it hegemony via maintaining huge military budget, financing wars and color revolutions in distant countries. In a way the US foreign policy became a financial racket, and racket can't last forever because it incite strong opposition from other countries.
Neoliberalism (aka casino capitalism) as a social system entered the state of decline after 2008. Like communism before it stopped to be attractive to people. But unlike communism it proved to have greater staying power, surviving in zombie state as finanfial institutions preserved political power and in some cases even enhanced it. It is unclear how long it will say in this state. Much depends on the availability of "cheap oil" on which neoliberal globalization is based.
But the plausible hypothesis is that this social system like socialism in xUSSR space before entered down slope and might well be on its way to the cliff. Attempts to neo-colonize other states by the West became less successful and more costly (Compare Ukraine, Libya and Iraq with previous instances of color revolutions). Some became close to XIX century colonial conquests with a lot of bloodshed (from half million to over a million of Iraqis, by different estimates, died ). As always this is mainly the blood of locals, which is cheap.
Libya and Ukraine are two recent examples. Both countries are now destroyed (which might be the plan). In Ukraine population is thrown in object poverty with income of less that $5 a day for the majority of population. And there is no other way to expand markets but to try to "neo-colonize" new countries by putting them into ominous level of debt while exporting goods to the population on credit. That is not a long term strategy as Greece, Bulgaria, and now Spain and Portugal had shown. With shrinking markets stability of capitalism in general and neoliberalism in particular might decrease.
Several researchers points to increased importance Central banks now play in maintaining of the stability of the banking system. That's already a reversal of neoliberal dogma about free (read "unregulated") markets. Actually the tale about "free markets", as far as the USA is concerned, actually was from the very beginning mainly the product designed for export (read about Washington consensus).
finance.yahoo.comBrilliance is often accidental, and so it was at Goldman Sachs' annual meeting on Friday.
In an attempt to pinpoint exactly what's wrong with the global economy - why demand is weak, why growth is anemic, why jitters on one side of the planet can turn into panic all over - CEO Lloyd Blankfein happened upon why Wall Street is so hated.
It was, as I said, an accident.
Blankfein said that what the world needs now is confidence. In investment banking, when people are confident t here are "more financings, more equity raises, because people invest more money in their own businesses when they're confident," he said, according to Business Insider's Portia Crowe , who was on the scene.
This explanation sounds right. When people think they can make money they put their money to work.
The problem is that "confidence" doesn't go far enough. More than confidence, for people to invest in the world they have to trust in it - in the systems and people that make it work.
The fact that Blankfein missed that mark, though, explains exactly why people hate Wall Street.
The financial crisis, the scandals and the fraud and the dark headlines, have all helped erode that trust. And that lack of trust is what is holding the world back right now.This is not a drill
Think of a simple trust-building exercise, the fall game. When you're the fall guy, you can be confident that everyone is going to catch you. That, after all, is how the game is completed. You have to believe that everyone understands the rules.
What's better than knowing that everyone understands the rules, though? Trusting that everyone around you is going to catch you - believing beyond a shadow of a doubt that they want to follow the rules .
That's the difference between trust and conviction. Trust is something you can rely on, beyond certainty.
Now one can operate in markets without trust, with only conviction.
Conviction doesn't demand that you, or anyone else, play by the rules, though. It just demands that you understand what's going on (and what motivates everyone around you) at all times. It's a daunting task that neither the common person nor Wall Street's all-seeing CEOs were able to accomplish before the financial crisis. It is, however, part of the latter's full-time job - mitigating risk, seeing the unforeseen.
Of course, some of that burden would be lifted if we operated on more trust and less conviction.
Your correspondent is hardly the only person thinking this way. This week, Andrew G. Haldane, chief economist of the Bank of England, gave an incredibly compelling speech on what's wrong with global economy. Unlike Blankfein, though, he got it right. The speech was called The Great Divide, and he argued that the only way to close that divide is with trust.
"Evidence has emerged, both micro and macro, to suggest trust may play a crucial role in value creation. At the micro level, there is now ample evidence the degree of trust or social capital within a company contributes positively to its value creation capacity," said Haldane.
"At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth. Put differently, a lack of trust jeopardizes one of finance's key societal functions - higher growth."Watchers on the wall
Back in 2014, when the market was roaring and everyone thought we were on the road to recovery, Dylan Grice, a portfolio manager at Aeris Capital, put forth the same idea. He saw in declining relations between the US and China, between Russia and the world, and between citizens and corporations what could only be perceived as our descent into the trough of a cycle of trust.
And, as he pointed out, credit - one of the main forces for moving money from place to place - comes from the Latin word for trust.
Over at HSBC, economist Stephen King wrote a note called Unhappy Families: The Case for International Policy Coordination in which he argued that the global economy could actually be saved quite easily if we trusted each other. If the countries that could save us - the US, China, and Germany - acted unselfishly and in coordination and simply did.
But they won't, because there is no trust.
"Yet it would be easy, too easy, to point the finger at finance alone," Haldane said in his speech. "For this Great Divide exists not just between the financial elites, but between elites generally and wider society. It is not just bankers who have suffered a loss of public trust. In varying degrees, this is also true of big business, government and, yes, politicians and central banks."Man, see this mirror
This brings us back to Goldman Sachs, which happened to have had a very embarrassing little incident last week when one of its analysts recommended buying Tesla just before the bank announced that it would be helping the automaker with an equity offering.
Business Insider's Myles Udland described why that looks shady:
The stock upgrade is a detailed argument for why you, the investors, should buy the shares. As a result, investors buy.
This report is delivered just as Goldman's sales force is about to hit the phones to push $1.4 billion of those very shares for a nice fat fee for Goldman and a dilutive hit to the shareholders.
So then there are investors who, based on Archambault's note, bought the shares in the morning only to learn by that afternoon that Goldman would have a hand in diluting their newly acquired ownership stake.
And the popular view says Goldman knew this was going to happen the whole time.
If you're thinking the worst, this snafu was a breach of Wall Street's famous Chinese Wall between research and investment banking. What's more, because of this trust deficit, most people were thinking the worst because that's what they do when they think of Goldman Sachs.
Lloyd on a vampire squid. Sorry bro, too easy.
And because of that some people don't trust, or put their money in, the market.
And because of that the market doesn't move.
Haldane sees this fear as a loss of social capital arising from the crisis.
"Social capital is inextricably linked to trust," he said in his speech. "And banking is quintessentially a trust business. At root, it involves swapping promises to pay. These promises rely on trust."
It's the belief that these promises will be kept that the market is lacking, not necessarily that they can be kept. This is the difference between trust and confidence. And with every scandal and fraud, every dark headline telling of financial ruin that comes from the financial sector, some of that trust is lost.
Haldane thinks that recreating the local bank, a bank with the kind of accountability that comes from knowing someone by name and looking them in the eye, is part of the solution. But banking isn't moving that way. Every day we hear about how it's becoming more automated.
He acknowledges this, recognizing that banking must "seek new ways to nurture generalized, or anonymous, trust on the part of the public. Technology may be a great enabler here."
But in the end it doesn't matter how we fix this. We just have to fix it.
"Whatever business model is adopted, success will hinge on whether the public have faith in banks pursuing a purpose aligned with their needs, that they are fulfilling their fiduciary function. There is a mountain to climb on this front, not just for banking but for business generally," he said.
"If not at an all-time low, public trust in big business is plumbing the depths. And the chorus of criticism of business is not confined to the general public. It is shared by politicians, academics, investors and indeed sometimes by companies themselves."
Everyone is holding on to their money. Everyone is trying to look someone the eye and finding their counterparties' gaze shifting to wherever self-interest guides them. The counterparties are confident they'll find money there, sure, but the trust that makes the market go around is being lost in the process.
It takes so much more to build it up than to break it down.
NOW WATCH: THE STORY OF GOLDMAN SACHS: From foot peddlers to a powerhouserey Q 25 minutes agoGS, Chase ,BofA,Wells Fargo.....,and some others big banks created the crisis past 2008-09.
Any one of the executives pass a day in prison, they pay cents on the dollars and happy cumballa until the next scam. Gov it's corrupt with a "revolving door" infiltrating the key position, every official working in White House or with the executive branch did work for a big bank first or going to work after!!!
They want trust, trust they themselves self smash, hundreds of case in courts from US citizens right now vs Government Why?
Because Gov. trying to steal ,expropriating private property without compensation and ignoring constitution. The rest of the population are worring about what wearing Kardashian!!! Our next election will be a show top level globally!!! Our founding fathers will be revolting in their tombs for now
What the world needs now --- is love, sweet love. It's the only thing that there's just too little of, or so Burt Bacharach, Hal David & Jackie DeShannon said. But seriously folks . . . people hate Wall Street because of the unbridled greed everywhere. The Great Recession wasn't caused by real estate speculation --- it was caused by easy money from Wall Street when they packaged together risky mortgages & investment bankers sold them to banks as great investments, and then betting on them to fail on the side using Credit Default Swaps. It's very similar to what Joe Kennedy and his cronies did in the 1920's using market manipulation by cornering stocks & then doing a bear raid on it, which is illegal now. What the Wall Streeters did in 2000-2007 is still not illegal.
I agree. Trust needs to be restored. This requires Wall Street firms to be honest, and to weed out the greedy, psychopathic and sociopathic brokers, bankers, CEOs and chiefs, and assorted other criminals. By running firms honestly to a fault, investors would at first shy away because they'd think it was some kind of trick. Over a short period, good experiences will increase business to the point that it would exceed current sales many times over, even beyond your wildest imagination. There is a lot of $$$$$$$$$$$$ to be made in honestly run business. It's never to late to start.
The only thing you can trust is that Goldman Sach's values don't include giving a damned about average Americans even if in Blankfein's delusional mind he is doing "Gods work. It would go a way toward restoring trust in the system if these rip off artists would consent to paying more taxes on their ill deserved gains in order to help bring down some of the nations debt and relieve the misery their unethical behavior created. But that will never happen voluntarily. Basically they are immoral creeps killing the golden goose that is our country.
The repeal of Glass Stegal (which Roosevelt put in place after the last great depression) which prevented banks from investing depositors money in the stock market, is the root cause here. Banks were only allowed to make loans on real property, like businesses and mortgages. This put the money in savings back to work. Money placed in the house of cards, ponzi scheme, stock market, just sits there. Like a giant sponge sucking up the spare capital so that a 1% few can reap the benefit. Then insiders can cause booms and busts which slowly siphon the life out of a country and enslave it. The mortgage rate is now the lowest it has ever been in the US. Now with everyone's money in the stock market the next crash will bankrupt us since all the banks will have is worthless paper stock certificates.
Trust is not created through slick marketing and strategic press releases about speeches made by banking insiders, to other insiders, intended to convince those outside their cozy system, that they get it now, no more underhanded dealings, really this time, partners 50-50. We promise, no fingers crossed, everything above board from now on, you can trust us, really this time. That bs is played out, to ask for trust, is to confirm the fact that they should not, can not, be trusted. Trust, if it ever returns, to any degree, in any form, will be created by the numbers. The real numbers. The ones written under our names. The ones that stick. Trust is not a marketing concept, it can't be put where it doesn't belong, it can't grow where it isn't planted, protected, and nurtured.
Wall Street manipulators could not succeed without the complicity of Government. STOP REGULATING WALL STREET AND START DEMANDING THAT POLITICIANS CANNOT BE CONTROLLED BY LOBBYISTS. There should be a law that politicians bought by lobbyists WILL be prosecuted. It is Government that is guilty of capitulation. GOVERNMENT WRITES THE LAWS AND THE TAX CODES.
Run corruption out of DC and there will be much more trust of big business. Do not buy the garbage that politicians are critical of the Wall Street crowd. Has Hillary released her speeches yet? NO. Don't expect she ever will. (aside: I do not find this article informative, and I'm dismayed by the comments I've read here.)
It's so simple: the bank robbers have been given (or have taken) the combination to the bank vault and looted it. Then they were given raises and bonuses for this heist.
Doubt me? That canny corporate lawyer Abraham Lincoln anticipate our modern condition as far back as 1864, when he wrote:
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
The mass of Americans are too powerless to fight back against the reign of the money powers. As Lincoln predicted, our Republic is destroyed. What awaits us now is dictatorship or even worse ... theocracy.
economistsview.typepad.comTravel day -- will post more later if and when I can.
This is a review of Branko Milanovic's "Global Inequality: A New Approach for the Age of Globalization" by Miles Corak:Worlds of Inequality, The American Prospect : This book begins by posing a question: "Who has gained from globalization?" Many thoughtful Americans have the confidence to answer in a sentence. The gains have been captured by the top 1 percent. And the book ends with another question: "Will inequality disappear as globalization continues?" Many might be just as quick to answer: Of course not, the rich will get richer! But life is not so simple. Between these two questions Branko Milanovic offers us not just a plethora of facts about income inequality that will surely make his readers think twice. More importantly, he shows us the power of bringing the facts into focus by putting a new lens over these pressing issues-a global perspective. ...The most striking fact that motivates his book is a graph that the Twittersphere has already termed "the elephant curve." This is the one-sentence, or rather one-picture, answer to the first question: "The gains from globalization are not evenly distributed." ...Clearly evident are the rise of a global middle class, in some important measure reflecting the great march out of poverty in China, and the equally amazing rise in the incomes of the top 1 percent globally. The winners of globalization were many people who three decades ago were dirt-poor, and though a big percentage increase in a very low income still amounts to a rather low income by the standards of the average person in the rich countries, it is a major movement in the right direction. But the great winners of globalization were also a relatively few people in the already-rich countries, a global plutocracy who also experienced income gains of over 50 percent, but from a much higher starting point. Both of these changes are without precedent in the history of humanity.
But the elephant curve also shows that even though some have gained, others have not seen their prospects improve at all-indeed, probably leading lives of more insecurity and more worry, not just about their prospects but also the prospects of their children. The big losers in these global income sweepstakes have been middle- and lower-income people of the rich countries...
DrDick : , Wednesday, May 18, 2016 at 06:27 AMThat book is on my shelf for my summer reading. I would add, as implied in the review, that most of the decline in global inequality (between countries) has come from the decrease in the number of people living on $2/day or less, though their incomes remain very low. In contrast, within country inequality has increased globally.Gibbon -> DrDick... , Wednesday, May 18, 2016 at 09:56 PMThat average poorness is decreasing while people in the first world lose ground reminds me of the Simpson's paradox.DrDick -> Gibbon ... , -1
Also claims as such do a slight of hand and imply that the world economy is a zero sum. So for the people living on $2/day to improve their lot the people in the wealthy countries need to give up wealth. IE, the current system is working for everyone but you which means you're a loser who needs to STFU.It really is a "zero sum game" to some extent, given that the economy, local or global, is finite at any point in time. However, the "winners" (can you really call bandits winners?) are the global plutocracy, who have sucked up almost all economic gains for more than 30 years.
May 19, 2016 | nakedcapitalism.com
By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website
The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair. Rationalizing personal disappointment and embracing market-centric economic theories according to which government can do little more than fuss around the edges, their conclusions - and the political leadership that embraces them - have little to offer millions of angry ordinary people for whom the economy simply isn't working.
It has certainly been a rough seven years for the economists in the Obama Administration. While avoiding a Great Depression, the Administration has presided over what Paul Krugman and Brad DeLong call a " ." One might almost forgive them for a certain defeatism after seven years of painfully slow economic recovery, and the dismay of seeing urgently needed programs blocked by the Republican congressional majority. After so many compromises and let-downs, perhaps it is easier to tell those who expect more that it just can't happen. There is comfort in the Thatcherite phrase, "There Is No Alternative" (TINA).
Combined with orthodox neoclassical microeconomics, however, rationalization has produced a toxic political economy that abandons progressive ideals and surrenders political space to xenophobes and the populist rightwing (see: Donald Trump). The mainstream economists who have attacked my embrace of Keynesian economics have abandoned, in practice, the notion that government can effectively intervene in the economy to raise levels of employment, and to promote economic growth and equity. Instead, they have returned to pre-Keynesian Classical thinking, where the very suggestion that government action can raise growth rates or wages is taken to be obviously wrong. Criticisms of the orthodox model and its conservative policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe in order to accept failure .
The mechanism of economic policy paralysis among the liberals who espouse market-centric economics works like this: If we accept the (flawed) premise that the total supply of goods and services equals total demand, then we can agree with the Congressional Budget Office (CBO) that potential output is best measured by observing actual output. And, with that - presto! - unemployment magically disappears, and we no longer suffer from slow growth. Conveniently align growth projections with the otherwise-disappointing performance during the Lesser Depression, and, as the CBO has done, estimates of potential growth now equal actual growth: Instead of the 3 percent average annual growth of the 1959-2007 period, not to mention the 4 percent growth 1947-73, we are now told to accept 2 percent growth not as a disappointment, but as recognition of an unfortunate necessity. Such reevaluations say to policy elites, "Hey, we are doing as well as can be expected." To the general public, the message is: "Sorry, nothing more can be done for you." TINA.
The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change.
It was only by rejecting classical economics that Franklin Roosevelt was able to save the American economy and bring about a revolution in social policy. And only by rejecting the new classical economics and the policy of so-called responsible elite economists can Clinton meet our current economic crisis.
John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression.
The debate over my little report showed how mainstream economics has left us with a smugly certain macroeconomics lacking in imagination, and offering no effective policies to move beyond economic stagnation and escalating inequality. If these economists cannot do better, then we risk more than personal disappointment; we gamble our liberal political economy against the likes of Donald Trump and Ted Cruz. Hillary Clinton can do better. And Americans deserve better.James Levy , May 19, 2016 at 6:31 amso , May 19, 2016 at 7:10 am
A very bold thing for a man like this to say. I know he will be criticized (vilified?) for his misplaced belief that Clinton can "do better", but considering who this man is and where he is coming from, condemning him at this stage of the game would be churlish. He's taken on The Bigs and the stifling orthodoxy they embody and for that we owe him.
I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that.jsn , May 19, 2016 at 7:16 am
Sad. There is them and there are us. Empathy. Hard to have when your busy all the time.Torsten , May 19, 2016 at 7:54 am
I've had many similar recent encounters. I find that if I ask for a positive reason to vote Clinton, the first three or four reasons they raise can be dismissed by single phrase references to past betrayals, Sister Solja, End of Welfare, Nafta etc. and the next few by scandals, Lewensky or what should be scandals as you mentioned. As a rule after four or five tries I get to watch them self censor before each subsequent try and don't have to make any negative claims myself.
I doubt I've changed minds, but they no longer doubt mine.hemeantwell , May 19, 2016 at 8:01 am
I would have first pointed to Honduras. And Haiti:
What did she do in Nicaragua?bowserhead , May 19, 2016 at 8:46 am
I think that was a slip, but an historically correct one I can completely sympathize with.
HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it.Norb , May 19, 2016 at 9:01 am
" I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that."
I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass.John Wright , May 19, 2016 at 10:11 am
This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together.
TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise.
We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them.
This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster.
Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order.
I bring up the notion of a civil war because these ideas are too important to be left to chance. In America, the citizenry has been complacent with their lot in life and so have lost control over their fate. As the world changes around them, they desperately attempt to hold onto their position while not realizing they are supporting their own impoverishment. Speaking ideas of the common good -for ALL- and notions of public ownership of land, natural resources, citizens natural rights to jobs, basic income, and healthcare divide family and friends. Those who are comfortable don't want to cause trouble and those feeling the pressures brought down upon them by an unrelenting system are too weak and fearful to act.
In a sense, the revolution has already begun. It is the revolution to convince people that there is a better and different way to live our lives.human , May 19, 2016 at 10:48 am
Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs.
This can explain why attempting to convince someone to change their political/religious beliefs is fated to be largely futile.
For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump.
Per Haidt, maybe my beliefs are instinctive and I am willfully blind to all of Clinton's accomplishments over the last 40 years.david s , May 19, 2016 at 6:51 am
ROTFLMAOjgordon , May 19, 2016 at 7:47 am
I think that if there are to be any Keynesian big ideas and projects that will help lift us out of this stagnation, they will much more likely come from a Trump Administration than a Clinton one.fresno dan , May 19, 2016 at 10:11 am
Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do.
A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. But this society isn't even anywhere close to having something so useful on its agenda. So we'll do some Keynesian program, funnel the few remaining resources we have left down into some stupid dead end rathole, and then in a couple of years we'll be envious here in America of the extravagant lifestyles that the Mexicans are leading. Hell Trump's wall will be a lot more useful keeping the Mexicans in who are trying to flee. That is the end result of Keynesian programs in a delusional society with bass-ackward priorities. Way more harm than good.david s , May 19, 2016 at 6:55 am
I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale.
I have been gone 20 years, and they had gone on a real freeway building tear while I was gone. The whole city crisscrossed with freeways laid out as if someone had thrown a bowl of spaghetti on a map – apparently so every neighborhood can enjoy the sound of traffic.
Really, Fresno is just not that physically big to justify all these freeways. And with its high unemployment and no real "center" there aren't any places with traffic congestion anyway – but you get these dubious justifications that millions of dollars are wasted because an implausible auto trip is 4 minutes longer without the freeway….Akronite , May 19, 2016 at 7:56 am
There seems to be a developing narrative that the Obama Administration has just been brimming with big ideas that have been thwarted by evil Republicans.
I don't remember it this way. I do remember an Obama Administration that turned to austerity shortly after the 2009 stimulus, and one that has been patting itself on the back all along about what a great job it has done.
"All across America, families are tightening their belts and making hard choices. Now, Washington must show that same sense of responsibility."
President Obama, April 2009(!)hemeantwell , May 19, 2016 at 8:09 am
Now that the pictures we snapped of Obama are finally beginning to develop, where we thought we had photographed his lush jungle, we're now seeing just a single thin sapling planted for "the future." And Clinton will soon have a picture of her snapped at this sad tree, with her big lying smile.flora , May 19, 2016 at 8:22 am
I don't think Friedman is saying this, unless Rex Tugwell has been secretly disinterred and is serving under Obama. The capitalist ideological counteroffensive that got going in the 70s has been hegemonically successful. Friedman doesn't acknowledge that enough, he instead focuses on what sounds more like disciplinary politics.JLCG , May 19, 2016 at 8:26 am
Great post. Thanks.Carla , May 19, 2016 at 9:14 am
This type of article or perhaps, all articles about the Economy, deal with the Economy as a substance to which people are appended as accidents. The economy is the sum total of the effort of the people and if the people think that enjoying this very present is preferable to an effort to build a future nothing can be done about it. It is the mind of the people that has to be changed. Wars are very good mechanisms for that.sinbad66 , May 19, 2016 at 10:05 am
I can't remember if I got this link from an NC comment, or elsewhere. In any case, it's a scary read: "The 14 Defining Characteristics of Facism," augmented by a selection from "They Thought They Were Free." http://rense.com/general37/fascism.htm
Brings Obama and HRC to mind just as much as Trump, if not more.fresno dan , May 19, 2016 at 9:57 am
Read "Democracy, Incorporated" by Sheldon Wolin: http://www.amazon.com/Democracy-Incorporated-Managed-Inverted-Totalitarianism/dp/069114589X/ref=sr_1_1?ie=UTF8&qid=1463666525&sr=8-1&keywords=democracy+incorporated
Explains it all….Punxsutawney , May 19, 2016 at 10:22 am
"The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair."
Here is the problem: "a political economy of despair" – accepting that economists are a real objective academic discipline is a BIG mistake – the idea that these technocrats, who never seem to recognize how much fraud, rent seeking, and capture of the political system
((because the people paying them don't WANT THEM TO)),
decides things like how much inequality there is, which than decides how much demand there is, and NOT knowing, and apparently NOT WANTING TO KNOW, that it is a POLITICAL economy, and politics decides how resources are often allocated.
We can have single payer heath care if we choose it and free college education (it wasn't all that long ago that I went to a CA college essentially for free). HOW is it college used to be free when GDP was less than 1/6 of what it is now??????
It just doesn't make sense that we used to be able to afford free college and we can't now. It is a POLITICAL decision – when Krugman says Sanders plan is "too expensive" Krugman is making a political decision – not some objective scientific assessment. And if he is not even smart enough to ponder why it used to be free and it is not free now – well, theres your problem right there!
Nice to see this article. When I talk about economics, most people who know anything, only know what someone on TV tells them, so they often question, well who agrees with you? Nice to have another name to list.
"Sorry, nothing more can be done for you." TINA.
Of course for those at the tippy-top, "How can I help you today?"
Goldman Responds To Goldman's Stock Offering of A Goldman-Upgraded TeslaSubmitted by Tyler Durden on 05/19/2016 09:59 -0400
Chinese Wall Investor Sentiment Restricted Stock
In what many considered to be a flagrantly criminal abuse of investment bank "restricted lists", yesterday Goldman underwrote a $2 billion equity offering for Tesla (to find its amusing expansion strategy) just hours after Goldman upgraded the stock to a Buy.
We have done our best to alert the regulators...
Hey @SEC_News here it is in terms even you can understand pic.twitter.com/Yprw3GZDMm
- zerohedge (@zerohedge) May 18, 2016
Hey @GoldmanSachs do you use restricted lists and was Tesla on it?
- zerohedge (@zerohedge) May 18, 2016
... however we are confident the regulators are paid far better to remain unalerted.
So for those curious what Goldman's research analyst who upgraded Tesla, Patrick Archambault, had to say about this "odd, very odd coincidence", here it is straight from the mouth of the horse which obviously remains stabled safely on the other side of the Chinese wall located at 200 West.
Commentary: Tesla announces equity offering and provides further details on Model 3 reservations
After the close on May 18, Tesla announced a 6.8mn primary share offering. The offering includes a greenshoe option which, if exercised, would increase the number of shares sold to approximately 8.2mn. Based on the May 18 closing price of $211.17, this would result in a total value of $1.4bn for the offering, or $1.7bn if the greenshoe option is exercised. In addition, Elon Musk, CEO, will sell 2.8mn shares to satisfy tax implications from exercising 5.5mn in stock options that expire at year-end. The company noted that Mr. Musk also plans to donate 1.2mn shares to charity and that the net result of these actions will be to increase his holdings to 31.1mn shares from 29.6mn. All said, based on the latest closing share price and including the primary offering, greenshoe, and Mr. Musk's sale, the total size of the transactions would be $2.3bn.
In the preliminary prospectus, the company also provided an update on Model 3 reservations and announced that it had 373k deposits as of May 15, 2016. This is net of 8k (approx. 2% of total) in customer cancelations and 4.2k (approx. 1% of total) reservations deemed to be duplicates.
Adjusting for the announced transaction and the supplemental stock options outstanding, and for restricted stock units (RSU) information, our EPS estimates would be unchanged for 2016-2017. Including the greenshoe, our 2016-2017 EPS estimates would decline by less than 1% on average.
We maintain our Buy rating and EPS estimates following the announcement . Additionally, our 6-month price target of $250 remains unchanged, derived from five probability-weighted automotive scenarios plus stationary storage optionality , all of which embed a 20% cost of capital. While the announced capital raise of $1.4bn (or $1.7bn with the greenshoe) is ultimately higher than our $1bn estimate, after factoring in the updated supplemental RSU and option information, dilution to our estimates would be immaterial. Consistent with our previously published research (see Putting in our reservation for the Model 3; upgrading TSLA to Buy, May 18) we believe the funding level is adequate for the Tesla Model 3 roll-out. The reservations of 373k are in line with the company's recent comments of "approaching 400k", though they imply slowing growth (even adding back the cancellation and duplicates) as reservations had already hit 325k one week after the Model 3 unveil.
Risks: Decline in overall investor sentiment impacting the appetite for concept stocks, further delays in the Model X production ramp which could force a guidance reduction as well as exacerbate FCF burn, and higher-than-forecast operating expenses and/or capex investments.
Actually the biggest risk factor, and what is most hilarious about this whole incident is that in the Goldman upgrade, which was clearly rushed, and in which Goldman itself admitted there is a two-thirds likelihood the stock will plunge to $125 or lower and the only upside is due to a "key man provision" and a ridiculous thesis that Musk alone is worth tens of billions in market cap (somehow excluding tens of billions in taxpayer grants)...
... is that all those who bought TSLA on the Goldman report (and/or Goldman stock offering) will actually read it.
A Pimp's love i...
greenskeeper carl , Thu, 05/19/2016 - 10:04
Would it really be that surprising if it did hit 250? I wouldn't be the least bit surprised. It makes no sense where it is now, another 20% up would be par for the course for this "market". It's probably just more muppet slaying by Goldman, but I could see them releasing those cars that will of course get stellar reviews and have a full retard price spike. Dumber shit has happened.
ParkAveFlasher , Thu, 05/19/2016 - 10:04
"It feels good, doesn't it Muppet? You want more, don't you?!"
Stackers , Thu, 05/19/2016 - 10:11
ZH is dead on. This is CFA Level 1 stuff.
How to Comply
The Standards of Practice Handbook provides a number of operational suggestions that one should recommend for adoption by the compliance department.
Establish a restricted list - This is to limit research on those firms that have a business relationship with that company. If an adverse opinion would hurt this business relationship, the company stock should be restricted from the research universe, and only factual information on the company should be disseminated.
TradingIsLifeBrah , Thu, 05/19/2016 - 10:14
I bet Goldman believes its valuation is "factual" lol
OrangeJews , Thu, 05/19/2016 - 11:22
The worst part in my opinion is that by keeping Musk going makes him look like a God to all of the sheeple when in reality he's just using other people's money and other people's ideas to become famous. Basically the definition of the current United States.
JamaicaJim , Thu, 05/19/2016 - 10:23
Ah yes...Pacino.....in one of his finest works....plus excellent writing....
His God speech;
asteroids , Thu, 05/19/2016 - 10:23
Obviously something is broken. It's up to the SEC to act. If it doesn't then the SEC is broken. If the SEC is broken then it's up to .....
ShorTed , Thu, 05/19/2016 - 10:24
Yes something is broken... must be the porn filters at the SEC again. Don't expect people who's future (once they pass thru the revolving door) depends on them not finding any malfeasance, to do the right thing.
JamaicaJim , Thu, 05/19/2016 - 10:10
Goldman Sucks Ass should be Lehman-nized
Lengthy prison senten.....
...wha.....huh.....I was having a dream?
quadraspleen , Thu, 05/19/2016 - 11:09
Yeah. Dreaming. I actually spat water at "arrests made"
nibiru , Thu, 05/19/2016 - 10:10
Everything i in order guys, don't worry it's temporary technical glitches... carry on, nothing to see here. Oh and sell gold! Listen to Gartman!
TradingIsLifeBrah , Thu, 05/19/2016 - 10:11
They should have added in a 1% chance that TSLA goes to $1,000,000,000 per share to pull the target price up a little higher.
Farmer Joe in B... , Thu, 05/19/2016 - 10:24
Having worked in a mid-sized IB, I can tell you there is no such thing as a fucking Chinese wall. Cheesecloth at best.
This cocksucker absolutely knew that a deal was cooking...
ptoemmes , Thu, 05/19/2016 - 10:24
Who are these "many" you speak of? Clearly does not include the financial and regualtory elite.
Similar to politicians and one D Trump claiming they could shoot someone on the Senate floor - or Times Square - and not get arrested I think that CNBC should have a reality hour where finanial elites and regulators carry out obvious fraud on live TV. You know, just to see what happens...
The Daily Fraud
Spungo , Thu, 05/19/2016 - 10:25
Should I even care about this? The people who own Tesla shares are functionally retarded. If it wasn't Tesla stealing their money for the sake raising capital, some other questionablle enterprise would get their money just as quickly. I'm thinking horse racing and lottery tickets.
bamawatson , Thu, 05/19/2016 - 11:03
oh man, please don't equate seasoned pari-mutual investors with the "functionally retarded" tesla shareholders
Dadburnitpa , Thu, 05/19/2016 - 10:28
Anyone can be "brilliant" if they're festooned with enough free government money. But once the tit dries up, you're no better than the rest.
rosiescenario , Thu, 05/19/2016 - 10:33
While Tesla's cars may be a rare sight for others in the U.S. if you drive around the SF Bay Area they are as common as anyother make of car. While the stock is at a nutty value, I'd bet you'd find that 80% of individual owners of it reside around Silicon Valley and are convinced this is the next Apple.
Personally I see no appeal to a car which has such a limited driving range....you really cannot take a trip with it.
economistsview.typepad.comI have a new column:Economic Models Must Account for Who Has the Power'' : Nobel Prize winning economist Joseph Stiglitz recently highlighted two schools of thought on how income is distributed to different groups of people in the economy. Which school is correct has important implications for our understanding of the forces that have caused the rise in inequality, and for the policies needed to reverse this trend. It also relates to another controversy that has flamed up recently, how economics should be taught in principles of economics courses. ...
Posted by Mark Thoma on Tuesday, May 17, 2016 at 06:09 AM in Economics , Market Failure | Permalink Comments (22)
!-- View blog reactions
--> !-- -->
CommentsYou can follow this conversation by subscribing to the comment feed for this post. anne : , Tuesday, May 17, 2016 at 06:27 AMExcellent approach, incisive writing.kthomas -> anne... , Tuesday, May 17, 2016 at 10:55 AMIm suprised you are so enamoured of Stiglitz. He does not put up with BS.DrDick : , Tuesday, May 17, 2016 at 06:50 AM
Still, you are right. As usual.Awesome. Thanks for this.Adamski : , Tuesday, May 17, 2016 at 07:22 AMGood one from the Stig, also.New Deal democrat : , Tuesday, May 17, 2016 at 08:21 AM
And according to Sraffa's side in the Cambridge capital controversy labour and capital do not receive their marginal products, which leaves the distribution of income to some extent socially or politically determined.
Now please make a donation to Project Syndicate, and check out Robert Skidelsky at the same site.Excellent. It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101.pgl -> New Deal democrat... , Tuesday, May 17, 2016 at 09:33 AM
P.S. The school of thought that accepts inequality as a Teh Awesome result of merit cannot explain why inherited wealth should be allowed to accumulate - another aspect of how power writes the economic rules."It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101."two beers -> pgl... , Tuesday, May 17, 2016 at 09:42 AM
Joan Robinson's writing on market power was required reading when I was in graduate school. My undergrad profs touched on this issue but not as much. I wonder if Greg Mankiw teaches market imperfections to his undergrad students at Harvard."I wonder if Greg Mankiw teaches market imperfections to his "undergrad students at Harvard."pgl -> two beers... , Tuesday, May 17, 2016 at 11:52 AM
According to theoclassical doctrine, all market imperfections are the result of gummint innerference. Left to themselves, markets hum with music of the perfect spheres."theoclassical doctrine". My new favorite term. Excellent and thanks.RC AKA Darryl, Ron : , Tuesday, May 17, 2016 at 08:25 AMWe are way past just one or the other of those explanations being true. Opportunities come in many forms, but just not for many people. Competition becomes limited in the womb and then they go from there. Better schools across all zip codes and public day care with universal pre-K would be a start. Even that is doomed to the catch-22 of making a better informed public requires a better informed public to demand being better informed. Down east they say "You can't get thar from here."RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:35 AM
I was fortunate enough to grow up in Prince William County VA in the late sixties just as it was beginning to boom from growth proximate to the DC Beltway. We had a new and progressive school system even relative to NoVA. Still by the 7th grade it was evident to me that the pedagogy related to reality in dogmatic POVs that were only relevant to the next generation of yuppie kids that had gotten a half step advantage in some various way from their parents.
My half step came from an unusual source though. My dad was illiterate and my mom only finished the 8th grade, but they were stoics with exceedingly powerful work ethics transferred more by their example of excellence in every menial thing that they did rather than by belittling and cajoling me. My dad was the best hunter, the most successful fisherman, grew the most beautiful and bountiful garden, and was self-sufficient in caring for his car and home. His position with the state highway department was limited by his illiteracy to maintenance superintendent, but due to his ability he still got to supervise the construction of roads and bridges without the benefit of commensurate pay.
My mom was the best cook, kept the cleanest house, and as at home day care for a few friends was the best a dealing with troubled children from potty training to outbursts of anger. It was a tough act to follow. Furthermore it did not fit the status quo mold that public schools were designed to reinforce. My half step freed me to reject the intellectual authority of my instructors even though their administrative authority was still sacrosanct in my home. I did well in school and even better on tests eking by to enter the Honor Society and passing the SAT test well enough to qualify for Mensa, but I dropped out of college first semester mostly just to relocate away from home to find a job in the city. So, I got drafted and went to Viet Name, but was lucky enough to survive and develop a successful career in IT systems management large systems capacity planning and performance management. The best break that I got was being laid off in June 2015 with a severance package good enough to afford me a retirement income equal after the change in expenses from leaving the professional world behind to what I had been making while working.
The moral to my story is that one can despise our education system and still do very well by themselves with it. One can reject our higher education and still do very well by themselves without it. One can despise our corporate "meritocracy" system and still have a successful career and maybe even a comfortable retirement, but the ladder has been raised for the latter. How anyone can be successful in school and/or in career without recognizing their own half step advantage or recognizing the intellectually and morally vacant institutions that they traversed in their journey is deeply puzzling to me.P.S. I had the good fortune to relocate from Prince William County to Orange County VA in summer 1966 before my senior year in high school when my dad cashed out his state retirement fund saving to start an electric motor/ john boat livery and concession stand at Lake Orange, a VA Game and Fisheries Commission state fishing lake.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:47 AM
The high school teachers were probably just as intelligent as in Manassas Park, but far more socially challenged at least in the academic curriculum. Still, the kids with that half step from their successful parents did well enough to attend decent colleges, but academic performance overall was much lower than it had been in Manassas Park back in Prince William County. The kids in Orange with really successful parents all attended private prep schools.P.P.S. Relative to the thread topic then we have a fairly rigid establishment that favors the haves and keeps the have-nots at bay. Monopoly rents are just one of the luxurious rent extracting tools of an aristocracy of social exclusion. Bankers, proto-industrialists, and slave owners established the meme of republicanism as the conservative power that protects us all from tyranny of the majority, but perhaps a little too well. More importantly they established the US Constitution as a nearly inviolable foundation for preserving their world view of well-deserved elite privilege. And they did it all in the name of democracy while showing Thomas Paine the door.anne -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:54 AMInteresting and really nicely described.RC AKA Darryl, Ron -> anne... , Tuesday, May 17, 2016 at 10:06 AMIt's a cool rainy day in central VA. Being retired and primarily a person of outdoor interests then today I have an abundance of time to waste. And commenting on the EV blog sure beats a colonoscopy, which is what I will be getting this time next week :<)BigBozat -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 12:00 PM
TMI? Yeah, tell me about it."Down east they say "You can't get thar from here."RC AKA Darryl, Ron -> BigBozat... , Thursday, May 19, 2016 at 05:09 AM
Actually, they say "Ya cain't get thay-uh frum he-yah." And they usually pre-pend a big, fullsome "Ayuh".THANKS! In any case, they are often correct :<)Dan Kervick : , Tuesday, May 17, 2016 at 08:50 AMJonathan Nitzan and Shimshon Bichler have developed an account of capitalism over sever years summarized by the slogan "Capital as Power."two beers : , Tuesday, May 17, 2016 at 09:58 AM
http://www.capitalaspower.com/There is no Nobel Prize in economics.JohnH : , Tuesday, May 17, 2016 at 10:16 AMJohn Kenneth Galbraith used to write about countervailing power. Unfortunately Galbraith has been pretty much consigned to the dustbin. Even when he was writing, economics courses did not talk about his ideas much...I guess he did not use enough math symbols.Denis Drew : , Tuesday, May 17, 2016 at 11:16 AM
Business has long understood the concept of what I'll call leverage points...critical intellectual property, experience, and know how. Control of these critical factors is a key to pricing power and profitability. As one example, Symbol Technologies dominated the handheld bar code scanner market for years, not because they had superior technology or marketing, but because they held the patent on the trigger, which was critical to activating the scanner for reading. Their market power affected not only competitors but suppliers and customers as well.
Leverage points like this are commonplace in business today. Yet I'm not aware that economics, with its orientation towards competitive markets, has ever tried to model this common behavior or even dealt with it.
Likewise, businesses have also understood the importance of market and marketing channel domination to their long term survival and profitability. Firms who fail to dominate must specialize. These concepts are considered elementary in business schools. Yet I don't know that economists have ever managed (or even tried) to incorporate them into their models.
It might help if more economists took business courses to understand how the game is played...Re-organize labor -- make union busting a MARKET WARPING (not job firing) felony ...Longtooth : , Tuesday, May 17, 2016 at 12:36 PM
... re-make America into one big Costco.I still say that until economists can reach consensus on the objective of an economy, they remain divided on the objective. Simply defining it as "for the general good" is a cop-out --- and economists and everybody else know this full well. Define what "general good means"....then see if consensus can be reached. I seriously conclude this cannot be done, since only by compromises can they reach consensus, and this means defining the objective in subjective, vague terms... just like "the general good" is vague and subjective.Denis Drew : , Tuesday, May 17, 2016 at 02:32 PM
The cop-out used by economists is at the heart of what Thomas' blog subject is about: Policy makers .. i.e. gov't decides the objectives of an economy, which is to say that economic power defines it. And of course economic power will define it to maintain and extend their economic power.... and at the very least to minimize any erosion thereof.
So one must wonder how, if gov't is controlled by economic power, that gov't will NOT insure the maintenance and extension of that economic power? Is it possible in a democracy defined by the U.S. constitution to significantly reduce the economic power of those who have it? The constitution in fact makes it impossible.
Even when congress occasionally finds a large enough majority to make law to erode or reduce economic power in gov't, the constitution enables 5 people in robes to deem it unconstitutional OR the next congress, or the next will make law that erode or reduce the effect of prior congress's law(s) that reduced or eroded economic power.
If this were not the case we'd long since have had universal single payer health care, strong labor unions, tax policies that don't give unearned income a huge break, and don't give offshore income an out by not taxing it until its "repatriated", welfare systems that don't keep people in poverty, and an educational system that provide free & equal education to all (not one that gives communities, county's, and States with the highest incomes & property values the best education and everybody else with a lesser one.
Nor, will I add would it be possible to rape the nation's environment by contaminating the nation's rivers, soils, and the air with green-house gases .. not just "paying" fines after the fact for doing so or putting low cost "caps" on green-house gas emissions.
So what does "the general good" actually mean? Economists can't agree on it, nor the means of achieving it of course nor can policy makers.... and this is the fundamental problem not being addressed.Make America one big Costco -- re-unionize.Chris G : , -1
One comment: You wrote "...individuals are rewarded according to their contributions to the economic well being of society. Those who contribute the most to the production of the goods and services we all enjoy receive the highest rewards and climb to the top of the income distribution." I would add that having power includes being able to dictate that rewards are allotted according to economic contributions as opposed to other contributions. Cue my go-to Chris Lasch quote: "... individuals cannot learn to speak for themselves at all, much less come to an intelligent understanding of their happiness and well-being, in a world in which there are no values except those of the market.... the market tends to universalize itself. It does not easily coexist with institutions that operate according to principles that are antithetical to itself: schools and universities, newspapers and magazines, charities, families. Sooner or later the market tends to absorb them all. It puts an almost irresistible pressure on every activity to justify itself in the only terms it recognizes: to become a business proposition, to pay its own way, to show black ink on the bottom line. It turns news into entertainment, scholarship into professional careerism, social work into the scientific management of poverty. Inexorably it remodels every institution in its own image."
jessescrossroadscafe.blogspot.com17 May 2016"Inequality is a euphemism, a kind of shorthand, for all of the things that have gone to make the lives of the rich so much more delicious, year on year, for the last three decades. And also for the things that have made the lives of working people so wretched and so precarious in that same time.
This word inequality. It's visible in the ever rising costs of healthcare and college, in the coronation of Wall Street, and the slow blighting of wherever it is that you happen to live. And you catch a glimpse of inequality every time you hear about someone that had to declare bankruptcy because a child got sick, or you read about the lobbying industry that drives Washington DC, or the new political requirement, the new constitutional requirement that every presidential candidate has to be a billionaire's favorite, or a billionaire themselves.
Inequality is about the way in which speculators, and even criminals, get a helping hand from Uncle Sam, while the Vietnam Vet down the street from you loses his house. Inequality is the reason that some people find such incredible significance in the ceiling height of an entrance foyer, or the hop content of a beer, while other people will never believe in anything again."
Change is coming. It must come, because the status quo is unsustainable, and has been so for some time.
How many times will our 'very serious people' with access to the public information channels continue to miss the obvious dissonance of the common reality from the official story that they tell each other about everything from the economy to politics?
