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EJ
09-30-08, 05:26 PM
http://www.itulip.com/images/listing.jpgNo Time for Utopian Anti-Interventionism

Anti-interventionist utopianism has no place in a financial crisis that is rapidly developing into a self-reinforcing debt deflation. The credit markets and this economy will not self-correct any more than a damaged ship that is taking on water will right itself. Righting a ship that is listing is expensive, but trying to raise one that has been allowed to capsize is vastly more so. After declaring victory yesterday over the defeat of the poorly conceived Paulson Wall Street bailout, it's time to get practical proposals in front of Congress now.

My friends and readers know me as a Libertarian. My experience is as an entrepreneur first and investor second. Rest assured I am not I am not a socialist third: you will not find among entrepreneurs and capitalists anyone who promotes the idea that government is the driving force behind a dynamic and growing economy.

That said, my libertarianism is practical not ideological. Markets determine prices and allocate economic resources better than governments can most of the time. But markets can fail, and when they do sometimes only government can provide a floor to stop their self-destructive, self-reinforcing collapse and get them moving again. A constructive, rational debate is over how to stop the collapse – and fast – not whether we should try to do so at all.

Today Jeffrey A. Miron, senior lecturer in economics at Harvard University, represents the Libertarian fundamentalist perspective on the financial and economic crisis in an article Bankruptcy, not bailout, is the right answer (http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html) for CNN.

The essence of Jeffrey A. Miron's argument is this: "Talk of Armageddon... is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen."

He believes that eventually the credit markets and banking system will self-correct. The problem with this assertion - and it's a big one - is that there is not a single piece of historical evidence to support it and many to contradict it.

No self-correcting debt deflations

US economic policy-makers awaited a self-correction in the 1930s as did Argentina in the 2000s. The policy failed. The problem is the antecedents; our financial system is experiencing a debt deflation following a period of credit expansion that resulted in over-indebtedness. Credit and banking contractions following periods of over-indebtedness result in a self-reinforcing process of debt deflation.

http://www.itulip.com/images/OglalaCapsized.jpgA summary of Professor Irving Fisher's theory of debt deflation, which was later more completely developed by Minsky, extracted from a lecture by Steve Keen Modelling Debt Deflation (PowerPoint file) (http://www.debunking-economics.com/Lectures/Money/Lecture_07_Minsky_FIH_Dynamics2006.ppt):

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to
7. Pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation. The above eight changes cause
9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (1933: 342)
10. With deflation on top of excessive debt, “the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing” (Fisher 1933: 344).

The Libertarian fundamentalist "let the market take its course" prescription is not a real world option under the circumstances of a debt deflation. It is a misapplied Utopian vision that is guaranteed to turn into a Depression nightmare for the US much as in the 1930s.

The key difference is that today the US is a net debtor versus a net creditor, making the circumstances of its debt deflation and financial crisis more similar to Mexico's in the mid 1990s and Argentina's in 2001.

A recent Forbes article lays out the real world choices the US faces, Lessons from a Mexican bailout: (http://www.forbes.com/feeds/ap/2008/09/28/ap5480120.html)
"It's a long, complex road," said Carlos Nunez, head of equity consulting at Grupo Financiero Monex, a Mexico City brokerage. But while painful and expensive, the bailout was necessary to avoid inevitably worse consequences - like those seen when Argentina declined to shore up teetering banks in 2001, prompting a run and then a freeze on deposits, and ultimately, the world's largest-ever government default, he said.
Which do we want? The Argentina 2001 financial crisis outcome or the mid 1990s Mexico financial crisis outcome? It's a two item menu – there is no real "sinking ships right themselves" choice. It's a myth, albeit an appealing one.

Like it or not, those are our options. It is unfortunate that there is among our leadership no one left with any credibility to explain this truth of our circumstances, and that many of my fellow Libertarians are taking an ideological versus a pragmatic approach.

Alternatives

As an alternative to doing nothing or the Paulson plan I support the plan proposed by Bill King, author of The King Report (http://www.mramseyking.com/thekingreport.html).
King Report Bailout Plan

Premises:
• The US credit system is broken.
• The Paulsen-Bernanke Bailout Plan does not insure that those banks and brokers that receive bailout aid will increase lending. The reality is the market is hoarding liquidity and these banks are likely to do the same. More importantly consumer lending has been a small, often insignificant part of their business. They made money by trading and through securitization of debt.
• It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking.
• The Wall Street model, securitization and extreme leverage, is obsolete.
• US financial institutions need to recapitalize.
• Hank and Ben assert that it is paramount to keep credit flowing to consumers; the bail out is a necessary adjunct.
• Paulsen and Hank’s bailout plan is tantamount to bailing out Univac, Digital Equipment, etc, in the eighties, which would’ve retarded the development of Dell, Microsoft, Intel and other nascent technology companies.
• It’s wasteful & foolish to put more money in an obsolete non-functioning system
• Big banks and brokers made most of their earnings over the past several years in trading, not consumer lending. And now their derivatives are THE problem
• If you want to get money to the consumer: the less middlemen, the better.
• Decentralization of liquidity, lending and risk is necessary to refurbish the financial system. The illiquidity of a few large banks is collapsing the system.

Basics of the King Report Bailout Plan
• Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government.
• The government would match existing or some percentage of existing bank capital. If it would be better, a separate bank could be created. Place a limit of say $1B per bank.
• This would create $5 trillion of credit at conservative 10 to 1 leverage. This is more than the entire private mortgage market. It is a much better use of capital instead of absorbing $700B of losses with no means to discern resultant credit creation.
• Give the banks a tax rate of 15% on consumer and commercial lending for 5 years and the right to buy out the government share of the operation at some premium.
• Only banks that meet some metric, like a Texas Ratio of 50, are eligible.
• To help the big banks, allow them to create a consumer & commercial lending facility with the 15% tax rate benefit. This should entice private equity and sovereign funds as well as Wall Street remuneration that was garnered over the past decade or so.
• Prohibit trading, especially derivatives, in consumer & commercial lending operations. However, pure hedging would be allowed.
• Immediately increase FDIC-insured bank deposits and money funds to $1 million per eligible account.

Further considerations:
• Foreign banks in the US could be included if they have respective funding from their government.
• The real estate problem is due to the fact that American incomes do NOT support current prices. Easy credit allowed them to purchase homes they couldn’t afford.
• Any solution to clear the real estate market must entail hiking income, which is very difficult, or allowing prices to drop to levels that the average American can support. This helps average Americans, not the big banks and investors stuck with overpriced mortgages.
• No bailout for the imprudent and reckless but a means to directly help Americans and procure capital from private and sovereign sources because a new financial system must be implemented.
• This is not likely to be the final model but it is a stop-gap measure that will resonate with average Americans. It’s a way to connect with Middle America because it benefits them directly and is not an exclusive Wall Street bailout.
• The cause of our current financial morass is Big Government + Big Business = Crony Capitalism + Funny Money = concentration of wealth and risk + declining US living standards.
• The solution is decentralization of the financial system, like the tech industry, which will lower systemic risk, foster competition and yield better ideas, services and companies.
Non-intervention is not the answer. Congress needs to move quickly to draft legislation that conforms to the principles put forth in the King plan.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Contemptuous
09-30-08, 05:54 PM
I read the Miron article yesterday and thought of posting it as a perfect example of what's wrong with the "standard libertarian" response here. And the crux of everything that is myopic in Miron's analysis is that he suggests "doing away with Fannie and Freddie" as a (presumably) salutary step forward in healing the US credit bloat and proliferation of securitized debt.

I could not believe what I was reading him suggest. This would be equivalent to ripping the heart out of a patient with chronic heart inflammation because the "heart is bloated". The article sounded eminently reasonable until I got to that observation and I suddenly realised I was reading the opinions of a superbly educated economist who was nonetheless curiously detached from reality.

If this guy were a surgeon he'd have been fired long ago for gross incompetence in the intensive care ward.

We can't let such people make us delay and deliberate too much longer.

j4f2h0
09-30-08, 06:03 PM
http://www.itulip.com/images/listing.jpgNo Time for Utopian Anti-Interventionism

Anti-interventionist utopianism has no place in a financial crisis that is rapidly developing into a self-reinforcing debt deflation. The credit markets and this economy will not self-correct any more than a damaged ship that is taking on water will right itself. Righting a ship that is listing is expensive, but trying to raise one that has been allowed to capsize is vastly more so. After declaring victory yesterday over the defeat of the poorly conceived Paulson Wall Street bailout, it's time to get practical proposals in front of Congress now.

My friends and readers know me as a Libertarian. My experience is as an entrepreneur first and investor second. Rest assured I am not I am not a socialist third: you will not find among entrepreneurs and capitalists anyone who promotes the idea that government is the driving force behind a dynamic and growing economy.

That said, my libertarianism is practical not ideological. Markets determine prices and allocate economic resources better than governments can most of the time. But markets can fail, and when they do sometimes only government can provide a floor to stop their self-destructive, self-reinforcing collapse and get them moving again. A constructive, rational debate is over how to stop the collapse – and fast – not whether we should try to do so at all.

Today Jeffrey A. Miron, senior lecturer in economics at Harvard University, represents the Libertarian fundamentalist perspective on the financial and economic crisis in an article Bankruptcy, not bailout, is the right answer (http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html) for CNN.

The essence of Jeffrey A. Miron's argument is this: "Talk of Armageddon... is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen."

He believes that eventually the credit markets and banking system will self-correct. The problem with this assertion - and it's a big one - is that there is not a single piece of historical evidence to support it and many to contradict it.

No self-correcting debt deflations

US economic policy-makers awaited a self-correction in the 1930s as did Argentina in the 2000s. The policy failed. The problem is the antecedents; our financial system is experiencing a debt deflation following a period of credit expansion that resulted in over-indebtedness. Credit and banking contractions following periods of over-indebtedness result in a self-reinforcing process of debt deflation.

http://www.itulip.com/images/OglalaCapsized.jpgA summary of Professor Irving Fisher's theory of debt deflation, which was later more completely developed by Minsky, extracted from a lecture by Steve Keen Modelling Debt Deflation (PowerPoint file) (http://www.debunking-economics.com/Lectures/Money/Lecture_07_Minsky_FIH_Dynamics2006.ppt):

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to
7. Pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation. The above eight changes cause
9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (1933: 342)
10. With deflation on top of excessive debt, “the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing” (Fisher 1933: 344).

The Libertarian fundamentalist "let the market take its course" prescription is not a real world option under the circumstances of a debt deflation. It is a misapplied Utopian vision that is guaranteed to turn into a Depression nightmare for the US much as in the 1930s.

The key difference is that today the US is a net debtor versus a net creditor, making the circumstances of its debt deflation and financial crisis more similar to Mexico's in the mid 1990s and Argentina's in 2001.

A recent Forbes article lays out the real world choices the US faces, Lessons from a Mexican bailout: (http://www.forbes.com/feeds/ap/2008/09/28/ap5480120.html)
"It's a long, complex road," said Carlos Nunez, head of equity consulting at Grupo Financiero Monex, a Mexico City brokerage. But while painful and expensive, the bailout was necessary to avoid inevitably worse consequences - like those seen when Argentina declined to shore up teetering banks in 2001, prompting a run and then a freeze on deposits, and ultimately, the world's largest-ever government default, he said.
Which do we want? The Argentina 2001 financial crisis outcome or the mid 1990s Mexico financial crisis outcome? It's a two item menu – there is no real "sinking ships right themselves" choice. It's a myth, albeit an appealing one.

Like it or not, those are our options. It is unfortunate that there is among our leadership no one left with any credibility to explain this truth of our circumstances, and that many of my fellow Libertarians are taking an ideological versus a pragmatic approach.

Alternatives

As an alternative to doing nothing or the Paulson plan I support the plan proposed by Bill King, author of The King Report (http://www.mramseyking.com/thekingreport.html).
King Report Bailout Plan

Premises:
• The US credit system is broken.
• The Paulsen-Bernanke Bailout Plan does not insure that those banks and brokers that receive bailout aid will increase lending. The reality is the market is hoarding liquidity and these banks are likely to do the same. More importantly consumer lending has been a small, often insignificant part of their business. They made money by trading and through securitization of debt.
• It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking.
• The Wall Street model, securitization and extreme leverage, is obsolete.
• US financial institutions need to recapitalize.
• Hank and Ben assert that it is paramount to keep credit flowing to consumers; the bail out is a necessary adjunct.
• Paulsen and Hank’s bailout plan is tantamount to bailing out Univac, Digital Equipment, etc, in the eighties, which would’ve retarded the development of Dell, Microsoft, Intel and other nascent technology companies.
• It’s wasteful & foolish to put more money in an obsolete non-functioning system
• Big banks and brokers made most of their earnings over the past several years in trading, not consumer lending. And now their derivatives are THE problem
• If you want to get money to the consumer: the less middlemen, the better.
• Decentralization of liquidity, lending and risk is necessary to refurbish the financial system. The illiquidity of a few large banks is collapsing the system.

Basics of the King Report Bailout Plan
• Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government.
• The government would match existing or some percentage of existing bank capital. If it would be better, a separate bank could be created. Place a limit of say $1B per bank.
• This would create $5 trillion of credit at conservative 10 to 1 leverage. This is more than the entire private mortgage market. It is a much better use of capital instead of absorbing $700B of losses with no means to discern resultant credit creation.
• Give the banks a tax rate of 15% on consumer and commercial lending for 5 years and the right to buy out the government share of the operation at some premium.
• Only banks that meet some metric, like a Texas Ratio of 50, are eligible.
• To help the big banks, allow them to create a consumer & commercial lending facility with the 15% tax rate benefit. This should entice private equity and sovereign funds as well as Wall Street remuneration that was garnered over the past decade or so.
• Prohibit trading, especially derivatives, in consumer & commercial lending operations. However, pure hedging would be allowed.
• Immediately increase FDIC-insured bank deposits and money funds to $1 million per eligible account.

Further considerations:
• Foreign banks in the US could be included if they have respective funding from their government.
• The real estate problem is due to the fact that American incomes do NOT support current prices. Easy credit allowed them to purchase homes they couldn’t afford.
• Any solution to clear the real estate market must entail hiking income, which is very difficult, or allowing prices to drop to levels that the average American can support. This helps average Americans, not the big banks and investors stuck with overpriced mortgages.
• No bailout for the imprudent and reckless but a means to directly help Americans and procure capital from private and sovereign sources because a new financial system must be implemented.
• This is not likely to be the final model but it is a stop-gap measure that will resonate with average Americans. It’s a way to connect with Middle America because it benefits them directly and is not an exclusive Wall Street bailout.
• The cause of our current financial morass is Big Government + Big Business = Crony Capitalism + Funny Money = concentration of wealth and risk + declining US living standards.
• The solution is decentralization of the financial system, like the tech industry, which will lower systemic risk, foster competition and yield better ideas, services and companies.
Non-intervention is not the answer. Congress needs to move quickly to draft legislation that conforms to the principles put forth in the King plan.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
__________________________________________________

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)

Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/GeneralDisclaimer.htm)

Is it not Utopian to think and expect the government to do the right thing? IMHO both sides of this argument are flawed, on one hand the non interventionist waiting for a market correction that will never happen (under historical evidence). Then u have the King Plan which sounds great, but your major flaw is assuming the government can do their job and make competent decisions, which we all know wont happen.

I have no answers only observations. I thought that was what Libertarian stood for? Not looking to government to fix problems BECAUSE THEY ONLY FUCK IT WORSE IN THE PROCESS! i dunno, the King plan sounds like a great idea though!

phirang
09-30-08, 06:26 PM
Can we just start a war and get it over with? Sheesh...

sabocat
09-30-08, 07:14 PM
That is an excellent proposal that meshes nicely with most of the economic analysis on iTulip. It also moves us in the direction of solutions that are more in line with generalized American values which is the basis of positive bipartisan solutions.

Coupla things:

First, it would be helpful to articulate why this is a better model for a credit system in general, not just why it is a solution to the crisis. Most importantly, the proposed system reestablishes the link between the borrower and the lender. This is essential since it was breaking this link that enabled all the hanky-panky in the first place. It is clear that the model of abstracting and securitizing risk exacerbates and concentrates risk rather than distributes and mitigates it.

The proposal is likely to result in a credit system that is more focused on meeting the needs of localities. Since revenue won't be sought for speculative purposes it could result in a lower fee structure. It is a system that values the synergies created by relationships that are personal. It also values the virtues of smaller-scale institutions. I guess one thing would be innovation, though I don't really see what there is to innovate in retail banking. It mostly works the way it has for two thousand years. I still like it being generally of the view that American capitalism is too heavily reliant on large organizations for the 21st century. In this sense, our capitalism is still very 1950s. A decentralized banking system would probably better serve smaller firms.

Second, I think such a system is much more oriented to broadly shared values about markets: they should reward hard work and investment, not speculation. There is a long tradition of efforts to establish banking systems in the US that are more responsive to producers. As a society we used to understand the virtues of various sorts of banking systems quite well. We see the remnant of such intelligence on iTulip in the sophisticated understanding of central banking and currency on this board--many of the attitudes of iTulipers are echos of very specific political battles that date back as far as the American Revolution.

Third, in many ways large banks were simply vehicles for speculation. Speculation has certainly been supplanting investment banking as the primary function of Wall St. But speculation doesn't really work that way any longer. When firms have spectacular speculative runs or spectacular failures it is usually just a couple of traders doing it. The only reason to house them in a huge investment bank is to give them more capital and leverage to play with. If traders are "de-banked" the damage they can do with their failures are probably lessened appreciably. At the same time, their own ability to make money, help make markets, etc. is not inhibited.

One other issue. I do like how this proposal focuses with laser-like precision on the ostensible issue: access to credit for Main St. I am not entirely sold that this is the issue. I think the real issue is the solvency of American households. Until they are recapitalized I still see bad endings everywhere. Either they have to be deleveraged or their earning power relative to their debts has to increase. Any number of such scenarios have been run through on iTulip. Just sayin' that this takes Paulson's premise a little too seriously.

Thanks for posting the proposal!

don
09-30-08, 07:29 PM
Are there Libertarians outside of the First World?

I always thought of it as a First World luxury.

jg1
09-30-08, 07:37 PM
Eric, based on my read of Rothbard's 'Great Depression,' it is clear to me that Hoover was an interventionalist, big-time, over '30-'32, and that FDR merely amplified the radical interventions that Hoover took. Thus, there was no attempt at 'self correction' in the G.D.

I do not have the stats on the post WWI wind down, but, purportedly, that was a big, big slowdown, which was painful, but short. It was painful, but short, because of little/no government intervention.

I agree with your logic in steps 1-9. However, in step 10, do note that if there is no government intervention, non-performing debts will be written off, freeing debtors. Then, after non-performing debts are written off and bad lenders are eliminated, folks like me with savings will step into the void. But, I guarantee that I will not step in when the rules are rigged and changing, which is what we see today and would have with The Bailout.

Let the banks fail, let the debtors declare bankruptcy, let soup lines flower and multiply, let attitudes about debt change (back to 'debt = bad'), then let the system regrow, properly.

jk
09-30-08, 07:38 PM
i am cynical enough to believe that, although the king plan, or the roubini plan, or any one of a number of other plans make more sense, we are going to get a variant of the paulson plan, with a few bells and whistles to buy the necessary 12 changed votes.

sabocat
09-30-08, 07:38 PM
Too true. It is highly associated with the individualism that is only enabled by socially-generated wealth. Call it the libertarian blind spot...

Rajiv
09-30-08, 07:39 PM
Kucinich letter to supporters -


Yesterday marked a day that will go down in history, when Congressional Democrats and Republicans alike took on full responsibility to protect the interests of taxpaying Americans, and defeated the deceptive bail out bill, defying the dictates of the Administration, the House Majority Leadership, the House Minority Leadership and the special interests on Wall Street.

Obviously Congress must consider quickly another course. There are immediate issues which demand attention and responsible action by the Congress so that the taxpayers, their assets, and their futures are protected.

We MUST do something to protect millions of Americans whose homes, bank deposits, investments, and pensions are at risk in a financial system that has become seriously corrupted. We are told that we must stabilize markets in order for the people to be protected. I think we need to protect peoples' homes, bank deposits, investments, and pensions, to order to stabilize the market.

We cannot delay taking action. But the action must benefit all Americans, not just a privileged few.
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.
.
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This is a perfect time to open a broader discussion about our financial system, especially our monetary system. Such a discussion is like searching for a needle in a haystack, and then, upon finding it, discussing its qualities at great length. Let me briefly describe the haystack instead.

Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system:

The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.

Confused?

This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.

The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.

Who could turn down a deal like this? I did.

The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.

Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized.

We are at a teachable moment on matters of money and finance. In the coming days and weeks, I will share with you thoughts about what can be done to take us not just in a new direction, but in a new direction which is just.

Also - Protecting the public interest in any economic "bailout" (http://kucinich.us/index.php?option=com_content&task=view&id=2442&Itemid=1)


The U.S. government has been turned into an engine that accelerates the wealth upwards into the hands of a few. The Wall Street bailout, the Iraq War, military spending, tax cuts to the rich, and a for-profit health care system are all about the acceleration of wealth upwards. And now, the American people are about to pay the price of the collapse of the $513 trillion Ponzi scheme of derivatives. Yes, that’s half a quadrillion dollars. Our first trillion dollar compression bandage will hardly stem the hemorrhaging of an unsustainable Ponzi scheme built on debt "de-leverages."

Does anyone seriously think that our public and private debts of some $45 trillion will be paid? That the administration's growth of the federal debt from $5.6 trillion to $9.8 trillion while borrowing another trillion dollars from Social Security has nothing to do with this? Does anyone not see that when we spend nearly $16,000 for every family of four in our society for the military each year that we are heading over the cliff?

This is a debt crisis, not a credit crisis.
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I will also insist that all of the following issues be considered in whatever Congress passes:

Reinstatement of the provisions of Glass-Steagall, which forbade speculation
Re-regulation of the finance, insurance, and real estate industries
Accountability on the part of those who took the companies down:
a) resignations of management
b) givebacks of executive compensation packages
c) limitations on executive compensation
d) admission by CEO's of what went wrong and how, prior to any government bailout
Demands for transparencey
a) with respect to analyzing the transactions which took the companies down
b) with respect to Treasury's dealings with the companies pre and post-bailout
An equity position for the taxpayers
a) some form of ownership of assets
Some credible formula for evaluating the price of the assets that the government is buying.
A sunset clause on the legislation
Full public disclosure by members of Congress of assets held, with possible conflicts put in blind trust.
A ban on political campaign contributions from officers of corporations receiving bailouts
A requirement that 2008 cycle candidates return political contributions to officers and representatives of corporations receiving bailouts





I am presuming that a lot of this came from Michael Hudson

Hypatia1
09-30-08, 07:51 PM
Can we just start a war and get it over with? Sheesh...

Are the two we already have not good enough for you?
In my day we were happy to have one war.
I've read in history books that there have been times with no wars. They call the gaps between wars "peace". Peace must be hell (but I wouldn't know).

Chief Tomahawk
09-30-08, 07:55 PM
Yo, EJ:

Ever hear from CNBC's Dennis Neale again because of the recent turbulance in the stock markets?

If memory serves correctly, it was Kneale interviewing you about your Harper's magazine cover story. I think Kneale tried to get you to name some favorite investment areas to which you advised to "steer clear of the stock market". At the time it seemed a little rude as you weren't cooperating with Dennis' wishes. But now I'm wondering whether Kneale has put 1 & 1 together and is trying to tap your mind? I think Dennis should have you on again.

End of my two cents. Keep up the good work!

grapejelly
09-30-08, 07:57 PM
I will paraphrase Lloyd Bentsen's famous comment (was it directed to Dan Quayle?) "You're no Libertarian", EJ.


US economic policy-makers awaited a self-correction in the 1930s as did Argentina in the 2000s. The policy failed.This is so untrue that it is staggering and hard to argue with the rest of your essay. It is a Big Lie, not a little lie, and I am surprised that you can even say this.

The US did nothing but intervene. Let's see, spending staggering amounts of money on make-work programs, numerous "bailouts" of industry and control over industry, seizing gold, closing the banks, setting up bogus "deposit insurance" schemes, etc. etc. etc.

And Argentina, and Mexico...they did similar things, no? I mean, the whole reason for this crisis was moral hazard and money printing in the first place.

Bottom line, your solution is to continue the same thing, but do it with more "regulation." It is doomed not only to fail, but to lead the country and the world into a second Depression.

The *only* solution is to simply let assets plunge in value, take our medicine, and in a year or two things will be fine. Argentina worked out quite well because they had no choice. Domestic industries rose to replace imports. And a depression pulled asset values down until everything was a bargain.

Then things started to shape up.

That is *exactly* what we need right now.


The Libertarian fundamentalist "let the market take its course" prescription is not a real world option under the circumstances of a debt deflation. It is a misapplied Utopian vision that is guaranteed to turn into a Depression nightmare for the US much as in the 1930s.Oh really? I think your "solution" is guaranteed to do that.

Irving Fisher is the same person who proclaimed famously that stock prices were at a "permanently high plateau" or some such quote, no? Just before the Crash of 1929. I am sure he was brilliant, but that doesn't make him right.

What we need is asset prices to fall.That is what is happening. Then a lot of banks go out of business. House prices fall. Everything falls. And credit becomes hard to get. Then people start saving, not hoarding. It's called saving and investing.

The FIRE economy is history. People buy up old factories and start making things to sell domestically. There is a depression but it lasts a year or two.

The "bailout" way will assure that the depression will happen, but it will last and last and last. Because government malinvestment will replace public/private malinvestment. Big public works and bailouts will be financed by scared investors so that money will not go into productive uses. We will still be stalled out in the FIRE economy, but nothing will be left in terms of capital surplus to invest in producers and consumers economy.

we_are_toast
09-30-08, 08:15 PM
For some time now I've been wondering why the government is only concerned with pumping money to the big banks. I thought it would be more reasonable to bypass them and go directly to the people who need the credit (the consumer and businesses). But recapitalizing the smaller banks would be much easier and more efficient. I like it!

It's a great compromise between the Libertarian and socialist in me. :)

Unfortunately, Jk is right on this.

