In The USA: the Next Revolution [Archive] - Page 2

Bill Moore

09-18-2011, 11:22 PM

"All happy (societies) resemble one another, each unhappy (society) is unhappy in its own way." - Leo Tolstoy

Steve, I digress, but couldn't help but focus on this quote. I don't have a clue how the social scientists measure national happiness, but according to their studies some of the happiest people in the world are in Mexico, the corrupt and largely dirt Filipinos are as happy as we, etc. I think a lot of that can be traced to culture, valued family relationships, a slower pace of life, less expectations, etc.. However, what I started thinking about deeply is what does America have to offer the world? Is our system really that great now? Our schools on average suck, and it isn't just the teachers, but the kids are undisciplined due to family issues that is the real underlying factor. We have more people in jail than any other country besides China. Our media is a mix of a few great programs and a lot of so called reality trash that exposes a society with shallow or no values (although no one does a reality program focused on strong families, and people dedicating their lives to worthwhile causes). Our economic system is currently in crisis not because of government, but due to unethical decisions made by bankers (and some in Congress who supported this) and the like simply based on personal greed. CEOs that push for layoffs to maximize profits (no loyality to their people at all) and personal year end bonuses is another problem. As a society we may value money and the things it can buy (apparently not happiness) too much, our value system centers around commericialism (obvioulsy with lots of exceptions, but our government pushes this to sustain our businesses, what was President Bush's advice after 9/11? Go shopping!). I could on and on with inner city rap music, the pervasive drug culture, gang violence, etc., because we're largely a nation of drifters looking for the next short pleasurable experience.

I really think we need to take a step back and watch ourselves as others see us, and then think about why they may not want to adopt our form of government and economic models. If we observe how others think about us, we may learn some unpleasant truthes about ourselves that we rather not be aware of but need to be aware of. At that point we may decide to be a lot less arrogant about spouting off who is and who isn't on the right side of history, and modify our foreign policy appropriately. The so called metric of success if how many around the world still desire to come to America to experience the dream. When a large number believe in it, then you have a population that can be mobilized in that country to transform their system, but not before then.

Our economy is in deep trouble, and there is little the politicians could do to speed the recovery up other than creating temporary illusions of progress with incentive programs. If we continue to focus only the economic issues, then it will be easier to mobilize people to act violently, but if we have a leader that focuses on values, what makes us great, and encourages cooperation at the private level.

Surferbeetle

09-19-2011, 04:08 AM

Hey Bill,

Good to hear from you.

Like you, I am of the opinion that the western world is in trouble at the moment. The current western political class, as a whole, does not appear to have the capacity or incentive to keep up with pace of change that is occurring. However, unlike the folks involved with the Arab Spring, I look forward to the opportunity to vote out all of the non-performing members of the political class in my country (i.e. all of them)...:D

I don't have a clue how the social scientists measure national happiness, but according to their studies some of the happiest people in the world are in Mexico, the corrupt and largely dirt (poor) Filipinos are as happy as we, etc.

Thinking about happiness as a general concept brings couple of thoughts to mind. In school I was exposed to the idea that in times of turmoil, societies chase simplicity; examples that I am aware of include German Romanticism (http://en.wikipedia.org/wiki/German_Romanticism), the Amish (http://en.wikipedia.org/wiki/Amish_way_of_life), the Quakers (http://en.wikipedia.org/wiki/Testimony_of_Simplicity), and Biedermeier Furniture (http://www.economist.com/node/8846582). 'Happiness' metrics taught in business school included the Gini Coefficient (http://en.wikipedia.org/wiki/Gini_coefficient) as well as a look at President Sarkozy's attempt to define a Happiness Coefficient (http://www.economist.com/blogs/freeexchange/2008/01/happiness_is_a_warm_baguette).

Don't know if it matters, but, part of the enjoyment I get from the Army is the repeated opportunity :wry: to live 'on the economy'/'close to the earth' with just a few duffle bags and an opportunity to partake of societal rhythms/ways of doing things that we are not exposed to at home.

However, what I started thinking about deeply is what does America have to offer the world?

Soldiering shows us the human animal in ourselves and others. Our trust in others is reduced, maybe permanently.

Perhaps it's simplistic at best, but I imagine a continually morphing quilt when thinking about the amazing diversity of the world. Some squares are great and some are rotten, but they all change out over time. Biological, business, engineering, and social/political models/systems that I have studied generally follow this pattern of change.

If I remember correctly, you have an amazing university close to you. When I sit in university classes I am always struck by the hope, optimism, energy, and inventiveness that I find there.

...if we have a leader that focuses on values, what makes us great, and encourages cooperation at the private level.

Bill, with respect, perhaps the only ones that we can count on are our ourselves, our families, and our friends?

Perhaps it was my ringside seat at the arena of Iraqi politics, followed by what I now observe here at home, but for my money it's not a good idea to place too much trust in elected officials from whatever party.

The current 'empowerment' of the hard political right across the western world during this turbulent economic and political time is concerning. The spectrum that I am aware of includes Geert Wilders (http://en.wikipedia.org/wiki/Geert_Wilders), Jorg Haider (http://en.wikipedia.org/wiki/Jörg_Haider), Jean-Marie le Pen (http://en.wikipedia.org/wiki/Jean-Marie_Le_Pen), Marine Le Pen (http://en.wikipedia.org/wiki/Marine_Le_Pen), Thilo Sarrazin (http://en.wikipedia.org/wiki/Thilo_Sarrazin), Valdimir Putin (http://en.wikipedia.org/wiki/Vladimir_Putin), NPD (http://en.wikipedia.org/wiki/National_Democratic_Party_of_Germany), True Finns (http://en.wikipedia.org/wiki/True_Finns), and our own Tea Party (http://en.wikipedia.org/wiki/Tea_Party_movement). Past world history on the rise of the hard political right during uncertain times may be something that is worth considering.

Unfortunately economics is not a silver bullet either, but I have more hope for it's ability to positively change the world than I do for politics. Nonetheless, my quite cloudy economic crystal ball says that the chances of a depression are much higher than I would like them to be... so, as they say the situation is normal, FUBAR as usual :wry:

Bill Moore

09-19-2011, 05:51 AM

However, unlike the folks involved with the Arab Spring, I look forward to the opportunity to vote out all of the non-performing members of the political class in my country (i.e. all of them)...

Just remember, unless you're a member of Acorn, you can't vote them all out, only the ones in your district, but isn't that simply "thinking nationally and acting locally?" :D

Thom34

09-19-2011, 05:52 AM

I'm all about leading, controlling is another story.

Controllers lay down rules and direct others where to be, how to act, what to think, etc. They aren't followed so much as they direct and herd others to where they want them to be.

Rather than "controllers" you mean to say "dictators," don't you. And quasi-dictators, kind of like some of the people currently in national office.

On this same front, it is impossible to control government if you have no idea about what government in a constitutional republic (as America was originally formed) is supposed to be.

Our nation's lawful (de jure) government is vacant. It has been vacant since 1861. We haven't had a lawfully seated government since that time extending forward until today. Our government remains vacant today largely because people have forgotten (been dumbed down) who they are and what lawful government actually is.

What is needed in this country is a quiet revolution of education on the history of how we got to the place we're in today. It's unfortunate that while some people may listen and learn, the vast majority are likely to let this knowledge slip quietly over their heads and continue to rouse the rabble.

A few of those original founders had some brilliant insights that we seem to have forgotten. It's long over due time we began paying more attention to them:

I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs. - Thomas Jefferson

and

If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen. - Samuel Adams

Levi

09-19-2011, 02:47 PM

Educate me. What happened in 1861 that made the Government (like, all three branches?) unlawful?

Thom34

09-19-2011, 05:49 PM

Educate me. What happened in 1861 that made the Government (like, all three branches?) unlawful?
The U.S. Congress adjourned sine die which means the following: Adjournment sine die (from the Latin "without day") means "without assigning a day for a further meeting or hearing."

President Lincoln then proceeded to unLAWFULLY adjourned a portion of Congress (that portion that hadn't seceded from the Union) in order to attempt to bring the other portion back into the Union by force, which turned into the Civil War. The trouble is, Lincoln had no lawful authorization to do what he did in his attempt to preserve the Union. The Union of States had been lawfully dissolved, its Congress lawfully adjourned sine die in April of 1861. And Lincoln was acting outside of the law.

If you want to learn more, you're going to have to get off your butt and do some due diligence research of your own about this in order to get the whole story.

I can give you a link to an overview explanation of what happened, but it leaves out a lot of the historical evidence for making the points that it makes. Yet, even so, it presents a compelling picture of what actually occurred.

http://www.ci.corvallis.or.us/council/mail-archive/ward7/docB35gEw7WKM.doc

slapout9

09-19-2011, 06:05 PM

Seems to have been a total flop, minimal attendance and no disruption. Either the organizers were hopelessly inept or they read the mood very badly... likely both.

Link to video of protest at 55 Wall Street. Bankers with Champagne protesters with signs. Looks like Darth Vader won.
http://www.youtube.com/watch?feature=player_embedded&v=8rfuvDr2wJQ#!

Levi

09-20-2011, 12:16 AM

If you want to learn more, you're going to have to get off your butt and do some due diligence research of your own about this in order to get the whole story.

lol

Understood and will comply.

Levi

09-20-2011, 12:32 AM

Ok. I dug around. I am not sure what it means to me, today. That I don't have to obey the laws of a government that was dissolved in the prelude to the civil war? I think my local police will come slap some sense into me if I decide I am my own law. Now I have to look up what was done immediately after the civil war. I would imagine something would have been done to address the issue. I still, as an American citizen, have to follow executive orders. I think. Although EO 12333 states " No person employed by or acting on behalf of the United States Government shall engage in, or conspire to engage in,". I wouldn't know who to ask about EO's powers over regular ol' citizenry. My education failed me, then I failed to educate myself.

Dayuhan

09-20-2011, 01:44 AM

Seems to me that the legitimacy of government is determined by the acceptance of the populace, rather than by legal/historical minutiae, and that the US Government since 1861 is legitimate simply because the vast majority of its people have accepted it as legitimate.

Certainly it's possible that changes in the pattern of governance are needed to retain that legitimacy, which is of course usually the case. What those changes ought to be is of course another story. Unfortunately at the moment most of the impetus toward change seems to be coming from the polar left and right, the places least likely to produce any viable proposal for change. The American people are for the most part not getting behind either program, not because they are ignorant sheep but because they perceive, quite correctly, that the political poles have no productive ideas and many destructive ones.

Unfortunately, the center isn't producing much of value either, and that needs to change. Good solutions develop through competition and cooperation in the marketplace of ideas, and that only happens when people listen to the moderate ideas on the other side and consider them. The shouting around the fringes is unproductive noise.

IMO, as always...

motorfirebox

09-20-2011, 03:39 AM

Where exactly is it stated that Congress must set a date to reconvene when they adjourn? Every Congress convened by the United States adjourns sine die (http://thehill.com/homenews/house/134917-111th-congress-comes-to-a-close) at the end of its legislative session, so that the next Congress can be formed and start a new session. Even if Congress did adjourn back in 1861 without setting a date to reconvene, a) that doesn't mean they can't reconvene, unless there's some law somewhere stating they can't, and b) even if it did, then a new Congress would have been formed, continuing the governance of the US in full accord with Federal law. No offense, but this bears a suspicious resemblance to hogwash.

Bob's World

09-20-2011, 02:44 PM

Dayuhan

09-21-2011, 12:30 AM

Bob's World

09-21-2011, 10:48 AM

If we're talking about other countries we have to deal with the reality that different components of a populace may have irreconcilably different ideas on what form of governance is acceptable. The US hasn't had that problem since the Civil War; many countries face it today. It's tempting to think that we can play referee to the problems of others, but our understanding of their issues is generally incomplete, we have no real standing to intervene, and all we generally accomplish with the effort is to piss off everyone involved. Better if we focus on our own issues; we've no shortage of them...

Concur. We have no "Responsibility to Protect" any government or populace one from the other. Sometimes people just need to sort things out; and if they have no legal recourse to such debate they will take it into the streets and it will likely get violent. This is natural. Breaking up or helping one side win such a fight does nothing to address the issues behind the fight. It will occur again later.

We have a very flawed concept currently of what our role in the world is, what our interests truly are, what the real "threats" to our interests are, and what forms of policy and engagement best serve our interests. Interventions to create or protect puppet regimes is no longer a valid COA. We need to evolve, but we are slow in coming to that realization.

Should we encourage the establishment of legal venues for resolution where such deep conflicts exist? Certainly. Finding neutral ground is a tricky thing, but we need to learn to accept more risk in giving up control of outcomes and more flexibility in working with whoever or whatever burbles up to the top.

slapout9

09-21-2011, 06:10 PM

Meanwhile at Rebel base Headquarters the great Holy man Obi-Won Ruppert delivers his Holy doctrine of Sacred Economics:eek:

http://www.youtube.com/watch?v=RbiyCldxG8s

This is a little radical for me but the essential meassage that complex systems collapse is fairly accurate IMO. It is a little boring in places and he is just a little bit full of himself, but he has a pretty large following. What ya'll think ?

Bob's World

09-21-2011, 06:14 PM

slapout9

09-22-2011, 05:19 AM

Are we going to need to re-route 200 yards of the border fence to completely encircle the greater Slapout, Alabama metropolitan area to keep a rein on you? :p

I am always willing to accept Guvmint Freebies:)

Ruppert is essentially correct in that Big Systems Break Down not Up....I think we are going to see a big shift in power down to the States. But as usual I believe the rings always have to final answer.;)
http://www.youtube.com/watch?v=3w1F1DkxWxo

slapout9

09-22-2011, 06:30 PM

Barro is old school-Gailbrath is new school. The only way out is a Strategic Plan vs. some arcane economic theory.

http://www.bloomberg.com/video/75536660/

slapout9

09-22-2011, 07:30 PM

Obi-Won Ruppert gets it right:eek: this is part 2 of Ruppert's speech just a few days ago. In it he predicts the the Dow would drop around 500 points. It is now down a little over 500 points as I post this:eek:

http://www.youtube.com/watch?v=OjqUkLJ0JPQ&feature=related

Where is Luke Skywalker?

AdamG

09-27-2011, 04:40 AM

When members of the loose protest movement known as Occupy Wall Street began a march from the financial district to Union Square on Saturday, the participants seemed relatively harmless, even as they were breaking the law by marching in the street without a permit.

But to the New York Police Department, the protesters represented something else: a visible example of lawlessness akin to that which had resulted in destruction and violence at other anticapitalist demonstrations, like the Group of 20 economic summit meeting in London in 2009 and the World Trade Organization meeting in Seattle in 1999.

The Police Department’s concerns came up against a perhaps milder reality on Saturday, when their efforts to maintain crowd control suddenly escalated: protesters were corralled by police officers who put up orange mesh netting; the police forcibly arrested some participants; and a deputy inspector used pepper spray on four women who were on the sidewalk, behind the orange netting.

The police’s actions suggested the flip side of a force trained to fight terrorism, in a city whose police commissioner acknowledges the ownership of a gun big enough to take down a plane, but that may appear less nimble in dealing with the likes of the Wall Street protesters. So even as the members of Occupy Wall Street seem unorganized and, at times, uninformed, their continued presence creates a vexing problem for the Police Department.

http://www.nytimes.com/2011/09/27/nyregion/wall-street-demonstrations-test-police-trained-for-bigger-threats.html

AdamG

09-27-2011, 05:46 PM

As the longtime congressman from Texas stepped onto the stage, the crowd screamed with enthusiasm. The audience's biggest reaction came when he spoke about ending the Federal Reserve. "The country has changed in the last four years, but my message hasn't changed" Paul said. "The country is ripe for a true revolution".

http://politicalticker.blogs.cnn.com/2011/09/27/rep-ron-paul-the-country-is-ripe-for-revolution/

slapout9

09-28-2011, 04:40 AM

http://politicalticker.blogs.cnn.com/2011/09/27/rep-ron-paul-the-country-is-ripe-for-revolution/

The man has a really big following and can still raise a lot of money....time will tell if it is enough.

Bill Moore

09-28-2011, 05:59 AM

slapout9

09-29-2011, 04:36 AM

slapout9

10-02-2011, 06:38 PM

Link to max Keiser interview of TV personality Rosanne Barr who has joined the Wall Street protest and is running for President of the USA and prime minister of Israel at the same time:eek:

http://www.youtube.com/watch?v=7I4vIvVFPzY&feature=related

AdamG

10-03-2011, 11:24 AM

Of course a true revolution doesn't mean war, a true revolution is a rejection of the status quo and new ideas. The American Revolution happened before the revolution war begun. The war was a result of the revolution, not "the" revolution.

Reading music. (http://www.youtube.com/watch?v=FmPi8ePDmcg)

(Reuters) - Police reopened the Brooklyn Bridge Saturday evening after more than 700 anti-Wall Street protesters were arrested for blocking traffic lanes and attempting an unauthorized march across the span.
http://www.reuters.com/article/2011/10/02/us-wallstreet-protests-idUSTRE7900BL20111002

Inspired by the events in New York City, protesters begin assembling in several cities across the U.S.
http://www.telegraph.co.uk/finance/financialcrisis/8802223/Occupy-Wall-Street-protests-spread-across-U.S.html

The ignorance displayed in these interviews knows no bounds. The protesters just don’t get it. They are calling for the government to use force to impose their ideas, all in the name of bringing down corporations who they don’t realize have completely bought off government regulators. Corporations and government enjoy a mutually beneficial relationship – getting one to regulate the other is asinine and only hurts smaller businesses who are legitimately trying to compete in a free market economy that barely exists.
The zeal for totalitarian government amongst some of the “protesters” is shocking. One sign being carried around read, “A government is an entity which holds the monopolistic right to initiate force,” which seems a little ironic when protesters complain about being physically assaulted by police in the same breath.
http://www.infowars.com/occupy-wall-street-protesters-call-totalitarian-government-re-election-of-obama/

Actress, comedienne and now author Roseanne Barr shares her solution for dealing with the rich and how the banks could repay the money the U.S. government bailed them out with in 2008.

"Part of my platform is, of course, the guilty must be punished and that we no longer let our children see their guilty leaders getting away with murder. Because it teaches children, you know, that they don't have to have any morals as long as they have guns and are bullies and I don't think that's a good message," Barr told Russia Today (RT).

"I do say that I am in favor of the return of the guillotine and that is for the worst of the worst of the guilty.
http://www.realclearpolitics.com/video/2011/10/01/roseanne_barr_behead_bankers_rich_who_wont_give_up _wealth.html

davidbfpo

10-03-2011, 04:26 PM

Having watched a few videos of the protest and some reporting it struck me from this side of the water that the Wall Street protests are not an accurate gauge of any part of US public opinion. Yes they are a small group, located in a media frenzied city, using an iconic target location and have some media skill, why else leave Wall Street for a bridge away from the location?

In contrast we had the labour union violence in Washington State a few weeks ago, which had far less coverage, but far more potential IMHO as an indicator of US public opinion.

Add in a TV star of course, whose credibility appears to be somewhat low.

Add in an important factor - for law enforcement - the weather. Those protesting will not be around in the rain, nor in a few weeks time. Patience will be rewarded.

AdamG

10-03-2011, 08:58 PM

Having watched a few videos of the protest and some reporting it struck me from this side of the water that the Wall Street protests are not an accurate gauge of any part of US public opinion.

They aren't, but they're trying to sway American opinion through 'fact management'. See
http://blog.timparkinson.net/2011/09/30/lies-damn-lies-and-photoshop/

You know who else blamed the bankers for the ills of a nation?

Bill Moore

10-04-2011, 05:41 AM

davidbfpo,

I'm still agnostic on this, but PBS news did some good coverage on this movement this evening.

Take it for what it is worth,

The movement is growing, and is now in several cities and anticipated to grow larger.

The media is only broadcasting the interviews with what I'm calling the lost kids because their dumb comments are sadly news worthy, but there is wide range of protesters, not just young, clueless kids calling for socialism, or even worse not quite sure why they're there.

Since there are no apparent leaders, the collective brain has decided against forming a policy arm, because they want to attract people that are disappointed with government and corporate corruption regardless of their particular grievance. They (whoever they is) believes if they define their protest too early they'll push away possible supporters.

I can see their point, I think that happened to the Tea Party, and while the Tea Party still has a wide following, they lost a lot of followers when the extreme right element of the Republican Party hijacked their movement, and as their views become more extreme they'll continue narrow their support base. I think mainstream Tea Partiers would like to take their movement back, but can't.

Eventually this anti-Wall Street crowd will have to define itself though, and that will be the real test to see if gets legs.

It started off much smaller than they anticipated, but it is growing and growing rapidly. Wednesday is a scheduled march, and if that turns motivates several thousand more supporters to join the movement I think they'll be forced to define their cause, or lose their support. If they swing too far to the left, they'll rapidly lose support (I think).

Regardless, it is interesting to watch from a Small Wars perspective on how discontented elements of our society from a wide range of social classes are mobilized using information technology to facilitate parallel demonstrations from the east to west coasts.

AdamG, how did you know I was a Doors fan? :D

AdamG

10-04-2011, 06:02 AM

AdamG, how did you know I was a Doors fan? :D

We are the Borg.

slapout9

10-06-2011, 06:50 PM

Hans Solo aka (former CIA/Marine Corps Intell Officer Robert D. Steele) will go to Wall Street to advise on the New Kind of Revolution. Link to RT interview of Robert D. Steele.

http://rt.com/news/usa-protests-revolution-reform-063/

I belive sometime in his past Steele wrote a paper on predicting Revolutions. Worth listening to the interview anyway.

AdamG

10-08-2011, 03:37 AM

The American Inverse-Taliban strikes.

Sheriff's deputies are closing in on suspects from a troublemaking Amish splinter group in Ohio who have broken into homes and cut off the beards and hair of other Amish men.

Authorities tell HuffPost Crime they are planning to arrest at least four men who are followers of Sam Mullet, a bishop who Jefferson County Sheriff Fred Abdalla said has clashed with other Amish leaders for years.

The rest of the tale lies here, English (http://www.huffingtonpost.com/2011/10/07/amish-beards-cut-off-amish-violence_n_999118.html?icid=maing-grid7|aim|dl3|sec1_lnk2|102654)

Punchlines form up below.

slapout9

10-10-2011, 06:10 PM

Finally the Church has started to join the protest. Big developement IMO.

http://www.youtube.com/watch?v=9GLw3OBWLfs&feature=player_embedded#!

slapout9

10-10-2011, 08:47 PM

Link to Occupy Wall Street Commercial.

http://www.youtube.com/watch?feature=player_embedded&v=5O_Ao9w1u7c

Presley Cannady

10-11-2011, 02:20 PM

I belive sometime in his past Steele wrote a paper on predicting Revolutions. Worth listening to the interview anyway.

I know when someone's selling me a bill of goods; Steele's doing precisely that.

slapout9

10-12-2011, 05:12 AM

I know when someone's selling me a bill of goods; Steele's doing precisely that.

Presley,you might be right, haven't heard anything from him since his meeting with OWS crowd.

Bill Moore

10-23-2011, 03:24 AM

http://www.youtube.com/watch?NR=1&v=MIN0eMR9gZg

This guy makes sense of it for me. It isn't our system that is broken, but key people in the system, especially senior bankers.

In summary, he makes a good case that we no longer practice capitalism anymore, because the capitalists don't assume the risks, we do. The bankers are rewarded for failure with bailouts and large bonuses, which we pay for and we assume the risk, not the bankers. He makes a point that if the CEOs assume the risks and don't get bail outs and large bonuses for failure, we may be able to turn this back around again.

Bill Moore

10-23-2011, 03:27 AM

Interesting, hat tip to John Robb at Global Guerrillas

http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html?DCMP=OTC-rss&nsref=online-news

The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world's large blue chip and manufacturing firms - the "real" economy - representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

No surprise, but now it is supported by data. This adds credence to the too big to fail argument, which is unacceptable in a real capitalist system where competition should ensure there are failures and rebirths.

Ken White

10-23-2011, 04:41 AM

Most in their shoes would do the same. The real culprits are in Government. They are the folks who have skewed the rules to allow such unfettered greed and who allow and even encourage the 'too big to fail' mantra. They are too big to fail only because their failure will mean the loss of campaign contributions -- and jobs. The voters do not like that ergo it is to be avoided...

It's not new, they've been doing it for years. Think Chrysler in the 70s, Railroads in the 50s. Consider also the award of DoD contracts on the basis of not best quality items but the most jobs in the most districts -- that's been the norm for decades. We have Blackhawks because at contract award time, Sikorsky was in trouble while Bell had plenty of business. We have the M16 / M4 instead of other weapons because Colt was and is a BIG campaign contributor (see Dodd, C; Lieberman J.). :rolleyes:

The crooks in Congress and the Administrations (plural, both parties in both cases) foster such shenanigans and then release self righteous public announcements slamming the very people who contribute most to their campaigns. :mad:

People want to jail Bankers, no one wants to convict the slimy political types -- why, I cannot fathom...

Dayuhan

10-23-2011, 04:57 AM

People want to jail Bankers, no one wants to convict the slimy political types -- why, I cannot fathom...

Because politicians have gotten really, really good at diverting blame onto scapegoats. Not necessarily innocent scapegoats, but scapegoats nonetheless.

Practice makes perfect, and they have lots of practice...

PS:

My first question on reading the excerpt above was on the assumptions surrounding the word "control". The article expands slightly:

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system's behaviour, he says, requires more analysis.

In fact institutional ownership is generally quite passive and rarely exerts any direct management control, except through the prospect of changing holdings if results are consistently poor. I'd have to see the study to make any conclusions, but this points to a potentially huge leap in assumptions. The word "control" makes a nice little alarmist touch, but the extent to which it actually exists... well, we shall see.

Fuchs

10-23-2011, 08:13 AM

Well, based on certain experiences Germany ha a peculiar article in its constitution (even in the first 20, very powerful, articles!): Article 14.

It says (in the official translation (https://www.btg-bestellservice.de/pdf/80201000.pdf)):

Article 14
[Property – Inheritance – Expropriation]
(1) Property and the right of inheritance shall be guaranteed.
Their content and limits shall be defined by the laws.
(2) Property entails obligations. Its use shall also serve the
public good.
(3) Expropriation shall only be permissible for the public good.
It may only be ordered by or pursuant to a law that determines
the nature and extent of compensation. Such compensation
shall be determined by establishing an equitable
balance between the public interest and the interests of
those affected. In case of dispute concerning the amount of
compensation, recourse may be had to the ordinary courts.

The bold part is important and one of the most well-known one-liners of the whole constitution.

We don't make enough use of it, but almost all Germans appear to agree that property does mean responsibility to a great extent.
The responsibility to exert control of a corporation and keep it from harming society is one effect, the progressiveness of the income tax code another.

Bill Moore

10-24-2011, 08:11 PM

Posted by Ken

People want to jail Bankers, no one wants to convict the slimy political types -- why, I cannot fathom...

I'm not sure "most" people want to jail bankers for making bad business decisions, but I suspect that if most people thought about it they wouldn't want those bankers (and others) rewarded with our tax dollares for their mistakes. A middle class family fails to pay for the medical insurance loses coverage, they fail to pay their mortgage they lose their house, etc., and that is appropriate. Yet when a fat cat drives his company bankrupt by making foolish decisions (in some cases) his company not only gets a bail out with tax dollars (our money), the CEO and others who drove the train off the track get fact bonus checks from the tax payers. We're either capitalists in the land of the free responsible for our decisions or we're not. If a company's leaders drive it off a cliff let it fail and don't reward those who make bad decisions. It isn't that hard, or rather it shouldn't be. You're right we have long history of doing this, so perhaps we're simply resigned to a crappy reality.