At the root of this inequality, hidden as it is in the fog of fine sounding theories and economic models, is simple injustice.
The longer that change is delayed, the longer that the professional class continues to insulate itself, looking down on the broader public with smug contempt from privileged perches, blinding themselves with hypocritical arguments that deny what is happening all around them, the more disruptive that change will finally be.
And, as always, 'no one,' or at least no one who matters in their world, will have ever been able to see it coming. Because by definition no one who is an insider can ever publicly admit that the insiders have blown it completely, once again.
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich."
John Kenneth Galbraith
jessescrossroadscafe.blogspot.com"Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating.The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
Today, the United States is No. 1 in corporate profits, No. 1 in CEO salaries, No. 1 in childhood poverty, and No. 1 in income and wealth inequality in the industrialized world.
Today, the top one-tenth of 1% owns nearly as much wealth as the bottom 90%. The economic game is rigged, and this level of inequality is unsustainable. We need an economy that works for all, not just the powerful.
I think what the American people are saying is enough is enough. This country, this great country, belongs to all of us. It cannot continue to be controlled by a handful of billionaires who apparently want it all."
profile.theguardian.comapolitical_paddy 4 May 2016 16:26 1 2 I decided to look up an answer to my question and found this http://www.bloombergview.com/articles/2012-03-18/princeton-reaps-tax-breaks-as-state-colleges-beg which suggests an effective subsidy of " $54,000 per student " at Princeton.
The author goes on to write which I find a bit odd " To me, income inequality is an overrated problem in American life, and has even propelled the American entrepreneurial spirit. "
He then seems to imply that maybe there is an emergent, de facto bad outcome: Yet it remains true that, considering all federal government policies, including tax exemptions, the rich schools have benefited more than the poor ones -- a regressive social policy that many would argue is inconsistent with using higher education as a tool in promoting the American Dream.
Anyway, direct funding of third-level education by federal and state subsidies seems like a great idea and something that I would be very happy for my tax dollars to be used towards and -- moreover -- I would be happy paying more taxes if they were put to such purposes. !-- Kevin P Brown , 2016-05-04 21:19:27Ammunition : considerations that can be used to support one's case in debateTeeJayzed Addy Kevin P Brown , 2016-05-04 21:16:18
There is a constant whining from the Clinton side about Fox news smears etc. One would believe that with all her supposed experience, she lacked the imagination to see the consequences of her actions with the email. Myself, this is just one indicator among many that she has learned nothing, her experience is flawed as her judgement is time and time again flawed.
She has handed the FBI and Trump AMMUNITION. Not me, not you. She created this mess. Her supporters have 100% certainty that this particular issue is not an issue. They hand wave away the FBI. They shut down any discussion as just another smear manufactured out of thin air.
Probity : the quality of having strong moral principles; honesty and decency
We all get to decide each candidates probity. That I find her lacking is based on her actions alone, not on some lens provided by Fox news. If she were honest, she would admit that there is a risk. She states there is no risk. If her chickens come home to roost, we get Trump. Can I get odds from a bookie on the outcome of the FBI investigation? A genuine question as so many here revel in quoting the odds quoted by bookies.
So lets gamble. Let's get to the race track and study form and history and see if the bookies have fully transparent info on all the factors leading to a win or loss. How have we come to be here? That we are is a sign of the dysfunction we live in politically. Clinton is now immune to all present and future critical thinking because ...... because she was smeared in the pass. Free pass. Sometimes ..... sometimes the King is actually naked and no one cares to call attention to that reality. !--It was not simply an "entanglement". The Kochs helped finance the Democratic Leadership Committee with Bill, Hill, McAuliffe, Tony Coelho (remember him?) and the rest of the "Third Way" Democrats who whored themselves to the first wave of christian-jihadist-wacko GOP congressmen swept into power in 1994, and it was all downhill from there, with the Republicans writing draconian legislation, the Dems rolling over, and Dirty Little Billy claiming it as a Great Leap Forward. !--list12345 , 2016-05-04 21:14:04"Shock victory" is another example of lazy, factually incorrect mass media journalism. Bernie ran an on the ground campaign in Indiana for 2 moths prior to yesterday's primary win. I should know, as our family did volunteer door-to-door canvasing for the first time over a couple weekends. We also attended the rally on Monday and it was great!Kevin P Brown hillbillyzombie , 2016-05-04 21:01:18
Don't give up Bernie supporters, as we have momentum! Bernie's an honest man with fair and just principles. Our country needs such a leader and not another paid-off crony or deranged man-child.!--"Haven't you pissed off minority voters enough?"Eugene Harvey Palomina , 2016-05-04 20:54:08
Again as always a deflection from the real point, documented over and over as to the long tanking DLC led strategy of leading with Southern States. Nothing to do with blacks, everything to do with Southern Conservatives. But yes, as always intellectually "honest". Innuendo. You choose to ignore the systems and structures put in place for reasons. I choose to see them. People like you choose to ignore the DLC history and the entanglement with the Koch Brothers who were so so happy Bill Clinton pushed the DNC into Republican territory, while we are all supposed to pretend that because the GOP is so bad bad bad, it gives a free pass to the DNC for the right wards ever rightwards shifting and the bandying of progressiveness on social issues that cost nothing, and the true position of the modern DLC as a money machine, with a purpose of existing to garner power.
All you "progressives" love to talk about angry white man yet have zero answer to :
""In 2010, the median wealth, or net worth, for black families was $4,900, compared to median wealth for whites of $97,000. Blacks are nearly twice as likely as whites to have zero or negative net worth-33.9 percent compared to 18.6 percent."
The fact that the above enrages me matters not to you, as you have your BernieBro Angry White man meme to deflect from real discussion about solutions. The real solution starts with getting the politicians beholden to the voters alone, not to corporate interests. That is Job One. Once that blockade is removed, then we can move on to poverty and violence as immutable links and solving them. 85% ...... 85% of the American people agree with this action. is it difficult? Yes. Wont happen however if we demand on smug entitled people throwing deflections and memes all over the place. "I am all right Jack, fuck you" should be the bumper-sticker of the Clinton supporters. !--Much as I despise Drumpf it worked for him, he openly railed against the GOP establishment which fort him to the bitter end with their last champions pulling out of the race. The people had spoken (most of it crazy talk), but the Democrats can't ignore the anti-Clinton sentiment. Bernie was a nobody at the beginning because all the focus was on Clinton, but more coverage was given to Bernie and people got to know what he stood for things have changed.Janet Conard bashh1 , 2016-05-04 20:31:47
The question for the Democrats is who is more likely to win the General against Drumpf? Who is more likely to win over the swing votes of those not affiliated to a party?
The message is load and clear there is a lot of anti-establishment sentiment out there and Clinton is firmly seen as part of it.
Drumpf having won his first leg of the race will no doubt moderate his rhetoric to appeal to a broader audience and look to grab a larger portion of the swing votes.
In the bigger picture, Sanders is more likely to succeed against Drumof than the institutional Clinton. !--53 year old Bernie Supporter and if Bernie doesn't win the nomination. Jesse Ventura has vowed to run as an independant and continue our grass roots movement. Jesse shares many of Sanders policies but he has an advantage over all the candidates when it comes to military experience. Navy Seal is pretty impressive. !--nnedjo , 2016-05-04 20:28:06If you ask, what is the purpose of the election, the answer is, elections should be used for two things:Sandypaws RobInTN , 2016-05-04 20:27:29
First, that some politicians will be rewarded by the voters, who will entrust the government to them.
And second, but no less important, that some politicians will be punished by the voters for their past mistakes, in a way that will refuse to give them their votes. So, this second function of the elections is perhaps even more important because it ensures that politicians are held accountable for their previous actions.
Now, if you look at these elections, you will notice that this is totally turned upside down in the case of Hillary Clinton.
Her husband has created mass incarceration, and she, as the first lady, was the main promoter of it. And now she says, "Oops, that was an 'unintended consequence'! That is to say, over two million people in prison, many of which serve a sentence for minor offenses is an 'unintended consequence'''
OK, fine, but what about the fact that she has got the money from the prison lobby?
If the first was an 'unintended consequence', the latter is certainly not. So these are the things for which in every country on earth some politician would lose any chance to enter the next government. Provided that the politicians are held accountable for their previous actions, which is obviously not the case in the US.
And, this is just one of the things for which Clinton can be held accountable.
For example, what about the deregulation of Wall Street by President Clinton and the economic crisis eight years later, that after the next eight years Hillary Clinton took over half a million dollars from Goldman Sachs for three speeches? - Unintended consequence!
What about voting for the Iraq war at a time when Hillary Clinton was the leader of the Democrats in the US Congress and the loss of people and money that followed after that, not to mention the rise of terrorism as a consequence? - Unintended consequences, too!
What about turning Libya into a failed state, and exclamation, "We came, we saw, he [Gaddafi] died!", after which four US embassy staff, including Ambassador Stevens died, and after which Clinton lied to the American public about events that led to their deaths? - Unintended consequences!
And, last but not least, what about NAFTA and other international trade agreements, all of them supported by Clinton to this day, although deprived and still depriving millions of American workers from their jobs? - Unintended consequence!
So, as you can see, this is quite a long list, but probably there's more of it that is not listed here, yet. And it will be even more of such "unintended consequences" if Hillary Clinton will be elected for the US president. !--Hence why I said 'some form of revolt' instead of 'burn the party down rawr'. The party establishment firmly put themselves behind Clinton early on. This is indisputable. 40+ percent of primary voters went against this in some form. Some will still welcome Clinton, some will tolerate her, some will walk, but the act of voting against establishment preference is already some form of revolt. !--Kevin P Brown hillbillyzombie , 2016-05-04 20:05:19You: "self-righteous crap"DebraBrown Bronxite , 2016-05-04 19:59:33
You:"his acolytes will just come up with another dumb ass reason "
You: "Why didn't you just give it directly to Trump? "
You: "Bernie, when all's said and done, is a fraud."
You: "I never did trust politicians who hold mass rallies." ( Nice Nazi smear)
You: " are already starting to misquote Bernie, and talk about how it's all the fault of "Jewish bankers" Smearing Sanders for your relatives jewish Smears
You: "She doesn't pretend she's a damn rock star" Smear
You: " I take it you are a Trump supporter now" Personal smear to me.
You: "nihilistic" over and over again
You: deleted reference ot Pope as child molester
You: "His trip to kiss the Pope's ass was disgusting pandering" So their shared stance on global warming is irrelevant?
You: "the ass of the world's most powerful homophobe"
You: "But Bernie has always been a fraud" ( multiple repetitions of this)
On and on....How self righteous are you?
"personal insults from you"
Really? What insults? Intellectually lazy? That is my assessment of you. Not intended as an insult but an assessment of who you are and how you think. Based on reading all of your posts. I pay attention. I find it interesting to figure out motivations.
" I've got a right to my views"
Indeed you do. Never ever asked you to to post. !--I agree, Hillary is worse, and scarier than Trump. Hillary will justify her interventionist wars and terrible trade deals with slick, plastic, professional language which will fool some people into thinking she knows what she is doing.Sandypaws newageblues , 2016-05-04 19:51:46
Hillary would be 8 more years of the Corporate Oligarchy cementing its hold on our process. Trump might last 4 years... then we can elect a real progressive. !--SoS is more extrapolation, based off the weakness of her credentials heading into the position. It should be remembered that her lack of experience in foreign policy was one of Obama's attack points in 2008, so to have him suddenly turn around and name her SoS is a bit odd. Specifically:Bob Zavoda , 2016-05-04 19:32:29
The choice of Mrs. Clinton pleased many in the Democratic establishment who admire her strength and skills, and they praised Mr. Obama for putting the rancor of the campaign behind him. "Senator Clinton is a naturally gifted diplomat and would be an inspired choice if she is chosen by President-elect Obama as secretary of state," said Warren Christopher, who held that job under her husband.
But it could also disappoint many of Mr. Obama's supporters, who worked hard to have him elected instead of Mrs. Clinton and saw him as a vehicle for changing Washington. Mr. Obama argued during the primaries that it was time to move beyond the Clinton era and in particular belittled her claims to foreign policy experience as a first lady who circled the globe."
So read into that what you will.
What -is- clear is that she got $17.5 million in personal cash out of the deal (Obama agreed to cover campaign debts, she lent her campaign 17.5 million).
Source: http://www.huffingtonpost.com/2008/06/02/clinton-in-negotiations-f_n_104823.html !--Don't be lulled into a false "horse race" depiction of an especially HISTORICALLY IMPORTANT, planetary-civilization-survival moment. A predominantly, establishment, bankster-owned media, are pushing this epic election of "Main Street vrs wall street", as just another election. Wrong! A fictiion! Lies!DebraBrown Kevin P Brown , 2016-05-04 19:31:40
Over 60% of us didn't vote last election, BECAUSE, only liars and apologists for "empire" oligarchs were running. Today, we see Bernie and perhaps Dr. Stein of the Greens. Only "The Bern" gets media minimal coverage, because he is running as an "Democrat". Indiana and other "open" primaries show, time and time again, the rigged nature of a duopoly electoral fraud. The establishment, wall street banksters and their allies DO NOT, WILL NOT let Bernie win. Do the math and ONLY BERNIE CAN BEAT TRUMP! SO QUIT THE HORSE RACE BS and see the BERN! And jut maybe we will have an inhabitable planet for our grandchildren that is fun to live upon. !--Putting it another way... Bernie has made them all look like chumps. They say they cannot get elected without big corporate dollars. Bernie did not sell out, and he raised money easily. He makes the rest of the lousy corrupt bunch look like fools.DebraBrown macktan894 , 2016-05-04 19:28:51
!--Hillary did not concede in 2008 until after ALL the states had voted. Even then, she waited 4 days. What happened between the last primary and 4 days later, when she finally conceded? NEGOTIATIONS. She laid down the terms under which she would support Obama -- all goodies for Hillary, because Hillary Is For Hillary, period.Kevin P Brown hillbillyzombie , 2016-05-04 19:27:01
Bernie will use the clout we give him to negotiate on behalf of THE PEOPLE at the Democratic Convention. That's the difference between him and self-serving Hillary.
Looking forward to voting for Bernie in California on June 7. Meanwhile, praying for the FBI to indict Hillary. !--Yet for all her long name recognition, her second national presidential campaign, the superdelegates lined up before Sanders announced, with the cunning long term strategy of the DNC "southern firewall" designed to favour conservative candidates, despite all the power players endorsements, despite all the Superpac's, she still is not going to arrive at the convention with the required delegate count for victory. What does that tell us? I know what it tells me. It tells me that there are a lot of people who want more of a continuation of Obama Change. They want real change.Kevin P Brown hillbillyzombie , 2016-05-04 19:18:45
So sure, she is "winning" a battle in a longer running war of ideas. Let's see how this plays out over the next 8 years.
Kicking his ass by the way would have been if she reached the required pledged delegates months ago. She could not. Complacency is not a great stance in these times. !--"he'd spend it helping progressive candidates"Kiara Kiki Jenkins hillbillyzombie , 2016-05-04 19:16:30
Like Hillary has done since 2008? Helping the same old hack politicians, using her cash and her name and yet the people refused to come out and reverse the largest loss of Democratic seats in modern history? Yeah, blame the voters, you have them all pegged. it's never the fault of the politicians is it, it is the lazy voters. Well there is another theory that explains Trump and Sanders: They are sick of the same bullshit put out by the DNC and the GOP. Taking Ted Kennedys seat as an example the safest DNC seat in the nation, decades it sat with the DNC and as soon as he dies, the DNC selects one of your hack ersatz progressives, throws Bill Clinton and Hillary and bags of cash and STILL loses the seat. Was there a message there worth listening to? Not to you, you blame the voters. No no no never blame the DNC. Blame the voters.
The voters perhaps is tired of what is presented to them as a voting solution. So in the end, your way of doing things has led to voter frustration and here we have Trump. There is a lesson there. Listen or dot listen, but the people are venting there frustration. Trump is a populist disaster, but he is a symptom of a dysfunctional system that needs revision and revision now. But nah! Lets just throw cash into a cesspit of dysfunction.
Also you sit smugly ignoring the FACTS of Clinton laundering State contributions back into her campaign, leaving little or nothing for State DNC budgets. Ah, you say, this is a smear from Fox news. Um. No. Do you think we are idiots? You must. I assure you we are not idiots. Good luck in November. You will need it. !--Bernie hasn't attacked Hillary directly since New York, and he had every right to go after her then, because she was on full offense against Bernie at that time, too, so enough with the innocent victim garbage. !--HJWatermelon , 2016-05-04 19:13:12Bernie always does better in open primaries because of the Independent voters. They are more likely to vote Trump in the general election in my opinion. He is going to start hammering Clinton now he is the nominee.RobInTN Martin Thompson , 2016-05-04 19:10:49
Bernie should stay in right 'til the end in case anything ever happens with one of the two Clinton investigations. I don't see anything happening now though as the private server investigation appears to have stalled.
Regarding the second (the Clinton Foundation) the Supreme Court is about to legalise political corruption with the McDonnell case. If that happens democracy is effectively suspended anyway and this is a pointless reality show farce. Policies will be decided by the highest bidder. How can she have broken any laws if there aren't any?
Good news for women's rights under Clinton though - whilst her Syria no-fly-zone might start WW3, women will probably get to be drafted as well as men... !--Couple of things about this statementFreedom54 , 2016-05-04 19:06:41
'Lawyer Hillary who is trained in well being a lawyer she even was a defense lawyer helping someone she believed was guilty of rapeing a 13 year old girl who has said Hillary "put her thru hell"."
"someone she believed was guilty of rapeing a 13 year old girl"
Interesting. Clinton discussed what she was thinking at the time with you?
Or are you suggesting that some accused people should not get legal representation?
I'm intrigued by the "put her through hell" portion of it. Especially as the case was plea bargained out and never went to trial.!--It is effortless to identify the ardent obtuse "Hillary Clinton and Donald Trump Supporters". Their verbiage and responses are always predicated on emotion and fiction versus an intellectual discourse based on factual information – Quite Like the Superficial Candidates that they blindly support. The 1% Billionaire Oligarchy Ruling Classes Owned Mass Media Outlets is intentionally protecting the Outed Racists Donald Trump and his female Clone Hillary Clinton from Public Scrutiny. They are salivating Like Pavlov's Dog for their "Ultimate Political Reality Show – The Donald Trump and Hillary Clinton Presidential Race" waiting to cash-in and profit as they stage and promote their "False Democracy".Kevin P Brown hillbillyzombie , 2016-05-04 19:03:07
Knowledge = Power = Real Freedom..!
1. This is why "Anonymous" Noble, Righteous, True American Heroes and Freedom Fighters are stepping in to fill the Fourth Estate void abdicated by America's Billionaire Owned Media to provide the 99% the Truth.
Anonymous – Message to Hillary Clinton:
Anonymous – Message to Donald Trump:
2. CBS CEO and Chief Leslie Moonves: Comments he made at an investor conference last month when he said, "The money is rolling in, and this is fun." Added Moonves: "They're not even talking about issues; they're throwing bombs at each other, and I think the advertising (revenue $) reflects that. This is going to be a very good year for us (CBS). Sorry, it's a terrible thing to say, but bring it on, Donald."
3. Why isn't the Media asking Hillary Clinton about the Podesta group in the Panama papers working with the corrupt, Kremlin-run Sberbank, and the two shell companies setup by Bill Clinton (WJC, LLC) and Hillary Clinton (ZFS Holdings, LLC) at a Delaware address (1209 North Orange Street Wilmington, Delaware) that are the same address as 285,000 other companies, many of which were in the Panama papers and linked to laundering and tax avoidance schemes?.
4. Why isn't the Media asking Hillary Clinton to Release the Transcripts from her numerous $275,000.00 Speeches to Goldman Sachs and the Other Wall Street Banks?
5. Why don't they ask Hillary Clinton if she would Prosecute her and her husband Bill Clinton's former "Trusted Deputy" Rahm Emanuel the current Mayor of Chicago for establishing a "Gulag" on American soil which allowed the Chicago police to covertly detain and torture more than 7000 people at the Secret Interrogation Center that completely ignored the American "Constitution" and the Bill of Rights at Homan Square?
6. Hillary Clinton lying for 13 minutes straight- Hillary, the inevitable liar:
7. Hillary Clinton: A Career Criminal:
8. Secretary Clinton Comments on the Passing of Robert Byrd her friend and mentor who is a documented Racist and KKK member:
9. Bill Clinton ATTEMPTS to Justify Robert Byrd's KKK Membership:
10. Hillary Clinton & NYC Mayor Bill de Blasio Make Awkward RACIST Joke About CP TIME Colored People Time
11. Black Lives Matter protesters repeatedly interrupt Bill Clinton in Philadelphia: https://youtu.be/xRrVI5gHVyo
Can You Say Hypocrisy?
The only Authentic and Honest Candidate is Bernie Sanders who wants to return America back into a Transparent Citizen Accountable Democracy for the 100%. This is why the Bernie Sanders Army of Noble and Righteous Citizens-the 99% will never Vote or Support either of the Illegitimate 1% Billionaire Anointed Candidates Like Hillary Clinton or Donald Trump, Who Represent the Retention of a False Oligarchy Democracy and Everything That the Decent Noble and Righteous Citizens Despise, Compulsive Pathological Lying, Narcissism, and Insatiable Greed. !--"So your plan is for Bernie's opponent to get arrested? "DebraBrown , 2016-05-04 18:28:32
Not my plan. Each citizen in this country has a set of was that rule what they can and cannot do. Even Clinton. I have spent a long time explaining my logic of why I believe she has broken various laws. I as a citizen appreciate the FOIA. If you cannot handle the facts of her actions, then what can I say? To me it does not bode well how Clinton comports herself. To you it is not an issue. You choose to ignore the reality of a real and extended FBI investigation. Obama rules the DoJ and the FBI. If it were indeed only a political smear, then he has the power to force Comey to resign. It is not a function of me, it is a function of laws. The investigation not some fevered Fox News plot as much as you with it to be. I understand completely what she has done. I understand why she did what she did.
Regarding the bolstering the party, it seems it does not bother you the games her suprpac has done with bending the rules just up to the breaking point.
Frankly, sanders on the back of this, and his supporters need to build an organisation that can put up true progressives. Your opinion is team based, you accept year after year the shift of the DNC orphaning in to centrist republicans. Your choice. I choose not to support this. So that he refused to fund more the same old hack politicians is fine by me. He has over his career supported the DNC with vote after vote after vote. He had the courage to offer "democrats" a real choice in the primaries.
You again ignore with your blather about mid term motivations the fact that the people would not support the DNC in 2010, 2012, and 2014. People are not stupid, and they see that the change Obama promised is never coming. We can distill into a simple slogan then rich are getting richer even as the American worker gets more and more productive, yet their share of the capitalist pie shrinks and shrinks. The common man sees that Obama care still is not the solution for him and his family when the average deductions are over 5000 a year on top of his premiums and the average coverage is 60% of costs when he gets sat the deductible. He is told about Gold Standard trade agreement negotiated in absolute secrecy, and that cause him discomfort. Some black families see : ""In 2010, the median wealth, or net worth, for black families was $4,900, compared to median wealth for whites of $97,000. Blacks are nearly twice as likely as whites to have zero or negative net worth-33.9 percent compared to 18.6 percent."" and understand for all of Clinton's triangulation there is nothing palpable to change that. He sees she is great at trotting up mothers of dead people and Black people as props to gain votes, and he see that perhaps Sanders Class based solutions will help him more, as maybe he is tired of racial divides and knows intuitively Clinton has no real solution to gun crime, spurred on by poverty, nor solutions to poverty itself.
So get all huffy about the FBI investigation. I lived though the turmoil of Nixon and before his reelection I predicted that he would suffer, as my gut feeling led me to believe he was involved, that he had dirty hands. Continue to believe that genuine logical conclusions and issues are only a rehash of Fix news when they are not. Cheap and nasty way to deflect any and all valid criticism. Is Sanders perfect? far from it, but I believe I know what he stands for and how he thinks.
"Bernie, when all's said and done, is a fraud."
Funny but I have concluded that Clinton is a fraud. But you are welcome to vote as you wish. In the end, your fear of Trump? The risk is real and palpable that she will cause disarray to the party if the FBI fins what I believe is obvious, and the risk is her handing the election to Trump. To you? You don't care. You cannot and will not see the risk, preferring to hide like a gormless child behind tortured smear theories rather than standing up as an adult and properly assessing the real risks to the Democratic.
All the pieces of what she did are there if you care to look. But nah! You are lazy intellectually and it is easier to blame Fox news than to actually look and ponder and conclude the evidence. As are most of the vociferous Clinton fans here. Intellectually lazy. !--Hillary wins closed primaries, where only the tribalized party faithful participate (and voter suppression and other shenanigans run rampant). Bernie wins open primaries and brings in millions of new voters. Democrats like me, Independents, even Republicans vote for Bernie.shepdavis PATROKLUS00 , 2016-05-04 18:21:37
Newsflash: November will not be a closed primary. !--Got that right...Bronxite ID7731327 , 2016-05-04 18:14:50
She loses on the Big 3 Issues, war, Trade & "corruption" to Trumps words and Bernie's life walk. Dems are falling into dreamlala math- Hillary will get women (50%), Blacks (10%) & Hispanics "another 10%). How can she lose.
Start with GOP women at the end will not vote her way. That BLack and Hispanic percentages are already baked in, and Trump will cater to men, not just white, on the basis avg men have been getting shafted for 40 years now.
If there is a terror attack, Trump wins big. If the economy goes down he wins too.
The tea leaves and tarot readers have been all wrong this election.
& Hill is likely to lose most of the last primaries. Embarassing
"Hillary Clinton will say anything to get elected, and nothing will change." Barack Obama, 2008!--Is that HRC new slogan, "Hillary is shit, but at least she's not as shitty as Trump"scrjim , 2016-05-04 18:14:20
Actually I think she's worse. The DNC turns a blind eye every time she breaks the law, and tries to change the rules for her, but both the RNC and DNC will keep Trump on a short lease. !--The Guardian's anti-Bernie agenda is really quite off-putting. Even the article summary is patronising :talenttruth RobertHickson2014 , 2016-05-04 18:11:03
"Despite trailing behind Hillary Clinton in polls, Sanders once again proved his appeal to disaffected midwest voters by pulling off his 18th victory of 2016"
The translation is that the Bernie Sanders constituency is backwards and centred around white males who have lost blue collar jobs to globalisation; in other words he appeals to people who want to turn back time. The inference is that Clinton's group is far broader, more cultured and more progressive. This is patently false. Sanders is popular with young people and with people who are passionate about politics. Clinton's constituency tends to be older and more conservative. Clinton is the establishment candidate Sanders is the beacon of hope. !--No surprise there. As is it no surprise that ABC is a "subsidiary" of The Walt Disney Company, which has been to the right of Attila-the-Hun since "sweet grandfatherly Walt" himself, who was practically a neo-Nazi politically. Need proof? Walt's cheerful cooperation with McCarthy's House Un American Activities persecution of anyone not sharing Adolph Hitler's political persuasion).PATROKLUS00 , 2016-05-04 18:10:21
Disney's movies have always exhibited that nauseating, fake, treacle "sweetness" which all fascists use as "cover" for their actual addiction to fear, hatred, tribalism and Orwellian manipulation.
So we can hardly be "shocked, shocked, shocked" by ABC's gross "news" bias.
How about NBC? It's been a corporate "investment football," recently boosted by Comcast from former owner General Electric. You KNOW they're both dedicated to impartial news reporting, right? HA HA HA
How about CBS? Oh it's owned by Viacom, an "entertainment conglomerate," of course dedicated never to sensationalism or deliberate distraction of the public, but rather, to honest news reporting. Right.
MSNBC? GE + Microsoft. That of course equals total devotion to unbiased and complete news reporting, even if the news WERE "bad for the Shareholders." Uh huh. (See the pigs flying by).
CNN? Oh its "daddy" is Time Warner, another paragon of public-spirited democracy.
Even PBS has fallen. Think that's a "radical statement?" The super right did a twofer on PBS: (1) cut its government funding so as to make it terrified and desperate and then (2) gradually brainwashed PBS into actually being another Corporate PR outlet.
Non-commercial? PBS? IT LIVES ON CORPORATE ADS. And under those deliberately created survival pressures, even PBS news has collapsed into reporting all news like it's a trivial sports event - Never Delving Deeper, because its Corporate Overlords wouldn't like that.
So, welcome to the reality of well-entrenched corporate fascism. For that, in part, we can thank Ronnie Puppet Reagan's reversal of a former 50-year policy which did not allow non-media corporations to "buy" the news. May that SOB continue to roast, whereever.
Bernie Sanders would be all of these Corporate Overlord's worst nightmare. They would have to work "even harder" (yawn, pass the caviar), to blacklist, cover up, lie about the truth he would tell through his bully pulpit. Thus all of THEIR media outlets have worked like little beavers to Cancel the Cancer of Bernie, before he could cause real damage to The Entitled Domain. Ugh. !--The Democrats, just as blind and foolish in their own way as the GOP, will make a tremendous mistake in nominating HRC. Anyone with an ounce of political insight can see the coming election is going to be about the revolt of the middle class against the Establishment and megacorporations that have been exploiting that class for at least two score years. The politically dimwitted and somnolent American middle class has finally come to realize how they have been used and abused and they aren't taking it anymore. They don't give a damn about foreign policy, single payer or anything else. They are furious at having been used and hoodwinked and they are in full revolt. The stupidity of the Democrats, in not seeing this and running an Avatar of the Establishment, HRC, will make the election very close with a good chance she will lose. Sanders can out Trump Trump on the anti-Establishment issue as polls clearly show, but the Dems are going to shoot themselves in the foot by coronating HRC. With Sanders they could probably sweep Congress also, but with HRC they will at best keep the White House and possibly a very narrow majority in the Senate. HRC is a poor campaigner with an unlikable personality, unlike Elizabeth Warren, and Trump will really mangle Hillary. With Sanders he will not be able to do that because Sanders easily can out anti-establishment Trump for, obviously, Trump too is of the 1% like HRC. There is the slim hope, forlorn as it may be, that the Democrat super-delegates, most of whom are political pros and thus focused on winning, will see the light and nominate Sanders. But the Democrats are usually reliably stupid so look forward to a cliff-hanger in November and very possibly a President Trump.DebraBrown , 2016-05-04 18:10:20Hillary did not concede in 2008 until after the last state finished voting. The counting was done, and Obama had more delegates. Even then, she waited 4 days before conceding. What went on during those 4 days? Negotiations. No way a super-predator politician like Hillary Clinton was just going to give in, without getting something for herself.sbabcock LanaCvi , 2016-05-04 18:04:13
Here's what Hillary got out of the deal: a cabinet post, Obama's promise of support for her next bid in 2016, and Obama's help paying off her 2008 campaign debt.
The difference with Bernie is that he is not in this for himself. Bernie stepped up to the plate because America deserves better than another Corporate Tool Politician. When Bernie goes to the convention, he will not be negotiating for himself. He will be fighting for ALL OF US. Bernie fights for The People.
This is why we need to give him as many delegates as possible. I look forward to voting for Bernie in California on June 7. Furthermore, speaking as a middle aged feminist who has been a registered Dem for 35 years -- I will NEVER vote for Hillary. !--A Shillary in denial... Do you need the NYT or Guardian to report it to make it true? Many of the biggest companies in the US-the biggest polluters, the biggest pharmaceutical companies, the biggest insurance companies, the biggest financial companies-gave to the Clinton foundation while she was Secretary of State and then they lobbied Secretary Clinton and the state department for "favors." Even foreign governments have given to the foundation, including that stalwart of democratic principles Saudi Arabia, who gave at least $10 million… Then magically they had a $26 billion plane deal with Boeing.WhiteMale cliffstep , 2016-05-04 17:48:28
Is that what you're voting for? Does that sound like someone with integrity? hate to break it to you that this information isn't found only on right wing websites. Inform yourself. Can't you see why she'd play games with email? It's all right there, in your face. !--Alleged pragmatist, but more likely Hillary will actually be a pushover on social and economic issues and a hawk on foreign policy. She is more of a Republican than Trump. !--WhiteMale cliffstep , 2016-05-04 17:48:28Alleged pragmatist, but more likely Hillary will actually be a pushover on social and economic issues and a hawk on foreign policy. She is more of a Republican than Trump. !--Manami , 2016-05-04 17:33:14Shock?!!!! How could the American Queen lose right?!!!Manami , 2016-05-04 17:33:14
The main point is, Hillary has no chance of winning against Trump. She is already trying to get a cadre of neocon Republicans to support her, thinking she could get swing a portion of Republicans to support her, forgetting why she is so despised by a large segment of Democrats and majority of independents. It is her default cling to neocon interventionist, and corporate base of support that causes it. She is tone deaf, ignorant and arrogant. Unless, we Democrats stop her now Trump will beat her handily. I have no doubt about it. !--Shock?!!!! How could the American Queen lose right?!!!
The main point is, Hillary has no chance of winning against Trump. She is already trying to get a cadre of neocon Republicans to support her, thinking she could get swing a portion of Republicans to support her, forgetting why she is so despised by a large segment of Democrats and majority of independents. It is her default cling to neocon interventionist, and corporate base of support that causes it. She is tone deaf, ignorant and arrogant. Unless, we Democrats stop her now Trump will beat her handily. I have no doubt about it.
profile.theguardian.comapolitical_paddy 4 May 2016 16:26 1 2 I decided to look up an answer to my question and found this http://www.bloombergview.com/articles/2012-03-18/princeton-reaps-tax-breaks-as-state-colleges-beg which suggests an effective subsidy of " $54,000 per student " at Princeton.
The author goes on to write which I find a bit odd " To me, income inequality is an overrated problem in American life, and has even propelled the American entrepreneurial spirit. "
He then seems to imply that maybe there is an emergent, de facto bad outcome: Yet it remains true that, considering all federal government policies, including tax exemptions, the rich schools have benefited more than the poor ones -- a regressive social policy that many would argue is inconsistent with using higher education as a tool in promoting the American Dream.
Anyway, direct funding of third-level education by federal and state subsidies seems like a great idea and something that I would be very happy for my tax dollars to be used towards and -- moreover -- I would be happy paying more taxes if they were put to such purposes.
naked capitalismYves here. Anyone who has paid attention to how the various sovereign debt crises have played out in Europe can't help noticing that a bureaucratic elite is calling the shots and riding roughshod over popular will. But what are the mechanisms which allow these perverse outcomes to come to pass? This post describes the major steps that enabled neoliberalism to become the ruling doctrine.
By John Weeks, a member of the Union for Radical Political Economics (URPE) in London, one of the founders of the UK-based Economists for Rational Economic Policies, and part of the European Research Network on Social and Economic Policy. Receive podcasts of his weekly radio program by Twitter, @johnweeks41. Originally published at Triple Crisis
The EU: Hold Your Nose and Vote "Stay"
Most Americans and many U.S. progressives hold a favorable view the European Union. This positive assessment persists despite the crushing of the Greek challenge to austerity conditionalities set by the European Commission and European Central Bank aided and abetted by the International Monetary Fund.
The primary basis for pro-EU sentiments may be that Americans consider the European Union a bastion of social democracy in contrast to the neoliberal ideology of the Republican and Democratic parties, which Bernie Sanders has so eloquently attacked. However, the institutions of the European Union, especially its executive the European Commission practice a neoliberal ideology and pro-business policies as aggressive as counterparts in the United States.
This is not a recent change, but a long-maturing trend going back at least to when Helmut Kohl of the right-wing Christian Democratic Union replaced the Social Democrat Helmut, Schmidt, as chancellor of Germany. The misplaced belief that Jacques Delors , EC president for ten years, was committed to social democracy perpetuated the illusion of a progressive EU. While no reactionary like Kohl, the French socialist politician supported market oriented "reform" of the European Union's economic policies.
By the 2000s neoliberals had taken firm control of the European Commission, manifested most obviously in the 1992 Maastricht Treaty. The step-by-step legal codification of EU reactionary economic policies goes far beyond legislation enacted in the United States. As a result, it should surprise no one that in Britain and on the continent support for membership in the European Union splits progressives. In Britain the issues looms large, with a referendum on continued membership scheduled for 23 June.
The progressive case of membership is a hard row to hoe.
Loss of Democracy in the European Union
History provides many examples of authoritarian rule achieved through formally democratic procedures. To these we should add the 2012 EU Treaty on Stability, Coordination and Governance ( TSCG ), adopted by 25 democratically elected EU governments (the Czech Republic and the United Kingdom took opt-outs ). On an EU website we find the overall purpose of the TSCG boldly highlighted :
The European Union's economic governance framework aims to detect, prevent, and correct problematical economic trends such as excessive government deficits or public debt levels, which can stunt growth and put economies at risk.
This bureaucratically bland sentence asserts the power of the unelected European Commission, as the executive of the European Union, to monitor ("detect") whether the public budget of an elected member government conforms to EU fiscal rules. If it does not, the Commission claims the power to prevent the implementation of that budget and to specify the changes ("corrections") required.
No one can miss the ideological asymmetry of the "governance framework" – deficits can be excessive, but not surpluses. In practice a budget surplus usually goes along with a trade surplus, so that the contractionary effect of the former will be offset the expansionary impact of the latter. Thus, not restricting surpluses carries an implicit mercantilist message.
The EU website goes on to explain "detection" or "monitoring" as follows ,
Each year, the EU countries that share the euro as their currency submit draft budgetary plans to the European Commission. The Commission assesses the plans to ensure that economic policy among the countries sharing the euro is coordinated and that they all respect the EU's economic governance rules. The draft budgetary plans are graded as either compliant, partially compliant, or at risk of non-compliance.
When the EC implements this paragraph literally as it did in Greece, the role national legislatures is to endorse what the Commission judges as "compliant." The TSCG de facto makes member governments formulate their budgets for the Commission not their legislatures, because there would be little point and considerable embarrassment by submitting to parliament a budget that the EC would reject. After the Commission judges the budget as satisfactory the national legislature goes through a pro forma approval process. It will be a small step to require, as in Greece , approval by the EC before revealing the budget to the public.
The TSCG transfers sovereignty from democratic institutions to an unelected bureaucracy. Were it the case that the EU parliament possessed substantial control over the Commission (which it does not), the TSCG would still be profoundly authoritarian because of the power of the EC bureaucracy over what should be decided democratically.
EU fiscal rules, from the Maastricht Treaty to the TSCG are anti-democratic, as well as inflexible to change. The Treaty specifically commits the adopting government to embed the fiscal rules in law in a manner ensuring their "permanent character, preferably constitutional." Embodied in treaties, they can only change through repeal or adoption of additional treaties. Both involve extremely cumbersome and time consuming processes.
Were the fiscal rules theoretically and practically sound their anti-democratic and inflexible nature would still discredit them. Far from sound, they are technically flawed, mandating macroeconomic mismanagement. The Treaty mandates specific limits to fiscal policy.
[The Treaty] requires contracting parties to respect/ensure convergence towards the country-specific medium-term…with a lower limit of a structural deficit (cyclical effects and one-off measures are not taken into account) of 0.5% of GDP; (1.0% of GDP for Member States with a debt ratio significantly below 60% of GDP).
Before considering the wisdom of the 0.5% deficit target, two major technical mistakes standout, 1) the Treaty uses an unsound measure of the fiscal deficit; and 2) the key concept, "structural deficit," is theoretical nonsense.
The TSCG adopts the Maastricht deficit specification, total revenue minus total expenditure, which is the overall deficit. As the IMF explains in its guidelines for fiscal management , the appropriate measure for sound fiscal management is the primary deficit, which excludes interest payments on the public debt (which if reduced would imply partial default).
When the TSCG specifies the 0.5% as a "structural deficit" we go from the inappropriate to the absurd. The Commission as well as the usually competent OECD defines "structural deficit" as the deficit that would appear by eliminating cyclical effects; i.e., the deficit when an economy operates at normal capacity.
Making this concept operational requires an analytically sound method of eliminating cyclical effects, then a clear and consistent measure of normal capacity. The EU structural deficit fails on both criteria. In practice the EC bean-counters make no attempt to eliminate cyclical effects. The method of calculation of normal capacity ignores the cycle altogether by defining normal capacity to the level of output at which the rate of unemployment implies stable inflation (the "non-accelerating inflation rate of unemployment," NAIRU ). Again, the EC bureaucrats reveal their ideology by taking inflation not output or unemployment as measure of economic health.
The NAIRU would be sufficiently problematical were attempt made to adapt it to the specific institutional characteristics of each country at specific time periods. For example, if the concept has operational validity, it is extremely unlikely that it would assume the same value before and after the 2008-10 global recession. An inspection of the eurostat tables for the actual and "structural" deficits shows no evidence of estimations with country specific adjustments.
The decidedly dubious nature of the NAIRU is indicated by its nom de guerre , "the natural rate of unemployment." This phrase betrays an underlying ideology that 1) unemployment is a natural phenomenon to which all economies automatically adjust; and 2) inflation always results from excess demand. If the first were true the global recession would not have occurred. The second ignores price pressures arising from traded goods and services, petroleum being the most obvious and price-volatile.
The possibility of calculating country and time specific normal capacity would not save the 0.5% rule the realm of ideological nonsense. First and foremost, it represents static analysis applied to a dynamic process. The formal statement of the 0.5% would be as follows:
Economy A operates below normal capacity with a fiscal deficit of 2.5% (for example). Other things unchanged, were economy A at normal capacity the deficit would be 1.5% (for example), above the 0.5% requirement. Therefore, the government of country A must now take steps to reduce expenditure or raise taxes, so if the economy were at full capacity the hypothetical deficit would be 0.5%.
The 0.5% rule is a hypothetical outcome based on analytically unsound calculations. This "what if" calculation by statisticians is used by an undemocratic bureaucracy to force elected governments to implement contractionary economic policies. The technically unsound, hypothetical 0.5% target mandates a pro-cyclical macroeconomic policy. To render the rule Kafkaesque, after the EC bureaucracy calculates that a government will not meet the hypothetical target, it then mandates contractionary policies that guarantee that the target cannot be achieved. The problem is imaginary and the solution contradictory.
The wording of the TSCG makes it clear that deviant fiscal behavior by a member country will not be tolerated,
Correction mechanisms should ensure automatic action to be undertaken in case of deviation from the [structural deficit target] or the adjustment path towards it, with escape clauses for exceptional circumstances. Compliance with the rule should be monitored by independent institutions.
The "independent institutions" include the European Commission itself, which adds a distinctly Orwellian character to the already Kafkaesque Treaty.
Painted into a Recessionary Corner
Market economies pass through cycles of recession and expansion. They suffer from fiscal deficits in recessions, because falling or slow-growing output results in falling or slow-growing revenue. Such circumstances typically result from a drop in private investment or exports. Economies most effectively overcome recessions by the public sector using its spending powers to compensate for the inadequate private demand.
The TSCG legally prohibits the implementation of this effective countercyclical fiscal policy. It forces member governments to apply policies analogous to the practice 200 years ago of bloodletting to restore health to the ill. It is a Treaty designed to maintain perpetual stagnation across the European continent.
The term "Six-Pack", the secondary legislation linked to the treaty, is frequently used as synonymous with the TSCG. This is a singularly appropriate nickname for the enabling legislation. The Six-Pack contains the economic equivalent of a pernicious snake oil, a witch's brew to turn minor fiscal problems into recessionary downturns. For those dedicated to a prosperous and harmonious European Union, repeal or replacement of the TSCG stands out as an urgent priority. Fiscal integration on the basis of the TSCG would be disastrous.ke , April 20, 2016 at 11:03 amRabidGandhi , April 20, 2016 at 11:53 am
What most Americans know about Europe is on a postcard, or the propaganda they were taught in school. The vast majority on this planet is dependent on a MAD money laundering scheme built by Wall Street, copied globally, and automated by WS of the West, silly valley, now strip mining the planet, on auto pilot, with a belief in political discourse, among completely insulated, puppet politicians.
Back in the day, before joining, Robert R actually said some intelligent things about labor. The crashing actuarial ponzi has been in operation so long it is an assumption. On the one hand money enslaves future generations to the present, and on the other we are all supposed to seek a feudal pension. The casino wins in both directions.
I have dear friends from H to VI, but sleep walking through life, while natural resources are needlessly strip mined for the sake of maintaining artificial scarcity, is a good way to put it.