EJ
09-30-08, 08:19 PM
I will paraphrase Lloyd Bentsen's famous comment (was it directed to Dan Quayle?) "You're no Libertarian", EJ.

This is so untrue that it is staggering and hard to argue with the rest of your essay. It is a Big Lie, not a little lie, and I am surprised that you can even say this.

The US did nothing but intervene. Let's see, spending staggering amounts of money on make-work programs, numerous "bailouts" of industry and control over industry, seizing gold, closing the banks, setting up bogus "deposit insurance" schemes, etc. etc. etc.

And Argentina, and Mexico...they did similar things, no? I mean, the whole reason for this crisis was moral hazard and money printing in the first place.

Bottom line, your solution is to continue the same thing, but do it with more "regulation." It is doomed not only to fail, but to lead the country and the world into a second Depression.

The *only* solution is to simply let assets plunge in value, take our medicine, and in a year or two things will be fine. Argentina worked out quite well because they had no choice. Domestic industries rose to replace imports. And a depression pulled asset values down until everything was a bargain.

Then things started to shape up.

That is *exactly* what we need right now.

Oh really? I think your "solution" is guaranteed to do that.

Irving Fisher is the same person who proclaimed famously that stock prices were at a "permanently high plateau" or some such quote, no? Just before the Crash of 1929. I am sure he was brilliant, but that doesn't make him right.

What we need is asset prices to fall.That is what is happening. Then a lot of banks go out of business. House prices fall. Everything falls. And credit becomes hard to get. Then people start saving, not hoarding. It's called saving and investing.

The FIRE economy is history. People buy up old factories and start making things to sell domestically. There is a depression but it lasts a year or two.

The "bailout" way will assure that the depression will happen, but it will last and last and last. Because government malinvestment will replace public/private malinvestment. Big public works and bailouts will be financed by scared investors so that money will not go into productive uses. We will still be stalled out in the FIRE economy, but nothing will be left in terms of capital surplus to invest in producers and consumers economy.

You are an anarchist, not a Libertarian.

bart
09-30-08, 08:47 PM
You are an anarchist, not a Libertarian.

There is nothing in what he said that I saw that shows (except perhaps by implication) he believes that all forms of government are oppressive and undesirable and should be abolished, which is the primary definition of anarchism.

I have very major problems with the current bailout/rescue plan myself.

grapejelly
09-30-08, 09:01 PM
You are an anarchist, not a Libertarian.

I believe in free markets. I believe in free money. And free banking.

The present problem was caused entirely by money created by banks out of thin air, resulting in the "FIRE economy" and moral hazard run amok.

The current bailouts, including the one that nobody voted on and that the Fed is executing with other central banks, are being done by people whose livelihoods depend upon the gravy train FIRE economy.

The rest of us are its victims.

Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.

Fisher prophesied doom with deflation just as you do, and for similar reasons.

It's all about blind panic and I have to say, self interest. Please understand that what I am about to say sounds very critical and I don't mean it that way. But it is very serious and I will say it anyway.

If our friends are in the FIRE economy, and our colleagues, and the people in our social circle, we cannot help but panic when the FIRE economy is all of a sudden "put out".

Rothbard writes that Fisher married an heiress and that "had F.D.R. followed Glass we would have been pretty surely ruined." (Carter Glass, of the Glass-Steagall fame, was an adamant opponent of FDR's inflationary policies.)

And that goes to the heart of the matter. It is a class matter, is it not?

Most of us Main Street types don't understand why a freshly minted MBA should make $90,000 or $150,000 per year right out of college.

Or why the CEOs and presidents of failing banks should make $20 million.

Or why Paulson is worth over $500 million. Or why someone can make a billion smackers on a single deal when they don't "make" anything.

We don't understand where that money comes from. And we don't have it ourselves. So it is the FIREs vs. the No-FIREs.

It is a class struggle.

Precisely what happened to our Congress: they heard from the literally 98% who do not consider themselves "on FIRE". They didn't want to face the wrath of the plebes.

On occasion, the ruling elites get shaken up and stirred. Thrown out. Heads cut off. The result is usually worse than it was before. But they went too far.

There will be bailouts anyway. This is all nonsense because we both know that there will be bailout after bailout. My point is that they are wrong and they crowd out private investment and prevent the unwinding of the huge malinvestments that have gone on.

Contemptuous
09-30-08, 09:03 PM
Are there Libertarians outside of the First World? I always thought of it as a First World luxury.


Too true. It is highly associated with the individualism that is only enabled by socially-generated wealth. Call it the libertarian blind spot...

LOL! "I always thought of it as a First World luxury"! Spot on, Don and Sabocat - both digging sharp barbs into the unconscious American conceits here. Lots of really good things in Libertarianism, but must be kept firmly grounded to the reality which so many other economies experience. Economic bombs bursting, maim and kill inordinately and indiscriminately. Beware that you "true-blue" libertarians have gauged the realism vs. the potential conceits accurately!

grapejelly
09-30-08, 09:07 PM
I don't want $2700 of my money given away to the bankers right now. Call me a Libertarian. I don't want them stealing purchasing power from my bank account. I don't want them bailing out people who never worked a day in their life building their own small business or working a real job.

I have sat in First Class next to these World Banker types and these finance execs. Never a more smug lot you will find. Now they are getting their commupance. And it's good because it was all at your expense and my expense, Lukester. We have paid for this too long.

orion
09-30-08, 09:16 PM
You are an anarchist, not a Libertarian.

I think it can be hard to tell the difference. I see that every time I try to reason out the illegal drug issue vs personal use, but that's another story.

I say kick back and play with your buckets (This is not sarcastic, I really liked that article and I am busy working on mine now).

http://www.itulip.com/forums/showthread.php?p=50417#post50417

Now matter is done this thing will crash and burn. Subprime, CDS, XYZ, these losses will be enormous. And I think the politicians want to get the chance to throw entitlements on the fire before we hit reset button.

bart
09-30-08, 09:37 PM
Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.


Fisher definitely had his problems and blew it badly on predicting the depression, but he did own up to it and come back with the debt deflation theory, and in my opinion it holds water.

I disagree that Fisher is a huge inflationist and also disagree about reflating. Fisher was talking about bringing price (not stock) levels back towards 1929 levels from severely depressed 1933 levels, and although technically that is reflation it's quite a stretch to say the least.

Rothbard and other Austrians also have significant shortcomings. Amongst them are things like not considering money markets funds as money, which leads to really strange outcomes. One would be selling some stock and then transferring half to a checking account and half to an MMF, which leads to only half of it being considered money.
Another is ignoring the workability and truth of the very strong relationship between M2, M3 and corrected CPI - monetary aggregates do have a clear function and much validity.

Please don't get me wrong too, I like a lot of what the Austrians have to say but a bottom line on virtually every school of economics was summed up well by Galbraith: "Economics exists to make astrology look respectable."

sunskyfan
09-30-08, 09:40 PM
It appears that the world is coming to economic terms.

Dramatic. Unbelievable. What is going on?

The basic narrative or explanation is that a housing bubble formed in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> and that this bubble has popped causing a cascading of good loans into bad ones.

I think that this is an incorrect narrative.

I think that the bubble that formed was in the Financial Sector. But before we dig into that and the consequences of it let's examine something that maybe I, as a computer analyst who has spent nearly 25 years making a living in this area may have to offer.

Computers have had a great impact on civilization. They seem to have a magical qualities in the abilities of people and systems of people to manage environments, information, and automatable tasks. I think most of the magical illusion comes from the automatable task regime. I am talking about ATMs, gas pumps, and the self check-out line at the grocery store for the consumer, that kind of thing. Also, in industry productivity per man hour of companies has gone up many fold due to robots and tracking. Even in warfare computer technology has enable very sophisticated weapons systems allowing precise destruction and projection of power unheard of before by such a small military. Most of the time these uses of computer technology all have a very functional quality that has an easily measured outcome of success or failure. Sometimes it does not.

There is another use of computer technology that does not have such an easily measured outcome of success or failure. Everyone experiences it everyday and many of us use it to make a living. It has to do with thinking, meaning, and protocol. Let's use a short and call this TMP. We all understand that TMP has economic value. We have for many years know this and have tried to reward this in our various economic systems. Generally, we try to map TMP economically to what we call intellectual property. This is an attempt to literally value TMP in our economy much like a house or a car or a piece of land has value. This concept kind-of works. I think that the guy, or at least his surviving relatives, who invented the crescent wrench still gets a penny for every wrench sold via a patent. Microsoft's software that implements its operating system and various other computer tools such as word processor and presentation tools (PowerPoint) are another type of intellectual property. Copyrights are another attempt to value intellectual property in an economy. The fact that we don't often consider is that this whole idea of intellectual property is a pretty new concept. The bugs haven't been worked out of the system yet and in fact there is still a debate about what type of intellectual activity can be claimed as property and what cannot. For instance, one of the basic foundations of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region> system is that some intellectual property (speech) must be free! Another is that while people may posses money nobody actually owns the idea of money or the valid right to create money. For the most part we have allowed the problem of TMP to float in the political and even religious part of our lives and once in a while we deal with it in the economic part of our lives.

So, how does this discussion relate to the troubles with the economy? Be patient, I am getting there.

To combine the big stew of ideas and the concept of TMP I have introduced let me ask a question. What if we have finally reached an unignorable crisis between TMP and the meaning and value of money? Few of us would argue that if non-government entities or at least non-government-sanctioned entities started printing money we would have an economic crisis. But, let's back up one more time, and think about who should decide how much money gets created in an Economy or how should it be "injected" into the economy. Keep in mind that of too much money is created compared to the "worth" of the economy then the value of the money shifts in time. Thought there is a lot of chicken-egg arguments this shift causes uncertainty in the value of the money invariably making it worth less (if you are conservative) or more (if you are an optimist) causing inefficiencies. If too little money is in the economy compared to its worth then there is an intrinsic inefficiency due to the fact that too much time is spent finding money itself to use for the transactions of the economy instead of productive time creating wealth. In other words cynicism means deflation and unwarranted belief means inflation. (You might want to keep that in mind to try and decide what to do with your savings in this crisis). Finding the balance is key and creating ways of measure the ebb and tide of the economy due to weather, war, population shifts, brilliant advancements in technologies or techniques, and pretty much the impact of all human existence is the challenge.

When government tries to find this balance it generally fails. It doesn't matter whether you call it communism, socialism, or even fascism the creation of money at least solely in the hands of government doesn't seem to work. Thus, we have the idea of Capitalism. Capitalism puts most of the creation of money in the hands of the private sector based on a few simple rules enforced by the government. The general idea of capitalism is that those who have money get to create more. The rich get richer. This actually makes sense. If I have proven my ability to create wealth then I should be the one who creates the money to measure that wealth in the economy. If I do a bad job then by ability to create wealth gets taken away. This works pretty well if the financial markets are healthy. One other thought is that governments, especially governments closely tied to the people, tend to try and say we are richer then we really are. For this reason popular elected governments tend to make a mess out of the creation of money (thus, the endless debate of the budget and the deficit) even as it is regulating the private sector creation of money. The idea of a central bank, like The Federal Reserve, is to create an ultimately private entity subject to periodic control of the Federal government through appointment of Federal Reserve governors. This creates a hybrid entity to control totally private entities that actually create money under regulation by the government. This hybrid is also protects the money supply from the popular whims of a popular elected government.
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o:p> </o:p>
So banks create money when they loan you money for a car or a house. They are authorized to do this by either the Federal Government, a National Bank, or by a state, a State Bank.

Companies create money by issuing stocks. Beyond budget deficits government entities and some huge private entities create money by issuing bonds. Regulated by the SEC.

The premise on all these things is that over time, and the key word is time, the correlation with the money created vs. what is created can be measured and validated. If a company does not perform then the price of its stock goes down. If a city blows money on a bridge that doesn't make economic sense then its ability to create more bonds (more money) goes away. If a bank makes a series of bad loans then its ability to loan more money is diminished if not taken away. Capitalism works because the market itself governs how much money is created. We live and breathe this idea. Why else do we so adamantly and consistently use the phrase "make money" when we talk about being successful in our economy.

So, what would happen if someone found a way to make money without contributing real measurable wealth to the economy?

Well, we are testing that scenario. It has happened. It has happened because we have no mechanisms for checking the power of computers to manipulate the value of TMP in our economy.

And, what would happen if someone found a way to convince you that you could make money simply by being who you are? Your existence is a de facto contribution to the rest of humankind and you can trade this existence for stuff. This has also happened. He/She is called the American consumer and at least part of this convincing is how powerful we feel in our technologically enhanced life style again distorting the value of TMP.

And, finally, what would happen if there was a technology developed, that if you simply possess it and have access to it, those who don't will assume you are contributing to the wealth of the economy to the point that they allow you to literally make money. This is called the electronically traded financial system: another gigantic distorted hole in the evaluation of TMP. Hiding in the bowels of Wall Street and indeed the rest of the financial centers around the world investment bankers found a way to "make" a ridiculous amount of money without creating real wealth. They mapped the accountability to most Americans and Europeans via home mortgages, car loans, and credit card based consumption. Generally the argument they made economically is that our very existence justified this consumption power we were given (kind of explains the celebrity and our fascination with Paris Hilton now doesn't it?). With computer technology they moved the paper trail so quickly and hid their tracks so well in the barrage of computer amplified, automated bullshit generation that even hard working wealth creating emerging economies ate up this "paper". (This is why the world’s financial system is at risk and not just the <st1:place w:st="on"><st1:country-region w:st="on">US</st1:country-region></st1:place>’s). If someone so invested could be fooled how could some poor government regulator try to keep up? Even the sharkish, BS spewing investment bankers were convinced that lack of accountability meant validity. You can even hear them talking to themselves: "Nobody has called me on it so I guess I must be creating something". Much like the American consumer has been saying : "Nobody has called me on it so I guess I must be creating something".

We first got an inkling of computer driven TMP distortion phenomena with the dot.com explosion ten years ago. The business model was absurd but people bought it and made money for a while. The NASDAQ has never recovered.

We saw it again in the Pentagon and the delusional anticipation of easy success in <st1:country-region w:st="on"><st1:place w:st="on">Iraq</st1:place></st1:country-region> with our shock and awe inducing smart weapon amplified military. Bush even tried to extend a kind of American consumer justification to the Iraqi people when he argued that they would pay for the war simply with their freedom. Computer amplified TMP could invade a country, depose its leader, and set up a government with a free market economy and make money!

We have now seen it in our banking, financial, and consumer credit system. Derivatives and junk bonds. Hedge funds and counter-party risk blah-blah-blah. Really? With the speed of computers and access to an incredibly complex computer accounted system these guys became economic super men creating wealth. But what did these guys create g besides money and with no wealth added to the economy?

But, now something has changed. The party is over. Somebody has called us on it. Globalization has enabled the world to be big enough to stand up to us and is measuring the true wealth we have created. This happened quicker than anybody though because of a stupidly expensive war and our unmitigated consumerism and you guessed it, computer amplified TMP.

Now, in their panic, economists and politicos are trying to connect all the bullshit money these Financial Supermen have created to something real. Whether it is oil, land, food the panic has been obvious. It first created the commodities bubble no its effects are expanding. Funny, that in desperation we are trying to post-facto place the governments mandate to print money on top of all this phony money creation to somehow validate it. This is ridiculous. Do you really think that suddenly that really gives it true meaning? No wealth has been created. But, they try. The fantasy is hard to kill.

In the end we are all in trouble and it is a crisis in confidence. Not in our ability to solve problems. Not even in our lack of ability to understand what our houses, companies, money, and 401ks are really worth. Our crisis is that we don't know what WE are really worth. We have moved from being farmers, labor workers, teachers, soldiers and parents to being some kind of professional in a computer amplified society who lives off of the creation and control of TMP. Computer amplified TMP. Something whose value to the rest of the economy is really unknown. Yes, we face an existential crisis that deep.

Really, that deep? You may ask. Think about it. We have broken so severely with the basic covenant of capitalism of those who produce get to make money that we are even questioning the idea of capitalism itself. Think I am joking? We have nationalized almost all of the mortgage industry and most of the financial system the last two weeks! There are no band-aides. There are no simple cures. We cannot play currency games to hide our insecurity and our mistake. "The Secret" is not going to save us. Christ is not going to come down to Earth and save us. Aliens will not land on the White House lawn. All the guys on Wall Street with their million dollar bonuses, all those people in 3000 square foot homes they can't afford, all those feeding gas to those huge gas guzzling trucks and SUVS driving to a far-away suburbia to live, all those living on credit cards, and finally all those baby boomers who bought the fantasy of the 401k and that they can be so productive for half of their lives they can live wealthy without producing the other half of their lives are going to have to walk into the real world and produce justification for their wealth or walk away from the fantasy. Most will fail and most will have to walk away, at least for a while. The challenge is when they walk away we have to set up some rules so that civilization still works and that we don't return to a feudal system where the strong victimize the weak. The economists and politicos need to deal with this reality not continue to play games dreaming this is just some kind of accounting snafu that can be fixed by special act of an economic god that is the infinite balance sheet of the US government. That is the challenge of our day. That is the challenge for you and me and our leaders. It is time for everybody to get real. Once the smoke has cleared we then must address the problem that created this: the evaluation of TMP (thinking, meaning, and protocol) and the computer amplified relevance and value of TMP to the basics of our economy like food, shelter, and defense. Take the 700B dollars and find the small banks and companies that have measured wealth accurately and let the rest fail. The problem is that expectations must deflate. Is it possible to deflate expectations without deflation? I don’t think so. We are spending precious resources and time trying to defend a dead system. The key is to fund entities that preserve economic rationality into the future and past the transient even we are so desperately trying to avoid. We must prepare metaphorical caves of capital as if we were preparing real caves of food and water as if a real asteroid were about to hit earth. They will make loans to support things like legitimate shelter support, food, transportation, and energy. Once they are in place we must let the system reboot and let the transient event happen. We will then have to come to terms with our own intrinsic worth in our economy. We may not like what we see for a while. Usually, human being resort to violence and war to truly find their worth. I don’t think that has to happen. The one thing we have that the past did not is a fantastic communication system called the internet. Where as the reboot of the 30’s took a decade this one could just take a year. If we are smart. My guess is that the aftermath will be a mix of Linear Free Markets and conservative capital formation not non linear derivatives and demand driven capital formation. TMP will probably we enter the public domain where it belongs. We won’t like it but we will respect our lives again.
<o:p> </o:p>
If we are stupid it this could take the war path. I have confidence we won’t go there. Alas, either the spirit of humanity will prevail or it won’t. Humanity is what will save us not greed induced self interest. I bet on us. You should as well. Our very way of life depends on it.
<o:p> </o:p>

rj1
09-30-08, 10:09 PM
I think some things need to be made clear.

First off, part of a hero complex that some people get, is to think that a person can solve anything by applying the right solution. There's an arrogant type of thinking going on in American political and financial circles that if we just apply this lever or release this lever and switch it with another policy all will be made better, business will return to prosperity, we can join hands, and sing Kum By Yah. It's a bit like how teenage boys believe that if they work hard enough or say just the right things, they can get any girl to date them. It's just not true.

There's also a natural logical fallacy that people learn from previous mistakes and that we are superior to those in the past simply because "we have evolved" from that point. You could see this with the financial leadership in this crisis especially. There will always be wars, there will be always genocides...and there will always be depressions.

What's the solution? I'll admit I don't know because I admit I'm not smart enough to know the solution, which is a statement not only of humility but also of Socratic honesty (Socrates being told by the Oracle that he was the smartest man in all of Greece, Socrates rejected this because he thought he knew nothing, but because of his religion and beliefs he had to believe it, so after touring Greece to talk to intellectuals, he realized what made him smarter than everyone else was that he realized he knew nothing while no one else did).

I only know of characteristics that are going on in this crisis and that some of the stated solutions have glaring errors.

-I know that in this crisis there is a lot of outstanding debt.
-I know that money that only existed on paper no longer exists and hence it cannot be used to pay back that debt (like on Monday when $1.4 trillion of paper worth was wiped out).
-I know that the government's store of wealth is based on raising tax money from its citizens, and so regardless of what anyone says, yes, we are paying for anything they do, most likely the buying of this outstanding debt.
-While I am a libertarian, I do not have a pure belief in free market systems.
-I know that I am a member of the middle-class and most likely will be all my life.
-I know that my standing in this class means that I do not benefit from either side of the political argument. Lower taxes benefits predominantly the rich. Wealth redistribution benefits predominantly the poor.

Now my calculations:

-I don't know this, but I believe the excesses of the last 15 years are an anomaly and will not happen again, being brought upon by the introduction of capitalism (or at the least, a form of business where people were allowed to make money on a grand scale) to the wider world after the universally recognized failure of state-controlled communism (to what can now be called state-controlled capitalism in the case of China, a kind of 21st-century mercantilism).
-Someone is going to be a loser in this crisis: someone is losing money. The arguments going on right now between the public, Wall Street, and Congress, is who is going to lose the most money amongst them.
-The United States of America, when it exits this crisis, will be in a weaker position on the global scale.
-The older and supposedly wiser I get, the more I think that I will be put in a position to be hurt by the actions of others despite not doing anything wrong. Which kind of makes me wonder what the point of it all is if I am always going to lose despite doing nothing wrong, just because I'm middle-class and I did not go out and spend money like a drunken sailor. So the solution going around now, in my opinion, makes me the loser. It makes it very hard to be a gung-ho American when this is the system that my country uses to screw me over.
-The loser will also be the children, they will have to pay back the debt. And when that eventually occurs, it will partially foment this country no longer "being on top". I am a libertarian mainly because I am 25 years old, and the older people among the U.S. population have created a system where all the bills come due either when they are dead or near death. I believe this is by design.

EJ, my main complaint with your post is that you think there is an alternative. I do not believe that is the case. There's the Paulson Plan or there's nothing. That is how the entire debate has been shaped by the Treasury Department, Federal Reserve, and Congress. As I said yesterday elsewhere on why I was happy with the plan's initial defeat, if Paulson stated the full intentions for what he wanted, buying underperforming and toxic debt at higher prices than the market would not pay in an effort to recapitalize the banks, it would've never gotten even the 205 votes it got on Monday. He's not a fool, because fools don't get made the CEO of Goldman Sachs.


No, it is not a class struggle, nor a struggle between workers and capitalists. That ended decades ago. As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state."

I disagree. There is a class struggle, just not between workers and capitalists (honestly, what's a capitalist? it would be a libertarian, wouldn't it?), rather the class struggle is between the classes of creditors, debtors, and people that are neither. The creditors want to be paid back, the debtors don't have the money, so they want to get the money from "the people that are neither" because they still have capital having not squandered it.

If the United States continues on the course it is going now, everything it has preached to the rest of the world since 1945 will be proved a failure, just as communism was proved a failure in 1989. You're not allowed to have your principles that you only follow in good times, you follow it in good times and bad. This is not a consequence of utopianism, if the U.S. is not capitalist when it is in its deepest crisis, than why should El Salvador be capitalist when their financial crisis comes in five years? Why should anyone listen to the financial advice of the U.S.-led IMF and their policies that the IMF is pushing on them? What is going on right now, and it is being completely ignored on all American media fronts, is the complete abandonment and failure of 63-year-old American doctrine. Anyone that thinks that doctrine should be abandoned, fine, I only ask you to recognize its abandonment publicly and that it is going bye bye and that we as a country no longer have the right to tell anyone what to do if they're in financial trouble. There are long-term consequences to the actions Paulson is taking, this is one of them.


Now, ultimately, I think the Paulson Plan is going to pass anyway. Political news today was that after observing the Rosh Hashanah holiday today, the Senate will pass the bill tomorrow with minor tweaks. It'll then go back to the House, perhaps as early as Friday, where they only need 12 votes to switch, Bush's signature, and then it is law.

EJ
09-30-08, 10:15 PM
I believe in free markets. I believe in free money. And free banking.

So do I.


The present problem was caused entirely by money created by banks out of thin air, resulting in the "FIRE economy" and moral hazard run amok.
You learned about the FIRE Economy here.


The current bailouts, including the one that nobody voted on and that the Fed is executing with other central banks, are being done by people whose livelihoods depend upon the gravy train FIRE economy.

The rest of us are its victims.Yes, our financial system has been poisoned by Credit Risk Pollution.


Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.Rothbard is an ideologue. Fisher was a serious economist who got wrapped up in the new Era thinking of the late 1920s but got his shit together later. His theory of debt deflation is strong. Unfortunately for him, and for the nation, by 1930 he'd blown his reputation on his New Era calls.

"The U. S. is headed toward a period of business depression, probably beginning within the next two years, which may exceed that which preceded the War. . . . The only thing that will save us is a new gold policy or the discovery of a new process or additional gold fields. If the fall [of gold production] is not prevented by design or accident we shall throttle business, wringing out all profits and experiencing all the evils of deflation."

Prophecy is no new business for Professor Fisher, whose last previous prophetic utterance, however, proved false. Last fall Professor Fisher was prominent among the bull economists who saw no evil in the bull market. He scoffed at bearish forebodings, and even after the bull market had broken he compared its collapse to the failure of a fundamentally sound bank, wrecked only by a psychological "run" of frightened depositors. Professor Fisher's imperfections as clairvoyant were quickly recalled by a rival prophet, Roger Ward Babson of Babson Park, Mass., who said: "It should be recognized that he [Fisher] has changed his position from where he stood when he criticized me in my bearish forecast in ... September 1929. Then he was distinctly bullish on both the stock market and business." Prophet Babson added: "I am not especially troubled about the available supply of gold . . . only one of the many factors which bear upon the business situation."

- Fisher on Gold, Time Magazine, Jan. 20, 1930
I am reminded of Ben Bernanke and his stories about the "contained" sub-prime crisis. He and Paulson have lost their credibility. From now on it does not matter if they are right or not. The sooner he and Paulson step down and are replaced the better.


Fisher prophesied doom with deflation just as you do, and for similar reasons.
He was right, but it didn't matter.


It's all about blind panic and I have to say, self interest. Please understand that what I am about to say sounds very critical and I don't mean it that way. But it is very serious and I will say it anyway.I have heard criticism from all manner of detractors for many years. I welcome it. Time has always been on my side.