I think most people would to convict the slimy political types, but apparently they're a protected species, so we hunt what we can :( They also have to break a law to be convicted, and I don't think is against the law to develop stupid laws, so they have considerable maneuver room unless the American public gets more involved. The promise of the information age making the process more transparent and more democratic hasn't happened yet, but we may be moving in that direction.

tequila

10-24-2011, 09:15 PM

Ken White

10-24-2011, 10:28 PM

There's a lot wrong with this statement, but the biggest has to be that TBTF institutions do not exist.Oh, I certainly agree they now exist -- but they did not 30 years ago. That's about when Congress started sticking its greedy and ill informed nose into the financial system more heavily than in prior years (though they've always done so to one extent or another...). Congress passed the Community Reinvestment Act in 1977, the 1980 Depository Institutions Deregulation and Monetary Control Act. Same time there wwere Carter, Kahn and imprudent deregulation. Then Gramm-Leach-Briley (an ex post facto cover for the Citi - Travelers - Smith Barney amalgamations, illegal under the then active both Glass Steagall and the Bank Holding Company Act but with a 'waiver' forced by massive Congressional pressure...

Some of that was beneficial and needed, most was ill advised and poorly (deliberately or not) crafted. All gave big campaign donators a license to, if not steal, certainly to amass wealth. I have no problem with amassing wealth by Bankers et.al. -- that's what they do -- I have a large problem with Congroids amassing wealth.
If you think that if Citigroup, AIG, and BofA had been allowed to go bust in 2008 and the economy would not have imploded, then you really need to share what you are smoking with the rest of us. I'm not talking about a few million people out of work. I'm talking about people not being able to cash paychecks.Understood and mostly agreed though I suggest that if any one had been allowed to go under, the others may have gotten the message without such drastic consequences -- we'll never know, didn't happen. I strongly believe Chrysler should've been allowed to fail back in '76 to send a message to industry and commerce to be careful. That, too did not happen.

My point was and is they were allowed if not encouraged to get that big by the US Congress and several State Legislatures. The Bankers were supposed to try, the Watchdogs were not supposed to be in thrall to the Foxes.
This problem is, of course, even worse now.Agreed.

Why is that true, he asked disingenuously? :D

Ken White

10-24-2011, 10:30 PM

...It isn't that hard, or rather it shouldn't be. You're right we have long history of doing this, so perhaps we're simply resigned to a crappy reality.

I think most people would to convict the slimy political types, but apparently they're a protected species, so we hunt what we can :(Sounds like scapegoating and punishing the innocent to me... ;)
...The promise of the information age making the process more transparent and more democratic hasn't happened yet, but we may be moving in that direction.I think we are. I certainly hope so.

Bill Moore

10-25-2011, 01:57 AM

Sounds like scapegoating and punishing the innocent to me...

Perhaps, but I am not aware of any innocents being caught in the cross fire. Not all of the guilty are held accountable, and some of the guilty are rewarded nicely for failure (hell if they weren't bankers, they could be school teachers in the public school system).

When we reward the rich with taxpayers for dollars for failing, then we really are robbing the poor to pay the rich, and it sure as hell isn't creating more jobs. Not one of the bankers put in jail (and very few have been) appear to be wrongly acused, but on the other hand that doesn't mean they're not scapgoats. The Republicans have it wrong, and the Democrats are making things worse, so unless our system becomes more transparent and the people have more influence over these decisions (versus ideologue politicians) based on information instead of philosophies I don't see this crisis abating anytime soon.

Ken White

10-25-2011, 03:16 AM

Perhaps, but I am not aware of any innocents being caught in the cross fire. Not all of the guilty are held accountable, and some of the guilty are rewarded nicely for failure (hell if they weren't bankers, they could be school teachers in the public school system).Exactly my point -- Congress is more guilty in all this stupidity than are the Bankers -- Congress and State Legislatures not only allowed it, they encouraged it, the Bankers just did what they were supposed to do.

So yes, Bankers share some but not most of the blame. Even those innocent taxpayers have a bit of blame -- they elected these Squirrels...

Not many innocents in any of this...

Dayuhan

10-25-2011, 08:53 AM

Exactly my point -- Congress is more guilty in all this stupidity than are the Bankers -- Congress and State Legislatures not only allowed it, they encouraged it, the Bankers just did what they were supposed to do.

Well... yes. People often fail to appreciate the limits of regulation, especially when we're trying to regulate against incentives. Much better to manage the incentives in the first place... and that we do badly. Politicians love a bubble and hate to allow a bust to run its course.

People often fail to recognize that main street and the common folks played a real role in the development of this mess as well, especially during the collective insanity of the late 90s, when many of the trends that led to the recent mess were laid down.

kowalskil

10-26-2011, 12:43 PM

Occupy Wall Street?

The last issue of Montclarion, a student newspaper at Montclair State University,#published an article of Grover Furr, about the Occupy Wall Street movement:

http://www.themontclarion.org/archives/3740261

Yes, rich people always want to be richer and richer. This is unfortunate; no one knows how to stop this, without taking away constructive motivation. What fraction of Bill Gates' fortune is consumed and what fraction is productively invested? My guess is that the first fraction is much less than 10%, and that he is not a rare exception.

What does Professor Furr have to offer us? Consider a complex machine which works but not perfectly. Anyone can destroy it; no advanced knowledge is usually needed to accomplish this. But one has to be highly knowledgeable in order to repair it, or to design a better replacement. I am thinking about sophisticated engines, airplanes, TV sets, X ray scanners, computers, airconditioners, oil refineries, etc.

The same is true for an economic system. No system is perfect; but some are more efficient than others. Trying to destroy US capitalism #without offering something better is likely to create a lot of misery. I am thinking about what Lenin and Stalin did, as decribed in my two short books. These books are now freely available online; the links are at:

http://pages.csam.montclair.edu/~kowalski/links.html

Note that even now, one hundred years after the Soviet revolution, standards of living in Russia are much lower than in the US, and in other western countries.

Ludwik Kowalski#(see Wikipedia)
.

Fuchs

10-26-2011, 01:17 PM

Occupy Wall Street?
Yes, rich people always want to be richer and richer. This is unfortunate; no one knows how to stop this, without taking away constructive motivation.

Actually, economists, psychologists and a handful of good politicians know. The general population is largely clueless about it, of course.

Motivation is a tricky thing and the ridiculously dumbed-down, politicised concept of motivation that drives slogans and talking points is just that - ridiculous.

Here's an excerpt:

a) Intrinsic and extrinsic motivation. Intrinsic motivation is difficult to exploit for leaders, but powerful and long-lasting. Extrinsic motivation (such as cash) is easily exploited by leaders, but its effect wears off over time. Ever greater extrinsic motivation inputs are required for the same motivation.

b) People don't care much about absolute wealth, but a lot about relative wealth. People don't want to be at the social pyramid bottom. The life of a rich trader in the middle age was more rewarding than the life of an unemployed person of today who has iPod, TV, warm water and climate control indoors.

c) There's furthermore a huge psychological difference between having some wealth taken away and having some wealth increase taken away. German post-WW2 economic policy acknowledged this and strived for 'wealth for everyone' by (allowing) redistribution of wealth growth rather than aiming at redistributing of what little survived the war. (This wisdom was lost to us during the weak growth of the 80's, though.)

d) Having 1-5% of the population earn less (net) may damage their motivation (doubtful, see later) but 80-95% earn more certainly does boost theirs, right? The focus on the feelings of the top 1% is a typical U.S. perspective, fostered by the media.

Finally, would the rich push less for national economic success if they earned less millions for the same effort?
Their absolute wealth is quasi-irrelevant, their relative wealth ain't. In fact, most of them might be MORE motivated to push for more personal income (and thus, supposedly, for more national income) if you take more away from them because that means they would lose relative social status and that's something they'll fight against.

bourbon

10-26-2011, 01:43 PM

Fuchs

10-26-2011, 01:46 PM

It’s Occupy Wall Street; not Occupy Silicon Valley.

Bill Gates is one of the most influential people in the computer industry; his company’s innovations over that last thirty years have impacted the entire world -- arguably for the better.

Contrast this with a Lloyd Blankfein or Jamie Dimon -- who are parasites. The financial industry contributes little social value, and the only financial innovation they have brought in the last thirty years has been the ATM card.

Bill Gates and "innovations" in one line? I need to check whether I'm in the correct timeline, for in mine M$ is only good for absorbing others' innovations. That's being called technology dispersion. They are technology dispersers, not innovators.

Likewise, American hero Mr. Jobs was known for creating jobs in Taiwan...

Nevertheless, I get the point. The only halfway useful innovation of the financial industry is being said to be the ATM machine, but then again this was invented by a machine-builder company and THEN sold to the banks.

slapout9

10-26-2011, 07:15 PM

One of the best explanations of the Money problem I have ever seen. Link to the video what every wall street protester should know.

http://www.youtube.com/watch?feature=player_embedded&v=gV9A2IGShuk#!

Ken White

10-26-2011, 07:34 PM

I wonder if he thinks the Protestors are Reptilian Humanoids... :D

ganulv

10-26-2011, 07:44 PM

Dayuhan

10-26-2011, 11:41 PM

The life of a rich trader in the middle age was more rewarding than the life of an unemployed person of today who has iPod, TV, warm water and climate control indoors.

Until the plague came 'round, of course. I doubt that many of today's unemployed would want to trade places, if they had the chance, and if they did they'd regret it quickly.

d) Having 1-5% of the population earn less (net) may damage their motivation (doubtful, see later) but 80-95% earn more certainly does boost theirs, right?

The fallacy, of course, is that if the 1-5% earns less, the rest will therefore earn more.

In any event I don't see any real change coming out of the whole "Occupy Wall Street". The protesters seem to have only the vaguest notion of what they don't want, no idea at all of what they want, and nothing even resembling a practical program for change. It's somewhat like opening the window and shouting "I'm mad as hell...": cathartic and satisfying, but it doesn't change anything.

ganulv

10-27-2011, 12:24 AM

It's somewhat like opening the window and shouting "I'm mad as hell...": cathartic and satisfying, but it doesn't change anything.

I don’t know. I kind of buy the comparison to the Tea Party. Neither is exactly clear as to how they want to change things and in any case few are experts. But I don’t think anyone would argue that the Tea Party has not helped(:confused:) shape the discussion. But both are made up of Americans, and in America we are free to yell about the government or Wall Street if we so choose.:)

Misifus

10-27-2011, 01:10 AM

Consider a complex machine which works but not perfectly. Anyone can destroy it; no advanced knowledge is usually needed to accomplish this. But one has to be highly knowledgeable in order to repair it, or to design a better replacement. I am thinking about sophisticated engines, airplanes, TV sets, X ray scanners, computers, airconditioners, oil refineries, etc.

I like the above statement. It reflects what a real economy is based on, which are either things that you (1) manufacture, (2) get out of the ground, or (3) grow on the ground.

However, things like Wall Street, banking, insurance, etc., are merely transfer payment industries. They are secondary to the real economy. These folks really don't do anything but find ways to skim money off of what they transfer around. There needs to be a recalibration and many heads need to roll. Nevertheless, the idiot protesters "occupying" Wall Street don't have a clue about reality. They are just another manifestation of the same iconoclastic psychosis that invents Global Warming, Global Cooling, Peak Oil, Malthusian food shortages, over-population, ozone depletion, ad nauseum infinitum ;)

Dayuhan

10-27-2011, 01:41 AM

However, things like Wall Street, banking, insurance, etc., are merely transfer payment industries. They are secondary to the real economy. These folks really don't do anything but find ways to skim money off of what they transfer around. There needs to be a recalibration and many heads need to roll.

To a large extent true, but many people fail to appreciate how necessary those money-moving industries are, and how central the ability of money to seek return without government trying to tell it where to go has been to the economic success the US has achieved in the past. Not saying those industries couldn't use some changes - though again they have to share responsibility and the need for change with Main Street and Pennsylvania Ave - but talking about eliminating them or putting them under government control is beyond naive.

It's worth noting that nobody complains about the money-movers when bubbles are in their up phase.

Fuchs

10-27-2011, 03:26 AM

However, things like Wall Street, banking, insurance, etc., are merely transfer payment industries. They are secondary to the real economy. These folks really don't do anything but find ways to skim money off of what they transfer around.

Banking at its core is a middleman function comparable to trade in necessity and utility. We need saving & loan institutions for an efficient allocation of resources into investments.

It all goes wrong if
a) banks do too many other things
b) banks become incompetent at allocation (getting the risk premiums wrong, for example)
c) credit is being used too often for consumption, not investment
d9) banks begin to exploit their power instead of serving the community for a normal "profit/equity capital" ratio

slapout9

10-27-2011, 04:50 AM

I wonder if he thinks the Protestors are Reptilian Humanoids... :D

Ken,no but there is a bug in my margarita:D:D:D here is a shorter one by Bill Black the worlds foremost Criminal Economist, he helped prosecute the Tali-Banksters in the 1980's when they tried to do about the same thing they are doing now.
http://www.youtube.com/watch?v=omqe2gWZgGg

Ken White

10-27-2011, 05:11 AM

Don't totally drain the Tequila bottle...:D

motorfirebox

10-27-2011, 05:54 AM

ganulv

10-27-2011, 11:24 AM

Some quick responses to the OP: I don't think that the goal of OWS is to stop rich people from becoming richer; I think the goal is to limit their ability to become richer at the expense of the middle and lower classes.

Similarly, I don't think the goal of OWS is to destroy capitalism; I think it's to reform capitalism such that it is once again merely the engine of the state rather than the driver.

A breakdown of responses to the open ended survey question “What would you like to see the Occupy Wall Street movement achieve?” [LINK (http://www.capitalnewyork.com/article/culture/2011/10/3790409/survey-many-occupy-wall-street-protesters-are-unhappy-democrats-who-)]

35% Influence the Democratic Party the way the Tea Party has influenced the GOP
4% Radical redistribution of wealth
5% Overhaul of tax system: replace income tax with flat tax
7% Direct Democracy
9% Engage & mobilize Progressives
9% Promote a national conversation
11% Break the two-party duopoly
4% Dissolution of our representative democracy/capitalist system
4% Single payer health care
4% Pull out of Afghanistan immediately
8% Not sure

Dayuhan

10-27-2011, 12:21 PM

35% Influence the Democratic Party the way the Tea Party has influenced the GOP
4% Radical redistribution of wealth
5% Overhaul of tax system: replace income tax with flat tax
7% Direct Democracy
9% Engage & mobilize Progressives
9% Promote a national conversation
11% Break the two-party duopoly
4% Dissolution of our representative democracy/capitalist system
4% Single payer health care
4% Pull out of Afghanistan immediately
8% Not sure

In other words, no clue.

"Influence the Democratic Party the way the Tea Party has influenced the GOP" sounds quite horrible to me. Last thing we need is more polarization and both parties moving away from the center and into extremist lunacy.

ganulv

10-27-2011, 01:04 PM

In other words, no clue.

"Influence the Democratic Party the way the Tea Party has influenced the GOP" sounds quite horrible to me. Last thing we need is more polarization and both parties moving away from the center and into extremist lunacy.

I would argue that the way it works in America is that we have this idea that everyone’s point of view is valid and has to be factored in.* There’s a further to the right wing of the Republican Party which has been dragging the American modal political narrative and policy to the right. So if you want more centrism you should consider supporting lefty loons. (I use the term ‘loon’ with my tongue firmly in cheek. To say that everyone at OWS is a loon is like saying that everyone affiliated with the Tea Party is Michele Bachmann-esque. Neither is monolithic, as the numbers above suggest for OWS. Outside of the DPRK I don’t know of a political system that celebrates a monolithic citizenry.)

*I’m not arguing that that is a good thing. I would argue that it isn’t. But that doesn’t change the basic tendency.

Misifus

10-27-2011, 01:27 PM

To a large extent true, but many people fail to appreciate how necessary those money-moving industries are, and how central the ability of money to seek return without government trying to tell it where to go has been to the economic success the US has achieved in the past. Not saying those industries couldn't use some changes - though again they have to share responsibility and the need for change with Main Street and Pennsylvania Ave - but talking about eliminating them or putting them under government control is beyond naive.

It's worth noting that nobody complains about the money-movers when bubbles are in their up phase.

Banking at its core is a middleman function comparable to trade in necessity and utility. We need saving & loan institutions for an efficient allocation of resources into investments.

It all goes wrong if
a) banks do too many other things
b) banks become incompetent at allocation (getting the risk premiums wrong, for example)
c) credit is being used too often for consumption, not investment
d9) banks begin to exploit their power instead of serving the community for a normal "profit/equity capital" ratio

Agree very much with both of the above.

motorfirebox

10-27-2011, 07:33 PM

A breakdown of responses to the open ended survey question “What would you like to see the Occupy Wall Street movement achieve?” [LINK (http://www.capitalnewyork.com/article/culture/2011/10/3790409/survey-many-occupy-wall-street-protesters-are-unhappy-democrats-who-)]
It seems to me that a more accurate picture of what they're trying to achieve might be the statement they collectively voted on (http://www.dailykos.com/story/2011/10/01/1021956/-First-official-statement-from-Occupy-Wall-Street), as opposed to a sampling that a writer for the Wall Street Journal claims is random. Worth giving at least equal consideration, at any rate.

I would agree with a slight rephrasing of the 35%, though. I would like to see OWS influence the Democratic Party to the degree that the Tea Party has influenced the GOP. I want OWS to succeed where the Tea Party failed: staying on-message, rather than haring off on issues like immigration and getting co-opted by their parent party. The really funny thing is how similar OWS's statement is to the things the Tea Party started out saying. To wit, "Holy christ, why is all the money going into the coffers of the guys that screwed us over?"

Fuchs

10-27-2011, 08:19 PM

Wall Street Isn't Winning – It's Cheating (http://www.rollingstone.com/politics/blogs/taibblog/owss-beef-wall-street-isnt-winning-its-cheating-20111025)

Dayuhan

10-27-2011, 11:39 PM

It seems to me that a more accurate picture of what they're trying to achieve might be the statement they collectively voted on (http://www.dailykos.com/story/2011/10/01/1021956/-First-official-statement-from-Occupy-Wall-Street), as opposed to a sampling that a writer for the Wall Street Journal claims is random. Worth giving at least equal consideration, at any rate.

Shopping list of left motherhood statements, no suggestion given about where they want to go or how they propose to get there. Meaningless, and unlikely to produce anything resembling real change. Note the proliferation of extraneous issues referenced, i.e.:

They have profited off of the torture, confinement, and cruel treatment of countless nonhuman animals, and actively hide these practices.

presumably to achieve "consensus".

I very much doubt that they will be able to achieve anything resembling consensus on any course of action concrete and practical enough to be meaningful, which renders them politically impotent in the long run. They will be pandered to, but they are unlikely to produce actual policy changes.

motorfirebox

10-28-2011, 12:01 AM

That's one likely outcome, but I was commenting on purpose, not efficacy.

Dayuhan

10-28-2011, 12:32 AM

That's one likely outcome, but I was commenting on purpose, not efficacy.

As far as I can tell the primary purpose is to have a good time. Demonstrations are fun. Confrontation is fun too, especially in developed nations where the cops are polite and the probability of lasting damage is minimal. Getting arrested (invariably out in 24 hrs) or coming away with a few bruises earns huge status points in the clique and is an excellent way to get laid.

Been there, done that, deep in my young and stupid past.

If there's any political purpose that's concrete enough to mean anything, it has yet to be revealed.

motorfirebox

10-28-2011, 12:51 AM

As far as I can tell the primary purpose is to have a good time. Demonstrations are fun. Confrontation is fun too, especially in developed nations where the cops are polite and the probability of lasting damage is minimal. Getting arrested (invariably out in 24 hrs) or coming away with a few bruises earns huge status points in the clique and is an excellent way to get laid.

Been there, done that, deep in my young and stupid past.

If there's any political purpose that's concrete enough to mean anything, it has yet to be revealed.
Um... I'm not denying the attraction, of course. But really, if risking tear gas and rubber bullets to get laid were really this many people's ideal pastime, we wouldn't have needed an ongoing financial crisis to trigger it. Even if all of them, right now, are just there to have as much fun as possible, it takes a pretty big societal upheaval to convince that many people that this is the most attractive option. I mean, for chrissake, if you see a bunch of kids kicking a severed head around as a soccer ball, you don't throw up your hands and say "Well, that's just what they like to do for fun," you say "Wow, how did their society get to the point where they find this acceptable?"

Kiwigrunt

10-28-2011, 01:31 AM

Parallels with great depression (http://www.nytimes.com/interactive/2011/10/26/nyregion/the-new-gilded-age.html)

Dayuhan

10-28-2011, 02:20 AM

Parallels with great depression (http://www.nytimes.com/interactive/2011/10/26/nyregion/the-new-gilded-age.html)

The "income sources" chart suggests that today's rich draw a higher percentage of their income from productive activity as opposed to rentier activity than those of 1928.

Given the rather prodigious number of other variables in the picture, correlation to causation in this case would be a pretty dramatic leap.

slapout9

10-28-2011, 05:04 AM

Link to article by Paul Ehrlich (author of the 1968 book The Population Bomb) about the very,very high risk of a Global Collapse of Society. Scary stuff.

http://populationmatters.org/2011/blog/paul-ehrlich-prophet-global-population-doom-gloomier/

Ken White

10-28-2011, 05:32 AM

He got the population bit wrong; he got the famines wrong; he lost his bet with Julian Simon. Lessee how he does on this prediction... :wry:

Fuchs

10-28-2011, 05:33 PM

That "productive activity" would be mostly CEO salaries and bonuses, right?

Those salaries multiplied -in most of the Western world- by more than an order of magnitude over the last few decades - measured in multiples of average worker income.

It's not reasonable to assume that such a relative increase of income is really warranted by productivity gains. It looks a lot more like -in most of the Western world- the powerful ones are rather rigging the system and ripping labour off.*

A somewhat lighthearted summary of one example (http://www.thedailyshow.com/watch/mon-october-17-2011/ellen-schultz) of rip-off.

* Sadly, the so-called social democrats were among their greatest allies in Germany, and the "Labour party" played quite the same role in the UK.

slapout9

10-28-2011, 08:25 PM

This pretty neat it's called Public Banking TV....has a series of videos on how the banking system really works and how to fix it. The link below is to one "Taking Control Of Our Money".

http://www.youtube.com/watch?v=IvTDTL55K1U&feature=youtu.be

Dayuhan

10-28-2011, 10:46 PM

That "productive activity" would be mostly CEO salaries and bonuses, right?

Those salaries multiplied -in most of the Western world- by more than an order of magnitude over the last few decades - measured in multiples of average worker income.

The distinction would be that a larger percentage of today's rich (as opposed to those of 1928) are actually working, rather than sitting around collecting rents. Whether or not the compensation they receive for their work is "fair" is another story. Ultimately a "fair" price for any good or service is what someone's willing to pay for it. An executive's performance or productivity is not measured in multiples of average employee income, it's measured in the ability to show the shareholders the results they want to see. Executives who fail to do this are discarded very quickly, those who succeed are rewarded.

The cult of the celebrity CEO, like so many other offshoots of the mid/late 90s "democratization" of investment, has probably done more harm than good, but like so many other vestiges of that deranged time, it will take time to work through. It would be interesting to see data on average CEO tenure... my guess is that it's a lot shorter than it once was. Two bad quarters and you're fired, two good quarters and you're looking to trade your "success" and temporary stardom into a richer deal elsewhere. Companies will pay exorbitant sums to retain a "successful" CEO or to bring in one with a reputation; this is less a function of the CEO's value to the company than of impact on shareholder perceptions. Losing your star, or failing to bring in a star, is seen as a potentially damaging blow to share price, especially in a fragile market.

I think Companies and executives pay way too much attention to daily share prices and short term results and too little to longer term planning... but that's another of those 90s things that needs to shake out a bit.

Reducing executive salaries, like raising taxes on the rich, would be aesthetically pleasing but wouldn't really do much for labor or for "the poor".

Fuchs

10-28-2011, 11:30 PM

Ultimately a "fair" price for any good or service is what someone's willing to pay for it.

NO.

Every single market failure means that this is not true. On top of that it's thoroughly illogical, for preferences vary and thus the "fair" price would be different for many customers if you were right.

No, fair prices are prices close to the market clearance level in a setting of approximately compensated market failures.

The economic policy of the U.S. is incredibly incompetent (and has been so for two generations at least). Part of the country even denies the existence of market failures and thus becomes useful idiots for those who rig the system in their favour through many market failures.
On top of that much of the legislation and executive are adding to the rigging of the system.

The U.S. is basically a longhorn cow that's being bound to a milking machine and losing substance and health.
Meanwhile, it gets horny about its oh-so great and powerful horns and many of its thoughts are about some oh-so threatening ants and about how half of its hide has a totally wrong colour.

Dayuhan

10-30-2011, 12:26 AM

NO.

Every single market failure means that this is not true. On top of that it's thoroughly illogical, for preferences vary and thus the "fair" price would be different for many customers if you were right.

No, fair prices are prices close to the market clearance level in a setting of approximately compensated market failures.

The clearing price is what buyers are willing to pay for a given good or service. If buyers aren't willing to pay the price - if they don't think the price is fair - the product doesn't sell and either the price drops or the seller goes out of business.

In any given transaction a "fair" price is one that is acceptable to both buyer and seller. What other possible definition is there?

In actual fact prices are often "different for many customers". A plain t-shirt may cost half as much as the exact same t-shirt with a brand name printed on it. For some buyers the price of the printed shirt is unfair, so they buy the cheaper one. Other buyers may be willing to pay the price to wear the brand name. In either case the actual transaction price is "fair", because it's acceptable to buyer and seller.

An executive hire is a one-off transaction; each one is different. How can someone who is not a party to the transaction determine a "fair" price for the services in question, still less impose that "fair" price on the transacting parties?

The economic policy of the U.S. is incredibly incompetent (and has been so for two generations at least).

True, though I'd have said dumb rather than incompetent. Minor distinction. Long term economic goals are often subordinated to short-term political goals, and even those are often pursued ineffectively.

Dayuhan

10-30-2011, 12:28 AM

He got the population bit wrong; he got the famines wrong; he lost his bet with Julian Simon. Lessee how he does on this prediction... :wry:

You almost have to admire a guy who can make a well-paid career out of being wrong. An interesting testament to the marketability of fear...

motorfirebox

10-30-2011, 03:18 AM

Offhand, I would add to that definition that if either party lacks significant or critical information regarding the transaction, and especially if that information has been deliberately withheld, the transaction is not fair. I would also add that if the balance of control of the transaction price is shifted too far towards one party or the other, the transaction is not fair. If, for instance, the time-sensitive nature of the transaction is used by one party to force the other to agree to a renegotiation, that can be unfair. Or, of greatest relevance to the specific concept being discussed, if one party controls so much of the market that the other simply can't negotiate, the transaction can be unfair.

Any one of these conditions, or all of them, can exist to a degree small enough that the overall transaction can be considered fair--fair enough, at any rate. The greater degree to which they exist, though, the more unfair the transaction is.

Fuchs

10-30-2011, 08:30 AM

The clearing price is what buyers are willing to pay for a given good or service.

That's simply wrong. There would be no buyer's rent if you were right.
The clearing price is the price that convinces the enough buyers.

An example:

Potential customer a:
appreciation of product: 5$

Potential customer b:
appreciation of product: 10$

Potential customer b:
appreciation of product: 15$

Quantity of product: 2

Clearing price = 10$, not the same as what c is willing to pay for it.
C's buyer's rent = 5$

In practice, the price may be just about anywhere, and the market gets cleared at all prices from 0.01$ to 10$.

In any given transaction a "fair" price is one that is acceptable to both buyer and seller. What other possible definition is there?

There are many possibilities. Market failures can turn a trade unfair, bad, even though buyer and seller agree on a price.

Examples:
* monopoly / cartel
* power asymmetry
* information asymmetry
* principal-agent problem
* externalities

The trade is unfair to a third party in the latter two, while in the first two cases it's about ripping off one party's rent.

motorfirebox

10-30-2011, 04:19 PM

In any given transaction a "fair" price is one that is acceptable to both buyer and seller. What other possible definition is there?
Not to pick on Dayuhan, but that statement really does strike me as exemplifying the problems our economic system is facing. A lot of people say things like this, and when you bring up fraud, coercion, and other issues, the response is "Well of course I didn't mean situations where one party has an unfair advantage over the other outside of the actual transaction." But the whole problem is that a particular economic sector has gotten an ongoing, massive, unfair advantage over the rest, which advantage lies outside of the actual transactions taking place. So the idea that if one party doesn't do well in a transaction, they should have tried harder/been smarter/whatever, is completely undermined to the point of being, in this context, utterly invalidated.