We don't even need oil, but the economy is leveraged on that contract price, to maintain subservient populations. We are choking on excess oil, storing it all over the ocean, and preventing iran/iraq from putting its product on the market, all to confirm a psychology of dependence, like an ant farm, assuming that individual humans can only wander randomly without the benefit of the collective, serving the sociopathic psychologist writing the scripts.
Funny, there is a shortage of private demand for more incompetent government.Benedict@Large , April 20, 2016 at 3:00 pm
Another fundamental difference between the US and EU is the difference in central bank mandates, with the Fed having its dual inflation/employment mandate in its bylaws, but under Maastricht the ECB only has a mandate for low inflation.
That said, the Fed has a dual way for getting around the dual mandate: playing fast and loose with what is defined as unemployment, and just straight out ignoring it (eg, raising interest rates at the first whiff of possibility that there might be a rumour that someone's uncle's cousin's best-friend's roommate thinks there could eventually be a slight uptick in the CPI). This means, yes there are differences in the founding documents, but is there anywhere in US economic governance that NAIRU is not assumed either?RabidGandhi , April 20, 2016 at 4:13 pm
The dual mandate is a fiction. There's nothing the Fed can do to lower unemployment (though it can raise it by mistake.) The unemployment rate is set by the fiscal policies of Congress and the Executive. The unemployment rate, should they desire, can even be set to zero. That it is not should be sufficient cause for the guillotines.PlutoniumKun , April 20, 2016 at 12:10 pm
I definitely agree w/r/t fiscal policy, but I think the point is that at least in the US there is a nominal (but ignored) primum non nocere written into the Fed's by-laws. It is supposed to take actions that will "promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates." What this means is that raising interest rates at the mere rumour of inflation is going against the Fed's mandate– not that anyone in power cares. Meanwhile in Europe they just dispense with the whole fiction of not having a monetary policy that kills employment.Fajensen , April 20, 2016 at 5:09 pm
I think the process of corporate control of the EU was so slow and gradual plenty of left wingers in Europe still haven't really grasped what has happened. From the beginning, there was always a tension within Europe between pressure from corporations for more business friendly policies and the generally social democrat lite views of the original founders. I think though to call it 'neoliberal' is not quite correct – for me 'neoliberal' implies a specific set of policies associated with the Anglosphere – I think in Germany what we've seen is the takeover by a more German flavoured right of centre view – it is similar, but is more generally corporatist and mercantilist in nature with a strong dash of Austrian economics.
I see the results every day when I step outside my apartment in Dublin. Thats to a focus on privatisation and 'competition', what was once a fully functioning waste collection service in my city has now become a chaotic privatised service, with competing companies driving down the quality. No more proper wheelie bins collected on the same day, instead there are plastic bin bags everywhere, there to be torn apart by seagulls and foxes, scattering rubbish everywhere. All in the name of 'competition', driven by EU Directives. The focus on 'internal competition' is gradually eroding sensible regulation in energy, waste and telecommunications. Supposedly in the interest of the consumer, but we all know who really benefits.PlutoniumKun , April 21, 2016 at 5:55 am
I don't think all this "competition" really benefits anyone, I believe it's just there for the principle.Barry Fay , April 21, 2016 at 10:15 am
Well of course the 'competition' is a myth. As anyone who has witnessed what has happened in electricity markets can see, it has, if anything, raised prices of electricity for consumers. But various powerful interests have done very well indeed. you can see the same process in water and waste services and pretty much anything that has been directly regulated and privatised. The only areas where I think it can be shown that consumers have benefited from competition are in telecommunications and in air travel. And in the former, I suspect the consolidation of the telecom industry will reverse those gains.financial matters , April 20, 2016 at 1:14 pm
The airlines are a terrible example – in fact, there was a great article treating the airlines as a classic example of "crapification". The seating has become ridiculously cramped (as a way to then "sell" seats that someone can actually sit in!), the service has been basically reduced to the bare minimum, luggage charges are outrageous and ticket prices continue to climb even though one of the major expenses (i.e. fuel!) has become cheaper by 50 per cent. No, the airlines were a bad example.JEHR , April 20, 2016 at 2:56 pm
Nice to read such an excellent analysis. And with very appropriate metaphors.
"To render the rule Kafkaesque, after the EC bureaucracy calculates that a government will not meet the hypothetical target, it then mandates contractionary policies that guarantee that the target cannot be achieved. The problem is imaginary and the solution contradictory."
"The "independent institutions" include the European Commission itself, which adds a distinctly Orwellian character to the already Kafkaesque Treaty."rfam , April 20, 2016 at 6:34 pm
The World is really messed up!Hansrudolf Suter , April 21, 2016 at 6:46 am
I would suggest that any country that doesn't like these rules failed to read the agreement and should exit the EU and start issuing worthless currency. In doing so they can feel free to devalue, run large deficits, borrow all they want and then leave the "neo-liberals" to it. When the banks and hedge funds that over-lend to fund these deficits fail or demand collateral ( http://www.npr.org/sections/money/2012/10/22/163384810/why-a-hedge-fund-seized-an-argentine-navy-ship-in-ghana ) you will discuss their predatory nature.Schofield , April 21, 2016 at 4:43 pm
"Thus, not restricting surpluses carries an implicit mercantilist message." EU guidelines fix trade surplus at 6%, Germany is, I believe, in its seventh year of violation and should be fined. That it doesn't happen maybe shows that the elite ruling the EU is German.
Given half a chance some human beings who never got much loving as a child will seek to correct the imbalance by "weaponizing" money and using it against the interests of the majority. For those who've read the psychoanalyst Alice Miller books they will recognize her argument that resentment builds up in the child and needs expression in the form of subconsciously motivated vengeance as an adult!
April 20, 2016 | naked capitalismYves here. I want to clarify one key issue about a transaction tax. Its purpose is not to raise revenue. Its purpose is to discourage excessive trading, which is socially unproductive. Recently, many studies have found that an outsized financial sector is as drag on growth. The finer-grained ones have identified too many resources devoted to secondary market trading as the cause. "Secondary market trading" is all the buying and selling that happens after a company raises money, as in among investors, not sales of newly-issued securities from a company to investors to raise money. A certain level of secondary market trading is necessary and desirable so that an investor can sell if he wants to (as in he needs liquidity). But overly cheap liquidity makes it attractive to trade for purely speculative purposes, as the collapse in average holding times of NYSE stocks attests.
Now a transaction tax may indeed raise a lot of revenue. But the intent is to discourage undesirable activity, and it's hard to estimate in advance how much trading volumes would fall with a well-designed transaction tax.
By Robert Reich. Originally published at his website
Why is there so little discussion about one of Bernie Sanders's most important proposals – to tax financial speculation?
Buying and selling stocks and bonds in order to beat others who are buying and selling stocks and bonds is a giant zero-sum game that wastes countless resources, uses up the talents of some of the nation's best and brightest, and subjects financial market to unnecessary risk.
High-speed traders who employ advanced technologies in order to get information a millisecond before other traders get it don't make financial markets more efficient. They make them more vulnerable to debacles like the "Flash Crash" of May 2010.
Wall Street Insiders who trade on confidential information unavailable to small investors don't improve the productivity of financial markets. They just rig the game for themselves.
Bankers who trade in ever more complex derivatives – making bets on bets – don't add real value. They only make the system more vulnerable to big losses, as occurred in the financial crisis of 2008.
All of which makes Bernie Sanders's proposal for a speculation tax right on the mark.
He wants to tax stock trades at a rate of 0.5 percent (a trade of $1,000 would cost of $5), and bond trades at 0.1 percent.
The tax would reduce incentives for high-speed trading, insider deal-making, and short-term financial betting. (Hillary Clinton also favors a financial transactions tax but only on high-speed trading.)
Another big plus: Given the gargantuan size of the financial market and the huge volume of trading occurring within it every day, this tiny tax would generate lots of revenue.
Even a 0.01 percent transaction tax (a basis point is one-hundredth of a percentage point, or 0.01 percent) would raise $185 billion over 10 years, according to the nonpartisan Tax Policy Center.
Sanders's 0.5 percent tax could thereby finance public investments that enlarge the economic pie rather than merely rearrange its slices – like tuition-free public education.
After all, Americans pay sales taxes on all sorts of goods and services yet Wall Street traders pay no sales taxes on the stocks and bonds they buy.
Which helps explain why the financial industry generates about 30 percent of America's corporate profits but pays only about 18 percent of corporate taxes .
Naysayers led by the financial industry's lobbyists (the Financial Services Roundtable and Financial Markets Association) warn that even a small tax on financial transactions would drive trading overseas, since financial trades can easily be done anywhere.
Baloney. The U.K. has had a tax on stock trades for decades yet remains one of the world's financial powerhouses. Incidentally, that tax raises about 3 billion pounds yearly (the equivalent of $30 billion in an economy the size of the U.S.), which is pure gravy for Britain's budget.
At least 28 other countries also have such a tax, and the European Union is well on the way to implementing one.
Industry lobbyists also claim the costs of the tax will burden small investors such as retirees, business owners, and average savers.
Wrong again. The tax wouldn't be a burden if it reduces the volume and frequency of trading – which is the whole point.
In fact, the tax is highly progressive. The Tax Policy Center estimates that 75 percent of it would be paid by the richest fifth of taxpayers, and 40 percent by the top 1 percent.
It's hardly a radical idea.
Between 1914 and 1966, the United States itself taxed financial transactions. During the Great Depression, John Maynard Keynes urged wider use of such a tax to reduce excessive speculation by financial traders. After the Wall Street crash of October 1987, even the first President George Bush endorsed the idea.
Americans are fed up with Wall Street's financial games. Excessive speculation contributed to the near meltdown of 2008 – which cost millions of people their jobs, savings, and homes.
So why is it only Bernie Sanders who's calling for a financial transactions tax? Why aren't politicians of all stripes supporting it? And why isn't it a major issue in the 2016 election?
Because a financial transactions tax directly threatens a major source of Wall Street's revenue. And, if you hadn't noticed, the Street uses a portion of its vast revenues to gain political clout.
So even though it's an excellent idea championed by a major candidate, a financial transactions tax isn't being discussed this election year because Wall Street won't abide it.
Which maybe one of the best reasons for enacting it.vlade , April 20, 2016 at 5:58 amAnonymous , April 20, 2016 at 6:06 am
important point – UK has FTT on stocks, it's called stamp duty. despite that, footsie is considered one of the most important non us markets worldwide… so cries of how it would kill the sector are a bit overdone..
mind you, the rise of cfds and similar to bypass sd led to issues of its ownYves Smith Post author , April 20, 2016 at 6:36 am
Need a tax on the derivatives market.JeffC , April 21, 2016 at 12:13 pm
I would think that would be part of the plan, particularly given the volumes. Sanders tends to do himself a disservice by staying at the 30,000 foot level, which is where execs generally are anyhow. But he doesn't have enough surrogates going into the weeds on his behalf.Teddy , April 20, 2016 at 6:42 am
Sanders' plan includes a smaller tax on bond trades-0.1%? unreliable memory here-and a smaller one yet on derivatives trades.hemeantwell , April 20, 2016 at 10:49 am
I'm more of a right winger, but this is one Sanders proposal I can fully support. There's something seriously wrong with an economy that spends gigantic sums on building tunnels for optic cables so transactions can be processed two miliseconds faster. This automated flash trading is against everything financial markets are supposed to be about, it's even against everything that speculation is supposed to be about. I also agree with Yves's assessment that this isn't about revenue extraction, but about curtailing harmful activities. However, given high levels of corruption in US politics and huge profits this new industry enjoys, is such an idea even feasible?Paul Jurczak , April 20, 2016 at 7:25 am
an idea even feasible?
I believe I can appreciate why your statement took that discouraged turn. But the next move would be to say that, if such a good idea is made infeasible by a corrupt political order, doesn't that then contribute to its indictment? That's one reason why the current political situation is so changed from ten years ago.EndOfTheWorld , April 20, 2016 at 7:52 am
I would add underclocking the stock exchange to augment the effect of transaction tax. It is perfectly sufficient for healthy economic activity to settle the transactions only in equal discrete time intervals, say once every minute. This would starve all HFT parasites, reduce the size of financial sector and its rent extraction from productive economic activity.RUKidding , April 20, 2016 at 11:25 am
Why is this important proposal being ignored? Bribery.HotFlash , April 20, 2016 at 8:07 am
Sanders' campaign has been mostly kept dark by the M$M (which includes National Propaganda Radio). If one hears/reads much about Sanders in the usual sources, it's usually to patiently explain why he simply cannot win.
It's exceedingly rare to hear/read much of what the substance of Sanders' campaign compromises, and mostly then, what you'll hear is fatuous twaddle about Sanders' proposal (which isn't fatuous but is presented that way) about free college.
So one has to come to blogs, such as this one, to learn more. Too bad most citizens don't do that, but that's the way it is. And there's a reason for it. Clearly Sanders, at least, annoys the .01%. They don't want his message getting out. There's a reason for that, as well.Melk39 , April 20, 2016 at 8:54 am
Hmm, I took this as another mark of Bernie's genius. I figure that the 'free public college education' was not only a demonstrable and desirable social good but also a nice carrot to sell the FTT.
Agree w/Teddy and others about the unfairness of a market that permits nano-second trading for the suitably connected. Secondary market trading beyond basic liquidity does not benefit the real economy. The beneficiaries are speculators and managers whose remuneration is tied to share prices - that is, useless eaters.gadawson , April 20, 2016 at 9:09 am
The reason it is being ignored is because Bernie touted the tax as way to pay for college for all. The tax on financial transactions makes most people's eyes glaze over, but they are very interested in the idea of free college. So I get the hook, but this means the the tax debate never occurs, all the discussion is about free college. Now both ideas have merit, but each should have its own debate. It would be also a way to build a consensus around a broader policy of finally reigning in Wall Street, including bring back the best parts of Glass Stegall. That's how you get the discussion going. Decouple and debate.Doctor Duck , April 20, 2016 at 9:33 am
The benefits of free academic tuitions are so large they are inestimable due to the myriad of benefits that would cascade throughout the economy. Why would anyone oppose such and how is such a plan pushed aside? Only through the greatest imbalance of invisible intransigent power the world has ever known.HotFlash , April 20, 2016 at 12:23 pm
This is an important idea, but I don't think I've ever heard at what point such a tax would be imposed. If a large majority of high-speed automated trading results in cancelled trades, it would be of little use in curbing that if it were only applied to completed transactions.Doctor Duck , April 20, 2016 at 12:59 pm
The point is not necessarily to raise revenue (please, MMT anyone?) but to control behaviour. Putting a drag on HST would in itself be a public good. As I have said before, free tuition is a way to sell a tax on financial transactions. Debate all you like, but decoupling will lose the tax.steelhead23 , April 20, 2016 at 1:59 pm
I concur that a drag on HFT would be a public good. But my question doesn't imply raising revenue, rather how such a tax would be a drag on HFT in particular. A tax on transactions would (by definition it seems) not apply to cancelled transactions. So how would it impact the behavior of HFT, which relies heavily on cancelled trades, any more than it would any trading?
Probably "quantized" settling as proposed in another comment would have a greater effect.JSR , April 20, 2016 at 9:52 am
You are right. If the purpose of the tax is to discourage HFT, the tax should be levied on each and every bid, not just completed transactions. According to Eric Hunsader HFT traders pay big bucks so they can have millisecond faster access to the market – which they use to place multiple bids they never intend to complete, thereby manipulating price, creating volume interest where little exists, etc. To end HFT you would have to tax each bid (at an very small rate, say .01%).FluffytheObeseCat , April 20, 2016 at 3:16 pm
Are things like ETF's included in this? I understand the need to curb many of the dangerous games of all the value detracting speculation and trading etc,. What I'm struggling with is I may make a few trades a year simply to rebalance my portfolio (amount of trades depends on whether markets are volatile or steady) once certain levels of over/under are reached. My rough calculation of this .05% tax, is it would cost me $500-$1000 maybe more a year. Not outrageous but a sizable enough increase for an infrequent trader/investor and I'm pretty sure, not part of the problem that is trying to be solved here. Plus, as if I'm not angry enough at Wall Street (I used to work in the industry, left of my own volition) it makes me wonder if I'm not being financially penalized for their greed and criminality. I want to support this but I hope there will be a little nuance (not too much though to ruin the whole purpose) to not ensnare everyone who makes a trade once in awhile.Pat , April 20, 2016 at 9:57 am
"it would cost me $500-$1000 maybe more a year"
Unlikely. I suspect the 0.5% mark is an initial bargaining position. What everyone seems to be anxious to forget (or have forgotten) is that Sen. Bernie "amendment king" Sanders has been in Congress for a loonnng time. If he's floating 0.5% in position papers, policy proposals, etc., it's because he's aiming to get 0.1 – 0.2% enacted. 200 bucks a year won't injure anyone who can manage to maintain a brokerage account.
If the guy were truly the absent-minded, flyaway-haired nutty old dodderer the MSM wants him to be, he'd never have made it this far in life.Jim A. , April 20, 2016 at 10:23 am
I realize that probably most of the objection to this is being fueled by the large houses own high frequency trading. I mean when you finance your own algorithms to figure out how to micro trade at high volume…you are talking about a lot of money. But I would also bet that some of it is the mutual fund and individual trader sector of the market. It isn't really about hurting the small investor, it is about discouraging the small investor from trading as frequently. They are seeing their commissions get cut, because Mom and Pop don't like the tax and put the brakes on. The stability of our economy and of our markets be damned, not to mention customer service.RUKidding , April 20, 2016 at 11:19 am
My worry is that the financial giants would put enough lawyers on this to try and try to create a way to avoid paying this financial tax in pretty much the same way that they figured out how to not pay title recording fees. They would create an exchange (no doubt called something different) that would own large numbers of shares and trade some sort of "future" or agreement to transfer amongst each other. Can you have a 1 second future contract? .01 second?RN , April 20, 2016 at 10:24 am
You echo a concern I have about this as well. These parasites and their shyster lawyers are very good at finding or creating loopholes that benefits them, alone.
That said, it's worth investigating and attempting to implement. It's equally worth more wide-spread discussion about why it's needed and what's happening, but I won't hold my breath on that score.
There have been one or two programs highlighting these high speed transactions on NPR, fwiw, albeit I don't believe – no surprise – that any solution was suggested.Benedict@Large , April 20, 2016 at 11:14 am
More practical solutions will be (1) to delink capital gains tax from income tax and (2) to collect capital gains tax at source.Beniaminio , April 20, 2016 at 11:21 am
Correct. No tax by the sovereign issuer of the currency has as it's purpose the raising of revenue, of which the sovereign issuer already has an infinite supply. Taxes by the sovereign issuer merely serve to regulate demand.
Of course, try to explain to anyone inside the beltway how their currency actually works, and they'll think you are crazy. They've been told incorrectly for 40 years, and DAMMIT! That's enough to make it right.FluffytheObeseCat , April 20, 2016 at 3:30 pm
Forgive my ignorance, but I don't see why a blanket transaction tax of 0.5% or whatever would be preferable to a transaction tax of 5-10% applicable to the actual bad actors, i.e., the high-frequency traders. It seems like it would be easy enough to assess a genuinely punitive tax against the actual "speculators" who are flipping shares over the course of single trading session, i.e., to tax both HFT and day-trading out of existence. I also fail to see how a transaction tax of general application would significantly inhibit insider trading.
I think Reich is being a bit tone-deaf here. In a ZIRP environment, conservative investors are effectively foisted into the stock market, and are then reviled as speculators. Is it no longer politically acceptable for the little people to invest accumulated capital? We can't all live off of political consulting and paid speeches like former Clinton-era cabinet ministers.Beniamino , April 20, 2016 at 11:07 pm
Oh, please. I've been "in the market" in mutual funds and lesser amounts of directly held stock for 20 years. If I traded enough to generate +$200 in transaction taxes, it would be a sign that I was getting bad advice, & was stupid enough to take it. If Bernie's transaction tax were enacted, it would eradicate most institutional HFT efforts in under a year. Over a decade, it's greatest benefit may be in slowing the erosion of middle class wealth by reducing excessive trading and associated fee skimming.
The guys in dress shirts in your local MSSB office in flyover are not actually your friends, and their service fees are much, much larger than they need to be in this era of electronic trading.Chauncey Gardiner , April 20, 2016 at 11:30 am
Guys in dress shirts in flyover country? Uh …. what? I'm not sure I'm following but you appear to be saying that you've conducted less than $40,000 in stock & mutual fund trades over the course of twenty years; in other words you don't care about the actual merits of this transaction-tax proposal because you don't have any money to invest anyway. Not a particularly compelling argument. At any rate, I thought the point of the proposal was to curb rank speculation, not to discourage old ladies from buying utility stocks. So why not target the actual speculators?Carly , April 20, 2016 at 2:11 pm
Sanders' proposal of a securities transaction tax is being ignored for the same underlying reason proposals to tax accumulated wealth have been ignored.
"Behind every great fortune there is a great crime." -BalzacF. Korning , April 20, 2016 at 2:31 pm
The bottom line of why this tax is ignored is the majority of people who vote doesn't understand how the markets work. So they don't understand how this would work and help. They keep voting for people who won't make any significant changes to our society. Hillary won't be any different she is going to be the same old horse leading the way. Sheeple !The Infamous Oregon Lawhobbit , April 20, 2016 at 2:43 pm
Cancelled and no-op trades wielded with impunity are the root of the HFT problem. I'm not sure why many here are claiming a tax wouldn't affect cancellations. The tax should be punitive especially for order cancellations under a reasonable holding period. It should also be much higher for non-listed OTC derivatives, repos, and all manner of exotic structured products, special vehicles, and dark pool (un)liquidity. The point is to force skin in the game.Angry Panda , April 20, 2016 at 3:25 pm
Our gentle host wrote, "I want to clarify one key issue about a transaction tax. Its purpose is not to raise revenue. Its purpose is to discourage excessive trading, which is socially unproductive."
Makes perfect sense – it's the old adage, "If you tax something, you get less of it. The more you tax, the less you get."
And if the revenue generated covers enforcement costs, that's weevils in the porridge!Lyle , April 20, 2016 at 3:55 pm
The bond part puzzles me to some extent. At least as applied to below investment grade stuff, because obviously Treasuries and IG are different animals.
First, the whole "high speed, high frequency" thing. Much of the time, it really isn't. I mean, these are instruments that still trade through humans (via the phone or Bloomberg chat), and many of even $500 million plus issues don't trade very often, period. In many bonds probably the most volume you see is immediately after issuance, and that's more a matter of people either flipping a small allocation or topping up to get to their target, with the dealer often pretty much setting up the trades with their allocation strategy. So that's a different animal than straight-up speculation (high frequency or otherwise).
Second, ok, you're "taxing" bonds effectively 1/8 (0.1%, but I'm rounding as bonds are actually quoted in eighths, maybe sixteenths sometimes), presumably paid by one or both counterparties (split equally between buyer and seller?). I…don't see how that is going to alter much of the trading that goes on. The bid-ask is effectively a bit wider, your mark when you buy something is a little lower (if you use bid-side), people complain more than usual. But High Yield is generally not something where paying up 1/8 is going to make or break your trading strategy, unlike with equities (where the high frequency guys play on fractions of fractions). At most you're looking at trades in "on the margin" issues having a tougher time getting done in stable markets (because in a hot market everyone pays up anyway, while in a rout there is often no bid, period).
All a long way of saying, bonds – fine. Define the word "bonds". Treasuries? IG? HY? Structured? And you want to realize how much in revenues from that?
Equities, on the other hand – no brainer. Tax away. If anything, tax them more than is currently proposed, because the point – to me – is not to raise revenue, but to severely disincentivize speculation (of either the high frequency or the regular kinds). Imagine, for example, if the tax was at 10% of the pre-commission trade value (i.e. just shares times price), payable by both buyer and seller. "But Panda, you'll destroy secondary equity trading!" Precisely, children, because at the end of the day most of such contributes absolutely nothing productive to either the society or the economy. Now, maybe I'm much more extreme than the consensus, but my point is that what Sanders is currently proposing is well within what the industry can "eat" without changing its behaviour too much, in my opinion.
Of course before deregulation of commissions the US had a private version of the financial transaction tax in terms of the fixed commissions. One way to compare is to look at commissions compared to the modern commission+ ftt. If the commissions were greater than unless you believe the market 30 years ago was defective it won't make a lot of difference.
April 24, 2016
Yves here. Two things struck me about Jim Kidney's article below. One is that he still wants to think well of his former SEC colleagues. I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing). Kidney does criticize corrosive practices, particularly the SEC stopping developing its own lawyers and becoming dependent on the revolving door, but his criticisms seem muted relative to the severity of the problems.
Number two, and related, are the class assumptions at work. The SEC does not want to see securities professionals at anything other than bucket shops as bad people. At SEC conferences, agency officials are virtually apologetic and regularly say, "We know you are honest people who want to do the right thing." Please tell me where else in law enforcement is that the underlying belief.
By James A. Kidney, former SEC attorney. Originally published at Watch the Circus
The New Yorker and Pro Publica websites today posted an article by Pro Publica's Jesse Eisinger about the de minimis investigation by the Securities and Exchange Commission into the conduct of Goldman Sachs in the sale of derivatives based on mortgage-backed securities during the run-up to the Great Recession of 2008. The details of the SEC's failure to aggressively pursue Goldman in the particular investigation, Abacus, and its refusal to investigate fully misconduct by Goldman and other "Too Big to Fail" banks, stands not only as a historic misstep by the SEC and its Division of Enforcement, but undermines the claim that the Obama Administration has been "tough on Wall Street." The Pro Publica version contains links to a few of the documents I provided.
No one in authority who was involved in the Goldman investigation ever gave me an explanation for why the effort was so slight. Mr. Eisinger's article doesn't offer any explanation from the one investigation participant brave enough to comment. The details of the investigation into Abacus at my level as trial counsel, which I provided to Pro Publica earlier this year, compels the conclusion that the SEC, its chairman at the time, Mary Schapiro, and the leadership of the Division of Enforcement were more interested in a quick public relations hit than in pursuing a thorough investigation of Goldman, Bank of America, Citibank, JP Morgan and other large Wall Street firms.
Although the emails and documents I produced to Pro Publica stemming from my role as the designated (later replaced) trial attorney for the Division of Enforcement are excruciatingly boring to all but the most dedicated securities lawyer, even a lay person can observe that the Division of Enforcement was more anxious to publicize a quick lawsuit than to follow the trail of clues as far up the chain-of-command at Goldman as the evidence warranted. Serious consideration also never was given to fraud theories in any of the Big Bank cases stemming from the Great Recession that would better tell the story of how investors were defrauded and who was responsible, due either to dereliction or design.
Instead, the SEC restricted its investigation to the narrowest theory of liability, had to be pressed (by me) to go even one short rung above the lowest level Goldman supervisor in its investigation (which took months to push through, though investigative subpoenas are frequently issued on far less in far smaller cases) and finally dropped other investigations of Goldman in return for a $550 million settlement announced July 15, 2010. To my knowledge (I retired in March 2014), the SEC never again pursued Goldman for its mortgage securities fraud or other major fraud. There is no evidence on the SEC website that it did so.
Nearly six years later, long after the statute of limitations for securities fraud expired and individuals, pension funds and corporate entities are no longer able to bring private actions against the Big Banks, the Department of Justice announced another settlement with Goldman for its deceptive conduct in the sale of mortgage-backed securities. In this one, Goldman agreed to pay more than $5 billion "in connection with its sale of residential mortgage-backed securities."
At a minimum, it can be said that the SEC left 90 percent of the money on the table at a time when a more aggressive investigation of the company, as well as others, could have counted for something by disclosing, in a detailed court complaint, Wall Street wrongs that might have helped policy makers better address the subject and allow damaged individuals and entities to bring their own lawsuits.
It is very important to emphasize emphatically several points. First, I have zero evidence, and would be very surprised, if any of the individuals at the Division of Enforcement, including senior supervisors or the SEC chairman or associate commissioners, acted unlawfully or were motivated principally to protect Goldman and other big banks. All of these people appeared well-intentioned from their point of view, even they never really explained, to me, or to many others at the Commission, their motives in limiting investigations. The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was. Its range was clearly limited from the outset: we will sue the bank and not look hard for evidence of individual participation beyond the lowest levels.
By the same token, it is unfair to assume as a fact that any of the individuals at Goldman not sued, or anyone at Paulson & Co., violated the securities laws, civilly or criminally. Like any citizen, they are entitled to a day in court. Absent such opportunity, they are innocent of any wrongdoing. Arguments in my internal correspondence that evidence was sufficient to sue should be viewed only as that - arguments.
So my point in releasing these documents to Pro Publica is not to chastise or hold up to public criticism those involved at the SEC, Paulson & Co. or Goldman, though criticism of the process and of the underlying financial conduct certainly is inevitable. All of these institutions have substantial influence in the investment industry. Rather, it is to bring to light the actual conduct of one of several SEC investigations into Big Bank fraud leading up to the 2008 financial crisis.
As I told Mr. Eisinger when I met him, I hoped he would go to the individuals in charge of the SEC investigation at the time and find out why the investigation was so limited. I have spent six years wondering what is the true answer to that question. Perhaps there were sound reasons, other than the urge to get out a quick press release, which led experienced criminal prosecutors with histories in Wall Street to smother a major investigation by limiting it to the lowest level employee possible, to express total resistance to even investigating further up the chain of command, and ignoring without serious explanation and analysis what I and others, including my own immediate supervisors, viewed as the more appropriate theory for civil prosecution. I hope there are such reasons. As a trial attorney at the SEC for over 20 years, I bled SEC blue. I believed that the agency usually tried to do the best it could, using analog era procedures and processes to combat fraud in a digital age. I am saddened to release this information. But the notion that "the Administration was tough on Wall Street" must be addressed by facts, not press releases and self-serving interviews, else the system's problems cannot be adequately addressed and repaired to deal with the next financial crisis.
Not only is the issue of how the financial sector enforcement agencies handled the wrongs of the Great Recession an important political issue, but it is important to history. It is important that the facts not be shielded from the public so that we can all learn for the future. And it is a melancholy thought that, presented with the opportunity for a rigorous investigation and airing of facts in civil or criminal proceedings gone, history will be denied a fairer story of both the financial crisis itself and how the government responded.
As many news organizations have noted , the taxpayer and Goldman shareholders will pay the combination of penalties and repayments in the DOJ settlement. No individual was named as liable in the civil settlement with Goldman nor in any of the other similar, and even larger, financial settlements entered into with the Department of Justice, all of which are vastly greater than what the SEC obtained in its "quick hit, one and done" enforcement actions. DOJ must be credited with what appears to have been a far more thorough investigation of wrongdoing than the SEC performed, but the public is properly mystified that no individuals were charged, criminally or civilly, although the DOJ press releases contains the usual caveat that "the investigation continues."
The settlements with Goldman and other Big Banks were resolved under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which allows the Feds to ignore the normal five-year statute of limitations for fraud, but does not permit suit by private party victims. As has been the practice with DOJ when dealing with Wall Street, no criminal charge was brought. In fact, no complaint was filed in any of these cases. Instead, DOJ entered into contractual arrangements with the banks. Failing to fulfill their obligations under the contract would subject them to civil enforcement as a breach of contract matter, not a contempt charge in federal District Court.
Contrary to claims by politicians, it is clear that the Obama Administration has not been hard-hitting on Wall Street fraudsters. The large fines obtained by the Department of Justice, while a short-term pinch, are simply a cost of doing business. Relying on fines to penalize rich Wall Street banks, which, after all, specialize in making money and do it well, if not always honestly, is like fining Campbell Soup in chicken broth. It costs something, but doesn't change anything in the way of operations or personnel.
Despite billions in fines representing many more billions in fraud, the enforcement agencies of the United States have been unable to find anyone responsible criminally or civilly for this huge business misconduct other than a janitor or two at the lowest rung of the companies. Nor have they sought to impose systemic changes to these banks to prevent similar frauds from happening again.
Yessir, according to the Obama administration, Goldman Sachs, JP Morgan, Bank of America, Citibank and other institutions made their contributions to tearing down the economy, but no one was responsible. They are ghost companies. And nothing needs to be done to prevent such intent or dereliction in the future.
Law enforcement by contract? Clearly, the banks made it a condition of settlement that no complaint, civil or criminal, be filed. That might gum up the works by requiring state regulators to take action under their own rules, or cause other collateral consequences.
Ah, say the defenders of the status quo, don't forget about Dodd-Frank, the unwieldy legislation passed by feckless Democrats influenced by big money contributors and their own fear of appearing too aggressive (a particular Democratic Party contagion). Dodd-Frank was and is a virtual chum pool for Wall Street lawyers and lobbyists, leaving most of the substance to regulatory agencies such as the SEC and the Federal Reserve, who for years have been significantly captured by those they are supposed to regulate. The private sector lawyers and lobbyists have open doors to these places to "help" write the rules and add complexity, which they later complain about in court, challenging those same rules as too complex.
Dear citizen, just remember this: complexity favors fraud, and certainly favors Wall Street and corporate America. You can't understand the rules and neither can Congress or all but the most dedicated experts. That's a lot of room to disguise misdeeds. To take a current example, which came to my attention just before completing this post, Congress is trying to use sentencing reform, generally thought of as intending to remove inequities from the criminal justice system, to also make it even tougher to prosecute and punish white-collar crime. Is this why the Koch Brothers suddenly show such public attention to the poor and needy by favoring such legislation? See this discussion of adding the "mens rea" requirement to such legislation. Burying an important but legalistic issue in otherwise liberal leaning legislation is a current example of disguising lax enforcement of white-collar crime in a complicated package. As one Democratic congressman suggested, how can a liberal vote against sentencing reform? The explanation of the badger buried in the woodpile is too complicated for the average voter.
Not coincidentally, adding a requirement to the law that it is a defense to either the crime itself or to sentencing that "I didn't know my acts were against the law" is a get out of jail free card as the complexity of laws addressed to ever more sophisticated business misconduct grows. Wall Street clearly has shown no shame in using the defense that "no one knew". Can't blame them. It has worked so far. Maybe they don't even need new legislation.
I was told repeatedly when I entered the Goldman investigation that synthetic CDOs were just too complex for me to understand. Of course, it appeared to be plain vanilla fraud selling a product designed to fail but nicely packaged for chumps to buy. Claims of complexity hide many easily understood sins.
At least for the major sins, we don't need even more complex regulations. Instead, put leadership in place who will aggressively enforce the laws we have already. That would raise plenty of eyebrows and put some bums in prison, or at least make them pay civil and criminal penalties personally. As many have noted, prison or, at least, personal financial liability, beats corporate concessions every time and pays back in future reluctance to break the law. The country should try it sometime.
So back to little me, a small and ineffective cog in the larger system. Why is this release of documents so long after the investigation?
My friends know that I have been upset since 2010 about the way the SEC handled the Goldman case and, in my view (confirmed by other trial lawyers), that it became a template for other SEC civil suits against the Big Banks. In 2011 I wrote an anonymous letter to The New York Times complaining about the lack of investigative effort by the Division of Enforcement and the impact of the "revolving door" bringing Wall Street defense lawyers into the highest reaches of the SEC. This is a practice that Obama has continued at most departments and agencies having to do with the financial system, following in Bill Clinton's footsteps. The New York Times letter was based entirely on publicly available information.
I was dismayed to not find any follow-up to my letter in The New York Times . I gave up trying to bring attention to the investigative lassitude of the agency. Interest appeared to be over.
A year after I retired, I sent a copy of the letter to The Times , under a cover letter identifying myself. One of the addressees on the original letter called and told me the original letter never was received. The caller suggested that was because I misaddressed it to the old location of The New York Times . I felt foolish, of course, but I guess that in 2014, when the letter was finally received, The Times didn't see fit to follow-up the information even knowing its source. This was another indication to me that the time for debate over the law enforcement treatment of wrong doers on Wall Street had passed.
Once, years earlier and only for a brief time, the SEC was an agency that was at least sometimes fearless of Wall Street institutions. In those days, the directors of the Division of Enforcement were home-grown, not imported from Wall Street law firms. After 1996, that ended. Every director since has been nurtured as a Wall Street defense lawyer. The decline in performance has followed an expected arc. No one has seemed bothered by this. It seems the phrase "lawyers represent client interests" is sufficient explanation to insulate this practice from critics. In this view (pushed by lawyers), lawyers are the only people in America who are not influenced by their work experience, including friendships and defense of client practices. They are SO exceptional! So give it up, Jim, I finally told myself. It's the nature of Washington to put foxes in hen houses and claim they are protecting the fowl.
But in April 2015, Sen. Bernie Sanders announced his presidential candidacy, based principally on anger over how Wall Street has escaped being held seriously responsible for its misdeeds. If you credit Sanders with nothing else, praise him for not letting go of the notion of justice for those who suffered and those who caused pain and anger for millions. Yes, the banks are not solely responsible for the Great Recession, but they contributed more than their fair share and leveraged immensely the damage initially caused by others.
Sanders was not treated seriously. The publications I read made it clear that Sanders was, like Donald Trump, a flash in the pan. Jeb Bush and Hillary Clinton would be nominated. Anger against Wall Street and inequality were issues, but not worthy vehicles for a political campaign. Nothing here. Move on.
It turns out that the ravages caused by Wall Street are the gift that keeps on giving. As Sanders campaigned with far more success than predicted, and Secretary of State Clinton defended President Obama as "tough on Wall Street," it was evident that my small contribution to correcting the record might be timely.
So here it is.
Do I think Obama is responsible for the ineffective and embarrassing lay downs at the SEC and DOJ? Yes, I do. I have no idea if the President communicated to his law enforcement appointees that they should "go easy on Wall Street." Rarely is such overt instruction necessary in Washington. But it is not hard to believe that in some fashion he did send such signals, since he came into office with a mantra of letting bygones be bygones, including in the far more important arena of the false narratives for invading Iraq.
In any event, the chairman of the SEC and the attorney general are appointed by the President. At a minimum, we can say with certainty that Obama was satisfied with their performance. It is difficult to conceive that, as a Harvard educated lawyer who also taught law at the University of Chicago, it never crossed his mind how massive civil or criminal misconduct could go on without the supervision or knowledge of at least mid-level executives. Certainly, the public criticism was brought to his attention. His response was to create a joint task force on the subject of fraud in general. Its main visible public function is to collect all the press releases on fraud prosecutions, including small-time fraud, on one website . It also offers advice to "elders" on how to avoid fraudulent scams. The pro forma mention of the task force in DOJ's announcement of the Goldman settlement signals that the Task Force doesn't do much. Again, law enforcement by press release.
The alternative possibility, never mentioned because it is preposterous, is that big Wall Street firms so lack supervision of their lower level employees that fraud on a huge scale can be conducted without the knowledge of even mid-level executives. At the SEC, at least, such a conclusion should call for application of its "regulatory" function to impose supervisory conditions on the banks. No such action was ever undertaken. Instead, it was "pay up some money and nevermind."
Dodd-Frank at best imposes generalized rules about bank size and other generic issues, rather than addressing the kinds of fraudulent actions that actually occurred. It is appropriate for the SEC or Federal Reserve to impose narrower changes in corporate practice to address specific kinds of fraud. They are called "undertakings" and are often imposed by civil settlements with the SEC or in litigated relief. It did not happen with the Big Bank frauds.
I believe that the American public is entitled to accurate information about how their government works, including the important regulatory agencies. One way to do this is to fully disclose how the sausage is made, especially when the process is defective. Self-promoting press releases swallowed by a fawning business press is not sufficient. I knew I would not disclose any non-public information about the Goldman investigation while the lawsuit against Fabrice Tourre was pending. He was the one guy at Goldman the SEC sued personally. In fact, I think he was the only guy employed by any of the big banks sued personally. (Another fellow who worked with the banks - not for the banks - was sued in another case. He was found not liable, with the jury asking how come higher-ups were not in the dock and urging the investigation to continue. It wasn't.) The Tourre case concluded a few years ago with a verdict against the defendant. All appeals are exhausted. The statute of limitations has expired for private actions. Disclosure of the information I had can do no harm to the public or to pending litigation.
The only reason to keep the information secret is to prevent embarrassment to the SEC or to those people who made decisions for the agency. Most of them left the SEC years ago. For public consumption, I have tried to redact all names of the non-supervisory personnel in the Division of Enforcement who worked on Goldman. I also must add that, as the emails show, for a period of time those dedicated investigators were excited about the notion of bringing at least a slightly broader action than their supervisors wanted. As is the case with much of the Division of Enforcement, the worker bees try hard and usually are fearless. It is their bosses who frequently suppress their enthusiasm for policy, political, or personal reasons.
As final egotistical end note, I must say that, despite all of my personal reservations about his dedication to effective law enforcement in the financial sector, I voted for the President twice. I will vote for whoever is the Democratic nominee. But I ask myself: Is this the best that two political parties given de facto monopoly over selection of presidential candidates can do?
Whoever is nominated and elected, Republican or Democrat, I hope that he or she will recognize the need to end the practice of hiring Wall Street personnel to run our financial enforcement agencies. They should begin by looking to home-trained personnel to lead the major departments and agencies, such as Treasury, the SEC and the Department of Justice, including the chief of the Antitrust Division. These are the people who are responsible for these institutions on a daily basis and also understand the nature and importance of their mission. They have a career stake in doing an effective job. Outsiders are, in general, more interested in resume polishing for the next private job. Additionally, much great talent leaves these agencies for their own more lucrative private careers when they see their own chances for advancement blocked by outsiders or their energies trying to fairly but aggressively enforce the law sapped by timid leadership.
One party has chastised our government on every occasion for nearly 40 years and shows no intention of reining in Big Business or Wall Street. Directly or by implication, these attacks tarnish government employees in general, making a public service career less attractive to our most talented citizens. The other party has been indifferent or ineffective in its defense of civil service and has addressed financial sector wrongs by adding to the complexity of the system rather than cutting through it. As a result, some of our businesses are above the law.
Something has got to change. It will. The question is, will it be for the better?Gaylord , April 24, 2016 at 4:40 amJames Levy , April 24, 2016 at 6:24 am
The author is trying very hard to be nice to the point of being delusional. This is criminality and corruption through and through, and it didn't end in '08. Don't be sad… get mad.H. Alexander Ivey , April 24, 2016 at 6:58 am
When it's your career, you get sad.
A little history: I was hired, first as an adjunct, then a tenure-track professor, by the interdisciplinary Freshman teaching unit at my old university. Two years before I would have come up for tenure (and gotten it) they axed the program and switched me, against its will, to the History Department. And they reset my tenure clock to zero. Long story short, they were never going to tenure me. So I slogged on and earned my pay and got my two kids through high school. By then, my wife wanted out of the suburbs and said she was leaving, preferably with me, but leaving. So we moved to the country. This cut me off from the academic life (and nice $72,000 a year paycheck) that I had struggled for years to enter and excel in.
So what? So, It's gone. I'm cut off. My intended life's work is ruined. At 51 I'm an unemployed naval historian with two books and seven refereed journal articles and I can't get an interview for a full-time job at a community college. How painful is this? It's murder. Hurts all the time. No more exciting lectures to give. No more university library at my beck and call. No more access to journals. No more conferences. It's an occasional one-off course and driving a delivery van.
This man has risked a lot to do what he did. He's lost more than many of you will realize. If he can't just crap on the old life and the old profession, please, cut the man a little slack. You don't want to be him.ahimsa , April 24, 2016 at 7:48 am
Mr Levy, I am very sympathetic to your situation – long story short, I was in the forefront of the late 70s to the present, layoffs in various industries where I found myself game-fully employed. I too, no longer believe I will ever be employed full time at any job.
But I argue that it is not that the gods do not favour us; it is that we are the outcome of bad gov't policies and unregulated (regulated for the consumer) businesses practices. Hence, my lack of sympathy or willingness to tolerate breast beating (see my April 24, 2016 at 6:44 am posting) by those who put us here.inode_buddha , April 24, 2016 at 7:57 am
Not sure I follow you?
James A. Kidney, former trial attorney with the Securities and Exchange Commission, retired from the SEC in 2014 at the age of 66 after 24 years working there. Looks like he had a full career, although had to put up with a lot of bullshit, and possibly soured some relationships on his way out.
From Bloomberg: SEC Goldman Lawyer Says Agency Too Timid on Wall Street MisdeedsNorb , April 24, 2016 at 10:54 am
Very similar situation here. Going on 50, unemployed in my chosen field, etc. And yes, its hard to just walk away sometimes… I have to keep my mind focused ahead instead of looking back.