If our friends are in the FIRE economy, and our colleagues, and the people in our social circle, we cannot help but panic when the FIRE economy is all of a sudden "put out".
Do you mean capitalists? Yes. I make no apology. Do you mean venture capitalists? No apology there, either. They do not live off economic rent. They are not bankers in the traditional sense. They take risks based on equity. Most fail without fanfare or protest. You never hear about it. A few succeed. You do hear about them. That is how it should be.


Rothbard writes that Fisher married an heiress and that "had F.D.R. followed Glass we would have been pretty surely ruined." (Carter Glass, of the Glass-Steagall fame, was an adamant opponent of FDR's inflationary policies.)A curious revision of history. No need to count on the Mises site to filter history for you. These days you can go read it for yourself. I recommend the Time Magazine site especially, although Harper's is great, too. Here's how Glass was covered at the time. (http://www.time.com/time/magazine/article/0,9171,743082,00.html) Judge for yourself.

Compare these accounts to today's (http://www.time.com/time/magazine/article/0,9171,1844547,00.html). You will lfind that the parallels to the 1930s debt deflation pale beside the historic examples of exessive external debt. It's hard to say which of the two will hit use harder.


And that goes to the heart of the matter. It is a class matter, is it not?

Most of us Main Street types don't understand why a freshly minted MBA should make $90,000 or $150,000 per year right out of college.

Or why the CEOs and presidents of failing banks should make $20 million.

Or why Paulson is worth over $500 million. Or why someone can make a billion smackers on a single deal when they don't "make" anything.

We don't understand where that money comes from. And we don't have it ourselves. So it is the FIREs vs. the No-FIREs.

It is a class struggle.Ah, so you are a socialist! Now I understand where you are coming from.

No, it is not a class struggle, nor a struggle between workers and capitalists. That ended decades ago. As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state."


Precisely what happened to our Congress: they heard from the literally 98% who do not consider themselves "on FIRE". They didn't want to face the wrath of the plebes.There is something to this. But we have all been complicit. Let me give you an example. Do you appreciate that crime in your nearest city has been so low and declining during the rise of the FIRE Economy? That is largely due to the contribution of the FIRE Economy to expanding the US prison system. Were the FIRE Economy to fail, one's recollections of "high crime rates" from, say, the pre FIRE Economy 1970s will soon turn sentimental. In the "cleansing" depression envisioned by ideologues, the prisons that should not have been filled in the first place will have to be emptied out. And if you think the duped sub-prime mortgage borrowers are cranky, wait until you meet a guy who has been in jail for years for no good reason, now trained as a criminal, after he comes knocking on your door looking for recompense in his own way.


On occasion, the ruling elites get shaken up and stirred. Thrown out. Heads cut off. The result is usually worse than it was before. But they went too far. No argument there. But who let them? Who voted for the politicians that ran our country while this disaster developed?


There will be bailouts anyway. This is all nonsense because we both know that there will be bailout after bailout. My point is that they are wrong and they crowd out private investment and prevent the unwinding of the huge malinvestments that have gone on.Yes, as I told my publisher and was reported in the LA Times and repeated afterwards by others, “We always do the right thing, but only after exhausting all other options." (http://articles.latimes.com/2008/mar/26/entertainment/et-bizbooks26)

We have only just begun to fuck up.

Tulpen
09-30-08, 10:33 PM
[Non-intervention is not the answer. Congress needs to move quickly to draft legislation that conforms to the principles put forth in the King plan.

Et Tu Brute?

So the King plan wants to make it easier for borrowers while the premise is that they cannot afford to borrow at current market prices?

By the way I completely agree with Jeffrey A. Miron's article.

sabocat
09-30-08, 10:40 PM
EJ said: "As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state.""

This is where the wheels fall off. It is impossible for markets to deliver collective benefits without the presence of governments. There is a reason that markets which generate the most wealth always exist in territories with strong states, if not downright imperial states.

Whatever the degree of EJ's policy pragmatism, which I actually think trumps statements like this most of the time or I am sure I wouldn't bother visiting this site, this dualistic view of the world is simply not very helpful at this point. It is part of the problem. The question is simply what are governments and markets supposed to do. The story worldwide over the last 40 years is not one of the triumph of markets or states. Rather, it is one of extensive institutional experimentation with different roles for and combinations of state, market, and civic. Viewing the world in these dualistic terms is not just dogmatic, it makes it impossible to see, much less assess, a much larger realm of institutional possibility.

The beauty of the proposal that opened this thread is that it doesn't operate with this dualism in mind. To the extent it is insightful it is insightful along entirely different axes of inquiry. If it weren't it would just be banal.

In short, Galbraith's statement is just as anachronistic as Marx's. It is just fighting the last war (quite literally in Galbraith's case).

sunskyfan
09-30-08, 11:05 PM
It appears that the world is coming to economic terms.

Dramatic. Unbelievable. What is going on?


The basic narrative or explanation is that a housing bubble formed in the US and that this bubble has popped causing a cascading of good loans into bad ones.


I think that this is an incorrect narrative.


I think that the bubble that formed was in the Financial Sector. But before we dig into that and the consequences of it let's examine something that maybe I, as a computer analyst who has spent nearly 25 years making a living in this area may have to offer.


Computers have had a great impact on civilization. They seem to have a magical qualities in the abilities of people and systems of people to manage environments, information, and automatable tasks. I think most of the magical illusion comes from the automatable task regime. I am talking about ATMs, gas pumps, and the self check-out line at the grocery store for the consumer, that kind of thing. Also, in industry productivity per man hour of companies has gone up many fold due to robots and tracking. Even in warfare computer technology has enable very sophisticated weapons systems allowing precise destruction and projection of power unheard of before by such a small military. Most of the time these uses of computer technology all have a very functional quality that has an easily measured outcome of success or failure. Sometimes it does not.


There is another use of computer technology that does not have such an easily measured outcome of success or failure. Everyone experiences it everyday and many of us use it to make a living. It has to do with thinking, meaning, and protocol. Let's use a short and call this TMP. We all understand that TMP has economic value. We have for many years know this and have tried to reward this in our various economic systems. Generally, we try to map TMP economically to what we call intellectual property. This is an attempt to literally value TMP in our economy much like a house or a car or a piece of land has value. This concept kind-of works. I think that the guy, or at least his surviving relatives, who invented the crescent wrench still gets a penny for every wrench sold via a patent. Microsoft's software that implements its operating system and various other computer tools such as word processor and presentation tools (PowerPoint) are another type of intellectual property. Copyrights are another attempt to value intellectual property in an economy. The fact that we don't often consider is that this whole idea of intellectual property is a pretty new concept. The bugs haven't been worked out of the system yet and in fact there is still a debate about what type of intellectual activity can be claimed as property and what cannot. For instance, one of the basic foundations of the United States system is that some intellectual property (speech) must be free! Another is that while people may posses money nobody actually owns the idea of money or the valid right to create money. For the most part we have allowed the problem of TMP to float in the political and even religious part of our lives and once in a while we deal with it in the economic part of our lives.


So, how does this discussion relate to the troubles with the economy? Be patient, I am getting there.


To combine the big stew of ideas and the concept of TMP I have introduced let me ask a question. What if we have finally reached an unignorable crisis between TMP and the meaning and value of money? Few of us would argue that if non-government entities or at least non-government-sanctioned entities started printing money we would have an economic crisis. But, let's back up one more time, and think about who should decide how much money gets created in an Economy or how should it be "injected" into the economy. Keep in mind that of too much money is created compared to the "worth" of the economy then the value of the money shifts in time. Thought there is a lot of chicken-egg arguments this shift causes uncertainty in the value of the money invariably making it worth less (if you are conservative) or more (if you are an optimist) causing inefficiencies. If too little money is in the economy compared to its worth then there is an intrinsic inefficiency due to the fact that too much time is spent finding money itself to use for the transactions of the economy instead of productive time creating wealth. In other words cynicism means deflation and unwarranted belief means inflation. (You might want to keep that in mind to try and decide what to do with your savings in this crisis). Finding the balance is key and creating ways of measure the ebb and tide of the economy due to weather, war, population shifts, brilliant advancements in technologies or techniques, and pretty much the impact of all human existence is the challenge.


When government tries to find this balance it generally fails. It doesn't matter whether you call it communism, socialism, or even fascism the creation of money at least solely in the hands of government doesn't seem to work. Thus, we have the idea of Capitalism. Capitalism puts most of the creation of money in the hands of the private sector based on a few simple rules enforced by the government. The general idea of capitalism is that those who have money get to create more. The rich get richer. This actually makes sense. If I have proven my ability to create wealth then I should be the one who creates the money to measure that wealth in the economy. If I do a bad job then by ability to create wealth gets taken away. This works pretty well if the financial markets are healthy. One other thought is that governments, especially governments closely tied to the people, tend to try and say we are richer then we really are. For this reason popular elected governments tend to make a mess out of the creation of money (thus, the endless debate of the budget and the deficit) even as it is regulating the private sector creation of money. The idea of a central bank, like The Federal Reserve, is to create an ultimately private entity subject to periodic control of the Federal government through appointment of Federal Reserve governors. This creates a hybrid entity to control totally private entities that actually create money under regulation by the government. This hybrid is also protects the money supply from the popular whims of a popular elected government.
<O:p</O:p
So banks create money when they loan you money for a car or a house. They are authorized to do this by either the Federal Government, a National Bank, or by a state, a State Bank.

Companies create money by issuing stocks. Beyond budget deficits government entities and some huge private entities create money by issuing bonds. Regulated by the SEC.

The premise on all these things is that over time, and the key word is time, the correlation with the money created vs. what is created can be measured and validated. If a company does not perform then the price of its stock goes down. If a city blows money on a bridge that doesn't make economic sense then its ability to create more bonds (more money) goes away. If a bank makes a series of bad loans then its ability to loan more money is diminished if not taken away. Capitalism works because the market itself governs how much money is created. We live and breathe this idea. Why else do we so adamantly and consistently use the phrase "make money" when we talk about being successful in our economy.


So, what would happen if someone found a way to make money without contributing real measurable wealth to the economy?

Well, we are testing that scenario. It has happened. It has happened because we have no mechanisms for checking the power of computers to manipulate the value of TMP in our economy.


And, what would happen if someone found a way to convince you that you could make money simply by being who you are? Your existence is a de facto contribution to the rest of humankind and you can trade this existence for stuff. This has also happened. He/She is called the American consumer and at least part of this convincing is how powerful we feel in our technologically enhanced life style again distorting the value of TMP.


And, finally, what would happen if there was a technology developed, that if you simply possess it and have access to it, those who don't will assume you are contributing to the wealth of the economy to the point that they allow you to literally make money. This is called the electronically traded financial system: another gigantic distorted hole in the evaluation of TMP. Hiding in the bowels of Wall Street and indeed the rest of the financial centers around the world investment bankers found a way to "make" a ridiculous amount of money without creating real wealth. They mapped the accountability to most Americans and Europeans via home mortgages, car loans, and credit card based consumption. Generally the argument they made economically is that our very existence justified this consumption power we were given (kind of explains the celebrity and our fascination with Paris Hilton now doesn't it?). With computer technology they moved the paper trail so quickly and hid their tracks so well in the barrage of computer amplified, automated bullshit generation that even hard working wealth creating emerging economies ate up this "paper". (This is why the world’s financial system is at risk and not just the US’s). If someone so invested could be fooled how could some poor government regulator try to keep up? Even the sharkish, BS spewing investment bankers were convinced that lack of accountability meant validity. You can even hear them talking to themselves: "Nobody has called me on it so I guess I must be creating something". Much like the American consumer has been saying : "Nobody has called me on it so I guess I must be creating something".


We first got an inkling of computer driven TMP distortion phenomena with the dot.com explosion ten years ago. The business model was absurd but people bought it and made money for a while. The NASDAQ has never recovered.

We saw it again in the Pentagon and the delusional anticipation of easy success in Iraq with our shock and awe inducing smart weapon amplified military. Bush even tried to extend a kind of American consumer justification to the Iraqi people when he argued that they would pay for the war simply with their freedom. Computer amplified TMP could invade a country, depose its leader, and set up a government with a free market economy and make money!

We have now seen it in our banking, financial, and consumer credit system. Derivatives and junk bonds. Hedge funds and counter-party risk blah-blah-blah. Really? With the speed of computers and access to an incredibly complex computer accounted system these guys became economic super men creating wealth. But what did these guys create g besides money and with no wealth added to the economy?


But, now something has changed. The party is over. Somebody has called us on it. Globalization has enabled the world to be big enough to stand up to us and is measuring the true wealth we have created. This happened quicker than anybody though because of a stupidly expensive war and our unmitigated consumerism and you guessed it, computer amplified TMP.

Now, in their panic, economists and politicos are trying to connect all the bullshit money these Financial Supermen have created to something real. Whether it is oil, land, food the panic has been obvious. It first created the commodities bubble no its effects are expanding. Funny, that in desperation we are trying to post-facto place the governments mandate to print money on top of all this phony money creation to somehow validate it. This is ridiculous. Do you really think that suddenly that really gives it true meaning? No wealth has been created. But, they try. The fantasy is hard to kill.

In the end we are all in trouble and it is a crisis in confidence. Not in our ability to solve problems. Not even in our lack of ability to understand what our houses, companies, money, and 401ks are really worth. Our crisis is that we don't know what WE are really worth. We have moved from being farmers, labor workers, teachers, soldiers and parents to being some kind of professional in a computer amplified society who lives off of the creation and control of TMP. Computer amplified TMP. Something whose value to the rest of the economy is really unknown. Yes, we face an existential crisis that deep.

Really, that deep? You may ask. Think about it. We have broken so severely with the basic covenant of capitalism of those who produce get to make money that we are even questioning the idea of capitalism itself. Think I am joking? We have nationalized almost all of the mortgage industry and most of the financial system the last two weeks! There are no band-aides. There are no simple cures. We cannot play currency games to hide our insecurity and our mistake. "The Secret" is not going to save us. Christ is not going to come down to Earth and save us. Aliens will not land on the White House lawn. All the guys on Wall Street with their million dollar bonuses, all those people in 3000 square foot homes they can't afford, all those feeding gas to those huge gas guzzling trucks and SUVS driving to a far-away suburbia to live, all those living on credit cards, and finally all those baby boomers who bought the fantasy of the 401k and that they can be so productive for half of their lives they can live wealthy without producing the other half of their lives are going to have to walk into the real world and produce justification for their wealth or walk away from the fantasy. Most will fail and most will have to walk away, at least for a while. The challenge is when they walk away we have to set up some rules so that civilization still works and that we don't return to a feudal system where the strong victimize the weak. The economists and politicos need to deal with this reality not continue to play games dreaming this is just some kind of accounting snafu that can be fixed by special act of an economic god that is the infinite balance sheet of the US government. That is the challenge of our day. That is the challenge for you and me and our leaders. It is time for everybody to get real. Once the smoke has cleared we then must address the problem that created this: the evaluation of TMP (thinking, meaning, and protocol) and the computer amplified relevance and value of TMP to the basics of our economy like food, shelter, and defense. Take the 700B dollars and find the small banks and companies that have measured wealth accurately and let the rest fail. The problem is that expectations must deflate. Is it possible to deflate expectations without deflation? I don’t think so. We are spending precious resources and time trying to defend a dead system. The key is to fund entities that preserve economic rationality into the future and past the transient even we are so desperately trying to avoid. We must prepare metaphorical caves of capital as if we were preparing real caves of food and water as if a real asteroid were about to hit earth. They will make loans to support things like legitimate shelter support, food, transportation, and energy. Once they are in place we must let the system reboot and let the transient event happen. We will then have to come to terms with our own intrinsic worth in our economy. We may not like what we see for a while. Usually, human being resort to violence and war to truly find their worth. I don’t think that has to happen. The one thing we have that the past did not is a fantastic communication system called the internet. Where as the reboot of the 30’s took a decade this one could just take a year. If we are smart. My guess is that the aftermath will be a mix of Linear Free Markets and conservative capital formation not non linear derivatives and demand driven capital formation. TMP will probably we enter the public domain where it belongs. We won’t like it but we will respect our lives again.
<O:p</O:p
If we are stupid it this could take the war path. I have confidence we won’t go there. Alas, either the spirit of humanity will prevail or it won’t. Humanity is what will save us not greed induced self interest. I bet on us. You should as well. Our very way of life depends on it.
<O:p</O:p

atotic
09-30-08, 11:35 PM
The plan you've outlined makes a lot of sense, and I'd support it. But that is not going to be the plan presented to us. Maybe in January, once Obama is elected...

I hate the House proposal. Murky, not sure if it'll get the job done, and it rewards the ones who messed up in the first place. And if no other plan is presented, I'll happily buckle down for those hard years, knowing that in 10 or 20, we'll be in a better place than we are today.

jtabeb
09-30-08, 11:38 PM
You are an anarchist, not a Libertarian.

Then there are a lot of those types lurking around here (Myself included)

BTW missed the rebuttal, or was that just a dismissal?

Charles Mackay
09-30-08, 11:49 PM
Harry Browne said "You CAN be free in an Unfree World" ..

Those who don't agree can just say NO to F.I.R.E. economy elites and keep their money outside the dollar system.

Other's who believe socializing these things is the best way to go can stay and continue making sausage.

That's the real beauty of it all!!! :)

flintlock
09-30-08, 11:54 PM
My Libertarian instincts tell me no bailout, but what EJ proposes makes sense . Unfortunately, the bailout we will get will probably not be anything close to that so I'm still not convinced that a bad bailout is better than no bailout. I have no doubt that any bailout funds that flow through wallstreet will be decimated.

To you anarchists out there, its one thing to say "bring on the depression", another to actually experience it. :D Lots of little details people forget about when reality sets in. For one thing, the 1930's were relatively speaking, a lot more peaceable and law abiding time than what we live in now. I don't see folks humbly "taking their medicine" laying down quite as easily as they did back then. And the people then had a better work ethic, were willing to get their hands dirty, etc. I see a much uglier response in our times. Plays right into the socialists hands. You may feel well prepared to ride out a depression, but your neighbors( or the govt) may decide you have more than you need and decide to encourage you to share it.:D

rj1
10-01-08, 12:02 AM
EJ said: "As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state.""

This is where the wheels fall off. It is impossible for markets to deliver collective benefits without the presence of governments. There is a reason that markets which generate the most wealth always exist in territories with strong states, if not downright imperial states.

Whatever the degree of EJ's policy pragmatism, which I actually think trumps statements like this most of the time or I am sure I wouldn't bother visiting this site, this dualistic view of the world is simply not very helpful at this point. It is part of the problem. The question is simply what are governments and markets supposed to do. The story worldwide over the last 40 years is not one of the triumph of markets or states. Rather, it is one of extensive institutional experimentation with different roles for and combinations of state, market, and civic. Viewing the world in these dualistic terms is not just dogmatic, it makes it impossible to see, much less assess, a much larger realm of institutional possibility.

The beauty of the proposal that opened this thread is that it doesn't operate with this dualism in mind. To the extent it is insightful it is insightful along entirely different axes of inquiry. If it weren't it would just be banal.

In short, Galbraith's statement is just as anachronistic as Marx's. It is just fighting the last war (quite literally in Galbraith's case).

I have to agree with sabocat here.

sadsack
10-01-08, 12:26 AM
EJ appears to be consistent in his libertarian philosophy, in that any "bail out" or other accommodation, needs to respect the various self interests that constitute the parties to such agreement.

Anarchy, on the other hand (in my perhaps inadequate comprehension), is characterized by the absence of any requirement that an agreement be in the mutual interest of all parties.

Thus, as has been opined in many threads here, the initial Paulson bailout plan is, as "symbols" has graphically pointed out, no more than a Godfather-type "offer that cannot be refused." As such, it is anarchistic in nature, using the bludgeon of fear to preclude proper due diligence with respect to the self-interest of the involved parties.

Perhaps my understanding of Libertarianism is erroneous, but I gather that the fundamental difference between it and anarchy is this underlying assumption that ecomonic transactions between parties should be both uncoerced and to the ultimate benefit of both parties. Anarchy, on the other hand, is "kill or be killed," "only the strong survive," etc.

As John Donne said,


No man is an island, entire of itself;
Every man is a piece of the continent, a part of the main.
If a clod be washed away by the sea, Europe is the less, as well as if promontory<SUP> </SUP>were, as well as if a manor of thy friend's or of thine own were.

Any man's death diminishes me, because I am involved in mankind;
And therefore never send to know for whom the bell tolls;
It tolls for thee.

If we are to live in a human society, and pay at least a passing acknowledgement to the benefits therefrom derived, let not our hearts be so hard, to commit to spiting ourselves, for the sake of fulfilling our resentful desires or indulging our sense of schadenfreude . . .

jtabeb
10-01-08, 12:28 AM
No, it is not a class struggle, nor a struggle between workers and capitalists. That ended decades ago. As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state."


No argument there. But who let them? Who voted for the politicians that ran our country while this disaster developed?
Yes, as I told my publisher and was reported in the LA Times and repeated afterwards by others, “We always do the right thing, but only after exhausting all other options." (http://articles.latimes.com/2008/mar/26/entertainment/et-bizbooks26)

We have only just begun to fuck up.

Wrong it is a class struggle, between EARNED and UN-EARNED INCOME, what country do you live in? Have you ever talked to someone that makes less than $50,000 a year, or $25,000?

It is a class struggle because the Earned income class has had real wages frozen while nominal gains due to inflation "trickles-up" to the rentier class of FIAT financed asset holders (traders).

Were it not for inflation the picture would be exceedingly clear to all. Just subtract 10% from workers wages every year in nominal terms whilst non-traded goods and services maintain a constant price level. This is neo-serfdom, a systems that VERY MUCH pits labor against capital. But in the real world the effect is much more hidden from public scrutiny and much more vicious as inflation is such a powerful wealth redistribution tool (that only flows upward, I might add).

"No argument there. But who let them? Who voted for the politicians that ran our country while this disaster developed"

I love this quote, you chastise idealogues, but then become one to dismiss "their" argument. And you expose your own hypocrisy by quoting as fact one of the biggest, if not the biggest, fallacies in all of american politics.

Let's see, people voted for elected officials that LIED to them and later went on to make extreemly poor decisions because:
(no-one disputes this, I hope?)

a. They were stupid (not skeptical enough)
b. The media became less independent and more consolidated and in the process restricted debate by crowding out non-mainstream viewpoints.
Thereby, slowy dumbing down debate until, as it stands currently, the depth of discussion produces no actual public education, just a circus.

(That the rinse in political power of the preferred media outlets directly parallels the rise in political power of the FIRE players is not surprising. The exact same mechanism, extreem wealth accumulation that led to domination of the political process and the crowding-out of political access for the general public, manfisted itself in all of the power structures of our society.)

c. Willfully ignored the factual truth when it was presented to them by the mass media even though it was in a clear and understandable format that was dutifully and rigerously examined.
d. were intentionally mis-led by government officals, academics, and "experts" in all kinds of reports and statistics that purported to show the status of everything with and without the effects of inflation.

If you answered all except for "C" you have the correct answer.

Give the people shitty information to base their decisions off of and guess what? They make really, really bad ******* decisions. NO SHIT, REALLY?
( I think it's called GIGO )

EJ, you can be a real elitist swine some times.

At least Hudson for all his flaws makes a fair assessment of the situation, you do not, I'm afraid.

sabocat
10-01-08, 12:32 AM
Although, I should have paid more attention to the word dialectic. If EJ takes that to be what it means, rather than simply as a synonym for "polar opposite" I take back the previous post... Galbraith was a pragmatist first and foremost, not a free market ideologue.

BrianL
10-01-08, 12:36 AM
I ran this commentary by ~8 other non-itulipers. Most were people who had been following the situation to some degree. Mostly male, ages ranging from 21-50, averaging closer to 30.

6 of them stated positions similar to grapejelly. Of them, 4 considered themselves Libertarians, 1 was a Democrat and the other a Republican.

Given the small and biased sample set, the results aren't significant. At the same time, I concerned that if 'let it burn to the ground' position takes hold among the masses, this could get very ugly quickly.

I noted in another thread that more and more people seem to be expressing a desire for a Great Depression repeat to 'get it out of the system' and wipe the slates clean. A temporary socialist stand to user in a new free market system where people feel they'd start without the deck stacked against them.

Personally, I don't think these people understand the pain they are asking for.

bart
10-01-08, 12:50 AM
Personally, I don't think these people understand the pain they are asking for.


Indeed, and just like there is no such thing as being a little bit pregnant, there is nothing quite so permanent as temporary socialism, temporary fascism, etc.

krakknisse
10-01-08, 01:38 AM
Indeed, and just like there is no such thing as being a little bit pregnant, there is nothing quite so permanent as temporary socialism, temporary fascism, etc.

Sigh. I wish people understood that a little better.

Guys: "Government is a dangerous servant and a fearful master". Your own Thomas Jefferson said that.

We need government. We just need it restrained. As long as we have fiat money, this bubble cycle will repeat ad nauseam. I'd say that "a small bailout" is like being "a little pregnant". Bankers are wiping us clean with the governments help. If you want your kids, grand-kids, and grand-grand kids to be free, don't stand for it. Fractional reserve banking concentrates power in the elites hands.

FRACTIONAL RESERVE BANKING IS A SCAM.
TAKE THE HIT. NOW. NO BAILOUT. BUY GOLD.

Call it whatever philosophy you want.

santafe2
10-01-08, 01:45 AM
i am cynical enough to believe that, although the king plan, or the roubini plan, or any one of a number of other plans make more sense, we are going to get a variant of the paulson plan, with a few bells and whistles to buy the necessary 12 changed votes.

I'm sure you're correct. The House vote appears to have fallen apart because the Democrats were requiring Republican support in the area of 75 votes. When the House Republican leaders failed to bring that number to the table the Democrats decided to wash their hands of it. Both sides know this bailout is an ill conceived loser and neither side is willing to name the baby with their party. I suspect the bill will be little changed but the posturing will largely subside as there are very few with a horizon past November 4th.

santafe2
10-01-08, 02:24 AM
Wrong it is a class struggle, between EARNED and UN-EARNED INCOME, what country do you live in?...