Ken White

10-30-2011, 04:57 PM

motorfirebox...
... and when you bring up fraud, coercion, and other issues, the response is "Well of course I didn't mean situations where one party has an unfair advantage over the other outside of the actual transaction."I'm just an unedumacated hillbilly but I think that statement is perhaps academically sound but realistically possibly a bit excessively idealistic (that's a euphemism for incredibly naive). ;)

The history of mankind is one of sellers trying to take advantage of buyers in any way they can. The 'progressive ' solution to that problem is to pass laws that preclude such advantages. The sellers solution to that problem is to buy lawmakers to the extent they control the content of such laws. Guess to whose advantage they try to shape such laws...

The solution is to realize that a way around such laws will always -- repeat, always -- be found by the sellers. Thus it would seem to me that a combination of minimal but effective laws passed by lawmakers who cannot be bought and educated buyers who are cautious in their transactions is a far better solution.

Good luck with any of that... :wry:
But the whole problem is that a particular economic sector has gotten an ongoing, massive, unfair advantage over the rest, which advantage lies outside of the actual transactions taking place. So the idea that if one party doesn't do well in a transaction, they should have tried harder/been smarter/whatever, is completely undermined to the point of being, in this context, utterly invalidated.I do not agree. I very much agree the field has been tilted. That's true everywhere to some extent but the sort of neat thing is that here in the US, we are into swing cycles -- the pendulum swings too far toward raw capitalism and then it is perceived as excessive so a swing back toward tight restrictions; Cycle repeats. I believe we are about to swing toward more restriction but the concern one should have is that the 'restrictions' contain hidden loopholes to be exploited while giving the appearance of improvement. Lulling buyers is as old as Babylon.....

However, I also believe that most thinking humans can see and understand this. They should be thus able to act accordingly.

The problem is that it is not to the advantage of the political and / or governing class to mention that fact. That would limit their ability to pass more inane laws and get larger campaign contributions.

Once again I suggest the culprit is not unfettered capitalistic greed -- it is in the design and construction of fetters and 'blame' therefor accrues to those designers, the true culprits...

All of which goes to explain why "Caveat Emptor" is older than you, me, the US and even the long defunct Roman Empire... ;)

Surferbeetle

10-30-2011, 05:34 PM

...for the hillbilly in all of us; digital nascar style jackets for our political class courtesy of:

www.opensecrets.org

Hat tip to Thomas L. Friedman's column in today's NYT, Did you hear the one about the bankers? (http://www.nytimes.com/2011/10/30/opinion/sunday/friedman-did-you-hear-the-one-about-the-bankers.html?src=me&ref=general)

Bill Moore

10-30-2011, 06:42 PM

Posted by Fuchs

That "productive activity" would be mostly CEO salaries and bonuses, right?

Those salaries multiplied -in most of the Western world- by more than an order of magnitude over the last few decades - measured in multiples of average worker income.

It's not reasonable to assume that such a relative increase of income is really warranted by productivity gains. It looks a lot more like -in most of the Western world- the powerful ones are rather rigging the system and ripping labour off.*

Agreed, and the fact that corporations can away with paying these lump sum bonuses to ineffective CEOs demonstrates the flaw in the system. Larger corporations (or consortium's of like minded Corporations) will always retain over 50% of the shares (call it the old boy's club) and will always vote in ways that result in the accumulation of more and more capital, not in ways that result in overall economic growth. The current system is rigged, so it can't be reformed legally unless Congress acts, and since the Corporations are generally global it is difficult for one country to effectively act.

Can anyone explain how large investments triggered by algorthyms that is nothing more momentum investing where millions/billions of dollars are moved from one company to the next hour after hour can truly be called investing? Again it is capital accumulation in ways that doesn't result in economic growth.

There are always apologists for the banks, even in this forum, but I suspect that is driven by propaganda. Alex Carey wrote, "the 20 century was characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of propaganda as a means to protect corporate power against democracy."

GDP does equate to development and real growth anymore. It is a meaningless number for most individuals, because the capitalist system Adam Smith wrote about where the markets ruled no longer exists. The markets are controlled by a consortium of corporate power brokers. It is extremely difficult in our current system for a young person to get a loan from a bank to start a business, which is just one indicator that the trickle down theory is deeply flawed. You can also study the IMF's philosophical approach to facilitating growth in developing countries with their structural adjustment programs, which has accurately been called the globalization of poverty. Large loans that allows the IMF to control the country's economic programs and of course charge interest (sometimes indirectly). This has resulted in a new form of mercantilism that benefits a select few and marginalizes the masses.

The greatest culprits are the banks, and the only U.S. President that had the moral courage to stand up to the banks was Andrew Jackson. The banks intentionally drove the U.S. into a recession in hopes of getting Andrew Jackson to back off, but he and Congress held the bank's feet to the fire despite the economic turmoil they intentionally created (self serving, had nothing to do with the market). This isn't a problem unique to the U.S., the Rothchilds in England were famously corrupt and would fund both sides of a conflict to hedge their bets. They(like most banks) would produce money artificially and then charge interest on it. Wow, if we could all do that we could all be millionaires without the requirement to produce meaningful services and products for society. This isn't Adam Smith's capitialism, he wrote about a market that was agnostic, but today's market is anything but agnostic, it favors the large corporations who do set unfair prices for business loans, insurance, etc. once they are able to marginalize the competition.

The silver lining perhaps is that information technology may enable democracy to actually work and effectively challenge corporate power plays in a way that will allow capitalism to work the way it was intended to work.

Surferbeetle

10-30-2011, 07:20 PM

A world without bankers and soldiers and hurt feelings (http://www.google.com/search?client=safari&rls=en&q=hurt+feelings+report&ie=UTF-8&oe=UTF-8) would be a utopian ideal wouldn't it? :wry:

I'll work on a future post about financial algorithms (http://en.wikipedia.org/wiki/Algorithm), derivatives, (http://en.wikipedia.org/wiki/Derivative_(finance)) and the approximately 600 trillion USD derivatives market (http://www.c-span.org/Events/Heritage-Foundation-Discussion-on-Derivatives-Market-Regulations/10737421686/). By the way, for comparison, the World's combined GDP (http://en.wikipedia.org/wiki/Gross_world_product) is estimated to be in excess of 41 trillion USD.

GI Joe (http://www.joeheadquarters.com/joeendings.shtml)

Ken White

10-30-2011, 07:39 PM

The silver lining perhaps is that information technology may enable democracy to actually work and effectively challenge corporate power plays in a way that will allow capitalism to work the way it was intended to work.but I do admire your optimism... ;)

motorfirebox

10-31-2011, 03:03 AM

Thus it would seem to me that a combination of minimal but effective laws passed by lawmakers who cannot be bought and educated buyers who are cautious in their transactions is a far better solution.
Well, speaking of excessively idealistic... ;)

I do not agree. I very much agree the field has been tilted. That's true everywhere to some extent but the sort of neat thing is that here in the US, we are into swing cycles -- the pendulum swings too far toward raw capitalism and then it is perceived as excessive so a swing back toward tight restrictions; Cycle repeats. I believe we are about to swing toward more restriction but the concern one should have is that the 'restrictions' contain hidden loopholes to be exploited while giving the appearance of improvement. Lulling buyers is as old as Babylon.....

However, I also believe that most thinking humans can see and understand this. They should be thus able to act accordingly.

The problem is that it is not to the advantage of the political and / or governing class to mention that fact. That would limit their ability to pass more inane laws and get larger campaign contributions.

Once again I suggest the culprit is not unfettered capitalistic greed -- it is in the design and construction of fetters and 'blame' therefor accrues to those designers, the true culprits...

All of which goes to explain why "Caveat Emptor" is older than you, me, the US and even the long defunct Roman Empire... ;)
What worries me is that thinking humans who act accordingly are finding that it's better to act outside the system.

Ken White

10-31-2011, 03:31 AM

Well, speaking of excessively idealistic... ;)Which is why I added right after that "Good luck with any of that... :wry:" ;)
What worries me is that thinking humans who act accordingly are finding that it's better to act outside the system.They always have, that also varies and swings like the ol' pendulum. It waxes and wanes with the economic tides but a shadow economy has always been present and almost certainly will always be... :cool:

No worries, Mate

motorfirebox

10-31-2011, 06:06 AM

They always have, that also varies and swings like the ol' pendulum. It waxes and wanes with the economic tides but a shadow economy has always been present and almost certainly will always be... :cool:

No worries, Mate
It's a matter of degrees.

Presley Cannady

10-31-2011, 11:19 AM

This guy makes sense of it for me. It isn't our system that is broken, but key people in the system, especially senior bankers.

You can string together any random words together. Litter enough crap about "senior bankers," and you'll usually get the "amen" you're looking for.

In summary, he makes a good case that we no longer practice capitalism anymore, because the capitalists don't assume the risks, we do.

Really? What "risks" do "we" have foisted upon us by the capitalists? What was the common man's exposure to toxic assets? What was his share of the tab--say compared to the 1 percent--for floating key banks some cash for a few months?

The bankers are rewarded for failure with bailouts and large bonuses, which we pay for and we assume the risk, not the bankers.

What's this "we" stuff? The top 1 percent pay upwards 40 percent of the taxes. The top 10 percent three-quarters. Last I checked, the federal government was running a profit on TARP, and you don't see "we"--the ones actually paying for the float--complaining about the lack of a dividend. Do you?

Ken White

10-31-2011, 01:44 PM

It's a matter of degrees.That said, comfort level and ability to affect that amplitude are two very different things. That socio-political amplitude is dependent on too many factors to be easily manipulated by anyone, any group or pretty much anything -- it is what it is...

Note the existence, try to discern the amplitude and direction to plan a bit but above all emulate Bobby McFerrin. ;)

Dayuhan

11-03-2011, 08:22 AM

Ran into this chart and had to put it in here. One reason why American incomes are dropping, and why today's college grads have such poor prospects:

http://i22.photobucket.com/albums/b329/dayuhan/xEducationTabarrokpngpagespeedicgjbuxX2lih.png

To me it makes perfect sense to stop subsidizing loans, or to stop providing any publicly funded loans, to students studying subjects with little or no relevance to the economy: you want to study performing arts, great... just pay for it yourself, because your chances of paying back a loan are slim to none.

Next step would be actually subsidizing students willing to take on the rigors of economically relevant courses of study... gotta wonder what the political will factor there would be!

Presley Cannady

11-03-2011, 11:07 AM

Next step would be actually subsidizing students willing to take on the rigors of economically relevant courses of study... gotta wonder what the political will factor there would be!

No need for a political factor. Student loan default rates will take care of that in short order.

slapout9

11-03-2011, 06:56 PM

Really? What "risks" do "we" have foisted upon us by the capitalists? What was the common man's exposure to toxic assets? What was his share of the tab--say compared to the 1 percent--for floating key banks some cash for a few months?

Presley,
The Risk is at least 11 Trillion dollars! The "we" is the US Taxpayer that is on the hook for the loan guarantees. Link to what to do about the economy interview of William K. Black....the 11 trillion dollar information is towrds the end.

http://www.youtube.com/user/TheRealNews#p/u/4/vP3aCfkFuoo

Fuchs

11-03-2011, 07:07 PM

You can only arrive at such a large figure by using accounting methods that are unsuitable for the purpose.
The 11 trillion figure is obviously founded on the same poor accounting math as the recent 55 billion € HRE gaffe.

tequila

11-03-2011, 09:31 PM

What's this "we" stuff? The top 1 percent pay upwards 40 percent of the taxes. The top 10 percent three-quarters. Last I checked, the federal government was running a profit on TARP, and you don't see "we"--the ones actually paying for the float--complaining about the lack of a dividend. Do you?

Incorrect. The top 1% pays 40% of all Federal income tax, which as we all know does not equal all taxation in this country, as those of us who pay the remarkably regressive payroll tax know, as well as state and and local taxes which are also quite regressive.

http://www.ctj.org/pdf/taxday2009.pdf

Also one must reckon with the fact that the top 1% also take in a remarkably large chunk of national income and hold an even larger chunk of national wealth.

http://cbo.gov/ftpdocs/124xx/doc12485/10-25-HouseholdIncome.pdf

http://www.levyinstitute.org/pubs/wp_502.pdf

TARP was by far the smallest proportion of Federal aid to the financial community. The Federal Reserve's lending to the major banks was quite extensive, to put it mildly (http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html).

Fuchs

11-03-2011, 10:30 PM

Fair taxation has also to look at the ability to pay taxes, i.e. income.

http://graphics8.nytimes.com/images/2011/11/02/opinion/110211krugman1/110211krugman1-blog480.jpg

for comparison:
http://graphics8.nytimes.com/images/2011/11/02/opinion/110211krugman2/110211krugman2-blog480.jpg
source (http://krugman.blogs.nytimes.com/2011/11/02/a-mind-is-a-terrible-thing-to-lose/) (not someone who makes up data)

There are other statistics analysis out there that say that it's not even the top 1%, but the top 0.1% that grabbed a ridiculously disproportionate share of the national income growth.

http://graphics8.nytimes.com/images/2011/11/01/opinion/110111krugman2/110111krugman2-blog480.jpg
http://krugman.blogs.nytimes.com/2011/11/01/graduates-versus-oligarchs/

8% income share for 1/1000th of the population; this means they accumulate almost all wealth within a couple years, for the share of consumption is very low for them (low income groups can't save much if anything).

http://assets.motherjones.com/politics/2011/inequality-page25_therichest280.png

income distribution; higher Gini coefficient = more unequal
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html
The U.S. ranks 39th among totally ####ed-up Third World countries.
(Probably in an attempt to be the "Number One"? )

In other words; you can't take away much more from the lower income half of the U.S.; they've already been ripped off thoroughly in the private sector.

The economic policies of the U.S. have been totally ####ed up for three decades, fed by a full set of mythology. Academic economists are laughing at what goes as conventional wisdom on economic or fiscal policy in the U.S.. Even 17th century mercantilism was smarter than that BS.

ganulv

11-03-2011, 11:50 PM

To me it makes perfect sense to stop subsidizing loans, or to stop providing any publicly funded loans, to students studying subjects with little or no relevance to the economy:Relevance to the economy at what time scale? The expected year of graduation? A decade from now? Five decades from now? How good are we at predicting where the economy is headed, anyway?

Reframing the requirement so that employability rather than relevance to the economy might help a bit, but what of the student studying philosophy as an undergraduate (not a very employable undergraduate degree) so s/he can get into law school (a J.D. is employable, and a J.D. + passing the bar is damn employable, but don’t we already perhaps have too many lawyers)?

I personally think that universities should generally put more energy towards teaching a foundation of basic skills for a number of reasons, and future employability is one of them. I am of the opinion that in many cases—more than lots of us might want to admit—if you take someone with good basic skills they can be taught the specifics of the job. But to really make that matter our society would need to figure out a way to do retraining more efficiently when economic winds shift, and that would involve governments, schools, and the private sector being on board. Not holding my breath…

Fuchs

11-04-2011, 12:18 AM

I personally think that universities should generally put more energy towards teaching a foundation of basic skills for a number of reasons, and future employability is one of them.

That's the job description of public schools.

ganulv

11-04-2011, 12:32 AM

That's the job description of public schools.
Would that it were so. :rolleyes: I think I can understand why a European would have that impression. I remember as a 19-year-old when a college friend of mine who was a graduate of an international school in Asia mentioned that one of her high school classmates was on track to finish her undergraduate degree at an Oxbridge school in three years. I remarked that her classmate must be something of a genius and my friend remarked, “Well, the Brits expect that you already know something when you arrive at university.” The unfortunate fact is that the first couple of years of most American “tertiary” education is really the secondary education which should have been done in high school.

Dayuhan

11-04-2011, 01:04 AM

There are other statistics analysis out there that say that it's not even the top 1%, but the top 0.1% that grabbed a ridiculously disproportionate share of the national income growth.

Doesn't that rather assume that "national income growth" is simply there, and if some hadn't "grabbed it", the same income would have gone to others? What is that small number didn't seize someone else's income, but rather found some rather creative ways to enhance their own? Granted, some of those creative ways are destructive and others are or should be illegal, but that's another question.

In other words; you can't take away much more from the lower income half of the U.S.; they've already been ripped off thoroughly in the private sector

How exactly have they been "ripped off"? Did someone take something that they had? Were they paid an unreasonably low sum for their labor? Seems to me that people with valuable skills are paid quite well for their labor. The problem is that too many people have no skills or skills that have no value.

The unfortunate fact is that the first couple of years of most American “tertiary” education is really the secondary education which should have been done in high school.

That is both unfortunate and fact, and it is a large part of the reason for the current American economic trouble. If we weren't so focused on blaming Wall Street for everything we might see that more clearly.

All very well to demand high-paying jobs for all, but how do you pay upper middle class wages to people with few or no employable skills and still maintain a competitive economy?

Presley Cannady

11-04-2011, 03:27 AM

Presley,
The Risk is at least 11 Trillion dollars!

How do you figure? I'm not going to sit through one of Black's rants and try to see how this connects to what we're talking about.

The "we" is the US Taxpayer...

Specifically, the 53 percent of us that pay federal taxes. Of which almost three quarters is paid by those of us earning six-figures and higher. But wait, we're not even <i>really</i> on the hook as taxpayers, since the risk is drawn against the Fed's balance sheet. And that is secured by the bond markets; of which only the interest payment seems to hold the taxpayer's attention.

Presley Cannady

11-04-2011, 03:30 AM

In other words; you can't take away much more from the lower income half of the U.S.; they've already been ripped off thoroughly in the private sector.

Good thing no one's taking away income from the lower half of the US.

JarodParker

11-04-2011, 06:28 AM

One of the things people find unfair is the disparity between income tax and capital gains tax. They don't understand why a professional investor (let's say Warren Buffett) enjoys a 10% capital gains tax for one year's work while his secretary is taxed something like 28-35% for her sweat? While the uber-rich are supposed to be taxed at a higher rate, their money buys them access to politicians who in turn tip the scale in their favor with tax breaks and loop holes. When that's not enough, there's always creative accounting. Or even hiding your money in an offshore account (as in the UBS case). For most in the middle class, it's not about who contributes the most into federal taxes but what percentage of ones money goes to taxes. Kind of like Jesus' story about the old widow who donated her 2mites ;)

The middle class got ripped off by the banks in at least three different ways.
1) The banks sold sub-prime mortgages like hot cakes (borrowers share the blame here). Then they created and sold the mortgage backed securities causing the financial collapse. But those at the top who orchestrated the whole mess took the money and ran. People like Ken Lewis participated in one of the gnarliest transfers of wealth from the middle class to their own pockets and walked away scott free. There were no negative consequences for the banks or the bankers... in the end it's the tax payer who assumed all the risk (btw it's immaterial in this regard whether TARP is going to turn a profit). I'm all for capitalism but it can't be all reward without any downside. Banks that were too big to fail are now even bigger. And sadly the same system of compensation which encouraged all that risk taking is still in place.
2) A massive amount of middle class wealth was wiped out in the stock market. People can see it in their 401K... those who still have one. Even when the banks do make a profit, the stock holders don't see any of it because the bankers pay themselves first in disproportionate amounts to the work they put in.
3) Now, in order to match the profits of the pre-recession days, the banks are gouging (they're beyond nickel and diming) their clients with unreasonable fees.

The masses in the streets are trying to make their voices heard and wrest control away from the few, albeit very inefficiently.

Based on previous posts, it seems the 1% are taking in 25% of the income and paying 35% of the federal taxes. So if we can get the actual dollar amounts for those two figures, can we approximate the federal tax rate for said group? It's been a long day and this sounds too simple. :D

Dayuhan

11-04-2011, 06:45 AM

Fuchs

11-04-2011, 06:58 AM

Dayuhan, did you really buy into all that propaganda that the rich and super-rich "deserve" their huge income?

That's wrong in so many ways...there's a huge spread between average worker income and CEO income that hasn't been nearly as great just a few decades before. CEOs did certainly not multiply their productivity like that.

http://graphics8.nytimes.com/images/2006/04/08/business/pay.graphic.jpg
Is there any reason to believe that some executives multiplied their productivity that much while others didn't?

In the case of higher executive pay, they ripped the workers off much of their pensions. That's (in part) how they did it, and the country was so much lacking checks and balances due to gutted-down labour unions that they got away with it.

Immelt and other corporate spokespeople have suggested that pension plan shortfalls are caused by out-of-control factors such as the large number of retirees, declining stock market investment returns and competition from foreign competitors that eschew good benefits for laborers.

Schultz knows better from her extensive research. She is a reporter who has become an expert in a relatively narrow subject matter. As she writes, "What Immelt didn't mention was that, far from being a burden, GE's pension and retiree plans had contributed billions of dollars to the company's bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs — even with GE's 230,000 retirees — bleeding the company of cash. In fact, GE hadn't contributed a cent to the workers' pension plans since 1987 but still had enough money to cover all the current and future retirees."

Then Schultz delivers the clincher: GE was indeed burdened by a pension plan — the plan for top executives. The obligations of that plan, for a minuscule number of individuals compared with the 230,000 lower-level retirees, totaled $4.4 billion and had drained about $573 million from the corporate treasury over the past three years.
http://www.usatoday.com/money/books/reviews/story/2011-10-14/retirement-heist-book/50795990/1

And that's an example from some super-rich who work(ed). Many super-rich aren't productive at all.

Bill Moore

11-04-2011, 07:16 AM

Presley, it is at least entertaining to see that there are some people who cling to the myths of our system being fair and the big corporations paying their fair share.

http://www.nytimes.com/2011/01/24/business/24fees.html?_r=1&partner=rss&emc=rss&src=ig

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

http://finance.yahoo.com/blogs/daniel-gross/banks-pay-back-tarp-funds-borrowing-treasury-205658852.html

But sometimes there's less than meets the eye. Generally, banks that repaid CPP funds did so with cash raised from earnings, or by raising new outside capital. In finance and banking you always have to read the fine print. And if you go back to the report, you'll notice that the fine print accompanying the entries for each of the above exits makes reference either to Footnote 49 or Footnote 50. Footnote 49 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 using proceeds received in connection with the institution's participation in the Small Business Lending Fund." Footnote 50 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 — part of the repayment amount obtained from proceeds received in connection with the institution's participation in the Small Business Lending Fund."

All of which is to say that these banks repaid cash owed to a program run by the Treasury Department by. . . borrowing from another program run by the Treasury Department.

Replacing one form of government capital for another doesn't do anything to lessen the public sector's involvement in the system. As with the CPP, taxpayers will eat the costs if banks taking SBLF funds can't return the capital. And I'd much prefer to see banks exiting TARP on their own power. But this new wrinkle at least remedies a design flaw of the original CPP by rewarding banks for lending more and punishing them for hoarding cash.

http://www.foxbusiness.com/on-air/willis-report/blog/2011/11/02/taxpayers-still-footing-tarp-bailout-bill

Taxpayers are getting some payback on their bailout of one of the world's biggest insurance companies: AIG.

It's a drop in the bucket compared to all the money that was sent out the door through the Troubled Asset Relief Program (TARP), but still, American International Group is repaying $972 million to the U.S. treasury this week.

That brings AIG's outstanding balance from the 2008 bailout down to roughly $68 billion. That's out of the $182 billion ploughed into the company at the height of the financial crisis

According to the watchdog website Propublica - of the more than $580 billion spent so far, less than $278 billion has been paid back.

The biggest culprits are of course Fannie Mae and Freddie Mac. The mortgage twins have pocketed nearly $170 billion since 2008. The government has only recovered $28 billion.

I agree with Ken that Congress created the conditions that allowed the banks to get greedy and make terrible business decisions, but I don't agree that just because you can be stupid that you should. Of course that philosophy would explain the epidemic of obesity in our country. You don't have to drink sodas and order super size meals at your favorite fast food joint, and you probably have time to work out if you chose, but apparently obesity is the government's fault for not mandating this behavior. Our bailouts of the banks was done with tax payers money, and many of the companies that were bailed out came their executives large bonuses with tax payers dollars for failing. In a true capitalist system you are rewarded for success and punished for failure. I question anyone's sanity who claims that our current system is capitalism. It is an corrupt system controlled by a relatively few oligarchs that are finally being challenged, but it will be long and difficult road to get things back in balance again.

motorfirebox

11-04-2011, 07:31 AM

Specifically, the 53 percent of us that pay federal taxes.
Your facts are bad and you should feel bad. (http://thinkprogress.org/special/2011/10/12/341563/memo-to-erick-erickson-the-working-poor-pay-more-in-state-and-local-taxes-in-ever/)

The government takes part of the gain, but it doesn't share in any loss. If I invest well and gain, Uncle Sam is there with his hand out. If I invest poorly and lose, he's nowhere to be seen.
I understand that that is how things are supposed to be in principle. But does anybody actually believe that's how it works, now?

Good thing no one's taking away income from the lower half of the US.
Sure, because crashing the economy, forcing it to shed millions of jobs, doesn't count as taking away income. Ba-dum tsh! He's here all week, folks! Try the veal!

Dayuhan

11-04-2011, 08:23 AM

Presley Cannady

11-04-2011, 12:03 PM

Your facts are bad and you should feel bad. (http://thinkprogress.org/special/2011/10/12/341563/memo-to-erick-erickson-the-working-poor-pay-more-in-state-and-local-taxes-in-ever/)

Funny. Are you sure it only seems that way because you live in a fictional world where state and local taxes pay for federal activity?

Sure, because crashing the economy, forcing it to shed millions of jobs, doesn't count as taking away income.

No, it doesn't. For two reasons.

1. You're not entitled to a paycheck, particularly one cut by me.
2. We didn't buy houses we couldn't afford. We didn't a force a bank to lend to people who couldn't pay. We gave you ten years liquidity you probably didn't deserve. So please, by all means, go jump off a bridge for all I care.

Presley Cannady

11-04-2011, 12:10 PM

Presley, it is at least entertaining to see that there are some people who cling to the myths of our system being fair and the big corporations paying their fair share.

What myths? 75 percent of taxes are paid by six-figure earners--20-25 percent of the population--half paid by the top 10 percent and 36 percent by the top 1. To put that in perspective, the total tax receipt for the top 1 percent is 3 orders of magnitude larger than these legal bills. So don't worry about, Moore. We got you covered.

I agree with Ken that Congress created the conditions that allowed the banks to get greedy and make terrible business decisions, but I don't agree that just because you can be stupid that you should.

Then please, don't be. You've decided to go with a particular narrative because, I presume, it was the less mathematically challenging one. Really? It never once occurred to you that a conspiracy of greed involving tens of millions of home owners, loan officers, bankers, credit advocates, mathematicians, software engineers and workaday drones might be a little far fetched?

Presley Cannady

11-04-2011, 12:21 PM

http://finance.yahoo.com/blogs/daniel-gross/banks-pay-back-tarp-funds-borrowing-treasury-205658852.html

I'm assuming counting isn't out of your depth, so quick question. How many Footnote 49 and 50 repayments are listed in the 25 page report Gross links?

Presley Cannady

11-04-2011, 12:50 PM

Incorrect. The top 1% pays 40% of all Federal income tax...

And in what alternate universe is TARP funded by state and local taxes?

Also one must reckon with the fact that the top 1% also take in a remarkably large chunk of national income and hold an even larger chunk of national wealth.

No, one must not, since it has nothing to do with the fact that 47 percent of Americans aren't on the hook for TARP and 75 percent of those who are make more than six-figures a year.

TARP was by far the smallest proportion of Federal aid to the financial community. The Federal Reserve's lending to the major banks was quite extensive, to put it mildly (http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html).

As you pointed out, the top quintile holds the vast majority of assets in this country. Who do you think holds the Fed's $16 trillion in outstanding debt? But don't worry, that overnight loan to ourselves was paid back within a day with interest.

Presley Cannady

11-04-2011, 01:06 PM

One of the things people find unfair is the disparity between income tax and capital gains tax. They don't understand why a professional investor (let's say Warren Buffett) enjoys a 10% capital gains tax for one year's work while his secretary is taxed something like 28-35%

His secretary is taxed in the 28 percent bracket. His long-term gains are taxed at 15 percent. That is income deferred for a year or more. Take income from said gains within the year they were acquired, and you get taxed at your earned income rate--35 percent. By the way, this is after government already takes 15 percent to 39 percent off all a company's taxable income (including capital gains).