Are there any yacht clubs nearby you? There is like 4 of them within 10 minutes of me (I'm on the Great Lakes) You could teach sailing and rigging no doubt. Bonus: Union crane operators are required to know their rigging – they may need teachers too.local to oakland , April 24, 2016 at 11:43 am
More than ever, I am convinced the capitalist system needs to be rejected as the means determining how goods and services are delivered. The injustice and inequality generated are too great. Finding a positive expressive outlet for this dissatisfaction will require leadership- and a new vision for the future.
The amount of social damage being inflicted by the elite is almost beyond comprehension. Since they have successfully insulated themselves form the consequences of their actions, they remain aloof and uncaring for the plight of ordinary people, not to mention the health of the planet. This system will continue to cut more and more people off from the benefits of collective social action and effort. The work of the many, supporting the desires of the few cannot stand.
We all have to decide the level of inequality we are willing to live with. How people answer this question will naturally sort them into common communities. Leave the isolated gated communities to the elite. Careerism, like capitalism, is a dead end if your position cannot be guaranteed. The amount of talent and passion for work wasted under the current system is another undercounted fact. Sustainability and democracy are not compatible with capitalism.
Getting mad is only the beginning. The anger must be directed in some productive fashion. Any resistance to the current order must have broad social support and that support only has strength if self-reliant. Building these self-reliant structures is what the future will hold. If the plutocrats can build a world for themselves, why can't the common man. It only takes work,discipline, and control over the means of production.
Workers without power, influence, and the means to obtain life necessities are slaves. Is the best the human mind can conceive a life of benevolent serfdom?
By the way, I believe I would enjoy sitting in on one of your lectures. I'm sure I would learn much- and be a better man for it.Ben , April 24, 2016 at 10:01 am
@James Levy … sorry to hear. I know a few who have been chewed up by the academic meat grinder. I hope you can find a productive outlet for your scholarship. Exile is hard.
I have been helped by the stoics, and Dante.H. Alexander Ivey , April 24, 2016 at 6:44 am
And now GS is caught in the middle of 1MDB bond issue scandal using fraudulent and information.JACK SKWAT , April 24, 2016 at 7:39 am
"The explanation of the badger buried in the woodpile is too complicated for the average voter."
That's it! Stop right there! I will not let you (speaking to the author) BS your guilty conscience over my internet link. The average voter clearly knows they are getting screwed, that Wall Street and the voter's own bank is ripping the voter off, and most clearly, that the justice department, from state and local to federal, is enabling this injustice.
You sir, are swimming with sharks. Your morality is "is it legal?", your justification is "for the shareholder". Therefore, you refuse to see the mendacity and instead excuse it for ignorance.readerOfTeaLeaves , April 24, 2016 at 3:18 pm
I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing).
Wow, that's a mouthful – and it's only one sentence. Whilst I love your pieces, I've noticed that many of the articles – at least the run up summation to the articles – tend to be written in a stream-of-consciousness style that, frankly, is hard to digest. This seems to be the case more now than in the past. I don't know if you're harried or on an impossible schedule, but could you please make your syntax easier to read? Thanks from a long-time reader and donator.Yves Smith Post author , April 24, 2016 at 4:25 pm
Because it's a Sunday and I have time to goof off, one potential revision - b/c I believe what Mr Kidney has to say is important enough for me to spend a few minutes on one potential suggestion. I've amended and added what I hope are accurate meanings:
Focusing on these as the key subject /verb pairs:
I know (other whistleblowers)
(other whistleblowers) [lost their jobs]
(other whistleblowers) [blamed themselves – initially]
(other whistleblowers) [finally… accept]
the system in which they operated … [was corrupt]
… even if… (some employees) tried to [be competent]
(It - there's a problem with 'it' as the subject, because we are unclear what 'it' refers back to - I'll interpret 'it' as 'investigating fraud' ) was bound to…
I know other whistleblowers and internal dissenters. They wound up losing their jobs.
Initially, they blamed themselves, until they finally came to accept that the system in which they operated was so fundamentally corrupt that they could not retain a sense of their own integrity while working within the organization.
Despite the fact that some people really were trying to do the right thing, for reasons that I will explain, investigating fraud was bound to go in one of only three directions:
1. fraud would not be investigated at all,
2. fraud investigation would serve the agency's need for better public relations - in other words, the appearance of fraud investigation would be allowed to proceed, but only if it was merely cosmetic (or served some larger political purpose), or else
3. fraud investigation became temporarily elevated, but only because the organization* was suddenly in trouble – and consequently, needed to burnish its credibility by actually investigating fraud.
(Although 3 is a variant of 2, in the third option, credible fraud investigation could occur if, and only if, political necessity enabled competent SEC employees to actually investigate fraud in order to maintain the reputation of the SEC).
[NOTE: *It's not entirely clear here whether 'the organization' is the target business, or whether it is the SEC (which would need to burnish it's cred in the face of bad publicity)]
Not sure how close I came to the author's intended meanings, but I thought that I'd give it a shot.fiscalliberal , April 24, 2016 at 8:13 am
The sentence parses correctly even though it is long. Stream of consciousness often does not parse correctly, plus another characteristic is the jumbling of ideas or observations. The point is to try to recreate the internal state of the character.
For instance, from David Lodge's novel "The British Museum Is Falling Down":
It partook, he thought, shifting his weight in the saddle, of metempsychosis, the way his humble life fell into moulds prepared by literature. Or was it, he wondered, picking his nose, the result of closely studying the sentence structure of the English novelists? One had resigned oneself to having no private language any more, but one had clung wistfully to the illusion of a personal property of events. A find and fruitless illusion, it seemed, for here, inevitably came the limousine, with its Very Important Personage, or Personages, dimly visible in the interior. The policeman saluted, and the crowd pressed forward, murmuring 'Philip', 'Tony', 'Margaret', 'Prince Andrew'.
The Stream of Consciousness style of writing is marked by the sudden rise of thoughts and lack of punctuations.
The sentence may be longer than you like but this is not stream of consciousness. A clear logical structure ("first, second, third") is the antithesis of stream of consciousness.Yves Smith Post author , April 24, 2016 at 4:30 pm
I fail to see why fraud is not prosecuted. We can get cute with fancy words but fraud is clear and simple. Also – Enron results in SARBOX which seems to be clearly ignored. Yves – do we know of any SARBOX prosecutions? Clinton started deregulation, Bush implemented deregulation and Obama maintains it. No wonder the kids are mad. The financial industry makes the Koch brothers look like pikers.afisher , April 24, 2016 at 9:22 am
There is actually a high legal bar to prosecuting fraud.
I have written at length re Sarbox and the answer is no. And under Sarbox, you don't need to prosecute, you can start with a civil case and flip it to criminal if you get strong enough evidence in discovery. There was only one case (IIRC, with Angelo Mozilo) where the SEC filed Sarbox claims, one in which it also filed securities law claims. The judge threw out the Sarbox claims with no explanation. I assume it was because the judge regarded that as doubling up: you can do Sarbox or securities law (the claims to have some similarity) but not both. But the SEC as it so often does seems to have lost its nerve after that one.diptherio , April 24, 2016 at 9:48 am
Interestingly, the SEC has been warned about more of the same type of fraud: https://www.sec.gov/comments/s7-16-15/s71615-60.pdf
I don't know if an election would have consequences and if a new administration headed by Sanders would make it the SEC more responsible to the taxpayers and not the investors / banks.
It only took a decade for Markopolos to have his ponzi scheme information read by SEC.diptherio , April 24, 2016 at 9:59 am
I want to like this guy, I really do. But then he goes and says stuff like this:
The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was.
So he doesn't understand how the revolving door works…or he does but he's being purposefully obtuse about it. Sacrifice my ass! Gentleman my heiny! And claiming that there's no proof of criminality when, as is pointed out above, Sarbanes-Oxley was obviously violated isn't helping things either.
Listen dude, pick a side. It's either the American people or Wall Street crooks and their abettors in government. You don't get to have it both ways. This kind of minimization and wishy-washyness is only helping the crooks. More disappointing than I exepected.polecat , April 24, 2016 at 1:37 pm
I mean, at least he lays blame at Obama's feet, and calls the fraud what it is: fraud. Good on him!
…But then he pulls out the "vote for Dems no matter what they do!" line and I just shake my head….diptherio , April 24, 2016 at 5:18 pm
diptherio……. excuse me for a momen--BARFFFF!!!!!!-- Whew ……… that felt better !! ……….
yes …I agree….these kinds of articles are nothing more than defensive measures against a growing public rage !!!
bu…bu…but Just Us !!polecat , April 24, 2016 at 6:07 pm
these kinds of articles are nothing more than defensive measures against a growing public rage !!!
I don't actually agree. I think the guy feels a little guilty for not doing more, now he's trying to salve his conscience. Still, he can't quite bring himself to admit that the people he was working for may well have been criminals. They were just so nice!
Self-reflection is not comfortable, and most people don't have much tolerance for it. I think this guy's legitimately trying to do the right thing (not cover up for criminality) it's just that it's really psychologically difficult to admit certain aspects of reality. It's not like he's the only one.reslez , April 24, 2016 at 7:09 pm
I find it telling that suddenly now (within the last year or so) that all these people ( people in high finance, their underlings, traders, hedge funders, and other assorted enablers of massive fraud upon the general public, are suddenly having a 'come to hayzeus' epiphany! I'm not buying whatever faux sincerity they're trying to project…….
They've screwed millions of trusting people with their fraudulent grifting!perpetualWAR , April 24, 2016 at 11:32 am
> I find it telling that suddenly now (within the last year or so) that all these people […], are suddenly having a 'come to hayzeus' epiphany!
Especially when it comes after a fat retirement and a lengthy career of going along. I have much more respect for people who really did put their daily bread on the line, and there are plenty of those people, a lot of whom Obama sent to jail. So, yeah, great, you finally told the truth… but where were you when the country needed you to speak out?diptherio , April 24, 2016 at 12:59 pm
How about where the guy said "until proven guilty, they are innocent." Hahahahahahaha
Crooks, the lot of them.polecat , April 24, 2016 at 1:42 pm
Couldn't we use civil forfeiture to go after them regardless of whether we can prove any actual crime? What's good for the average citizen is surely good for the elite banker…reslez , April 24, 2016 at 7:06 pm
…but you just might need some of those 'Yehadis' to back you up ;-)ChrisPacific , April 26, 2016 at 12:36 am
It's a good thing they're gentlemen. I don't know if I could handle all the looting and self-dealing if it came from common ruffians. Truly we are fortunate to be in such hands, my fellow countrymen!Lars Jorgensen , April 24, 2016 at 10:00 am
Yes, I had trouble getting past that line as well. Either he is being ironic or he has a massive blind spot on that point.polecat , April 24, 2016 at 1:45 pm
According to Bill Black in a ted talk 2014. After the Savings and loans debacle, where the regulators went after the worst of the worst criminals, they made 30.000 criminal referrals and 1000 procecutions with a 90% succes rate.
Now after the 2008 crisis, which was 70 times bigger causing 10 million job losses and costing 11 trillion dolllars, the Obama administration has not made one single criminal referral. https://www.youtube.com/watch?v=-JBYPcgtnGE
Today I fell over some information about the IMF, that the organization is exempt from legal prosecutions and taxes. Can this be true?
From the article: "The employees who bare the IMF badge are pretty much exempt from all forms of government intervention. And, according to LisaHavenNews, the IMF "law book," the Articles of Agreement lists the reasons and requirements for exclusion from government mandate."
http://www.truthandaction.org/revealed-imf-granted-complete-immunity-form-legal-prosecution-taxation/Steve in Dallas , April 24, 2016 at 2:35 pm
…..criminals are, as criminals do, as criminals take…..lightningclap , April 24, 2016 at 4:48 pm
Thank you, I was hoping someone would mention Bill Black.
I'm a software/hardware product/business development engineer. In 2008, after 20 years of reading the WSJ and stunned by the sellout to Murdoch, I went to the internet independent media (IM) to follow the 'economic crisis'. Within a few months it was clear to me 1) I had learned nothing of substance reading the WSJ, 2) the U.S. MSM, education system, and government are thoroughly captured/corrupt.
Being a 'reader' (note: I don't know anyone who reads non-fiction) for me this 'worldview transition' was quite natural, nothing really surprised me, and it was a big relief to discover such good information/analysis so easily available on the internet. However, eight years later, I have yet to meet a single person who has rejected the MSM or tuned in to what's happening, via the IM or otherwise. In fact, after leaving the university in 1990, I have yet to meet a single person with any basic understanding of (or the slightest interest in, or concern about) the extreme institutional criminality of the the Savings & Loan Crisis, Asian Economic Crisis, Technology Bubble, the 2008 crisis, or the many economic/military wars-of-aggression methodically destroying one government/economy/country after another.
To me, nothing made the global/economic/organized/mafia criminality more clear than the 2008/2009 articles by Bill Black. Back then I again foolishly assumed people would rally behind Dr. Black to reestablish basic law enforcement against yet another obvious largest-ever "epidemic" of organized crime. Looking back, the highly organized (and very successful) criminality of the Paulson/Obama/Geithner/Bernanke/etc. cabal was truly an amazing operation to behold. Perhaps the most shocking news came in 2010 when numerous studies confirmed that the top 7% of Americans had already "profited" from the economic crisis, that the criminally organized upper class had not only increased their net wealth but, more importantly, had increased their rate of wealth accumulation relative to the bottom 93%. Still, to me, infinitely more amazing, the bottom 93% didn't, and still don't, seem to care, or if they do, they've done absolutely nothing to even start to fight back.
Today, when reading these articles, I'm astounded how completely meek and 'unorganized' the bottom 93% are compared to the extremely vicious and organized top 7%. Year after year the wealthy elite, who's core organizing philosophy is "take or be taken, kill or be killed", increasingly wallow in dangerously high and unprecedented levels of wealth accumulated by blatant/purposeful/methodical/criminal/vicious looting while their victims, the bottom 93% 'working class', do absolutely nothing (what are they doing?…. other than playing with their phone-toys, facebook, video games, movies?). At this point, the main (only?) reason I continue to 'read' is to perhaps someday 'behold' the working class 93% attempting to educate themselves and consequently 'organize' to defend themselves.diptherio , April 24, 2016 at 5:21 pm
+1lyman alpha blob , April 24, 2016 at 10:11 am
Dude, you need to move to Austin, stat!Carolinian , April 24, 2016 at 10:25 am
I sympathize with Mr. Kidney and applaud him for doing what he can to try to rectify this abhorrent situation. I also applaud him for placing the blame squarely on Obama and his reasons for doing so are solid.
What I find much harder to understand is why he would vote for Obama even in 2012 after it became apparent that Obama was ultimately responsible for stonewalling his investigation, and his complete willingness to vote for the corrupt Democrat party no matter what going forward.
As long as enough people continue to have that attitude things will never change until the whole system comes crashing down. I'd much rather see an FDR-type overhaul of the system rather than a complete collapse as I'm rather fond of civilization. But I've come to expect the latter rather than the former so I'll be reading my weekly Archdruid report for the foreseeable future.Alex morfesis , April 24, 2016 at 12:31 pm
The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was.
Yes poor babies for that "significant personal sacrifice" that resulted in "even more lucrative" private employment. The author explains the problem then scratches his head over what it might be.
In a rational world there would be a strict separation between the regulated and the regulators. The government would hire professional experts at decent salaries and they never ever would be allowed to then move on to jobs with the regulated. Clearly the assumption underlying our current–irrational–system is that these high status technocrats are "gentlemen" with a code of honor. Welcome to the 19th century. Those long ago plutocrats in their stately English mansions were all gentlemen and therefore entitled to their privileges by their superior breeding. They were the better sort.
Meanwhile for lesser mortals it seems totally unsurprising when laws are ignored because you hire your police from the ranks of the criminal gangs. No head scratching needed.susan the other , April 24, 2016 at 1:25 pm
Reid Muoio (boss of kidney @ $EC) has a brother at a major tall bldg law firm whose job is to help fortune 500 companies deal with D & O insurance issues…so when in the article Muoio says "He" did not go thru the revolving door…it was fraud by omission…his brother sits on the opposite side of these private settlement agreements…
so is Kidney unaware…leaving us to maybe accept he was never much of an investigator…or just forgot to point it out for us…
The world is full of govt types who tell us TINA…
The wealthy Elliott Spitzer told us he would have loved to help "the little people" but the OCC and then scotus with waters v wachovia…except scotus ruled only direct subsidiaries get protection and the OCC specifically said the trustee operations of OCC regulated entities are also not covered/protected…
A really big shoe
as Ed used to remind us….cnchal , April 24, 2016 at 2:03 pm
Does anyone else think this was insider demolition – not just the failure to prosecute, but the whole financial implosion in the first place? Who writes up nothing but "shitty deals" – all the while saying to each other: IBGYBG and survives to slink away? They must have had a heads up that the financial system as we had known it in the 20th c. was done. They had a heads up and then they got free passes. My only question is, Wasn't there a better way to bring down the system, an honest way that protected us all? By the end of the cold war money itself had become an inconvenience because of diminishing returns. And now the stuff is just plain dangerous because everyone who got screwed (99%) wants their fair share still. It is paralyzing our thinking. Obama maintains he personally "prevented another depression". I honestly think he might be insane. What we need is a recognition that the old system was completely irrational and it isn't coming back. And most of us are SOL. Somebody is going to figure out how to maintain both the value and usefulness of money very soon, because we've got work to do.polecat , April 24, 2016 at 2:10 pm
The GFC was the first great financial crime of this millenium, and Goldman Sachs was at the epicenter. A heist of gargantuan proportions, they didn't even need a safecracker after Bernanke spun the dials and opened the door wide.
Imagine if the FBI and the Mafia exchanged their top leaders every few months. That's what we have here with the SEC and Wall Street.
Bernie Sanders: The business of Wall Street is fraud and greed.
We can add to that. The business of the SEC is to provide cover.KYrocky , April 24, 2016 at 2:17 pm
It's all about 'their protection'….not ours!
He's a f#cking psychopathic peacock!readerOfTeaLeaves , April 24, 2016 at 3:31 pm
In Yves intro she shares her views, first, that Kidney still wants to think well of his former SEC colleagues and his criticisms seem muted relative to the severity of the problems, and second, that there are class assumptions at work.
The first is obvious, as the SEC is an utter failure in its responsibility to investigate and prosecute financial criminals. While Mr. Kidney devotes a fair amount of his passages pondering how it can be that no individuals within these financial institutions bear personal responsibility, Mr. Kidney fails to see the SEC through that same lens. To say Kidney's criticism of his coworkers is muted is an understatement. The individuals at the SEC are corrupt. The individuals at the Justice Department are corrupt. Probably all nice people: husbands, wives, fathers, mothers, friends, etc. Just like those folks at the financial institutions. Mr. Kidney cuts them slack because of his personal relationships with them. Mr. Kidney chooses to give them the benefit of doubt when the totality of their professional performance at the SEC make clear this cannot be true.
With respect to class assumptions at work, Yves illustrates with the deference shown by SEC officials and investigators toward these financial criminals and their presumption that these individuals are honest. Mr. Kidney does share some of his disappointment in President Obama and Obama's administration but fails to properly connect the dots. In short, the lack of financial crime prosecutions is the result of a deliberate, planned and orchestrated effort.
Mr. Kindney's investigations were prevented in going forward by his superiors. He was never given an explanation for this despite his asking. But Kidney believes his superiors are all good people.
No, they are not. They are compromised people who have placed their career employment above their sworn duty. The fact that their bosses have done the same, as have those in the Justice Department as well as President Obama, should not diminish this fact. The phrase "class assumptions" is too euphemistic when describing a system where there is no justice for the victims of financial crimes, a system where the Justice Department and Administration coordinate to shield financial criminals based on where they work.
This is America. In today's America the fact is certain individuals are above the law because our elected officials at all levels accept that this is okay. Victims of these individuals will be prevented access to their legal recourse, and that these criminals are protected from the highest level of our government down. This goes way, way beyond class assumptions.flora , April 24, 2016 at 2:37 pm
Yves has written extensively about how corporate interests have funded academic sinecures, as well as continuing legal education seminars attended by attorneys and judges. This is part of the fallout; if you want more, check out her section of ECONned where she explains how legal thinking was perverted by business interests.dk , April 24, 2016 at 2:55 pm
Thanks for this post. Glad to see the SEC story is still alive. I'm sure the SEC and Obama would prefer it quietly go away.Synoia , April 24, 2016 at 3:37 pm
As someone who has fallen on their sword more than once (and again recently), I just want to say that "placed their career employment above their sworn duty" is accurate but also oversimplifies the situation.
People with families tell themselves that they balance performance of most (some?) of those duties, while shirking the balance in order to protect their families (a "good" (as in, expensive) college for the kids)… this actually comes down to sustaining their social status, in a culture (political as well as corporate) where loyalty is valued equal to and above performance, and honorable action is diminished, trivialized, even ridiculed; and not just within the context of the financial industry.
This is not at all a defense of the choice, but the choice is made in a very class-stratified social context, and arises in that general context. People take out loans to buy cars and houses, they squirrel earnings away into investments (to avoid taxes) which they are reluctant to draw from… they feel less ready to abandon their addictive income streams for honor, and fudge their responsibilities. It's not isolated to regulators, or government, or even finance. It occurs so constantly and on so many fronts that addressing specific cases doesn't make a dent in the compromise of the entire culture. And that compromise is fueled and maintained by a very twisted set of ideas about money, and career, and social status (not to mention compromises in journalism, education, science, you name it).polecat , April 24, 2016 at 6:12 pm
I read Mr kidney as being very sarcastic. I could not write this with a serious sarcastic (Lawsuit Avoiding) view:
The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.)
taking plum jobs but at significant personal sacrifice
Oh really? Must have hurt. And from a legal point of view does not appear libelous.
Yeah…stubbed toes only…….
www.nakedcapitalism.comApril 29, 2016 by Yves Smith An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website
GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners, or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor Hudson.
MICHAEL HUDSON: Yes.
LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or, indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?
HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.
LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization of our economy? Are they one and the same?
HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are willing to lend against it
As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates – by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.
LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid in that thinking?
HUDSON: Not as in your statement. It's confused.
HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt. Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I don't know what to say when I hear this nonsense. Every economy is a credit economy.
Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar, to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized for paying debts to the palace, temples and other creditors.
The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.
You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.
LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?
HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug.
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99%.
LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening right now, in some way.
HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step into brainwashing. It's an Orwellian world.
LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're talking about here?
HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19 th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with real estate and monopolies, realizing that they can make more money off real estate.
The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The result is that they're part of the overhead process, not part of the production process.
LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's so disconnected from Wall Street economy. What's your view on that?
HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.
HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened in America and Canada since the late 1970s.
LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some of these things occurring. What should they be thinking about? Or how should they be protecting themselves?
HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors are not going to make money.
Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market, and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
LONG: Absolutely on that one. What are you currently writing? What is your current focus now?
HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months: J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms. If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking". And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just wait your turn." And that means governments should be passive.
Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously these financialized charges are factored into the price system and raise the cost of living and doing business.
LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school of economics?
HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which is pretty much what hedge funds do when they take over companies.
So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend. Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of what real economics is all about.
LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?
HUDSON: Going to be here.
LONG: Thank you for the time.Donald , April 29, 2016 at 7:33 amAlejandro , April 29, 2016 at 9:06 am
Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate, which sounded like what Duncan said.
I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.Michael Hudson , April 29, 2016 at 9:54 am
Michael Hudson from the interview;
"As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms…."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening."
May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing or unwitting…using words for understanding and clarifying as opposed to misleading and confusing…dialectic as opposed to sophistry.Leonard C.Tekaat , April 29, 2016 at 12:19 pm
What I objected to was the characterization of today's situation as "financialization." I explained that financialization is the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation. First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).SomeCallMeTim , April 29, 2016 at 5:23 pm
I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing in your article. The abuse of credit to receive rents and long term capital gains.
The title is "Congress Financialized Our Economy And Created Financial Crisis & More Poverty" Go to http://www.taxpolicyusa.wordpress.comSkippy , April 29, 2016 at 8:33 pm
Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and Austrian Economics around 1980), so I appreciate your interviews as correctives.
From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat the market. Anything more than that?Eduardo Quince , April 29, 2016 at 7:41 am
From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off into C/RE and increasingly to Financialization of everything sundry.
Disheveled Marsupial… interesting to note Mr. Hudson's statement about barter, risk factors – ?????cnchal , April 29, 2016 at 8:30 am
"secular stagnation" means it's all a cycle
One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends…Let us begin with definitions from the Encarta® World English Dictionary:
Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time
Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly
Excerpted from: http://contrarianinvestorsjournal.com/?p=405#MikeNY , April 29, 2016 at 9:57 am
Secular stagnation from http://lexicon.ft.com/Term?term=secular-stagnation
Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.
Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.
Words. What they mean depends on who's talking.
Secular stagnation is when the predators of finance have eaten too many sheeple.digi_owl , April 29, 2016 at 7:44 am
Secular stagnation is when the predators of finance have eaten too many sheeple.
This.Alejandro , April 29, 2016 at 9:18 am
Sad to see Hudson parroting the line about banks lending out savings…Enquiring Mind , April 29, 2016 at 9:02 am
That's not what he said. Re-read or re-listen, please.tegnost , April 29, 2016 at 9:52 am
Hudson saysMarkets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.
Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently.
Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?Synoia , April 29, 2016 at 10:06 am
I think what it means is it's getting harder to squeeze the blood out of the turniprfdawn , April 29, 2016 at 10:52 am
What Turnip? Its become a stone, fossilized..ke , April 29, 2016 at 10:22 am
Yes, I think we are into turnip country now. Figure 1 in this prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?ke , April 29, 2016 at 12:49 pm
Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear.meeps , April 29, 2016 at 5:36 pm
Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously, the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting to kidnap our kids with public healthcare and education policies.Robert Coutinho , April 29, 2016 at 9:29 pm
I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement, can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard places…ke , April 29, 2016 at 7:22 pm
Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.Russell , April 29, 2016 at 10:00 pm
If Big G can print to infinity, print, but then why book it as debt to future generations?
The future is already becoming the present, because the millenials aren't paying.cnchal , April 30, 2016 at 4:36 am
Low rent & cheap energy are key to the arts & innovations. My model has to work for airports, starts at the fuel farm as the CIA & MI6 Front Page Avjet did. Well before that was Air America. I wonder if now American Airlines itself is a Front.
All of America is a Front far as I can about tell. Hadn't heard that Manhattan rents were coming down. Come in from out of town, how you going to know? Not supposed to I guess.
I got that textbook and I liked that guy John Commons. He says capitalism is great, but it always leads to Socialism because of unbridled greed.
The frenzy to find another stable cash currency showing in Bit Coin and the discussion of Future Tax Credits while the Euro is controlled by the rent takers demands change on both sides of the Atlantic.
We got shot dead protesting the war, and civil rights backlash is the gift that keeps giving to the Southerners looking up every day in every courthouse town, County seat is all about spreading fear and desperation.
How to change it all without violence is going to be really tricky.Procopius , April 30, 2016 at 8:10 am
Many thanks for the shout out to Canada.
. . . So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
When one reads the financial press in Canada, every dollar extracted by the lords of finance is a glorious taking by brilliant people at the top of the financial food chain from the stupid little people at the bottom, but when it counts, there was silence, in cooperation with Canada's one percent.
The story starts about five years ago, with smart meters. Everyone knows what they are, a method by which electrical power use can be priced depending on the time of day, and day of the week.
To make this tasty, Ontario's local utilities at first kept the price the same for all the time, and then after all the meters were installed, came the changes, phased in over time. Prices were increased substantially, but there was an out. If you changed your living arrangements to live like a nocturnal rodent and washed your clothes in the middle of the night, had supper later in the evening or waited for weekend power rates you could still get low power rates, from the three tier price structure.
The local utilities bought the power from the government of Ontario power generation utility, renamed to Hydro One, and this is where Michael Hudson's talk becomes relevant.
The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug .
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99% .
Eighteen months ago, there was an election in Ontario, and the press was on radio silence during the whole time leading up to the election about the plans to "privatize" Hydro One. I cannot recall one instance of any mention that the new Premier, Kathleen Wynne was planning on selling Hydro One to "investors".
Where did this come from? Did the little people rise up and say to the politicians "you should privatize Hydro One" for whatever reason? No. This push came from the 1% and Hydro One was sold so fast it made my head spin, and is now trading on the Toronto Stock exchange.
At first I though the premier was an economic ignoramus, because Hydro One was generating income for the province and there was no other power supplier, so one couldn't even fire them if they raised their prices too high.
One of the arguments put forward by the 1% to privatize Hydro One was a classic divide and conquer strategy. They argued that too many people at Hydro One were making too much money, and by privatizing, the employees wages would be beat down, and the resultant savings would be passed on to customers.
Back to Michael Hudson
. . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business .
Power prices have increased yet again in Ontario since privatization, and Canada's 1% are "making a killing" on it. There has been another change as well. Instead of a three tier price structure, there are now two, really expensive and super expensive. There is no longer a price break to living like a nocturnal rodent. The 1% took that for themselves.
I am so tired of seeing that old lie about Old Henry and the $5 a day. I realize it was just a tossed off reference to something most people believe for the purpose of describing a discarded policy, but the fact is very, very few of Old Henry's employees ever got that pay. See, there were strings attached.
Old Henry hired a lot of spies, too. He sent them around to the neighborhoods where his workers lived (it was convenient having them all in Detroit). If the neighbors saw your kid bringing a bucket of beer home from the corner tavern for the family, you didn't get the $5.
If your lawn wasn't mowed to their satisfaction, you didn't get the $5. If you were thought not to bathe as often as they liked, you didn't get the $5. If you didn't go to a church on Sundays, you didn't get the $5. If you were an immigrant and not taking English classes at night school, you didn't get the $5. There were quite a lot of strings attached. The whole story was a public relations stunt, and Old Henry never intended to live up to it; he hated his workers.
April 28, 2016 | economistsview.typepad.comFrom an interview of Joe Stiglitz :...White: ... To what extent do you feel economist and economic theory is culpable for the crisis? What is the role of an economist going forward?Stiglitz: The prevalent ideology-when I say prevalent it's not all economists- held that markets were basically efficient, that they were stable. You had people like Greenspan and Bernanke saying things like "markets don't generate bubbles." They had precise models that were precisely wrong and gave them confidence in theories that led to the policies that were responsible for the crisis, and responsible for the growth in inequality. Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.What can we do about it? We've had this very strong strand that is focused on the limitations and market imperfections. A very large fraction of the younger people, this is what they want to work on. It's very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They'd think you're crazy. ...
When I first started blogging, I used to do posts with the title "Market Failure in Everything." as a counter to "the prevalent ideology." Maybe I should revive something similar.
teve Bannister : , Thursday, April 28, 2016 at 07:03 AMAgreed.rjs -> Steve Bannister... , Thursday, April 28, 2016 at 02:14 PMditto...everyone from Tyler Cohen to Mark Perry of the AEI does daily posts about the markets working for everything...a daily "Market Failure in Everything" would provide a useful alternative to that point of view...Paul Mathis, Thursday, April 28, 2016 at 07:11 AMNothing about Ricardian Equivalence or RBC fallacies.JohnH, Thursday, April 28, 2016 at 07:31 AM
While inequality is certainly important for consumption demand, PCE has not been a significant problem in the recovery. OTOH, reduction of the federal budget deficit explains virtually all of the deficient demand we have experienced. Obama and the Dems bought into RE and are paying the price now.Another interview with Stiglitz:BenIsNotYoda, Thursday, April 28, 2016 at 07:59 AM
"Nobel-prize winner Joseph Stiglitz said monetary policies have exacerbated inequality and need to be redirected to better target getting money flowing into economies and helping small and medium-size businesses.
In a Bloomberg Television interview Tuesday with Francine Lacqua and Michael McKee in New York, he said policies such as quantitative easing were a "version of trickle-down economics" and the subsequent increase in asset prices only affected the wealthiest in society.
"The key problem is the access of credit to small and medium-size enterprises, is getting that flow of money into the real economy," Stiglitz said. It's "nice to have a stock market bubble if you have a lot of stock. But if you are in the bottom 80 percent of America, you have a little stock and you can feel a little good about the stock going up. But let's face it, the overwhelming bulk of our stock market is owned by the 1 percent."
Stiglitz's comments come as some central banks around the world are being forced to delve deeper into their policy tools to help support their economies. As policy makers struggle to find a way out of the economic malaise, some have even raised the idea of helicopter money, which aims to direct cash straight to consumers.
The Columbia University professor, who said the Federal Reserve can do more to "channel" money to small companies and the economy, was also critical of negative rates. This is partly because of their potential impact on lending.
"The dangers of negative interest rates -- if you don't manage it extraordinarily well; some countries are doing it reasonably well, some are not -- is that it actually weakens the banking system," he said. "If it weakens the banking system, the banks are going to provide even less credit. While it might have some effect on financial markets, in terms of what we really should be concerned about, which is the flow of credit to businesses, that's not working."
What's the point of low interest rates, if they only serve the interests of Wall Street banks and their wealthy clientele? Oh, right! That IS the point. And most economists are just fine with that.Oh my god. He lumps in Bernanke with Greenspan. What are the Fed worshippers going to do now? Their deity is under attack from Stiglitz. Of course it is nothing but fact that bernanke denied that bubbles in real estate were possible OR that a bubble could become s problem for the economy. Hats off to Stiglitz.anne, Thursday, April 28, 2016 at 08:17 AMhttp://cepr.net/data-bytes/gdp-bytes/gdp-2016-04JohnH, Thursday, April 28, 2016 at 08:48 AM
April 28, 2016
Falling Investment and Rising Trade Deficit Lead to Weak First Quarter
By Dean Baker
Health care costs remain well-contained, barely growing as a share of GDP.
GDP grew at just a 0.5 percent annual rate in the first quarter. This weak quarter, combined with the 1.4 percent growth rate in the 4th quarter, gave the weakest two quarter performance since the 3rd and 4th quarters of 2012 when the economy grew at just a 0.3 percent annual rate.
Growth was held down by both a sharp drop in non-residential investment and a further rise in the trade deficit. Equipment investment fell at an 8.6 percent annual rate, while construction investment dropped at a 10.7 percent annual rate. The latter is not a surprise, given the overbuilding in many areas of the country. The drop in equipment investment was undoubtedly in part driven by the worsening trade situation, as many factories curtailed investment plans as U.S.-made products lost out to foreign competition, weakening demand growth. There was also a drop in information processing equipment, indicating that those who are expecting that robots will replace us all will have to wait a bit longer.
The rise in the trade deficit was due to a 2.6 percent drop in exports, as imports were nearly flat for the quarter. Trade subtracted 0.34 percentage points from growth for the quarter.
Consumption continued to grow at a modest 1.9 percent annual rate, adding 1.27 percentage points to growth. Consumption growth was held down in part by weaker demand for new cars, which subtracted 0.33 percentage points from growth for the quarter. This was the second consecutive decline in the sector. It is likely that car purchases will be up somewhat in future quarters.
The savings rate for the quarter was 5.2 percent, which is up slightly from the 5.0 percent from the prior three quarters and the 4.8 percent rates from 2013 and 2014, before people started saving their oil dividends. But seriously, there may be some modest room for this rate to decline, but for the most part consumption growth will depend on income growth going forward.
Health care services added 0.26 percentage points to growth, its smallest contribution since a reported decline in the first quarter of 2014. Spending in the sector remains well contained, growing at just a 3.8 percent annual rate over the last quarter and by 4.4 percent over the last year in nominal spending.
Housing grew at a 14.8 percent annual rate, adding 0.49 percentage points to growth. Housing has being growing at a double digit rate since the fourth quarter of 2014. While the sector is likely to continue to grow in subsequent quarters, the pace is almost certain to slow.
The government sector was a modest positive in the quarter, growing at a 1.2 percent rate. State and local spending increased at a 2.9 percent annual rate, more than offsetting a 1.6 percent drop in federal spending, all of it on the military side. Future quarters are likely to show comparable growth, although the composition may be somewhat different.
A slower rate of inventory accumulation reduced growth by 0.33 percentage points, as final sales of domestic product grew at a 0.9 percent rate. This is the third consecutive quarter in which the pace of inventory accumulation slowed, although the current pace is not especially low. It is likely that inventories will grow somewhat more quickly in the rest of the year, being at least a small positive in the growth story.
The weak growth for the quarter puts this recovery even further behind any prior recovery at the same stage. After eight and a quarter years, the economy is only 10.1 percent larger than its pre-recession level of output. A more typical recovery would have seen at least twice as much growth.
On the whole this is a weak report. The headline 0.5 percent figure probably overstates the weakness somewhat, but it is not a good sign when two consecutive quarters have an average growth rate of less than 1.0 percent. Inflation remains well under control, although there was a modest uptick in the rate of inflation shown by the core personal consumption expenditure deflator to 1.7 percent over the last year. Nonetheless, with an economy barely growing and an inflation rate that remains below target, it is difficult to envision the Federal Reserve raising interest rates further any time soon.How much more evidence do we need that the current trickle down monetary policy has failed? "The weak growth for the quarter puts this recovery even further behind any prior recovery at the same stage. After eight and a quarter years, the economy is only 10.1 percent larger than its pre-recession level of output. A more typical recovery would have seen at least twice as much growth."rayward, Thursday, April 28, 2016 at 09:11 AMMarket failures aren't really market failures but market responses to market conditions. They are failures only in the sense that something deemed bad (e.g., falling home prices) is the market response. An extreme example is what's being called secular stagnation, which is just the market response to the shift of an enormous volume of production and income from the U.S. and Europe to China and other like places with much higher levels of inequality and savings. It's a market failure only in the sense that something bad (wage stagnation, slow economic growth) happened in the U.S. and Europe. Those responsible for the shift in production and income to China et al. (i.e., U.S. and European business executives) were either ignorant of the likely market response or didn't care as long as it increased profits (via lower costs). But that's not a market failure, it's an executive failure.Peter, -1"I think almost surely both Hillary and Bernie Sanders are very very committed to a pro-equality agenda, and the differences are more in details, more in one's confidence in their ability to execute this in a political context."
Disappointing. I guess we'll find out if he's right. Also his suggestion that the economy would have done just as well with no QEs is very disappointing.
"Stiglitz: I think they were right. They originally said, "When we hit 6 percent that's full employment." Now they know that 4.9 isn't full employment, there's weak labor market. They should have focused more on improving the channel of credit to make sure that money was going to small and medium-sized enterprises They should have said to the bank-like some other countries have done-if you want access to the Fed window you have to be lending to SMEs. "
Which was Bernie's suggestion. Hillary has said nothing.
April 16, 2016 | www.nakedcapitalism.com
By Daniela Gabor, associate professor in economics at the University of the West of England, Bristol, and Jakob Vestergaard, senior researcher at the Danish Institute for International Studies. Originally published at the Institute for New Economic Thinking website
Struggles over shadow money today echo 19th century struggles over bank deposits.
Money, James Buchan once noted , "is diabolically hard to write about." It has been described as a promise to pay, a social relation, frozen desire , memory, and fiction. Less daunted, Hyman Minsky was interested by promises of unknown and changing properties . "Shadow" promises would have fascinated him. Indeed, Perry Mehrling, Zoltan Pozsar , and others argue that in shadow banking, money begins where bank deposits end. Their insights are the starting point for the first paper of our Institute for New Economic Thinking project on shadow money. The footprint of shadow money, we argue,* extends well beyond opaque shadow banking, reaching into government bond markets and regulated banks. It radically changes central banking and the state's relationship to money-issuing institutions.
Minsky famously quipped that everyone can create new money; the problem is to get it accepted as such by others. General acceptability relies on the strength of promises to exchange for proper money, money that settles debts. Banks' special role in money creation, Victoria Chick reminds us, was sealed by states' commitment that bank deposits would convert into state money (cash) at par. This social contract of convertibility materialized in bank regulation, lender of last resort, and deposit guarantees.
But even money-proper is not the same for everyone. Central banks create the money in which banks pay each other, while private banks create money for households and firms. Money is hierarchical , and moneyness is a question of immediate convertibility without loss of value (at par exchange, on demand).
Using a money hierarchy lens, we define shadow money as repurchase agreements (repos), promises to pay backed by tradable collateral. It is the presence of collateral that confers shadow money its distinctiveness. Our approach advances the debate in several ways.
First, it allows us to establish a clear picture of modern money hierarchies. Repos are nearest to money-proper, stronger in their moneyness claims than other short-term shadow liabilities . Repos rose in money hierarchies as finance sidestepped the state, developing its own convertibility rules over the past 20 years. To convert shadow money into settlement money in case of default, repo lenders sell collateral. An intricate collateral valuation regime, consisting of haircuts, mark-to-market, and margin calls, maintains collateral's exchange rate into (central) bank money.
Second, we put banks at the center of shadow-money creation. The growing shadow-money literature, however original in its insights, downplays banks' activities in the shadows because its empirical terrain is U.S. shadow banking with its institutional peculiarities. There, hedge funds issue shadow money to institutional cash pools via the balance sheet of securities dealers. In Europe or China , it's also banks issuing shadow money to other banks to fund capital market activities. LCH Clearnet SA, a pure shadow bank, offers a glimpse into this world. Like a bank, it backs money issuance with central bank (Banque de France) money. Unlike a bank, LCH Clearnet only issues shadow money.
Third, we explore the critical role of the state beyond simple guarantor of convertibility. Like bank money, shadow money relies on sovereign structures of authority and credit worthiness. Shadow money is mostly issued against government bond collateral, because liquid securities make repo convertibility easier and cheaper. The legal right to re-use (re-hypothecate) collateral allows various (shadow) banks to issue shadow money against the same government bond, which becomes akin to a base asset with "velocity." Limits to velocity place demands on the state to issue debt, not because it needs cash but because shadow money issuers need collateral.
With finance ministries unresponsive to such demands, we note two points in the historical development of shadow money in the early 2000s. In the United States, persuasive lobbying exploited concerns that U.S. Treasury debt would fall to dangerously low levels to relax regulation on repos collateralized with asset and mortgage-backed securities . In Europe, the ECB used the mechanics of monetary policy implementation to the same end. When it lent reserves to banks via repos, the ECB used its collateral valuation practices to generate base-asset privileges for "periphery" government bonds, treating these as perfect substitutes for German government bonds, with the explicit intention of powering market liquidity.
Fourth, we introduce fundamental uncertainty in modern money creation. What makes repos money – at par exchange between "cash" and collateral – is what makes finance more fragile in a Minskyan sense. Knightian uncertainty bites harder and faster because convertibility depends on collateral-market liquidity.
The collateral valuation regime that makes repos increasingly acceptable ties securities-market liquidity into appetite for leverage. Here, Keynes' concerns with the social benefits of private liquidity become relevant. Keynes voiced strong doubts about the idea of "the more liquidity the better" in stock markets (concerns now routinely voiced by central banks for securities markets). Liquid markets become more fragile, he argued, by giving investors the "illusion" that they can exit before prices turn against them. This is a crucial insight for crises of shadow money.
A promise backed by tradable collateral remains acceptable as long as lenders trust that collateral can be converted into settlement money at the agreed exchange rate. The need for liquidity may become systemic once collateral falls in market value, as repo issuers must provide additional collateral or cash to maintain at par. If forced to sell assets, collateral prices sink lower, creating a liquidity spiral . Converting shadow money is akin to climbing a ladder that is gradually sinking: The faster one climbs, the more it sinks.
Note that sovereign collateral does not always stop the sinking, outside the liquid world of U.S. Treasuries. Rather, states can be dragged down with their shadow-money issuing institutions. As Bank of England showed , when LCH Clearnet tightened the terms on which it would hold shadow money backed with Irish and Portuguese sovereign collateral, it made the sovereign debt crisis worse. Europe had its crisis of shadow money, less visible than the Lehman Brothers demise, but no less painful. "Whatever it takes" was a promise to save the "shadow" euro with a credible commitment to support sovereign collateral values.
Shadow money also constrains the macroeconomic policy options available to the state. That's because what makes shadow liabilities money also greatly complicates its stabilization: it requires a radical re-think of many powerful ideas about money and central banking. The first point, persuasively made by Perry Mehrling , and more recently by Bank of England , is that central banks need a (well-designed) framework to backstop markets , not only institutions . Collateralized debt relationships can withstand a systemic need for liquidity if holders of shadow money are confident that collateral values will not drop sharply, forcing margin calls and fire sales. Yet such overt interventions raise serious moral hazard issues.