EJ, you can be a real elitist swine some times.

Not to single out the above quote but the recrimination on this thread is breathtaking. The moral certitude like concrete - Labeling each other to disconnect the validity of argument from reality - Diatribe as dialectic proxy.

The points on all sides are well taken, the reproach only serves to fog the argument. I don't see a lot of kumbaya in our immediate future so we might be better served by our ideas than our clever words.

sabocat
10-01-08, 03:20 AM
One thing I will add for all of you who fear the angry masses... Do not worry. They are prostrate. It may be the 1930s in economic terms, but it isn't in political terms. There is no threat of any ideological or popular socialism. There is hardly even a threat of unionization. No, it will be what C. Wright Mills called "The Power Elite" that will be arbitrating this particular debacle... (yet everyone still irrationally sees the specter of socialism threatening to enserf us all).

The people who are having government take over the financial sector are technocrats. That is a different problem, but merely one more on the list of problems that are invisible to those who see the world in simple Hayekian or Cold War terms.

Supercilious
10-01-08, 03:58 AM
EJ the King plan is nothing else than rewarding stupidity, greed an irresponsible behavior with taxpayer's money.

Hank&Ben's bailout plan is nothing else than a per capita Wall Street tax ... every American form senior citizen in a nursing home to the premature baby in an incubator has to pay $2700 to Wall Street of else ...

http://i27.photobucket.com/albums/c193/Corpsman31/2rp2wjr.jpg


Why don't we make it legal and on the square? Why not to have the Clowngress make a new law called "The Financial Cast System of United States of Somalia" which will say that every year every member of the inferior cast has to pay x amount of dollars to support the High Cast of Wall Street Priests?

It wasn't the taxpayer the one who lobbied for the neutering of the Glass-Steagal Ac (http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html)t. Without that neutering we would not be here. It was the financial "geniuses" on Wall Street who fought hard to get rid of it.

If I max all my credit cards and my personal credit line (on which I have no balance now) and begin whining that I'm poor and I'm in trouble are you willing to "recapitalize" me with a $240000 bailout, so I can cotinue doing the same thing next day? If the answer is yes and you are such a charitable and good person, just let me know...:D

The whole idea of Mortgage Based Security is not new. The first MBS' came out in late 18th century in Germany and their use never resulted in a housing bubble. Strange isn't it ?

There were no stochastic credit risk evaluations .. no numerical solutions.. no binomial tree .. no Monte Carlo ... well .. no risk gambling with math.

Those MBS were called Pfandbriefe and the main difference between the "stupid german" instruments and the "modern risk-free" MBS, is that the old german banks making loans and packing them into Pfandbriefe, kept those loans on their books.... Yes, there was the occasional bank failure, but there was no such thing as setting the whole financial system on FIRE. It's that simple...

There was a time when the banker was one of the pillars of the community, like the priest, doctor, policeman and the school teacher.

I'm not an anti-banking anarchist, I'm just an advocate of responsible and non-fraudulent banking.

In my books Ben&Hank, bailout is nothing else than a theft perpetrated on a national scale, and it encourages further fraud and irresponsible behavior on the Wall Street. King does nothing else than to carefully and artfully cover Ben&Hank's bailout plan with lipstick.

Well if you choose to support King's plan ... what can I say? It's your website and you business... and it's a free country ...

One more thing EJ ... my assessment of your short comment ...http://www.itulip.com/forums/images/icons/icon13.gif

Rajiv
10-01-08, 03:59 AM
Kucinich on the Rachel Maddow show




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cakins
10-01-08, 04:01 AM
"Utopian Anti-Interventionism"

The first bailout failure was simply a mandate from America's hard-working majority...who were tireless in calling their representatives...

Bailout: Main Street’s message to Wall Street & Washington…

September 30, 2008 · Filed Under The Fed, Bernanke & Paulson (http://www.sliderontheblack.com/category/fed-bernanke-paulson/)
We don’t believe you.
Not a single word you say.
Why?
Do the words “read my lips - no new taxes” ring a bell?
We didn’t believe you when you said - “the credit crisis is well contained.”
We didn’t believe you when you said - “the worst is now behind us.”
We didn’t believe you when you told us the bill would be - “$150 billion.”
We didn’t believe you then and we don’t believe you now.
And how dare you!?!
How dare you trot out a bumbling, stumbling, stuttering, slickster like
the former CEO of Goldman Sachs who personally profited to the tune
of a $700 Million Dollar personal fortune by sending our jobs to China
so some fat cat Wall Street CEO could double the value of his stock options,
grab some lobbyist created tax credits, and drop .09 cents to his bottom line.
Not to mention that he, his former firm, and his ilk, were the ones who created
and profited from dumping all this toxic Wall Street paper on Main Street in
the first place!
Any coincidence that Paulson tried to “bum rush” us into a bailout, right
after Goldman Sachs started to collapse?
Bear Stearns - no problem.
Fannie & Freddie - no problem.
Lehman Brothers - no problem.
Merrill Lynch - no problem.
WAMU - no problem.
Goldman? - problem.
We all know there are no coincidences on Wall Street.
And now you want to keep your $40 million dollar apartment in Manhattan,
your $10 million dollar vacation home in the Hampton’s, and the windfall
profits you sucked out of America, just before you collapse it?
You want us to bail you out of bankruptcy, right before you send us
(and America) into it?
You want bankruptcy reform for you - after you locked us into serfdom
with the bankruptcy reform act of 2005 - right at the peak of the credit,
and housing bubble?
You want a bailout - AFTER you locked us, our children, and America
into debtors prison?
Relief, reform, and a bailout for you… and the bill & debtors prison for us?
You must really think we’re a bunch of chumps.
Well guess what Wall Street & Washington, while “this sucka may go down”
this time YOU’RE going down with us.
Sincerely,
Main Street
http://tinyurl.com/3jyn74 (http://www.siliconinvestor.advfn.com/readmsg.aspx?msgid=25008577)

deepvelvet
10-01-08, 04:15 AM
You are an anarchist, not a Libertarian.

But your comment about how the US awaited self-correction in the 1930s was strange. There was massive intervention in the economy by the US government in those years, was there not?

LabMonkey
10-01-08, 04:26 AM
http://www.cnbc.com/id/15840232?video=873682522


"Hundreds of billions of dollars are going to bail out FOREIGN INVESTORS. They know it, they demanded it, and the bill has been carefully written to make sure that can happen."

"Paulson... we would have had a bill already. Paulson insists that there be no limit on million dollar a month salaries to executives at wall street firms that are bailed out and that there be no limit hundreds of billions of dollars going to foreign investors. Not American companies that are owned by foreigner's, but foreign banks. We would have already voted for a bill - you can't call it a crisis and threaten a veto."

-Brad Sherman (D) California


Looks like congress isn't the only one holding this thing up.

xela
10-01-08, 04:27 AM
What's the fuss?
Anyone seriously thinks this bailout (albeit modified) will not be passed by friday? Is it me or does it not already seem like the Treasury & Fed went along with it in the meantime? :cool:

Supercilious
10-01-08, 04:58 AM
What's the fuss?
Anyone seriously thinks this bailout (albeit modified) will not be passed by friday? Is it me or does it not already seem like the Treasury & Fed went along with it in the meantime? :cool:,

Probably by Friday, but in order to have that, we have to go first through an engineered market crash when everybody gets brown pants and Creammer's head explodes in panic live on TV :D

When everybody has the Fed's knife on the neck, we will have to acknowledge we are all hostages and each of us will have to give them the $2700 they need for their financial gambling habit.

This is how a mugging works regardless if it is done in a dark street or on the Wall Street :D

Chris Coles
10-01-08, 05:52 AM
EJ,

My first impressions of your post were entirely positive until I too reached the conclusion that you had driven off track by suggesting the King Plan.

I believe that the Paulson rescue plan is akin to an equivalent contribution being asked for from US taxpayers to prop up the Nazi party just before the end of WW2. The current banking system has done untold damage to those of us who live in the world of innovation and honest hard working enterprise, just as it is now clearly recognised that the Nazi party damaged Europe. To my way of thinking, Paulson is something like Joseph Goebbels http://en.wikipedia.org/wiki/Joseph_Goebbels asking us all to pay him to continue the war.

There are a lot of significant differences between the 1930's and today. First of all, the only sector that is in deep trouble is the financial system itself. Secondly, you make the point that the majority of the income of the financial sector does not stem from what we on the outside consider to be "normal" trade. Most of their income comes from speculation. It is speculation, and the instruments that have been created by speculation, that lie at the heart of their problem.

Their problem.

The underlying problem for all of us outside of the financial system is that we have come to depend upon them for our access to normal trade. And that access is dependant upon access to credit. Access to funds to continue to trade is our problem.

Our problem.

I believe we should all of us concentrate upon our problem not theirs.

The best way forward is where I thought you were initially headed, until you brought up King.

We need to create and capitalise a series of new banking institutions.

To do that we also need to recognise the need to create a substantial set of new and acceptable banking regulations. That is acceptable to those of us OUTSIDE of the present financial system.

Before that, we must also recognise that if we keep the present banking elite in place as though nothing had happened, we will get nothing more than a repeat of the entrenched failings. They are as locked into the system as any addict. But, having said that, we must also learn from the mistake made in Iraq when we destroyed the lives of all of the members of the Bathe Party. There were many within that were better kept onside. So we also need to recognise the benefits earned by only hanging out to dry the principle individuals.

Europe, Germany in particular, came out of WW2 much stronger because they learned the lessons, on the one hand and were re-capitalised by a United States driven Marshall Plan. http://en.wikipedia.org/wiki/Marshall_Plan

You will note that the WIKI entry shows my own country, the UK, got the most money. You will also note that we spent the money on a socialist system for a National Health Service. The UK has now lost most of its heavy industry and is as dominated by a failed banking system as the US.

Germany spent the majority on capital investment in new, family owned business, mainly manufacturing. They went on to create Landesbanks that very effectively created small operations in many communities that then invested into small local companies. And, instead of expecting those investments to fail, they stood by them and did everything they could, (in free market terms), to make sure they succeeded. They have a strong manufacturing base, but like the rest of us are now suffering from "Our Problem" too.

I believe that the iTulip community should set out to emulate the success of the Marshall Plan and the subsequent success of the German Landesbanks. We have enough good thinkers and we have all the communications we need already in place. The internet gives us that.

We should create an international movement called iTulip Bank.

*T*
10-01-08, 06:37 AM
Thesis, antithesis, synthesis... that is the dialectic process that brings me here.
Let us remain open to new thinking.

It strikes me that the essential problem is excessive concentration of power, be that the government, the banks or whoever. Pure capitalism concentrates the power with the capital, despite what libertarians say. Communism contentrated the power with the ruling elite rather than the working classes, despite what Marx hoped. Fascism, well, that was the point of fascism. An anarchist non-state has never really survived long enough for us to find out. Democracy is supposed to do a delicate balancing between all these, but usually ends up as a dictatorship of the (middle class, property owning) marginal voter.

Perhaps we should view the political corpus as a process rather than a choice between ideologies. Where power is excessively and abusively concentrated, it is destroyed or implodes.

Practically, the excessive concentration of power with the banks could have been reduced by limiting their individual size. Most importantly, the OTC derivative markets should never have got too large.

When I first learnt about the CDS (in my first job) my first thought was 'what a great idea'. My second was 'why isn't this traded on an exchange?'. The answer is that it is too profitable for JP Morgan. And they are too powerful for anyone to change the status quo.

People and institutions need saving from themselves.
But who watches the watchers? The angry mob.

GRG55
10-01-08, 07:21 AM
Eric, based on my read of Rothbard's 'Great Depression,' it is clear to me that Hoover was an interventionalist, big-time, over '30-'32, and that FDR merely amplified the radical interventions that Hoover took. Thus, there was no attempt at 'self correction' in the G.D.

...

That's a point that remains in dispute. Hoover in his memoirs characterized himself as a "interventionist" but his Treasury Secretary of the time, Andrew Mellon, is credited with this statement:



"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon

Can you imagine Hank Paulson saying anything like this today? :)

kingcopper
10-01-08, 07:26 AM
The facts speak for themselves. Small and mid sized regional banks are bucking the Wall Street trend and are performing fine. The large institutions are already corpses and are sucking capital in and shitting out CEO bailouts and lies to the millions of honest investors. The best bailout would be to add capital to the smaller institutions to help expand our economy and then buy some popcorn and watch Cramer suck wind as BOA, Citi, and their ilk shutter the doors. Afterall, if the securities and derivatives on the balance sheets of these titans is so toxic, let it die on the vine!

rj1
10-01-08, 07:27 AM
One thing I will add for all of you who fear the angry masses... Do not worry. They are prostrate. It may be the 1930s in economic terms, but it isn't in political terms. There is no threat of any ideological or popular socialism. There is hardly even a threat of unionization. No, it will be what C. Wright Mills called "The Power Elite" that will be arbitrating this particular debacle... (yet everyone still irrationally sees the specter of socialism threatening to enserf us all).

The people who are having government take over the financial sector are technocrats. That is a different problem, but merely one more on the list of problems that are invisible to those who see the world in simple Hayekian or Cold War terms.

So you think it's a good thing that we're going to be taken advantage of and made state servants, but there's no political movement for us to go to? Isn't that the reason our country is as f*cked up as it is? The Democrats and Republicans take the voters for granted and so they vote as they please with little regard to us because a Republican knows his voter will most likely never entertain voting for a Democrat and vice versa, and there are no such things as solid third parties that can draw votes from them.

Honestly, if that's your point of view, we might as well all get out our guns and start shooting to instigate a coup because it would be no worse. I live near a ton of military personnel, I'm sure I can convince one general to take complete control.

GRG55
10-01-08, 07:41 AM
Some folks around here need to stick with debating the issue(s) and forget about the personal attacks and insults. It's not only unnecessary, it's unbecoming.

GRG55
10-01-08, 07:51 AM
EJ,

My first impressions of your post were entirely positive until I too reached the conclusion that you had driven off track by suggesting the King Plan.

I believe that the Paulson rescue plan is akin to an equivalent contribution being asked for from US taxpayers to prop up the Nazi party just before the end of WW2. The current banking system has done untold damage to those of us who live in the world of innovation and honest hard working enterprise, just as it is now clearly recognised that the Nazi party damaged Europe. To my way of thinking, Paulson is something like Joseph Goebbels http://en.wikipedia.org/wiki/Joseph_Goebbels asking us all to pay him to continue the war.

There are a lot of significant differences between the 1930's and today. First of all, the only sector that is in deep trouble is the financial system itself. Secondly, you make the point that the majority of the income of the financial sector does not stem from what we on the outside consider to be "normal" trade. Most of their income comes from speculation. It is speculation, and the instruments that have been created by speculation, that lie at the heart of their problem.

Their problem.

The underlying problem for all of us outside of the financial system is that we have come to depend upon them for our access to normal trade. And that access is dependant upon access to credit. Access to funds to continue to trade is our problem.

Our problem.

I believe we should all of us concentrate upon our problem not theirs.

The best way forward is where I thought you were initially headed, until you brought up King.

We need to create and capitalise a series of new banking institutions.

To do that we also need to recognise the need to create a substantial set of new and acceptable banking regulations. That is acceptable to those of us OUTSIDE of the present financial system.

Before that, we must also recognise that if we keep the present banking elite in place as though nothing had happened, we will get nothing more than a repeat of the entrenched failings. They are as locked into the system as any addict. But, having said that, we must also learn from the mistake made in Iraq when we destroyed the lives of all of the members of the Bathe Party. There were many within that were better kept onside. So we also need to recognise the benefits earned by only hanging out to dry the principle individuals.

Europe, Germany in particular, came out of WW2 much stronger because they learned the lessons, on the one hand and were re-capitalised by a United States driven Marshall Plan. http://en.wikipedia.org/wiki/Marshall_Plan

You will note that the WIKI entry shows my own country, the UK, got the most money. You will also note that we spent the money on a socialist system for a National Health Service. The UK has now lost most of its heavy industry and is as dominated by a failed banking system as the US.

Germany spent the majority on capital investment in new, family owned business, mainly manufacturing. They went on to create Landesbanks that very effectively created small operations in many communities that then invested into small local companies. And, instead of expecting those investments to fail, they stood by them and did everything they could, (in free market terms), to make sure they succeeded. They have a strong manufacturing base, but like the rest of us are now suffering from "Our Problem" too.

I believe that the iTulip community should set out to emulate the success of the Marshall Plan and the subsequent success of the German Landesbanks. We have enough good thinkers and we have all the communications we need already in place. The internet gives us that.

We should create an international movement called iTulip Bank.

Pardon me all to hell, but I seem to recall that more than one or two of those vaunted Landesbanks have had to be bailed out by the German Government in the past year or so...



27.08.2007
Another Landesbank bites the dust

By: Wolfgang Münchau
Three German financial institutions have filled the traditional news gap during this summer. WestLB, IKB Deutsche Kreditbank and SachsenLB, are all, or partly, publically owned banks, and they suffered severe liquidity problems, partly as a result of exposure to subprime investments...

...The German public sector banks enjoy effective protection against default. This is important. Their default-free status is not implicit, as for example similar to the status of the US mortgage institutions Fannie Mae and Freddy Mac. Their protection is guaranteed, and everybody who works for these banks knows it. It is this guarantee that has made investment managers and traders – and their superiors - far more risk-prone than their counterparts in the private sector...
More... (http://www.eurointelligence.com/article.581+M54c67e268e7.0.html)

GRG55
10-01-08, 08:12 AM
Indeed, and just like there is no such thing as being a little bit pregnant, there is nothing quite so permanent as temporary socialism, temporary fascism, etc.

Exactly.

The underlying assumption behind the "let-it-burn-down-and-let's-start-over-again" crowd is that the result will automatically emulate all that is "best" about the USA through its history [thrift, hard work, innovation, self-sacrifice, moral leadership, etc.] while somehow completely avoiding the recent excesses that have compromised its personal liberties, sapped its economic strength, damaged its reputation, detracted from its international standing, and reduced its moral authority.

It's almost as if people believe that such a unique [by historical and current global standards] outcome is coded into the national DNA of the US and therefore, after allowing the inevitable cleansing melt-down, surely it will be "born-again" in that former image. I would love to believe that would be the case.

But I have heard not one cogent argument from the burn-baby-burn cohort on this site explaining why we should anticipate such an optimistic outcome, as opposed to something darker, perhaps much darker; closer to what bart infers...

Chris Coles
10-01-08, 08:14 AM
Pardon me all to hell, but I seem to recall that more than one or two of those vaunted Landesbanks have had to be bailed out by the German Government in the past year or so...



27.08.2007
Another Landesbank bites the dust

By: Wolfgang Münchau
Three German financial institutions have filled the traditional news gap during this summer. WestLB, IKB Deutsche Kreditbank and SachsenLB, are all, or partly, publically owned banks, and they suffered severe liquidity problems, partly as a result of exposure to subprime investments...

...The German public sector banks enjoy effective protection against default. This is important. Their default-free status is not implicit, as for example similar to the status of the US mortgage institutions Fannie Mae and Freddy Mac. Their protection is guaranteed, and everybody who works for these banks knows it. It is this guarantee that has made investment managers and traders – and their superiors - far more risk-prone than their counterparts in the private sector...
More... (http://www.eurointelligence.com/article.581+M54c67e268e7.0.html)


I am not talking about the present situation where we are all very aware that the speculative disease has been caught by many banks world wide, including, quite right to point out - Landesbanks. What I am saying is that prior to the outbreak, much of what had gone before was good, worked well and delivered success for many.

I am simply suggesting that there are lessons to be learned and we should take them on board.

Your previous post alluded to your being upset by someones post. You should have let us see what it was that so upset you.

defomcduff
10-01-08, 08:18 AM
As a fellow Libertarian (with less talent for the identifying the practical than EJ), I say Bravo to Eric Janszen.

This plan resonates with me since it clearly distinguishes between government *control* and government *support*. To the extent that we can have the latter without the former, I'm on board.

Best regards,
DeForest McDuff

bart
10-01-08, 08:47 AM
But I have heard not one cogent argument from the burn-baby-burn cohort on this site explaining why we should anticipate such an optimistic outcome, as opposed to something darker, perhaps much darker; closer to what bart infers...

I'm probably not nearly as dark as some (many?) think, but I'm certainly not very optimistic. I'm also very much not in the burn baby burn crowd - that's almost psychotic in my opinion and in the be careful what you wish for department at best.

My father experienced both Weimar Germany and the Great Depression first hand and although I wish I'd listened much more (like most offspring), I heard enough to know that its worthwhile to take some chances to try and avoid either.

Hopefully, many realize that the King plan (and others) are far superior to Paulson's original abomination. Although I truly dislike getting into the political area and expressing an opinion, I'm in favor of both doing something small almost immediately and also continuing to work on a plan that makes more sense and is fairer to all. We still do have a chance to improve conditions, and continuing to write, call or fax one's Congress critters is part of what a democracy (with all its failings) is all about.

Laissez faire does after all mean an economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.

I wish us all (even including most politicians and bankers) good luck and Godspeed.

jtabeb
10-01-08, 09:22 AM
Some folks around here need to stick with debating the issue(s) and forget about the personal attacks and insults. It's not only unnecessary, it's unbecoming.

I will take a hit on this, but I was trying to illustrate that exact point.

(no the ends, don't justify the means)

Just calling a spade "a spade" when I see one. You are both correct, I was a spade in this case too.

jtabeb
10-01-08, 09:24 AM
Thus, as has been opined in many threads here, the initial Paulson bailout plan is, as "symbols" has graphically pointed out, no more than a Godfather-type "offer that cannot be refused." As such, it is anarchistic in nature, using the bludgeon of fear to preclude proper due diligence with respect to the self-interest of the involved parties.



As John Donne said,



If we are to live in a human society, and pay at least a passing acknowledgement to the benefits therefrom derived, let not our hearts be so hard, to commit to spiting ourselves, for the sake of fulfilling our resentful desires or indulging our sense of schadenfreude . . .

Could not say it better myself. Thank you.

bvaliant
10-01-08, 09:41 AM
You are an anarchist, not a Libertarian.

Did you know that the terms "Libertarian" and "Anarchist" used to be synonymous?

There are actually those who do not view the term as an insult or pejorative, and some of them don't even wear black bandannas or blow things up.

rnjboy
10-01-08, 09:57 AM
here, here

EJ
10-01-08, 10:20 AM
Wrong it is a class struggle, between EARNED and UN-EARNED INCOME, what country do you live in? Have you ever talked to someone that makes less than $50,000 a year, or $25,000?

It is a class struggle because the Earned income class has had real wages frozen while nominal gains due to inflation "trickles-up" to the rentier class of FIAT financed asset holders (traders).

Were it not for inflation the picture would be exceedingly clear to all. Just subtract 10% from workers wages every year in nominal terms whilst non-traded goods and services maintain a constant price level. This is neo-serfdom, a systems that VERY MUCH pits labor against capital. But in the real world the effect is much more hidden from public scrutiny and much more vicious as inflation is such a powerful wealth redistribution tool (that only flows upward, I might add).

"No argument there. But who let them? Who voted for the politicians that ran our country while this disaster developed"

I love this quote, you chastise idealogues, but then become one to dismiss "their" argument. And you expose your own hypocrisy by quoting as fact one of the biggest, if not the biggest, fallacies in all of american politics.

Let's see, people voted for elected officials that LIED to them and later went on to make extreemly poor decisions because:
(no-one disputes this, I hope?)

a. They were stupid (not skeptical enough)
b. The media became less independent and more consolidated and in the process restricted debate by crowding out non-mainstream viewpoints.
Thereby, slowy dumbing down debate until, as it stands currently, the depth of discussion produces no actual public education, just a circus.

(That the rinse in political power of the preferred media outlets directly parallels the rise in political power of the FIRE players is not surprising. The exact same mechanism, extreem wealth accumulation that led to domination of the political process and the crowding-out of political access for the general public, manfisted itself in all of the power structures of our society.)

c. Willfully ignored the factual truth when it was presented to them by the mass media even though it was in a clear and understandable format that was dutifully and rigerously examined.
d. were intentionally mis-led by government officals, academics, and "experts" in all kinds of reports and statistics that purported to show the status of everything with and without the effects of inflation.

If you answered all except for "C" you have the correct answer.

Give the people shitty information to base their decisions off of and guess what? They make really, really bad ******* decisions. NO SHIT, REALLY?
( I think it's called GIGO )

EJ, you can be a real elitist swine some times.

At least Hudson for all his flaws makes a fair assessment of the situation, you do not, I'm afraid.

I apologize to grapejelly for my calling him, even in jest, an anarchist and a socialist. These were intended as friendly barbs, but I realize now that he may not have taken it that way. It skirts the one and only hard and fast rule here which is that we all treat each other with respect, even if we disagree.

That certainly means no name calling, jtabeb. It will not be tolerated.

I agree with most of what you say here, about the FIRE Economy, distribution of wealth between debtors and creditors, and so on. These are points that I have expressed here for years. We agree until we get to the point that is the subject of this thread: the need for intervention now and whether intervention was attempted in the 1930s BEFORE the economy collapsed.

Goldbugs hate to hear this but dogmatic adherence by the US to the gold standard in the 1930s caused the US money supply to implode in the 1930s. Fisher predicted this in January 1930. The economies of countries such as France that suspended the gold standard temporarily fared far better. In the end, FDR had to cancel the gold standard anyway in a draconian way, after the economy collapsed.

Now our economy collapsing again because a debt deflation is taking its natural course. Without a gold standard the Fed is this time able to expand the money supply, but as fast as they pour money into the broken credit structure it is hoarded, much as in the 1930s, or is pouring out the hole in the bottom of the system as liquidations of assets.