So...bull.

The middle class got ripped off by the banks in at least three different ways.
1) The banks sold sub-prime mortgages like hot cakes (borrowers share the blame here).

You have a funny notion of ripped off. You get an adjustable-rate mortgage to buy a house you otherwise would've never been able to get, you default, and it's the bank's fault?

Then they created and sold the mortgage backed securities causing the financial collapse.

MBS's were the only thing supporting your quest for ever expanding home ownership. So the banks ripped you off by innovating a product that all the models agreed should hedge against an increased risk of default by tripling subprime lending?

But those at the top who orchestrated the whole mess took the money and ran.

And here we get to the rub. So people who lost money predicting the housing bubble collapse before 2008 are victims according to reasoning, right?

Do you understand there two sides to any trade?

People like Ken Lewis participated in one of the gnarliest transfers of wealth from the middle class to their own pockets and walked away scott free. There were no negative consequences for the banks or the bankers...

Yeah, I guess that's why there were zero bank failures over the past 3 years. Guess ACA made out like a bandit on ABACUS. Lehman Brothers is having a banner year in 2011. Once again, do you understand that their are two sides to every deal?

...in the end it's the tax payer who assumed all the risk...

That's not even remotely true. The taxpayer that assumes any risk is the 53 percent who pay federal taxes. Of that, 75 percent of the risk goes to the 20 percent making $100,000 or more. But even then, the principle risk is held by Treasury bond holders. So tell you what, let us worry about saving the quadrillions in credit you need to power this $13 trillion economy and you just sit back, relax, and enjoy making 20 percent more while working 200 hours a year less than you (or your daddy) did fifty years ago.

Fuchs

11-04-2011, 01:26 PM

No, one must not, since it has nothing to do with the fact that 47 percent of Americans aren't on the hook for TARP and 75 percent of those who are make more than six-figures a year.

Let's assume that the Federal budget is risking losses with TARP, person A pays federal taxes and person B doesn't (but still lives in the country and is adult, pays state taxes).

Intuition is misleading here. Both A and B are "on the hook" in this case. That's an economic analogy of a system of communicating water tubes. There's certainly some rigidity in the system, but in the end all are "on the hook".

The system balances government revenues between federal and state level, and would rebalance over time if state level runs into problems. So in the end, B would be on the hook, too. He's a substitute income source to A.

Economic science has found many such cases which are similarly misleading.
For example the German social insurance payments. Employers pay 50%, employees pay 50%. In the end, employers still have no economic damage from these payments at all because economically speaking the wages are lowered accordingly. In reality labour foots the whole bill (after some sticky/rigidity effects). It usually takes some economic education in the field to spot these cases.

Fuchs

11-04-2011, 01:33 PM

Earlier you were talking about "the lower income half of the U.S." being "ripped off", now you're talking about executives at major corporations allegedly "ripping off" their workers. Workers at major corporations are generally not in "the lower income half of the U.S.".

Doesn't matter. The upper middle class didn't get appropriate real wage growth either.

Besides, it was just an example.

As an economist I do also consider 'rip offs' beyond labour compensations, such as ripping off consumer rents in bad trades (banks ripping off customers, retail ripping off customers and much more).
Economic rents are one way to go when you discuss asymmetric exploitation, but you need an economist audience to do it in full swing.

The U.S. has systematically deregulated safeguards against such asymmetric exploitation during the last 30 years and suffers accordingly. It's the price for living in money-driven ideology land.

JarodParker

11-04-2011, 07:05 PM

His secretary is taxed in the 28 percent bracket. His long-term gains are taxed at 15 percent. That is income deferred for a year or more. Take income from said gains within the year they were acquired, and you get taxed at your earned income rate--35 percent. By the way, this is after government already takes 15 percent to 39 percent off all a company's taxable income (including capital gains).
So...bull.

So what? Why should he get a break because he chose to defer his income a year? And so what, he gets hit with a corporate tax... he chose that path because the advantages outweighed the tax savings he would have under other corporate structures.
Personally I like the smaller tax burden of long-term holdings and I'm on board with Dayuhan argument about encouraging investment. But I can see how people can find the disparity to be unfair.

You have a funny notion of ripped off. You get an adjustable-rate mortgage to buy a house you otherwise would've never been able to get, you default, and it's the bank's fault?
You're intentionally taking my statement out of context here. The rip-off is not in that the subprime mortgages were made available but the rabbit hole they lead down to. The top management at many big banks created an atmosphere where line employees were encouraged to qualify anybody with a pulse for a mortgage even by falsifying applications. They did this so they can have good quarters and rake in the bonuses. And I clearly stated that the subprime borrowers shares the blame as well.

MBS's were the only thing supporting your quest for ever expanding home ownership. So the banks ripped you off by innovating a product that all the models agreed should hedge against an increased risk of default by tripling subprime lending?
I never really bought the notion that everyone should be a homeowner.
And it doesn't matter what the models showed if the input was tainted. Those MBS's were improperly rated by the agencies who were in collusion with the banks.

And here we get to the rub. So people who lost money predicting the housing bubble collapse before 2008 are victims according to reasoning, right?
I never said that. My point was that if you're going to get paid ungodly sums of money as an executive, it should be based on a track record longer than just one quarter. They should not be able to uild a house of cards and walk away as it implodes. It's like a ship's captain having to be responsible for his wake inside the harbor. Salary and bonuses should be structured in a way that CEOs create profit in a responsible manner... I say this as an investor. Otherwise it's just a ponzi scheme.

Yeah, I guess that's why there were zero bank failures over the past 3 years. Guess ACA made out like a bandit on ABACUS. Lehman Brothers is having a banner year in 2011. Once again, do you understand that their are two sides to every deal?
Lehman failed because it was the first big bank to be hit and at that point the government did not have its act together to respond as they did in later instances. Most of the other failures are in smaller regional banks who were in fact more disciplined in their lending. And there are always bank failures, even in non-crisis times. Overall, the banks/bankers did not learn a lesson.

...in the end it's the tax payer who assumed all the risk... That's not even remotely true. The taxpayer that assumes any risk is the 53 percent who pay federal taxes.
I don't seed how you can disagree with me here. I said "the tax payers assumed all risk" and you fired back with "the taxpayer that assumes any risk is the 53 percent who pay federal taxes"... aren't the 53% who pay federal taxes, taxpayers?

Of that, 75 percent of the risk goes to the 20 percent making $100,000 or more.
How did we go from the top 1% to the top 20%? $100,000? that's a nurse who works overtime, or a police lieutenant (sergeant in the big cities) or an engineer. These people share the outrage of the demonstrators.

But even then, the principle risk is held by Treasury bond holders.
You know people in the middle class are also bond holders right? 401Ks, TSPs and such.

Keep in mind that not everyone who's hurting right now took a subprime mortgage or was reckless in their personal finances or earned non-marketable degrees.

Bill Moore

11-05-2011, 09:36 AM

http://www.theatlantic.com/national/archive/2011/10/the-history-of-banking-or-a-new-meaning-for-too-big-to-fail/246159/

Interesting chart displaying how over 30 banks were consolidated into four banks over the past 20 years.

I'm not convinced this was Adams Smith's view of how capitalism should work, but obviously many disagree. When a few banks (or any business) dominate the market in a way that eliminates competition it is no longer a free market, and when that happens the market no longer determines the value of the service or the product. Too big to fail comes closer to the communist model than a capitalist model.

The too big to fail problem is compounded by the large amount of cash currently in savings. First the U.S. was criticized because its citizens didn't save enough, now that the stock market has scared people to shift money from stocks to savings, the banks have too much money to manage and their complaining they can't invest it profitably (one reason your savings interests rates are so low).

http://triplecrisis.com/greece-lehman-and-the-politics-of-too-big-to-fail/

The collapse of Lehman Brothers in 2008 introduced three new concepts to the public: Moral Hazard, Systemic Risk, and Too Big To Fail. The first was well-known but misunderstood, the second wasn’t supposed to exist but did, and the third has helped morph the legacy of the 2008 banking crisis, the explosion of government debt across Europe, into a secondary banking crisis with a pernicious twist that is perhaps the real lesson of Lehman.

We used to live in a world where banks bailed out sovereigns, but now sovereigns bail banks that are too big to fail – and the banks know it. Capitalizing upon this is now a business model. It’s a truly immoral hazard.

We made this bed, so we have to lay it for now, but tomorrow is another day.

http://www.nytimes.com/2011/11/05/business/global/global-regulators-name-29-banks-critical-to-the-financial-system.html?partner=rss&emc=rss

Global regulators on Friday named 29 banks so important to the world’s financial system that they require more capital and closer surveillance than rivals, plus a detailed plan to allow them to be wound down without taxpayer help if they hit trouble.

Presley Cannady

11-05-2011, 10:40 AM

Let's assume that the Federal budget is risking losses with TARP, person A pays federal taxes and person B doesn't (but still lives in the country and is adult, pays state taxes).

Intuition is misleading here. Both A and B are "on the hook" in this case. That's an economic analogy of a system of communicating water tubes. There's certainly some rigidity in the system, but in the end all are "on the hook".

So let me get this straight.

1. TARP is a federal expenditure.
2. Person A pays federal taxes.
3. Person B pays no federal taxes.
4. TARP repayments falter.
5. Handwaving.
6. Both Person A and Person B are on the hook.

That about right?

The system balances government revenues between federal and state level, and would rebalance over time if state level runs into problems.

What does that even mean? No...seriously.

So in the end, B would be on the hook, too. He's a substitute income source to A.

A "substitute income" source to A? What?

Economic science has found many such cases which are similarly misleading
For example the German social insurance payments. Employers pay 50%, employees pay 50%. In the end, employers still have no economic damage from these payments at all because economically speaking the wages are lowered accordingly. In reality labour foots the whole bill (after some sticky/rigidity effects). It usually takes some economic education in the field to spot these cases.

So...you're saying that the federal government sticks state governments with the bill?

Does that even make sense?

Presley Cannady

11-05-2011, 11:07 AM

So what? Why should he get a break because he chose to defer his income a year?

Because his income remains invested capital for much longer than yours, and the whole purpose of capital gains is to encourage that sort of saving.

And so what, he gets hit with a corporate tax... he chose that path because the advantages outweighed the tax savings he would have under other corporate structures.

What?

Personally I like the smaller tax burden of long-term holdings and I'm on board with Dayuhan argument about encouraging investment. But I can see how people can find the disparity to be unfair.

I can see how people can be envious of anything. I just don't give a damn.

You're intentionally taking my statement out of context here. The rip-off is not in that the subprime mortgages were made available but the rabbit hole they lead down to.

The top management at many big banks...

How many banks?

...created an atmosphere where line employees were encouraged to qualify anybody with a pulse for a mortgage...

In other words, you're pissed off that ease of acquiring credit varies over time.

...even by falsifying applications.

If you're going to accuse people of fraud, be specific.

They did this so they can have good quarters and rake in the bonuses.

Yes, who would stoop so low as to want good quarters and bonuses?

And I clearly stated that the subprime borrowers shares the blame as well.

You stated a lot. Not much of it making any sense, let alone true. How do you apportion blame for a credit crunch? You might as well take a helping for yourself.

I never really bought the notion that everyone should be a homeowner.

Funny, I don't see any evidence of you making noise to the contrary before the subprime implosion.

And it doesn't matter what the models showed if the input was tainted. Those MBS's were improperly rated by the agencies who were in collusion with the banks.

That's hilarious. You really think the securities were improperly rated? Do you even know how these securities were traded?

I never said that. My point was that if you're going to get paid ungodly sums of money as an executive, it should be based on a track record longer than just one quarter.

It is. You're career track record.

They should not be able to uild a house of cards and walk away as it implodes. It's like a ship's captain having to be responsible for his wake inside the harbor.

[quote]Salary and bonuses should be structured in a way that CEOs create profit in a responsible manner...

Which you're in no position to judge, seeing as you've a thoroughly mistaken grasp of the key facts underlying the subprime implosion and the subsequent credit crunch.

I say this as an investor.

A guy with $25 in a savings account is an investor. Impress me.

Otherwise it's just a ponzi scheme.

So your definition of ponzi scheme is any investment you have a risk of losing?

Lehman failed because it was the first big bank to be hit and at that point the government did not have its act together to respond as they did in later instances.

That's about as insightful as saying Lehman failed because it failed, which has nothing to do with the point I was addressing--specifically, your argument that there were no negative consequences for the banks and the bankers.

Most of the other failures are in smaller regional banks who were in fact more disciplined in their lending.

And you're basing that assertion on what?

And there are always bank failures, even in non-crisis times. Overall, the banks/bankers did not learn a lesson.

Oh, we learned plenty of lessons. Just not the ones you're trying to teach them, because your lessons are worthless.

I don't seed how you can disagree with me here.

It's easy. I actually know this business, and I know very little of what you've said here bears any relationship whatsoever to my industry.

I said "the tax payers assumed all risk" and you fired back with "the taxpayer that assumes any risk is the 53 percent who pay federal taxes"... aren't the 53% who pay federal taxes, taxpayers?

"Assumes any risk," as in the risk assumed by the people who actually pay taxes--a risk heavily skewed towards senior earners--is very small.

How did we go from the top 1% to the top 20%? $100,000? that's a nurse who works overtime, or a police lieutenant (sergeant in the big cities) or an engineer. These people share the outrage of the demonstrators.

Except when they're cracking skulls. Am I right?

You know people in the middle class are also bond holders right? 401Ks, TSPs and such.

Yes, I understand there's a wading pool out there.

Keep in mind that not everyone who's hurting right now took a subprime mortgage or was reckless in their personal finances or earned non-marketable degrees.

Who cares? There were such people hurting before the crisis and there will be afterwards.

Fuchs

11-05-2011, 01:15 PM

Presley; yes, that's what I wrote and meant - and it makes sense.
Maybe it takes some economic education to get my points, but they're really basic and universally accepted econ stuff.

I already mentioned that economic analysis unearths some connections that are at odds with intuition.

Small disclaimer; I wrote about medium-long term. The short term situation differs, but it is quite uninteresting in this context.

What does that even mean? No...seriously.

It means that if the federal level runs into trouble the revenue system between states and feds would adapt to the situation.

Keep in mind that additional expenses do mean additional net debt in the current situation, and this means a net debt increase for decades. That's why the long term view is appropriate, and the long term includes such adaptions.

JarodParker

11-05-2011, 05:45 PM

Wow, it seems you are getting quite emotional about this and trying to make this way too personal.

As for the rating agencies, here's a related article (http://seattletimes.nwsource.com/html/opinion/2011706874_krugman27.html) by Krugman...

No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars' worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that's not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.

The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody's and Standard & Poor's; what it has found confirms our worst suspicions. In one e-mail message, an S&P employee explains that a meeting is necessary to "discuss adjusting criteria" for assessing housing-backed securities "because of the ongoing threat of losing deals." Another message complains of having to use resources "to massage the sub-prime and alt-A numbers to preserve market share." Clearly, the rating agencies skewed their assessments to please their clients.

Senate inquiry faults rating agencies (http://www.ft.com/intl/cms/s/0/e944539e-4e6a-11df-b48d-00144feab49a,s01=1.html#axzz1clCVjtrw)

In 2007, a Moody’s analyst told a Merrill Lynch investment banker that a rating could not be finalised until the “fee issue” was resolved.
The banker responded: “We are OK with the revised fee schedule ... We are agreeing to this under the assumption that ... you will work with us further ... to try to get some middle ground with respect to the ratings.”

Presley Cannady

11-05-2011, 06:08 PM

Presley; yes, that's what I wrote and meant - and it makes sense.

Sure, in a world where "handwaving" constitutes an argument.

Maybe it takes some economic education to get my points...

Not really. All you need is a willingness to throw facts overboard.

...but they're really basic and universally accepted econ stuff.

Is that so? There's a really basic and universally accepted economic argument that people are on the hook for a federal expenditure even if they don't contribute to federal taxes?

I already mentioned that economic analysis unearths some connections that are at odds with intuition.

Yes, and I graciously ignored it as the non-sequitur it is.

Small disclaimer; I wrote about medium-long term.

Oh, so in the medium to long term we're all on the hook for spending they regardless if whether or not they have money in the pot? I should point out that you haven't even bothered to characterize how said risk is apportioned.

The short term situation differs, but it is quite uninteresting in this context.

Considering the short-term covers the life of the warrants, how is it uninteresting?

It means that if the federal level runs into trouble the revenue system between states and feds would adapt to the situation.

In other words, handwaving. Why not assume that the feds will default?

Keep in mind that additional expenses do mean additional net debt in the current situation, and this means a net debt increase for decades.

How do you figure?

Presley Cannady

11-05-2011, 06:15 PM

Wow, it seems you are getting quite emotional about this and trying to make this way too personal.

The word you're looking for is disdainful. Here's an exercise for you. Research a single improperly rated mortgage back security, that is an MBS with a AAA bestowed on a clearly risky mortgage.

Bill Moore

11-05-2011, 06:23 PM

Posted by JarodParker

In one e-mail message, an S&P employee explains that a meeting is necessary to "discuss adjusting criteria" for assessing housing-backed securities "because of the ongoing threat of losing deals." Another message complains of having to use resources "to massage the sub-prime and alt-A numbers to preserve market share." Clearly, the rating agencies skewed their assessments to please their clients.

Some are losing perspective and have resorted to personal attacks instead of challenging the opposing view, but then on the other hand this is obviously an emotionally charged topic. I suspect if Presley and I were having this conversation face to face we would be trading punches by now and then after we were both too tired to continue get a cold beer afterwards. At least when we used to trade punches over issue there was something honorable about that, unlike our current system. :D

Getting to your quote, this supports the basis of my main argument, and while none of this may truly cross the line of being corrupt (although I would be surprised if it didn't), it is dishonest. I'm getting old so my memory is failing me, but there was a famous quote by a French man who was touring the U.S. a century or so ago, and he said America will continue to be great as long as its people continue to be great. The character of our people made a strong impression on him. While I can't mathematically prove that base line character of our people, or at least many of those leading major corporations, has declined, it seems to be the case (that also includes the character of those who expect hand outs, so it is not limited to one end of the spectrum). There are numerous examples throughout history of corrupt, self-centered, shortsighted business leaders, but now due to the consolidation of the financial sector it is easier to be the norm, because the market no longer controls their behavior. They can collaborate to protect common interests and act together instead of truly competing. That is only a suspicion, but some business analysts believe it is happening.

I think an argument could be made that this same type of dishonesty is also prevalent in the U.S. Government, especially in the Departments of Defense and State, where they shamefully change evaluation criteria and manipulate data to demonstrate success where it doesn’t exist (so much for EBO). The take away is that our current cultural norm of white washing problems away with lies prevents us from solving them. In response, and rightfully so, the people have rose up to challenge the madness, whether they belong to the Tea Party, the 99%, or just individually are feed up. Getting back to the topic of this thread the next American Revolution is unfolding. The current ways will have to evolve considerably, the people are demanding it. It would be a lot easier if we could put the political philosophies aside and honestly evaluate the problems.

Presley Cannady

11-05-2011, 07:09 PM

Getting to your quote, this supports the basis of my main argument...

How do sentence fragments from emails support anything?

Bill Moore

11-05-2011, 07:13 PM

Posted by Presley, How do sentence fragments from emails support anything?

So you admit all your counter arguments on this thread are lame. Good we're in agreement for once.

Fuchs

11-05-2011, 07:16 PM

Presley, you not understanding doesn't mean that I'm wrong.

There's a difference in economic discussions between people who have studied macroeconomics and microeconomics full-time for almost five years and those who didn't.

Presley Cannady

11-05-2011, 07:55 PM

?

So you admit all your counter arguments on this thread are lame. Good we're in agreement for once.

So you admit you can't even point to a single improperly rated MBS. Good, we're in agreement for once.

Presley Cannady

11-05-2011, 07:58 PM

Presley, you not understanding doesn't mean that I'm wrong.

No, it means you've presented very little that's meaningful.

There's a difference in economic discussions between people who have studied macroeconomics and microeconomics full-time for almost five years and those who didn't.

Yes. The ability to draw on detailed, specific evidence to validate their claims.

Surferbeetle

11-05-2011, 08:06 PM

Presley, I am with Bill, Fuchs, and Jared.

Poor playground behavior as exemplified by the propaganda cable 'news' channels Russia Today/Fox/MSNBC is not a cogent argument.

You can do better, walk us through your points and display your mastery or understanding of the subject and positions you are advocating for. ;)

Fuchs

11-05-2011, 08:13 PM

Yes. The ability to draw on detailed, specific evidence to validate their claims.

I won't put four semester microeconomics into a forum format, forget about that. I'd be a millionnaire and push Mankiw from the textbook market if I could do that.

I'm not out of my territory on this subject, and unlike much else that I discuss on this forum I'm not resting my opinion on informal studies this time.

Presley Cannady

11-05-2011, 08:23 PM

I won't put four semester microeconomics into a forum format, forget about that.

And why would you do that? All you have to do is show evidence that people who don't pay federal taxes are on the hook for federal expenditures. You have the dollar amount for TARP, so if your so-called "theory" is even worth the pixels I'm reading you be able to quantify the attendant risk and the affected population.

Otherwise, it's just another snowjob.

Presley Cannady

11-05-2011, 08:28 PM

You can do better, walk us through your points and display your mastery or understanding of the subject and positions you are advocating for. ;)

Simple.

1. TARP presented little to no risk to federal taxpayers (assuming it makes sense to talk about risk where it concerns taxes), either before or after the fact. The authorized expenditure for the entire program is less than the tax receipts returned by the top 1 percent, of which only $388 billion was dispersed. TARP certainly presented no risk at all to any person who didn't pay federal taxes, as they are not contributors to any account drawn on by the federal government. Finally, what sense does it make to talk about "risks" to taxpayers? A tax doesn't have a return. A bond, however, does, and the federal government can run deficits.

2. There is no evidence whatsoever that credit agencies improperly rated any MBS derived from subprime origination. Bill and Jarod confuse MBS rating with CDO rating.

Fuchs

11-05-2011, 09:10 PM

The quantification is up to legislation, I can't help you a bit if you don't understand that.

Presley Cannady

11-05-2011, 09:27 PM

The quantification is up to legislation, I can't help you a bit if you don't understand that.

Give it a shot anyway. Draw up a scenario. Trust me, it'll be more impressive than your credential pumping.

Fuchs

11-05-2011, 09:30 PM

Presley Cannady

11-05-2011, 09:39 PM

Maybe you want to explain your interesting math for a change?

What's there to explain? Short-term capital gains are taxed as ordinary income.

Fuchs

11-05-2011, 09:44 PM

His long-term gains are taxed at 15 percent. That is income deferred for a year or more. Take income from said gains within the year they were acquired, and you get taxed at your earned income rate--35 percent.

That.

Dayuhan

11-05-2011, 10:42 PM

Doesn't matter. The upper middle class didn't get appropriate real wage growth either.

Who decides what's "appropriate"? Another subjective term to mark down with "fair" and "deserved".

The U.S. has systematically deregulated safeguards against such asymmetric exploitation during the last 30 years and suffers accordingly. It's the price for living in money-driven ideology land.

Somehow I can't convince myself that the economic problems in the US come down to insufficient regulation. Possibly this comes a bit from my 3rd world perspective, but the American populace at large seems to me less exploited than soft, pampered, overprotected, overentitled. Individually and institutionally, Americans seem to have forgotten that they need to compete. Reducing executive salaries or regulating deal-making isn't going to change that.

I never said that. My point was that if you're going to get paid ungodly sums of money as an executive, it should be based on a track record longer than just one quarter. They should not be able to uild a house of cards and walk away as it implodes. It's like a ship's captain having to be responsible for his wake inside the harbor. Salary and bonuses should be structured in a way that CEOs create profit in a responsible manner... I say this as an investor. Otherwise it's just a ponzi scheme.

As an investor, if you're holding shares in a company you don't think is managed well, you have two options. One is to go to a shareholder's meeting and make your opinion known, which is realistically pretty pointless. Another is to pull your money out and put it somewhere you think is better... no shortage of options. Demanding that the government do something about it... why bother, really?

How did we go from the top 1% to the top 20%? $100,000? that's a nurse who works overtime, or a police lieutenant (sergeant in the big cities) or an engineer. These people share the outrage of the demonstrators.

Again, this is admittedly from a 3rd world perspective, but the idea of a nurse or a cop making 100k+ a year makes the rage seem a bit superfluous. Have you any idea what people in most of the world think of that? Or of the idea of a country where people statistically classified as "poor" own cars, refrigerators, TV sets, etc...

Keep in mind that not everyone who's hurting right now took a subprime mortgage or was reckless in their personal finances or earned non-marketable degrees.

They also aren't hurting because executives are overpaid, or even because of "Wall Street", or "the bankers". Not that part of the responsibility doesn't lie there, but it's only part, and you don't get a clear handle of the problem without looking at the other parts.

JarodParker

11-06-2011, 12:38 AM

I feel compelled to respond since I was named in your post.

2. There is no evidence whatsoever that credit agencies improperly rated any MBS derived from subprime origination. Bill and Jarod confuse MBS rating with CDO rating.

The senate investigations clearly states that both were improperly rated. Here's a link (http://hsgac.senate.gov/public/index.cfm?FuseAction=Press.MajorityNews&ContentRecord_id=2778a107-5056-8059-7625-aa17151c8b72) to a press release summary. And the actual 600+pg report (http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf).

1) Inaccurate Rating Models. From 2004 to 2007, Moody’s and Standard & Poor’s used credit rating models with data that was inadequate to predict how high risk residential mortgages, such as subprime, interest only, and option adjustable rate mortgages, would perform.

2) Competitive Pressures. Competitive pressures, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings issued by Moody’s and Standard & Poor’s.

3) Failure to Re-evaluate. By 2006, Moody’s and Standard & Poor’s knew their ratings of residential mortgage backed securities (RMBS) and collateralized debt obligations (CDOs) were inaccurate, revised their rating models to produce more accurate ratings, but then failed to use the revised model to re-evaluate existing RMBS and CDO securities, delaying thousands of rating downgrades and allowing those securities to carry inflated ratings that could mislead investors.

4) Failure to Factor In Fraud, Laxity, or Housing Bubble. From 2004 to 2007, Moody’s and Standard & Poor’s knew of increased credit risks due to mortgage fraud, lax underwriting standards, and unsustainable housing price appreciation, but failed adequately to incorporate those factors into their credit rating models.

5) Inadequate Resources. Despite record profits from 2004 to 2007, Moody’s and Standard & Poor’s failed to assign sufficient resources to adequately rate new products and test the accuracy of existing ratings.

Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis.

JarodParker

11-06-2011, 02:46 AM

Somehow I can't convince myself that the economic problems in the US come down to insufficient regulation. Possibly this comes a bit from my 3rd world perspective, but the American populace at large seems to me less exploited than soft, pampered, overprotected, overentitled. Individually and institutionally, Americans seem to have forgotten that they need to compete. Reducing executive salaries or regulating deal-making isn't going to change that.
When asked about the corruption in his country, an Afghan once commented that their politicians were no more crooked than US politicians. The difference was that US politicians had found ways to legalize their corruption.
The American people get exploited enough even with all the regulation and protection. That's not to say that there aren't over regulated areas where the legislative fat need to be trimmed.
Reducing executive salaries will definitely go a long way in making the country more competitive. More money for share holders to re-invest, R&D, operations, etc. I also believe re-balancing the pay gap between employees and executives will make employees more productive. Now I'm not sure how this all would be done or even if the government should be involved but it needs to happen.
I agree with you in that there's a strong sense of entitlement in the US (from students, employees, executives and politicians) but hopefully that will be one of the things that gets adjusted as a result of the crisis. :rolleyes:

As an investor, if you're holding shares in a company you don't think is managed well, you have two options. One is to go to a shareholder's meeting and make your opinion known, which is realistically pretty pointless. Another is to pull your money out and put it somewhere you think is better... no shortage of options. Demanding that the government do something about it... why bother, really?
For a long time I was frustrated by the futility of option1 especially for retail investors. Even the big mutual funds are impotent. That's why I took option2 and voted with my feet. But even then the stock market as well as the overall national and global economies can still be taken hostage by these institution. And that's why stricter regulation is necessary.