Less well understood is that central banks need to rethink lender of last resort. Their collateral framework can perversely destabilize shadow money. Central banks cannot mitigate convertibility risk for shadow money when they use the same fragile convertibility practices. Rather, central banks should lend unsecured or without seeking to preserve collateral parity.
We suggest that the state, as base-asset issuer, becomes a de facto shadow central bank. Its fiscal policy stance and debt management matter for the pace of (shadow) credit expansion and for financial stability. Yet, unlike the central bank, the state has no means to stabilize shadow money or protect itself from its fragility. It has to rely on its central bank, caught in turn between independence and shadow money (in)stability, which may require direct interventions in government bond markets.
The bigger task that follows from our analysis, is to define the social contract between the three key institutions involved in shadow money: the state as base collateral issuer, the central bank, and private finance. In the new FSB or Basel III provisions, we are witnessing a struggle over shadow money with many echoes from the long struggle over bank money. The more radical options, such as disentangling sovereign collateral from shadow money, were never contemplated in regulatory circles. Even a partial disentanglement has proven difficult because states depend on repo markets to support liquidity in government bond markets. Our next step, then, will be to map how the crisis has altered the contours of the state's relation to the shadow money supply, comparing the cases of the U.S., the Eurozone, and China.cnchal , April 16, 2016 at 4:10 amRobert Coutinho , April 16, 2016 at 7:32 am
Financial anarchy is my interpretation of shadow banking.
. . . The legal right to re-use (re-hypothecate) collateral allows various (shadow) banks to issue shadow money against the same government bond , which becomes akin to a base asset with "velocity." Limits to velocity place demands on the state to issue debt, not because it needs cash but because shadow money issuers need collateral .
The bigger task that follows from our analysis, is to define the social contract between the three key institutions involved in shadow money: the state as base collateral issuer, the central bank, and private finance .
Who does shadow banking serve? It is so far from capitalism, it should be illegal.
Bernie Sanders: The business of Wall Street is fraud and greed.Jujeb , April 16, 2016 at 4:20 am
Well…yes and no. There is real "need" for some shadow banking services. However, the idea of having Central Banks (issuers of money, or whatever) loaning based on … nothing?
Less well understood is that central banks need to rethink lender of last resort. Their collateral framework can perversely destabilize shadow money. Central banks cannot mitigate convertibility risk for shadow money when they use the same fragile convertibility practices. Rather, central banks should lend unsecured or without seeking to preserve collateral parity.
"Europe had its crisis of shadow money, less visible than the Lehman Brothers demise, but no less painful. "Whatever it takes" was a promise to save the "shadow" euro with a credible commitment to support sovereign collateral values."
Yes, but Lehman was not a taxing authority (although to be fair, Ireland et.al. were not money-issuing sources).
I am having a hard time understanding all of this–but as far as I can tell, the authors are basically suggesting that sovereign governments should be backing up the shadow banking system. However, I have not seen them suggest any reason for it except that the entire house of cards could come falling down. Boo hoo for the banksters–tell them to do things out of the "shadows".abynormal , April 16, 2016 at 7:44 am
Why is there a need for 'shadow money' in the first place?
Afaik, banks create money when they loan and central banks(especially the Fed) issues the most secure assets, their securities, which are used as collateral.Stephen Verchinski , April 16, 2016 at 9:34 am
Thanks Yves for sharing Gabor…what a Mess! towards the end of 2012 the US shadow banking was said to be around 67 Trillion …did something get baked-in? 2014 the IMF has a much smaller 'account'…(Japan being the worst laughing stock). the gaps are no small detail:
The IMF's latest Global Financial Stability Report analyzes the growth in shadow banking in recent years in both advanced and emerging market economies and the risks involved.
According to the report, shadow banking amounts to between 15 and 25 trillion dollars in the United States, between 13.5 and 22.5 trillion in the euro area, and between 2.5 and 6 trillion in Japan-depending on the measure- and around 7 trillion in emerging markets. In emerging markets, its growth is outpacing that of the traditional banking system. https://www.imf.org/external/pubs/ft/survey/so/2014/pol100114a.htmke, April 16, 2016 at 8:04 am
That sure seems a Rx for destabilizing the world currencies to precipitate a collapse. Track and publicize the visits of Congressmen and Senators to the BIS and COL to start. Why are they making these visits under cover? Who are they meeting with? Are they being prepared as to what to expect a deliberate world currency crash? . Our political elite are so beholden to the bankers to allow for the theft of the wealth of nations for unattainable expanding growth and skimming of millions. Is it possible in regard the corporate banks to have the strings attached on the use of shadow money at time of chartering or in the case of the do over at time of bankruptcy?. How is this done? I'd also like to know a good proposal for the private investment boutique banks. Have any bills at state and federal levels been proposed and if not, why not? What would the main sections of such a bill look like. Thanks.Steve H. , April 16, 2016 at 9:27 am
A derivative promise made by a Wall Street prostitute, ultimately contingent upon the ability to liquidate the very users of the instrument, with currency debasement, and war to restock.
Paying people to buy stuff from others being paid to buy stuff, with the full faith and credit of dependent seniors in a collapsing actuarial ponzi, with nothing more than made for TV mercenaries, isn't likely to end well.
Craps, the bank moves to the next suckers, with nothing more than the promise of an exotic vacation, billed to someone else.Watt4Bob , April 16, 2016 at 10:06 am
– Limits to velocity place demands on the state to issue debt, not because it needs cash but because shadow money issuers need collateral.
There's a dirty linchpin. Even if the diabolical multiplier from cnchal's quote were removed, and the dollar was hard-pinned to a pound of silver to pay the sheriff with, infinite debt issuance can step in to the feed the hungry beast.
Promises to pay kept mercenaries in line during the city-states. If you didn't win you didn't get paid. Unless you turned around and took your employers gold instead. Which is a bit like capturing the central banks.
Still, debt can be put to good uses. Infrastructure, maybe. Basic necessities and health. 'When the people are strong, the nation is strong.' Instead, the gearing seem like the machine in Princess Bride, sucking time from peoples lives.Jim Haygood , April 16, 2016 at 2:04 pm
With regard to velocity;
Ask any highway patrolman, the faster the speed limit, the worse the accidents.
On the famed autobahns of Europe, the no speed limit means that when an accident occurs, the results are likely to be catastrophic.
And I really love the observation that central banks need a mechanism to backstop the market.
Reminds me of the main problem with the famous Vincent Black Shadow motorcycle, it could attain speeds close to 200 mph, but brake designs at the time didn't work at those speeds, so as Hunter S. Thompson remarked;
"If you rode the Black Shadow at top speed for any length of time, you would almost certainly die."
Wall $treet wants to go fast, the faster the better, but they haven't got any brakes, and worse than that, we're all along for the ride whether we like it or not.Watt4Bob , April 17, 2016 at 9:09 am
Richard Thompson got it too:
Oh, says Red Molly to James, "That's a fine motorbike
A girl could feel special on any such like"
Says James to Red Molly, "My hat's off to you
It's a Vincent Black Lightning, 1952"
[James gets shot in a robbery]
When she came to the hospital, there wasn't much left
He was running out of road, he was running out of breath
But he smiled to see her cry
And said I'll give you my Vincent to ride
Oh, he reached for her hand then he slipped her the keys
He said, "I've got no further use for these
I see angels on Ariels, in leather and chrome
Swooping down from heaven to carry me home"
And he gave her one last kiss and died
And he gave her his Vincent to ride
It was sorta like that when Bernanke handed J-Yel the keys to his QE penny farthing bike.Chauncey Gardiner , April 16, 2016 at 10:53 am
I'd flesh out that analogy a bit;
The Bernanke and J-Yel witnessed the header that Greenspan took on that bike, and decided to leave it standing against the wall. When you consider the fact that neither of them could reach the pedals, let alone mount the thing and ride, that was probably a good idea.washunate , April 16, 2016 at 11:38 am
When did the central banks' framework to backstop markets morph into an organized effort to push the value of repo collateral relentlessly upward forever?…
What about increasing the relentless decline in the Velocity of Money by gradually increasing interest rates? Yes, that might be a catalyst to trigger a "liquidity spiral". So what? We now have moral hazard in spades and at some point will have to cross the Rubicon, whether willingly or not.cnchal, April 16, 2016 at 12:07 pm
Here's a simple theory: Shadow banking is government approved fraud.Paul Tioxon , April 16, 2016 at 2:20 pm
i am reading one of the links from the post titled "Regulating money creation after the crisis", and it's even worse than government approved fraud. I am only part way through it, but here is a gem.
On page 10
. . . Instead, OLA was designed to preserve the value of the assets of failed financial firms until they are liquidated, a worthy aim, but a very different one. At the same time, the Dodd-Frank Act has imposed significant new limitations on the government's freestanding panic-fighting tools . These limitations, absent future congressional action, would render next to impossible the kind of aggressive government rescue operation that was staged during the recent crisis.
Criminality and corruption is embedded at the top of the financial food chain, by law.Keith , April 16, 2016 at 11:54 am
Motion seconded: Government sanctioned counterfeiting.susan the other , April 16, 2016 at 12:16 pm
Before we complicate the issue, it is fairly obvious no one understands conventional money and it is one of the best kept secrets on the planet.
Learn how normal money works and how its mismanagement has led to many of today's problems.
Banks create money out of nothing to allow you to buy things with loans and mortgages (fractional reserve banking).
After years of lobbying the reserve required is often as good as nothing. Mortgages can be obtained with the reserve contained in the fee.
After the financial crisis there were found to be £1.25 in reserves for every £100 issued on credit in the UK.
Having no reserve shouldn't be a problem with prudent lending.
Creating money out of nothing is the service they really provide to let you spend your own future income now.
They charge interest to cover their costs, for the risk involved and the service they provide.
Your repayments in the future, pay back the money they created out of nothing.
The asset bought covers them if you default, they will repossess it and sell it to recover the rest of the debt unpaid.
At the end all is back to square one.
The bank has received the interest for its service.
You have paid for the asset you have bought plus the interest to the bank for its service of letting you use your own money from the future.
Today's massive debt load is all money borrowed from the future for things already bought.
It can also go wrong another way, when banks lend into asset bubbles that collapse very quickly. The repossessed asset doesn't cover the outstanding debt and money gets destroyed on the banks balance sheets.
When banks lend in large amounts, on margin, into stock markets, the bust shreds their balance sheets (1929).
When banks lend in large amounts on mortgages into housing markets, the bust shreds their balance sheets (2008).
If banks don't lend prudently you are in trouble.
Then they developed securitisation …… oh dear (no need to lend prudently now).
Housing booms and busts around the world …… oh dear.
All that money borrowed from the future and already spent …… oh dear.JTHcPhee , April 16, 2016 at 12:35 pm
This is so interesting. It seems to be approaching the subject that Wray speculated about a while back – that we should give central banks fiscal responsibility. Because otherwise a sovereign state has no control over its sovereign money? It seems to me that money itself becomes a rehypothecated asset by virtue of being invested over and over again – if it is well allocated and under good fiscal control all is well. If not we get the Great Recession.
So let the state become the defacto shadow central bank so it had direct control of its own money. Instead of hanging on to the old gold standard mindset of top down management, why not think of people, not collateral, as the root of the system – the grass roots. How much money does a system – a sovereign country – need per person. And then establish a sovereign central bank to deal directly, bringing the shadows into the sunlight of fiscal control.Paul Tioxon , April 16, 2016 at 12:38 pm
…and does anyone remember the triumph of the desk slaves of the Crimson Permanent Assurance? Monty Python understood something about political economies and how one might achieve more fairness in outcomes… https://vimeo.com/111458975craazyman , April 16, 2016 at 12:43 pm
Moneyness, like doggitas, you just can't scratch behind its ears. If shadow money is distinguished by its relationship to collateral, as opposed to money issued by the state, with the entire human enterprise of civilization as its basis, it still seems to me that at the top of the money hierarchy is fiat money, the real money by the real social order empowered by the social forms of power that sustain human life in all of its aspects, not just the financial conveniences. Shadow money sounds to me like fictional capital by another name. And contractual based deposits sounds like counterfeiting. With the distinction that the man with counterfeit printing press robs the train, while the man who runs the Wall St Investment bank repo trading desk robs the whole railroad. Am I right or Am I right. What a bunch of Losers!!!
And if there is any doubt about the fictional quality of $Trillions and $ Trillions of dollars, physicists can not find anything naturally occurring in the universe beyond billions and billions. Money, simply a numbered record, a counting or cardinal number, transforms into money in name only, MINO, when it refers to fictional amount that can only appear contractually as words, and do not count how much economic activity or output has been produced.
Therefore, Money becomes a victim of the ontological argument for God by St Anselm. If God does not exist, an all powerful, all knowing, all present infinitely great in all categories of Supreme Being could not be written or spoken about, lacking the quality of existence. The fact that we CAN speak about an Omnipotent Supreme Deity means that one in fact exists, due to existence is part and parcel of Omnipotence. But of course, because we can talk or write about something, does not make it real.
It can become socially acceptable as in the case of shadow money, but it is fictional capital, a shadow of the real thing. Time to get out of the cave of finance with its shadows dancing from the light of the fires and walk eyes wide open in the bright light of sunshine!susan the other , April 16, 2016 at 2:18 pm
I don't know about this one. It seems to me to be some pretty queasy thinking. It kind of wanders around in circles of confusion. "my existence led by confusion boats, mutiny from stern to bow".
That's pretty funny somebody would say that money is diabolically hard to write about. That's pretty funny.
Money is actually the easiest thing to write about, because it's formless energy. It's not that the phenomenon is shadow money, it's shadow assets.
You have to be able to separate in your mind the ideas of 1) Quantity and 2) Form. That's why economics is a mental disorder, because it doesn't separate quantity and form. If you can't or don't, then yes, it's diabolically hard to write about because you're writing about two different things simultaneously without realizing it. Money is a quantity that is infinite and continuous, but form is an idea that is discontinuous and finite. People do what the forms tell them to do. The money is just like electricity that powers the animation of the forms. Repo is a form it's not money. It's existence results in a certain ordering of social relations, that's also a form. But money is just the energy that makes the forms potent.
The primary challenge is to come up with an ordered way of thinking about the forms themselves. That's frankly not easy. The ideal would be to understand them in the manner in which Euclid understood geometrical ideas. If you can get the vision, then you can see all the possibilities for structure and ordered relationships. there's really no triangle in reality and there's no point and there's no line and there's no plane. They just made them up to approximate physical reality. Then they thought to themselves "Holy shit! These ideas interrelated in an astounding range of symmetries and causations." Then they became a lens or a framework through which physical reality was interpreted. But they didn't confuse the idea of "number" with the idea of "triangle" or "circle".
Certainly in math the algebraic interpretation doesn't rely completely on the geometrical interpretation. But if there is no geometrical interpretation and it's only algebra, then so much is missing, so much is lost. I guess that's why they used to call it "political economy" before the mental disorder fully usurped the power of perception and reasoning.Watt4Bob , April 17, 2016 at 8:58 am
lovely to read youJim Haygood , April 16, 2016 at 1:27 pm
Certainly in math the algebraic interpretation doesn't rely completely on the geometrical interpretation. But if there is no geometrical interpretation and it's only algebra, then so much is missing, so much is lost.
With that firmly in mind, I think it's necessary to mention the fact that the " study " of "economics" relies on calculus, wherein we are introduced to the notion of change over time, volume, motion, acceleration, rates of change, vectors, etc.
Algebra and geometry are, as you point out, obvious abstractions, but once you add volume motion, and rates of change, the models become very seductive, and it's easy to see how one can be convinced that they are approaching an understanding of 'reality'.
The trouble is of course, that the egg-heads busy trying to describe economic "reality" with calculus, are, for the most part in the employ of savages who will forever cling to a simple arithmetic where their only interest is in "having it all".
Genius employed to make excuses for demented indifference.cnchal , April 16, 2016 at 2:07 pm
'Central banks should lend unsecured … we suggest that the state, as base-asset issuer, becomes a de facto shadow central bank.' - Daniela "Zsa Zsa" Gabor
This statement desperately needs Walter Bagehot's qualifications: "to solvent institutions" and "at a penalty rate."
Otherwise, we're just talking about another squalid round of "TARP for Jamie," as we peasants reach for our pitchforks.Bas , April 16, 2016 at 1:30 pm
It should however be pointed out that the idea of shadow banking is not remotely new. The concept was presaged well over a century ago by Walter Bagehot, the legendary English banker, essayist, and theorist. In 1873, Bagehot wrote Lombard Street: A Description of the Money Market, his canonical work on the money market and central banking. In it, he observed that the great London banks were accompanied by a parallel set of financial firms, known as "bill brokers," which in many ways resembled modern-day securities dealers. Like today's dealers, these bill-brokers financed themselves with borrowings that, Bagehot informs us, were "repayable at demand, or at very short notice."
Formally speaking these firms were not banks but to Bagehot they might as well be. "The London bill brokers," he observes, "do much the same [as banks]. Indeed, they are only a special sort of bankers who allow daily interest on deposits, and who for most of their money give security [i.e., collateral]. But we have no concern now with these differences of detail." At times, Bagehot is careful to note that the short-term obligations of bill-brokers were not technically deposits; he observes that the maturing of these liabilities "is not indeed a direct withdrawal of money on deposit," although "its principal effect is identical."
Other times, however, Bagehot dispenses even with this distinction: "It was also most natural that the bill-brokers should become, more or less, bankers too, and should receive money on deposit without giving any security for it." Here we have an unambiguous identification of the shadow banking phenomenon about 140 years ago .fresno dan , April 16, 2016 at 1:36 pm
it's all been reduced to gambling with no meaningful value in "The House" to back it up. Money will disappear, like in Star Trek.Jamie , April 16, 2016 at 4:46 pm
I would posit that there are two types of money
A – money of the 0.001% – if they walk into a casino, real estate transaction, or any asset for that matter they can NOMINALLY lose money – in fact the 0.001% NEVER lose any of THEIR money, they just lose your money. All winnings, of anybody doing anything anywhere, belong to them.
B – money of everybody else – this money nominally is yours to do with as you see fit, but it ALL belongs to the 0.001%. The collateral that backs it up is everything you earn and own and when necessary your, and your family's, internal organs…James Levy , April 17, 2016 at 6:07 am
"The nation [England] was not a penny poorer by the bursting of these soap bubbles of nominal money capital. All these securities actually represent nothing but accumulated claims, legal titles to future production. Their money or capital value either does not represent capital at all … or is determined independently of the real capital value they represent."
Banking Capital's Component Parts
Capital: Volume ThreeSy Krass , April 16, 2016 at 10:41 pm
Marx failed to acknowledge that supposedly hard-headed Capitalism is actually all about living beyond your means and mortgaging the future.
It was designed from the Fuggars' and the Medici's to be about debt and fractional reserves and interest. A system based on a finite supply of money is going to grow not much faster, at best, than the money available allows.
Capitalism allows explosive growth by supplying explosive amounts of credit. All this shadow banking activity is designed to get around reserve requirements; nothing else I can see calls all this complexity into existence. The banks always need more, because lending is how they make their money, so they want an infinite amount to lend in order to drive their profits towards the infinite.financial matters , April 17, 2016 at 5:49 am
A sovereign can create its own currency, but theoretically couldn't it create any currency? Couldn't Greece for example click a few key boards put some ones and zeros in and say, "oh our account with $1,000,000 US is actually $10,000,000,000 US?
HAHAHAHAHA!!!!!!!Lambert Strether, April 17, 2016 at 7:22 am
This article I think defines shadow money alright as starting where bank deposits leave off but as the above comments suggest seems to miss some key points. I think a major problem with the article is seeing central banks as separate from the state rather than seeing the central bank along with the Treasury as the state itself.
The article gets Treasury debt wrong by seeing it as the central bank funding the state rather than as actually coming from the state. This leads to wrong policy choices such as this state money being used to bail out useless financial transactions and asset appreciation rather than the public purpose. I think crazyman has it right. We left behind the power of perception and reasoning by not realizing the importance of political economy.ewmayer, April 17, 2016 at 4:45 pm
This is reminscent of Gramsci's idea that the state and civil society are to be distinguished only for purposes of exposition.
Some issues with the piece and questions for the authors (and fellow NCers):
I really wish such analyses would use the more-precise term "credit-money" in reference to money creation by banks, to distinguish it from government money creation, which similarly may have repayment requirements attached (bonds), but need not be so. The "need not be so" may occur via outright fiat emission, but more commonly appears in form of a public debt stock which continually increases with time, at least in nominal terms.
The legal right to re-use (re-hypothecate) collateral allows various (shadow) banks to issue shadow money against the same government bond, which becomes akin to a base asset with "velocity."
Fine, but what about that other crucial element of modern bank credit-money creation, leverage? Are there any practical limits on shadow banks' issuance of multiple units of shadow money against the same government-bond money unit? If so, how are they enforced (if at all)? Note also the key concept of "implied leverage" inherent in such schemes, where the leverage ratio may fluctuate drastically with the mark-to-market valuation of the collateral. Banks play endless games with "fictional reserves"; it would be naive to imagine that non-bank shadow lenders don't do similarly with their alleged collateral.
The first point, persuasively made by Perry Mehrling, and more recently by Bank of England, is that central banks need a (well-designed) framework to backstop markets, not only institutions.
Erm, markets are the *only* thing the government should be committed to ensuring functioning of - we have overwhelming evidences from multiple boom-bust-crisis episodes over the last 3 decades of the toxic results of governments backstopping hyperleveraged fraud-riddled institutions and the crooks running same.
Economist's ViewNew Deal democrat : , Monday, April 11, 2016 at 03:07 PM"consensus in support of global economic integration as a force for peace and prosperity "RC AKA Darryl, Ron -> New Deal democrat... , Tuesday, April 12, 2016 at 03:06 AM
"The Great Illusion" ( https://en.m.wikipedia.org/wiki/The_Great_Illusion )
That increased trade is a bulwark against war rears its ugly head again.
The above book which so ironically delivered the message was published in 1910.
Alas, the Kaiser, the Tsar, and the Emperor did not act in accord with its tenets. Either increased global trade is irrelevant to war and peace, or World War I didn't happen. Your pick which to believe.
Awesome, Dude!George H. Blackford : , Monday, April 11, 2016 at 03:20 PMOur problems began back in the 1970s when we abandoned the Bretton Woods international capital controls and then broke the unions, cut taxes on corporations and upper income groups, and deregulated the financial system. This eventually led a stagnation of wages in the US and an increase in the concentration of income at the top of the income distribution throughout the world: http://www.rwEconomics.com/Ch_1.htmRC AKA Darryl, Ron -> George H. Blackford ... , Tuesday, April 12, 2016 at 03:13 AM
The export-led growth model that began in the 1990s seriously exacerbated this problem as it proved to be unsustainable: http://www.rwEconomics.com/htm/WDCh_2.htm
When combined with tax cuts and financial deregulation it led to increasing debt relative to income in the importing countries that caused the financial catastrophe we went through in 2008, the economic stagnation that followed, and the social unrest we see throughout the world today. This, in turn, created a situation in which the full utilization of our economic resources can only be maintained through an unsustainable increase in debt relative to income: http://www.rwEconomics.com/htm/WDCh3e.htm
This is what has to be overcome if we are to get out of the mess the world is in today, and it's not going to be overcome by pretending that it's just going to go away if people can just become educated about the benefits of trade. At least that's not the way it worked out in the 1930s: http://www.rwEconomics.com/LTLGAD.htm
Totally excellent, Dude!Dan Kervick : , Monday, April 11, 2016 at 06:26 PMGlobal integration and the liberalization of capital flows outside of national boundaries, and outside of the constraints of national solidarity, has pushed Americans further into a ruthless capitalist struggle for strictly individual measures of "success", and intensified economic insecurity and the gaps between winners and losers. Economists find the resistance to these trends mysterious; others not so much.RC AKA Darryl, Ron -> Dan Kervick... , Tuesday, April 12, 2016 at 03:14 AMPriceless!Adamski : , Tuesday, April 12, 2016 at 07:10 AMThe prospect of an international recession has me feeling down but then I read this sniping timewasting comments section and it doesn't seem so badAshok Hegde : , Tuesday, April 12, 2016 at 02:07 PMEconomic leaders after WW2 had a Colonialist attitude entrenched within. They made a plan for global economic integration, which only considered the economic needs and realities of developed western nations. China/India/Indonesia/etc...were never at the conceptual table.BILL ELLIS -> Ashok Hegde ... , Tuesday, April 12, 2016 at 03:02 PM
Now, the tides have turned. The China-India nexus historically accounted for roughly 40% of the global economy. That 'normal' state was eclipsed for 1.5 centuries, and we may regress to that norm. If so, a ton of jobs, and economic activity, may shift from the West, to Asia. If so, the western middle classes are screwed.It's not a zero sum problemBILL ELLIS : , Tuesday, April 12, 2016 at 02:56 PMUp till now globalism has mostly been conducted by laissez faire neo liberal elite...for the needs of the elite.BILL ELLIS -> BILL ELLIS... , -1
That's not entirely a bad thing. Wars are started over the needs and desires of our elites. Common folks left to their own, won't find reason to go off and kill their counterparts... it only after "the other" has been dehumanized and demonized by the elite that common people will allow themselves to be organized to kill one another.
By allowing and encouraging the world's elite to operate within a system of mutual dependence, we decrease the incentive for the elite to marshal and deploy their captive populations against one another.
But once that international system has been solidified...as it has now... The objective should be to tear it down...it should be to make it democratized, unionised, and transparent .
We need to move from laissez faire neo liberalism to social democratic neo liberalism.Should " not" be torn down...
economistsview.typepad.comSystemically important presidential elections:Snoopy the Destroyer, by Paul Krugman, NY Times : Has Snoopy just doomed us to another severe financial crisis? Unfortunately, that's a real possibility, thanks to a bad judicial ruling that threatens a key part of financial reform. ...At the end of 2014 the regulators designated MetLife , whose business extends far beyond individual life insurance, a systemically important financial institution. Other firms faced with this designation have tried to get out by changing their business models. For example, General Electric ... sold off much of its finance business. But MetLife went to court. And it has won a favorable ruling from Rosemary Collyer , a Federal District Court judge.It was a peculiar ruling. Judge Collyer repeatedly complained that the regulators had failed to do a cost-benefit analysis, which the law doesn't say they should do, and for good reason. Financial crises are, after all, rare but drastic events; it's unreasonable to expect regulators to game out in advance just how likely the next crisis is, or how it might play out, before imposing prudential standards. To demand that officials quantify the unquantifiable would, in effect, establish a strong presumption against any kind of protective measures.Of course, that's what financial firms want. Conservatives like to pretend that the "systemically important" designation is actually a privilege, a guarantee that firms will be bailed out. Back in 2012 Mitt Romney described this part of reform as "a kiss that's been given to New York banks"..., an "enormous boon for them." Strange to say, however, firms are doing all they can to dodge this "boon" - and MetLife's stock rose sharply when the ruling came down.The federal government will appeal..., but even if it wins the ruling may open the floodgates to a wave of challenges to financial reform. And that's the sense in which Snoopy may be setting us up for future disaster.It doesn't have to happen. As with so much else, this year's election is crucial. A Democrat in the White House would enforce the spirit as well as the letter of reform - and would also appoint judges sympathetic to that endeavor. A Republican, any Republican, would make every effort to undermine reform, even if he didn't manage an explicit repeal.Just to be clear, I'm not saying that the 2010 financial reform was enough. The next crisis might come even if it remains intact. But the odds of crisis will be a lot higher if it falls apart.
jonny bakho : Monday, April 11, 2016 at 06:54 AMThe free market needs government intervention to save the market from itself.pgl said in reply to jonny bakho... , Monday, April 11, 2016 at 07:25 AMYes - and we need to get the corporate lawyers out of the way.Sandwichman -> pgl... , Monday, April 11, 2016 at 07:47 AM10,000 at the bottom of the ocean would be a good start.DrDick -> jonny bakho... , Monday, April 11, 2016 at 07:36 AMMarkets cannot even exist without government regulation.anne : , Monday, April 11, 2016 at 07:02 AMhttp://krugman.blogs.nytimes.com/2015/04/11/a-victory-against-the-shadows/Sandwichman : , Monday, April 11, 2016 at 07:14 AM
April 11, 2015
A Victory Against the Shadows
By Paul Krugman
There are two big lessons from GE's announcement * that it is planning to get out of the finance business. First, the much maligned Dodd-Frank financial reform is doing some real good. Second, Republicans have been talking nonsense on the subject. OK, maybe point #2 isn't really news, but it's important to understand just what kind of nonsense they've been talking.
GE Capital was a quintessential example of the rise of shadow banking. In most important respects it acted like a bank; it created systemic risks very much like a bank; but it was effectively unregulated, and had to be bailed out through ad hoc arrangements that understandably had many people furious about putting taxpayers on the hook for private irresponsibility.
Most economists, I think, believe that the rise of shadow banking had less to do with real advantages of such nonbank banks than it did with regulatory arbitrage - that is, institutions like GE Capital were all about exploiting the lack of adequate oversight. And the general view is that the 2008 crisis came about largely because regulatory evasion had reached the point where an old-fashioned wave of bank runs, albeit wearing somewhat different clothes, was once again possible.
So Dodd-Frank tries to fix the bad incentives by subjecting systemically important financial institutions - SIFIs - to greater oversight, higher capital and liquidity requirements, etc. And sure enough, what GE is in effect saying is that if we have to compete on a level playing field, if we can't play the moral hazard game, it's not worth being in this business. That's a clear demonstration that reform is having a real effect.
Now, the more or less official GOP line is that the crisis had nothing to do with runaway banks - it was all about Barney Frank somehow forcing poor innocent bankers to make loans to Those People. And the line on the right also asserts that the SIFI designation is actually an invitation to behave badly, that institutions so designated know that they are too big to fail and can start living high on the moral hazard hog.
But as Mike Konczal notes, ** GE - following in the footsteps of others, notably MetLife *** - is clearly desperate to get out from under the SIFI designation. It sure looks as if being named a SIFI is indeed what it's supposed to be, a burden rather than a bonus.
A good day for the reformers.
*** http://dealbook.nytimes.com/2015/01/13/metlife-to-fight-too-big-to-fail-status-in-court/"Judge Collyer repeatedly complained that the regulators had failed to do a cost-benefit analysis." What Professor Krugman omits here is that so-called "cost-benefit analysis" has been corrupted by the fallacious Kaldor-Hicks compensation principle. The house cleaning has a lot further to go than "Republicans."anne said in reply to Sandwichman ... , Monday, April 11, 2016 at 07:23 AMhttps://en.wikipedia.org/wiki/Kaldor%E2%80%93Hicks_efficiencySandwichman -> anne... , Monday, April 11, 2016 at 07:31 AM
A Kaldor–Hicks improvement, named for Nicholas Kaldor and John Hicks, also known as the Kaldor–Hicks criterion, is a way of judging economic re-allocations of resources among people that captures some of the intuitive appeal of Pareto improvements, but has less stringent criteria and is hence applicable to more circumstances.
A re-allocation is a Kaldor–Hicks improvement if those that are made better off could hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome. The compensation does not actually have to occur (there is no presumption in favor of status-quo) and thus, a Kaldor–Hicks improvement can in fact leave some people worse off.There are no stable "units" in which compensation could be paid.anne said in reply to Sandwichman ... , Monday, April 11, 2016 at 07:50 AM
"Consider a transfer of an apple from Mary to John and a transfer of $0.75 from John to Mary. Use Kaldor-Hicks to evaluate each part as a "project" with the other part as the "compensation". Using money as the numeraire and the apple transfer as the "project", we see under the assumptions that the transfer of the apple increases social wealth measured in dollars so that is the recommendation based on "efficiency", and the payment of the "compensation" of $0.75 is a matter of "equity" of concern to politician, theologians, and philosophers but not to the professional economist. Now reverse the numeraire taking apples as the numeraire and the transfer of the $0.75 as the "project". Then the transfer of the apple (= "compensation") does not change social wealth = size of the apple pie, but the transfer of the $0.75 increases the size of the social apple pie by 3/4 of an apple so it is the transfer of the $0.75 that is recommended on efficiency grounds by hard-nosed economists while the transfer of the apple is left to politicians, theologians, and the like as a matter of "equity." Thus the outcome of the KH analysis is reversed by a change in the numeraire used to describe the exact same pair of transfers."November 22, 2014anne said in reply to Sandwichman ... , Monday, April 11, 2016 at 07:26 AM
#NUM!éraire, Shmoo-méraire: Nature doesn't truck and barter
The commodity in terms of which the prices of all the others are expressed is the numéraire. -- Leon Walras, Elements of Pure Economics.
But the numéraire is a purely technical device, introduced simply for the purpose of making exchange values explicit. In no way does the introduction of a standard of value alter the fundamental nature of the economy in question. It remains a barter economy, since goods are exchanged solely for other goods. -- André Orléan, The Empire of Value.
-- Sandwichmanhttp://en.wikiquote.org/wiki/Catch-22Sandwichman -> anne... , Monday, April 11, 2016 at 07:42 AM
Yossarian looked at him soberly and tried another approach. 'Is Orr crazy?'
'He sure is,' Doc Daneeka said.
'Can you ground him?'
'I sure can. But first he has to ask me to. That's part of the rule.'
'Then why doesn't he ask you to?'
'Because he's crazy,' Doc Daneeka said. 'He has to be crazy to keep flying combat missions after all the close calls he's had. Sure, I can ground Orr. But first he has to ask me to.'
'That's all he has to do to be grounded?'
'That's all. Let him ask me.'
'And then you can ground him?' Yossarian asked.
'No. Then I can't ground him.'
'You mean there's a catch?'
'Sure there's a catch,' Doc Daneeka replied. 'Catch-22. Anyone who wants to get out of combat duty isn't really crazy.'
There was only one catch and that was Catch-22, which specified that a concern for one's own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn't, but if he was sane, he had to fly them. If he flew them, he was crazy and didn't have to; but if he didn't want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.
'That's some catch, that Catch-22,' he observed.
'It's the best there is,' Doc Daneeka agreed.
-- Joseph HellerAlso known as the double-bind in Gregory Bateson's analysis.William said in reply to Sandwichman ... , Monday, April 11, 2016 at 08:54 AM
And why the big fuss about the Panama Papers? Doesn't the Laffer Curve tell us that if the 1% evade taxes by hiding their money in off-shore accounts, it will cause so much economic growth that government tax revenues will actually increase?
Laffer curves, Kaldor-Hicks cost-benefit swindles and lump-of-labor fantasies are not "incidentals" of an otherwise sound economic discipline. They are symptoms of an ideology that is rotten to the core.Yes, those supply-siders must love it when companies hide their income offshores. Just think how many more jobs they must be creating with their lower tax rate!ilsm said in reply to Sandwichman ... , Monday, April 11, 2016 at 09:59 AMBCA's or CBA's start with assumptions and ground rules.pgl : , Monday, April 11, 2016 at 07:24 AM
Neither do anything but give "foundation" to preferences."The federal government will appeal the MetLife ruling, but even if it wins the ruling may open the floodgates to a wave of challenges to financial reform. And that's the sense in which Snoopy may be setting us up for future disaster."DrDick -> pgl... , Monday, April 11, 2016 at 07:39 AM
As soon as Dodd-Frank was passed the large financial institutions got their legal teams busy trying to undermine it. One would think all progressives would rally behind enforcing Dodd-Frank. Of course Rusty wants us to believe enforcing Dodd-Frank is just too complicated. It is complicated only because the lawyers for the financial sector get paid big bucks to obscure what is sensible regulation.Rusty is well paid not to understand that it is people like him and his employers who are responsible for the complexity of federal regulations.pgl said in reply to DrDick ... , Monday, April 11, 2016 at 09:02 AMI bet Rusty will protest this by saying he is not being paid that much. Which would be cool but the notion that we should just trash Dodd-Frank strikes me as bad financial economics. Now if we can improve on Dodd-Frank, that would be awesome if it makes Jamie Dimon really mad.Peter said in reply to pgl... , Monday, April 11, 2016 at 10:36 AM"One would think all progressives would rally behind enforcing Dodd-Frank."JohnH : , Monday, April 11, 2016 at 08:05 AM
What is that supposed to mean?LOL!!! "A Democrat in the White House would enforce the spirit as well as the letter of reform"...just like the incumbent Democrat sent bankers to jail for rampant mortgage fraud.Peter said in reply to JohnH... , Monday, April 11, 2016 at 08:51 AM
Oh, right! Obama and Holder actually made the investigation of mortgage fraud JOD's lowest priority and brought no criminal indictments...undermining the rule of law, giving bankers a 'get out of jail free' card, and encouraging them to commit yet more fraud.
Krugman is becoming just ridiculous, a partisan hack on steroids."The episode showed that traditional financial regulation, which focuses on deposit-taking banks, is inadequate in the modern world."Eric Blair -> Peter... , Monday, April 11, 2016 at 09:02 AM
What Krugman fails to inform his reader - one can only say so much in a column is that Bill Clinton repeatedly reappointed Alan Greenspan as regulator in chief.
The shadow-banking system was created during Greenspan's tenure and he saw no need to regulate it b/c free markets are awesome! And so the shadow-banking system promptly had a bank run.
Not "promptly"--it took fifteen years. That was Clinton's biggest weakness--he was good at dealing with urgent obvious problems, but he would sometimes let longer-term issues fester. This is why Obama will be remembered as a better president than Clinton--he plays the long game.Peter said in reply to Eric Blair ... , Monday, April 11, 2016 at 09:10 AM15 years? No. Clinton ended in 2000 with a tech stock bubble. Less than a decade later we had the mother of all bank runs.Eric Blair -> Peter... , Monday, April 11, 2016 at 09:29 AM
"he was good at dealing with urgent obvious problems, "
Like what? Balancing the budget?Notable examples of urgent problems that Clinton addressed effectively included the Mexico crisis of 1994, the East Asian crisis of 1997, and the collapse of Long Term Capital Management in 1998. Any one of these crises could have turned into a broader meltdown and spawned a depression similar to the 2008 one, but Clinton and his appointees (including Greenspan) did a good job of containing the damage. Unfortunately they did nothing to address the underlying problems that had made it necessary for them to act in the first place.ilsm said in reply to Eric Blair ... , Monday, April 11, 2016 at 10:11 AMClinton pandered to the Sunnis sending USAF to do their work sundering Serbia. Bombing the Chinese embassy was par for the military industry complex.Peter said in reply to Eric Blair ... , Monday, April 11, 2016 at 10:13 AM
Permanently stationed US funded mechanized brigade to keep the Sunnis happy with NATO over Serbia.Dean Baker has a good critique of their handling of the East Asian Crisis, if you aren't familiar with it.Peter said in reply to JohnH... , Monday, April 11, 2016 at 08:52 AM"Oh, and yes, the episode also showed that making the breakup of big banks the be-all and end-all of reform misses the point."Peter said in reply to Peter... , Monday, April 11, 2016 at 09:12 AM
*sends more money to Sanders campaign*http://readersupportednews.org/opinion2/277-75/36222-focus-why-the-banks-should-be-broken-upPeter said in reply to JohnH... , Monday, April 11, 2016 at 08:56 AM
Why the Banks Should Be Broken Up
By Matt Taibbi, Rolling Stone
09 April 16
Bernie or no Bernie, 'Times' columnist Paul Krugman is wrong about the banks
Paul Krugman wrote an op-ed in the New York Times today called "Sanders Over the Edge." He's been doing a lot of shovel work for the Hillary Clinton campaign lately, which is his right of course. The piece eventually devolves into a criticism of the character of Bernie Sanders, but it's his take on the causes of the '08 crash that really raises an eyebrow.
..."It doesn't have to happen. As with so much else, this year's election is crucial. A Democrat in the White House would enforce the spirit as well as the letter of reform - and would also appoint judges sympathetic to that endeavor. A Republican, any Republican, would make every effort to undermine reform, even if he didn't manage an explicit repeal.Eric Blair -> JohnH... , Monday, April 11, 2016 at 08:59 AM
Just to be clear, I'm not saying that the 2010 financial reform was enough."
The Republicans are going to lose so Krugman's lesser evil argument doesn't really work.
Does Krugman discuss Hillary's reforms? No of course not.Your comment only makes sense if you believe that eitherpgl said in reply to Eric Blair ... , Monday, April 11, 2016 at 09:04 AM
(1) designating a financial institution "systemically important" is trivial or totally meaningless compared to criminal indictments for previous actions, or (2) a Republican would enforce this designation just as much as Obama has. Which is it?
Uh oh - a tough question for JohnH. Careful as he might say you are "not qualified" or something like that.Peter said in reply to pgl... , Monday, April 11, 2016 at 09:11 AM
Republicans want a laissez faire financial system. After all - 2008 was such a great year (not).Hey buddy! Getting feisty again?JohnH said in reply to Eric Blair ... , Monday, April 11, 2016 at 09:20 AMLOL!!! Eric Blair asserts that it is "totally meaningless" to sending bankers to prison for fraud that threatened systemically threatened the economy!Eric Blair -> JohnH... , Monday, April 11, 2016 at 09:36 AM
And he assumes that Obama would behave less deferentially to Wall Street banks when it comes to enforcing any regulation that bankers don't approve of.
Republicans have no monopoly on servility to the interests of Wall Street and their wealthy clientele, but Krugman obviously prefers Democratic corruption to its Republican cousin...No, I did not say what you claim that I said. And whether Obama is being deferential to someone is at most a side issue. The important questions are first, does the rule help make the financial system more stable, and second, would it be enforced less by Republicans. I believe the answer to both questions is yes.pgl said in reply to Eric Blair ... , Monday, April 11, 2016 at 10:43 AMJohnH does this a lot. Cross his serial nonsense and you become Jamie Dimon's enabler.JohnH said in reply to Eric Blair ... , Monday, April 11, 2016 at 03:21 PM"would it be enforced less by Republicans?"MIB said in reply to JohnH... , Monday, April 11, 2016 at 10:43 AM
LOL!!! How can it get less than zero...which is the number of bank fraud indictments Obama issued against prominent Wall Street bankers?
It's hilarious how Wall Street Democrats try to claim that the Democratic Party is less corrupt than Republicans, when both parties feed from the same trough.Sandwichman says:JohnH said in reply to MIB... , Monday, April 11, 2016 at 03:25 PM
"The house cleaning has a lot further to go than "Republicans."
How about the leader of the Democrats, President Obama?
Real Democrats can hardly wait for good ol authentic, honest Bernie Sanders to start attacking President Obama – he's certainly not qualified to be president, taking all that Wall Street cash and letting the big banks off scot-free, like he and Holder did back 2009 -- unqualified.
But good ol straight shootin Bernie aint gona do that, is he? Nope, because even Bernie understands that Democrats actually like, maybe even love President Obama.
Bernie probably even understands that most Democrats like their democratic representatives, senators, governors, mayors, city councilors, etc as well. So railing against the establishment is not nearly as effective for Bernie as it is for Trump, Cruz and the tea party railing against the Republican establishment. You see this in most Sanders surrogates carefully leaving "democratic" off when criticizing the establishment, heck they might be confused with Republicans or Independents. Even the more excitable online Berniacs rarely use the term democratic establishment, instead invoking the generically ominous and evil "establishment."
It would have been much better (and honest) if Bernie had not turned his back on 28 years as a proud Independent and run for president as a proud Independent instead of his gimmick to garner more media attention by running as a Democrat.
His ego trip would have been much shorter, and Bernie certainly wouldn't be able to raise as much cash running as an independent, he'd likely struggle to exceed Nader's 3% general election vote in 2000, but he could have honestly taken on the real leader of the (democratic) establishment, President Obama.
Nonetheless, Bernie is bringing critical economic issues into public discourse, issues that Wall Street Democrats have long tried to suppress or occasionally pay lip service to...issue such as minimum wages, trade policy, etc.Antoni Jaume : , Monday, April 11, 2016 at 10:36 AM
Even better, Bernie is showing socialist Democrats how to campaign and win against corrupt, incumbent Wall Street Democrats.That looks suspiciously just what Charles Murray proposed in his book "By the People: Rebuilding Liberty Without Permission", to litigate against norms that regulate corporations.dd : , -1
http://americablog.com/2015/05/by-the-ruling-class-charles-murrays-anti-democratic-revolution.htmlWell not all SI's are equal. The drubbing AIG took even as it was used to launder cash to more favored institutions is no doubt seen as the template. There's that nowhere to be found independent insurance guy with no clout on FSOC that's another message. Woodall,a former insurance regulator from Kentucky is the definition of outsider.