Credit for small and large business and personal loans is quickly drying up, just as in the 1930s. This article is typical. (http://www.boston.com/business/articles/2008/10/01/big_and_small_companies_cling_to_a_thread/)

If this continues at this rate then within a year thousands of perfectly well managed companies with little debt and only modest financing needs will go under and tens of millions of workers will be laid off. Unemployment will surpass 10%. Federal income tax revenues will evaporate on top of the collapse of capital gains tax revenues and of local tax revenues from property taxes as has already occurred in states like NY. The knock-on effects include rising crime as prisons are emptied out because we will not be able to afford them. This is what the "let God sort it out" adherents fail to grasp. A debt deflation is not like a forest fire that burns only the dead wood and leaves the strong. It burns everything because the period of excessive credit growth that preceded it lulled the vast majority of businesses and households into dependence on a continuous flow of credit. They all go bankrupt.

Many of us here have no debt and plenty of liquid assets to protect us from such a fire. I get the sense that there are some here who relish the idea of being in a strong financial position while so many others are not; it's one way to rise above others, I suppose, for everyone else to fall. But the economic collapse survival fantasy of the guns and gold crowd is flawed. If the collapse comes to pass there will be no one to come pick the trash. No one to see that the water and food supply is not contaminated. No one to keep carjackers out of your city. Much of the order around us that is financed by taxes that we take for granted falls apart.

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon
GRG's quote expresses the position of the FIRE Economy V1.0 leadership of the day. It served their interests to crash the economy. They got to buy it up again later at fire sale prices.

Clearly it was a mistake to have allowed the US economy to become so dependent on debt growth for economic growth. I explain, and attempt to simplify, in my book the complex parallel developments that created the FIRE Economy since the early 1980s. But by allowing the FIRE Economy to crash, versus develop a constructive transition, libertarians are serving populists with the rallying cry that “capitalism has failed.” You can already read it on the blogs and in some mainstream papers, and the impact of the credit crunch on Main Street has only begun.

At that point, the logic of the American political economy dictates a hard swing away from market-based solutions. As an entrepreneur and capitalist, that’s not good for me and certainly not good for the country.

Charles Mackay
10-01-08, 10:42 AM
Did you hear Marc Faber on Bloomberg this morning? When asked about the Bailout, he said in jest that the only problem with it is that it's too small. "Mr Bernanke also needs to buy everyone's Nasdaq stocks at the high in 2000 and all the homes at the bubble top in 2006. Then it would be fair to the elites as well as the people. ;):D;)

orion
10-01-08, 10:42 AM
EJ, Having a strong bent towards Austrian economics I will probably be put in the crash and burn school. However my view is of two choices, 1) slow semi soft arrival at ka-poom inflection point, or 2) the "crash and burn now" route. Obviously I would like justice to be done but choice 1 will hopefully avoid the risks that are let loose in crash and burn. My consolation to fellow crash and burn tendency folks is we are headed for the inflection point one way or another (this is what I think you are stressing with the capsising ship metaphor), we will have debauched currency, innocents will suffer and maybe some of the guilty will be punsihed. However reaching the inlfection point is what I think we all look for because that is where change can finally happen.

Tulpen
10-01-08, 10:47 AM
Did you hear Marc Faber on Bloomberg this morning? When asked about the Bailout, he said in jest that the only problem with it is that it's too small. "Mr Bernanke also needs to buy everyone's Nasdaq stocks at the high in 2000 and all the homes at the bubble top in 2006. Then it would be fair to the elites as well as the people. ;):D;)
LOL, the interviewer on Bloomberg does not even catch the sarcasm of Faber.

One funny comment with regard to next years economy: Faber expects that producing countries are going to be more affected than the USA which "hardly produces anything": "In the US, if consumption goes down it is not the end of the world, Americans will simply become a little bit slimmer and that's good and healthy". :D

Here is the clip:
http://www.bloomberg.com/avp/avp.htm?N=av&T=Faber%20Says%20Markets%20%60Oversold%2C%27%20Bai lout%20%60Deeply%20Flawed%27&clipSRC=mms://media2.bloomberg.com/cache/vxsm5CV6HVxY.asf

bart
10-01-08, 10:54 AM
...
But by allowing the FIRE Economy to crash, versus develop a constructive transition, libertarians are serving populists with the rallying cry that “capitalism has failed.” You can already read it on the blogs and in some mainstream papers, and the impact of the credit crunch on Main Street has only begun.
...


And the various lunatic fringes, some of whom call themselves libertarians, fail to know their history or even what Adam Smith had to say about justice, greed and capitalism:

"Justice [the human virtue of not harming others]…is the main pillar that supports the whole building. If justice is removed, the great fabric of human society which seems to have been under the darling care of Nature must in a moment crumble into atoms….Men, though naturally sympathetic, feel so little for others with whom they have no particular connection in comparison to what they feel for themselves. The misery of one who is merely their fellow creature is of so little importance to them in comparison to even a small convenience of their own. They have it so much in their power to hurt him and may have so many temptations to do so that if the principle of justice did not stand up within them in his defense and overawe them into a respect for his innocence, they would like wild beasts be ready to fly upon him at all times. Under such circumstances a man would enter an assembly of others as he enters a den of lions."
-- Adam Smith, "The Wealth of Nations"

we_are_toast
10-01-08, 10:54 AM
EJ, thank you for expressing ideas that are shared by others in a way that some of us are incapable of.



Many of us here have no debt and plenty of liquid assets to protect us from such a fire. I get the sense that there are some here who relish the idea of being in a strong financial position while so many others are not; it's one way to rise above others, I suppose, for everyone else to fall. But the economic collapse survival fantasy of the guns and gold crowd is flawed. If the collapse comes to pass there will be no one to come pick the trash. No one to see that the water and food supply is not contaminated. No one to keep carjackers out of your city. Much of the order around us that is financed by taxes that we take for granted falls apart.Anyone who has not visited a 3rd world country needs to hop on a plane and visit one tomorrow to understand how the well off live. Houses surrounded by walls with broken glass embedded in the concrete, 24 hour guards, when you drive somewhere you have to find a guarded place to park your car or your car will be stripped before you can get 10 feet away. Hell, go to the "bad" side of any city in America and imagine that spreading far and wide.

The government has to step in and do whatever it can to prevent the 3rd world America that will be the inevitable result of doing nothing. We can argue about what the government should do, but failure to do something is not an option.

sabocat
10-01-08, 10:59 AM
rj1, the chances that you would discern my political point of view from that post is exactly zero. I don't post to express my political views. That isn't the point of the board. Near as I can tell, the ethic behind the board is theoretically-driven empirical inquiry about the economy. That is the only reason it is worth paying for. When it becomes about politics or dogmatic braying about the economy or politics it's just another website.

Wild Style
10-01-08, 11:00 AM
I apologize to grapejelly for my calling him, even in jest, an anarchist and a socialist. These were intended as friendly barbs, but I realize now that he may not have taken it that way. It skirts the one and only hard and fast rule here which is that we all treat each other with respect, even if we disagree.

That certainly means no name calling, jtabeb. It will not be tolerated.

I agree with most of what you say here, about the FIRE Economy, distribution of wealth between debtors and creditors, and so on. These are points that I have expressed here for years. We agree until we get to the point that is the subject of this thread: the need for intervention now and whether intervention was attempted in the 1930s BEFORE the economy collapsed.

Goldbugs hate to hear this but dogmatic adherence by the US to the gold standard in the 1930s caused the US money supply to implode in the 1930s. Fisher predicted this in January 1930. The economies of countries such as France that suspended the gold standard temporarily fared far better. In the end, FDR had to cancel the gold standard anyway in a draconian way, after the economy collapsed.

Now our economy collapsing again because a debt deflation is taking its natural course. Without a gold standard the Fed is this time able to expand the money supply, but as fast as they pour money into the broken credit structure it is hoarded, much as in the 1930s, or is pouring out the hole in the bottom of the system as liquidations of assets.

Credit for small and large business and personal loans is quickly drying up, just as in the 1930s. This article is typical. (http://www.boston.com/business/articles/2008/10/01/big_and_small_companies_cling_to_a_thread/)

If this continues at this rate then within a year thousands of perfectly well managed companies with little debt and only modest financing needs will go under and tens of millions of workers will be laid off. Unemployment will surpass 10%. Federal income tax revenues will evaporate on top of the collapse of capital gains tax revenues and of local tax revenues from property taxes as has already occurred in states like NY. The knock-on effects include rising crime as prisons are emptied out because we will not be able to afford them. This is what the "let God sort it out" adherents fail to grasp. A debt deflation is not like a forest fire that burns only the dead wood and leaves the strong. It burns everything because the period of excessive credit growth that preceded it lulled the vast majority of businesses and households into dependence on a continuous flow of credit. They all go bankrupt.

Many of us here have no debt and plenty of liquid assets to protect us from such a fire. I get the sense that there are some here who relish the idea of being in a strong financial position while so many others are not; it's one way to rise above others, I suppose, for everyone else to fall. But the economic collapse survival fantasy of the guns and gold crowd is flawed. If the collapse comes to pass there will be no one to come pick the trash. No one to see that the water and food supply is not contaminated. No one to keep carjackers out of your city. Much of the order around us that is financed by taxes that we take for granted falls apart.
"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon
GRG's quote expresses the position of the FIRE Economy V1.0 leadership of the day. It served their interests to crash the economy. They got to buy it up again later at fire sale prices.

Clearly it was a mistake to have allowed the US economy to become so dependent on debt growth for economic growth. I explain, and attempt to simplify, in my book the complex parallel developments that created the FIRE Economy since the early 1980s. But by allowing the FIRE Economy to crash, versus develop a constructive transition, libertarians are serving populists with the rallying cry that “capitalism has failed.” You can already read it on the blogs and in some mainstream papers, and the impact of the credit crunch on Main Street has only begun.

At that point, the logic of the American political economy dictates a hard swing away from market-based solutions. As an entrepreneur and capitalist, that’s not good for me and certainly not good for the country.Great post. I am neither libertarian, nor capitalist. I have no political leaning personally. With that said, I think the only flaw in your statement is you are counting heavily on what will happen if they empty the jails. I am from Brooklyn and I assure you, if things get as bad as many are predicting, with or without people coming home from the Penitentiaries, you will see levels of street crime from people who have not been to jail the likes of which we only saw back in the 80s/90s.

I think any bail out needs to help main street and wall street equally.

Even with a sensible bail out, do you still predict double digit unemployment?

For those who are against any bailout, do you think our society is really ready for what comes with that? Also, do you not think that a catastrophic economic event here could definitely change America for the worse? This isn't like the great depression. Mentalities and communities have changed and many times for the worse. Do you think the average joe shmoe will be in a state of mind to help rebuild after such a collapse? I mean to say, how do you guys see such a situation playing out?

phirang
10-01-08, 11:03 AM
EJ, thank you for expressing ideas that are shared by others in a way that some of us are incapable of.


Anyone who has not visited a 3rd world country needs to hop on a plane and visit one tomorrow to understand how the well off live. Houses surrounded by walls with broken glass embedded in the concrete, 24 hour guards, when you drive somewhere you have to find a guarded place to park your car or your car will be stripped before you can get 10 feet away. Hell, go to the "bad" side of any city in America and imagine that spreading far and wide.

The government has to step in and do whatever it can to prevent the 3rd world America that will be the inevitable result of doing nothing. We can argue about what the government should do, but failure to do something is not an option.

Yea, it's called central america (yelp): you can't even leave FLIP FLOPS on the beach in costa rica: they'll get stolen!

They have guys with shotguns guarding grocery stores, too!:eek:

vinoveri
10-01-08, 11:06 AM
I
If this continues at this rate then within a year thousands of perfectly well managed companies with little debt and only modest financing needs will go under and tens of millions of workers will be laid off. Unemployment will surpass 10%. Federal income tax revenues will evaporate on top of the collapse of capital gains tax revenues and of local tax revenues from property taxes as has already occurred in states like NY. The knock-on effects include rising crime as prisons are emptied out because we will not be able to afford them. This is what the "let God sort it out" adherents fail to grasp. A debt deflation is not like a forest fire that burns only the dead wood and leaves the strong. It burns everything because the period of excessive credit growth that preceded it lulled the vast majority of businesses and households into dependence on a continuous flow of credit. They all go bankrupt.
.


Bingo, and this is the critical point to Main St. We want to insure that creditworthy individuals and business have access to capital, and right now credit is drying up (event though the central banks are pumping enormous amounts of liquidity into the system) because banks don't want to lend to other institutions because they don't know which are solvent and which may default on the loans.

So in order to get credit flowing, all the toxic debt needs to become transparent and liquidated, and then voila, no more fear of lending. So IMHO, this is what needs to be done - value the toxic assets and get a bid from the private markets.
There'll always be a bid, but the price might result in insolvency of the seller - and this is what needs to happen. Worst case, the government buys the debt at mark to market (let the CBO value the assets).

If 401k and pensions take haircuts b/c of asset markdowns, so be it. If institutions are insolvent b/c of their toxic debt assets, they need to go down. Solvent banks can strengthen their balance sheets and and new institutions can be capitalized.

What am I missing?

phirang
10-01-08, 11:07 AM
Bingo, and this is the critical point to Main St. We want to insure that creditworthy individuals and business have access to capital, and right now credit is drying up (event though the central banks are pumping enormous amounts of liquidity into the system) because banks don't want to lend to other institutions because they don't know which are solvent and which may default on the loans.

So in order to get credit flowing, all the toxic debt needs to become transparent and liquidated, and then voila, no more fear of lending. So IMHO, this is what needs to be done - value the toxic assets and get a bid from the private markets.
There'll always be a bid, but the price might result in insolvency of the seller - and this is what needs to happen. Worst case, the government buys the debt at mark to market (let the CBO value the assets).

If 401k and pensions take haircuts b/c of asset markdowns, so be it. If institutions are insolvent b/c of their toxic debt assets, they need to go down. Solvent banks can strengthen their balance sheets and and new institutions can be capitalized.

What am I missing?

This whole balance-of-payments thing... kind of important.

contrarymary
10-01-08, 11:41 AM
Yea, it's called central america (yelp): you can't even leave FLIP FLOPS on the beach in costa rica: they'll get stolen!

They have guys with shotguns guarding grocery stores, too!:eek:
I've learned much from this forum but rarely post comments, since I'm just a "regular" person. But since you all promise not to bite, this one caught my eye.

My daughter is currently in Guatemala. She has never been out of the country before. I just spoke with her last night. She was amazed to report that there were armed guards everwhere, including markets and cafes. Her husband is Guatemalan, so he can help explain the situation.

Anyway, I lean toward realism, sometimes I'm accused of pessimism. I do not see congress "doing the right thing", now or in the near future. Maybe never.

If I'm going to live in a Banana Republic, I may just go to Guatemala where at least it's warm and the scenery is beautiful.

vinoveri
10-01-08, 11:50 AM
This whole balance-of-payments thing... kind of important.

What do you mean? To whom? There need not be any break.

The U.S. has already defaulted once before in 1971 in any case.

nathanhulick
10-01-08, 11:50 AM
My $.02

Any institution too big to fail is too big to exist.

Why doesn't anyone have anything to say about the fundamental problem of letting these private banks, hedge funds, etc. exercise so much control over the money supply. If the money supply is so important, shouldnt it be controlled by the government. Maybe we should be talking about something in the bailout to end this obviously failed experiment with fiat money? Maybe there is something in the constitution about that...

Why are people like Paulson and Bernanke still in office? They told us there was no problem for years. (No one here believed them, of course). They are incompetent and need to be replaced.

If we are going to "bail out banks", why do we have to bail out failed banks, why not try to expand some of the banks that were not run into the ground by poor management and poor investments? Perhaps maybe start some new banks.

World Traveler
10-01-08, 12:03 PM
We-are-toast gave a good description of some Latin American countries. One of my hobbies over last 15 years has been perfecting my Spanish to a high level of fluency. As a result, I've been to Latin America several times, and spoken with many of the citizens there who do not speak English (that gives you a real flavor of what locals think and fear).

Ecuador 1995, Guatemala 1996, and Peru 1997 were amazing to me. In all 3 countries, I stayed with a local middle class family while attending Spanish language school.

The stories I heard... Quito - any one with resources typically lives in high-rise or townhome compounds, surrounded by high walls with cut glass embedded in them. In a few cases of houses that faced the street, there were armed guards on either side guarding the street. Armed guards in the stores at the one modern mall, in the stores. You had to park your car in the compound or guarded area or it was stripped overnight.

Guatemala - ditto. And I had a Guatemalan friend in Houston - I looked up her family when I was there - many sad kidnapping for money stories (kidnappers go after locals), some with bad outcomes. The family lived huddled together in a guarded compound on the outskirts of Guatemala City.

in the 1980's and 1990's, when poverty was escalating there, many Latin American countries were on the verge of becoming failed states and as close to controlled anarchy as I've ever seen personally.

What drives it - the great chasm between a tiny very rich elite and the rest of the country. Yes these countries have a middle class, but it's very small. The sad fact is that you are either rich or poor there.

To me these countries really seemed to be every man for himself type places - the elite seemed to feel no responsibility toward the rest of the nation and the poor grab what they can, since their options are few.

grapejelly
10-01-08, 12:20 PM
I apologize to grapejelly for my calling him, even in jest, an anarchist and a socialist. These were intended as friendly barbs, but I realize now that he may not have taken it that way. It skirts the one and only hard and fast rule here which is that we all treat each other with respect, even if we disagree.

No need to apologize. I didn't take them personally.

I wrote to my subscribers today:

I said this was the "Billionaires for the Bailout" vs. "Can't Pay My Bills-ionaires Against the Bailout"

My "class warfare" and my comments are accurate. I have learned so much from iTulip and the FIRE economy explanatory theory is the biggie. And those who didn't benefit from the FIRE economy actually are PENALIZED because all those billions came out of the hides of people on Main Street.

Those "Can't Pay My Bills-ionaires" now are calling their senators (The lines are jammed) and no doubt saying "NO NO NO" to them. Because they don't want to have more money stolen from them through the miracle of the printing press.

Those who make their money in finance, banking, insurance, real estate, have a huge stake in continuing inflation and of course WANT the bailout.

Now, as far as this "people against the bailout are saying a Depression is a good thing"...that isn't what I am saying at all.

I believe the Austrian School has this right (much more correct than Irving Fisher). They say that a credit bubble leads eventually to the bubble popping. Even more credit expansion is needed to prevent a crash.

So far, that is exactly what we've seen since 1982. Each bubble bursts, then more inflation and credit expansion, then more debt is needed just to expand GDP an additional dollar.

Next, the Austrians say that as you postpone the credit bubble popping, you make the end result even worse when it eventually does pop.

That is true also, totally born out by today's economic news.

So the answer is not more credit expansion. The answer is to stop the poison that created this in the first place.

The result may be a depression. I can see how that may happen. But with bailouts, that is, pursuing the interventionist policies of the 1930s et seq, we almost guarantee a long period of economic stagnation as governments take over a huge percentage of the FIRE economy.

Mises said that the malinvestments made in the credit bubble must be corrected. The bailout stops this correction and makes the downturn much deeper and longer. It will last a decade instead of two years.





Goldbugs hate to hear this but dogmatic adherence by the US to the gold standard in the 1930s caused the US money supply to implode in the 1930s. Fisher predicted this in January 1930. The economies of countries such as France that suspended the gold standard temporarily fared far better. In the end, FDR had to cancel the gold standard anyway in a draconian way, after the economy collapsed.

Gold money is incompatible with unlimited monetary expansion.

That's the whole point of gold money. It is honest money.

When the Fed was began in 1913, that put the nail into the coffin of the gold standard.

The banks had expanded credit in an irresponsible way and couldn't honor redemptions. Again and again, this happened before the Fed was began, and when it did, banks were allowed to reneg on their commitments but that was only temporary. It was wrong, but it happened at least temporarily.

It was the wanton expansion of credit, to enrich Wall Street, that resulted in the Crash, not the gold standard. The gold standard was, as usual, suspended in times when banking ran too amok. This time permanently.

The next step is for taxpayers to bear all banks losses in an unlimited fashion. That is the last step, I suppose, to total bankruptcy due to fiat currency. The first step was the Fed, second step ending gold standard, and this is probably the end game.



Now our economy collapsing again because a debt deflation is taking its natural course. Without a gold standard the Fed is this time able to expand the money supply, but as fast as they pour money into the broken credit structure it is hoarded, much as in the 1930s, or is pouring out the hole in the bottom of the system as liquidations of assets.

Credit for small and large business and personal loans is quickly drying up, just as in the 1930s. This article is typical. (http://www.boston.com/business/articles/2008/10/01/big_and_small_companies_cling_to_a_thread/)

If this continues at this rate then within a year thousands of perfectly well managed companies with little debt and only modest financing needs will go under and tens of millions of workers will be laid off. Unemployment will surpass 10%. Federal income tax revenues will evaporate on top of the collapse of capital gains tax revenues and of local tax revenues from property taxes as has already occurred in states like NY. The knock-on effects include rising crime as prisons are emptied out because we will not be able to afford them. This is what the "let God sort it out" adherents fail to grasp. A debt deflation is not like a forest fire that burns only the dead wood and leaves the strong. It burns everything because the period of excessive credit growth that preceded it lulled the vast majority of businesses and households into dependence on a continuous flow of credit. They all go bankrupt.

Many of us here have no debt and plenty of liquid assets to protect us from such a fire. I get the sense that there are some here who relish the idea of being in a strong financial position while so many others are not; it's one way to rise above others, I suppose, for everyone else to fall. But the economic collapse survival fantasy of the guns and gold crowd is flawed. If the collapse comes to pass there will be no one to come pick the trash. No one to see that the water and food supply is not contaminated. No one to keep carjackers out of your city. Much of the order around us that is financed by taxes that we take for granted falls apart.
"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon
GRG's quote expresses the position of the FIRE Economy V1.0 leadership of the day. It served their interests to crash the economy. They got to buy it up again later at fire sale prices.

Clearly it was a mistake to have allowed the US economy to become so dependent on debt growth for economic growth. I explain, and attempt to simplify, in my book the complex parallel developments that created the FIRE Economy since the early 1980s. But by allowing the FIRE Economy to crash, versus develop a constructive transition, libertarians are serving populists with the rallying cry that “capitalism has failed.” You can already read it on the blogs and in some mainstream papers, and the impact of the credit crunch on Main Street has only begun.

At that point, the logic of the American political economy dictates a hard swing away from market-based solutions. As an entrepreneur and capitalist, that’s not good for me and certainly not good for the country.

The FIRE economy will either crash slowly and make the downturn last many many years, or it will crash fast, and adjustments will take a few years.

If we socialize all the risks, we will ensure that the crash lasts many years, bailout after bailout, the government always "doing something" and a lot like the result of the Roosevelt years, namely a prolonged depression instead of a short one.

Supercilious
10-01-08, 12:20 PM
I think any bail out needs to help main street and wall street equally.

IMHO the bailout needs to help only the main street since it's paid with taxpayer's money. If you believe otherwise, I want to let you know, I urgently need $10000 because I've lost all my money gambling at the (Wall Street) Casino and I'm serious need of recapitalization. If I don't go and gamble again tonight, ... well some of the Casino workers may loose their jobs (especially the girl I like to keep near my roulette table) and .... it will be bad for the economy. We would all suffer. :D


Even with a sensible bail out, do you still predict double digit unemployment?

That may be very well possible and it makes an additional argument for not throwing good money after bad. Those $700 bil may be needed soon for real and serious rescue plans.


For those who are against any bailout, do you think our society is really ready for what comes with that?
Even the most radical Libertarian (radical<---latin radix - roots - correct meaning= return to the roots and/or through changes at grassroots level) realizes markets are decapitalized and a serious liquidity injection is needed. No argument about that, nobody needs or wishes for a 1929 Great Depression.

The problem is that Ben&Hank's bailout plan ( even in the seriously lipsticked version called the King Plan) simply rewards bad behavior, corporate fraud and in generally establishes a tax on all of us in order to support the drinking habit of Wall Street.

Yes I said drinking habit, because the Paulson bailout is nothing else than giving a liver transplant to an alcoholic and handing him a bottle of Jim Beam to celebrate his new life.

The King Plan is only slightly better: after the transplant the alcoholic "diet" is restricted only to beer. Much better... :)

Well ... I happen to believe that after a liver transplant an alcoholic should not have access even to cherry liquor chocolates.

If any injection of capital is done with taxpayer's money it should not be directed to those "geniuses" on Wall Street who made all this mess with their Derivative Porn Fest.

IMHO as a minimum requirement for any capital infusion with taxpayer's money the Congress should for a start:
a) make illegal any mark-to-Enron "technologies"
b) make illegal naked short selling, (leaving normal short selling in place), but enforcing a strict T+3 (not T+ infinite) clearing rule through DTTC
c) restore and strictly impose the "up-tick" rule
d) restore completely and strictly enforce the Glass-Steagall act in it's original formulation and meaning
e) make a clear separation between the regulated market and OTC markets (like the Godfather style 144A private markets)
f) take a good look at the changes needed to the Federal Reserve System... because the taxpayer was told in 1907 and 1913 that the Fed is a necessary evil we have to accept in order to avoid a major crisis and potential economic collapse ... well the Fed didn't prevent squat ... actually I believe we should get rid of the Fed altogether...

This is not a something new. The current Financial Orgy Catering Club chaired by Ben Bernancke is the Third Fed in US history. Remember what Andrew Jackson said in 1832 when he successfully got rid of the Second Fed:


“Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”


And in another speech the same year:


The bold effort the present (central) bank had made to control the government ... are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.

Until we do the right things in order to correct the errors that led us into this mess and to prevent a future Deep Capture (http://www.itulip.com/forums/showthread.php?t=5594) of those institutions created to protect the Free Markets, we will have to live, over and over again, with this :

http://i27.photobucket.com/albums/c193/Corpsman31/2rp2wjr.jpg

grapejelly
10-01-08, 12:25 PM
Even the most radical Libertarian (radical<---latin radix - roots - correct meaning= return to the roots and/or through changes at grassroots level) realizes markets are decapitalized and a serious liquidity injection is needed. No argument about that, nobody needs or wishes for a 1929 Great Depression.


There is plenty of argument there.

The Great Depresssion did NOT start in 1929.

I argue that what would have been a deep but quick depression turned into a decade long one and it happend THROUGH government intervention JUST LIKE IS HAPPENING TODAY.

This is the script to a Tee.