Again, this is admittedly from a 3rd world perspective, but the idea of a nurse or a cop making 100k+ a year makes the rage seem a bit superfluous. Have you any idea what people in most of the world think of that? Or of the idea of a country where people statistically classified as "poor" own cars, refrigerators, TV sets, etc...
Yea, most people would like to have a piece of it whether through immigration or by developing their nation.
But you also have to keep in mind things like cost of living. Just a couple of years ago, the starting salary of a rookie cop in SF was $70,000 but you need like a gajillion dollars to rent a tiny apartment there. Somebody making $10,000/year which is well below the US poverty line can live like a king in most places around the world. In fact that person is in the top 13% globally (Calculator (http://www.globalrichlist.com/)). But that stat is meaningless when you have to live in the US.
And usually when you pay your cops well they tend to not do things like take bribes. When armies are paid reasonable wages, they have one less reason to mutiny, etc. At one time, FBI agents in NY used to qualify for food stamps and a return to those days would probably be a bad idea in terms of national security.

They also aren't hurting because executives are overpaid, or even because of "Wall Street", or "the bankers". Not that part of the responsibility doesn't lie there, but it's only part, and you don't get a clear handle of the problem without looking at the other parts.
I agree with you in that "wall street" and "bankers" are only part of the problem. And not everyone on "wall street" and not all "bankers" are part of the problem. But the system needs an overhaul and that's what I think the protestors are asking for.

Bill Moore expressed my sentiments in better ways than I can ever hope to...

... America will continue to be great as long as its people continue to be great... While I can't mathematically prove that base line character of our people, or at least many of those leading major corporations, has declined, it seems to be the case (that also includes the character of those who expect hand outs, so it is not limited to one end of the spectrum). There are numerous examples throughout history of corrupt, self-centered, shortsighted business leaders, but now due to the consolidation of the financial sector it is easier to be the norm, because the market no longer controls their behavior. They can collaborate to protect common interests and act together instead of truly competing. That is only a suspicion, but some business analysts believe it is happening.

I think an argument could be made that this same type of dishonesty is also prevalent in the U.S. Government... The take away is that our current cultural norm of white washing problems away with lies prevents us from solving them. In response, and rightfully so, the people have rose up to challenge the madness, whether they belong to the Tea Party, the 99%, or just individually are fed up. Getting back to the topic of this thread the next American Revolution is unfolding.

Bill Moore

11-06-2011, 02:53 AM

Posts by Dayuhan,

Somehow I can't convince myself that the economic problems in the US come down to insufficient regulation. Possibly this comes a bit from my 3rd world perspective, but the American populace at large seems to me less exploited than soft, pampered, overprotected, overentitled. Individually and institutionally, Americans seem to have forgotten that they need to compete. Reducing executive salaries or regulating deal-making isn't going to change that.

That is the great myth we tend to perpetuate. First you can't accurately classify the American populace at large, but there is a large segment of our population that is far from soft. Both adults work to make ends meet (the reality is they choose a lifestyle that requires this). Many adults have two or more jobs and work well over 60 hours a week. That isn't the norm in most parts of the world. In many parts of the world people have a culture that still values quality of life as defined by time spent with family and friends, not how many toys one has. Is there a soft and over entitled element of our society? Obviously the answer is yes, but they don't define our society. Forgetting the need to compete? I think our inability to compete in some areas is due to government regulations and in some cases lack of government incentatives (some will decry this as socialism, but we're competing in a world where other countries enable their businesses to be competitive globally, if we don't we'll continue to lose jobs), and of course it is a fact that our public schools have failed at least three generations (again government policies driven by political corrrectness).

As an investor, if you're holding shares in a company you don't think is managed well, you have two options. One is to go to a shareholder's meeting and make your opinion known, which is realistically pretty pointless. Another is to pull your money out and put it somewhere you think is better... no shortage of options. Demanding that the government do something about it... why bother, really?

So you're making an argument that only the big boys with automated investing tools that move money from one stock to another based on algorithyms (which sure as hell isn't investing, its gambling) is O.K.? The individual investor should quit whinning and accept a 1-2% return on his savings to prepare for retirement? There is also a considerable lack of transparency due to the lack of oversight, which frankly I don't think can be fixed without forming a large government bureaucracy that will only make things worse. It can only be fixed by corporations and the financial sectors embracing business ethics as the norm, versus the exception.

Again, this is admittedly from a 3rd world perspective, but the idea of a nurse or a cop making 100k+ a year makes the rage seem a bit superfluous. Have you any idea what people in most of the world think of that? Or of the idea of a country where people statistically classified as "poor" own cars, refrigerators, TV sets, etc...

Having been to the Philippines many times over the past 30 years, we both know a $100,000.00 goes a lot further in there than in the U.S., so even comparing our situation to the Philippines is an exercise in futility. I sure as heck hope we don't think it is O.K. to allow our society to get reduced to that level. Of course poverty in Africa, South Asia, Latin America and Southeast Asia is much more extreme than it is in the U.S., so what? We built a better system that is now in danger of collapsing due to some structural issues, ethical issues, and a failure to adapt to modern realities. We have thousands of American families who are homeless now, and while you may not see that from your seat, I see them camping under highways, crammed into cheap hotel rooms, or just parked on the street living out of their car. Their kids will be trapped in the poverty cycle if we don't fix our schools, and then soon enough we'll be able to draw parallels between the Philippines and the U.S. which will be pretty darn sad if we let this happen.

They also aren't hurting because executives are overpaid, or even because of "Wall Street", or "the bankers". Not that part of the responsibility doesn't lie there, but it's only part, and you don't get a clear handle of the problem without looking at the other parts.

You're wrong about this, it goes back to the culture of corruption where CEOs are rewarding for non-performance and those who had value to the company are punished with salary reductions or layoffs to increase the bottom line. I have listened to numerous interviews with CEOs, and some of them are quite frank about this. One example was a furniture company in NC that is doing well, but due to the challenging times everyone including the CEO agreed to pay reductions. The CEO is loyal to his employees and shares the profits and losses. They interviewed another CEO about how he is doing business, and he said if he could run the company he would lay off up to 30% of the work force so he could increase the profit margin and drive up the stock price, making money is the name of game. There was at least one study that stated these CEOs who get hired to reduce costs (reduce the workforce) to increase the bottom line were effective in the short term, but over the long term (and they never stayed for more than 3 years) the Company actually produced less value because the work force was decimated. Technology also plays a role, but it isn't just technology that is leading to these layoffs. It is about the big dogs who own 51% or more of company's stock that are driving these decisions. Does this system really serve America's best interests?

Presley Cannady

11-06-2011, 07:19 AM

That.

What about that? It's just the law. You dispose of capital gains in the year of acquiring the asset, you pay taxes on the take as ordinary income. You defer for a year, you pay at 15 percent.

Presley Cannady

11-06-2011, 07:22 AM

The senate investigations clearly states that both were improperly rated.

Both? How do you figure?

Fuchs

11-06-2011, 12:54 PM

What about that? It's just the law. You dispose of capital gains in the year of acquiring the asset, you pay taxes on the take as ordinary income. You defer for a year, you pay at 15 percent.

But why do you think that this is not an extraordinarily low tax rate?

Deferring tax payments should drive taxes rate up, for the government didn't get the money earlier and had to substitute for it by lending money on which it had to pay interest during the period.

Presley Cannady

11-06-2011, 02:26 PM

But why do you think that this is not an extraordinarily low tax rate?

Because I didn't take the money for a year? And a year from now, my net gains may be negative?

Deferring tax payments should drive taxes rate up...

Deferring income generally doesn't.

Fuchs

11-06-2011, 03:26 PM

Because I didn't take the money for a year? And a year from now, my net gains may be negative?

...which is in part a risk of the government, for its tax base in this case may become negative at the same time. There's no reason in this for a reduction of tax rate.

Deferring income generally doesn't.

Yeah, but that's an intentional (lobbied) advantage for capital investors over labour income. That's my point.

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

Capital gains are generally taxed at a preferential rate in comparison to ordinary income (26 U.S.C. §1(h)). This is intended to provide incentives for investors to make capital investments, to fund entrepreneurial activity, and to compensate for the effect of inflation and the corporate income tax.
(my emphasis)
The mentioned compensation isn't a good justification for those tax rates, as financial math calculations of 1st semester quality reveal (and actually, a quick look at the different tax rates shows it as well).

The effect is of course regressive, i.e. lower income groups are being disadvantaged (kinda 'trickle down economics' again).

Look at the table in that link.
The long-term capital gains tax rate is clearly regressive in comparison to the short-term one (a difference that cannot to be justified with in both cases identical corporate income tax or inflation!).

Macroeconomically it's on first sight not important which group of the population owns capital, for consumption of the different groups is another data point and owned but not consumed wealth is akin to an illusion.

But on second sight there's a huge difference, for wealth means control, means power. The concentration of wealth has many undesirable effects that are not apparent on the typical very much aggregated macroeconomic data tables.
Concentrated wealth drives up economic distortions and market failures, even lobbied (and thus usually misguided) regulation. It leads to stuff like 'privatised profit, socialised risk'.

A regressive tax system that ends up fostering wealth concentration (and that's the unquestionable macro trend in the U.S. and, sadly, for a different set of reasons also in Germany) is a poor tax system. It's perfectly fine when people express their disgust and lobby with demonstrations against wealth and power accumulation by 1 % (if not 0.1%) of the population.

motorfirebox

11-06-2011, 03:36 PM

Funny. Are you sure it only seems that way because you live in a fictional world where state and local taxes pay for federal activity?
Hey, look, you guys love that 53% number, and no matter how you cut it, it's the wrong number. The number is 47%, and that's an unusually high spike. Furthermore, the statement that started this ridiculous 53% thing says "pay taxes in America". It doesn't say "pay Federal taxes," it says "pay taxes". If you don't like people to respond as if you made a broad statement that contains factually incorrect subsets, then don't make broad statements that contain factually incorrect subsets.

No, it doesn't. For two reasons.

1. You're not entitled to a paycheck, particularly one cut by me.
2. We didn't buy houses we couldn't afford. We didn't a force a bank to lend to people who couldn't pay. We gave you ten years liquidity you probably didn't deserve. So please, by all means, go jump off a bridge for all I care.
Well, luckily, unless you're one of the banks that got bailed out, you're not being asked to cut anyone a paycheck. And if you are one of those banks, then it's very likely that you're not in the 53% oops I mean 47% anyway! But I'm going to assume that you're not a bank, because banks don't generally make forum posts.

And why are you mad at OWS anyway? "Ten years of liquidity you probably didn't deserve" doesn't really describe very much of OWS (http://news.yahoo.com/nyc-arrest-records-many-occupy-wall-street-protesters-045625415.html). In fact, it more accurately describes the banks that OWS is protesting.

Presley Cannady

11-06-2011, 05:32 PM

...which is in part a risk of the government, for its tax base in this case may become negative at the same time. There's no reason in this for a reduction of tax rate.

Which has what to do with what?

Yeah, but that's an intentional (lobbied) advantage for capital investors over labour income. That's my point.

So?

The mentioned compensation isn't a good justification for those tax rates, as financial math calculations of 1st semester quality reveal (and actually, a quick look at the different tax rates shows it as well).

Come again?

The effect is of course regressive, i.e. lower income groups are being disadvantaged (kinda 'trickle down economics' again).

How do you figure? There's a 15 to 35 percent tax rate on corporate income on top of the capital gains tax, so the effective rate is at least 30 percent.

The long-term capital gains tax rate is clearly regressive in comparison to the short-term one (a difference that cannot to be justified with in both cases identical corporate income tax or inflation!).

I don't think "regressive" means what you think it means. You'll forgive me if I don't waste time on the superfluous abuse of jargon in the remainder of your post.

Presley Cannady

11-06-2011, 05:34 PM

Hey, look, you guys love that 53% number, and no matter how you cut it, it's the wrong number.

Nope, it's the right one. We're talking about TARP, which is a federal expenditure. Only 53 percent of Americans pay federal taxes. Therefore, the tax dollars of those 53 percent of Americans are the only tax dollars at issue here.

And why are you mad at OWS anyway?

Because they're a bunch of shiftless know-nothings who smell funny.

Fuchs

11-06-2011, 05:48 PM

It's kinda pointless to discuss with someone who doesn't grasp arguments.

Well, at least I turned around the primitive 'discussion' tactic of "attacking, attacking, attacking without regard for counterarguments".
I've experienced that tactic often enough from certain quarters and it feels nice to break it for once with a counterattack. :D
After all, you cannot win by defending only (even if the attack is totally misguided and repetitive).

There's no point in trying to convince people who -even if they understood or at least recognised arguments - are deep in cognitive dissonance trap anyway.
Such 'discussions' are at most useful to keep bystanders from buying into some nonsense, but such an indirect approach is kinda weird.
Psychologists should do some research on how to circumvent crappy discussions and how to empower rational argumentation. It would be a great service to mankind if they made progress in that field.

motorfirebox

11-06-2011, 06:30 PM

Because they're a bunch of shiftless know-nothings who smell funny.
I truly despair for future generations of self-inflated blowhards if that's the best you can come up with. How are America's children supposed to learn to avoid engaging substantively on facts that disprove their paradigms by instead engaging in personal attacks, if you continue to set such a weak example by using transparently dismissable attempts at insult?

Presley Cannady

11-06-2011, 08:53 PM

It's kinda pointless to discuss with someone who doesn't grasp arguments.

It's kind of pointless to discuss finance with someone whose entire "argument" boils down to "I fancy myself an economist, so jibberish."

Presley Cannady

11-06-2011, 08:54 PM

I truly despair for future generations of self-inflated blowhards if that's the best you can come up with. How are America's children supposed to learn to avoid engaging substantively on facts that disprove their paradigms by instead engaging in personal attacks, if you continue to set such a weak example by using transparently dismissable attempts at insult?

Are you a child?

Dayuhan

11-06-2011, 09:41 PM

But why do you think that this is not an extraordinarily low tax rate?

Deferring tax payments should drive taxes rate up, for the government didn't get the money earlier and had to substitute for it by lending money on which it had to pay interest during the period.

Missing the point, I think. Deferring the sale of investment doesn't defer the tax payment, it defers the income. You can't tax hypothetical gain on an unsold investment, because it's unrealized and there's nothing to tax.

The point of taxing gain on investments held less than a year as "income" (higher rate) and those held longer as "capital gain" (lower rate) is to create an incentive to keep capital invested longer, taxing day traders and investment-flippers at a higher rate. I don't see how that's a legislated advantage for wealth over labor in any way.

Warren Buffet does well out of it because he buys and holds, which is what the incentive is meant to persuade him to do. A dollar invested does the country more good than a dollar turned over to the government, and keeping the dollar invested does a whole lot more than the extra $.20 or so that the government would get if it's held less than a year.

Fuchs

11-06-2011, 10:32 PM

I don't see how that's a legislated advantage for wealth over labor in any way.

Labour income doesn't get the "incentive" despite being about 2/3 of factor input for economic output. That's a legislative distortion of the input markets.

And of course it benefits the wealthiest way out of proportion because the lower and lower middle class don't own much capital.

The U.S. lacks capital investment (last year it had not even enough for replacing the depreciated parts of the capital stock), so a policy that distorts in favour of more capital investment may be useful (which doesn't mean it's not distorting or not favouring the rich).

A reduced taxation of private investments in general is worse than a shotgun approach to the problem, though.
Capital investment in the macroeconomic meaning (the one that's lacking) is actual buying of machines, construction of factory buildings or even government's ordering of construction of highways and that kind of stuff.
Capital gains on the other hand can be (and are in great part) about the service economy or not even about any real economy at all. Even worse; afaik you may buy Brazilian stocks or state bonds and still get the 'preferential' treatment by the tax code.

The low capital gains tax rates are such a horribly inefficient tool for fostering (macro-sense) domestic capital investment that this function is 90% lie and 10% fig leaf.
That tax code is not pushing for a better economy; it's saving the rich people taxes. Being a distortion of factor input markets, it's not much else than a redistribution of income (and thus wealth) from the employed parts of the lower and lower middle class (mostly) to the upper class (and mostly to the top 0.1%).

It's a common occurrence that something looks on the surface justified by nice economic policy goals as described by politicians, lobbyists and at times Wikipedia et al - and in reality even a casual analysis by a trained economist exposes it as a distortion driven by lobbyists (=money in policy) in favour of a special interest group or more.

Germany has the same problem. A quick look at the mineral oil tax code of Germany makes me puke in an instant. I begin to swear and then I puke.
*Need to switch to another activity right now, for I remembered that ####ty tax code for too many seconds.*

Deferring the sale of investment doesn't defer the tax payment, it defers the income.
When income happens, tax happens. When income happens later, tax happens later. Quite indisputable, me thinks.

Dayuhan

11-06-2011, 11:48 PM

Labour income doesn't get the "incentive" despite being about 2/3 of factor input for economic output. That's a legislative distortion of the input markets.

It's an intentional distortion designed to reward behaviour deemed desirable: holding investments rather than flipping them. What do you see as undesirable, the goal or the method? I'll grant the incentive hasn't been as successful as it was intended to be, but does that argue for a weaker incentive or a stronger one?

Do you see no benefit to labor in rewarding medium and long term investment (the type more likely to create jobs) over day trading and flipping?

When income happens, tax happens. When income happens later, tax happens later. Quite indisputable, me thinks.

Investment income isn't income of any kind until the investment is sold. Defer the sale, defer the income, defer the tax. Can't tax income that isn't there, and until it's realized it isn't there.

Bill Moore

11-07-2011, 12:07 AM

posted by Fuchs

That tax code is not pushing for a better economy; it's saving the rich people taxes. Being a distortion of factor input markets, it's not much else than a redistribution of income (and thus wealth) from the employed parts of the lower and lower middle class (mostly) to the upper class (and mostly to the top 0.1%).

The tax code is based on the political philosophy of trickle down economics, which in my "opinion" doesn't work, has never worked, nor will work. It runs contrary to human nature. On the other hand we have the extreme left that desires to remove all incentative for performance from the system and put everyone in gray clothes and embrace the Maoist form of communism, which is even worse than the trickle down philosophy. The biggest challenge we have in the U.S. is moving the debate away from extreme political philosphies not supported by the data to addressing how we can honestly define and then tackle our economic problems.

Fuchs

11-07-2011, 12:21 AM

It's an intentional distortion designed to reward behaviour deemed desirable: holding investments rather than flipping them. What do you see as undesirable, the goal or the method? I'll grant the incentive hasn't been as successful as it was intended to be, but does that argue for a weaker incentive or a stronger one?

Do you see no benefit to labor in rewarding medium and long term investment (the type more likely to create jobs) over day trading and flipping?

There's no difference in macroeconomic terms. There's only savings (= investment) and consumption. The real economy doesn't mind directly whether two individuals keep a share of one company A and company B respectively forever or if they exchange the shares every minute.

There are no doubt some benefits in other views than the macro view, but they do most certainly not justify a three-digit billion $ market distortion.
This should weigh heavily in the land of the free market fanbois

Investment income isn't income of any kind until the investment is sold. Defer the sale, defer the income, defer the tax. Can't tax income that isn't there, and until it's realized it isn't there.

He argued that somehow deferral justified the lower rate. I did just argue on that basis.
We can ignore the deferral of both income and taxation, but then we end up with no justification for different tax rates whatsoever.
I'm fine with that view, but nobody can have it both ways. Either we talk about deferral (BOTH income and taxes) or we ignore the deferral because the hypothetical early realisation is just an illusion anyway.
Both ways I have a strong position. I won't accept a scenario in which deferral is only applied to tax, but not to revenue, though.

Presley's lack of economic expertise is in this discussion visible by his non-use of the strongest argument pro lower capital gains tax rates: Inflation. In fact, I was the only one who mentioned it so far in an apparently successful preventive move.
This argument justifies a somewhat lowered rate (but only one that's lowered according to inflation, not a fixed rate that's independent from both inflation and duration of investment!).
I do thus conclude that his opinion is not based on his own analysis, but on propaganda that was fed to him and that he absorbed properly (albeit apparently incompletely).

As I wrote earlier; there are so much better ways of distorting the markets in favour of more capital investment that the capital gains tax rates can in my opinion only be seen as overwhelmingly special interests gift, and only by a tiny part as steering the economy towards something useful.

Keep in mind that the manufacturing part (primary and secondary sector) of the U.S. economy is only about 22% of GDP. The capital gains tax applies to capital gains from all 100% - and from "investments" abroad. Now keep in mind windfall gains.

In the end (and this might shock the average U.S. citizen) it would be better (=less bad) economic policy to take the full tax rate (=higher revenue, NOT smaller no matter what Laffer curve fantasies say) and make public capital investments into manufacturing capacity or manufacturing-enabling infrastructure.

Giving gifts to capital owners in general instead of for capital investments (in macroeconomic sense) is so much bad policy that it's probably not even economic policy any more.
Then again, we're talking about a country in which "small business" fetishism, Laffer curve and "trickle down economics" dominate the public discourse on economic policy, while behind closed doors the political circus is overwhelmingly being financed by special interests.

Sadly, Germany isn't a good example in regard to the latter, either.

Bill Moore

11-07-2011, 12:31 AM

While frustrated with corporate corruption and the disregard of ethics (placing greed above all else), I don't necessarily think our tax system is as out of whack as some imply.

http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

Individual income taxes and payroll taxes now account for four out of every five federal revenue dollars. Corporate income taxes contribute another 12 percent. Excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts (earnings of the Federal Reserve System and various fees and charges) make up the balance. The composition of tax revenue has changed markedly over the past half century, with payroll taxes contributing an increasing, and corporate income and excise taxes a decreasing, share of the total, but the share provided by individual income taxes has remained roughly constant.

http://www.npr.org/templates/story/story.php?storyId=125997180

SIEGEL: And if we looked at, say, the top 20 percent, the top fifth of all incomes in the U.S., who would that be and how much do they pay?

Mr. WILLIAMS: The top fifth starts a little bit above $100,000. That group makes about 56 percent of all income and pay about 70 percent of all taxes.

SIEGEL: So when it comes to the federal income tax, at least, we have a progressive system. The more you make, the more you pay. The less you make, the less you pay. But we pay other taxes, most notably the federal payroll tax. How many Americans pay more in payroll tax, FICA tax, than in income tax?

Mr. WILLIAMS: If you consider both the share paid by the employee and by the employer, which most economists think is borne by the employee, about 75 to 80 percent of us pay more payroll tax than income tax. Only 13 percent don't pay either one of the taxes a far cry from the 47 percent who get out of the income tax.

SIEGEL: And for what percent is there actually a negative income tax? What percent is actually benefitting from, say, the earned income tax credit so that the federal government is giving them money?

Mr. WILLIAMS: We estimate perhaps 40 percent of more of Americans are getting some money back. That's because we've made a number of the credits refundable. So if it takes your taxes down to zero, it can take it below zero and result in a payment.

http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

6. What is the economic logic behind these lower tax rates?

As legend has it, the famous “Laffer Curve” was first drawn by economist Arthur Laffer in 1974 on a cocktail napkin at a small dinner meeting attended by the late Wall Street Journal editor Robert Bartley and such high-powered policymakers as Richard Cheney and Donald Rumsfeld. Laffer showed how two different rates—one high and one low—could produce the same revenues, since the higher rate would discourage work and investment. The Laffer Curve helped launch Reaganomics here at home and ignited a frenzy of tax cutting around the globe that continues to this day. It’s also one of the simplest concepts in economics: lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and will often produce more tax revenue rather than less. Since the Reagan tax cuts, the United States has created some 40 million new jobs—more than all of Europe and Japan combined.

7. Are lower tax rates responsi#ble for the big budget deficits of recent decades?

There is no correlation between tax rates and deficits in recent U.S. history. The spike in the federal deficit in the 1980s was caused by massive spending increases.

The Congressional Budget Office reports that, since the 2003 tax cuts, federal revenues have grown by $745 billion—the largest real increase in history over such a short time period. Individual and corporate income tax receipts have jumped by 30 percent in the two years since the tax cuts.

Dayuhan

11-07-2011, 01:01 AM

Reducing executive salaries will definitely go a long way in making the country more competitive. More money for share holders to re-invest, R&D, operations, etc.

You'd think so, but it generally doesn't work out that way. When you work out the actual money paid to the very small number of executives, per company, cutting it by half or two thirds would give you but a drop in the bucket. The actual impact on the Company's balance sheet or operations would be pretty minimal.

For a long time I was frustrated by the futility of option1 especially for retail investors. Even the big mutual funds are impotent. That's why I took option2 and voted with my feet. But even then the stock market as well as the overall national and global economies can still be taken hostage by these institution. And that's why stricter regulation is necessary.

I didn't mean to suggest that dissatisfied investors should take money out of the markets, but that they should shift it to companies they feel are better managed. There are thousands of options, many of which (the ones you never read about in the news) are just doing business and getting on with it.

Institutional investors (mutual funds, pension funds, etc) aren't exactly impotent. They don't apply their leverage by voting at shareholder meetings or trying to change management, because they recognize that they haven't the expertise and they'd rather not bother trying to get it. If they don't like the results a company is getting, they don't try to change management, they sell the shares and buy something else.

I think a lot of the less savory trends in modern corporate management were actually boosted by the rise of individual retail investors in the mid 90s. Before then almost everybody invested through institutions. The institutions were a lot more patient: they were well diversified and had a longer horizon. The analysts who advised them actually understood the businesses, read every word of the SEC filings. They were less concerned with quarterly results than with medium to long term company and industry trends.

When the boom in individual investment hit a lot of that changed. The guys who were trading on their own didn't read a 10Q, they just looked straight to the revenues and EPS. They were impatient. They didn't want to hit singles, they wanted home runs. By 98 or 99 even home runs weren't good enough, they wanted grand slams. They weren't huge, but there were lots of them, and they traded a lot, way more than most institutions. Executives were under a whole lot of pressure to deliver short term results... those that did got big rewards, those that didn't got the axe. Don't just look at how much they are paid, look at how executive turnover has spiked up and tenure has dropped. Company has 2 bad quarters, shares are diving, have to show the investors something... show them the head of the CEO and spend big bucks to bring in some new star who's going to turn everything around.

The whole 90s psychosis, the trade-it-yourself attitude and the perception of investing as a way to make the one killer deal that will set you up forever, rather than a way to gradually build value over a period of time... it's had a really nasty impact on the financial scene, and a lot of people who weren't watching in those days don't realize the extent to which it was driven from the bottom up. I remember in those days discussing "the barber rule": if your barber is talking to you about dot com IPOs (or, in retrospect, real estate deals) it's time to sell everything quick.

I can think of no more consummately boring field of study than "modern portfolio theory" - the prevailing wisdom in the financial word circa 1990 - but these days we could use a bit more of it. Of course now we'd have to call it ancient portfolio theory.

But you also have to keep in mind things like cost of living. Just a couple of years ago, the starting salary of a rookie cop in SF was $70,000 but you need like a gajillion dollars to rent a tiny apartment there. Somebody making $10,000/year which is well below the US poverty line can live like a king in most places around the world. In fact that person is in the top 13% globally (Calculator (http://www.globalrichlist.com/)). But that stat is meaningless when you have to live in the US.

You also have to keep in mind the quite exorbitant standard of what Americans call "living". It's probably not so obvious to people who are there all the time, but it's just flat out shocking when you live outside and you go back once in a while to visit. It's one of the things that doesn't add up to me. Everyone talks about how much worse off Americans are, but to someone who left in the late 70s the amount of stuff, the level of luxury, the stuff Americans take for granted is absolutely astounding.

A wee illustrative anecdote:

There's an American couple that spends a third of the year in my little town, a third in India, a third in the US. They're retired teachers, living very frugally; "aging hippies" would not be an unreasonable description. They pulled in from the US a few weeks ago. Les told me that he'd taken a Greyhound bus (not a place where you meet the upper class) from Idaho to Mississippi to see relatives. He recounted with complete astonishment that every seat on the bus had an electrical outlet, the bus was wi-fi enabled, and that practically everyone on the bus was logged in on one gadget or another. Terri, his wife, who is a bit earthy by nature, interjected something like "and every one of them was on Facebook whining about being oppressed and exploited".