Last there's Jack Lew lecturing everyone on financial stability,truly a nice irony given Citi's illegal Traveler's deal and the horrific consequences.
No doubt the lawsuit is about positioning and they'll be more by other players who worry about being sacrificed to save the clout-heavy.
This is totally predictable given the power structure of FSOC.
www.nakedcapitalism.comPosted on April 11, 2016 by Yves Smith As strange as it may seem, a confluence of developments in the banking industry means the Panama Papers revelations looks likely make it a lot more difficult for offshore money, as tax evasions and tax secrecy are often politely called, to stay hidden. This would serve as a marked contrast to the last international-headlines-gripping leaks, the Snowden revelations. Even though Snowden gave a big window into the reach of the surveillance state, not all that much has changed, save the Chinese making more active efforts to avoid cloud computing and US technology vendors, and the Europeans bashing US concerns over violations of their privacy laws.
By contrast, the massive Mossack Fonseca records haul feeds into trends in banking that mean that a lot of these funds are going to find it hard remain secret. We'll summarize them below.
Tax base expansion initiatives . The US and European Union have been working on a program to expand the base of income that is subject to tax. Budget-starved European member states have been moving the plan forward ahead of schedule. This is one of the few positive developments to come of of governments failing to understand the implications of having a fiat currency (you can and typically need to run deficits, since the private sector sets unduly high return targets and chronically underinvests; the constraint on deficit spending is creating too much inflation).
Increasingly tough "know your customer" rules . The US going aggressively after foreign banks that have falsified records as a part of money-laundering has led to increased compliance. Even Standard Chartered, which thought the US had no business telling it not to do business with Iran, was brought to heel and its CEO forced to resign for his continued intransigence.
Now the US can throw its weight around only as far as dollar-based transactions are concerned, since those ultimately clear through US facilities. But the UK has also adopted stringent "know your customer" rules. It now takes weeks to open a new account that is not a personal account, say for your rugby club.
As John Dizard in the Financial Times reports :
There is a new urgency in the tone of the lawyers and advisers for offshore asset holders. The essential message is that you are the Shah of Iran, this is 1979, and you and your money will find yourselves hopscotching from one unwelcoming landing place to another…
If you or your clients think this is about tax cheats or the merely middle rich, they should think again…
As this column and others have noted, by next year Switzerland, along with Luxembourg, the Channel Islands and other European offshore investment management centres, will start exchanging tax information with their counterparts.
There are a very large number of beneficiaries, ie globalised rich people, who have until the end of this year to get their money safely onshore. The one Western country that does not have a deadline for complying with the Common Reporting Standard is the US.
Almost everyone who has non-criminally sourced capital would like to have at least some of it accessible within the dollar-based clearing system. But the clerical and legal checklists to set up accounts for legitimate money have become so long that it will take months to accomplish this even for those willing to pay the transaction costs.
And before you think the US banks are therefore the answer…. US banks are shunning money from the rich these days. . Dizard again:
The largest US banks do not really want to take more deposits, or even do the cursory know-your-customer due diligence work to open new special purpose accounts for old customers. Americans I know with legitimately acquired nine- or ten-figure investment portfolios now have to scrounge around to open accounts in midsize US banks.
Those rich Americans do not have the logistical or legal problems that Panama Papers-related flight capital will have in "onshoring" their money.
Moreover, US legislators are calling for the US tax havens like Delaware corporations and Wyoming limited liability companies, to report on who their ultimate beneficiaries are. Given the tone of his Guardian op-ed, Carl Levin sound like he is warming up for hearings:
Global revulsion against shell company abuses, offshore tax havens, and the lawyers that promote them has generated new public pressure to tackle these problems. Here are three steps to consider.
Outlaw corporations with hidden owners
….G20 world leaders have made a start with a joint commitment to increase corporate transparency. The United Kingdom is leading the way, mandating public disclosure of the true owners – the "beneficial owners" – of UK companies. The European Union has followed…
The United States is far behind. We now require more information to get a library card than to form a US corporation. ….The biggest impediment is opposition from the secretaries of state of our 50 states, who financially benefit from forming new corporations and don't want to ask questions that might jeopardize their revenue. Our states need to wake up to the damage they are doing and stop forming corporations with hidden owners.
Get tough on offshore tax abuse
Tax authorities should use existing tax information exchange agreements, including the US-Panama agreement, to go after tax cheats and determine whether Mossack Fonseca facilitated illegal conduct.
Offshore tax abuse goes beyond individuals. Some multinational corporations use tax havens to arrange secret tax deals or declare earnings offshore. The international community is finally demanding that large multinationals file reports disclosing the profits they make and the taxes they pay on a country-by-country basis. The United States has proposed regulations requiring those reports; the next step is to finalize them. A bigger issue: making those reports public.
Get tough on lawyers promoting misconduct
….Lawyers should be subject to the "know your client" requirements of anti-money laundering laws. In addition, banks should scrutinize suspicious accounts of law firms and require them to certify that they will not use those accounts to help clients circumvent the bank's own anti-money laundering controls.
Note that Levin doesn't seem to have a good answer about what to do about states that find it attractive to act as secrecy jurisdictions, but in the past, the Feds have used cutting off various Federal funds as a stick to force cooperation, Moreover, if Congress were to pass laws with "know your client" requirements with criminal sanctions and tough fines, that in and of itself would choke off a lot of domestic activity.
Information technology risk . Mossack Fonseca exposed in a very dramatic way that secrecy isn't just a function of the design of legal arrangements and the choice of jurisdiction and bank, but also of the integrity of the registered agent's IT security. There's no way to do due diligence on that. Those with offshore accounts must already be nervous that they could be exposed by a similar hack. Dizard's fallback remedy for the rich who want to keep their money hidden, "…you and your money will find yourselves hopscotching from one unwelcoming landing place to another," might work for the relatively small and fleet of foot to stay ahead of the taxman and the bank transparency moves, but it won't reduce IT risk.
Dizard's article, despite being informative, weirdly rails against crackdown on large-scale international capital transactions" as populist and ill-informed, due to limiting the mobility of international capital. Someone needs to clue him on the research by Ken Rogoff and Carmen Reihart, who are hardly of the pinko persuasion, who found that high levels of international capital movements are powerfully correlated with more severe and frequent financial crises. Dizard also tries to depict reducing capital movements as being Smoot-Hawley revisited. First, the notion that Smoot-Hawley caused the Depression had been well debunked. Second and more important, international capital flows these days are at such high levels (over 60 times trade flows) that the Bank of International Settlement has said that large international transactions are not about facilitating trade, and that excessive financial "elasticity" was the cause of the crisis.
He also depicts banks as winding up being beneficiaries, which contradicts his message that they regard onshored money as more hassle (which means cost) that its worth:
This will, within the next two years or so, lead to a one-time transfer from the global rich to the staff and owners of US financial institutions. But that will be followed by a long drought for new business, as the global wealth that did not move quickly enough gets slotted into endless holding patterns in the mid-Atlantic or mid-Pacific.
It's hard to see what good it will do someone to have money moving around the few finessable locations and banks that remain. Pray tell, how does it spent? Money you can't readily touch, or get into a jurisdiction where you'd like to spend it, does not seem terribly useful.
And the big point that Dizard misses is that onshoring these funds will make the future investment income on them subject to tax. Hidden untaxed wealth has contributed to rising inequality; Gabriel Zucman of UC Berkeley has estimated that 6% to 8% of global wealth is offshore, and most of that not reported to tax authorities. So the more the rich are discomfited by their overly-clever machinations, the better.
Northeaster , April 11, 2016 at 7:34 amAlex morfesis , April 11, 2016 at 10:30 am
Well, if you live in a state where you can name an LLC for your nominee trust, it doesn't get any better. File the off shore LLC in Nevada where they don't ask any questions, and use it for your real estate vehicle to launder your monies. Any question to why high end real estate is on fire? The opaqueness in some states is intentional, as it took me about 10 minutes of random searching of properties (over $2 million) to find the off shore LLC owner, with people and entities that did not exists in the SoS filings. The activity index for RE sales over $750K is almost equal to the index under $400K and below combined. If you add the $500K and above sales, it crushes the entire index below $500K.
https://research.stlouisfed.org/fred2/graph/?g=47×5Northeaster , April 11, 2016 at 11:33 am
Owning an entity does not open a bank account…a party almost always has to be vetted for a new enterprise…wired in funds for the benefit of an entity helps break the corporate veil…govt officials rambling to the public that this corporate charade is just "impossible" to deal with or stop are just laughing at the public (or need to hand back their law license to the bar)…money can Always be traced…a real estate closing will have closing instructions and in those instructions will be to whom to send back the funds and to what name if the transaction is not concluded….since title companies are state regulated enterprises….and there are basically only four major title insurance umbrella companies….this myth that a state title insurance investigator could not walk in and obtain the beneficiary of the source of funds is one big second city improv skitAlex morfesis , April 11, 2016 at 12:52 pm
All they have to do is have real estate fall under FinCen Suspicious Activity Reporting (SAR) requirements, but the NAR is simply too powerful and well funded with a more than accepting sold out CONgress,susan the other , April 11, 2016 at 2:25 pm
Not defending nar but state title insurance investigators have the absolute right to walk in unannounced and spot audit files…a new corp will not have all these closing funds in hand and for a proper corp veil to stand and hold, the funds had to be in a bank account in the name of corp…might I suggest that the funds do not arrive from a source matching the corporate name…thus revealing the actual party in interest….JTMcPhee , April 11, 2016 at 8:36 am
After this amazing seminar from Yves MERS is making much more sense… and as always Utah stands squarely behind the banks by ruling in appeals court that you can make a ham sandwich your agent.inode_buddha , April 11, 2016 at 12:00 pm
Another piece of the problem is the difficulty of "piercing the corporate veil" in so many legal domains (almost said "states and nations," but those are mostly convenient fictions themselves). There's been a long tail of effort by the Few and the Corrupt and the Criminal to make it very difficult, ever increasingly difficult, to hang liability for what little remains of proscriptions and penalties for vicious and renter-driven personal (from "behind the veil") actions that offend what are supposed to be police-powers (health, safety, welfare, nuisance and environmental destruction, etc.), hang it where it belongs, with penalties that actually matter to the sociopath, if behaviors are going to change - around the necks of the individual rotten humans that plot and plan and operate all the stuff that is killing ordinary people and the planet.
Corporate "beneficial owners" get to hide behind the screen of opacity and deflection that comes from the perversion of the notion that "business" needs require immunity of individuals from the consequences of "corporate" behavior. "Piercing the veil" requires meeting an extreme burden of proof that the corporation is a fraudulent shell, or merely an alter ego of the individual officer/owner. And if course the Wealthy and their advisers and facilitators and wholly owned political actors are still in the game, with huge resources even if currently under some increasing and likely temporary constraints, and they will be doing their damndest to preserve existing moats and walls and veils and find new ways to pervert the legitimacy-granting functions of law-making to protect their pleasure palaces and "specialness."
Eat the Rich, reads the old bumper sticker from Hippier days… With a plate of fava beans, and a nice sauce of Retribution and a side of Restitution…divadab , April 11, 2016 at 8:36 am
I have seen one case in particular, where the CEO made one set of sworn statements to the SEC in the 10k, and said the exact opposite in Federal court in the same month. Neither legal team picked up on this or mentioned it, and neither did the judge. It was incredibly aggravating to watch. In this case he rode the company into the ground while pumping and dumping like mad, and got away with it. The lawsuit was simply another vehicle to pump the stock, it didn't matter if it even had any merit - which it didn't. Years later, the company imploded ithe only a few employees left, the execs walked away with millions, etc. and they made a lot of enemies along the way.Synoia , April 11, 2016 at 10:26 am
Hopefully greater regulation and international cooperation will surface the tax evaders and capture their previously unpaid taxes. But it will also drive many of them deeper into organized crime-style hiding schemes. For example, using squeaky-clean nominees acting as beards: here's how it works in many communities – one guy "owns" many rental properties for which there are long-term tenants, and the rent equals exactly the carrying cost of the property. The tenants happen to be businessmen and their families who run pretty close to the wind and whose assets are thereby continually at risk – effectively, they protect their houses from creditors by holding them in a trustworthy nominee name – the "legal owner" is a hidden agent for the actual owners. Totally undetectable. But enforcement of this type of contract is extra-legal – organized crime-style – and communal.
This type of setup is also a classic money-laundering vehicle – involving property flips between ostensibly unrelated parties but in reality coordinated. Hence distorted real estate markets as noted by Northeaster above. First $500,000 of profit on a principle residence sale is non taxable. I'd suggest the IRS focus on auditing house sales for which the principle residence exemption has been claimed, especially when people make close to the limit several times over (say) a ten-year period.weinerdog43 , April 11, 2016 at 9:01 am
$250,000 exemption for each individual on title every 2 years.Whine Country , April 11, 2016 at 10:03 am
Way back when dinosaurs roamed the Earth, and I was taking Income Tax in law school, I couldn't shake the feeling that the whole point of the class was to assist people (corporations are people, my friend) to scam the government. While no one likes to pay taxes, these taxes provide services that people do, in fact like. It's all I can do to resist slapping folks who complain about the condition of the roads, and then in the next breath, whine about their tax burden.
Anyway, cheating the government out of one's fair share of the tax burden means 2 things:
1.) The remaining burden falls more heavily on those who DO pay; and
2.) Unpunished cheating encourages more people (and corporations) to cheat. "If they're not paying, why should I pay?"
After that class, I couldn't run fast enough away from tax law as it seemed to attract classmates I rather loathed. I couldn't agree more that tax lawyers who encourage cheating should face disbarment and fines. Apologies to my tax law brethren who try to do the right thing. I know some fine CPAs and tax guys. It just wasn't my calling.Yves Smith Post author , April 11, 2016 at 5:40 pm
I began my career as a CPA in the early '70s in the SF Bay area and virtually all of the lawyers I came in contact with had the same thoughts about taxes as you did. One of my accounting professors used to go on about how it was incredible that an attorney could pass the bar and practice law without ever having taken one tax course.
Particularly when you consider that there is very little that a lawyer does that does not in some way involve taxes. So for us CPAs this was just an opening for us to specialize in an area where lawyers had little or no interest.
In those days I recall that when you actually needed a tax attorney he was usually – I won't say loathsome – but kind of an odd sort. Recently I spoke to my ex-partner who took over our practice and the subject of tax attorneys came up. He reported to me that in the Bay Area tax attorneys are now billing $900 to $1,000 per hour. I guess you can call this supply side economics at work. As the number of mega zillionaires grows in the SF/Silicon Valley area, demand has apparently been created for a new category of super lawyer. The Free Market really can do some wonderful things when manipulated properly.perpetualWAR , April 11, 2016 at 10:46 am
You have to have your brain turned inside out to understand tax well enough to be a tax lawyer. Most regular lawyers have some antipathy for tax lawyers (I've sensed this and confirmed it). The logic of tax is extremely arcane, non-intuitive, and pedantic. Plus it does not have commercial value added.polecat , April 11, 2016 at 1:47 pm
Too bad the bar associations protect the scheming, lying cheats. Most bar associations have been infiltrated and are run by the bank lawyer scum.Alex V , April 11, 2016 at 9:04 am
this is thing…..nearly every establishment related profession seems, in my mind at least, to be corrupted by fraud and graft……be it Pharma, Financials, Medical, MIC, Education, Agriculture, Law & Judicature, Transportation & Energy, National social policy, Foreign & National & Security policy……..
….hence… all phony & all illegitimate !!!Yves Smith Post author , April 11, 2016 at 5:45 pm
I'm an American citizen living overseas. For me an "offshore account" is not an option, it's a fact of life. Creating fair laws to control tax evasion are therefore of interest to me.
One example of the opposite of fair law is FATCA. This is quite a terrifying bit of poorly conceived legislation; intended to go after blatant tax evaders and sanction evaders, but instead creating penalties that can be life ruining for a middle class expat that makes an honest mistake in their reporting. The penalties on banks (and by extension foreign countries) that did not want to subject themselves to US law are also overly aggressive. So aggressive that many financial institutions refused to deal with any Americans, even for things as simple as a savings account. "Knowing your customer" became discrimination based on citizenship.
I'm just hoping that any changes to enforcement or regulation that come about from the PPs take this into account.
Regarding Standard Chartered, I'm not quite sure it's absolutely clear cut that they were in the wrong:
They may have settled just to make the problem go away, and to maintain access to the US financial system. The US has a habit of imposing it's laws on the rest of the world, or ignoring international law it doesn't like. In my opinion, the sanctions on Iran were in many ways outright bullying, very much like with those on Cuba.DJG , April 11, 2016 at 9:08 am
Buh? Standard Chartered defied the advice of its US outside counsel and falsified wire transfer documents in a systematic manner after having been previously sanctioned for handling the transfer of funds to Iran for its oil sales, and to Sudan and other prohibited jurisdictions. You clearly have not read Benjamin Lawsky's order against the bank. Standard Chartered had a branch in New York to do dollar operations, and all dollar transactions ultimately clear (have to clear) through that branch.
These were clear-cut violations of NY banking rules and Lawsky could have yanked Standard Chartered's NY banking license, which would have been a cataclysmic event for the bank. And after Federal regulators initially acting offended that Lawsky had end run and embarrassed them, they stepped up and issued big fines against Standard Chartered of their own.
You also omit that Standard Chartered got yet another round of fines for failing to comply with the changes required! That led to the ouster of CEO Peter Sands, who had been defiant all along. From the New York Times in 2014, Caught Backsliding, Standard Chartered Is Fined $300 Million :
It took $667 million in fines and a promise to behave for the British bank Standard Chartered to emerge from the regulatory spotlight. All it took to return there was its failure to fully keep that promise.
In a settlement announced on Tuesday by New York State's financial regulator, Standard Chartered will pay a $300 million fine and suspend an important business activity because of its failure to weed out transactions prone to money-laundering, a punishing reminder of settlements in 2012. Those settlements with state and federal authorities resolved accusations that Standard Chartered, in part through its New York branch, processed transactions for Iran and other countries blacklisted by the United States.
The New York regulator, Benjamin M. Lawsky, has now penalized Standard Chartered for running afoul of the 2012 settlement, which he said required the bank to "remediate anti-money-laundering compliance problems."
An independent monitor, hired as part of Mr. Lawsky's 2012 settlement, recently detected that the bank's computer systems failed to flag wire transfers flowing from areas of the world considered vulnerable to money-laundering, according to Mr. Lawsky's order. The order did not specify the number of transactions that the bank's filters failed to identify, but a person briefed on the matter said that it was "in the millions."
Please stop defending crooked bank behavior. Plus this is agnotology, which is against our house rules.readerOfTeaLeaves , April 11, 2016 at 4:22 pm
Thanks for this. The problem with the Panama Papers for those of us outside economics and finance is that we don't understand the mechanisms and regulations that ease all of this movement of money. Even though I have stocks in my IRA, it isn't as if the companies report their financial messes in the proxy statements. Au contraire, it's all the glory of Jeffrey Immelt all the time.
"Finessable": I kind-a like it. Your coinage?Yves Smith Post author , April 11, 2016 at 8:01 pm
You may want to check McClatchy's website as they have some explanatory videos and terrific reporting.
I got started on all the tax haven skullduggery by reading Yves, so it's wonderful to see this getting a far wider, fully documented exposition.
Also, Nicholas Shaxson's Treasure Islands: Tax Havens and the Men Who Stole the World is one of the best books that I've ever read. His blog is here: http://treasureislands.org
Earlier this week, a friend said, "Is it a good day?" I said, "It's an AWESOME day! All the sleaze is finally coming out into the sunlight."Jim Haygood , April 11, 2016 at 1:46 pm
Yes, Treasure Islands is a terrific book. Highly readable but still covers many of the important technical issues.Yves Smith Post author , April 11, 2016 at 8:04 pm
'It now takes weeks to open a new account that is not a personal account, say for your rugby club.'
… which is why workarounds, both old school (gold) and new (anonymous digital currencies), will be found to sidestep the politicization of government currencies, which now come bundled with odious surveillance that makes their use increasingly unattractive.Micky9finger , April 11, 2016 at 1:56 pm
These are both property, not money, and not at all workable for anyone who needs them for transactions. Both are volatile and bitcoin with its blockchain makes its entire history of past holders accessible. That's not a desirable feature for someone hiding from the taxman.Yves Smith Post author , April 11, 2016 at 5:32 pm
the constraint on deficit spending is creating too much inflation).
Huh?RBHoughton , April 11, 2016 at 8:25 pm
That is correct for fiat currency issuers. This is not any secret if you've been reading about how monetary operations work.
Good grief. What's the world coming to? Are we now expected to visit our offshore paradise and suitcase money home? The gentlemen in Customs will be checking every flight from the Caymans.
"The one Western country that does not have a deadline for complying with the Common Reporting Standard is the US." – Ahh ha – is this part of the solution to falling inwards investment?
Ron Waller -> Alain Sherter...likbez -> Ron Waller ...
...Krugman may be an economist, but this politicking op-ed has nothing to do with economics.
Perhaps that's the problem with economics: the economists are so wrapped up in politics they can't tell where one starts and the other ends. Economics becomes nothing more than politics with math thrown in to lend authority to "very serious" agendas.
BTW, how are economic ideas established, in any case? We know with science, falsifiable hypotheses are put forward and put to the test. Economists know enough about statistics to hide behind the ethics problem of running economic experiments. Even though they ARE running economic experiments with their Aristotelian notions that almost always get it wrong: from "efficient" taxation nonsense that gives the rich big tax breaks, to investor-protecting inflation targeting that ran the economy into the ground -- which they call the Great Moderation; etc.
Much like theology, it's a matter of culture and clique. Fitting they break up the field into Orthodox and Heterodox. Perhaps they should have economic cardinals that elect an economic pope.Politics is deeply connected to economics. Especially under neoliberalism. It is actually difficult to distinguish two and many economic issues are highly political ("role of the market in the society").cm -> Ron Waller ...
"When economic power became concentrated in a few hands, then political power flowed to those possessors and away from the citizens, ultimately resulting in an oligarchy or tyranny." John AdamsPolitics and economic matters cannot be separated. Most politics are an expression of economic interests; in fact almost all - things that appear to be about "power", social dominance, and social mores are also mostly motivated by arranging or sustaining an environment where certain groups get to decide matters of the economy at the expense of others.
Have you heard the phrase "follow the money", and even older "cui bono"? It's the same principle. Most motivations are based in economic affairs and conflicts.
March 29, 2016 | Angry Bear
Financial booms have become a chronic feature of the global financial system. When these booms end in crises, the impact on economic conditions can be severe. Carmen M. Reinhart and Kenneth S. Rogoff of Harvard pointed out that banking crises have been associated with deep downturns in output and employment, which is certainly consistent with the experience of the advanced economies in the aftermath of the global crisis. But the after effects of the booms may be even deeper and more long-lasting than thought.
Gary Gorton of Yale and Guillermo Ordoñez of the University of Pennsylvania have released a study of "good booms" and "bad booms," where the latter end in a crisis and the former do not. In their model, all credit booms start with an increase in productivity that allows firms to finance projects using collateralized debt. During this initial period, lenders can assess the quality of the collateral, but are not likely to do so as the projects are productive. Over time, however, as more and more projects are financed, productivity falls as does the quality of the investment projects. Once the incentive to acquire information about the projects rises, lenders begin to examine the collateral that has been posted. Firms with inadequate collateral can no longer obtain financing, and the result is a crisis. But if new technology continues to improve, then there need not be a cutoff of credit, and the boom will end without a crisis. Their empirical analysis shows that credit booms are not uncommon, last ten years on average, and are less likely to end in a crisis when there is larger productivity growth during the boom.
Claudio Borio, Enisse Kharroubi, Christian Upper and Fabrizio Zampolli of the Bank for International Settlements also look at the dynamics of credit booms and productivity, with data from advanced economies over the period of 1979-2009. They find that credit booms induce a reallocation of labor towards sectors with lower productivity growth, particularly the construction sector. A financial crisis amplifies the negative impact of the previous misallocation on productivity. They conclude that the slow recovery from the global crisis may be due to the misallocation of resources that occurred before the crisis.
How do international capital flows fit into these accounts? Gianluca Benigno of the London School of Economics, Nathan Converse of the Federal Reserve Board and Luca Forno of Universitat Pompeu Fabra write about capital inflows and economic performance. They identify 155 episodes of exceptionally large capital inflows in middle- and high-income countries over the last 35 years. They report that larger inflows are associated with economic booms. The expansions are accompanied by rises in total factor productivity (TFP) and an increase in employment, which end when the inflows cease.
Moreover, during the boom there is also a reallocation of resources. The sectoral share of tradable goods in advanced economies, particularly manufacturing, falls during the periods of capital inflows. A reallocation of investment out of manufacturing occurs, including a reallocation of employment if a government refrains from accumulating foreign assets during the episodes of large capital inflows, as well as during periods of abundant international liquidity. The capital inflows also raise the probability of a sudden stop. Economic performance after the crisis is adversely affected by the pre-crisis capital inflows, as well as the reallocation of employment away from manufacturing that took place in the earlier period.
Alessandra Bonfiglioli of Universitat Pompeu Fabra looked at the issue of financial integration and productivity (working paper here). In a sample of 70 countries between 1975 and 1999, she found that de jure measures of financial integration, such as that provided by the IMF, have a positive relationship with total factor productivity (TFP). This occurred despite the post-financial liberalization increase in the probability of banking crises in developed countries that adversely affects productivity. De facto liberalization, as measured by the sum of external assets and liabilities scaled by GDP, was productivity enhancing in developed countries but not in developing countries.
Ayhan Kose of the World Bank, Eswar S. Prasad of Cornell and Marco E. Terrones of the IMF also investigated this issue (working paper here) using data from the period of 1966-2005 for 67industrial and developing countries. Like Bonfiglioli, they reported that de jure capital openness has a positive effect on growth in total factor productivity (TFP). But when they looked at the composition of the actual flows and stocks, they found that while equity liabilities (foreign direct investment and portfolio equity) boost TFP growth, debt liabilities have the opposite impact.
The relationship of capital flows on economic activity, therefore, is complex. Capital inflows contribute to economic booms and may increase TFP, but can end in crises that include "sudden stops" and banking failures. They can also distort the allocation of resources, which affects performance after the crisis. These effects can depend on the types of external liabilities that countries incur. Debt, which exacerbates a crisis, may also adversely divert resources away from sectors with high productivity. Policymakers in emerging markets who think about the long-term consequences of current activities need to look carefully at the debt that private firms in their countries have been incurring.
cross posted with Capital Ebbs and Flows<Warren March 31, 2016 11:14 amAnd therein lies the half of Keynesian Economics that is ignored - running surpluses during the booms to tamp them down, and to have a reserve to pump into the economy during the busts.
April 01, 2016 | Economist's ViewDean Baker:Unemployment Rate Edges Higher as Prime-Age Workers Re-enter Labor Market : Self-employment has risen substantially since the ACA took effect.
The economy added 215,000 jobs in March, with the unemployment rate rounding up to 5.0 percent from February's 4.9 percent. However, the modest increase in unemployment was largely good news, since it was the result of another 396,000 people entering the labor force. There has been a large increase in the labor force over the last six months, especially among prime-age workers. Since September, the labor force participation rate for prime-age workers has increased by 0.8 percentage points. This seems to support the view that the people who left the labor market during the downturn will come back if they see jobs available. However, even with this recent rise, the employment-to-population ratio for prime-age workers is still down by more than two full percentage points from its pre-recession peak. Another positive item in the household survey was a large jump in the percentage of unemployment due to voluntary quits. This sign of confidence in the labor market rose to 10.5 percent, the highest level in the recovery to date, although it's still more than a percentage point below the pre-recession peaks and almost five percentage points below the peak reached in 2000.
Other items in the household survey were mixed. The number of people involuntarily working part-time rose by 135,000, reversing several months of declines. However, involuntary part-time work is still down by 550,000 from year-ago levels. The number of people voluntarily working part-time fell in March, but it is still 654,000 above its year-ago level.
One of the desired outcomes from the ACA was that it would free people from dependence on their employer for health care insurance, allowing them to work part-time or start a business if they so choose and get insurance through the exchanges. There has been a substantial rise in self-employment since the exchanges began operating in 2014. In the first quarter of 2016, incorporated self-employment was up by more than 400,000 (7.8 percent) from the same quarter of 2013. Unincorporated self-employment was also up by almost 360,000 (3.9 percent).
While the employment growth in the establishment survey was in line with expectations, average weekly hours remained at 34.4, down from 34.6 in January. This indicates that February's drop in hours was not just a result of bad weather. As a result, the index of aggregate hours worked is down by 0.2 percent from the January level. This could be a sign of slower job growth in future months. ...
The average hourly wage rose modestly in March after a reported decline in February. There is zero evidence of any acceleration in wage growth. The average for the last three months increased at an annualized rate of 2.3 percent compared with the average of the prior three months. This is virtually identical to the increase over the last year.
On the whole this is a positive report, both because the economy continues to create jobs at a healthy pace and even more importantly because it indicates that people are returning to the labor market. The continuing weakness in wage growth is discouraging, but also should signal to the Fed that there is little reason to raise interest rates.
PPaine :The job markets are coming alivePPaine -> PPaine ...
But is the punch bowl headed for the kitchen sink ?
We need to set much higher target ratios for E to P
We need 15 million more jobs in short order
To get near vickrey zone conditions on job markets
Obviously we won't go there
But just how far will we go
Before the bastards turkey wire the system ?We need the quit rate to go up another 30% at leastPPaine -> PPaine ...I mean on top of the 50% rise to match the high water mark of the Clinton miracleanne -> PPaine ...https://research.stlouisfed.org/fred2/graph/?g=3Ppzanne -> PPaine ...
January 30, 2016
Total nonfarm quits, 2000-2016
[ The quits rate only needs to climb 15% to get back to the Clinton level. ]Never ever explain what "Vickrey zone conditions" are, as long as there is no concern with being understood.RC AKA Darryl, Ron -> anne...[Google William Vickrey. Highlights of Wikipedia:]RC AKA Darryl, Ron -> RC AKA Darryl, Ron...
...Vickrey's economic philosophy was influenced by John Maynard Keynes and Henry George. He was sharply critical of the Chicago school of economics and was vocal in opposing the political focus on achieving balanced budgets and fighting inflation, especially in times of high unemployment...
"Counterspeculation, Auctions, and Competitive Sealed Tenders", Journal of Finance, 1961. The paper originated auction theory, a subfield of game theory.
"Fifteen Fatal Fallacies of Financial Fundamentalism: A Disquisition on Demand Side Economics". October 5, 1996.
Arrow, Kenneth Joseph; Arnott, Richard J.; Atkinson, Anthony A.; Drèze, Jacques (editors) (1997). Public Economics: Selected Papers by William Vickrey. Cambridge, UK: Cambridge University Press. ISBN 0-521-59763-3.
Warner, Aaron W.; Forstater, Mathew; Rosen, Sumner M. (editors) (2000). Commitment to Full Employment: The Economics and Social Policy of William S. Vickrey. Armonk, N.Y: M.E. Sharpe. ISBN 0-7656-0633-X.
Pavlina R. Tcherneva; Forstater, Mathew (2004). Full Employment and Price Stability: The Macroeconomic Vision of William S. Vickrey. Edward Elgar Publishing. ISBN 1-84376-409-1.
[Paine repeatedly references William Vickrey because of his substantial commitment to full employment policy as sound economics (as if human well being for the masses actually mattered).]
And Anne repeatedly asks "What does this reference to Vickrey mean?" Maybe Anne's battery is almost dead and working memory gets reset each time the solar generator powers down. The programming still functions because it is stored in non-volatile memory on the hard drive, but volatile RAM is wiped each time that the sunsets after the battery storage is exhausted.anne -> PPaine ...We need 15 million more jobs in short order. To get near Vickrey zone conditions on job marketspgl :
[ Where did the 15 million number come from, and I still have no idea what Vickrey zone conditions are? ]Yes labor force participation has increased but it still is only 63%. Yes the employment to population ratio is now 59.9% but it should be 62%. Slow progress with a long way to go.pgl -> pgl...I may be setting the bar too low with my call for a 62% employment to population ratio. Brad DeLong puts it north of 62.5%:New Deal democrat :
http://www.bradford-delong.com/2016/04/must-read-the-federal-reserve-is-looking-at-the-past-six-months-and-seeing-significant-improvement-in-the-labor-market.htmlBut the negatives, especially among the series that lead, are beginning to outweigh the positives. Revisions were mixed. The manufacturing workweek declined, and manufacturing jobs are now down YoY. Although temporary jobs rose this month, they have failed to top their December peak for the last 3 months. Short term unemployment has continued to rise slightly. A coincident indicator, aggregate hours, also failed to exceed its January high. So while we can cheer yet another month of jobs added to the economy, and the jump in participation, this report just adds to my concern about next year.pgl -> New Deal democrat...I won't cheer until the employment to population ratio reaches 62% and real wages actually rise on a consistent basis.sanjait -> New Deal democrat...Don't look at peaks in monthly data, look at rolling average trends.sanjait :
Also, while manufacturing specific data can be meaningful ... these days the dynamics in those data are largely dominated by swings in O&G, which is in a historic funk.In general, the trends look good. The working age E/P number is, to me, the most meaningful single indicator we have, and it appears to be continuing to rise and at an accelerating rate. That's a very good sign. It's very arguable that things could and should be improving at a faster rate, but when this stat is rising things are indeed improving.Ben Groves :
Baker's note about ACA and self-employment is also an important one. One important aspect of ACA is that it is GREAT for entrepreneurship. People are more free to leave jobs and start companies when their ability to get health insurance isn't predicated on their working for a large company with a group plan.
The GOP makes a lot of noise about how ACA supposedly kills jobs and stifles industry, but the reality is that tomorrow's tech leaders, and major employers, are getting a boost today from ACA.It is not sustainable and will reverse in April imo. Driving unemployment down.
Based on an estimate from WardsAuto, light vehicle sales were at a 16.45 million SAAR in March.
That is down about 4% from March 2015, and down about 6% from the 17.43 million annual sales rate last month.
BadDawgBobby 4h People aren't SPENDING. :-) gdd9000 4h cant spend what you dont have unless you borrow, and that noose is starting to tighten for the vehicle market. And leasing is the next victim, as the flood of off leases are now rolling in and killing residuals. uh, buhbye resuscitate 4h
People want decent paying jobs instead of getting more debts/credits while deleverage from past profligate. Banks sitting on trillions of reserves because of lack of demand for fund as well as risk averse behavior in debt markets. Pushing string.
www.nakedcapitalism.comPosted on April 1, 2016 by Yves Smith By C.P. Chandrasekhar, Professor of Economics, Jawaharlal Nehru University, New Delhi and Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Cross posted from Triple Crisis
Much has been made of how there has been a substantial shift in the balance of economic power between the advanced capitalist economies (or the "North") and some economies of the global South. It is true that very recently the hype surrounding "emerging markets" has died down, as international capital flows have swung away from them and many of them have shown decelerating growth or even declines in income as global exports fall. Nevertheless, the feeling persists that – in spite of a supposedly resurgent US economy – the advanced economies are generally in a process of relative decline, while the developing world in general and certain economies in particular have much better chances of future economic dynamism. And this process is generally seen to be the result of the forces of globalisation, which have enabled developing countries, especially some in Asia, to take advantage of newer and larger export markets and improved access to internationally mobile capital to increase their rates of economic expansion.
But how significant has this process actually been?
In fact, there has definitely been some change over the past three and a half decades, but it has been more limited in time than is generally presumed. Chart 1 plots the share of the advanced economies in global GDP in current US dollar prices, calculated at market exchange rates. (Data for all the charts have been taken from the IMF World Economic Outlook October 2015 database.) This shows that the share of advanced economies declined from around 83 per cent in the late 1980s to around 60 per cent now, which is really quite a substantial decline. However, the bulk of this change occurred in a relatively short period: the decade 2002 to 2012, when the share dropped from 80 per cent to 62 per cent. The periods before and after have shown much less variation, and indeed, the share seems to have stabilised at around 61 per cent thereafter.
Chart 2 looks at the obverse of this process – the change in the shares in global GDP of the major developing regions, with China treated as a separate category on its own. This shows a somewhat more surprising pattern, because it indicates that the dominant part of this shift is due to the increase in China's share, which rose from around 3 per cent to more than 15 per cent. Once again, this happened essentially during the decade after 2005, when the share of China in global GDP at market exchange rates jumped by more than ten percentage points. Indeed, the change in China's share alone explains 87 per cent of the entire decline in the share of the advanced economies in the period 1980 to 2015. Considering only the last decade, that is after 2005, the relative increase in China's GDP accounts for a slightly lower proportion of the change, at 67 per cent – which is still hugely significant.
The change in shares of other regions provides some interesting insights. The Latin American region experienced a medium term decline in relative income share over the 1980s (the "lost decade"), recovered somewhat in the 1990s before declining once again in the late 1990s and early 2000s. The global commodity boom of 2003 onwards was associated with a revival in the region's economic fortunes and the share of the region increased from 5 per cent in 2003 to more than 8 per cent in 2011, but thereafter it has stagnated and fallen with the unwinding of that boom.
The income share of the MENA region (Middle East and North Africa) appears to be very strongly driven by global oil prices, with sharp peaks in period of high oil prices and stagnation or decline otherwise, and over the entire period there has been a stagnation in income share rather than any increase. An even more depressing story emerges for Sub Saharan Africa, which showed decline in income share for a prolonged period between 1980 and 2002, and subsequently a slight recovery (from 1.1 per cent in 2002 to around 2 per cent in 2012 and thereafter) that was still well below the share of more than 3 per cent in 1980.
The only developing region that shows a clear increase is developing Asia, which in this chart excludes China to clarify the respective significance of both. But the increase in the income share of this region (minus China) has been much less marked than that for China, and most of it occurred after 2002, as the income share rose from 3.5 per cent in 2002 to 6.4 per cent in 2015.
Chart 3 indicates the changes in shares of the largest Asian developing countries other than China. It is evident that in terms of increasing share of global GDP, India has been the most impressive performer over the past decade in particular, with its share increasing from 1.8 per cent in 2005 to 3 per cent in 2015. Note, however, that this is still tiny in comparison to China, and indeed, just the increase in China's share over that decade has been more than three times of India's aggregate share. South Korea's share has also increased, mostly over the 1980s and early 1990s, while Indonesia's share increase occurred mostly during the commodity boom of the 2000s.
In terms of per capita GDP, however, the Indian performance looks much less impressive than those of the major Asian counterparts. Interestingly, even the Chinese experience appears not as sharply remarkable, although still hugely better than that of India. Chart 4 tracks the movements of per capita GDP, measured now in Purchasing Power Parity (PPP) exchange rates rather than market rates. There are numerous problems with the use of the PPP measure, but for current comparative purposes it does provide some kind of indicator. This shows that by far the most impressive performance in terms of increasing per capita GDP has been in South Korea, followed by Malaysia. India shows the least improvement among these five economies, despite its apparently more rapid increase in terms of share of world GDP in the last decade.
Overall, therefore, while the world economy has changed over the past three decades, this change should not be exaggerated for most developing regions, or even for most countries in what is apparently the most dynamic region of Asia.0 0 0 1 0 0
Subscribe to Post Comments 10 comments
That China accounts for almost all of the shift isn't so much new news, as repeatedly memory-holed news. It's not surprising that it keeps going down the memory hole, as it completely destroys the case for the neoliberal policy consensus that China flouted over that period.
Every talking head who extolls the Washington Consensus for "lifting the poor of the world out of poverty" is a stone cold liar. The real goal of "globalization" isn't general prosperity, it's the continued domination of "us" over the "lesser breeds".
It is the bringing the advantages of the third world to the others.
Why should we get paid more than them?
Look at all the billionaires that were lifted out of poverty in these countries.
Why should we get paid more than them?
Our useless eaters get much more than their useless eaters,
PPP is a scam. To someone displaced here, it matters zero that the worker in Mexico, for example, can get by on one tenth the wage that used to be payed to someone here.
Look at all the billionaires that were lifted out of poverty in these countries.
Look at the billions that did all the lifting. They still make as close to zero as you can get.
Imagine for a moment, Tim Cook does the underground boss thing and sneaks himself into the Foxconn factory for a spot on the assembly line for a month. If he could get by the first few days and not scrap too many phones, and become proficient and last the whole month at 60 hours a week, what do you think his pay for this work would be? Would you like your monthly pay to match it?
I wasn't being entirely serious, but my point was.
Other people work for sweet FA and so why shouldn't you?
This is the question technocrats have been tearing other peoples hair out for the last 40 years
Because…free markets have been the historical engine of common wealth…who cares if all the evidence points to the contrary.
I recognise the inversion of the pyramid of life in my little comment.
I do not believe the overclass are struggling manfully to support the rest of us through their own, thankless philanthropy.
Thanks to multinationals being effectively stateless due to tax arbitrage games, who actually has global economic power but the corporations themselves?
In the end, the States do, because the corporations need the military and other coercive power of States to enforce contracts and extract their pounds of flesh. The USA has the world largest GNP (or GDP, I can never keep the two straight although when I was a kid in the 1970s, it was GNP) and the world's most destructively powerful military (it may not be able to "defeat" you, but it can make you wish you had never screwed with Uncle Sam). GNP backstops military power and other nasty forms of coercion. Poor countries simply can't throw their weight around effectively in what is still an international jungle. Rich ones can.
It'd be interesting to see what Chart 2 looks like if measured in PPP rather than at market rates. It might demonstrate how much the structure of global markets effects the valuation of production, and how not-flat the globalized economy is. I'd like to see measures other than GDP as well, especially industrial commodities, capital goods, automobile, and shipping production. When it comes down to it where does the industrial capacity actually reside, and how has this shifted over the years?
Since April 2011 - nearly five years ago - commodity prices have fallen a harrowing 48%, measured by the CCI-TR index. Over the same period, the US dollar index (DXY) rose almost 30%.
These two trends contributed to the recent flattening out of developing economy gains in GDP share, measured in USD.
Commodities are sufficiently depressed that on a valuation basis, a turnaround might be expected, and indeed may already have commenced in the CCI's 5.7% rise from its 15 Jan 2016 low.
In a more favorable global macro environment, developing economies likely will gain more relative GDP share over the next five years than they did in the headwinds of the past five.
That's a logical premise and it implies that developing countries, with a sparse and elitist infrastructure, will be the ones to do big new infra that promotes equality and stability, but do not waste their opportunity to balance their economies by using old ideas about investing in all the mistakes and boondoggles of neoliberalism… etc. This opportunity is part of a global power shift which demands environmental cooperation. Just personally hoping all the carpet baggers go directly to jail.
The obamacare mandate will go down as the straw that broke the camel's back, and Chinas printing will reverse, with scant more to show for itself than Japan's push behind the internet.
Pushing government religion is one thing; mandating participation is another.
Oil prices have hovered at $40 per barrel for much of the last week, as the markets try to avoid falling back after the strong rally since February. Investors see shale production falling and demand continuing to rise, which point to the ongoing oil market balancing. But it is unclear at this point if the rally from $27 per barrel in February to today's price just below $40 per barrel is here to stay. Fundamentals, while trending in the right direction, are still weak.
- Oil production in the UK actually increased a bit in 2015, after about two decades of steady declines.
- The additional 100,000 barrels per day came from new offshore oil projects that were initiated in 2012 when oil prices were much higher, plus extra oil squeezed out from existing fields.
- The collapse in oil prices has demolished investment in new projects, the results of which will be felt in the 2018 to 2021 timeframe, due to multiyear lead times. The number of new projects greenlighted in 2015 was less than half of the level seen in 2013 and 2014.
- As a result, beginning in 2018, the UK could see more severe production declines.
Heinrich Leopold, 03/29/2016 at 3:09 amPaulo,
As the witch hunt on the rich still goes on feverishly, people forget that an economical successful society needs trailblazers like McClendon. A society must be open to extreme characters for good and bad as these people stir up the pond and keep the wheels running. The current process in society of reverting to the mean, when only incompetent bureaucrats can earn big money combined with a top down centralized decision making process will make society much poorer over time.
Society must allow concepts and new ideas through a bottom up process managed by exceptional individuals like McClendon. The European Union -which becomes more and more a top down society similar to the Sowjet Union – and especially France are already good examples how fast a society can vanish through a centralized approach holding down individual activity.