1. Markets crash.

2. Government favors the banks (bank holiday, TAF, etc. etc.)

3. Doesn't help enough

4. Government spends taxpayer money massively

5. Doesn't help enough

6. Government does even MORE

etc.

That is what CAUSED the Great Depression.

metalman
10-01-08, 12:28 PM
Bingo, and this is the critical point to Main St. We want to insure that creditworthy individuals and business have access to capital, and right now credit is drying up (event though the central banks are pumping enormous amounts of liquidity into the system) because banks don't want to lend to other institutions because they don't know which are solvent and which may default on the loans.

So in order to get credit flowing, all the toxic debt needs to become transparent and liquidated, and then voila, no more fear of lending. So IMHO, this is what needs to be done - value the toxic assets and get a bid from the private markets.
There'll always be a bid, but the price might result in insolvency of the seller - and this is what needs to happen. Worst case, the government buys the debt at mark to market (let the CBO value the assets).

If 401k and pensions take haircuts b/c of asset markdowns, so be it. If institutions are insolvent b/c of their toxic debt assets, they need to go down. Solvent banks can strengthen their balance sheets and and new institutions can be capitalized.

What am I missing?

letting the market clear is the right thing to do. that's what the japanese failed to do. what they got was growing uncertainty and a drop in lending.

a few weeks ago the fed tried to let the market clear itself of toxic debt securities. they let lehman fail. but it started a cascade of cross defaults around the world that is picking up speed.

what to do if you can't do the right thing?

there are no easy answers, i'm afraid.

jtabeb
10-01-08, 12:28 PM
I apologize to grapejelly for my calling him, even in jest, an anarchist and a socialist. These were intended as friendly barbs, but I realize now that he may not have taken it that way. It skirts the one and only hard and fast rule here which is that we all treat each other with respect, even if we disagree.

That certainly means no name calling, jtabeb. It will not be tolerated.

I agree with most of what you say here, about the FIRE Economy, distribution of wealth between debtors and creditors, and so on. These are points that I have expressed here for years. We agree until we get to the point that is the subject of this thread: the need for intervention now and whether intervention was attempted in the 1930s BEFORE the economy collapsed.

Goldbugs hate to hear this but dogmatic adherence by the US to the gold standard in the 1930s caused the US money supply to implode in the 1930s. Fisher predicted this in January 1930. The economies of countries such as France that suspended the gold standard temporarily fared far better. In the end, FDR had to cancel the gold standard anyway in a draconian way, after the economy collapsed.

Now our economy collapsing again because a debt deflation is taking its natural course. Without a gold standard the Fed is this time able to expand the money supply, but as fast as they pour money into the broken credit structure it is hoarded, much as in the 1930s, or is pouring out the hole in the bottom of the system as liquidations of assets.

Credit for small and large business and personal loans is quickly drying up, just as in the 1930s. This article is typical. (http://www.boston.com/business/articles/2008/10/01/big_and_small_companies_cling_to_a_thread/)

If this continues at this rate then within a year thousands of perfectly well managed companies with little debt and only modest financing needs will go under and tens of millions of workers will be laid off. Unemployment will surpass 10%. Federal income tax revenues will evaporate on top of the collapse of capital gains tax revenues and of local tax revenues from property taxes as has already occurred in states like NY. The knock-on effects include rising crime as prisons are emptied out because we will not be able to afford them. This is what the "let God sort it out" adherents fail to grasp. A debt deflation is not like a forest fire that burns only the dead wood and leaves the strong. It burns everything because the period of excessive credit growth that preceded it lulled the vast majority of businesses and households into dependence on a continuous flow of credit. They all go bankrupt.

Many of us here have no debt and plenty of liquid assets to protect us from such a fire. I get the sense that there are some here who relish the idea of being in a strong financial position while so many others are not; it's one way to rise above others, I suppose, for everyone else to fall. But the economic collapse survival fantasy of the guns and gold crowd is flawed. If the collapse comes to pass there will be no one to come pick the trash. No one to see that the water and food supply is not contaminated. No one to keep carjackers out of your city. Much of the order around us that is financed by taxes that we take for granted falls apart.

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon
GRG's quote expresses the position of the FIRE Economy V1.0 leadership of the day. It served their interests to crash the economy. They got to buy it up again later at fire sale prices.

Clearly it was a mistake to have allowed the US economy to become so dependent on debt growth for economic growth. I explain, and attempt to simplify, in my book the complex parallel developments that created the FIRE Economy since the early 1980s. But by allowing the FIRE Economy to crash, versus develop a constructive transition, libertarians are serving populists with the rallying cry that “capitalism has failed.” You can already read it on the blogs and in some mainstream papers, and the impact of the credit crunch on Main Street has only begun.

At that point, the logic of the American political economy dictates a hard swing away from market-based solutions. As an entrepreneur and capitalist, that’s not good for me and certainly not good for the country.

I misconstrued your humor for a bout of deflectionism, Agree no name calling. My tit-for-tat response was an attempt on my part to call that out, but sadly, I chose the low road.

I do not disagree with your points, just the premise you used for their justification.


My one point is this, and it is an important one.

The Goldbug thing is not about burning down the entire world while we all watch, all huddled in a cave with our loved ones, guns, gold, and food.

It is about personal choice and personal accountability and most importantly EMPOWERMENT.

I disagree with Jim that there are "no safehavens". There are, and what really REALLY bothers me is when the governement PREVENTS or discourages people (via tax penalty and accesability) from talking the only safe refuge from the storm. The people out there that bought PM's did it because they KNEW they had no control over short selling rule changes, currency interventions, liquidity injections, etc.

It pisses me off that the Government does not allow people to protect themselves, AND, in fact, pro-actively establishes policies that work against individual people from acting in their own best financial intrests.

THAT IS NOT WHAT A GOOD GOVERNEMENT DOES TO ENSURE A STRONG DEMOCRACY AND STABLE COUNTRY.

It is pure madness!

That is the only point "goldbugs" are trying to make. We do not want the world to burn down into some post-apocolyptic nightmare. Does ANYONE (that is not mentally ill) want that?

metalman
10-01-08, 12:29 PM
And the various lunatic fringes, some of whom call themselves libertarians, fail to know their history or even what Adam Smith had to say about justice, greed and capitalism:

"Justice [the human virtue of not harming others]…is the main pillar that supports the whole building. If justice is removed, the great fabric of human society which seems to have been under the darling care of Nature must in a moment crumble into atoms….Men, though naturally sympathetic, feel so little for others with whom they have no particular connection in comparison to what they feel for themselves. The misery of one who is merely their fellow creature is of so little importance to them in comparison to even a small convenience of their own. They have it so much in their power to hurt him and may have so many temptations to do so that if the principle of justice did not stand up within them in his defense and overawe them into a respect for his innocence, they would like wild beasts be ready to fly upon him at all times. Under such circumstances a man would enter an assembly of others as he enters a den of lions."
-- Adam Smith, "The Wealth of Nations"

99% of the time, that is correct. but not during a debt deflation. a distinction must be made.

Tulpen
10-01-08, 12:29 PM
Even the most radical Libertarian (radical<---latin radix - roots - correct meaning= return to the roots and/or through changes at grassroots level) realizes markets are decapitalized and a serious liquidity injection is needed. No argument about that, nobody needs or wishes for a 1929 Great Depression.

You don't solve a liquidity problem by borrowing more money. It's as simple as that! :cool:

All that will happen is that people start to build on false hope. The crash will only become larger.

The only alternative is hyperinflation and the fat and rich are simply not going to stand for it so it will be a big crash.

I noticed that more and more iTulipers are getting confused and start to ride the hope wave. :D

grapejelly
10-01-08, 12:33 PM
You don't solve a liquidity problem by borrowing more money. It's as simple as that! :cool:

All that will happen is that people start to build on false hope. The crash will only become larger.

The only alternative is hyperinflation and the fat and rich are simply not going to stand for it so it will be a big crash.

I noticed that more and more iTulipers are getting confused and start to ride the hope wave. :D

That isn't all that will happen. More people will start moving assets out of the US because they'll have time. Even an idjit who wasn't aware of the credit bubble now knows the truth.

Also, lenders will stop lending regardless. The bailout will allow banks to hide their paper losses, which is part of its intent. But the cat's out of the bag, so the bailout won't help increase the willingness of banks to lend. Not at all.

grapejelly
10-01-08, 12:34 PM
99% of the time, that is correct. but not during a debt deflation. a distinction must be made.

a debt deflation is a healthy thing. It gets prices down to where they should be. It puts out of business many institutions that should be out of business.

If not now, when?

Chris Coles
10-01-08, 12:37 PM
I've learned much from this forum but rarely post comments, since I'm just a "regular" person. But since you all promise not to bite, this one caught my eye.

My daughter is currently in Guatemala. She has never been out of the country before. I just spoke with her last night. She was amazed to report that there were armed guards everwhere, including markets and cafes. Her husband is Guatemalan, so he can help explain the situation.

Anyway, I lean toward realism, sometimes I'm accused of pessimism. I do not see congress "doing the right thing", now or in the near future. Maybe never.

If I'm going to live in a Banana Republic, I may just go to Guatemala where at least it's warm and the scenery is beautiful.

Some thirty years ago, I was repeatedly asked a very thought provoking question by of all people a railway signalman long past retirement, still working the local signal box where I used to collect my newspaper. Why?

It was his favourite word. Why?

Why do you need guns to protect you in third world countries?

Why are the local people so intent on stealing anything they can get their hands on?

I dare to suggest that it is because they mostly feel completely disconnected from the world we live in. That they do not see any fair, honest, working mechanism, in place that permits them to capitalise themselves and do all the things we think are normal. Build businesses, employ others, make something of themselves.

I readily admit that my use of the simile of the actions of the Nazi's at the end of WW2 as a way of suggesting that the bail out plan was flawed was offensive. (I came to that conclusion after I had posted), and as such I apologise for any offence. It was not intended.

But EJ, you have to recognise that, like it or not, the present system has left vast swathes of humanity not just sidelined, but totally removed from any chance of getting on board to offer their own input. Without access to capital, (that is interest free savings invested in the long term hope of success), no one succeeds. The present system is not just dysfunctional for a few, it is completely unaccessible for perhaps the majority.

You are justifiably proud that you sit on capital and are unburdened by debt. But what plans do you have to bridge the gap? As I see it, your solution is to prop up the present system.

What I am trying to get across, perhaps not very well is that we ought to be looking at what comes next. If you leave the FIRE economy still in place, you do nothing. Indeed, it can be argued that, considering that you of all people brought us to recognise that we were going into this situation; you should have also had a clear plan for how to stand amongst the wreckage of the FIRE economy and build anew.

Instead, right at the point of the failure, you run forward with a bucket of funds for the very thing you predicted would fail, the FIRE economy.

I am not revelling in the collapse, far from it. What I am trying to do is find a dialogue that brings people together with new thinking, new ways of moving forward.

How many are sitting on funds that could be put to good use but are waiting for the present system to renew so that their funds can go right back into the old system? How many of those, if offered a better solution, with new thinking, new regulations, new institutions, would instead step forward and make the difference? I believe that must be brought to happen. That we must find a new route away from the present systematic failures and yes, in the short term there will be difficulties.

But of one thing I am certain, no one here has every shirked from "difficulty". It is the one mountain we climb every single day. It is the very oxygen of our existence to overcome and prevail.

So I say, unashamedly, we must find a better way forward. Do not throw away that bucket of cash destined for Paulson and his friends and instead, get thinking forward towards how we build a better system with that cash as the primer, the capital we expect to risk in the expectation of future success.

metalman
10-01-08, 12:45 PM
There is plenty of argument there.

The Great Depresssion did NOT start in 1929.

I argue that what would have been a deep but quick depression turned into a decade long one and it happend THROUGH government intervention JUST LIKE IS HAPPENING TODAY.

This is the script to a Tee.

1. Markets crash.

2. Government favors the banks (bank holiday, TAF, etc. etc.)

3. Doesn't help enough

4. Government spends taxpayer money massively

5. Doesn't help enough

6. Government does even MORE

etc.

That is what CAUSED the Great Depression.

where do you guys get this crap? from that mises site? seriously, spend some time over at the nytimes or time mag archives and read for yourself about what actually happened. it's all there in black & white for those not attached to their ignorance.

1929: markets crash.

1930: fed cuts rates 5% to 2% by dec.

1930: congress cuts taxes, but they weren't much so it didn't really help.

1931 - 1933: usa stays on gold standard. fed can't expand money supply. 1000s of bank fail. credit evaporates. businesses go bankrupt.

1933: money supply contracted 40%, lending by 50%. unemployment at 25%. the economy now officially fucked. nice going.

1933: NOW the gov't finally dumps the gold standard and the gov't bails out the banks (bank holiday, TAF, confiscate gold and reprice it, etc. etc.)

1934: government spends taxpayer money. too late! was like trying to push a 100 ton train with a bicycle from a dead stop.

moral: don't let the 1000 ton train come to a stop.

the end.

metalman
10-01-08, 12:48 PM
a debt deflation is a healthy thing. It gets prices down to where they should be. It puts out of business many institutions that should be out of business.

If not now, when?

let me ask you, have you ever traveled to a 3rd world country?

grapejelly
10-01-08, 12:57 PM
where do you guys get this crap? from that mises site? seriously, spend some time over at the nytimes or time mag archives and read for yourself about what actually happened. it's all there in black & white for those not attached to their ignorance.

1929: markets crash.

1930: fed cuts rates 5% to 2% by dec.

1930: congress cuts taxes, but they weren't much so it didn't really help.

1931 - 1933: usa stays on gold standard. fed can't expand money supply. 1000s of bank fail. credit evaporates. businesses go bankrupt.

1933: money supply contracted 40%, lending by 50%. unemployment at 25%. the economy now officially fucked. nice going.

1933: NOW the gov't finally dumps the gold standard and the gov't bails out the banks (bank holiday, TAF, confiscate gold and reprice it, etc. etc.)

1934: government spends taxpayer money. too late! was like trying to push a 100 ton train with a bicycle from a dead stop.

moral: don't let the 1000 ton train come to a stop.

the end.

Government screwed it all up.

They let banks run amok in the 1920s, with official blessings. Just as they have done today.

They raised taxes when they shouldn't have. They did NOT cut taxes. You are incorrect.

They spent huge amounts of money on worthless public works programs.

They imposed a punitive tarriff.

Really, just about the whole thing was caused by the government. And by 1937 there were JUST AS MANY people unemployed as there had been earlier in the decade.

Japan tried to rescue its economy post-1990 and although they remained productive and wealthy due to their enormous savings rate and productive capacity, all that happened was their recession went on for 14 years, and didn't get any better.

That is what we face in the US, but WORSE, with these so-called bailouts that are going to happen.

Why? Because bailouts PREVENT the adjustments that MUST be made in order to move forward.

bart
10-01-08, 01:01 PM
99% of the time, that is correct. but not during a debt deflation. a distinction must be made.

I think that's an extremely small nuance, but granted... but the real point I was trying to make is that the debt deflation (or whatever) would not have occurred without prior greed & injustices, etc.

bart
10-01-08, 01:18 PM
I believe the Austrian School has this right (much more correct than Irving Fisher). They say that a credit bubble leads eventually to the bubble popping.

I believe that you're missing the overall issue. Manias and bubbles have existed since dirt, and they *always* pop. That concept and truth far predated any Austrians.

I believe that you are also ignoring what EJ noted that Fisher actually said in Jan. 1930 after he blew it in Sept 1929 - ("The U. S. is headed toward a period of business depression... beginning within the next two years"), which is virtually and practically identical to what Mises, Rothbard etc. said beforehand.

And debt deflation does exist as a valid and proven economic concept, regardless of whether it was conceived in 1933, 1842 or 1978.



So the answer is not more credit expansion. The answer is to stop the poison that created this in the first place.

The result may be a depression. I can see how that may happen. But with bailouts, that is, pursuing the interventionist policies of the 1930s et seq, we almost guarantee a long period of economic stagnation as governments take over a huge percentage of the FIRE economy.

Middle grounds can (and I believe do) exist.





Gold money is incompatible with unlimited monetary expansion.

That's the whole point of gold money. It is honest money.

When the Fed was began in 1913, that put the nail into the coffin of the gold standard.

The banks had expanded credit in an irresponsible way and couldn't honor redemptions. Again and again, this happened before the Fed was began, and when it did, banks were allowed to reneg on their commitments but that was only temporary. It was wrong, but it happened at least temporarily.

It was the wanton expansion of credit, to enrich Wall Street, that resulted in the Crash, not the gold standard. The gold standard was, as usual, suspended in times when banking ran too amok. This time permanently.


I don't think you see the major logic issue there.

I could also just as easily state that gold money is incompatible with consistent growth too, but that does not address the basic issue.

It's neither the gold standard nor the "fiat standard" (or whatever you want to call it) that is the real problem. As you note, the credit expansion and all the other ills pre 1929 did actually happen during a gold standard. Many recessions and depressions also happened under a gold standard.

Of course gold is honest money too, but again - it in no way prevented the problems.
Just like no fiat standard has ever lasted throughout history, no gold standard has lasted either.

If neither has been the answer, then the question(s) or assumption(s) are incorrect.




Just in case too, I am *not* in favor of a "bailout" and saving Wall St. scum whose greed and blatant egregious injustices are the primary (but far from only) cause of our current mess.

Contemptuous
10-01-08, 01:27 PM
Here is a snapshot for the iTulip "family album" of all the squabbling, stubborn, fractious iTulip members. Describes the three primary groupings of thinking on the need, advisability, or urgency for some sort of mitigating bailout to be passed quickly (or not). I must clarify despite defending a rapid intervention here, that quite clearly Paulson's original bill really was a pandering obscenity. I doubt there is a single one of us who would defend it. I notice that Friedman is squarely on the same page as EJ on one point - that there is no such thing as "economics" - but only "political economy". That insight is emerging in sharp definition in the current crisis - the bailout, a decision by which a large part of our immediate future's aspect will be affected.

______________

The Political Nature of the Economic Crisis


September 30, 2008 - By George Friedman [ STRATFOR ]

Classical economists like Adam Smith and David Ricardo referred to their discipline as “political economy.” Smith’s great work, “The Wealth of Nations,” was written by the man who held the chair in moral philosophy at the University of Glasgow. This did not seem odd at the time and is not odd now. Economics is not a freestanding discipline, regardless of how it is regarded today. It is a discipline that can only be understood when linked to politics, since the wealth of a nation rests on both these foundations, and it can best be understood by someone who approaches it from a moral standpoint, since economics makes significant assumptions about both human nature and proper behavior.

The modern penchant to regard economics as a discrete science parallels the belief that economics is a distinct sphere of existence — at its best when it is divorced from political and even moral considerations. Our view has always been that the economy can only be understood and forecast in the context of politics, and that the desire to separate the two derives from a moral teaching that Smith would not embrace. Smith understood that the word “economy” without the adjective “political” did not describe reality. We need to bear Smith in mind when we try to understand the current crisis.

Societies have two sorts of financial crises. The first sort is so large it overwhelms a society’s ability to overcome it, and the society sinks deeper into dysfunction and poverty. In the second sort, the society has the resources to manage the situation — albeit at a collective price. Societies that can manage the crisis have two broad strategies. The first strategy is to allow the market to solve the problem over time. The second strategy is to have the state organize the resources of society to speed up the resolution. The market solution is more efficient over time, producing better outcomes and disciplining financial decision-making in the long run. But the market solution can create massive collateral damage, such as high unemployment, on the way to the superior resolution. The state-organized resolution creates inequities by not sufficiently punishing poor economic decisions, and creates long-term inefficiencies that are costly. But it has the virtue of being quicker and mitigating collateral damage.
Three Views of the Financial Crisis

There is a first group that argues the current financial crisis already has outstripped available social resources, so that there is no market or state solution. This group asserts that the imbalances created in the financial markets are so vast that the market solution must consist of an extended period of depression. Any attempt by the state to appropriate social resources to solve the financial imbalance not only will be ineffective, it will prolong the crisis even further, although perhaps buying some minor alleviation up front. The thinking goes that the financial crisis has been building for years and the economy can no longer be protected from it, and that therefore an extended period of discipline and austerity — beginning with severe economic dislocations — is inevitable. This is not a majority view, but it is widespread; it opposes governmen t action on the grounds that the government will make a terrible situation worse.

A second group argues that the financial crisis has not outstripped the ability of society — organized by the state — to manage, but that it has outstripped the market’s ability to manage it. The financial markets have been the problem, according to this view, and have created a massive liquidity crisis. The economy — as distinct from the financial markets — is relatively sound, but if the liquidity crisis is left unsolved, it will begin to affect the economy as a whole. Since the financial markets are unable to solve the problem in a time frame that will not dramatically affect the economy, the state must mobilize resources to impose a solution on the financial markets, introducing liquidity as the preface to any further solutions. This group believes, like the first group, that the financial crisis could have profound economic ramifications. But the second group also believes it is possible to contain the consequences. This is the view of th e Bush administration, the congressional leadership, the Federal Reserve Board and most economic leaders.

There is a third group that argues that the state mobilization of resources to save the financial system is in fact an attempt to save financial institutions, including many of those whose imprudence and avarice caused the current crisis. This group divides in two.

The first subgroup agrees the current financial crisis could have profound economic consequences, but believes a solution exists that would bring liquidity to the financial markets without rescuing the culpable.

The second subgroup argues that the threat to the economic system is overblown, and that the financial crisis will correct itself without major state intervention but with some limited implementation of new regulations.

The first group thus views the situation as beyond salvation, and certainly rejects any political solution as incapable of addressing the issues from the standpoint of magnitude or competence. This group is out of the political game by its own rules, since for it the situation is beyond the ability of politics to make a difference — except perhaps to make the situation worse.

The second group represents the establishment consensus, which is that the markets cannot solve the problem but the federal government can — provided it acts quickly and decisively enough.

The third group spoke Sept. 29, when a coalition of Democrats and Republicans defeated the establishment proposal. For a myriad of reasons, some contradictory, this group opposed the bailout. The reasons ranged from moral outrage at protecting the interests of the perpetrators of this crisis to distrust of a plan implemented by this presidential administration, from distrust of the amount of power ceded the Treasury Department of any administration to a feeling the problem could be managed. It was a diverse group that focused on one premise — namely, that delay would not lead to economic catastrophe.

From Economic to Political Problem

The problem ceased to be an economic problem months ago. More precisely, the economic problem has transformed into a political problem. Ever since the collapse of Bear Stearns, the primary actor in the drama has been the federal government and the Federal Reserve, with its powers increasing as the nature of potential market outcomes became more and more unsettling. At a certain point, the size of the problem outstripped the legislated resources of the Treasury and the Fed, so they went to Congress for more power and money. This time, they were blocked.

It is useful to reflect on the nature of the crisis. It is a tale that can be as complicated as you wish to make it, but it is in essence simple and elegant. As interest rates declined in recent years, investors — particularly conservative ones — sought to increase their return without giving up safety and liquidity. They wanted something for nothing, and the market obliged. They were given instruments ultimately based on mortgages on private homes. They therefore had a very real asset base — a house — and therefore had collateral. The value of homes historically had risen, and therefore the value of the assets appeared secured. Financial instruments of increasing complexity eventually were devised, which were bought by conservative investors. In due course, these instruments were bought by less conservative investors, who used them as collateral for borrowing money. They used this money to buy other instruments in a pyramiding scheme that rested on one premise: the existence of houses whose value remained stable or grew.

Unfortunately, housing prices declined. A period of uncertainty about the value of the paper based on home mortgages followed. People claimed to be confused as to what the real value of the paper was. In fact, they were not so much confused as deceptive. They didn’t want to reveal that the value of the paper had declined dramatically. At a certain point, the facts could no longer be hidden, and vast amounts of value evaporated — taking with them not only the vast pyramids of those who first created the instruments and then borrowed heavily against them, but also the more conservative investors trying to put their money in a secure space while squeezing out a few extra points of interest. The decline in housing prices triggered massive losses of money in the financial markets, as well as reluctance to lend based on uncertainty of values. The resu lt was a liquidity crisis, which simply meant that a lot of people had gone broke and that those who still had money weren’t lending it — certainly not to financial institutions.

The S&L Precedent

Such financial meltdowns based on shifts in real estate prices are not new. In the 1970s, regulations on savings and loans (S&Ls) had changed. Previously, S&Ls had been limited to lending in the consumer market, primarily in mortgages for homes. But the regulations shifted, and they became allowed to invest more broadly. The assets of these small banks, of which there were thousands, were attractive in that they were a pool of cash available for investment. The S&Ls subsequently went into commercial real estate, sometimes with their old management, sometimes with new management who had bought them, as their depositors no longer held them.

The infusion of money from the S&Ls drove up the price of commercial real estate, which the institutions regarded as stable and conservative investments, not unlike private homes. They did not take into account that their presence in the market was driving up the price of commercial real estate irrationally, however, or that commercial real estate prices fluctuate dramatically. As commercial real estate values started to fall, the assets of the S&Ls contracted until most failed. An entire sector of the financial system simply imploded, crushing shareholders and threatening a massive liquidity crisis. By the late 1980s, the entire sector had melted down, and in 1989 the federal government intervened.

The federal government intervened in that crisis as it had in several crises large and small since 1929. Using the resources at its disposal, the federal government took over failed S&Ls and their real estate investments, creating the Resolution Trust Corp. (RTC). The amount of assets acquired was about $394 billion dollars in 1989 — or 6.7 percent of gross domestic product (GDP) — making it larger than the $700 billion dollars — or 5 percent of GDP — being discussed now. Rather than flooding the markets with foreclosed commercial property, creating havoc in the market and further destroying assets, the RTC held the commercial properties off the market, maintaining their price artificially. They then sold off the foreclosed properties in a multiyear sequence that recovered much of what had been spent acquiring the properties. More important, it prevented the decline in commercial real estate from accelerating and creating liquidity crises throug hout the entire economy.