Anecdotal evidence, to be sure... but I wonder how many of America's enraged realize what the system they loathe has done for them, and how much they've actually got. I see it all the time in my extreme sport buddies... visiting kayakers, young guys, basically cool but very much of the idealistic left, speaking of the exploitive system and how they're among the oppressed masses while bopping around the world with thousands of dollars in high-tech gear... just for the fun of it. Of course I don't say a word, but the incongruity of it does stick out just a bit.

I don't hate the OWS protestors, I just think they're pretty much irrelevant. They barely know what they're against and they haven't a clue about what they're for, beyond a lame litany of left mantras. They demonstrate no understanding of the problems for which they demand solutions, and they've no idea what solutions they want... not all that different from a cute appealing baby wailing for his teat.

We all have an issue, usually several... but I see no point in listening to people who can't be bothered to learn something about the issue and articulate reasonable solutions.

Nobody has "the solution". There isn't one. Solutions emerge through discussion and conflict among people who have varied opinions, all of them reasonable and well informed. Unfortunately that debate gets drowned out by the pointless polarized partisan shrieking.

Dayuhan

11-07-2011, 01:27 AM

We can ignore the deferral of both income and taxation, but then we end up with no justification for different tax rates whatsoever.

If you treat taxes purely as a way of raising government revenue, there's no justification. In the US, as in many other places, tax policy is often used in attempts to promote behaviour deemed desirable. Three obvious questions there:

Should tax policy be used as behaviour modification?

In any given case, is the behaviour for which an incentive is being created actually desirable?

Does the incentive actually create the desired behaviour?

In any given case that would take some looking at.

You could argue that removing the tax break for deferred sale of investments would benefit the rich, since the rich are more likely to be actively flipping investments than the middle or upper middle classes, who are more typically invested directly or indirectly through institutions that are more likely to be holding shares.

I'm fine with that view, but nobody can have it both ways. Either we talk about deferral (BOTH income and taxes) or we ignore the deferral because the hypothetical early realisation is just an illusion anyway. Both ways I have a strong position. I won't accept a scenario in which deferral is only applied to tax, but not to revenue, though.

The hypothetical income is of course illusory. If you don't sell the investment, there's no income, even if the investment has gained in value. The deferral only applies if you defer sale of the investment. If you sell, you pay tax.

Keep in mind that the manufacturing part (primary and secondary sector) of the U.S. economy is only about 22% of GDP. The capital gains tax applies to capital gains from all 100% - and from "investments" abroad.

Are you proposing that investment in manufacturing be treated differently than investment in non-manufacturing enterprise? Or that a different set of incentives be granted to investment overseas (very difficult to quantify with so many companies having both US and non-US operations)?

In the end (and this might shock the average U.S. citizen) it would be better (=less bad) economic policy to take the full tax rate (=higher revenue, NOT smaller no matter what Laffer curve fantasies say) and make public capital investments into manufacturing capacity or manufacturing-enabling infrastructure.

That assumes that a decision has been made to prioritize manufacturing over non-manufacturing investment and award a unique incentive to manufacturing investment.

The US government being what it is, the added tax rate would most likely disappear into the black hole with no capital investment being made

JarodParker

11-07-2011, 03:37 AM

Originally Posted by JarodParker View Post
Reducing executive salaries will definitely go a long way in making the country more competitive. More money for share holders to re-invest, R&D, operations, etc.
You'd think so, but it generally doesn't work out that way. When you work out the actual money paid to the very small number of executives, per company, cutting it by half or two thirds would give you but a drop in the bucket. The actual impact on the Company's balance sheet or operations would be pretty minimal.
We're gonna have to agree to disagree on this one. I think executives are being compensated in disproportionate amounts relative to their contributions, at the cost of investors and employees. Banks were and still are setting aside 50%+ of their revenue for bonuses with a majority going to top management.

Here's an interesting chart (http://www.washingtonpost.com/blogs/ezra-klein/post/research-desk-how-has-the-ceoemployee-pay-gap-changed/2011/07/22/gIQANgoaYI_blog.html) about the CEO/employee pay gap...

According to the EPI figures, the average CEO received $8,917,000 in compensation in 2009, while the average production worker got $48,130. That is a ratio of 185.3 which has ballooned by more than 7 times since the 1965 ratio of 24.2. I really don't see anything that justifies such an increase. According to the Military Pay chart for 2012 (which I hope I'm reading right) an E1 with less than 4-months of service gets $1,379/month while a four-star general with 38-years of service makes $19,239/month. That's a ratio of 13.95. Even if you factor in things like BAH/BAS, I don't think the ratio will go past 20. Now, I don't expect Corporate America to adopt an "officers eat last" mentality and narrow the gap to such levels but they should at least eat together.

Originally Posted by JarodParker View Post
For a long time I was frustrated by the futility of option1 especially for retail investors. Even the big mutual funds are impotent. That's why I took option2 and voted with my feet. But even then the stock market as well as the overall national and global economies can still be taken hostage by these institution. And that's why stricter regulation is necessary.
I didn't mean to suggest that dissatisfied investors should take money out of the markets, but that they should shift it to companies they feel are better managed. There are thousands of options, many of which (the ones you never read about in the news) are just doing business and getting on with it.

I think you misunderstood my statement. I was agreeing with you that one should find other companies to invest in.

You also have to keep in mind the quite exorbitant standard of what Americans call "living". It's probably not so obvious to people who are there all the time, but it's just flat out shocking when you live outside and you go back once in a while to visit. It's one of the things that doesn't add up to me. Everyone talks about how much worse off Americans are, but to someone who left in the late 70s the amount of stuff, the level of luxury, the stuff Americans take for granted is absolutely astounding.
I assure you I'm aware how the other half lives as I've spent quite a bit of time in East Africa. It is what it is. The American middle class cannot downsize to a Thai standard of living, just like Thais wouldn't want to live at Somalia's standard of living. Everyone wants to be upward mobile. Otherwise the CEO's would forgo the high pay, bonuses and everything that comes along with it and just live like their employees. Just because somebody somewhere around the world is doing worse than you doesn't mean that you don't have a legitimate gripe.
It's also the American way to speak up against perceived injustice. The abuses Asians, Africans, Arabs etc accept by saying things like "insh Allah", Americans would never stand for. That's why our official motto should've been "Don't Tread On Me."

Dayuhan

11-07-2011, 04:01 AM

Banks were and still are setting aside 50%+ of their revenue for bonuses with a majority going to top management.

Source on that? Seems unlikely.

I really don't see anything that justifies such an increase.

How much of that is actual cash paid by the company, how much is stock options... and how are the stock options valued? n Break the actual cash component down and compare it to the overall company budget and it stops looking so big.

Neither executives nor workers are paid according to anyone's perceptions of how productive they are or how much they "deserve". A rather strange cult of the celebrity CEO has emerged, with companies competing to get "stars" whose record will impress the shareholders. It's almost like rock star or athlete pay in that sense. You've also got a trend of CEOs not lasting long... a few bad quarters and they get the sack, a few good quarters and they want to trade that "success" into a big package elsewhere... likely as a replacement for the guy who got the sack. Again, it's up to the boards of directors and the shareholders to change that, if indeed they want to. Not a terribly positive trend IMO but I really don't see what to do about it that wouldn't be worse.

I assure you I'm aware how the other half lives as I've spent quite a bit of time in East Africa. It is what it is. The American middle class cannot downsize to a Filipino standard of living, just like Filipinos wouldn't want to live like Somalis. Everyone wants to be upward mobile. Otherwise the CEO's would forgo the high pay, bonuses and everything that comes along with it and just live like their employees.

I didn't mean to compare the American middle class to Filipinos or Somalis, but to compare them to the American middle class of 30 years ago. Again, the change is only noticeable if you've been away a long time.

Of course Americans want to be upwardly mobile. I think the American habit of blaming the restrictions on their upward mobility on "wall street" generically, or on overpaid CEOs, or similar internal matters misses the point. The US walked out of WW2 with a staggering economic advantage. Every other industrial power in the world was shattered. Many powers and potential powers spent most of the next half-century either in the grip of a totally self-defeating economic system or being kicked around by the cold war. Americans didn't prosper because they were smarter or better or more efficient, they prospered because they had a huge head start.

The head start is gone. The rest of the world is in play, and they're hungry. That won't be changed by paying CEOs less or regulating banks more. It needs a retooling of American education and a completely new approach on all levels: that's on the part of small institutions and individuals and government as much as on the part of wall street and CEOs. Trying to lay the blame on the latter is satisfying (and advantageous to politicians who would rather have the electorate pissed off at wall street than at them) but it won't solve the problem.

Presley Cannady

11-07-2011, 11:05 AM

A dollar invested does the country more good than a dollar turned over to the government, and keeping the dollar invested does a whole lot more than the extra $.20 or so that the government would get if it's held less than a year.

That's largely intuition born out of Protestant work ethic and a distrust of liquidity. Here's an example. A Bangledeshi farmer grows a perishable crop only Americans will eat. Let's say this crop has about a month shelf life, so it depreciates in value every day. This farmer needs to round up as many end consumers as possible to buy his crop as soon as possible. Who's better equipped to do that? Your farmer or the "investment flipper?"

Presley Cannady

11-07-2011, 11:07 AM

The tax code is based on the political philosophy of trickle down economics, which in my "opinion" doesn't work, has never worked, nor will work.

With a 35 percent corporate tax rate, how do you figure?

Presley Cannady

11-07-2011, 11:08 AM

Do you see no benefit to labor in rewarding medium and long term investment (the type more likely to create jobs) over day trading and flipping?

No, do you?

Fuchs

11-07-2011, 11:55 AM

With a 35 percent corporate tax rate, how do you figure?

Afaik that's deductible from income tax and thus only relevant in considerations of foreign capital owners.

The U.S. tax code (and sadly, most tax codes) is full of loopholes and exceptions. The true tax payments are different than the nominal ones.
Much of the regressiveness comes from this, for lower middle class peopledon't afford advisors and cannot afford to exploit many loopholes.

Dayuhan

11-07-2011, 12:10 PM

That's largely intuition born out of Protestant work ethic and a distrust of liquidity.

I confess to having a work ethic, and to not entirely trusting people to manage liquidity effectively.

Here's an example. A Bangledeshi farmer grows a perishable crop only Americans will eat. Let's say this crop has about a month shelf life, so it depreciates in value every day. This farmer needs to round up as many end consumers as possible to buy his crop as soon as possible. Who's better equipped to do that? Your farmer or the "investment flipper?"

Unless the Bangladeshi farmer's crop is valuable enough to air freight, which it's probably not unless it's illegal, he's stuffed from the start, given how long it would take him to get the stuff to market.

I see the point, but I didn't say that type of money movement shouldn't happen, only that it doesn't necessarily need to gety a tax break. If people make money on that sort of trade, fine... that's their income, let them pay income tax on it.

Whether or not the longer-term investment that the rule in question was designed to promote is actually superior is an open question. The point is that the rule was designed not to exploit labor but to create an incentive for a type of investment that whoever wrote the rule wanted to promote. Whether tax policy ought to be used for behaviour modification is still another question, but it is used that way and will probably continue to be used that way.

Presley Cannady

11-07-2011, 06:30 PM

Afaik that's deductible from income tax and thus only relevant in considerations of foreign capital owners.

It's not.

Presley Cannady

11-07-2011, 06:37 PM

I confess to having a work ethic...

Didn't say work ethic. Said Protestant work ethic.

...and to not entirely trusting people to manage liquidity effectively.

Which is why you probably shouldn't get into the commodity trade.

Unless the Bangladeshi farmer's crop is valuable enough to air freight, which it's probably not unless it's illegal, he's stuffed from the start, given how long it would take him to get the stuff to market.

Which is why he seeks out a buyer who can sign a futures contract with a fulfillment date within reason. That buyer then turns around and sells the contract to someone else until it ends up in the hands of someone with...say...refrigeration units that can take delivery within the shelf-life.

I see the point, but I didn't say that type of money movement shouldn't happen, only that it doesn't necessarily need to gety a tax break.

What tax break? This is a transaction tax. Comparing it to an income tax is like comparing apples and oranges. Do you think it makes sense to ponder "why I have to pay 30 percent federal income tax when Johnny only has to pay 6 percent payroll?"

In any case, transaction volume is inversely proportional to its attendant costs--if you want more trade, you reduce transaction taxes. If you want less, you increase them. Why you would want less is beyond me.

motorfirebox

11-07-2011, 07:05 PM

You'd think so, but it generally doesn't work out that way. When you work out the actual money paid to the very small number of executives, per company, cutting it by half or two thirds would give you but a drop in the bucket. The actual impact on the Company's balance sheet or operations would be pretty minimal.
I don't think the money saved from reducing executive pay is the point. The point is to realign pay with output. An executive who runs his corporation into the ground and costs hundreds of thousands of jobs should not get a bonus. Reducing the pay of an executive who fails that badly is not a goal in and of itself, it's a means to disincentivize that sort of failure and to incentivize, or reincentivize, success.

slapout9

11-07-2011, 09:52 PM

Link to last nights 60 minutes interview of Jack Abramoff and how Rich People Infilltrate and Subvert the US Government....like the man says they own it!

http://www.cbsnews.com/video/watch/?id=7387331n&tag=contentMain;cbsCarousel

Ken White

11-07-2011, 10:17 PM

And this differs from every other nation and era just how? :wry:

Dayuhan

11-07-2011, 10:50 PM

If I had to choose among having the country owned by the tea party, the OWS protestors, and the rich... I think I'd go for the rich. Least of 3 evils. t least they've a clue how it works.

I don't think the money saved from reducing executive pay is the point. The point is to realign pay with output. An executive who runs his corporation into the ground and costs hundreds of thousands of jobs should not get a bonus. Reducing the pay of an executive who fails that badly is not a goal in and of itself, it's a means to disincentivize that sort of failure and to incentivize, or reincentivize, success.

An executive that cost hundreds of thousands of jobs? Where do you find one of those.

Who do you want to do the realigning? The government? We're talking about a miniscule minority of corporations anyway, so your overall impact on the economy is likely to be close to zero. Of course if you buy into the nonsense that "the banks" caused the crisis, it might look like there's sense in it... but lots of things look sensible if you buy into nonsense. They just don't seem to work out sensibly in practice.

Hasn't it ever struck you how eager politicians are to ride a bubble, cultivate it, urge its expansion, take credit for the pleasures of the upside... think of the Clintonites boasting of their balanced budget, the low unemployment, the soaring stock market, or the Bushies and their record home ownership rates... then when the bubble bursts it's all somebody else's fault? Doesn't that tell you something?

Fuchs

11-07-2011, 11:23 PM

And this differs from every other nation and era just how? :wry:

Ken, the world isn't everywhere alike, nor everytime.

Many countries have had phases in which the influence of the upper class got thoroughly demolished (even though usually it was either rebuilt or a new upper class created).

There are also countries in which the rich haven't so much influence even in normal times.
I don't claim that the rich have no above-average influence in these countries, but they certainly don't "own" the government/state in Switzerland or Scandinavian countries.

Fuchs

11-07-2011, 11:24 PM

An executive that cost hundreds of thousands of jobs? Where do you find one of those.

I'd look at Goldman Sachs.

There are plenty CEOs who wasted ten thousands of good jobs, too.

Ken White

11-08-2011, 02:34 AM

Ken, the world isn't everywhere alike, nor everytime.Why wasn't I told? Just 'cause I'm pushing 80 and have been in more Countries for longer periods than many, I can't be expected to know everything... :rolleyes:

Sheesh. :wry:

No kidding. No, of course not. Each nation is different and the way they tax and spend certainly can and does vary. Obviously era transitions engender changes in mores and attitudes -- BUT -- essentially, in most countries most of the time in recorded History, the wealthy have controlled much that governments do. That's all I said.
Many countries have had phases in which the influence of the upper class got thoroughly demolished (even though usually it was either rebuilt or a new upper class created).Thank you for making my point. That is certainly true of the US where the most recent such cycle taking the ultra wealthy down a peg or two started in the teens of the 20th Century, gained increased impetus in the 1930s, accelerated until in the late 1950s, there existed a larger and more prosperous middle class than anyone had seen before. The discontent of the late 1960s started a change and then when those ultra selfish Bay Boomers reached the zenith of their generational power, they had dismantled most of the laws and regulations that bread and sustained that middle class and the 1990s accelerated the (cyclical) rise of the more wealthy to again more blatantly manipulate the handles of power. Most of the rest of the world followed suit, Europe trailing by about five to ten years (today's 'austerity' and bailouts, anyone...), Asia by a bit more but that cycle was effectively mirrored worldwide, acknowledging that some countries were wiser than others in cycle management. :wry:
There are also countries in which the rich haven't so much influence even in normal times.Also true -- however, as we both know that has not always been the case and it is subject to change as you say -- "(even though usually it was either rebuilt or a new upper class created)." Everything goes in cycles...
I don't claim that the rich have no above-average influence in these countries, but they certainly don't "own" the government/state in Switzerland or Scandinavian countries.If I were you, I would not bet the Farm on that. It's a matter of degree of ownership -- and perception. In those nations -- and others -- discretion is far more highly valued than it is in the US. We Yankees are rather gauche -- and that's a big part of the perception problem... ;)

Bill Moore

11-08-2011, 06:47 AM

Posted by Presley Cannady,

Quote:
Originally Posted by Bill Moore
The tax code is based on the political philosophy of trickle down economics, which in my "opinion" doesn't work, has never worked, nor will work.

With a 35 percent corporate tax rate, how do you figure?

Presley I'm not sure what your angle here is so I'll address it from two different angles and hopefully touch upon your point.

Trickle down economics assumes the rich will create more jobs and distribute the wealth for the betterment of society without the interference of government. It assumes that man is basically good, but reality (in my view) doesn't support this. It is a philosophy that runs in opposition to human nature. This isn't an attack against the rich, especially those who are self made and add value to society, but against the financial system manipulaters who use a wide variety of means that add no value to acquire more and more cash.

A 35% corporate tax rate (which I happen to disagree with and agree with the bi-partisan discussions to reduce it to make our corporations competitive again) is a government led effort to redistribute the wealth, which is not trickle down economics.

Our current economic problems seem to be based largely on less than ethical behavior. Assuming I'm correct (and I remain open to be convinced I'm not) that means the so called center of gravity is human behavior and the way to address destructive behavior is through deterrence implemented through regulation enforcment, which failed to happen prior to the crisis. This cure, just like many medications, has undesirable side effects also such as stiffling growth. Longer term it would be nice if the financial sector would police itself, but I don't remain optimistic that will happen.

motorfirebox

11-08-2011, 08:32 AM

If I had to choose among having the country owned by the tea party, the OWS protestors, and the rich... I think I'd go for the rich. Least of 3 evils. t least they've a clue how it works.
I don't think I'd pick any of them. As much as I support OWS, there are large parts of the movement that go way too far. I wouldn't pick the Tea Party because I have a number of Mexican friends and because I think it's pretty silly to pay down your debts when you can't put food on the table. And I wouldn't pick the rich because I'm not particularly pleased with the job they've been doing thus far. If I absolutely had to choose... I suppose I'd go with OWS, mainly because I side with them on social issues. I think OWS is in the right place, directing anger at the right people, but I have doubts that any good solution is going to come from the movement directly.

An executive that cost hundreds of thousands of jobs? Where do you find one of those.
With almost 8 million jobs lost to the crisis, I don't think you'd have to look very hard.

Who do you want to do the realigning? The government? We're talking about a miniscule minority of corporations anyway, so your overall impact on the economy is likely to be close to zero. Of course if you buy into the nonsense that "the banks" caused the crisis, it might look like there's sense in it... but lots of things look sensible if you buy into nonsense. They just don't seem to work out sensibly in practice.
Of course I buy into the idea that the corporations who offered loans they knew would not be repaid, then lied about the value of those loans in order to sell them to investors, caused the crisis. I honestly didn't think that was up for debate.

Hasn't it ever struck you how eager politicians are to ride a bubble, cultivate it, urge its expansion, take credit for the pleasures of the upside... think of the Clintonites boasting of their balanced budget, the low unemployment, the soaring stock market, or the Bushies and their record home ownership rates... then when the bubble bursts it's all somebody else's fault? Doesn't that tell you something?
It tells me we need to vote out incumbents on both sides of the aisle. Beyond that, I don't really see anything to choose from between the behavior of politicians and the behavior of corporate officers.

Presley Cannady

11-08-2011, 11:24 AM

Presley I'm not sure what your angle here is so I'll address it from two different angles and hopefully touch upon your point.

You know, you'd get to the point a lot faster if you didn't assume you had something to teach me.

A 35% corporate tax rate (which I happen to disagree with and agree with the bi-partisan discussions to reduce it to make our corporations competitive again) is a government led effort to redistribute the wealth, which is not trickle down economics.

So how do you figure our tax code is based on "trickle down economics?"

Presley Cannady

11-08-2011, 11:25 AM

An executive who runs his corporation into the ground and costs hundreds of thousands of jobs should not get a bonus.

Why not? It's the company's money. And why should a bunch of crappy workers get a cut?

motorfirebox

11-08-2011, 06:18 PM

Edit: never mind. I don't see the point in engaging with such an obvious troll.

Presley Cannady

11-08-2011, 07:09 PM

Edit: never mind. I don't see the point in engaging with such an obvious troll.

I imagine you were going to extol the virtues of the poor, weary worker laboring under the onerous incompetence of management. It's a remarkably self-serving story, isn't it?

slapout9

11-08-2011, 07:15 PM

Link to Rachel Maddow Show interview with Catholic Bishop Gene Robinson on the OWS and how part of his job is Looking for God. Fantastic interview. There is know Economic solution to the OWS movement only a moral one IMO.
http://www.youtube.com/watch?v=0p7DWqJhotc

Lot of Boyd Theory in this interview, the Moral Level is the supreme level in
4GW especially on your home turff.

Kiwigrunt

11-08-2011, 07:50 PM

Wow Presley, you really are showing your true colours now.
Self-serving...hmmmm :rolleyes:

Presley Cannady

11-08-2011, 08:00 PM

Wow Presley, you really are showing your true colours now.
Self-serving...hmmmm :rolleyes:

I'm not the one calling for heads to roll.

Steve Blair

11-08-2011, 11:11 PM

Why not? It's the company's money. And why should a bunch of crappy workers get a cut?

And why should a crappy manager get a cut simply because he/she is a manager? Just as not everything is not necessarily the fault of management, it can't all be laid at the feet of workers. Accountability should go both ways...but it quite often doesn't.

Kiwigrunt

11-09-2011, 12:48 AM

It seems to me that this conversation is losing value rapidly due to the fact that ad hominems and generalisations are creeping in. Buttons pushed and stuff like that. I think that two main questions / themes are being blurred somewhat.
1). To what extent are some CEOs and other top players guilty of criminal conduct?
2). To what extent is a huge differentiation in income (something like 500 fold) morally / ethically / legally / economically / social fabrically / what-ever-ly, justifiable or useful or sustainable?

Me? I am a self employed builder. I guess that puts me at least pretty close to the crappy workers class:cool:.
I have no problems whatsoever with the fact that a brain surgeon pulls in more than I do. I’d be concerned if that was not the case. But how much above the median or mean should the top few be? An order of 5 to 10 or so, I’d have no issues with at all. An order of 20 to 50 or so….my eyebrows are starting to gravitate in a Northerly direction. An order of 500 or so…..I think that is beyond silly!

I don’t agree with all that John Rawls (http://en.wikipedia.org/wiki/John_Rawls) puts on the table, but I think me makes some good points. The reason the top few can achieve the levels they do is because of the existence of hordes of crappy workers. These form the physical backbone of the social fabric. That same social fabric that the top few can enjoy to extents that go way beyond their individual contribution and worth to that social fabric. The businesses that these CEOs in question lead, and to which they deliver their value, are also agents within this same social fabric. Any individual or business that puts him/her/itself (too far) above this social fabric is delusional. But they can afford to disassociate themselves, financially at least. Beyond that…..well, we’ll see what the future has in store.

Presley Cannady

11-09-2011, 02:11 AM

And why should a crappy manager get a cut simply because he/she is a manager?

Why should a crappy worker get a severance package? Or his last paycheck? Or his last hourly wages? Short answer, because that's what both parties agreed to when they contracted with one another.

Just as not everything is not necessarily the fault of management, it can't all be laid at the feet of workers. Accountability should go both ways...but it quite often doesn't.

Except some folks seem to want more accountability going one way on top of that agreed to at the time of hire, for no better reason than the form and degree of compensation is way the hell out of their experience.

Presley Cannady

11-09-2011, 02:45 AM

It seems to me that this conversation is losing value rapidly due to the fact that ad hominems and generalisations are creeping in. Buttons pushed and stuff like that.

Considering the immediate topic of interest deals with a prevailing current of ad hominem and generalization (and abundant know-nothingness where it concerns the financial sector), that's to be expected. Whether that means the conversation is losing value, I'd say consider the alternative before jumping to that conclusion.

I think that two main questions / themes are being blurred somewhat.
1). To what extent are some CEOs and other top players guilty of criminal conduct?

Is there a reason to suspect a spike in criminal conduct amongst CEOs and top players worthy of discussion here?

2). To what extent is a huge differentiation in income (something like 500 fold) morally / ethically / legally / economically / social fabrically / what-ever-ly, justifiable or useful or sustainable?

Morally and ethically, don't give a damn. People would be whining about fairness if CEOs were making only 40 times the lowest income wage earner, let alone 275.

Legally, since when is it illegal in this country to be richer than someone else?

Economically, the top 1 percent owning a quarter of the "nation's" wealth is not qualitatively different from owning 40 percent. Outrage over this statistic alone betrays a severe ignorance of what constitutes wealth, as if 40 percent of it were stuffed into mattresses by a bunch of miserly hoarders.

Socially, Americans whine after a bust. Muddle through to the recovery and the vast majority will go back to being satisfied with being in the top 1 percent of the entire world.

Sustainability has very little to do with the magnitude of wealth ownership. Even wealth parked as conservatively as possible--in Treasury bonds--finances the trillion dollar deficits the nation runs up on top of $2 trillion in tax receipts the top $900 billion the top 1 percent fork will fork over for 2012. That leaves real estate investment (which peaked at 6 percent GDP over half a century ago), equity and bonds, and consumption--the latter three of which directly reinject wealth back into the system.

Me? I am a self employed builder. I guess that puts me at least pretty close to the crappy workers class:cool:.

I have no problems whatsoever with the fact that a brain surgeon pulls in more than I do. I’d be concerned if that was not the case. But how much above the median or mean should the top few be? An order of 5 to 10 or so, I’d have no issues with at all. An order of 20 to 50 or so….my eyebrows are starting to gravitate in a Northerly direction. An order of 500 or so…..I think that is beyond silly!

Why do you care? What does it cost you?

I don’t agree with all that John Rawls (http://en.wikipedia.org/wiki/John_Rawls) puts on the table, but I think me makes some good points.

I've very little interest in philosophy, so I'll leave that to others.

The reason the top few can achieve the levels they do is because of the existence of hordes of crappy workers.

That's not true, certainly not now as some universal law and--as automation picks up the pace--eventually not even as a matter of circumstance. But even when a man gains wealth by employing labor, precisely what obligation does he have to labor beyond what was contracted? A wage is earned.

These form the physical backbone of the social fabric. That same social fabric that the top few can enjoy to extents that go way beyond their individual contribution and worth to that social fabric.

Who are you to judge whether the top few are compensated "way beyond their individual contributions?"

motorfirebox

11-09-2011, 04:31 AM

1). To what extent are some CEOs and other top players guilty of criminal conduct?
I think the extent is significant, but few--if any--charges will ever be brought. Instead, they'll throw one-off rogues like Adoboli under the bus whenever they get caught, satiating or attempting to satiate the public's hunger for justice. The collaboration between Standard & Poor's and the securitized mortgage industry alone ought to result in centuries of jailtime.

2). To what extent is a huge differentiation in income (something like 500 fold) morally / ethically / legally / economically / social fabrically / what-ever-ly, justifiable or useful or sustainable?
Hard to say how sustainable it is. There are a lot of ways the have-nots could shift the balance of power to even things out, but there are a lot of options available for counteracting those methods.