This has been even recognized by China when Deng Xiao Ping famously said: 'Unfortunately we have to allow some people to become millionaires.' Should centrists get its grip to power, millionaires will be poorer and the poor will not be richer. It is not that Cuba becomes the new USA, it will turn the US into the new Cuba.
"It's not bubble territory yet, but bubbles are always a possibility," said Shiller. "Right now we're sitting where we were in 2003, and that developed over the next three years into quite a bubble." In 2006, there were more than 1.2 million foreclosure filings, a rate of one foreclosure filing for every 92 U.S. households nationwide.
Taking a look at the broader picture, Shiller said that he's concerned about recent volatility and "spectacular drops" in U.S. stocks and overseas markets, warning that further weakness could lead to a loss of confidence and cause investors to develop a "wait-and-see attitude." He's also keeping an eye on the recent plunge in oil prices, saying it would be "worrisome if these fears return."
Cruz Seeks Economic Wisdom in the Wrong Place :Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action. -- former U.S. Senator Phil Gramm, Nov. 16, 2008
...Gramm has been brought on as a senior economic adviser to Republican presidential candidate Ted Cruz. This isn't a promising development for Cruz... Not to put too fine a point on it, but I believe -- as do many others -- that Gramm was one of the major figures who helped set the stage for the crisis. ...
Gramm was a key sponsor of the ... Gramm-Leach-Bliley Act , which effectively repealed the piece of the Glass-Steagall Act... The damage caused by rolling back Glass-Steagall pales compared with ... the Commodity Futures Modernization Act of 2000 . Gramm was a co-sponsor of the legislation, which exempted many derivatives and swaps from regulation. Not only was the law problematic, but it veered into potential conflict-of-interest territory. ...
We got a chance to see those consequences a few years later when American International Group failed, thanks in part to swaps ... on $441 billion of securities that turned out to be junk. AIG wasn't required to put up much in the way of collateral, set aside capital or hedge its risk on the swaps. Why would it, when the law said it didn't have to? The taxpayers were then called upon to bailout AIG to the tune of more than $180 billion.
Maybe it isn't too surprising that Cruz would seek advice from Gramm. Cruz, after all, seems to want to hobble modern economic policy by returning to the gold standard. ... We have seen these movies before, and they end in tragedy and tears.
He also talks about Gramm's sad performance in his brief appearance as one of McCain's advisors in 2008.
pgl :Phil Gramm says he got his economic degree from the University of Georgia. Well - it was from the Terry College of Business which is a business school. Not the graduate program of economics of the University of Georgia. I guess this makes Gramm one notch above Stephen Moore, Donald Luskin, and Lawrence Kudlow (aka the three stooges).
pgl :The LA Times on Gramm's record on economics:sanjait :
"Gramm's most notable moment in that position came on July 10, 2008, when he dismissed the developing economic crisis as "a mental recession" in an interview -- and video -- released by the conservative Washington Times. "We've never been more dominant," he said. "We've never had more natural advantages than we have today. We've sort of become a nation of whiners." McCain immediately disavowed the remarks, and a few days later Gramm stepped down as his campaign co-chairman."
OK that was July. Menzie Chinn always notes that Luskin was saying the same thing as late as September 2008.Gramm seems pretty firmly in free market ideologue territory. Cruz deciding to bring him in as an economic advisor is certainly noteworthy.pgl -> sanjait...
Though I'm still struck by how determined some people seem to lump Graham Leach Bliley in as a cause/major contributor to the crisis.
The CFMA very plausibly serves that purpose. If we want to mark Gramm as a villain, his sponsorship of that bill should be sufficient, as well as his abject refusal to acknowledge the crisis in real time.
But for whatever reason people have picked up Glass Steagall as a Very Important rule, and seem to be pushing to rationalize that by claiming it is a big part of the crisis story.
Ritholtz, to his credit, is qualified and nuanced about this. He notes that CFMA is the big story, and says GLB wasn't didn't "cause" the crisis.
But following through the links to his WaPo piece, he still looks like he is reaching for a reason to label it a major contributor to the crisis.
He claims that removing G-S restrictions caused the major banks to in turn cause the shadow banking entities like AIG, Bear, etc. to "bulk up" their holdings of subprime, based on ... nothing that I can see.
Sure, the major banks were customers and counterparties for those shadow banks, but Ritholtz seems to assume that if G-S weren't in place that demand would somehow have been less. Why?
Take a major bank with mixed commercial and investment banking activity and split the parts. Would that have changed their activities? Not much. The commercial banking side still would have held MBS (and purchase insurance on them) and the I-banks would still make speculative investments of various types.
No one, as far as I've seen, ever bothers to tell a complete story where the structural incentives in the financial sector changed as a result of Glass Steagall in a way that materially impacted the depth or serverity of the housing crisis. How would splitting megabanks into separate big C- and I-banks have changed anything? Bueller?
Instead I see a great many people, including well credentialed economists, just assume or hand waive the claim that it made a big impact without bothering to model or specify it. I'm not saying such an explanation couldn't exist that I'm not aware of ... but at this point I do see the absence of explanation as evidence of absence.Gramm dismissing the concern over a recession in the summer of 2008 is the kicker for me!Charlie Baker -> sanjait...sanjait:pgl -> Charlie Baker ...
"But for whatever reason people have picked up Glass Steagall..."
No need to speculate: Simon Johnson and James Kwak wrote a whole book about it. It's called 13 Bankers:
The short version: the Glass Steagall repeal allowed the banks to become "Too Big To Fail" and gave them enormous political leverage. It's the political leverage - the ability to count on Uncle Sam to come to the rescue, and provide easy terms for rent-seeking - that GLB provided. If they were separated, and only the investment banks could make risky investments, we would let the investment banks fail while protecting the boring old payments system. You won't get an argument on CFMA, however: it was worse. And that has Gramm's fingerprints all over it. And it might not have passed if the SIFIs were smaller.
When I think of the villains of the Great Recession, Phil Gramm is always Public Enemy #1.The Glass Steagall repeal was not my biggest problem with Phil Gramm. My big problem is he wanted to have a completely deregulated financial sector. Sort of like when Newt Gingrich talked about "rational regulation" which was code for no regulation. But anyone who understands financial economics and our financial system knows that no regulations whatsoever is a recipe for a complete melt down. Which is what happened.The Rage :Cruz just wants to make money for his buddies while waving the bible. JDR was there 100+ years before that "Ted".
"Unlike an enthusiastic bull or a scary bear, a bunny market hops about a bit but really doesn't go anywhere, and bunnies have often dominated the stock market during the latter stages of past economic recoveries," Paulsen said in a report this week for clients.
www.zerohedge.comSubmitted by testosteronepit on 03/21/2016 10:14 -0400 By Wolf Richter, WOLF STREET
Companies are still borrowing and spending billions on buying back their own shares – one of the big drivers behind the blistering stock market rally of the past few years. It worked wonderfully and without fail. But suddenly, it's doing the opposite, and now the shares of the biggest buyback queens are getting hammered. Something broke in the gears of this financially engineered market!
During the November-January period, 378 of the S&P 500 companies bought back their own shares, according to FactSet . Total buybacks in the quarter rose 5.2% from a year ago, to $136.6 billion. Over the trailing 12 months (TTM), buybacks totaled $568.9 billion. That's an enormous amount of corporate cash that was dumped on the market!
The sector that blew – "blew" because that's how it turned out – the most money on this type of financial engineering project was Information Technology, with $33.2 billion in buybacks last quarter. Four of the top 10 buyback queens were Information Technology: Apple, Microsoft, Oracle, and Visa.
Apple alone blew $6 billion in the quarter, even as its stock was tanking. Relative to its average share price over the period, it paid a 13% premium, the second highest premium paid by S&P 500 companies, after Symantec! Over the trailing 12 months, Apple blew nearly $40 billion on buybacks, and yet its stock dropped 15.5%.
This table shows the top 10 buyback queens in order of the amount spent on a TTM basis, and the mostly dismal performance of their shares over the same period.
GE didn't quite make this list (though it bought back $3.1 billion in Q4), but it was very active in different ways, following through on its $50-billion buyback program announced in April last year. FactSet:
In addition to the repurchase program, GE completed a stock swap with the former GE Capital retail finance division, Synchrony Financial, which had an effect on shares outstanding that was equivalent to a $20.4 billion buyback. As a result, the shares outstanding for GE were reduced by 6.7% in the last twelve months.
Total buybacks are ballooning in proportion to net income, which declined over the TTM period for the first time since 2009. So buybacks as a percent of income rose from 64.9% a year ago to 68.1% at the end of the quarter. In terms of free cash flow after dividends, share buybacks have now ballooned to 101.7%. This was, as FactSet put it, "a huge jump from the year ago quarter when the ratio was 81.6%."
The culprit? With income down over the TTM period, aggregate free cash flow has dropped 9.5% year-over-year.
FactSet's chart shows the declining net income (green bars), the nearly flat share-buybacks (blue bars), and the rising buyback-to-income ratio (red line, right scale). Note what happened last time income began to decline (2007) and share buybacks followed in 2008: the stock market crashed.
And yet, despite the current heroic efforts to prop up their shares, companies have seen their shares get hammered.
As FactSet's chart below shows, over the past 12 months, the S&P 500 total return index, which included dividends, rose 1.3% (green line). But the total return of SPDR S&P 500 Buyback ETF, which tracks the 100 companies in the S&P 500 with the highest buyback ratio, dropped 7.6% (blue line):
Clearly, financial engineering is kaput! Buybacks no longer function reliably in inflating stock prices. The opposite seems to be happening. Perhaps investors are finally starting to see through these shenanigans, and perhaps they're now beginning to fret about all the debt these companies take on in order to fund buybacks!
When companies borrow billions to then blow that moolah on buying their own shares that then promptly decline in value, it doesn't create a loss on the income statement. Instead, those billions quietly go up in smoke. What's left behind? Fewer shares outstanding, piles of additional debt, mauled cash balances, and much higher financial risk.
But once companies see that share buybacks are becoming toxic as their shares decline despite buybacks, they curtail them. And last time this happened – in 2008 – it pulled the rug out from under the already teetering markets.
The bull market from early 2009 into May 2015 looks just like every bubble in history, and there's one sign after the next that we did indeed peak last May. The dominant pattern in the stock market is the "rounded top" pattern.
Read… This Chart Shows the First Big Crash Is Likely Just Ahead
Math is hard. Stock buybacks are supposedly driving the market higher. Yet, this article indicates corporations which engage in buyback activity instead underperform the market. Therefore, logically, buyback queens are impeding the market by slowing the advance of the subject firm's equity prices. HUH?
Wondered why Jamie Dimon spent so much on personal stock purchases....until a month or so later JPM announces a big buyback. Thus inflating his recent purchase....should be a law against that. Criminals.
what is missing here is stock options sales, stock being sold right about now. my guess is that stock option sales are rising and peaking soon. they know wtf is coming down and are basically cashing out. 10 million, 50 million, 2 million. yea, all legal, but that is the game, do the time, grind to the top, cash out the options and live the life.
fucking corporations. and the majority get what 15/hr-30. they get millions. not saying some of these fucks aren't very intelligent people well deserving of their rewards, but really, millions while the serfs make squat...
The bull market just celebrated its seventh anniversary. But the gains in recent years – as well as its recent sputter – may be explained by just one thing: monetary policy.
The factors behind that and previous bubbles can be illuminated using simple visual analysis of a chart.
The S&P 500 (^GSPC) doubled in value from November 2008 to October 2014, coinciding with the Federal Reserve Bank's "quantitative easing" asset purchasing program. After three rounds of "QE," where the Fed poured billions of dollars into the bond market monthly, the Fed's balance sheet went from $2.1 trillion to $4.5 trillion.
This isn't just a spurious correlation, according to economist Brian Barnier, principal at ValueBridge Advisors and founder of FedDashboard.com. What's more, he says previous bull runs in the market lasting several years can also be explained by single factors each time.
Barnier first compiled data on the total value of publicly-traded U.S. stocks since 1950. He then divided it by another economic factor, graphing the ratio for each one. If the chart showed horizontal lines stretching over long periods of time, that meant both the numerator (stock values) and the denominator (the other factor) were moving at the same rate.
"That's the beauty of the visual analysis," he said. "All we have to do is find straight, stable lines and we know we've got something good."
... ... ...
As the financial crisis reached a fevered pitch in 2008, the Federal Reserve took to flooding the financial market with dollars by buying up bonds. Simultaneously, interest rates fell dramatically, as bond yields move in the opposite direction of bond prices. Barnier sees the Fed as responsible for over 93% of the market from the start of QE until today. During the first half of 2013, the Fed caused the entire market's growth, he said.
Since the Fed stopped buying bonds in late 2014, the S&P 500 has been batted around in a 16% range and is more or less where it was when the QE came to a close. Investors need to anticipate the next driver, said Barnier.
Bloomberg BusinessDemand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year.
Standard & Poor's 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.
www.zerohedge.comAccording to DoubleLine's Jeff Gundlach, this is his favorite chart - backing his perspective that equity markets have "2% upside and 20% downside) from here .
In his words: "These lines will converge..."http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/03/09/20160309_gundlach.jpg
It should be pretty clear what drove the divergence...
March 6, 2016 | naked capitalism
... ... ...
PERIES: James, the Council of Economic Advisors, they put out economic forecasts each year. And there has been some wildly optimistic ones. For example, if you look at the 2010 predictions for 2012 and 2013 they have not quite been attained. And one would say it was done in the interest of trying to make the administration that they were serving more impressive. But what accounts for this particular attack on Friedman's projection and other fellow economists?
GALBRAITH: This was a classic case of professional bad manners and rank-pulling. What we had here were four former chairs of the president's Council of Economic Advisors, and two from President Obama, two from President Clinton, who decided to use their big names and their titles in order to launch an attack on a professor of economics at the University of Massachusetts who had written a paper evaluating the Sanders economic program.
It's likely that the four bigwigs thought that Professor Friedman was a Bernie Sanders supporter. In fact, as of that time he was a Hillary Clinton supporter and a modest donor to her campaign. What he had done was simply to write his evaluation of the economic effects of the ambitious Sanders reform program. The four former council chairs announced that on the basis of their deep commitment to rigor and objectivity, they had discovered that this forecast was unrealistic. And what I pointed out was that that claim was based on no evidence and no analysis whatsoever. And when you pressed down on it you found that it was simply based on the obvious fact that we haven't seen the kinds of growth rates that Professor Friedman's analysis suggested the Sanders program would produce. And for a very simple reason: the Sanders program is bigger. It's more ambitious than anything we've seen in recent years, so it's not surprising that when you put it through a model it generates a higher growth rate.
So that was the basic underlying facts, and these guys, two men and two women, announced that they, that it was a disreputable study, but failed to present any analysis that suggested they'd actually even read the paper before they denounced it. And that's what I pointed out in my counter letter, in a number of articles that have appeared since.
PERIES: James, so in your letter, how do you counter them? What methods did you use to come to your conclusions?
GALBRAITH: Well, I, no need to say anything beyond the fact that I had looked in their letter for the rigor that they were so proud of, for the objectivity and the analysis that they were so proud of, and I'd found that they had not done any. They had not made any such claim, not done any such work.
So that began to provoke a discussion. It's fair to say ultimately, without apologizing for effectively launching an ad hominem attack on an independent academic researcher, one of the former chairs, Christina Romer of President Obama's council, and her husband David Romer, a fellow economist, did produce a paper in which they spelled out their differences with the, with the Friedman paper. But that, again, raised another set of interesting issues which we've continued to discuss at various, various outlets of the press.
PERIES: Now, James Friedman's claim that the growth rate from Sanders' plan to be around 5.3 percent. And some economists, including Dean Baker at the Center for Economic Policy and Research, have claimed that this is unrealistic. What do you make of that?
GALBRAITH: Well, the question is whether it is an effect, let's say, a reasonable projection, of putting the Sanders program into an economic model. And the answer to that question, yes, Professor Friedman did a reasonable job. He spelled out what the underlying assumptions that he was using were. He spelled out the basic rules of thumb that macroeconomists had used for decades to assess the effects of an economic program. In this case, an expansionary economic program. And he ran them through his model and reported the results, a perfectly reasonable thing to do.
Now, one can be skeptical. And I am, and Dean Baker is, lots of people are skeptical that the world would work out quite that way, because lots of things, in fact, happen which are not accounted for in a model. And we've talked, we've basically put together a list of things that you think might be problematic. But the exercise here was not to put everything into paper that might happen in the world. The exercise was to take the kind of bare bones that economists use to assess and to compare the consequences of alternative programs, and to ask what kind of results do you get out? And that's what, again, what Jerry Friedman did. It was a reasonable exercise, he came up with a reasonable answer, and he reported it.
PERIES: Now, Friedman seems to think that the rate of full employment in 1999 is attainable. However, many labor economists seem to think that the larger share of the elderly currently in society compared to 1999 explains some of the lack of labor participation, which creates a lower full employment ceiling that's contradicting Friedman's report. Your thoughts on that?
GALBRAITH: Well, I think it is a fact that the population is getting older. But as, I think, any economist would tell you, that when you offer jobs in the labor market, the first thing that happens is the people who are looking for work take those jobs. The second thing that happens is that people who might look for work when jobs were available start coming back into the labor market. And if that is not enough to fill the vacancies that you have, it's perfectly open to employers to raise their wages so as to bring more people in, or to increase the pace at which they innovate and substitute technology for labor so that they don't need the work.
So there's no real crisis involved in the situation if it turns out five years from now we're at 3.5 percent unemployment, and they were beginning to run short of labor. That's not a reason to, at this stage, say no, we're not going to engage in the exercise and run a more expansionary, vigorous reform program, a vigorous infrastructure project, a major reform of healthcare, a tuition-free public education program. All of those things, which were part of what Friedman put into his paper, should be done anyway. The fact that the labor market forecast might prove to have some different, the labor market might have different characteristics in five years' time is from our present point of view just a, it's an academic or a theoretical proposition, purely.
PERIES: And Friedman's paper, he looks at a ten-year forecast. Did you feel that when you looked at the specifics of that, including college, universal healthcare, infrastructure spending and of course, expanding Social Security and so on, that those categories and his predictions or projections, rather, made sense to you?
GALBRAITH: Well, again, what he was doing was running a program of a certain scale, of a large scale, through a set of standard macroeconomic assumptions. And that, again, is a reasonable exercise. If you ask me what my personal view is, I've written a whole book called The End of Normal in which I lay out reasons for my chronic pessimism about the capacity of the world economy to absorb a great deal more rapid economic growth.
But that's not in the standard models, and it would not be appropriate to layer that on to a forecast of this kind. What Friedman was criticized for was not for putting his thumb on the scale, but for failing to put his thumb on the scale. In fact, that was the reasonable thing to do.
On the contrary, and on the other side, when Christina and David Romer did put out their forecast, their own criticism of the Friedman paper, they concluded by asserting that if this program were tried, inflation would soar. So they there were making an allegation for which, again, they had no evidence and no plausible model, that in the world in which we presently live would produce that result.
So what we had here was a, what was essentially an academic exercise that produced a result that was highly favorable to the Sanders position, and showed that if you did an ambitious program you would get a strong growth response. It's reasonable, certainly, for the first three or four years that that would transpire in practice. And what happened was that people who didn't like that result politically jumped on it in a way which was, frankly speaking, professionally irresponsible, in my view. It was designed to convey the impression, which it succeeded in doing for a brief while through the broad media, that this was not a reputable exercise, and that there were responsible people on one side of the debate, and irresponsible people on the other.
And that was, again, something that–an impression that could be conveyed through the mass media, but would not withstand scrutiny, and didn't withstand scrutiny, once a few of us stood up and started saying, okay, where's your evidence, on what are you basing this argument? And revealed the point, which the Romers implicitly conceded, and I give them credit for that, that in order to criticize a fellow economist you need to do some work.
... ... ...
Keith , March 6, 2016 at 4:45 amKeith , March 6, 2016 at 6:29 am
The true nature of Capitalism has obviously been forgotten over time.
Today we think it brings prosperity to all, but that was certainly never the intention.
Today's raw Capitalism is showing its true nature with ever rising inequality.
Capitalism is essentially the same as every other social system since the dawn of civilisation.
The lower and middle classes do all the work and the upper, leisure Class, live in the lap of luxury. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure.
The nature of the Leisure Class, to which the benefits of every system accrue, was studied over 100 years ago.
"The Theory of the Leisure Class: An Economic Study of Institutions", by Thorstein Veblen.
(The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.)
We still have our leisure class in the UK, the Aristocracy, and they have been doing very little for centuries.
The UK's aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.
Feudalism – exploit the masses through land ownership
Capitalism – exploit the masses through wealth (Capital)
Today this is done through the parasitic, rentier trickle up of Capitalism:
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
All this was much easier to see in Capitalism's earlier days.
Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living. This was the way it had always been and always would be, the benefits of the system only accrue to those at the top.
It was very obvious to Adam Smith:
"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."
Like most classical economists he differentiated between "earned" and "unearned" wealth and noted how the wealthy maintained themselves in idleness and luxury via "unearned", rentier income from their land and capital.
We can no longer see the difference between the productive side of the economy and the unproductive, parasitic, rentier side. This is probably why inequality is rising so fast, the mechanisms by which the system looks after those at the top are now hidden from us.
In the 19th Century things were still very obvious.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
4) Child Labour
Immense wealth at the top with nothing trickling down, just like today.
This is what Capitalism maximized for profit looks like. Labour costs are reduced to the absolute minimum to maximise profit. The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour. The function of the system is still laid bare. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure. The majority only got a larger slice of the pie through organised Labour movements.
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce. They knew that if wealth concentrated too much there would not be enough demand. In the 1950s, when Capitalism had healthy competition, it was essential that the Capitalist system could demonstrate that it was better than the competition. The US was able to demonstrate the superior lifestyle it offered to its average citizens.
Now the competition has gone, the US middle class is being wiped out. The US is going third world, with just rich and poor and no middle class. Raw Capitalism can only return Capitalism to its true state where there is little demand and those at the bottom live a life of bare subsistence.
When you realise the true nature of Capitalism, you know why some kind of redistribution is necessary and strong progressive taxation is the only way a consumer society can ever be kept functioning.
A good quote from John Kenneth Galbraith's book "The Affluent Society", which in turn comes from Marx.
"The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction"
Marx made some mistakes but he got quite a lot right.Keith , March 6, 2016 at 1:11 pm
Thanks to Michael Hudson, whose ideas anyone will recognise who has read his book.
"Killing the Host"
If you haven't read it, do so immediately.Keith , March 6, 2016 at 1:17 pm
Perhaps, Western civilization had already cultivated and concentrated psychopathic personality traits in its elite before Capitalism ever begun. Early European history is an endless procession of wars at home and abroad as the elite took their wealth by force and the masses were kept in check by force whenever necessary.
No peaceful group could ever survive this relentless onslaught of millennia. This psychopathic elite then took their warlike ways to every corner of the earth. The wealthy elite from this era then became the wealthy elite of the next Capitalist era. Even today their bloodlust cannot be sated as they look to control a global empire.Vatch , March 6, 2016 at 5:00 pm
"We came, we saw, he died" rinse and repeat for 5,000 years.Jim Young , March 6, 2016 at 12:27 pm
Certainly countless hundreds of peaceful, responsible, inclusive, open, empathetic indigenous societies have been co-opted/overthrown by the western model.
Yes, but it's not just the western model that overthrows peaceful societies. The empires of China, the Japanese monarchies, the empires of India (together with a cringeworthy caste system), the human sacrificing Aztecs, Mayas, and Incas, all prove that tyranny is not a western invention.
When a local population becomes too large to be supported by simple egalitarian hunting and gathering, something else is required. That something is agriculture, and almost inevitably, the organization, specialization, and partial urbanization required by large scale agricultural society leads to exploitation and tyranny. This is seen in the earliest societies for which we have a written record, Sumer and Egypt.Clive , March 6, 2016 at 12:37 pm
Thanks for the explanations of Veblen and Galbraith, which I find enduring basics over more than 100 years of speculation, real investment, and the best way to keep consumer society healthy.
My unschooled, simple, way to measure the health of an economy is in the Velocity of Money in the real economy of useful products and services. It appears to be very far below where it was when we did our best, and lower than when we first started measuring it near the beginning of the Great Depression.Keith , March 6, 2016 at 1:58 pm
Or, pictorially illustrated .
I'm thinking of having my Christmas Cards printed with it on the front this year.For The Win , March 6, 2016 at 5:46 am
In addition …..
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce.
They knew that if wealth concentrated too much there would not be enough demand.
Of course the Capitalists could never find it in themselves to raise wages and it took the New Deal and Keynesian thinking to usher in the consumer society.Rodger Malcolm Mitchell , March 6, 2016 at 2:08 pm
Colonialism and fiscal conservatism
Fiscal conservatism, which champions a balanced budget and expenditure restraints, is often hailed as a politico-economic philosophy as well as a policy of financial responsibility. In practice, it has been used as an argument against free spending by governments which can lead to high levels of debt and inflation. It has not been a positive philosophy which advocates the pro-growth and stability benefits coming from balanced budgets. Rather, it is a negative one – reacting against excessive spending and its consequences. This is probably why modern examples of fiscal conservatism in the United States and the United Kingdom have not led to sustainable growth or a significant reduction in public debt. Instead, in the case of the Ronald Reagan era in the US in the 1980s, public debt soared as fiscal conservatism and other policies were abandoned.mpr , March 6, 2016 at 9:12 am
A Monetarily Sovereign government does not need to reduce debt. In the U.S. (which is Monetarily Sovereign) federal so-called "debt" is actually the total of deposits in T-security accounts at the Federal Reserve Bank. In short, "debt" is bank deposits.
Why anyone would want to reduce the size of deposits at the world's safest bank is a mystery to me - other than the misleading use of the word "debt."
While all bank accounts are, in fact, debt of banks, most banks boast about the size of their depositors' accounts.
Contrary to popular myth, federal debt (i.e. deposits at the FRB) does not lead to inflation. America's "debt" has grown more than 9,000% in the past 75 years, and the Fed is struggling to create inflation.diptherio , March 6, 2016 at 9:57 am
Galbraith is probably my favorite economist, and eminently reasonable here. It makes me think that Sanders should have used him, or someone like him as an adviser/in house economist, rather than relying on external analyses like Friedman. It would possibly have given his program more gravitas – first amongst elites, and then more generally. At least it would have had a chance of changing the broader discussion. Whether you agree with it or not, right now the general MSM reporting on the Sanders plan is that it doesn't add up.John Zelnicker , March 6, 2016 at 10:25 am
I want to know why he hasn't been prominently featuring Prof. Kelton and her economic policy prescriptions. What's up with that?Rodger Malcolm Mitchell , March 6, 2016 at 2:19 pm
This is speculative, but since Prof. Kelton is actually the economist for the Minority (the Democrats) of the Senate Banking committee, there may be reasons of protocol that Sanders isn't using her policy ideas at the moment.
Another possibility is that trying to introduce a new economic paradigm while running for the nomination may be a bridge too far. If Sanders tried to explain to people that taxes don't fund federal spending, etc., heads would explode.
I'm also not sure how one would use Prof. Kelton's ideas without bringing in a whole bunch of MMT concepts. Maybe if Sanders wins the nomination he can begin to bring some of these ideas into the conversation.Kurt Sperry , March 6, 2016 at 11:48 am
He won't use her ideas simple because the American voter in not yet amenable to the facts of Monetary Sovereignty .
Try explaining even to your best friend that:
1. Unlike state and local taxes, Federal taxes do not fund federal spending.
2. Even if FICA were eliminated, Social Security and Medicare benefits dramatically could (and should) be increased. There are no federal "trust funds."
3. Federal deficits are necessary for economic growth
4. Federal "debt" is nothing more than deposits in T-security accounts at the Federal Reserve Bank.
5. America never has had, and is absolutely in no danger of, hyper-inflation.
Perhaps, if Bernie wins the election, he will be freer to educate the masses, as well as the economics community, but meanwhile he has to claim the popular myth that federal spending has to be "paid for" by taxes.MaroonBulldog , March 6, 2016 at 1:00 pm
Is the American public, trained/indoctrinated to think of the USG budget in terms of a household budget analogy, ready for MMT? I think it's politically OK to use MMT informed policies–"deficits don't matter"–as the Republicans have, but not OK to openly acknowledge doing so. MMT runs head on into bedrock beliefs like the protestant moral virtues of thrift and fiscal responsibility. People cling to this stuff as tightly as they cling to their religion and guns.Yves Smith Post author , March 6, 2016 at 3:01 pm
MMT is a volatile, explosive doctrine. Tell an ordinary off-the-street taxpayer that Federal taxes don't fund Federal expenditures, that Federal taxes destroy the money they collect and so keep inflation at desired levels, and ready yourself to answer this:
"If I'm just paying taxes so the money can be burned, why should I pay taxes? What good does paying taxes for that do me, or people like me?"
And be prepared not to have your answer heard, comprehended, or accepted, after it is given.
It could lead directly and quickly to the end of a system of tax collection based on voluntary compliance. It could ignite a revolution.
MMT is an unpopular doctrine. Whether it is the true theory, or a truer theory than others, of the state of the world–is not the point.Jim Young , March 6, 2016 at 11:56 am
She can't. She's his staffer (on the Senate Budget Committee) so she is now allowed to work on the campaign. It would be a big ethics violation and would produce a scandal. Staffers cannot work on any of their bosses campaigns, including re-elections. Remember, they are government employees, not on Sanders' personal payroll.susan the other , March 6, 2016 at 11:49 am
My old party has worked hard to try discredit James Galbraith. I was faced with some ridicule from a Bush era international negotiator for trying to read "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" in an airport waiting area.
To me, too many of the supposed (and actual) intellectuals and high level advisers were experts in rationalizing and explaining the chosen party views, but still employed the Cato Institute suggestion to use "Leninist" propaganda techniques as put forth in the 1996 Newt Gingrich/Frank Luntz GoPac memo, "Language: A Key Mechanism of Control."
I don't oppose them (at that level) expressing their well thought out views, even using the "persuasive" techniques described in the document at http://www.informationclearinghouse.info/article4443.htm but I do fault them for trying to prevent people from freely exploring far more comprehensive information and views.
We left the party ancestors had founded and stayed loyal to for 5 generations, though, because of the lower level dirty tricksters ("opposition researchers") that wanted us to corrupt the processes as one fund raiser told me, "We have to fight dirtier than Democrats."
Galbraith is a voice that must be listened to, just as there may be many others that we should be able to listen to (as I assume we could have under the old "Fairness Doctrine" before the corporate take over of almost all fully accessible media).jack , March 6, 2016 at 1:09 pm
stg Galbraith said casually about the thesis of his new book: This really is the new normal for capitalism – meaning low growth – because there is not much growth left. So maybe we are headed for a no growth world in which stability and sustainability dictate enterprise which is used to maintain a steady state – so that sounds more socialist than capitalist out of necessity. I believe this is our future too. And I think I understand Varoufakis' and Galbraith's "modest proposal" in a clearer light because growth must be used going forward not willy-nilly, but to achieve our ends. And also too – a while back the link that effectively said we had it backwards when we assume that capitalism supports socialism – because capitalism in reality lives off and is only possible under sufficient socialism. And it seems the 4 presidential advisors are more out to lunch than their letter showed.Detroit Dan , March 6, 2016 at 4:49 pm
As somebody asked above, I am still left wondering where Justin Wolfer's NYTimes piece fits into all this?Bernard , March 6, 2016 at 1:22 pm
Can't respond to all the nonsense. I just read Wolfer's piece and it seems to miss the point (as with the Romers), as noted in the following 2 articles. I especially recommend the 2nd one from John Cassidy in the New Yorker.
Bernie Sanders and the Case for a New Economic-Stimulus Package
as usual, i hear a lot "they" failed conservatism, never, Conservatism is just the age old avenue to "scam" the other. Bush "failed" at conservatism, i.e., it was Bush's fault not the ideology of Conservatism. on and on, this self repeated/reinforced "idea" that we have just not "found" the correct "application" of the ideal/reality that is Conservatism.
it does get old, too. all the people killed due to Conservatism and its' perpetrators. Greed, in other words, and the age old scam with "new and improved" tactics. These people have no concept of what "society" is, why we are all interrelated. to scam one is to scam us all. and these people are definitely not Christian in the "Jesus Christ" i've always heard about. Whatsoever you do unto the poor, you do unto me!
i just suppose psychopaths use any avenue for their "crimes." as i've heard, too, any great fortune is usually the result of a great crime.
somethings never change.
Legendary billionaire investor Jim Rogers is certain that the U.S. economy will be in recession in the next 12 months. During an interview on BloombergTV, he explained why he had covered his position in the Japanese yen, saying that the nation is "printing a lot" of the currency .
Rogers also warned that there is a "100 percent" probability of a recession in the U.S. within a year, and with debt levels very high across the nation, this is a grave concern.
Jim Rogers sums up the carnage that is coming...http://www.bloomberg.com/api/embed/iframe?id=xjQqFCwDThO7KMsEXp9NZw
Even The Fed tends to agree with him...
The latest reading of St.Louis Fed's recession probability is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.
Jim Haygood , March 3, 2016 at 9:55 amJim Haygood , March 3, 2016 at 11:55 am
'a retirement plan ultimately depends on the future earning power of the economy'
That's why all modern pension plans hold some equities.
An individual's cost to own one diversified equity fund and one diversified bond fund is about 0.1% per year. Whereas the expected benefit (compared to SocSec's all Treasury portfolio) is about 3.0% annually.
The seminal research pointing to an equity premium was done in the U.S. in the early 1960s, resulting in Nobel prizes for several participants. A half century on, their work has had zero effect on the politically petrified SocSec system - 20% funded, headed for zero in 2033.likbez , March 3, 2016 at 6:39 pm
Total bond market fund, 0.07% annual expense ratio (not a reco; just one example):
Large cap index fund, 0.05% expense ratio (again not a reco, just an example):
Equity premium of 6% gives 3% net benefit (vs. 100% Treasuries) in a 50/50 mix with bonds:
"The equity premium, which is defined as equity returns less bond returns, has been about 6% on average for the past century."
Seminal research - Fisher/Lorie paper of 1964, establishing the equity premium and founding CRSP which serves as the database for nearly all U.S. equities research:
Nobel Prizes 1990 - Harry Markowitz, Merton Miller, William Sharpe - for Modern Portfolio Theory, which implies in conjunction with the equity premium that the optimal risk-reward portfolio should include equities:
Zero effect: "Since the beginning of the Social Security program [in 1935], all securities held by the trust funds have been issued by the Federal Government."
Headed for zero: "The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2034." - SocSec Trustees Report 2015, page 3.
(The 2033 depletion date was from last year's trustees report; sorry.)This all is "water under the bridge." Called Naïve Siegelism
Can you spell "secular stagnation" ? And can you explain to us what returns are expected for stocks in the "secular stagnation" regime in comparison with bonds?
And what will you do if S&P500 drops to 660 like it did in 2008. And stays at this level for a couple of years like oil prices recently did.
BTW LTM was also founded by Nobel price winners: (https://en.wikipedia.org/wiki/Long-Term_Capital_Management ):
LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".
Republican presidential front-runner Donald Trump is playing defense on at least one issue these days: his role in a now-defunct real estate seminar business called Trump University.
At a rally in Arkansas on Saturday, Trump took a break from his stump speech to downplay a class-action civil lawsuit pending against the business, which was founded by Trump and offered students instruction on real estate investments.
"It's a small deal, very small," Trump said of the suit, which could force him to take the stand this summer.
Trump specifically railed against the judge in the case, and at one point noted the judge's Hispanic ethnicity.
Trump claimed the case should have been thrown out years ago, "but because it was me and because there's a hostility toward me by the judge - tremendous hostility - beyond belief." He then noted, as an aside: "I believe he happens to be Spanish, which is fine. He's Hispanic - which is fine."
A message left for the judge, U.S. District Judge Gonzalo Curiel, was not immediately returned. Curiel is a judge in the Southern District of California and based in San Diego.
New York Attorney General Eric Schneiderman, whose office has filed a separate civil $40 million complaint against Trump University in state court, accused Trump of "racial demagoguery." Schneiderman sued Trump University in 2013 alleging it committed fraud and fleeced 5,000 people out of millions of dollars.
"I will not engage in a debate about ongoing litigation," Schneiderman said in a statement issued after Trump made his comments. "But there is no place in this process for racial demagoguery directed at respected members of the judiciary."
Schneiderman noted that New York's state Supreme Court ruled that Trump University operated illegally in New York as an unlicensed educational institution.
Trump University emerged as a campaign issue at Thursday's GOP debate, raised by Florida Sen. Marco Rubio.
"There are people who borrowed $36,000 to go to Trump University, and they're suing now - $36,000 to go to a university that's a fake school," Rubio said. "And you know what they got? They got to take a picture with a cardboard cutout of Donald Trump."
Texas Sen. Ted Cruz jumped in, adding: "It's a fraud case. ... I want you to think about, if this man is the nominee, having the Republican nominee on the stand in court, being cross-examined about whether he committed fraud."
Schneiderman's suit alleges that Trump University falsely promoted itself as an educational institution even after the state education department warned it to stop. The complaint accuses Trump of falsely promising that Trump University students would receive intense training from experts hand-picked by Trump himself.
During breaks in the seminars, Schneiderman's complaint alleges, participants were urged to call their credit card companies and ask to increase their credit limits. Once the credit lines were secured, Trump University staff tried to persuade students to pay for additional services.
Separate from Schneiderman's complaint, Trump University students have sued. According to the California class-action complaint in front of Curiel, a one-year apprenticeship that Trump University students were promised ended after students paid for a three-day seminar. Attendees who were promised a personal photo with Trump received only the chance to take a photo with a cardboard cutout. And many instructors were bankrupt real estate investors.
Trump, at the rally, dismissed the cases as the work of "a sleazebag law firm" and suggested that Schneiderman's intervention was politically motivated.
"I could've settled this suit numerous times. Could settle it now. But I don't like settling suits," Trump said.
I would think that Trump gave all of those students a lesson that they should never forget, a fool and his money are soon parted. Who pays 36 grand to go to an unacredited school, to learn what they could get for free at the local library?
Do you really need someone to say, For next week, read chapters 5-9" ? And now that you have your lesson in "real life" go forth and prosper. And you should quicky recoup your tuition because you will run into people that lack you knowledge.
The broad masses of a population are more amenable to the appeal of rhetoric than to any other force.- Adolf Hitler
I'm a bit of a P. T. Barnum. I make stars out of everyone. - Trump
There's a sucker born every minute. - P.T. Barnum
"The receptivity of the masses is very limited, their intelligence is small, but their power of forgetting is enormous. In consequence of these facts, all effective propaganda must be limited to a very few points and must harp on these in slogans until the last member of the public understands what you want him to understand by your slogan." Adolf dead, enter the Trump. Make American great again!
"There is a cult of ignorance in the United States. and there always has been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured through the false notion that democracy means that 'my ignorance is just as good as your knowledge." - Isaac Asimov
Trump university proved there is a sucker born every minute.
Trump univ sounds like it was a school that taught real estate investing as an off shoot of trumps tv show. Nothing said it was an accredited degree college. No real estate license school is and they all have 3 day courses to learn real estate then you have to take a state test to get your license. You can go to a regular school that costs $100 or spend $36k at trump univ. it's the same class. It all sounds like a PR stunt .
Cheating thousands of people, just trying to better themselves, out of millions of $ might be unimportant to Trump. That is the problem. He has no conscience.
Ignorance is investing your money in a non certified educational institution because it is pitched by a so called "celebrity". If you do something foolish, dumb or stupid own up to it and use it as a learning experience. Don't expect others to pay for your mistakes.
NPR...on Saturday, billionaire Warren Buffett used his annual letter to Berkshire Hathaway Inc. shareholders to say, in effect, relax.
The country may have challenges, but the doom-and-gloom predictions are "dead wrong," Buffett wrote.
Instead, "babies being born in America today are the luckiest crop in history," he wrote.
... ... ...
Buffett's annual letter to Berkshire investors is so closely followed because he so often makes the right calls about the economy. And in this year's letter, he makes it clear that he considers the "negative drumbeat" about America to be very misleading.
WikipediaMinsky's financial instability hypothesis
Hyman Minsky's theories about debt accumulation received revived attention in the media during the subprime mortgage crisis of the late 2000s. The New Yorker has labelled it "the Minsky Moment".
Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.
Application to the subprime mortgage crisis
Economist Paul McCulley described how Minsky's hypothesis translates to the subprime mortgage crisis. McCulley illustrated the three types of borrowing categories using an analogy from the mortgage market:
- a hedge borrower would have a traditional mortgage loan and is paying back both the principal and interest;
- the speculative borrower would have an interest-only loan, meaning they are paying back only the interest and must refinance later to pay back the principal;
- the ponzi borrower would have a negative amortization loan, meaning the payments do not cover the interest amount and the principal is actually increasing. Lenders only provided funds to ponzi borrowers due to a belief that housing values would continue to increase.
McCulley writes that the progression through Minsky's three borrowing stages was evident as the credit and housing bubbles built through approximately August 2007. Demand for housing was both a cause and effect of the rapidly expanding shadow banking system, which helped fund the shift to more lending of the speculative and ponzi types, through ever-riskier mortgage loans at higher levels of leverage. This helped drive the housing bubble, as the availability of credit encouraged higher home prices.
Since the bubble burst, we are seeing the progression in reverse, as businesses de-leverage, lending standards are raised and the share of borrowers in the three stages shifts back towards the hedge borrower.
McCulley also points out that human nature is inherently pro-cyclical, meaning, in Minsky's words, that "from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes, the economic system's reactions to a movement of the economy amplify the movement – inflation feeds upon inflation and debt-deflation feeds upon debt deflation."
In other words, people are momentum investors by nature, not value investors. People naturally take actions that expand the high and low points of cycles. One implication for policymakers and regulators is the implementation of counter-cyclical policies, such as contingent capital requirements for banks that increase during boom periods and are reduced during busts.
Views on John Maynard Keynes
In his book John Maynard Keynes (1975), Minsky criticized the neoclassical synthesis' interpretation of The General Theory of Employment, Interest and Money. He also put forth his own interpretation of the General Theory, one which emphasized aspects that were de-emphasized or ignored by the neoclassical synthesis, like Knightian uncertainty.
Print Length: 416 pages
Publisher: W. W. Norton & Company; 1 edition (April 11, 2016)
Publication Date: April 1, 2016
Sold by: Amazon Digital Services LLC
A complete biography of Marion King Hubbert, one of the twentieth century's most influential energy experts, who was dubbed the "father of peak oil."
In 1956, geophysicist and Shell Oil researcher Marion King Hubbert forecast that American oil production would peak surprisingly soon and decline steadily thereafter. Hubbert's prediction outraged the architects of the U.S. oil industry at the time, but it was largely correct. Even amid a twenty-first century shale boom, Hubbert's logic remains a source of debate and controversy.
In a richly researched narrative that surveys Hubbert's papers and correspondence for the first time, award-winning journalist Mason Inman rescues the history of a man who shocked the scientific community with his brilliance, eccentricity, and controversy. The Oracle of Oil shows Hubbert as a man of his era: a time of great intellectual ferment and discovery tinged by dark undercurrents of intellectual witch hunts.
In its portrait of a man whose prescient ideas about sustainability still resonate today, The Oracle of Oil looks to the past to find a guiding philosophy for our energy future.
About the Author
Mason Inman is an award-winning journalist who focuses on energy and climate issues. He has written for National Geographic News, Science, Nature, and The Economist. He lives in Oakland, California.
February 12, 2016 | The Chronicle of Higher EducationIf there was a single event that galvanized conservative donors to try to wrest control of higher education in America, it might have been the uprising at Cornell University on April 20, 1969. That afternoon, during parents' weekend at the Ithaca...
Part of an interview of Larry Summers at Equitable Growth :... When I went to graduate school in the 1970s, the prevailing view among economists, captured by Art Okun's book "Equality Versus Efficiency: The Big Tradeoff," was that equality and efficiency were both desirable, but they were likely to trade off-that more progressive taxation would achieve more equality but would inevitably in some way distort economic choices and, so, reduce efficiency, for example.
I believe there are still many areas in which one does have to trade off equality versus efficiency. But I also believe there are many areas in which it's possible to reform policy to promote both economic efficiency and equality. One such area is policy to mitigate secular stagnation by promoting demand at times when there is slack in the use of resources.