Many of those involved in S&Ls were ruined. Others managed to use the RTC system to recover real estate and to profit. Still others came in from the outside and used the RTC system to build fortunes. The RTC is not something to use as moral lesson for your children. But the RTC managed to prevent the transformation of a financial crisis into an economic meltdown. It disrupted market operations by introducing large amounts of federal money to bring liquidity to the system, then used the ability of the federal government — not shared by individuals — to hold on to properties. The disruption of the market’s normal operations was designed to avoid a market outcome. By holding on to the assets, the federal government was able to create an artificial market in real estate, one in which supply was constrained by the government to manage the value of commercial real estate. It did not work perfectly — far from it. But it managed to avoid the most feared outcome, which was a depression.

There have been many other federal interventions in the markets, such as the bailout of Chrysler in the 1970s or the intervention into failed Third World bonds in the 1980s. Political interventions in the American (or global) marketplace are hardly novel. They are used to control the consequences of bad decisions in the marketplace. Though they introduce inefficiencies and frequently reward foolish decisions, they achieve a single end: limiting the economic consequences of these decisions on the economy as a whole. Good idea or not, these interventions are institutionalized in American economic life and culture. The ability of Americans to be shocked at the thought of bailouts is interesting, since they are not all that rare, as judged historically.

The RTC showed the ability of federal resources — using taxpayer dollars — to control financial processes. In the end, the S&L story was simply one of bad decisions resulting in a shortage of dollars. On top of a vast economy, the U.S. government can mobilize large amounts of dollars as needed. It therefore can redefine the market for money. It did so in 1989 during the S&L crisis, and there was a general acceptance it would do so again Sept. 29.

The RTC Model and the Road Ahead

As discussed above, the first group argues the current crisis is so large that it is beyond the federal government’s ability to redefine. More precisely, it would argue that the attempt at intervention would unleash other consequences — such as weakening dollars and inflation — meaning the cure would be worse than the disease. That may be the case this time, but it is difficult to see why the consequences of this bailout would be profoundly different from the RTC bailout — namely, a normal recession that would probably happen anyway.

The debate between the political leadership and those opposing its plan is more interesting. The fundamental difference between the RTC and the current bailout was institutional. Congress created a semi-independent agency operating under guidelines to administer the S&L bailout. The proposal that was defeated Sept. 29 would have given the secretary of the Treasury extraordinary personal powers to dispense the money. Some also argued that the return on the federal investment was unclear, whereas in the RTC case it was fairly clear. In the end, all of this turned on the question of urgency. The establishment group argued that time was running out and the financial crisis was about to morph into an economic crisis. Those voting against the proposal argued there was enough time to have a more defined solution.

There was obviously a more direct political dimension to all this. Elections are just more than a month a way, and the seat of every U.S. representative is in contest. The public is deeply distrustful of the establishment, and particularly of the idea that the people who caused the crisis might benefit from the bailout. The congressional opponents of the plan needed to demonstrate sensitivity to public opinion. Having done so, if they force a redefinition of the bailout plan, an additional 13 votes can likely be found to pass the measure.

But the key issue is this: Are the resources of the United States sufficient to redefine financial markets in such a way as to manage the outcome of this crisis, or has the crisis become so large that even the resources of a $14 trillion economy mobilized by the state can’t do the job? If the latter is true, then all other discussions are irrelevant. Events will take their course, and nothing can be done. But if that is not true, that means that politics defines the crisis, as it has other crisis. In that case, the federal government can marshal the resources needed to redefine the markets and the key decision-makers are not on Wall Street, but in Washington. Thus, when the chips are down, the state trumps the markets.

All of this may not be desirable, efficient or wise, but as an empirical fact, it is the way American society works and has worked for a long time. We are seeing a case study in it — including the possibility the state will refuse to act, creating an interesting and profound situation. This would allow the market alone to define the outcome of the crisis. This has not been allowed in extreme crises in 75 years, and we suspect this tradition of intervention will not be broken now. The federal government will act in due course, and an institutional resolution taking power from the Treasury and placing it in the equivalent of the RTC will emerge. The question is how much time remains before massive damage is done to the economy.

This report may be forwarded or republished on your website with attribution to STRATFOR

we_are_toast
10-01-08, 01:34 PM
Based on the discussion here, it seems that everyone needs to ask themselves 2 questions.

1) Do you believe that we are on the edge of plummeting into a great depression if the government does nothing?

2) Is a great depression a price worth paying to support the philosophy that markets without government intervention are the best for society as a whole?

For me to answer number 1 I have to go through several steps since I do not have the economic and historical background to make the call on my own.

1) Who are the respected experts in the field?
2) Is there a consensus that leads to a particular conclusion?
3) Are their arguments reasonable?
4) Can I check some facts to determine if they are factually correct about particular points.

When I went through this process I concluded that their was a consensus of opinion among respected people who have studied the situation that the result of inaction would lead to a reasonable risk of plunging the country into a great depression.

How bad can a great depression be? Since I wasn't around during the last one, how can I answer this question for myself?

1) Talk to people who were around.
2) Visit places that have economies that might resemble what a depression type economy in America might look like.

Having talked to people who lived through the last depression, my reaction is :eek::eek::eek:.

Having visited 3rd world countries, my reaction is :eek::eek::eek:.

And speculating about some of the things that might happen in a country with a very depressed economy, such as the formation of right and left wing militia groups, an uninformed public voting in people like Pinochet or Chavez, my reaction is :eek::eek::eek:.

I think everyone needs to take some time and reasonably analyze the consequences of government action VS government inaction and reach your own conclusion. At least then you can try to influence the politicians into taking the course of action you've concluded will best serve America.

grapejelly
10-01-08, 01:41 PM
Third World Countries -- what does that have to do with the present situation and discussion? I am confused.

Is the intimation that we will become a Third World Country if we do not allow the bailout to move forward? Or that a Depression will make us into a Third World Country?

we_are_toast
10-01-08, 01:50 PM
Third World Countries -- what does that have to do with the present situation and discussion? I am confused.

Is the intimation that we will become a Third World Country if we do not allow the bailout to move forward? Or that a Depression will make us into a Third World Country?


Yes. A country experiencing an economic depression could very well resemble a 3rd world country.

santafe2
10-01-08, 02:01 PM
The Senate is preparing to vote on a version of the BBB or the MOAB that includes extensions of many tax incentives, (including renewable energy), and a suspension of the ATM among other vote-getting add-ons. The vote is scheduled for later tonight. It appears we're going to try and pull a rabbit out of our financial hats and hope for the best. The House will vote tomorrow and the White House has said it will sign before the end of the week.

Brooks Gracie
10-01-08, 02:11 PM
This is a little off topic, but it is truly shocking..:eek:

Following is a partial transcript

Rep. Brad Sherman, D California:

Larry I am glad you have a few seconds to talk to someone who voted against this bill. I am not changing my mind. I want to thank my colleagues who stood up to the purveyors of panic and voted against a very bad bill and voted with 400 eminent economists including three Nobel laureates who wrote to us and said don't panic, don't act hastily, hold hearings, work carefully. The fact is Larry if you read this bill, even you would have voted against it.

It provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson's power. There is a critique board but not really a board that can step in and change what he does. It's a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries.

Larry Kudlow:
Let me just ask you one question. I think you are referring to foreign banks headquartered in the United States. I do not see how foreign investors get bailed out.

Rep. Brad Sherman:
Larry you have to read the bill. It's very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected.

The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury.

Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure that can happen.

Resolution Draft

Inquiring minds are verifying the above in the Bailout Bill Resolution Draft.

Here is the language under discussion.
3 SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES
4 AND CENTRAL BANKS.
5 The Secretary shall coordinate, as appropriate, with
6 foreign financial authorities and central banks to work to
7 ward the establishment of similar programs by such au
8 thorities and central banks. To the extent that such for
9 eign financial authorities or banks hold troubled assets as
10 a result of extending financing to financial institutions
11 that have failed or defaulted on such financing, such trou
12 bled assets qualify for purchase under section 101.

7 SEC. 101. PURCHASES OF TROUBLED ASSETS.
8 (a) OFFICES; AUTHORITY.—
9 (1) AUTHORITY.—The Secretary is authorized
10 to establish a troubled asset relief program (or
11 ‘‘TARP’’) to purchase, and to make and fund com
12 mitments to purchase, troubled assets from any fi
13 nancial institution, on such terms and conditions as
14 are determined by the Secretary, and in accordance
15 with this Act and the policies and procedures devel
16 oped and published by the Secretary.

SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES
4 AND CENTRAL BANKS.
5 The Secretary shall coordinate, as appropriate, with
6 foreign financial authorities and central banks to work to
7ward the establishment of similar programs by such au
8thorities and central banks. To the extent that such for
9eign financial authorities or banks hold troubled assets as
10 a result of extending financing to financial institutions
11 that have failed or defaulted on such financing, such trou
12bled assets qualify for purchase under section 101.

So we have to save the entire world's exposure...:mad:

phirang
10-01-08, 02:13 PM
This is a little off topic, but it is truly shocking..:eek:

Following is a partial transcript

Rep. Brad Sherman, D California:

Larry I am glad you have a few seconds to talk to someone who voted against this bill. I am not changing my mind. I want to thank my colleagues who stood up to the purveyors of panic and voted against a very bad bill and voted with 400 eminent economists including three Nobel laureates who wrote to us and said don't panic, don't act hastily, hold hearings, work carefully. The fact is Larry if you read this bill, even you would have voted against it.

It provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson's power. There is a critique board but not really a board that can step in and change what he does. It's a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries.

Larry Kudlow:
Let me just ask you one question. I think you are referring to foreign banks headquartered in the United States. I do not see how foreign investors get bailed out.

Rep. Brad Sherman:
Larry you have to read the bill. It's very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected.

The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury.

Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure that can happen.

Resolution Draft

Inquiring minds are verifying the above in the Bailout Bill Resolution Draft.

Here is the language under discussion.
3 SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES
4 AND CENTRAL BANKS.
5 The Secretary shall coordinate, as appropriate, with
6 foreign financial authorities and central banks to work to
7 ward the establishment of similar programs by such au
8 thorities and central banks. To the extent that such for
9 eign financial authorities or banks hold troubled assets as
10 a result of extending financing to financial institutions
11 that have failed or defaulted on such financing, such trou
12 bled assets qualify for purchase under section 101.

7 SEC. 101. PURCHASES OF TROUBLED ASSETS.
8 (a) OFFICES; AUTHORITY.—
9 (1) AUTHORITY.—The Secretary is authorized
10 to establish a troubled asset relief program (or
11 ‘‘TARP’’) to purchase, and to make and fund com
12 mitments to purchase, troubled assets from any fi
13 nancial institution, on such terms and conditions as
14 are determined by the Secretary, and in accordance
15 with this Act and the policies and procedures devel
16 oped and published by the Secretary.

SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES
4 AND CENTRAL BANKS.
5 The Secretary shall coordinate, as appropriate, with
6 foreign financial authorities and central banks to work to
7ward the establishment of similar programs by such au
8thorities and central banks. To the extent that such for
9eign financial authorities or banks hold troubled assets as
10 a result of extending financing to financial institutions
11 that have failed or defaulted on such financing, such trou
12bled assets qualify for purchase under section 101.

So we have to save the entire world's exposure...:mad:

pleaes read the thread above to understand what's going...

D-Mack
10-01-08, 02:20 PM
Are the two we already have not good enough for you?
In my day we were happy to have one war.
I've read in history books that there have been times with no wars. They call the gaps between wars "peace". Peace must be hell (but I wouldn't know).

Those are wars with borrowed money....

I think he is talking about a real war against somebody who can defend itself, like China or Russia, not some Shock & Awe on CNN.


It looks like Bush doesn't want to adress the issues, maybe he is just a broken record or maybe there is more.


He talked about terrorism and terrorist regimes, and about governments that allegedly support terror. He failed to notice that the delegates sitting in front of and below him were shaking their heads, smiling and whispering, or if he did notice, he was no longer capable of reacting. The US president gave a speech similar to the ones he gave in 2004 and 2007, mentioning the word "terror" 32 times in 22 minutes. At the 63rd General Assembly of the United Nations, George W. Bush was the only one still talking about terror and not about the topic that currently has the rest of the world's attention.

"Absurd, absurd, absurd," said one German diplomat. A French woman called him "yesterday's man" over coffee on the East River. There is another way to put it, too: Bush was a laughing stock in the gray corridors of the UN.

http://www.spiegel.de/international/world/0,1518,581502,00.html

orion
10-01-08, 03:17 PM
The next step is for taxpayers to bear all banks losses in an unlimited fashion. That is the last step, I suppose, to total bankruptcy due to fiat currency. The first step was the Fed, second step ending gold standard, and this is probably the end game.

This is right on with today and the idea the FDIC will have unlimited funds to backup deposits.

orion
10-01-08, 03:23 PM
I am still torn by my crash and burn tendencies and making the right decision. But how's this; if it is the right thing to do by bailing out the system why isn't the right thing to do (for society as a whole) for all of us to keep our money invested as if nothing was wrong? Is it right for us to be discussing getting money out of dollars, buying gold? I guess we'll get points for buying treasuries.

c1ue
10-01-08, 03:24 PM
You know what's really interesting in this whole debate?

The bail out means major inflation. The dollar will go up for a short time as everyone heaves a sigh of relief that system collapse was averted.

Then the monstrous amounts of created dollar credit thrown around will start moving again.

No bail out means a major economic recession, maybe depression. Certainly it can be argued that companies are overly dependent on credit and this is perhaps not healthy.

But it is what it is.

In the depression, there will be monstrous amounts of created dollar credit also: as the US reenacts the WPA, etc etc.

So there might not be that much difference in the end.

As I've said before: get out of the dollar. The only way to go.

EJ
10-01-08, 03:40 PM
I misconstrued your humor for a bout of deflectionism, Agree no name calling. My tit-for-tat response was an attempt on my part to call that out, but sadly, I chose the low road.

I do not disagree with your points, just the premise you used for their justification.


My one point is this, and it is an important one.

The Goldbug thing is not about burning down the entire world while we all watch, all huddled in a cave with our loved ones, guns, gold, and food.

It is about personal choice and personal accountability and most importantly EMPOWERMENT.

I disagree with Jim that there are "no safehavens". There are, and what really REALLY bothers me is when the governement PREVENTS or discourages people (via tax penalty and accesability) from talking the only safe refuge from the storm. The people out there that bought PM's did it because they KNEW they had no control over short selling rule changes, currency interventions, liquidity injections, etc.

It pisses me off that the Government does not allow people to protect themselves, AND, in fact, pro-actively establishes policies that work against individual people from acting in their own best financial intrests.

THAT IS NOT WHAT A GOOD GOVERNEMENT DOES TO ENSURE A STRONG DEMOCRACY AND STABLE COUNTRY.

It is pure madness!

That is the only point "goldbugs" are trying to make. We do not want the world to burn down into some post-apocolyptic nightmare. Does ANYONE (that is not mentally ill) want that?

In a perfect world, of course.
Adam Smith said, "The natural effort of every individual to better his own condition ... is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations. Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." - The Wealth of Nations Book IV Chapter V Section IV
But following a crash of the US economy, are peace and a reasonable administration of justice the likely outcomes after a few hundred million people are suddenly denied the standard of living to which they have become accustomed?

A prerequisite for the constructive outcome of the US re-developing in the way Adam Smith describes: competent leadership.

What is that?
"All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership." - John Kenneth Galbraith
Do you see anyone who is currently running for president who is confronting unequivocally the major anxiety of the American people in our time? I do not. I see politicians who have lost the trust of their people and their credibility. They are conveying false hopes about the outcome of US domestic and foreign debt.

No one who is running is telling the people the truth: "My fellow Americans, we can never pay it back. Not the home mortgages. Nor the credit cards. Nor the hospital bills. Nor the college tuitions. Nor the foreign debts to China, Japan, Russia. We have to write most of it down, and when we do we will not be able to borrow from overseas again for many years. We shall then be materially more poor for a decade than we were 20 years ago while we dig ourselves out of the hole we'd dug ourselves into since the early 1980s. But if we work hard and save and invest we will reemerge better and stronger than ever. Here is how we are going to do it."

That is what my book does. It levels with the American people. It offers no "let's get rich on the coming collapse" nonsense. It is about the restoration of all that we have lost that made us great.
"If there is a country in the world where concord, according to common calculation, would be least expected, it is America. Made up as it is of people from different nations, accustomed to different forms and habits of government, speaking different languages, and more different in their modes of worship, it would appear that the union of such a people was impracticable; but by the simple operation of constructing government on the principles of society and the rights of man, every difficulty retires, and all the parts are brought into cordial unison. There the poor are not oppressed, the rich are not privileged. Industry is not mortified by the splendid extravagance of a court rioting at its expense. Their taxes are few, because their government is just: and as there is nothing to render them wretched, there is nothing to engender riots and tumults." - Thomas Paine
What would Paine say about America today? He'd note that the poor are oppressed by debt and taxes, that a system of debt serfdom not unlike the one the first settlers came to America to escape. He'd note that the rich have constructed a system of privilege that concentrates wealth and power and diminishes the productivity of the people. He'd see a government mortifying industry by subsidizing finance at its expense. He'd see an economy staggering under a hopeless load of debt. In sum, he'd be horrified.

But, as I said, to return the US to its roots takes leadership. Unfortunately, the FIRE Economy has captured our political system so we are not likely to get any while the economy is imploding. Change will instead occur from the bottom up.
"All successful revolutions are the kicking in of a rotten door. The violence of revolutions is the violence of men who charge into a vacuum." - John Kenneth Galbraith
And this is where optimists and pessimists can argue. The US got off easy with FDR during the last depression. Other nations that suffered through the last depression were not so fortunate.

In one corner:

"The world economic crisis is merely the last and worst of the periodic crises inevitable under the capitalist system, whose production invariably outruns the demand every ten years or so because the capitalist producers withhold the profits from the working population and the gradual accumulation of this mass of profit becomes, so to speak, 'frozen' at the end of each period—or is exported—whereas under the Socialist system every cent of 'profit' is returned to the workers, not only in the form of wages but in material and cultural construction. Thus in the Socialist state—in Soviet Russia—there is no frozen money, so that supply and demand are adjusted automatically." - Stalin On Everything, Time Magazine, Jul 14, 1930
In the other:
"Up to today not even President Hoover has been able to work [economic] miracles," [he] said last week, "and he is the most powerful man in the world at the head of the richest country in the world." Facing [him] in a respectful crescent sat Italian Capital & Labor, not metaphorically but in solemn fact. This was the inaugural session of the new National Council of Corporations. It was to hear the Prime Minister's personal examination of Depression, his prophecy of when Prosperity will return.

"Not All Can Be Saved!"

"In our usual blunt, precise Fascist style, without euphemism and without reticence, we admit," said [he], "that our general economic situation has grown worse since last October, when the American crisis burst with the violence of dynamite. . . .

"The Fascist Government is not passive in the face of the present difficult situation, as vile anti-Fascist scandalmongers say. The government has its hand on the pulse of the nation and hears distress signals from whatever source they come. But not all can be saved and some indeed deserve to go to the bottom. The majority of the latter belong to the category—enormously increased during and after the War—of business improvisers, men more reckless than enterprising, acrobats of industry and finance, men supremely encyclopedic in their initiatives."

"Pyramid Trusts Flayed"

"The mountebanks of the economic world," [he] continued, looking several such on the Council benches directly in the eye, "complicate everything with innumerable companies on a chain system, with boards of directors composed of nonentities who exercise no true leadership, often with faked balance sheets and non-existent dividends. They are the true, authentic, most dangerous kind of anti-Fascists because they speculate on the good faith of the public. Prison is small retribution for their misdeeds. They sow such infinite ruin and misery and they do such harm that they truly deserve Death!

"Some examples have already been made, but henceforward such men will be shown even more clearly that the public can not be defrauded and hard-earned savings cannot be misused with impunity." - Report on a speech by Prime Minister Benito Mussolini, "No Miracles Today," Time Magazine, Oct. 13, 1930
Beating up on the crashed FIRE Economy 1.0 was a rallying cry for dictators on both the left and right.

For any hope to see a positive outcome – history is clear on this – do not vote for the candidate who aspires to be a dictator. Going into this period of economic crisis, no one can be more dangerous.

The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention. We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.

Supercilious
10-01-08, 04:01 PM
The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention. We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.

Sorry EJ but you posts seems to me like an endorsement of another compromise with the devil. The King Plan has nothing to do with all great quotes you used in your message.

IMHO an utopian anarchist/libertarian, like Jim Rogers, who knows nothing about markets, makes more sense than your support for the King Plan:

<object width="425" height="344">

<embed src="http://www.youtube.com/v/O2mDJXBAN04&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></object>

metalman
10-01-08, 04:40 PM
Sorry EJ but you posts seems to me like an endorsement of another compromise with the devil. The King Plan has nothing to do with all great quotes you used in your message.

IMHO an utopian anarchist/libertarian, like Jim Rogers, who knows nothing about markets, makes more sense than your support for the King Plan:
<object height="344" width="425">
<embed src="http://www.youtube.com/v/O2mDJXBAN04&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" height="344" width="425"></object>

easy for him to say since he got out of dodge and is now living in china.

they sure as hell don't let markets collapse on their own there.

jim says one thing but does another. does not much enhance his credibility.

what is your fantasy anyhow? that the debt goes away and everyone just continues on their merry way? you seen itulip's 'before' pictures?

http://www.itulip.com/forums/photoplog/images/174/1_networth2.jpg

what do you think the 'after' pic is gonna look like?

what do you think the millions of crushed debtors are going to vote for?

'oh, i didn't want my kids going to college anyway. oh, i didn't need that car anyway. oh, i don't need to see the doctor for my diabetes, it'll get better. oh,...'

riiiiiight.

what do you think is gonna happen in the usa if we get the economic crash you dream of? think the poor will get richer? don't think the rich will dodge the bullet? think: argentina type wealth and poverty distribution when it's over.

or maybe you're hoping for wealth redistribution?

why don't you fundamentalist libertarians all go move to some 3rd world country with the gated communities ringed with guns and barbed wire... your idea of the dream life apparently... instead of trying to turn my country into one.

jtabeb
10-01-08, 04:40 PM
In a perfect world, of course.

Adam Smith said, "The natural effort of every individual to better his own condition ... is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations. Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." - The Wealth of Nations Book IV Chapter V Section IV
But following a crash of the US economy, are peace and a reasonable administration of justice the likely outcomes after a few hundred million people are suddenly denied the standard of living to which they have become accustomed?

A prerequisite for the constructive outcome of the US re-developing in the way Adam Smith describes: competent leadership.

What is that?

"All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership." - John Kenneth Galbraith
Do you see anyone who is currently running for president who is confronting unequivocally the major anxiety of the American people in our time? I do not. I see politicians who have lost the trust of their people and their credibility. They are conveying false hopes about the outcome of US domestic and foreign debt.

No one who is running is telling the people the truth: "My fellow Americans, we can never pay it back. Not the home mortgages. Nor the credit cards. Nor the hospital bills. Nor the college tuitions. Nor the foreign debts to China, Japan, Russia. We have to write most of it down, and when we do we will not be able to borrow from overseas again for many years. We shall then be materially more poor for a decade than we were 20 years ago while we dig ourselves out of the hole we'd dug ourselves into since the early 1980s. But if we work hard and save and invest we will reemerge better and stronger than ever. Here is how we are going to do it."

That is what my book does. It levels with the American people. It offers no "let's get rich on the coming collapse" nonsense. It is about the restoration of all that we have lost that made us great.

"If there is a country in the world where concord, according to common calculation, would be least expected, it is America. Made up as it is of people from different nations, accustomed to different forms and habits of government, speaking different languages, and more different in their modes of worship, it would appear that the union of such a people was impracticable; but by the simple operation of constructing government on the principles of society and the rights of man, every difficulty retires, and all the parts are brought into cordial unison. There the poor are not oppressed, the rich are not privileged. Industry is not mortified by the splendid extravagance of a court rioting at its expense. Their taxes are few, because their government is just: and as there is nothing to render them wretched, there is nothing to engender riots and tumults." - Thomas Paine
What would Paine say about America today? He'd note that the poor are oppressed by debt and taxes, that a system of debt serfdom not unlike the one the first settlers came to America to escape. He'd note that the rich have constructed a system of privilege that concentrates wealth and power and diminishes the productivity of the people. He'd see a government mortifying industry by subsidizing finance at its expense. He'd see an economy staggering under a hopeless load of debt. In sum, he'd be horrified.

But, as I said, to return the US to its roots takes leadership. Unfortunately, the FIRE Economy has captured our political system so we are not likely to get any while the economy is imploding. Change will instead occur from the bottom up.

"All successful revolutions are the kicking in of a rotten door. The violence of revolutions is the violence of men who charge into a vacuum." - John Kenneth Galbraith
And this is where optimists and pessimists can argue. The US got off easy with FDR during the last depression. Other nations that suffered through the last depression were not so fortunate.

In one corner:

"The world economic crisis is merely the last and worst of the periodic crises inevitable under the capitalist system, whose production invariably outruns the demand every ten years or so because the capitalist producers withhold the profits from the working population and the gradual accumulation of this mass of profit becomes, so to speak, 'frozen' at the end of each period—or is exported—whereas under the Socialist system every cent of 'profit' is returned to the workers, not only in the form of wages but in material and cultural construction. Thus in the Socialist state—in Soviet Russia—there is no frozen money, so that supply and demand are adjusted automatically." - Stalin On Everything, Time Magazine, Jul 14, 1930
In the other:

"Up to today not even President Hoover has been able to work [economic] miracles," [he] said last week, "and he is the most powerful man in the world at the head of the richest country in the world." Facing [him] in a respectful crescent sat Italian Capital & Labor, not metaphorically but in solemn fact. This was the inaugural session of the new National Council of Corporations. It was to hear the Prime Minister's personal examination of Depression, his prophecy of when Prosperity will return.

"Not All Can Be Saved!"

"In our usual blunt, precise Fascist style, without euphemism and without reticence, we admit," said [he], "that our general economic situation has grown worse since last October, when the American crisis burst with the violence of dynamite. . . .

"The Fascist Government is not passive in the face of the present difficult situation, as vile anti-Fascist scandalmongers say. The government has its hand on the pulse of the nation and hears distress signals from whatever source they come. But not all can be saved and some indeed deserve to go to the bottom. The majority of the latter belong to the category—enormously increased during and after the War—of business improvisers, men more reckless than enterprising, acrobats of industry and finance, men supremely encyclopedic in their initiatives."