Morally/ethically, the line is the point at which those who have significant wealth are able to leverage that wealth to change the laws of commerce to the disadvantage of everyone besides themselves. There's no number at which it becomes wrong (though I could see a number which strongly indicates that something is wrong), it's the manner in which that number is used.

Bill Moore

11-09-2011, 07:06 AM

http://www.bizjournals.com/washington/news/2011/11/01/fannie-mae-freddie-mac-shell-out-big.html

The Federal Housing Finance Agency, which regulates the mortgage giants that are now under government receivership, has approved $12.79 million in bonus pay for the performance of 10 executives at Fannie and Freddie last year despite both companies posting losses in all four quarters, Politico reported.

The executives were rewarded with Wall Street-style incentives for meeting modest performance targets tied to modifying mortgages in jeopardy of foreclosure, according to Politico. Among the compensation deals was a $2.3 million bonus awarded to outgoing Freddie Mac CEO Ed Haldeman for 2010, a figure that is more than double his salary of $900,000. Fannie Mae CEO Michael Williams got $2.37 million in performance bonuses.

Tax payers dollars, requesting another tax bail out while asking for bonuses, once again a rewarding failure. This isn't capitalism.

http://www.foxnews.com/on-air/on-the-record/2011/11/08/washington-has-no-holiday-cheer-executive-bonuses-bailed-out-failed-mortgage-giants-fredd

VAN SUSTEREN: I mean, it isn't exactly good talent if -- maybe we could -- maybe we pay just to get rid of them so we don't have to pay another $6 billion next quarter!

THUNE: Right. Well, these are the guys who were brought in to kind of clean up the mess. And you know, so far, they're asking for another $6 billion. They have reduced what we think is going to be the liability of the taxpayers, though, for the Freddie Mac and Fannie Mae bailout significantly over the course of the last year.

But that being said, they're asking for an additional $6 billion in taxpayer assistance at a time when they're making these big bonus payments. And it just sounds -- it just looks terribly inconsistent, and I think it is -- it is an outrage. And I think, you know, you've got to show a little bit more of an ear for what's going on in this country right now and how important it is that we get our fiscal house in order, how important it is that we get people in the real economy back to work. This just doesn't square with that.

VAN SUSTEREN: I take it that we didn't sort of tie them up and handcuff them and drag them into these $900,000 jobs, right? They came voluntarily?

THUNE: Right, and you know...

VAN SUSTEREN: I mean, so it's, like -- (INAUDIBLE) it's not like they were forced to take -- and I -- when -- when they got these jobs, did we promise them this $13 million to be divvied up in bonuses?

THUNE: I don't know the answer to that for certain. What I know is that the Federal Housing Finance Agency, in consultation with the Treasury, sets this. Now, the president's czar sort of set the pay for a lot these things a long time ago. But I think the bonuses are probably all something that's very discretionary. And you would think if it's discretionary, you wouldn't want to make those types of payouts right now.

Now, the House of Representatives is working on legislation to reform Freddie Mac and Fannie Mae in a way that would create a new structure for the pay for these that's more consistent with what other federal employees might receive.

Government run can't be worse than what it was. Even an SES employee wouldn't come close to making that much money, and they frequently have much more responsibility (or provide more value in other terms).

Fuchs

11-09-2011, 07:28 AM

Why should a crappy worker get a severance package? Or his last paycheck? Or his last hourly wages? Short answer, because that's what both parties agreed to when they contracted with one another.

Early in my economic studies I learned about what leads to wages.
It's NOT the hardship, economic value or societal value of the work.

Let's have an example.
A plumber works normally. Suddenly, half of the plumbers in the nation die.
The next few months he'll still do the same work, but he will earn much more. Then new plumbers will arrive and few years later he'll earn only lightly more than before.

This happened with programmers in Germany. They were rare and well-paid, now they aren't rare any more - and their hourly salary has dropped 40%.
The work and performance of programmers hasn't changed much. If anything,t hey are now much more productive due to better compiling.

Wages and salaries are market prices, and as all market prices they may be distorted by market failures. One in this case especially relevant market failure is power asymmetry.
A corporation has much better negotiation power than a lone worker, and as a result the worker gets paid little.
Workers with rare qualifications have better negotiating power, and accordingly get paid more.
A common tool to balance the power asymmetry is to allow effective labour organisation and collective bargaining - workers earn more with this power of being united and accordingly, employers and shareholders hate that and lobby against labour unions.

So the wage or salary that results in market activities is not at all a fair price, but the result of market powers. It's in most cases perfectly legitimate to spot power asymmetries, point them out and demand better wages/salaries.

Sadly, the U.S. government cheers labour unions only when they're sabotaging some distant socialist country. At home they're being portrayed as evil, corrupt - in the interest of shareholders and executives.

Similarly, agreements between executives and their company can be subject to distortions as well. The principal-agent problem is strong in this.

I hope I've made clear that trust in negotiated conditions of employment and negotiated income as well as market outcomes in general must not be trusted in economic policy discussions. They are subject to distortions and a good economic policy has first and foremost to counteract major market failures.
A multiplication of the ratio between CEO pay and worker pay over the course of a generation is a big, big indicator for market failure. And it's just an example for market failures that lead to major (excessive) income inequality.

Dayuhan

11-09-2011, 08:39 AM

I suppose I'd go with OWS, mainly because I side with them on social issues. I think OWS is in the right place, directing anger at the right people, but I have doubts that any good solution is going to come from the movement directly.

I don't think they have a clue, and they're directing all of the anger at 1/3 of the problem. They also have no idea what they want, beyond a vague laundry list of left mantras. Certainly not likely that any good solution will emerge from there... to the extent that the Democratic arty feels they have to pander to them in the same way that the Republicans feel they have to pander to the tea party, they could actually increase the polarization that'x creating so much of the trouble... as usual, good solutions won't come from the extremes.

With almost 8 million jobs lost to the crisis, I don't think you'd have to look very hard...

Of course I buy into the idea that the corporations who offered loans they knew would not be repaid, then lied about the value of those loans in order to sell them to investors, caused the crisis. I honestly didn't think that was up for debate.

Surely you don't think that's all there was to it, or that these events emerged from some sort of vacuum...

It tells me we need to vote out incumbents on both sides of the aisle. Beyond that, I don't really see anything to choose from between the behavior of politicians and the behavior of corporate officers.

What makes you think the new incumbents are going to be any better, as long as Americans keep voting for whoever's best at propping up scapegoats and doling out feelgood promises? That includes people like OWS and the tea party... it's all their fault, get them under control and everything will be ok...

motorfirebox

11-09-2011, 09:12 AM

Surely you don't think that's all there was to it, or that these events emerged from some sort of vacuum...
I think they emerged from fortyish years of financial deregulation and other forms of political favor for the financial sector.

What makes you think the new incumbents are going to be any better, as long as Americans keep voting for whoever's best at propping up scapegoats and doling out feelgood promises? That includes people like OWS and the tea party... it's all their fault, get them under control and everything will be ok...
I'm not sure it's any more useful to talk about centrism than it is to talk about 'real America' or 'what most people want'. There's a huge chunk of the country that thinks Obama is a left-wing extremist. I mean, good lord.

I don't view OWS as something that creates solutions, or which can create solutions. I view it as a source of political energy. Its main purpose is to get the left angry and keep it that way. Which, frankly, the left is badly in need of.

I don't think it's accurate to compare OWS to the Tea Party anyway. The Tea Party is about immigration. The Tea Party is about closing down abortion clinics. The Tea Party is also mad at Wall Street, but when you try to talk about solutions... well, how 'bout those dang immigrants, huh? On the flip side of the coin, you can make a lot of generalizations about OWS that will probably be correct: you can say that most OWS participants are in favor of Obama's health care bill (or, if they're not, it's because the bill didn't go far enough). You can say that most OWS participants are in favor of legalizing gay marriage. You can say that most OWS participants opposed the Iraq war. But OWS remains about money and jobs and the system which creates both.

davidbfpo

11-09-2011, 05:45 PM

Moderator's Note

I have hesitated to remind some of those post here that SWC is a discussion forum. This thread has elements of acrimony and sniping as the exchanges on economics in particular have swayed back and forth. Please consider what you post.

In an interview on SWJournal Dayuhan stated:
This would be a good place to say that the SWJ Council is, bar none, the most effectively moderated online discussion board I’ve ever seen. Too many times to count I’ve seen intelligent, substantive discussions on other sites overwhelmed by shrieking ideologues and partisan buffoonery; SWJ manages to keep that off without censoring ideas. They could be accused of censoring morons and wankers, but that to me is admirable, if politically incorrect... and yes, I know that’s subjective, but it’s nice to see somebody with the cojones to make the call.

That does not mean Dayuhan agrees with me here, but it is a good reminder of what makes SWC work.

Presley Cannady

11-09-2011, 06:55 PM

Tax payers dollars, requesting another tax bail out while asking for bonuses, once again a rewarding failure.

Trust me, you'll barely notice.

This isn't capitalism.

Which definition of capitalism excludes bail outs and conservatorship? Might as well toss out bankruptcy while we're at it, eh?

Government run can't be worse than what it was.

Have you heard of HUD?

Even an SES employee wouldn't come close to making that much money, and they frequently have much more responsibility (or provide more value in other terms).

Fannie and Freddie together manage about about $175 billion in revenue. Aside from DoD and the entitlements, care to point out any other agency that has a comparable budget?

Dayuhan

11-09-2011, 10:59 PM

I think they emerged from fortyish years of financial deregulation and other forms of political favor for the financial sector.

I don't think regulation would have made much difference; it's a generally overrated factor. It's easy to look back and think that regulation X would have prevented event Y, but in reality once a perverse incentive is in place, it will be followed: close one way, another will be found. Regulation cannot substitute for good policy or compensate for bad policy.

I'm not sure it's any more useful to talk about centrism than it is to talk about 'real America' or 'what most people want'. There's a huge chunk of the country that thinks Obama is a left-wing extremist. I mean, good lord.

There's also a huge chunk of the country who thinks that the whole crisis was caused by bad greedy bankers.

Most people want what they can't have: higher wages and lower prices, lower taxes and more government doleouts. That's a constant. The point is simply that the raving of the polarized extremes contributes nothing to the search for solutions, and to the extent that those closer to the center have to pander to the extremes can actually obstruct the search for solutions.

I don't view OWS as something that creates solutions, or which can create solutions. I view it as a source of political energy. Its main purpose is to get the left angry and keep it that way. Which, frankly, the left is badly in need of.

The left is always angry; most of the time nobody notices. It's not a very useful anger, because it's based on ignorance and offers nothing in the way of solutions. I'd guess that most of the OWS core comes from comfortable middle-class backgrounds and that few have ever done anything resembling real work or have experienced anything other than self-imposed hardship. Certainly they'll try to represent themselves as speaking for "the 99%", but do they? I tend to doubt it. We'll see. With some experience of the left, I expect little. They've a remarkable talent for shooting themselves simultaneously in both feet.

motorfirebox

11-10-2011, 04:14 AM

I don't think regulation would have made much difference; it's a generally overrated factor. It's easy to look back and think that regulation X would have prevented event Y, but in reality once a perverse incentive is in place, it will be followed: close one way, another will be found. Regulation cannot substitute for good policy or compensate for bad policy.
The striking down of the specific regulations I'm talking about was/is a perverse incentive.

There's also a huge chunk of the country who thinks that the whole crisis was caused by bad greedy bankers.

Most people want what they can't have: higher wages and lower prices, lower taxes and more government doleouts. That's a constant. The point is simply that the raving of the polarized extremes contributes nothing to the search for solutions, and to the extent that those closer to the center have to pander to the extremes can actually obstruct the search for solutions.
That sorta exemplifies what I'm talking about. You're proposing that the crash shouldn't be blamed on the banks as if that's a centrist view. To me, that's pretty far right-wing. Centrism doesn't seem like it's an actual position, anymore--lots of people claim to be centrist, but for the most part that seems to be a way of saying that they think they've got their finger on the country's pulse and that their opponents are extremists.

The left is always angry; most of the time nobody notices. It's not a very useful anger, because it's based on ignorance and offers nothing in the way of solutions. I'd guess that most of the OWS core comes from comfortable middle-class backgrounds and that few have ever done anything resembling real work or have experienced anything other than self-imposed hardship. Certainly they'll try to represent themselves as speaking for "the 99%", but do they? I tend to doubt it. We'll see. With some experience of the left, I expect little. They've a remarkable talent for shooting themselves simultaneously in both feet.
The left is frequently aghast, but it has trouble rallying together. I'm talking about a more unifying sense of anger, rather than the individual outrages that normally splinter that half of the spectrum. As for who they represent... you seem to be differentiating between the middle class and the 99%, which strikes me as a pretty major misconception (by "the 99%", I mean the people OWS wants to / claims to champion, not OWS itself). But like I said, I don't think it's useful to try to talk about what the majority of the country wants, because it's too easy to spin that sort of talk into support for whatever side you yourself are on.

Dayuhan

11-10-2011, 04:25 AM

The striking down of the specific regulations I'm talking about was/is a perverse incentive.

Only to a very minor degree. The regulations didn't do much and their removel did little to contribute to the crisis. the actual causes are far deeper and a good deal harder to address. Probably the worst thing to do right now would be to pass a bunch of regulations and call it done... like blaming everything ion the banks, that's an easy way to avoid looking at actual causes and trying to develop systemic solutions.

That sorta exemplifies what I'm talking about. You're proposing that the crash shouldn't be blamed on the banks as if that's a centrist view.

I don't think view has a place on the political spectrum... it's just true. Anyone trying to blame this exclusively on banks isn't paying attention, and is pointing all of the blame at 1/3 of the problem, which is not a way to solve anything.

I don't think it's useful to try to talk about what the majority of the country wants, because it's too easy to spin that sort of talk into support for whatever side you yourself are on.

I'm not even talking about "what most of the country wants". I'm talking about setting ideology aside and trying to actually look at what's wrong and how to fix it. That will probably not be what most of the country wants, because what most of the country seems to want is to blame somebody, hang somebody, and pretend nothing more needs to be done.

One of the most awkward problems of democracy is coming up with - and following - good long term economic policies in an environment where good long-term economic policies are often going to be unpopular. I don't know that anyone's managed a good solution to that one.

Presley Cannady

11-10-2011, 05:50 AM

You're proposing that the crash shouldn't be blamed on the banks as if that's a centrist view.

He's proposing it as if it were a fact. As you've taken the affirmative position, presumably you have evidence to sustain the charge. You do, don't you?

Presley Cannady

11-10-2011, 06:17 AM

Only to a very minor degree. The regulations didn't do much and their removel did little to contribute to the crisis.

We can go farther than that. There isn't a single shred of evidence that any banking deregulation contributed to the financial crisis in anyway. On the contrary, the fallout from the collapse was severely diminished by permitting holding companies to simultaneously proprietary desks with hundreds of billions on the asset ledge with commercial banks posting net worths in the $1-2 trillion range. Nor can we point to derivative deregulation, which simply never happened.

One of the most awkward problems of democracy is coming up with - and following - good long term economic policies...

I'm pretty sure that's one of the most awkward problems in economics period.

motorfirebox

11-10-2011, 06:24 AM

Only to a very minor degree. The regulations didn't do much and their removel did little to contribute to the crisis. the actual causes are far deeper and a good deal harder to address. Probably the worst thing to do right now would be to pass a bunch of regulations and call it done... like blaming everything ion the banks, that's an easy way to avoid looking at actual causes and trying to develop systemic solutions.
Okay. Well, here's the list of arguments to keep Glass-Steagal, as written in 1987:

Conflicts of interest characterize the granting of credit (that is to say, lending) and the use of credit (that is to say, investing) by the same entity, which led to abuses that originally produced the Act.

Depository institutions possess enormous financial power, by virtue of their control of other people's money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).
I don't know about you, but to me that reads like a laundry list of the problems we're facing now. The one possible exception is that the government paid large sums to prevent collapse, rather than as a response to collapse.

I don't think view has a place on the political spectrum... it's just true. Anyone trying to blame this exclusively on banks isn't paying attention, and is pointing all of the blame at 1/3 of the problem, which is not a way to solve anything.
I don't think the banks were exclusively to blame. I doubt many in OWS think that, either. But I think, and I believe many of them think, that banks share a huge portion of the blame. A lot of that blame can be shared by the government--both major parties--for allowing the banks the latitude to fail the country so spectacularly.

Besides, that's a ridiculous thing to say. Where does the statement that Obama was born in Hawaii fall on the political spectrum?

I'm not even talking about "what most of the country wants". I'm talking about setting ideology aside and trying to actually look at what's wrong and how to fix it. That will probably not be what most of the country wants, because what most of the country seems to want is to blame somebody, hang somebody, and pretend nothing more needs to be done.
That strikes me as a fair characterization of the Tea Party. It doesn't strike me as a fair characterization of OWS. It seems pretty clear that the largest problem the country faces lies in how the major financial institutions are operating. Whether you want to blame that on the government or the banks or even those who accepted the liar loans, financial operations is where the problem is occurring. Fixing those problems is going to involve fixing how financial institutions operate. So pretty much no matter what, OWS's anger is at least aimed in something approximating the right direction. As opposed to blaming immigrants.

Dayuhan

11-10-2011, 06:49 AM

I don't think keeping Glass-Steagal would have made an iota of difference. The mechanisms might have been a bit different, but things would have played out much the same way.

Besides, that's a ridiculous thing to say. Where does the statement that Obama was born in Hawaii fall on the political spectrum?

The statement itself falls nowhere on the political spectrum: it's either true or false. People at varying points on the political spectrum may use true or false statements as they see fit, but the statements themselves don't fall anywhere.

That strikes me as a fair characterization of the Tea Party. It doesn't strike me as a fair characterization of OWS.

Possibly because you'd rather blame bankers than immigrants? Last I looked the tea party was more about blaming government, but I confess I don't look much in that direction.

It seems pretty clear that the largest problem the country faces lies in how the major financial institutions are operating.

That's a symptom, not a cause.

motorfirebox

11-10-2011, 07:43 AM

I don't think keeping Glass-Steagal would have made an iota of difference. The mechanisms might have been a bit different, but things would have played out much the same way.
Possibly, but only because of the pattern of behavior that repealing Glass-Steagal was a part of.

The statement itself falls nowhere on the political spectrum: it's either true or false. People at varying points on the political spectrum may use true or false statements as they see fit, but the statements themselves don't fall anywhere.
I don't think there's any important difference in that distinction.

Possibly because you'd rather blame bankers than immigrants? Last I looked the tea party was more about blaming government, but I confess I don't look much in that direction.
That's an extreme oversimplification of my argument. There are a lot of facets to the problem. In my view, though, banks--financial institutions--are at the center of it. If you seriously place banks on the same level as immigrants in terms of who's responsible for the current mess, I don't think there's any point in continuing.

That's a symptom, not a cause.
If it's a symptom, it's one on the order of leukopenia in an AIDS patient: something serious enough to require treatment on its own, regardless of the underlying cause.

Dayuhan

11-10-2011, 11:22 AM

Possibly, but only because of the pattern of behavior that repealing Glass-Steagal was a part of.

That's the assumption you're making, yes.

That's an extreme oversimplification of my argument. There are a lot of facets to the problem. In my view, though, banks--financial institutions--are at the center of it. If you seriously place banks on the same level as immigrants in terms of who's responsible for the current mess, I don't think there's any point in continuing.

I don't see immigrants as a problem at all, but having read the OWS manifesto posted upthread, I don't think it gets anyone any closer to a solution than anything coming out of the tea party.

If it's a symptom, it's one on the order of leukopenia in an AIDS patient: something serious enough to require treatment on its own, regardless of the underlying cause.

Except that we haven't got a treatment that's likely to accomplish anything, and that any proposed symptomatic treatment is likely to be used as an excuse to avoid confronting the actual problems. In fact, of course, the most likely outcome will be to slap on a few regulatory band-aids aimed at solving yesterday's problems and proceed to repeat... it is our way.

Dayuhan

11-13-2011, 10:06 PM

The status quo wages and salaries are not justified by market principles as 'right' wages and salaries simply because market distortions (power asymmetry, principal agent problem) are in effect.

They just happen to be wages, there's no reason to see them as best or 'right' and resist influences on the market for reason of market efficiency, for market efficiency is not given in status quo.

If the absence of unions is perceived as a market distortion, what would you call the presence of unions that are capable of shutting down an employer who doesn't give them what they want... perhaps looking at Britain in the late 70s as an example? Is that not an equally distorted market?

Would a the power of labor in a non-distorted market be the ability to leave and seek work elsewhere, not the ability to not only stop working, but to apply coercive force to prevent anyone else from taking over the job? That seems like a fairly severe distortion in its own right.

Nobody complains about the impotence of American unions when unemployment is low and jobs are plentiful: if you don't like your job, you don't need to strike, you quit and go work somewhere else. In those conditions unions seem largely irrelevant and the dues start to seem like an imposition, especially since American unions have not always handled their money responsibly, to put it mildly. Of course when unemployment is high, all that changes.

Similarly, when we go into bubble mode neither the populace nor the government has anything bad to say about the financial industry: they cheer the business on, tap into the bubble as much as they can, tell themselves how smart they are to be "winning". When the bubble pops and nobody seems quite so smart, all the fingers point to Wall Street. It's a bit like passengers in a car screaming "faster, faster" and handing the driver drinks, then filing lawsuits for negligence when there's a crash.

Presley Cannady

11-13-2011, 10:29 PM

If the absence of unions is perceived as a market distortion, what would you call the presence of unions that are capable of shutting down an employer who doesn't give them what they want... perhaps looking at Britain in the late 70s as an example? Is that not an equally distorted market?

You can't really call either a market "distortion"--the term Fuchs is actually grasping for is "inefficiency"--without additional context. We would first need some measure over a nest of transactions to determine how far they deviate from some maximally efficient allocation of goods and services. Given your particular example, we'd have to:

1) determine some wage (http://en.wikipedia.org/wiki/Efficiency_wages) that is optimal for both employer and employee, and

2) examine how far we stray from the optimum (http://en.wikipedia.org/wiki/Pareto_efficiency) incident to some regime of collective bargaining.

The first step is hard, because calculating maximally efficient allocation of goods and services is an exercise in highly conditional, subjective teeth pulling. The second step is comparatively elegant (provided the math holds up, which is what the folks in Stockholm apparently believe).

Fuchs

11-14-2011, 04:04 PM

slapout9

11-14-2011, 09:41 PM

That's largely because you're too much of an ass to bother with. I honestly don't know why Fuchs continues to engage with you. You seem to utterly lack the ability to present facts in any context, choosing instead to simply respond with insults to anything anyone says. You're an idiot and a troll, and the sooner you get bored and wander off to perform your idiot troll antics for some other audience, the faster this thread will return to being something worth reading.

I agree this has gone beyond anything I ever intended this thread to be. I am trying to get a Mod to lock it for good. Thanks to all who contibuted some serious food for thought. Later Slap

davidbfpo

11-14-2011, 10:41 PM

I have locked this thread after Slap's request and the tone has slipped somewhat into sniping and more. If I had more time tonight I'd prefer to remove many of the latest posts.;)

Meantime the USA will move towards a revolution without SWC.:D

Updated 27th November 2011

The thread was unlocked after extensive pruning of posts and some editing. This came about after an exchange of unpleasantness that was ancillary to the discussion.

If repeated the thread will be locked again and closed.

Presley Cannady

11-20-2011, 01:57 PM

...the approximately 600 trillion USD derivatives market (http://www.c-span.org/Events/Heritage-Foundation-Discussion-on-Derivatives-Market-Regulations/10737421686/).

You're off by at least half, probably because the speaker was talking about either the listed credit or OTC markets. The notional value of the total derivative markets exceeds 1.2e15 USD, but the key word here is "notional." Consider it to be a line of credit upon which obligations are calculated.

Surferbeetle

11-20-2011, 02:56 PM

You're off by at least half, probably because the speaker was talking about either the listed credit or OTC markets. The notional value of the total derivative markets exceeds 1.2e15 USD, but the key word here is "notional." Consider it to be a line of credit upon which obligations are calculated.

True.

Presently working on some books in this arena to include:

Extreme Money by Satyajit Das, ISBN 10:0132790076

The Euro by David Marsh, ISBN 9780300127300

Reading recommendations are always welcome ;)

Misifus

11-20-2011, 03:25 PM

Surferbeetle

11-20-2011, 04:13 PM

Well all I can say is that I am now ecstatic that I can download my retirement planning stocks & funds, etc., and then upload into Morningstar and the portfolio manager (all in Excel format .csv). It sure makes tracking and analyses a lot easier :)

.csv files can also be opened and then pasted into excel workbooks. Excel is a fun and addictive modeling tool with which you can see what is happening under the hood. It leads to harder tools such as mathcad, maple, and mathematica.

I will post some titles from my excel financial tools library later.

Not meant to be a knock but Google has free historical data for funds, etfs, and stocks which can be downloaded as .csv files for analysis. I am looking for historical options data and welcome leads.

Misifus

11-20-2011, 05:44 PM

.csv files can also be opened and then pasted into excel workbooks. Excel is a fun and addictive modeling tool with which you can see what is happening under the hood. It leads to harder tools such as mathcad, maple, and mathematica.

I will post some titles from my excel financial tools library later.

Not meant to be a knock but Google has free historical data for funds, etfs, and stocks which can be downloaded as .csv files for analysis. I am looking for historical options data and welcome leads.

Yes, of course on the .csv files for Excel. I generally open them in Excel first. I like being a Morningstar subscriber because of the "x-ray" service they offer. You are correct that one can do the research on one's own via Google and such, but often I am time constrained, and have my other hobbies :o Part of the Morningstar service includes cross-checking fund contents. In other words fund x and fund y might have equal proportions of company A's stock. So the cross-check helps me understand the risk better if I know what each fund is holding. Lots of other cool stuff too.

Not based on fact, but I have a feeling that a lot of corporate employees don't really manage their 401k funds with interest. Many will just pick the default fund and go for the ride. Dunno.

My "small war" on Wall Street is for the most part trying to find winners while keeping the expense ratio down :D

Bill Moore

11-20-2011, 06:40 PM

Posted by Ken,

They always have, that also varies and swings like the ol' pendulum. It waxes and wanes with the economic tides but a shadow economy has always been present and almost certainly will always be...

This is true, always has been, but it is not always desirable. The system is simply too large to effectively regulate.

I think Dayuhan's point about the market determining a fair price for services and goods is the ideal state, but in many cases is no longer true. Computer based trading frequently has nothing to do with the true value of company, but rather is driven by an equation that tells the computer when to buy and sell resulting in billions of dollars moving rapidly from stock to stock driving prices up and down in an irrational manner. Statistically I don't know if this impacts long term value investors over time or not, but I think an argument can be made that the price of a stock is still driven my the market, but not by the value of the service or goods provided in many cases.

The other issue is the too big to fail issue, and that has artifically determined value in many cases, not the value of the service or goods. If the market determined the value then these companies would have gone out of business.

Additionally large companies that consolidate competiters by buying them out gain a pricing advantage that prevents effective competition, and without effective competition for some products (food being one of them) you can't rely on the market to determine fair prices.

We're in a period of transition, the voices from occupy wall street are only one voice informing what the future economic system will look like. I agree with Dayuhan, at least if you rely on the mass media to stay informed about OWS they're mostly young punks with no message, but that shouldn't distract political leaders from the fact that there is a great deal of discontent with the current system throughout America (and apparently globally).

I used to make a lot of money in stock market at one time, even when the overall market wasn't doing so well. I can't make sense of it now. Could be I just lost my magic touch, but I think there are forces influencing it now that have made the old rules obsolete.

Presley Cannady

11-20-2011, 06:42 PM

True.

Presently working on some books in this arena to include:

Extreme Money by Satyajit Das, ISBN 10:0132790076

The Euro by David Marsh, ISBN 9780300127300

Reading recommendations are always welcome ;)

None of those. You'll learn nothing more than a few confusing metaphors from folks with some working knowledge of financial math, a tenuous grasp on economics, and a self-serving sense of history.