Recall that I defined secular stagnation as having at its essence an excess of savings over investment, desired saving over desired investment. There are many reasons for that. Some of them have to do, for example, with reduced investment demand because so much more capital can be purchased with fewer dollars. I think of the fact that my iPad has more computing power than a Cray supercomputer did when Bill Clinton came into office in 1993.
One aspect of that excess in saving over investments is that rising inequality has operated to reduce spending. We are fairly confident that what economists call the "marginal propensity to consume" of those with high incomes is less than the marginal propensity to consume of those with middle incomes.
And so the combination of rising inequality in the distribution of income across income levels and a shift in inequality toward the higher profit share slows economic growth. In normal times, such a change might be offset by easier monetary policy. But in the current environment, where interest rates are very close to the zero lower bound, the capacity for that kind of offset is greatly attenuated.
There's another aspect of the connection between secular stagnation and inequality that bears emphasis. Experience suggests that in an economy where there are more workers seeking jobs than there are jobs seeking workers, the power is on the employer side, and workers do much less well. A tight economy, where employers are seeking workers, shifts the balance of power toward workers and leads to higher pay and better benefits. That, in turn, leads to more spending being injected into the economy, which supports further economic growth.
And so, as Keynes recognized when he wrote to FDR in the late 1930s urging the importance of wage increases, measures that strengthen workers' capacity to earn income by increasing spending power can promote both equality and strengthen the economic performance of the country. ...
pgl :Excellent interview with this as a key sentence:mulp -> pgl...
"But I also believe there are many areas in which it's possible to reform policy to promote both economic efficiency and equality. One such area is policy to mitigate secular stagnation by promoting demand at times when there is slack in the use of resources."
Summers makes two arguments with respect to promoting aggregate demand:
(1) his case for more infrastructure investment; and
(2) his defense of the expansionary monetary measures taken by the FED from 2008 until recently.
He does note that Obama started talking about "belt tightening" after Summers left the White House and to Summers regret.Right, in a democracy, the elected leaders must view the voters as idiots and execute to the total opposite of the expressed policies of the candidates who won.pgl said in reply to mulp ...
Or do you think the voters were calling for massive explosions of debt and massive increases in jobs forced by government policies to force exploding labor costs which would necessarily result in exploding consumer prices when they voted Democrats out and Republicans in?
Perhaps you think Bernie Sanders got far more leftist laws passed by being a radical leftist socialist in Congress able to lead a revolution in Congress to redistribute wealth?
The Republican Party is divided by Obama highly divisive politeral tactics which played Republicans against Republicans, doing a far better job dealing with Republicans than Clinton's "triangulation" which implemented massive austerity tempered by government dictates that were highly profitable to crony capitalists in the computer industry. Bush-Cheney served a different set of crony capitalists leading to an implosion in the tech sector dragging down pretty much everything good for the American people. Obama has since created incentives with rewards to both sets of crony capitalists, that has now imploded for the Bush-Cheney crony capitalists (fossil fuels) but still reward the Elon Musk, Bezos, google, hollywood, Ellison, Apple sector.
Neither Clinton nor Obama were allowed to help the bottom 50% of workers because voters demanded austerity by voting for Republican control of Congress in 1994, 1996, 1998, 2000, 2002, 2004, 2010, 2012, 2014, and if Sanders is the Democratic nominee in 2016, then Republican control of Congress in 2016, 2018, and probably 2020 and 2022. And only a Republican president will end the austerity, but it will lead to slower growth, high unemployment, likely severe recession, but wars. Just like the end of austerity of Bush-Cheney.WTF this has to do with what Summers wrote??? Never mind. So much babbling, so little time.JohnH :JohnH said in reply to JohnH..."One aspect of that excess in saving over investments is that rising inequality has operated to reduce spending. We are fairly confident that what economists call the "marginal propensity to consume" of those with high incomes is less than the marginal propensity to consume of those with middle incomes.
And so the combination of rising inequality in the distribution of income across income levels and a shift in inequality toward the higher profit share slows economic growth."
Hate to say this, but Summers is making a lot of sense.
The way to address the problem of slow economic growth is to tax the wealthy, who have a low propensity to consume, and use the funds for government programs (infrastructure, education, healthcare) and redistribution to the poor...exactly as I have been arguing.pgl should take up his fight with Larry Summers, not me.BenIsNotYoda -> JohnH...
But Summers is fairly confident...as pgl just can't accept that a) increasing inequality reduces consumption and economic growth and that b) addressing inequality by taxing high incomes and wealth would lead to increased consumption and economic growth if it was spent on social programs and redistribution to those with a high propensity to consume (the poor).
It appears the we now have two pgls here--one that support high top tax brackets and another who opposes taxing the wealthy.
Or maybe we just have a single, very confused dude!pgl's solution is - give them a rate cut. always. grandmother is ill - give her a rate cutpgl said in reply to JohnH...You do know BINY is cheating on you. Good luck getting back with granny.BenIsNotYoda -> JohnH...he is not happy because his cheap stocks are getting cheaper.JohnH said in reply to BenIsNotYoda...I already called him on demanding QE4, which he advocated as soon as stocks went into correction territory back in August.lower middle class -> pgl...
It was the same lousy economy. But as soon as stocks started to correct, and pgl's portfolio was getting hurt, he jumped right into action!I'm trying to avoid being confused.JohnH said in reply to lower middle class...
We hold the folowing as true, correct?
MPC is less than one.
"Income" refers to "disposable income"
As wealth and income rise, consumption also rises.
Falls in income do not lead to reductions in consumption because people reduce savings to stabilize consumption. (the poor get poorer by consuming wealth; wealth inequality accelerates?)
Increases in income do not lead to increases in consumption because people add to savings to stabilize consumption.
(high income people increase wealth faster the low income people while consumption increases; wealth inequality decelerates?)General propensity to consume depends on income. Wealthy people tend to save a good chunk of their incomes...and become wealthier. Most people save a very small part of their incomes (middle class) or nothing at all (poor). Obviously there are exceptions to this generalization, as pgl is quick to point out with his tearful evocations of the plight of the 'hand to mouth' rich. But the general pattern is as I have described.Peter K. :
Marginal propensity to spend is a little more complicated, and a lot depends on whether the additional money is seen as a windfall or not. For people who do not generally save much, windfalls may be saved for a while or go to pay off debt, or be spend on durable goods or just spent."In normal times, such a change might be offset by easier monetary policy. But in the current environment, where interest rates are very close to the zero lower bound, the capacity for that kind of offset is greatly attenuated."Paine said in reply to Peter K....
Larry Summers agrees with the obnoxious trolls like JohnH and BINY. Monetary policy doesn't help.
I agree with Dean Baker and Bernie Sanders. (This is not to say fiscal policy doesn't work better. Funny how the trolls always toss out red herrings.)
Paul Krugman, Larry Summers, and the Fed's Unused Ammunition by Dean Baker
Paul Krugman and Larry Summers both have very good columns this morning noting the economy's continuing weakness and warning against excessive rate hikes by the Fed. While I fully agree with their assessment of the state of the economy and the dangers of Fed rate hikes, I think they are overly pessimistic about the Fed's scope for action if the economy weakens.
While the Fed did adopt unorthodox monetary policy in this recession in the form of quantitative easing, the buying of long-term debt, it has another tool at its disposal that it chose not to use. Specifically, instead of just targeting the overnight interest rate (now zero), the Fed could have targeted a longer term interest rate.
For example, it could set a target of 1.0 percent as the interest rate for the 5-year Treasury note, committing itself to buy more notes to push up the price, and push down the interest rate to keep it at 1.0 percent. It could even do the same with 10-year Treasury notes.
This is an idea that Joe Gagnon at the Peterson Institute for International Economics put forward at the depth of the recession, but for some reason there was little interest in policy circles. The only obvious risk of going the interest rate targeting route is that it could be inflationary if it led to too rapid an expansion, but excessively high inflation will not be our problem if the economy were to again weaken. Furthermore, if it turned out that targeting was prompting too much growth, the Fed could quickly reverse course and let the interest rate rise back to the market level.
Of course, it would be best if we could count on fiscal policy to play a role in getting us back to full employment (lowering supply through reduced workweeks and work years should also be on the agenda), but the Fed does have more ammunition buried away in the basement and we should be pressing them to use it if the need arises.ExcellentJohnH said in reply to Peter K....
Despite a finessed genuflex to inflation"Larry Summers agrees with the obnoxious trolls like JohnH and BINY. Monetary policy doesn't help."JohnH said in reply to Peter K....
Amazing, isn't it?
Agreed: "Of course, it would be best if we could count on fiscal policy to play a role in getting us back to full employment." And the best course is higher taxes on the wealthy, who have more than what they know with to do with.
Taxes on the wealthy directly tackles inequality, increased debt doesn't.Amazing how unconventional monetary is always the go-to option. Pessimism about the effectiveness of the Fed's policy options is well warranted. You only need to look at the results of the last seven years.pgl said in reply to JohnH...
So why not advocate unconventional fiscal policy...which at this point would include taxing the wealthy to fund stimulus? Why constantly flog the debt option, which does nothing to directly tackle inequality?You need to shut up and go read that Ando-Modigliani paper on consumption. Once again you got everything exactly backwards. But then you are the dumbest troll ever.JohnH said in reply to BenIsNotYoda...pgl was against tax increases on the wealthy... before he was for tax increases on the wealthy...before he was against tax increases on the wealthy...PPaine :
but he has always been for lots more debt..." one persons rent may be another persons incentive "
That relies on a muddled use of the term rent
Which by construction
non supply regulating revenue or income
But still a point lies under that mud dimness of articulation
Separating rents from incentives ain't easy
But in the last analysis
Very often it's very doable
Take my specialty
There are clever ways to tease out the rent
New Deal democrat :On the specific point of the artilce, this strikes me as a similar theory to Minsky's "stability breeds instability" theory. Also I seem to recall Prof. Thoma posted an article showing that the tightness or looseness of credit conditions were a good long leading indicator of conditions about 2 years later.Ben Groves -> New Deal democrat...
As an expansion goes on, both businesses and consumers take increasing risks, having been previously rewarded for risks taken. Thus they leave less and less of a margin of safety. This makes it easier for any given shock to overcome that margin, causing both businesses and consumers to retrench. Thus a recession begins.
I'm not sure about businesses, but consumers have been playing it safe throughout most of this recovery, with the personal savings rate increasing over the last few years. So, relatively speaking, for now consumers have a decent margin of safety.Right, but the personal savings rate fell well out of line in the 00's and actually contracted in 2007-8. More like restocking than playing it safe.likbez -> New Deal democrat...In addition gas prices are still low.likbez -> New Deal democrat...On the specific point of the article, this strikes me as a similar theory to Minsky's "stability breeds instability" theory.
And that is deeply true. Minsky (actually this is Hegel) was and still is right.
Hyman Minsky simply stressed that people's response to stability in financial markets always engenders instability as it encourages more risky behavior. Such behavior is not necessarily irrational, as there are profits to be earned and bonuses to collect as long as the good times last.
In fact, the cycle may extend as long as credit flows and people are hungry for risk. Yet according to Minsky's casino capitalism credit cycle always heads inexorably toward a bust.
At some point risk and reward became out of whack and people start reposition their portfolios defensively, increasing cash allocations. At this point house of cards folds.
February 08, 2016 | economistsview.typepad.com
It is certainly appropriate to question the condition and longevity of this 'recovery,' which was never experienced by most Americans, whose incomes are mired back where they were two decades ago.
Can we infer by all this that liberal economists are finally becoming reflective about the Fed's failure to ignite growth? Old nostrums die hard.
Unfortunately, all this obsession with miniscule rate changes has obscured the need for the Fed and politicians to make significant changes, so that the benefits of low rates are felt throughout society, not just by Wall Street, the wealthy, and affluent homeowners with mortgages.
And, instead of constantly arguing against austerity, why not aggressively tout high taxes on the wealthy to pay for stimulus, which would generate economic growth and address inequality in one fell swoop!
JohnH said in reply to djb...
djb is obsessed with "the rate."
Why not get obsessed with the fact that the Fed could not stimulate new rental housing, despite historically low mortgage rates? As a result of the housing shortage, rents are skyrocketing, sucking up incomes, already hit hard by the unending recession. Result: less money available for consumption, more money into the pockets of real estate moguls.
Why not obsess about real credit card rates, which are higher than they were in 2007? Result: less money available for consumption, more money to VISA and its share holders.
But no, 'liberal' economists obsess only about "the rate," which affects almost nobody but Wall Street banks, their wealthy clientele, and affluent mortgagees.
Let's face it, the Fed has failed in part because low rates and their effects failed to trickle down much. But 'liberal' economists could care less about this. All they care about is "the rate!"
If 'liberal' economists cared half as much about why low rates are not diffusing throughout the economy as they care about "the rate" for Wall Street, then we could believe that they care about the general welfare, not the interests of the 1%.
Almost all technology stocks are getting hammered yet again on Monday. Salesforce.com (CRM) was down 6% while Facebook (FB) and Microsoft (MSFT) had lost 3%, for example, in morning trading.
And while many see it as a continuation of Friday's rout sparked by LinkedIn's (LNKD) weak outlook for the rest of the year, the damage has been piling up for weeks. Investors are fleeing almost all tech names over concerns about the slowing global economy in general and a reassessment of the potential growth of online and "cloud" markets more specifically.
LinkedIn, pummeled by an unprecedented 44% one-day loss Friday, was one of the few tech stocks rising on Monday, as bargain hunters pushed its shares up 3% in early trading. Still, the shares have lost more than half of their value since the end of 2015.
The widespread tech crash is all the more surprising because almost everyone thought there was no bubble in the tech sector. Last year's market for initial public offerings of tech companies was the slowest since 2009 (and performed poorly throughout the year), slightly more seasoned public tech companies appeared to have already crashed last spring and most of the big tech companies, such as Apple (AAPL), IBM (IBM) and Cisco Systems (CSCO), trailed the market and appeared undervalued by historical measures. Only the so-called FANG stocks -- Facebook, Amazon (AMZN), Netflix (NFLX) and Google's Alphabet (GOOGL) -- did well, with an average return of 83% each in 2015.
But, it turns out, there was still plenty more downside risk to go around. LinkedIn is still off by more than 40% since it reported earnings after the market closed on Feb 4. Although fourth quarter adjusted earnings per share of 94 cents and revenue of $862 million beat the average Wall Street analyst estimate, the professional social networking company said it would earn only 55 cents on revenue of $820 million in the next quarter. And for the full year of 2016, revenue of $3.6 billion to $3.65 billion was less than the $3.9 billion Wall Street had been expecting.
Such a modest disappointment has sparked a massive reassessment of the potential for many Internet stocks. With investors in a panicky mood, the carnage has spread across much of the tech sector but stocks with online business strategies similar to LinkedIn's have been hit especially hard. Workday (WDAY), which provides online software for human resources, was down 7% midmorning on Monday and 37% for the year. Twitter (TWTR) lost 4% and was down 35% for the year. And Adobe Systems (ADBE) was off 5% on Monday and 20% for the year. A daily index compiled by venture capital firm Bessemer Venture Partners of 47 publicly traded cloud software stocks lost 17% just on Friday.
And those famous FANG stocks? They're all down in 2016, as well. After its 3% Monday drop, Facebook was still best of the bunch, showing a modest 4% loss for the year. Amazon was also down 3% on Monday but carries a crushing 28% loss for the year. Netflix was a rare gainer, up 1%, but still off 27% for the year. And Google was down 1% on Monday and 11% for the year.
Zero HedgeJust over two weeks ago, JPM's Marko Kolanovic, whose unprecedented ability to predict short-term market moves is starting to seem a little bizarre, warned that the next "significant risk for the S&P500" was the bursting of the "macro momentum bubble." Specifically, he said that there is an emerging negative feedback loop that is "becoming a significant risk for the S&P 500" adding that "as some assets are near the top and others near the bottom of their historical ranges, we are obviously not experiencing an asset bubble of all risky assets, but rather a bubble in relative performance: we call it a Macro-Momentum bubble ."
In retrospect, following tremendous valuation repricings of several tech stocks, last week's LinkedIn devastation being the most notable, he was once again right. And over the weekend, he did what he has every right to do: take another well-deserved victory lap.
This is what he said in his February Market Commentary: " Tech Bubble Burst ?"
In our 2016 outlook and recent reports, we identified a macro momentum bubble that developed over the past years. We explained its drivers (central banks, passive assets/momentum strategies, etc.) and called for value to outperform momentum assets. We also highlighted the risk of a bear market and recommended increasing exposure to gold and cash as well as increasing exposure to nondollar assets relative to the S&P 500 (EM Equities, Commodities, Value Stocks, etc.). Our view was that a likely catalyst would be the Fed converging toward ECB/BOJ (rather than proceed with planned ~12 rate hikes by end of 2018). In line with these published forecasts, the best performing assets YTD have been Gold (+9%) and VIX (+20%) while S&P 500 and DXY are down (-7%, and -2%, respectively). Momentum stocks are down more than 10% with an acceleration of the selloff in last days. Emerging Market and Energy stocks are starting to outperform the S&P 500 (MSCI Latin America by +5% and Energy by +1% vs. S&P 500 YTD). This specific pattern of asset moves is consistent with a Value-Momentum convergence. We think the outperformance of value assets over momentum assets is likely to continue .
Investors often ask us how significant are distortions and risks in equity sectors that are related to a "macro momentum bubble." Specifically, the question is that of valuations in the Technology sector, i.e., "is there a Tech bubble"? Before we share our views, let's first review how passive investing and momentum strategies may have impacted performance of various equity sectors.
Imagine a world in which most of the assets are passively managed and investors are focused on liquidity and short-term risk/reward. Companies that increased in size recently would keep on increasing, and those that got smaller would see further outflows. Past winners would also be considered low-risk holdings compared to past losers. The most successful managers would be those that replace fundamental valuation with a simple rule: buy what went up yesterday and sell what went down. Passive funds would do the same. It is hard to imagine this makes economic sense long term, but it is close to what equity markets experienced over the past several years. In 2013, the Sharpe ratio of the S&P 500 was ~2.7. Assuming a normal distribution of active asset returns, one could (incorrectly) conclude that being just an average (passive) investor one will outperform ~95% of all active investors. In 2014 and 2015, various momentum strategies delivered Sharpe ratios >2. The winning strategy was not just to go with the crowd, but to do what the crowd did yesterday. This type of trend following does not only apply to extrapolating price trends, but also extrapolating trends in fundamental stock data such as growth and earnings. Beyond a certain point, passive investing and trend following are bound to result in distorted equity valuations and misallocation of capital.
While some parts of the Technology sector certainly have reasonable and even low valuations (see our US equity strategy outlook), segments of the Tech sector disproportionally benefited from momentum investing as well as investing based on extrapolation of past growth rates . For instance, a popular group of stocks held by investors is known by the abbreviation "FANG" (Facebook, Amazon, Netflix, Google). We use these stocks as an illustration for a broader group of similar stocks that have the highest rankings according to momentum and growth metrics (and surprisingly in some cases even low volatility metrics). Given that traditional value metrics look expensive when applied to this group, one can compare these momentum/growth companies on a new set of metrics. For instance, one can look at the ratio of current price to earnings that the company delivered over all of its lifetime (instead of just the past year). Another metric could be a ratio of CEO or founder's net worth to total company earnings delivered during its lifetime (see below):
Aggregating all FANG earnings since these companies were listed, one arrives at a ratio of current price to all earnings since inception of ~16x. This can be contrasted to a ratio of price to last years' earnings for all other S&P 500 companies also at ~16x. We think this is extraordinary given that FANGs are neither small nor new companies. In fact, these are some of the largest companies in the S&P 500 and among the largest holdings of US retirees. Given that the three largest FANG stocks are now twice more valuable than the entire US S&P small-cap universe (600 companies), a legitimate question to ask would be " is such a high allocation by long-term investors to these stocks prudent?" Statistically, over a long period of time smaller companies outperform mega-caps ~75% of times. Note also that the current size ratio of mega-cap stocks to small-cap stocks is at highest level since the tech bubble of 2000. Furthermore, such allocation is also questionable from a risk angle . For example, the idiosyncratic risk of holding three stocks in one sector is certainly much higher than the risk of owning, e.g., ~1,000 medium- or small-cap companies diversified across all sectors and industries.
Investors in high-growth stocks expect innovations to drive growth and sustain high valuation. They may even put their hopes in moonshot projects such as cars built by electronics makers, car makers building spaceships, or internet companies building drones. While many of these could result in important technological breakthroughs, they may also be signs of excess and destruction of shareholders' capital in the future. Recent examples of capital impairment in the tech sector are illustrated here and here, and more peculiar examples of past excess can be found here and here. In addition to extrapolated and often optimistic growth forecasts, some of the tech sub-industries have high idiosyncratic risks that are likely underappreciated by the market. Standard valuations models incorporate revenue, growth, and profit forecasts but often do not discount for the lifecycle risk of a business. To illustrate: while we are still traveling in aircraft designed over 40 years ago, social network users' preferences have changed drastically over the past decade (e.g., Friendster and Myspace). A shorter lifecycle is related to low barriers to entry and rapid changes in what is deemed fashionable by young generations (e.g., one cannot build a jetliner in a dorm room, and they don't go out of fashion as apps do).
In summary, we think that the biases of momentum investing and passive indexation have resulted in valuation distortions across assets as well as equity segments including Technology . Over the past years this trend has picked winning assets, sectors, and stocks often with less regard to fundamental valuation and more regard to momentum and extrapolated growth. We believe that 2016 may result in a reversion of this trend that will give an opportunity to active and value investors to outperform passive indices and momentum investors . Even if this rebalancing comes as a result of market volatility and broader equity declines, long term it will benefit capital markets and the efficient allocation of capital .
* * *
Only problem is that this capital reallocation will means countless momentum chasers 'smart money managers' will be out of a job in very short notice.
Then again, judging by some initial reactions, even formerly steadfast believers in the FANGs are starting to bail: moments ago CNBC reported that Mark Cuban announced that he purchased options to sell against his entire stake in Netflix, to wit: "For those of following my stock moves, I just bought puts against my entire Netflix position. "
Cuban posted comments on Cyber Dust social media platform on Friday. Result: NFLX already down -4%, with FB and other tech momos hot on its heels.
In his latest quarterly outlook, Grantham, cofounder and chief investment officer at GMO, outlines his views on the markets and the economy.
And in somewhat of a contrast to his recent commentary, sees the oil crash as a big tailwind for the economy and doesn't think the stock market, though it is expensive and potentially heading into a bear market, is going to crash.
"Looking to 2016, we can agree that uncertainties are above average," Grantham writes.
"But I think the global economy and the U.S. in particular will do better than the bears believe it will because they appear to underestimate the slow-burning but huge positive of much-reduced resource prices in the U.S. and the availability of capacity both in labor and machinery."
Grantham adds (emphasis ours):
As always, though, prudent investors should ignore historical niceties like these and invest according to GMO's rather depressing 7-year forecast. The U.S. equity market, although not in bubble territory, is very overpriced (+50% to 60%) and the outlook for fixed income is dismal.
At current asset prices no pension fund requirements can be met. Thus, we should welcome a major market break that will leave us with more reasonable investment growth potential for the longer term, but I suspect that we will have to wait patiently for such a major decline.
The ability of the market to hurt eager bears some more is probably not exhausted. I still believe that, with the help of the Fed and its allies, the U.S. market will rally once again to become a fully-fledged bubble before it breaks. That is, after all, the logical outcome of a Fed policy that stimulates and overestimates some more until, finally, some strut in the complicated economic structure snaps. Good luck in 2016.
OK, so maybe not bullish, per se, but Grantham is definitely sounding the alarm on not sounding the alarm on a stock market bubble and resulting crash.Stocks
Over the last 18 months, stocks are basically flat in what has been by far the most difficult period for investors since the financial crisis.
And this period has really been defined by three things: a crash in oil prices, a continued and relentless slowing of the Chinese economy, and a change in Federal Reserve policy.
On top of all this is the decline in profit margins, which Grantham has called the "most mean-reverting series in finance," implying that the long period of elevated margins we've seen from American corporations is most certainly going to come an end. And soon.
Profit margins are near record highs, and Grantham expects them to fall.
In Grantham's view the Fed holding off on raising rates all the way until December 2015 staved off what could have been a really disastrous year for stocks given the weakness in oil prices and anxiety over China's economy.
And continued assistance from the Fed is likely to send stocks higher, or at least stabilize them somewhat.
The question, then, is whether this sends stocks into a "blow-off-top" where, as Grantham outlines, you'd expect to see a two-standard-deviation event with stocks rocketing higher and the S&P 500 heading to 2,300 before the big crash.
"I must admit to feeling nervous for this year's equity outlook in the U.S," Grantham writes. "But I am not entirely convinced. Sure, we can have a regular bear market. That is always the case. But the BIG ONE? I doubt it."
In addition to not being (overly) concerned with the prospects of a new stock market crash, Grantham also thinks we're about to see the good side of the oil crash that has been a long-awaited part of the US economic narrative in the last year.
"The largest hits from the major oil company responses are behind us, although at $30/barrel (and maybe less) there will be some further retrenchment," Grantham writes.
The oil crash, charted.
He adds: "And now comes the matching response from us, the consumers. Everything we buy has cheaper input costs. The major item of gasoline purchases is a steady jolt of encouragement. Heating bills are also much lower. Could there be a better financial input than this to the group that has been hurting for 30 years - the median wage earner? Not easily."
This is good!
Everything, it seems, is getting cheaper, and according to the latest data out of the BLS released Friday, our paychecks are getting bigger as average hourly wages grew 2.5% over last year in January, roughly matching the largest increase of the current economic cycle (December's gains were revised higher to show annual growth of 2.7%.)
But Grantham goes a step beyond the standard, "Low oil means more spending for consumers" line of thinking (which is why he's one our favorite market thinkers to track).
Grantham further argues that increasing commodity prices, as much as anything else, have been and will be factors ahead of recessions.
Because while 2008 was all about the crash in housing and the stress at major banks, the rapid rise in oil prices and other commodities stressed consumers as much as anything else, in Grantham's view.
And just as this rise was overlooked eight years ago, the crash in prices and the delayed - but positive - feedback to consumers and the economy has been forgotten by the market.
But the benefits are coming. Now.
"Market opinion now, though, impressed with the early negatives that it should have expected and because the offsetting stimulus effect is delayed and weakened initially by some understandable increases in savings, is doing the opposite," Grantham writes.
"[The market] is underrating what will very likely become an important economic tailwind for the next several quarters. Reflecting current opinion, Luke Kawa, a writer for Bloomberg reviewing the oil situation claims, 'One of the biggest surprises in economics has been how the world responded to a period of lower energy prices.' Well, the economic world is easily surprised."
Read Grantham 's full note here " gmo.com
Zero HedgeThe following reader comment, posted originally in the FT is a must read, both for the world's lower and endangered middle classes but especially the members of the 1% elite because what may be coming next could be very unpleasant for them.
Elites have lost their healthy fear of the masses
Sir, Martin Wolf (" The losers are in revolt against the elite ", Comment, January 27) and Andrew Cichocki ("Elites are listening to the wrong people ", Letters, January 29) skirt the key issue: global elites have lost a healthy sense of fear.
From the time of the French Revolution until the collapse of communism, what successive generations of elites had in common was a sense of fear of what the aggrieved masses might do . In the first half of the 19th century they worried about a new Jacobin Terror, then they worried about socialist revolution on the model of the Paris Commune of 1871. One reason for the first world war was a growing sense of complacency among European elites. Afterwards they had plenty to worry about in the form of international communism, which remained a bogey until the 1980s.
With the collapse of the Soviet Union and the spread of global capitalism, today's elites have lost the sense of fear that inspired a healthy respect for the masses among their predecessors . Now they can despise them as losers, as the aristocracy of ancien régime France despised the peasants who would soon be burning their châteaux. Surely today's elites are going to learn how to fear before we see any reversal of the recent concentration of wealth and power.
Is it time for pitchforks to restore the natural orders of fear yet?
h/t @ WallStCynic
… Is it time for pitchforks to restore the natural orders of fear yet?
Oh, honey, I thought you'd never ask… ;-)
How they turned us into Pavlov Dogs >> http://wp.me/p4OZ4v-1zD
Stuck on Zerotarabel
It's hard to get rid of most of the elites because they have tenure.bamawatson
And most people wouldn't have the faintest idea of where to buy, or more probably rent, a pitchfork anyhow. As for torches? What, are you crazy? Those things are dangerous and would void our insurance policy.MayIMommaDogFac...
will goldman sucks n shitty bank loan me money to purchase a pitchfork? http://theconservativetreehouse.com/2016/02/03/update-fec-informs-ted-cr...rocker
REALLY LONG pitchforks!
I'd like a Cattle Prod. You got to believe Homeland is reading this one.
Elites are afraid of socialism and communism?!
The Elites are the ones who created and spread such collectivism because collectivism is how they control the masses, and they make the masses think they are afraid of it so that the masses will demand it. The masses demand to be enslaved by socialism and communism. They are being played.
Elites only fear the free-market. That is why we don't have one.
It really doesn't matter what *ism society embraces. What matters more is is the power elite greedy enough to sell out their own kind?
If you think that freedom is just another ism, then you have been played.
It is not about greed. It is about power and control. Money is just a means to that end.
Their own kind? You mean their own race ... their own nation ... their own religion ... ?
Nice, but a little quick donchathink?
And a roasting spit and rope to tie em by the ankle to the cherry trees lining the national mall, Musollini style. Urinals hanging from cherry trees. Only in America.
One does wonder how inbreds surrounded by expensive advisors so easily lost any shred of fight-o-flight survival skills. Guess the extra bling allows them to dream false dreams.
The ones who think they are 'top dog' are about to find out the hard way, there is something much bigger at work...
"6. The people, under our guidance, have annihilated the aristocracy, who were their one and only defense and foster-mother for the sake of their own advantage which is inseparably bound up with the well-being of the people. Nowadays, with the destruction of the aristocracy, the people have fallen into the grips of merciless money-grinding scoundrels who have laid a pitiless and cruel yoke upon the necks of the workers.
7. We appear on the scene as alleged saviours of the worker from this oppression when we propose to him to enter the ranks of our fighting forces - socialists, anarchists, communists - to whom we always give support in accordance with an alleged brotherly rule (of the solidarity of all humanity) of our social masonry. The aristocracy, which enjoyed by law the labor of the workers, was interested in seeing that the workers were well fed, healthy, and strong. We are interested in just the opposite - in the diminution, the killing out of the goyim. Our power is in the chronic shortness of food and physical weakness of the worker because by all that this implies he is made the slave of our will, and he will not find in his own authorities either strength or energy to set against our will. Hunger creates the right of capital to rule the worker more surely than it was given to the aristocracy by the legal authority of kings.
8. By want and the envy and hatred which it engenders we shall move the mobs and with their hands we shall wipe out all those who hinder us on our way."
freak of nature
Fear might be masked, but it's still there.
http://www.rense.com/general45/proto.htm - they're fake.
The thing is that there are going to be a LOT of folks who thought they were elites. Instead they will be thrown under the bus of the approaching hoards to slow them down while the real elites make sure no one escapes that shouldn't be.
They no longer fear the masses as they control the cops and the narrative. What will really work and is almost unstoppable is the ghost in the machine. Seemingly random acts of sabotage, just think if the internet went down for even 2 or 3 days. Who would it hurt most, average folk or ? I have a dream...
Sternly worded letters will be flying thick and fast.
A torch might mess up my nails
And you'll need new shoes cause those definitely don't match.
Lol those guys are so blackwater.... It is illegal to have a standing "army" on 'murrican soil. Private for hire jagoffs arent. And no, it wasnt the national guard.
60% of the people who live in Burns work for the BLM.
I think Pitchforks are way too tame. If this patriot lived today he would be decalared a TERRORISTThe First Hero of the American Revolution
" Surely today's elites are going to learn how to fear before we see any reversal of the recent concentration of wealth and power."
Surely, you jest. The proles won't attack the elites. They won't be able to find them, or get to where they live.
Tyler(s), you need to stop posting such meaningless tripe. When the serfs rise up, they will attack what is around them. As always.
bbq on whitehou...
The internet doesnt forget or forgive transgressions. Sins of the father shall be paid for by their sons.
"Where are you going to run, where are you going to hide; no where because there is no where left to run to." - Body snatchers
I think you are correct so far as you take your argument. Yes, they will START on their own neighborhoods.
The depth of the fall can be graphed against how far they will go afterwards.
Then we just cut their supply lines.
It is our son's and daughter's who protect the elitist assholes. We know where they built their bugouts and landing strips. We built them. We know where the air vents are for their underground bunkers. We built them. We know where the diesel tanks are to power their generators and you can't hide solar panels. No, we know where there going and how to get to them. Soon!!
Now you know why the hawaiian's, when they sent a worker down the side of a cliff to bury the chiefs bones in that space reserved for the Ali'i, they "accidently" let go of the rope while he was climbing back up...oopppps, sorry bout 'dat brah.
"The proles won't attack the elites. They won't be able to find them, or get to where they live."
Oh you mean like the French Revolution or the Chinese Revolution? Like that?
No, the proles do little of substance. But, the time is reached when even their paid off guard dogs will be tired of the insanity that destroys their own extended families. (The psychopaths can't help but push it to the extremes. That is their egotistical nature. Theyve been indulged since they were infants.) When that day of reckoning comes, the criminals will be very afraid.
The EU 'leadership' bringing in massive outside foreign populations to destroy the existing culture and nation-state is a potential match for the fuse of anger. We see police carrying out orders, but what do they really think ? How bad will they let it get ? Even the Red Army troops refused to go along with it all when the grandmas scolded them for taking part in rolling the tanks toward their own people. And those troops said "Nyet, no more of this." And the USSR was no more.
Maybe they haven't played a lot of sims?
I used to love the old sims of feudal japan where you could set your tax rate at whatever you wanted but the higher you set it the more likely you would get a peasant revolt.
What's going on is precisely this:.....
They have learned how to set the tax rate at whatever percentage won't cause utter chaos and then absolve themselves from said taxes through loopholes AND THEN add on top stealth taxes in the form of currency debasement AND THEN on top of all this they've built a ponzi scheme debt based fiasco that is entirely unsustainable.
I gotta hand it to them they have managed so far to avoid the ire of the peasant class, however methinks that once this shit show rolls into town and starts playing nightly as in reality comes a callin then these same folks are going to need to hide off planet.
Seriously I'd advise them to look into space travel.
The elites today were related to the elites of yesterdays revolutions
They have learned and are keeping track of everything and with the advent of big data and lots of computing power, they know how much time they have before SHTF.
They have quants assessing risk daily, and not just market risk..geopolitical and other stuff.
They dont fear us because they know they can keep ramping up poisoning of our food and other stupid social media gimmicks.
If all else fails, the jackboots will come out in full force.
They've been testing and training these detention methods for close to 100 years. From the gulags of Russia to the West Bank / Gaza strip today of Israel.....its being tried and trued.
And we're next!
The past nine months have set record monthly background checks. I believe we as a "group" know and feel our existence is in danger, and are responding accordingly.
Certainly a patriot CANNOT do it through the ballot box,
Iowa: Days before the Iowa caucuses in 2012, Ron Paul held a commanding lead in the polls and all the momentum, with every other candidate having peaked from favorable media coverage and then collapsed under the ensuing scrutiny. Establishment Republicans, like Iowa's Representative Steve King (R), attempted to sabotage Paul's campaign by spreading rumors he would lose to Obama if nominated. . . Iowa Governor Terry Barnstad told Politico , "[If Paul wins] people are going to look at who comes in second and who comes in third. If Romney comes in a strong second, it definitely helps him going into New Hampshire". The message from the Iowa Governor to voters of his state was: a vote for Ron Paul was a wasted vote.How t he Republican Party Stole the Nomination from Ron
The RNC and their minions would have prevented a Ron Paul pesidential nomination, by any means necessary - up to and including a terrible, just terrible, plane crash. All those lives lost....
They DID prevent the nomination by any means necessary...and did so, short of crashing a plane. The underhanded shit they pulled in '12 sealed their fate. Kirk2NCC1701
In that case, the Libertarian Party needs to go "full Zio-mode": Take no BS and no prisoners.
Problem is, they are too "individualistic" (divided, heterogenous), and too 'Christian' (raised in "Religion of Serfs") to create another American or French Revolution, or bring about real change.
Note that in the American Revolution, its Founders realized that the influence of Clerics needed to be curtailed, and so they invented the "Seperation of Church and State". The French, OTOH, called a spade a spade, and got rid of the Church completely.
Amerika: Where kids are taught by their parents to believe in the Tooth Fairy, Easter Bunny and Santa Claus -- all the while they believe in "Santa for Grownups", i.e. Winged Nordic Humans (Angels) and a Sky God.
I have ZERO faith that Libertarians will do anyting, other than talk, blog, hold meetings, conventions, have weekend warrior games, or buy any number of Doomsday Products and Services. IOW.. they'll do anything and everything, but March or Protest en mass. They won't even do TV program, much less do a leveraged buyout of a TV channel.
Like I said: "Too individualistic, to truly matter to TPTB". I WISH it were not to, but I'm just calling it as I see it. Alas. If I'm wrong, I'll jump for joy and click my heels.
BTW - Fuck Iowa
And thank you Stanford for Stomping them in the Rose Bowl
Pitchfork Voting Machines
Do they have to get off the sofa or can they just send it in on Instagram?
Faber: Can't see another bull market in my lifetime
Jacob Pramuk | @jacobpramuk
Wednesday, 27 Jan 2016 | 10:12 AM ET
The world according to Faber</p> <p>Marc Faber, The Gloom, Boom & Doom report, joins Fast Money to give his take on the current market conditions.
Emerging market stocks will outperform U.S. equities when another bull market comes, noted bear Marc Faber contended Tuesday. But Faber sees one problem - he believes markets will not enjoy another bull run in his lifetime.
Still, the Gloom, Boom & Doom Report publisher sees a potential recovery for some emerging market economies, particularly Russia and Brazil, which have endured a recent slowdown.
"There are some that are extremely depressed that could have large rebound potential," Faber said during a Tuesday evening panel discussion at the ETF.com Inside ETFs conference in Hollywood, Florida.
Stock prices have broadly fallen worldwide this year, with lower commodities prices and fears of a global slowdown contributing to investor concerns. Economies dependent on natural resources have been hit particularly hard. Brazil and Russia, once stars of the emerging world, have been damaged by oil as well as political issues.
While Faber has made a name on pessimism, he contended that bright spots for potential growth still exist in emerging markets. He pointed to Cambodia and Vietnam, among other Asian economies.
Mark Yusko, chief executive officer of Morgan Creek Capital Management LLC.
Guy who called $30 oil year ago has more bad news
"I wouldn't take an across-the-board negative view about emerging economies," Faber said.
Another investor on the panel Tuesday stressed that market watchers should not package all emerging economies into one basket. Marten Hoekstra, CEO of Emerging Global Advisors, is particularly optimistic about growth prospects for India, the world's second-most populous country.
His funds have attempted to benefit from consumer demand there through consumer discretionary and staple stocks, as well as health care, telecom and utilities companies. While Emerging Global's India Consumer ETF (INCO) has fallen this year, Hoekstra touted its prospects for long-term investors as consumer spending power grows in India.
Bill McNabb, chairman, president and CEO of Vanguard Group
Vanguard CEO: Expect less from stocks for a decade
He stressed that the Indian economy does not rely on oil or natural resources, which reduces its downside risk if the commodities crunch persists.
"If you're generally negative on oil, you're probably bullish on India," Hoekstra said.
Mark Yusko, founder and CEO of Morgan Creek Capital Management, said during his annual "bold predictions" talk on Monday that India had attracted his attention and would perform better than most emerging economies.
Despite Hoekstra's optimism, widely followed commodities commentator Dennis Gartman, who was also on the panel Tuesday, said that he had no immediate plans to invest in emerging market economies.
"It is the continued reliance upon commodity prices that causes me a great deal of concern," he said.
Gartman contended that corruption in some emerging market governments reduces the safety of investing in those locales.
By Perry Mehrling, a professor of economics at Barnard College. Originally published at his website .
In his recent paper, "A Lost Century in Economics: Three Theories of banking and the conclusive evidence" , Richard Werner argues that the old "credit creation theory" of money is true (empirically "accurate"), while both the newer "fractional reserve theory" and the presently dominant "debt intermediation theory" are false. For him, this matters mainly because the false theories are guiding current bank regulation and development policy, leading down a blind alley.
But it matters also simply because we need correct understanding of how the economy actually works, "we" meaning not just economists but also the general public. "Today, the vast majority of the public is not aware that the money supply is created by banks, that banks do not lend money, and that each bank creates new money."
Why is the public ignorant of the truth? Much of Werner's paper is devoted to an account of how the correct theory was pushed out of the conversation, first in the 1930s by the fractional reserve theory, and then after WWII by the debt intermediation theory. One culprit was a shift toward deductive and away from inductive methods. Another culprit, he suggests, was the self-interested "information management" by central banks, i.e. direct suppression of truth in their own publications. And in this suppression, he further suggests, Keynesian academics were at the very least complicit: "attempts were made to obfuscate, as if authors were at times wilfully trying to confuse their audience and lead them away from the important insight that each individual bank creates new money when it extends credit."
In this history, Werner gives special attention to Keynes himself since Keynes seems to have held each of the three theories in succession throughout his life. Keynes' own intellectual trajectory thus foreshadows the subsequent evolution of monetary thought, and so probably is partly responsible for leading successive generations astray. Just so, one apparent legacy of Keynes is that the Bank of England is currently holding all three theories at the same time! "Since each theory implies very different approaches to banking policy, monetary policy and bank regulation, the Bank of England's credibility is at stake." BoE credibility is thus a third reason that all of this matters.
But is it really true, as Werner claims, that these three theories are "mutually exclusive"?
He is at considerable pains to show that they are mutually exclusive, by using a succession of stylized balance sheet examples. The credit creation theory says that banks make loans by creating deposits, essentially expanding their balance sheets on both sides by the same amount. (The borrower of course also expands his own balance sheet, the loan being his liability and the deposits being his asset. In my own "money view", I call this a swap of IOUs.) In this way, money (bank deposits) is created that was not there before.
By contrast, the debt intermediation view says that banks make loans by lending reserves that they are already holding, essentially swapping one asset for another, these reserves having previously been obtained by someone's deposit. The balance sheet expands when the deposit is made, not when the loan is made. Banks merely intermediate between savers and borrowers, and do not create money.
In between these two views, the fractional reserve view says that individual banks make loans by lending reserves, but that the banking system as a whole can and does create money, up to a multiple of reserve holdings. The banking system does create money, but only after and as a consequence of the central bank increasing reserves–this is the famous "money multiplier".
So the difference between the theories seems clear, and it also seems like that difference should be testable empirically simply by watching actual bank balance sheets and seeing what happens when a loan is made. Does the balance sheet expand or does it not? With the cooperation of an actual bank, Werner books a dummy loan and finds that the balance sheet of the bank does in fact expand. This he takes to be scientific proof that the credit creation theory is correct and the others are false.
Not so fast. Let's look a bit closer.
Let me begin by admitting my sympathy for Werner (as I have already hinted by mentioning my own "money view" as a version of the credit creation view). In fact, Werner's heroes–H.D. McLeod and Joseph Schumpeter–are my own heroes as well, and I suspect that graduate school exposure to these authors sent him off on his own intellectual journey just as it did me. Even more, thirty years after that initial exposure, I find Werner's (co-authored) money and banking textbook "Where Does Money Come From?" one of the best introductions to the subject. Last fall I assigned Chapters 2 and 4 in the first two weeks of "Economics of Money and Banking" which I teach at Barnard College, Columbia University. I'm sympathetic.
But I don't think these three theories are quite as mutually exclusive as he makes them out to be.
For me, the central analytical issue is the distinction between "payment" and "funding" .
Let us suppose, with Werner, that Citibank makes a mortgage loan to me of $200,000, simply by swapping IOUs. I then transfer my new asset (the new Citibank deposit) to you, and you transfer your house to me. As my payment clears, you have a new deposit in your own bank (let's say Chase, to make it interesting), Citibank has a "due to" at the clearinghouse, and Chase has a "due from". Again, to make it interesting, let's suppose that Citibank has no reserves, so it enters the interbank market to borrow some, from Chase. At the end of the day, what we see is that the Citibank balance sheet is still expanded, so is Chase's, and so is mine. Only your balance sheet stays the same size, since you have swapped one asset (your house) for another (money). That's the payments perspective.
What about the funding perspective? If we follow the balance sheets through, it