Better to start with this (http://math.nyu.edu/faculty/avellane/global_derivatives_market.pdf). Once you're done, you'll have a better feel for navigating through the literature. Also, feel free to browse this (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/syllabus/). Feel free to follow through on the prereqs where needed. Also, don't forget to try your hand out with the problem sets (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/assignments/). No one ever learned anything of value without practical exercise.

Misifus

11-20-2011, 06:57 PM

...Also, feel free to browse this (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/syllabus/). Feel free to follow through on the prereqs where needed. Also, don't forget to try your hand out with the problem sets (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/assignments/). No one ever learned anything of value without practical exercise.

The later set looks very interesting. I would like to see how those write-ups and examples compare to what we do in oil companies when looking at investment economics.

Surferbeetle

11-20-2011, 07:13 PM

None of those.

Better to start with this (http://math.nyu.edu/faculty/avellane/global_derivatives_market.pdf). Once you're done, you'll have a better feel for navigating through the literature. Also, feel free to browse this (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/syllabus/). Feel free to follow through on the prereqs where needed. Also, don't forget to try your hand out with the problem sets (http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/assignments/). No one ever learned anything of value without practical exercise.

Thank you for these.

Homework/problem sets are indeed where real learning takes place.

Free historical options data sets? I have a cboe app and am aware of the google daily rollups but am interested in time series data to check my understanding...just a retail guy, nothing heavy duty. My low cost broker does not seem to offer those time series.

Surferbeetle

11-21-2011, 04:33 AM

For any other searchers, from the CBOE website:

Q: Where can I find historical options prices?

A: Currently, the Chicago Board Options Exchange and the International Securities Exchange make historical options pricing available on a subscription basis. Information on these offerings are available at the following links:

http://www.marketdataexpress.com
http://www.ise.com

Additionally, you may also contact market data vendors, i.e., Thompson Reuters, for historical options data. For more information, visit http://quant.thomsonreuters.com/.

bourbon

11-21-2011, 03:44 PM

Woman Gets Jail For Food-Stamp Fraud; Wall Street Fraudsters Get Bailouts (http://www.rollingstone.com/politics/blogs/taibblog/woman-gets-jail-for-food-stamp-fraud-wall-street-fraudsters-get-bailouts-20111117), by Matt Taibbi. RollingStone-TaibbiBlog, 17 November 2011.

Here’s another thing that boggles my mind: You get busted for drugs in this country, and it turns out you can make yourself ineligible to receive food stamps.

But you can be a serial fraud offender like Citigroup, which has repeatedly been dragged into court for the same offenses and has repeatedly ignored court injunctions to abstain from fraud, and this does not make you ineligible to receive $45 billion in bailouts and other forms of federal assistance.

This is the reason why all of these settlements allowing banks to walk away without "admissions of wrongdoing" are particularly insidious. A normal person, once he gets a felony conviction, immediately begins to lose his rights as a citizen.

But white-collar criminals of the type we’ve seen in recent years on Wall Street – both the individuals and the corporate "citizens" – do not suffer these ramifications. They commit crimes without real consequence, allowing them to retain access to the full smorgasbord of subsidies and financial welfare programs that, let’s face it, are the source of most of their profits.

Why, I wonder, does a bank that has committed fraud multiple times get to retain access to the Federal Reserve discount window? Why should Citigroup and Goldman Sachs get to keep their status as Primary Dealers of U.S. government debt? Are there not enough banks without extensive histories of fraud and malfeasance that can be awarded these de facto subsidies?

bourbon

11-21-2011, 04:15 PM

Presley Cannady

11-22-2011, 02:11 AM

Free historical options data sets?

Wharton (https://wrds-web.wharton.upenn.edu/wrds/?register=1) might be available through your institution. I honestly have no idea where our feeds come from; ain't my area, but free stuff is usually comprehensive but recent (Yahoo, Google), or historical but limtied (mostly indices or select baskets).

I have a cboe app and am aware of the google daily rollups but am interested in time series data to check my understanding...just a retail guy, nothing heavy duty. My low cost broker does not seem to offer those time series.

You can exercise on recent data well enough.

Presley Cannady

11-22-2011, 02:33 AM

I think Dayuhan's point about the market determining a fair price for services and goods is the ideal state, but in many cases is no longer true. Computer based trading frequently has nothing to do with the true value of company, but rather is driven by an equation that tells the computer when to buy and sell resulting in billions of dollars moving rapidly from stock to stock driving prices up and down in an irrational manner.

Well that's (http://www.ft.com/intl/cms/s/0/38452490-da07-11e0-b199-00144feabdc0.html#axzz1eOdfQnck) not true at all (http://teaching.ivo-welch.info/econ1759/readings/Algo.pdf).

Statistically I don't know if this impacts long term value investors over time or not...

Of course it impacts the long position. Expanding liquidity means there's more capital free to park.

...but I think an argument can be made that the price of a stock is still driven my the market, but not by the value of the service or goods provided in many cases.

What's the difference? The value of a service or good is determined by the demand for it and its available supply. Mating demand with supply is precisely a market does by definition. Folks tend to forget that supply and demand are functions that evolve over time plus some other parameters. So markets need not only deal with a snapshot of some God's eye view of the condition of buyer and seller, but also with risk each takes in agreeing on a price now for fulfillment later.

The other issue is the too big to fail issue, and that has artifically determined value in many cases, not the value of the service or goods. If the market determined the value then these companies would have gone out of business.

You needn't introduce such an awkward, loaded notion as "artificially determined value" to understand "to big to fail." You just need to get rid of the assumption that either value or losses are conserved.

Additionally large companies that consolidate competiters by buying them out gain a pricing advantage that prevents effective competition, and without effective competition for some products (food being one of them) you can't rely on the market to determine fair prices.

So...large companies can undercut the prices of newcomers, and this means they can set any price they want? See where that goes wrong?

We're in a period of transition, the voices from occupy wall street are only one voice informing what the future economic system will look like. I agree with Dayuhan, at least if you rely on the mass media to stay informed about OWS they're mostly young punks with no message, but that shouldn't distract political leaders from the fact that there is a great deal of discontent with the current system throughout America (and apparently globally).

When isn't there?

I used to make a lot of money in stock market at one time, even when the overall market wasn't doing so well. I can't make sense of it now. Could be I just lost my magic touch, but I think there are forces influencing it now that have made the old rules obsolete.

Yes, there are. One is scale. The other is empiricism. Another may be that you're overestimating the performance of your portfolio, or your contribution to its success.

davidbfpo

11-22-2011, 09:43 PM

The BBC has a smart graphic to illustrate:
the gross external, or foreign, debt of some of the main players in the eurozone as well as other big world economies. The arrows show how much money is owed by each country to banks in other nations.

Oh yes, please be seated when checking the US's role.

Link:http://www.bbc.co.uk/news/business-15748696

Finally to those who decry simplicity yes there are gaps, such as how much is owed to PRC.

Fuchs

11-22-2011, 10:05 PM

The BBC has a smart graphic to illustrate:

Oh yes, please be seated when checking the US's role.

Link:http://www.bbc.co.uk/news/business-15748696

Finally to those who decry simplicity yes there are gaps, such as how much is owed to PRC.

I could puke when I see such terrible statistics, for they've been presented by utterly incompetent people.

People NEED TO LEARN the difference between gross debt and net debt and START TO IGNORE gross debt, and instead look at net debt.

That page says 50,659 € foreign debt per German.
Some commenter on my blog came with the same useless stat (4.2 trillion) recently.
FACT is that we have NET foreign ASSETS in excess of 12,000 € per German.

This
http://en.wikipedia.org/wiki/Net_international_investment_position
plus this
http://en.wikipedia.org/wiki/Foreign_currency_reserves#List_of_countries_by_for eign_exchange_reserves
is what to look at when you're interested in the accumulated relations with foreign countries.

Germany ran a trade balance surplus during the 50's, 60's, 70's, 80's and 00's (even when both states were added). Of course do we have net foreign assets. Everything else would be extremely illogical.
http://1.bp.blogspot.com/_V7Ehj7eG65Q/TJUhmK1VppI/AAAAAAAACGU/LWvF02mLxYQ/s400/German+trade+balance.gif

So why would anyone who's not clueless look at gross foreign debt instead?

Probably for sensationalism, ignoring the utterly misleading effect on the vast majority of the readers.

tequila

11-23-2011, 05:30 PM

What is the contribution of the financial sector (http://www.voxeu.org/index.php?q=node/7314)?

High pre-crisis returns in the financial sector proved temporary. The return on tangible equity in UK banking fell from levels of 25%+ in 2006 to - 29% in 2008. Many financial institutions around the world found themselves calling on the authorities, in enormous size, to help manage their solvency and liquidity risk. That fall from grace, and the resulting ballooning of risk, sits uneasily with a pre-crisis story of a shift in the technological frontier of banks’ risk management.

In fact, high pre-crisis returns to banking had a much more mundane explanation. They reflected simply increased risk-taking across the sector. This was not an outward shift in the portfolio possibility set of finance. Instead, it was a traverse up the high-wire of risk and return. This hire-wire act involved, on the asset side, rapid credit expansion, often through the development of poorly understood financial instruments. On the liability side, this ballooning balance sheet was financed using risky leverage, often at short maturities ...

If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare. And if government subsidies were the route to improved well-being, today’s growth problems could be solved at a stroke. Typically, this is not the way societies keep score. But it was those very misconceptions which caused the measured contribution of the financial sector to be over-estimated ahead of the crisis.

The proper role of the financial sector is to assess risk and allocate capital to productive purpose.

The most profitable sectors of finance, as Haldane notes, do not involve this function at all - they are principally forms of gambling, with the exception that the players enjoy a substantial government subsidy (if not a full governmental backstop) and play with other people's money.

I'm not sure why such people are afforded either respect or power, but we award them outsize amounts of both. Such an unstable arrangement does not appear to be sustainable IMO.

Presley Cannady

11-23-2011, 09:15 PM

The proper role of the financial sector is to assess risk and allocate capital to productive purpose.

Which is precisely what it does. What seems to be lost on some is the notion that risk assessment and determining productive opportunities is not an exercise in self-evident pontificating.

I'm not sure why such people are afforded either respect or power, but we award them outsize amounts of both.

Because we've produced the $1.6 quadrillion line of credit that sustains low unemployment and multi-trillion dollar GDPs.

Such an unstable arrangement does not appear to be sustainable IMO.

Only if we peg the definition of "sustainability" to either zero volatility or some arbitrary degree of it.

tequila

11-23-2011, 09:32 PM

Which is precisely what it does. What seems to be lost on some is the notion that risk assessment and determining productive opportunities is not an exercise in self-evident pontificating.

Please advise me how the inflation and subsequent destruction of the RMBS derivatives market was a precise assessment of risk and an outstanding allocation of capital to productive purpose.

Because we've produced the $1.6 quadrillion line of credit that sustains low unemployment and multi-trillion dollar GDPs.

Really? How did you produce that? And why did you get so bad at producing it since 2008?

As for massive credit lines, I think Ben Bernanke has a lot more to do with that than you.

Only if we peg the definition of "sustainability" to either zero volatility or some arbitrary degree of it.

Do you think that the events of 2008 or 2011 constitute a sustainable environment?

Apropos:

Rash to Some, Stock Buybacks are on the Rise (http://www.nytimes.com/2011/11/22/business/rash-to-some-stock-buybacks-are-on-the-rise.html?src=recg&pagewanted=all)

When Pfizer cut its research budget this year and laid off 1,100 employees, it was not because the company needed to save money.

In fact, the drug maker had so much cash left over, it decided to buy back an additional $5 billion worth of stock on top of the $4 billion already earmarked for repurchases in 2011 and beyond.

The moves, announced on the same day, might seem at odds with each other, but they represent an increasingly common pattern among American corporations, which are sitting on record amounts of cash but insist that growth opportunities are hard to find.

The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.

What is more, share buybacks have not fulfilled their stated purpose of rewarding investors over the last decade, experts say. “It’s a symptom of a deeper problem, which is a lack of investment in the long term,” said William W. George, a Harvard Business School professor and former chief executive of Medtronic, a medical technology company. “If we’re not investing in research, innovation and entrepreneurship, we’re going to be a slow-growth country for a decade ...”

The principle behind buybacks is simple. With fewer shares in circulation, earnings per share can rise smartly even if the company’s underlying growth is lackluster. In many cases, like that of the medical device maker Zimmer Holdings (http://www.zimmer.com/en-US/index.jspx), executives are able to meet goals for profit growth and earn bigger bonuses despite poor stock performance.

...

In addition, executives, who are often large shareholders, stand to benefit from even a small, short-term jump in stock prices.

Earlier this month, Pfizer increased its estimate for stock repurchases this year to between $7 billion and $9 billion — essentially spending in one year nearly all of the money it set aside in February for multiyear buybacks. There has been a steady drumbeat of other companies laying off workers even as they have disclosed plans to buy back more stock. On June 23, Campbell Soup said it would buy back $1 billion in stock; five days later it announced plans to eliminate 770 jobs. Hewlett-Packard announced a $10 billion stock repurchase in July, and jettisoned 500 jobs in September after it discontinued its TouchPad and smartphone product lines ...

Powered by huge stock buybacks — the company bought $500 million worth of its own shares last year, more than twice what it spent on research and development — Zimmer posted earnings growth of 10 percent a share, even though operating income and revenue grew by less than 5 percent in 2010.

That helped its senior management, including the chief executive, David C. Dvorak, collect millions in cash and stock incentive payments by meeting earnings-per-share goals. For example, 50 percent of Mr. Dvorak’s $1.03 million cash bonus was tied to achieving per-share earnings of $4.28 in 2010. The company earned $4.33, but without the share repurchases the company would have made $4 to $4.10 a share ...

Dayuhan

11-23-2011, 10:05 PM

The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.

Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?

bourbon

11-23-2011, 10:56 PM

Fuchs

11-23-2011, 11:08 PM

Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?

This happens quite often, actually. Companies develop new markets when their executives believe in a product.

I've experienced how almost ten companies struggled to survive in a market that was barely large enough for two of them, but they welcomed every opportunity to get even more entrepreneurs into their market.

The reason was that they focused entirely on developing the market. Every new 'competitor' was one more who marketed for the product category.

On a related note, I've done feasibility studies for small-scale industrial plants that had no chance of ever creating a profit without three shifts.
The entrepreneur was our client and wanted a reasonable study, so we told him he's got no chance and delivered our study. The study included a break-even scenario labelled "best case".
He took the best case scenario, talked to his bank (which wasn't able to read the text due to language barrier) and got the credit. He invested and got lucky with unusually high market prices (for a while).

tequila

11-24-2011, 12:39 AM

Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?

From the article:

Over the last decade, in fact, companies that spent the most on repurchases had a total shareholder return of 37 percent versus 127 percent for companies that spent the least, according to research by Gregory V. Milano, chief executive of Fortuna Advisors, which consults with companies on how to raise their share price over the long term.

In the cases of Pfizer and Zimmer, analysts say the rush to buy back shares crimped development of new products, a prime reason that both companies are experiencing slow revenue growth.

Despite the looming expiration of the patent for its best-selling drug, Lipitor, Pfizer spent more than $20 billion repurchasing shares from 2005 to 2010.

“In that era, it wasn’t the best use of cash,” said Catherine Arnold, an analyst with Credit Suisse. “They should have been doing more to fix the company.”

Matthew Dodds, an analyst with Citigroup, said, “Zimmer has shown little appetite for acquisitions or diversification, yet they don’t sport a pipeline that can drive investor interest."

Nevertheless, Zimmer is on track to repurchase $1 billion worth of its shares this year, double last year’s pace, and it actually borrowed money last quarter to achieve its goal.

Dayuhan

11-24-2011, 12:56 AM

From the article:

Are you prepared to base a conclusion purely on second hand accounts, or are you actually familiar enough with the inner workings of the company to decide what the best uses of its cash are? Surely you realize that analysts may have all kinds of agendas of their own, and that there's likely more than one side to that story... or are you willing to accept the story at face value because it supports your preconceived opinions about corporate governance?

In any event, if you're a shareholder and you disapprove of the Company's use of cash, you've the option to sell your shares. If you're not, why would you care?

Presley Cannady

11-24-2011, 01:40 AM

Please advise me how the inflation and subsequent destruction of the RMBS derivatives market was a precise assessment of risk and an outstanding allocation of capital to productive purpose.

Short answer, credit ratings were assigned with great precision (http://economics.lafayette.edu/files/2010/06/The-Role-of-the-Constant-Recovery-Assumption-Chambers-Dec-8-20091.pdf) in the initial securitization, but the models underlying resecuritization were flawed (leading to a reevaluation in 2008).

Once again, you take it for granted that the exercise of risk assessment is free of error. This is an insane proposition, for the same reasons in finance as it is on the battlefield.

Really? How did you produce that?

By making market for value delivered by services and goods and their expected performance in the future. There's value in ensuring that a bushel of wheat will trade at a certain price five months from now. This is what derivatives fundamentally secure.

And why did you get so bad at producing it since 2008?

Bad? What do you mean bad?

As for massive credit lines, I think Ben Bernanke has a lot more to do with that than you.

With $1 trillion in net assets, the Federal Reserve is one of the single largest actors in the financial markets, but that's three orders of magnitude smaller than notional value of the derivatives market.

Do you think that the events of 2008 or 2011 constitute a sustainable environment?

I think trying to determine sustainability from two snapshots is insane.

tequila

11-24-2011, 03:20 AM

Are you prepared to base a conclusion purely on second hand accounts, or are you actually familiar enough with the inner workings of the company to decide what the best uses of its cash are? Surely you realize that analysts may have all kinds of agendas of their own, and that there's likely more than one side to that story... or are you willing to accept the story at face value because it supports your preconceived opinions about corporate governance?

In any event, if you're a shareholder and you disapprove of the Company's use of cash, you've the option to sell your shares. If you're not, why would you care?

Given the number of conclusions that are passed on around here based on less than secondhand accounts, then yes.

Obviously analysts may have their own agendas, but given the market performance of Zimmer and Pfizer they would appear to have a point, as Jamie Dimon's apology for similar behavior at JPMorgan would also appear to indicate. Can you give a solid explanation of why a firm would invest in share buybacks rather than long term research, especially given the short-term incentives for CEOs to indulge in the former rather than the latter?

As for why people besides shareholders should care - if you haven't noticed, this thread is about wealth inequality and responses to such in the U.S. A very large part of this in the U.S. is driven by CEO pay, which has become incredibly skewed in the past 25 years despite no corresponding growth in performance?

Once again, you take it for granted that the exercise of risk assessment is free of error. This is an insane proposition, for the same reasons in finance as it is on the battlefield.

Where are you getting that I expect risk assessment to be flawless?

I do expect, however, that if the gamblers are compensated at such high levels that risk assessment would be better performed than it was in 2008. However, I would settle for the gamblers to lose their government backstop and be broken down to the point where their poor risk assessment did not destroy the entire financial system. Then they can go about being imperfect and going bust or being profitable without hurting the real economy.

By making market for value delivered by services and goods and their expected performance in the future. There's value in ensuring that a bushel of wheat will trade at a certain price five months from now. This is what derivatives fundamentally secure.

Sure, that is what derivatives were meant to do, but if you believe that most derivatives trading is strictly hedging, then you must be one of those who believes that Vegas gambling exists because people really enjoy card games.

With $1 trillion in net assets, the Federal Reserve is one of the single largest actors in the financial markets, but that's three orders of magnitude smaller than notional value of the derivatives market.

More to the point, they are the backstop for much of the gambling that goes on, and the ultimate lender of last resort. They are the ones who will step in when the markets freeze. When they do not, as the ECB seems determined to show us, the whole game can come to an end.

I think trying to determine sustainability from two snapshots is insane.

You don't see that 2008 and 2011 are related? That the Latin American debt crises of the 1980s, the Asian financial crisis of 1997, the equity bubble collapse in 2000, the real estate bubble collapse in 2008, and the European fiscal crisis of 2011 form a pattern of repeated bubbles followed by increasingly severe collapses? That doesn't sound like instability to you?

Perhaps you are one of those who believes the 20th century was very stable - WWI and WWII were just eight years in 100, after all.

Dayuhan

11-24-2011, 04:15 AM

Can you give a solid explanation of why a firm would invest in share buybacks rather than long term research, especially given the short-term incentives for CEOs to indulge in the former rather than the latter?

Here's what the company says:

http://www.stltoday.com/business/national-and-international/article_69ae9f80-2e5d-11e0-8804-0017a4a78c22.html

“We have to fix our innovative core, and that’s what this R&D change is about,” Read told reporters at Pfizer headquarters in New York Tuesday. The reductions are part of a plan to overhaul the company’s research operation to focus on the most-profitable programs, Read said.

Research and development spending will be $6.5 billion to $7 billion in 2012, the CEO said. That compares with $9.4 billion in 2010 and is $1.5 billion lower than previous Pfizer forecasts. Pfizer plans to buy back $5 billion in shares next year as part of a $9 billion repurchase program, he said.

Tuesday was the first earnings report under Read, who succeeded Jeffrey Kindler in December. Pfizer is counting on products from the $68 billion Wyeth acquisition in 2009 to replace sales lost to generic copies of the cholesterol pill Lipitor, the world’s best-selling drug. Read said Wyeth drugs won’t be enough to make up for that shortfall, and the company must rein in its unproductive spending.

“It’s like being the New York Yankees and having a huge bankroll and never being able to win the pennant,” said Tony Butler, an analyst at Barclays Capital in New York. “This is saying: ‘I’ll take the Cleveland Indians budget and see what we can do with that.’ Spending more doesn’t mean getting anything out.”

“This is all good,” Butler said.

The company plans to halt funding research in the areas of allergy, urology, respiratory, internal medicine and tissue repair, Read said. Pfizer will focus on the more-profitable areas of cancer, neuroscience, inflammation, vaccines and immunology, he said.

“At some point your shareholders and stakeholders demand you have a return on investment in research,” Read said. “We’re looking at areas where we think it’s not a competitive advantage.”

In other words, the strategy is to cut spending on areas they see as having low potential for results and focus on areas perceived as having high potential for results. That's obviously a gamble, just as it would be to pour money into everything regardless of perceived potential, but it's not overtly irrational, and anyone who's going to criticize it would need to look into the actual state of the programs being cut and have an informed opinion on the potential of those programs to generate profitable products. Of course many people will comment without that knowledge, but what does that mean?

The shares being bought back can also be sold back onto the market at a later date if market conditions call for a more expansionary policy and financing is needed. The Company apparently believes that it will be able to sell at a higher price if recovery in the broader economy progresses... again a gamble, but all decisions are a gamble. If it pays off they'll do well. If not they won't. That's business.

As for why people besides shareholders should care - if you haven't noticed, this thread is about wealth inequality and responses to such in the U.S. A very large part of this in the U.S. is driven by CEO pay, which has become incredibly skewed in the past 25 years despite no corresponding growth in performance?

CEO pay has little to no impact on the broader economy, and is primarily an emotional issue. What response would you suggest, really... having the government tell private companies what salaries they can and cannot pay? If the company doesn't generate results the market will have the final say. What more do you want?

Dayuhan

11-24-2011, 05:01 AM

Another perspective on Pfizer's R&D move...

http://www.forbes.com/sites/matthewherper/2011/05/01/pfizers-radical-surgery/

Whether or not it's the right move remains to be seen, but there's clearly a lot more to it than "hey, let's chop R&D and buy back shares so we can boost EPS and get a big bonus".

Presley Cannady

11-24-2011, 05:28 PM

Where are you getting that I expect risk assessment to be flawless?

From your own words.

I do expect, however, that if the gamblers are compensated at such high levels that risk assessment would be better performed than it was in 2008.

In other words, flawless.

However, I would settle for the gamblers to lose their government backstop and be broken down to the point where their poor risk assessment did not destroy the entire financial system.

The "gamblers" include even you if you so much as deposit in a bank.

Then they can go about being imperfect and going bust or being profitable without hurting the real economy.

So no more FDIC insured deposits? Good.

Sure, that is what derivatives were meant to do, but if you believe that most derivatives trading is strictly hedging, then you must be one of those who believes that Vegas gambling exists because people really enjoy card games.

67 percent of derivative trades are interest rate contracts, so you're obviously wrong.

More to the point, they are the backstop for much of the gambling that goes on, and the ultimate lender of last resort.

Wrong. Treasury holders--specifically institutions--are the backstop for most of the "gambling"--as you inartfully put it--that goes on. Central banks are merely their principle agents.

They are the ones who will step in when the markets freeze.

As the system of monetary policy was so designed.

When they doot, as the ECB seems determined to show us, the whole game can come to an end.

I hate to call you on this, but show us what exactly?

You don't see that 2008 and 2011 are related?

A relationship is testable and evident. There's another term entirely for what you're describing.

Perhaps you are one of those who believes the 20th century was very stable - WWI and WWII were just eight years in 100, after all.

No, just one of the ones who doesn't find idle rhetoric particularly useful in understanding the financial system.

Bill Moore

11-24-2011, 07:14 PM

Posted by Cannady,

What's the difference? The value of a service or good is determined by the demand for it and its available supply. Mating demand with supply is precisely a market does by definition. Folks tend to forget that supply and demand are functions that evolve over time plus some other parameters. So markets need not only deal with a snapshot of some God's eye view of the condition of buyer and seller, but also with risk each takes in agreeing on a price now for fulfillment later.

What are the other parameters? Are you making an argument that markets are rational and predictable? Your use of value is technically correct, but I was referring to value as value to society (goods and/or services), and a lot of the market action today has nothing to do with that type of value. Got it, that is just the way it is, that is how the system evolved so those in the know can make a lot of money that is often disassociated with the true value of a company's goods and services. The system still works if you look at from the optic of the stock's value, and not the underlying value of the company. I guess at heart I'm more of a value investor. One would think with the major market correct there are a lot of value buys out there now, but like the masses I remain suspect that something else is going on and it may be impossible for the common investor to find true value now.

You needn't introduce such an awkward, loaded notion as "artificially determined value" to understand "to big to fail." You just need to get rid of the assumption that either value or losses are conserved.

Artifically determined value is a loaded phrase, agreed, but there have been instances when stock prices have been "artifically" manipulated (in clear violation of the law). This has always happened, but it seems logical that the risks are greater now due to globalism and the coorisponding ability to move money rapidly around the globe. It may be impossible for governments to effectively regulate this behavior.

Yes, there are. One is scale. The other is empiricism. Another may be that you're overestimating the performance of your portfolio, or your contribution to its success.

Are you the author of a "Random Walk on Wall Street"? :D Agreed again, but at least it seemed that market conditions were somewhat more predictable then, and if the old rules no longer apply, what has changed? Why has it changed? And is that change good?

Surferbeetle

11-24-2011, 08:01 PM

Bill, Fuchs, et. al,

Happy Thanksgiving to all.

You might find these links to be of interest when thinking about risk, debt (return rates, quality, ability to recover principle, gross vs net, etc), volatility, and transparency with respect to the topology and networks of the sausage making process that is finance.

Heed the ‘transparent’ lessons from MF Global, By Dr. Gillian Tett, November 24, 2011 5:39 pm, Financial Times, www.ft.com

Investors have also made the painful discovery that credit risk and asset price swings are not the only thing which can damage portfolios; counterparty and liquidity risks matter too. And they have realised that published, audited accounts do not reveal those subtle, secondary counterparty and liquidity risks; nor do the reports that hedge funds have traditionally given their clients.

These lessons are having tangible consequences. One is that the audit profession is now, belatedly, engaging in new soul searching. In the coming months, for example, American auditors will hold a series of round-tables to discuss whether their time-honoured system for auditing banks, say, needs to be updated for the new internet, Twitter age.

Zero Hedge blog background from wikipedia, http://en.wikipedia.org/wiki/Zero_Hedge

Zero Hedge is an American financial blog. It reports on Wall Street and the financial sector and is credited with bringing the controversial practice of flash trading to public attention in 2009 via a series of posts alleging that Goldman Sachs' access to flash order information allowed the firm to gain unfair profits. The blog is written by a group of people who write under the pseudonym "Tyler Durden". Though derided by the mainstream press as being fraught with conspiracy theories, the blog grew quickly and has been called a "blog sensation".

URL for the Zero Hedge Blog www.zerohedge.com