"Pyramid Trusts Flayed"

"The mountebanks of the economic world," [he] continued, looking several such on the Council benches directly in the eye, "complicate everything with innumerable companies on a chain system, with boards of directors composed of nonentities who exercise no true leadership, often with faked balance sheets and non-existent dividends. They are the true, authentic, most dangerous kind of anti-Fascists because they speculate on the good faith of the public. Prison is small retribution for their misdeeds. They sow such infinite ruin and misery and they do such harm that they truly deserve Death!

"Some examples have already been made, but henceforward such men will be shown even more clearly that the public can not be defrauded and hard-earned savings cannot be misused with impunity." - Report on a speech by Prime Minister Benito Mussolini, "No Miracles Today," Time Magazine, Oct. 13, 1930
Beating up on the crashed FIRE Economy 1.0 was a rallying cry for dictators on both the left and right.

For any hope to see a positive outcome – history is clear on this – do not vote for the candidate who aspires to be a dictator. Going into this period of economic crisis, no one can be more dangerous.

The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention. We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.


How much to send a copy of your book out to each memeber of house and senate? I'll pony up for that (a good portion, at least).

j4f2h0
10-01-08, 04:44 PM
I think Howard Zinn's "A People's History of the US" describes what will inevitably happen here from a historical perspective. Government will come up with some sort of plan that is tricky enough to fool uneducated popular support. This program will directly benefit the ruling class, leaving the "people" most likely with far less freedoms and access to capital as they has before. Government always does what is best for the few at the top, giving away only the minimum that is required to "please" the masses.

metalman
10-01-08, 04:48 PM
In a perfect world, of course.
Adam Smith said, "The natural effort of every individual to better his own condition ... is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations. Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." - The Wealth of Nations Book IV Chapter V Section IV
But following a crash of the US economy, are peace and a reasonable administration of justice the likely outcomes after a few hundred million people are suddenly denied the standard of living to which they have become accustomed?

A prerequisite for the constructive outcome of the US re-developing in the way Adam Smith describes: competent leadership.

What is that?
"All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership." - John Kenneth Galbraith
Do you see anyone who is currently running for president who is confronting unequivocally the major anxiety of the American people in our time? I do not. I see politicians who have lost the trust of their people and their credibility. They are conveying false hopes about the outcome of US domestic and foreign debt.

No one who is running is telling the people the truth: "My fellow Americans, we can never pay it back. Not the home mortgages. Nor the credit cards. Nor the hospital bills. Nor the college tuitions. Nor the foreign debts to China, Japan, Russia. We have to write most of it down, and when we do we will not be able to borrow from overseas again for many years. We shall then be materially more poor for a decade than we were 20 years ago while we dig ourselves out of the hole we'd dug ourselves into since the early 1980s. But if we work hard and save and invest we will reemerge better and stronger than ever. Here is how we are going to do it."

That is what my book does. It levels with the American people. It offers no "let's get rich on the coming collapse" nonsense. It is about the restoration of all that we have lost that made us great.
"If there is a country in the world where concord, according to common calculation, would be least expected, it is America. Made up as it is of people from different nations, accustomed to different forms and habits of government, speaking different languages, and more different in their modes of worship, it would appear that the union of such a people was impracticable; but by the simple operation of constructing government on the principles of society and the rights of man, every difficulty retires, and all the parts are brought into cordial unison. There the poor are not oppressed, the rich are not privileged. Industry is not mortified by the splendid extravagance of a court rioting at its expense. Their taxes are few, because their government is just: and as there is nothing to render them wretched, there is nothing to engender riots and tumults." - Thomas Paine
What would Paine say about America today? He'd note that the poor are oppressed by debt and taxes, that a system of debt serfdom not unlike the one the first settlers came to America to escape. He'd note that the rich have constructed a system of privilege that concentrates wealth and power and diminishes the productivity of the people. He'd see a government mortifying industry by subsidizing finance at its expense. He'd see an economy staggering under a hopeless load of debt. In sum, he'd be horrified.

But, as I said, to return the US to its roots takes leadership. Unfortunately, the FIRE Economy has captured our political system so we are not likely to get any while the economy is imploding. Change will instead occur from the bottom up.
"All successful revolutions are the kicking in of a rotten door. The violence of revolutions is the violence of men who charge into a vacuum." - John Kenneth Galbraith
And this is where optimists and pessimists can argue. The US got off easy with FDR during the last depression. Other nations that suffered through the last depression were not so fortunate.

In one corner:

"The world economic crisis is merely the last and worst of the periodic crises inevitable under the capitalist system, whose production invariably outruns the demand every ten years or so because the capitalist producers withhold the profits from the working population and the gradual accumulation of this mass of profit becomes, so to speak, 'frozen' at the end of each period—or is exported—whereas under the Socialist system every cent of 'profit' is returned to the workers, not only in the form of wages but in material and cultural construction. Thus in the Socialist state—in Soviet Russia—there is no frozen money, so that supply and demand are adjusted automatically." - Stalin On Everything, Time Magazine, Jul 14, 1930
In the other:
"Up to today not even President Hoover has been able to work [economic] miracles," [he] said last week, "and he is the most powerful man in the world at the head of the richest country in the world." Facing [him] in a respectful crescent sat Italian Capital & Labor, not metaphorically but in solemn fact. This was the inaugural session of the new National Council of Corporations. It was to hear the Prime Minister's personal examination of Depression, his prophecy of when Prosperity will return.

"Not All Can Be Saved!"

"In our usual blunt, precise Fascist style, without euphemism and without reticence, we admit," said [he], "that our general economic situation has grown worse since last October, when the American crisis burst with the violence of dynamite. . . .

"The Fascist Government is not passive in the face of the present difficult situation, as vile anti-Fascist scandalmongers say. The government has its hand on the pulse of the nation and hears distress signals from whatever source they come. But not all can be saved and some indeed deserve to go to the bottom. The majority of the latter belong to the category—enormously increased during and after the War—of business improvisers, men more reckless than enterprising, acrobats of industry and finance, men supremely encyclopedic in their initiatives."

"Pyramid Trusts Flayed"

"The mountebanks of the economic world," [he] continued, looking several such on the Council benches directly in the eye, "complicate everything with innumerable companies on a chain system, with boards of directors composed of nonentities who exercise no true leadership, often with faked balance sheets and non-existent dividends. They are the true, authentic, most dangerous kind of anti-Fascists because they speculate on the good faith of the public. Prison is small retribution for their misdeeds. They sow such infinite ruin and misery and they do such harm that they truly deserve Death!

"Some examples have already been made, but henceforward such men will be shown even more clearly that the public can not be defrauded and hard-earned savings cannot be misused with impunity." - Report on a speech by Prime Minister Benito Mussolini, "No Miracles Today," Time Magazine, Oct. 13, 1930
Beating up on the crashed FIRE Economy 1.0 was a rallying cry for dictators on both the left and right.

For any hope to see a positive outcome – history is clear on this – do not vote for the candidate who aspires to be a dictator. Going into this period of economic crisis, no one can be more dangerous.

The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention. We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.

am i the only one to notice that these quotes from stalin and mussolini are from july and oct 1930? the first is only 9 months after the economy was booming and the second only a year later. guess these debt deflations go fast, eh?

ah, yes. let's spend more time arguing about bailouts or not. dum de dum dum.

akrowne
10-01-08, 04:51 PM
Eric, I agree with many of your and King's points. In theory, the optimal way to handle this is to wean the real economy off the dysfunctional financial economy we've had by providing intermediate facilities -- even if the ultimate outcome is to become "more" libertarian.

Maybe it can work. But the damn difficult part is not crowding out the market and the market's recovery once you put government facilities in place -- even if "temporary".

Yes, not much was done at the beginning of the Great Depression (but also not "nothing"). Still, when the New Deal provisions were put in place under FDR, they didn't solve the depression either.

I'm wondering if maybe this doesn't have to do with the fact that sound money always seems to be off the menu of potential solutions.

We've never solved a Depression in the United States under fiat currency. We just used a war to switch to a current account surplus (which is isn't working this time).

Incidentally, Japan hasn't either.

And while I'm not an expert on their latest condition, I don't think Argentina has either.

I suspect this might be because it can't be done.

Transitioning back to sound money right now would have a number of big benefits that would help put us back on track.

One is to attract capital back to the United States, which will be sorely needed to recapitalize (and just to stem capital flight).

Another is to lower inflation and alleviate cost pressures on the people.

Another would be to dampen aggressive speculative activity in the markets, since synthetic hedges would no longer be needed to preserve capital.

Long-term, we need to eliminate the FDIC as well, as it causes self-destructive behavior by banks. But I think a strong case can be made in the near-term that the FDIC coverage should go universal, so it is very hard to square these two pressures.

I think the two focii for government crisis policy should be getting homeowners out of underwater loans, and keeping industry funded (if not redeveloping). There are a variety of ways to implement these things. I'm not sure how the King plan really gets people out of ill-founded loans simply by capitalizing community banks, however...

Supercilious
10-01-08, 04:51 PM
Some food for EJ's thought:

(Yves Smith from Naked Capitalism)

http://bloggingheads.tv/diavlogs/14850

akrowne
10-01-08, 04:55 PM
Too true. It is highly associated with the individualism that is only enabled by socially-generated wealth. Call it the libertarian blind spot...

Not really. The core of libertarianism is non-coercion, not "individualism" as such. To advocate some sort of "pure" individualism would be to suggest all humans could live without a society, which is nonsense.

Society is an axiom; but it works best with freedom of association. That's the libertarian take. Even many who call themselves libertarians don't get it.

akrowne
10-01-08, 04:56 PM
Harry Browne said "You CAN be free in an Unfree World" ..

Those who don't agree can just say NO to F.I.R.E. economy elites and keep their money outside the dollar system.

Other's who believe socializing these things is the best way to go can stay and continue making sausage.

That's the real beauty of it all!!! :)

Good point!!!! ;)

vinoveri
10-01-08, 04:58 PM
No one who is running is telling the people the truth: "My fellow Americans, we can never pay it back. Not the home mortgages. Nor the credit cards. Nor the hospital bills. Nor the college tuitions. Nor the foreign debts to China, Japan, Russia. We have to write most of it down, and when we do we will not be able to borrow from overseas again for many years. We shall then be materially more poor for a decade than we were 20 years ago while we dig ourselves out of the hole we'd dug ourselves into since the early 1980s. But if we work hard and save and invest we will reemerge better and stronger than ever. Here is how we are going to do it."

Yes, this would be real leadership and what we need, and the sooner the better.
Such a position, while not pleasant to hear, just might be radical enough to get you an interview with the MSM - hey what's a few rotten tomatoes if you can get the truth out.

Receptivity to this message requires a population whose "patriot dreams see beyond the years". I fear we are no longer a unified society with enough common love of country and community for this message to resonate, but cold hard reality will catch up either way.

akrowne
10-01-08, 04:59 PM
Speaking of intervention, my latest:
The Top Five Reasons The Bailout Interventions Are Making Things Worse

(http://ml-implode.com/viewnews/2008-10-01_TheTopFiveReasonsTheBailoutInterventionsAreMaki ngThingsWorse.html)Maybe a productive intervention is possible, but what has been done so far sure as hell isn't it.

metalman
10-01-08, 05:00 PM
Some food for EJ's thought:

(Yves Smith from Naked Capitalism)

http://bloggingheads.tv/diavlogs/14850

why send me off to watch two clueless people ramble about the bailout?

here, try this.

Banking Crises Around The World
The Liscio Report On the Economy
October 1, 2008

Having rejected Henry Paulson's rescue plan, it's not clear what Congress --or those in the broad population opposed to a "bailout"-- propose to do to keep the financial system from imploding. But a database of systemic banking crises recently assembled by IMF economists Luc Laevan and Fabian Valencia (www.imf.org/external/pubs/cat/longres.cfm?sk=22345.0) provides a useful map of how crises play out and what does and doesn't work.

Laevan and Valencia identify 124 systemic banking crises between 1970 and 2007, and assemble detailed information on 42 of them, representing 37 countries. (Some countries, like Argentina, appear multiple times.)

In almost every case, governments took active measures to mitigate the crisis, so there is no real test of whether rescue schemes actually work; no politician seems willing to face the consequences of letting the chips fall where they may. But the work of Laevan and Valencia does offer some guidance as to what works best.

Dithering Costs

One crucial lesson stands out: speed matters. This is obvious to anyone who followed Japan's dithering in the 1990s; standing aside and hoping the problem goes away is not a good idea. Relatedly, "forbearance" --regulatory indulgence, such as permitting insolvent banks to continue in business-- does not work, as has been established in earlier research. As the authors say, "The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance." This suggests that suspending mark-to-market requirements is not a good idea.

Since forbearance does not work, some sort of systemic restructuring is a key component of almost every banking crisis, meaning forced closures, mergers, and nationalizations. Shareholders frequently lose money in systemic restructuring, often lots of it, and are even forced to inject fresh capital. The creation of asset management companies to handle distressed assets is a frequent feature of restructurings, but they do not appear to be terribly successful. More successful are recapitalizations using public money (which can often be partly or even fully recouped through privatization after the crisis passes); recaps seem to result in smaller hits to GDP. But they're not cheap: they average 6% of GDP, which for the U.S. would be about $850 billion.

Total fiscal costs, net of eventual asset recoveries, average 13% of GDP (over $1.8 trillion for the U.S.); the average recovery of public outlays is around 18% of the gross outlay.

But those who don't want to spend that kind of taxpayer money should consider this: Laevan and Valencia find that "[t]here appears to be a negative correlation between output losses and fiscal costs, suggesting that the cost of a crisis is paid either through fiscal costs or larger output losses." And if the economy goes into the tank, government revenues take a big hit, so what's saved on the expenditure side could well be lost on the revenue side.

Oh, and about half the countries that have experienced crises have had some form of deposit insurance. So merely expanding the FDIC's coverage is not likely to do the trick --and, in any case, it's going to be hard to escape the huge expense of a systemic recapitalization, though using the FDIC might simplify the politics of the rescue.

(A note on the politics of the rescue: an ABC poll shows the public to be far more worried about the economic consequences of the bailout's defeat than Congress seems to be. There's not a lot of enthusiasm for what's seen as handing money over to Wall Street --but if properly structured and sold, say with more cost recovery prospects for the government, more relief for debtors, a rescue is not as unpopular as some would have it.)

Relevant Examples

Most of the countries in the Laevan/Valencia database are in the developing world, and are of questionable relevance to the U.S. But TLR has taken a closer look at four countries that offer more relevant models: Japan, Korea, Norway, and Sweden. Some major stats for the four and the U.S. are in the table at the end of the newsletter, and graphs of some important indicators are there as well.

Sweden, now widely seen as a model of swift, bold action, kept its ultimate fiscal costs relatively low --3.6% of GDP at first, almost all of which was recovered through stock and asset sales-- but was unable to avoid a deep recession. At the other end of the spectrum, Japan, the model of foot-dragging half-measures, saved no money through its procrastination; its fiscal outlay was 24% of GDP, almost none of which was recovered. And it was unable to avoid recession.

Note, though, that some of the worried talk surrounding the financial market impact of bank bailouts looks misplaced, at least on these models. Three years after the outbreak of crisis, inflation was lower and stock prices higher in all four countries, and government bond yields were lower in all but Japan. It's likely that the deflationary effects of a credit crunch outweigh the inflationary effects of debt finance.

Although the U.S. in 2007 had a lot in common with other countries on the brink of a banking crisis, one thing stands out: the depth of the current account deficit. Of the four comparison countries, only Korea comes close to the U.S. level of red ink. The unweighted average current account deficit of the 42 countries in the Laevan/Valencia database was 3.9% of GDP --compared with 6.2% for the U.S. That suggests that the U.S. has more to deal with than just resolving a banking crisis.

A Better Bailout

So, with the modified Paulson plan dead for now, what might a better bailout scheme look like in light of the Laevan/Valencia historical database?

First, it must be adopted quickly. Perhaps operating through the FDIC would be a way to accomplish that, though the FDIC will almost certainly need to have its coffers copiously refilled.

Second, forbearance would be a bad idea; it does no one any good not to face reality.

Third, purchasing bad assets and turning them over to an asset management corporation is not a promising strategy.

Fourth, recapitalizing the banks should be the heart of any policy; as the authors say, it should be selective, meaning supporting those institutions with hope of revival, and letting the terminal go down.

And fifth, targeted relief for distressed debtors, supported with public funds, has also shown success in earlier banking crises, and should be part of any rescue scheme in the U.S. as well.

Crises like this are manageable. They're expensive and painful to resolve, but even more expensive and painful when left to fester.

-- Philippa Dunne & Doug Henwoo

Supercilious
10-01-08, 05:05 PM
why send me off to watch two clueless people ramble about the bailout?

Yves Smith clueless????:eek: That is a best Princess Fiona-style quote i've ever heard from you.

You made my day metalman...http://www.itulip.com/forums/picture.php?albumid=7&pictureid=29

metalman
10-01-08, 05:12 PM
Yves Smith clueless????:eek: That is a best Princess Fiona-style quote i've ever heard from you.

You made my day metalman...http://www.itulip.com/forums/picture.php?albumid=7&pictureid=29


Yves Smith has written the blog "Naked Capitalism" since 2006. She has spent more than 25 years in the financial services industry and currently heads Aurora Advisors, a New York-based management consulting firm specializing in corporate finance advisory and financial services. Prior to that, she worked for Goldman Sachs (in corporate finance), McKinsey & Co., and Sumitomo Bank (as head of mergers and acquisitions). Smith has written for publications in the United States and Australia, including The New York Times, The Conference Board Review, Institutional Investor, The Daily Deal and the Australian Financial Review. She is a graduate of Harvard College and Harvard Business School.

but on this topic she is clueless. anyone could see the 1st bailout was bogus. you don't have to be a harvard grad to see that. does not follow that no bailout makes sense. she ought to read ej.

Louie.G
10-01-08, 05:39 PM
hmmm very interesting postulations so allow me to throw my little spanner in the works.

IMHO when inflation is tracked back to its ultimate source there are only ever two causes.... Greed or inefficiency.

I guess one could say Wall Street has provided the greed (I have had trouble trying to find any difference between Vegas and Wall Street, other than the Flashier slot machines) and Government has supplied the inefficiency. I am not an economist, I just own my own little business. My business is only as good as its worst employee in my eyes. When someone makes a mistake or has a bad day, I foot the bill and I take responsibility.

The one thing that seems to be so often missing in financial discussions is people and thus emotion. In the US over the past ten days I have spoken to several associates whose sales are down 80 - 90% in last years same week sales. Seems people may have put away their wallets. (would this be close to a "Sudden Stop"??)

We can all attribute blame, but what is blame?? I call it - Blatant Lies At My Expense.

In other words I can choose to not accept responsibility and pass it over to someone else so I feel better, else I can look at me and say, what is REALLY happening here. Blame is such a futile excuse.

I have read that the game has changed/is changing and the next 20 years will be nothing like the last 20. The whole financial system is changing, so therefore might not the rules need to change as well?? The only thing that is ever constant is change. It is just the degree of change that changes.

We hear about all the banks on the"watch list" that will fail. By my count there are a lot of banks out there who will not fail (all going well). So why not do an about face and support those institutions that have proven to be more diligent rather than throw another bet into the Wall Street Casino. If politicians want to be re elected, then supporting their constituents local bank would surely find much more favour than another Wall Street gamble. Plus it just might make the population feel a lot more at ease, feel like someone actually cares about them. They just might start to relax a little and maybe even start to believe in something positive again. Hell they might even go out and Buy something. Now that might be a good thing, don't you think??

I don't doubt that my comments may bring some adverse replies and that is fine, because it will allow me to look at me and see if I have it wrong. Then I can either change me or live on in my delusion.

I greatly appreciate all of the comments here and have learnt a lot through the writings of each and every one of you.

Perspective is all that keeps us apart, but somewhere inside this mess there is a Truth and That Truth shall set you free, if it is ever found amongst this huge pile of exposed greed and deceit that we are ALL faced with now.

It doesn't really hurt that much when you step outside of the box and look at something from a different perspective. In fact doing just that is what has allowed us ALL to evolve and live in a world full of amazing technology and instant hamburgers. Finance is not sacred, there are no fixed rules. PEOPLE are sacred, ALL people. Be they Asian, Anglo saxon, African, purple, pink or green. THEY are the other side of the balance sheet. Too often, that simple fact is forgotten, usually because of Ego or Greed. The greatest wealth of any economy lies in its people.

There is great wealth here at itulip because of all of you.

Cheers

metalman
10-01-08, 05:58 PM
Third World Countries -- what does that have to do with the present situation and discussion? I am confused.

Is the intimation that we will become a Third World Country if we do not allow the bailout to move forward? Or that a Depression will make us into a Third World Country?

that a depression will turn the usa into a 3rd world country. it will split politically along wealth lines like a log hit with an ax.

i ask abut travel becaues i know a dozen free market purists and they all have one thing in common... none of them has traveled extensively and seen how other countries do and don't work. every last one of them has developed a religious belief about markets and the gov't that cannot withstand a day's experience in a country that conforms to their fantasy world of tiny gov't, or can go a day without the services that gov't provides them that they don't even notice... but will after they're gone... safe food, safe roads, safe cars, etc.

phirang
10-01-08, 06:04 PM
that a depression will turn the usa into a 3rd world country. it will split politically along wealth lines like a log hit with an ax.

i ask abut travel becaues i know a dozen free market purists and they all have one thing in common... none of them has traveled extensively and seen how other countries do and don't work. every last one of them has developed a religious belief about markets and the gov't that cannot withstand a day's experience in a country that conforms to their fantasy world of tiny gov't, or can go a day without the services that gov't provides them that they don't even notice... but will after they're gone... safe food, safe roads, safe cars, etc.

Civility is compromised enough as it is... add in real poverty, i.e. hunger, and easy access to firearms and you have...

Brazil!

hayekvindicated
10-01-08, 06:13 PM
I would agree with EJ's suggestion if American politics was not so corrupt. The problem with bail-outs is that the politicians will resume their merry ways as before and continue to spend money without an end in sight.

We have seen America's unfunded liabilities rise from $20 Trillion in 2000 to $58 Trillion under George Bush. Bankruptcy is inevitable because the politicians will not do anything to deal with this problem. And since they won't deal with it, the debt bomb will eventually explode. America will eventually have to declare bankruptcy.

I find Jim Rogers' comments hard to understand. He knows all about the debt problem but thinks a one year nasty recession can cure the problem. This is badly mistaken. The problem is beyond cure. There comes a point where even chemotherapy doesn't work. Within the decade, I believe, America will have to face up to the $58 Trillion (and rising with compound interest) question. I do not believe that question has an answer.

I also do not believe that because America owns the world's reserve currency at this time, it cannot experience hyperinflation in the future. All human arrangements must end some day. So will the hegemony of the dollar. Once that ends, the Government will then go on a printing spree because without that the social security and medicare commitments will not be capable of being honoured. And then there will be total economic failure.

flintlock
10-01-08, 06:34 PM
Just a few comments about comparing a depression USA to a third world country. There are some major differences in what caused Third world countries to become that way and what we are going through. By the way, I am pro (limited) bailout and do believe no bailout will result in making America a very scary place to live, but 3rd world, no.

1) Massive corruption in 3rd world vs what we have here( though we are catching up in this regard:D) No economy can succeed in that climate of corruption. All 3rd world countries have this in common. #1 reason for being a 3rd world nation in my opinion.

2) Much worse education systems in 3rd world. In many cases, People arent just poor but ignorant, so much more limited in job choices. You need an educated population to climb out of a depression. They don't have it and the rulers plan to keep it that way on purpose. I don't see that being an issue here.

3) Less stable governments in 3rd world mean very high risk to investors. Hopefully, our government in a depression will remain stable. I think most investors would still find the US in a depression a safer bet than Guatemala.

4) Did the US turn into a 3rd world nation during the Great Depression? Not hardly. It sucked, people suffered, but I don't remember hearing about homes being turned into forts or any of that nonsense.

5) Debt deflation didn't cause their problems. Their mud huts and shanty towns didn't suddenly lose value.

3rd world countries have economic systems so much less developed that ours, its really hard to compare their situation.

In a US depression, I do think things will be a lot more violent than in the 30s, but not necessarily the typical anarchy of a 3rd world country. I find the threat of socialism and decline of capitalism a lot more frightening than any 3rd world scenario. The criminals of course will all come out of the woodwork, and frankly, I wouldn't want to be living in a big city. But then I feel the same today about that.

EJ
10-01-08, 06:39 PM
Always delighted to receive comments not only from a fellow entrepreneur but a paid-up subscriber, as well. A couple of comments.


hmmm very interesting postulations so allow me to throw my little spanner in the works.

IMHO when inflation is tracked back to its ultimate source there are only ever two causes.... Greed or inefficiency.

I guess one could say Wall Street has provided the greed (I have had trouble trying to find any difference between Vegas and Wall Street, other than the Flashier slot machines) and Government has supplied the inefficiency. I am not an economist, I just own my own little business. My business is only as good as its worst employee in my eyes. When someone makes a mistake or has a bad day, I foot the bill and I take responsibility.

The secret to the success of functioning capitalist systems is accountability and reward. The reason government can be so bad at delivering products and services is that the people who work for them are not measured based on performance. The result of success and failure is the same. You are not held accountable for your decisions.

On the other hand, as a business owner you are not only responsible for your own decisions but for the welfare of others should your judgment be flawed. The experience of making payroll for years on end is one that informs my opinion on the King plan.


The one thing that seems to be so often missing in financial discussions is people and thus emotion. In the US over the past ten days I have spoken to several associates whose sales are down 80 - 90% in last years same week sales. Seems people may have put away their wallets. (would this be close to a "Sudden Stop"??)I too am hearing friends that business is evaporating. As a student of the Great Depression I can tell you that this is precisely what happened then. Try to explain this to market traders and academics and they won't get it.


We can all attribute blame, but what is blame?? I call it - Blatant Lies At My Expense.

In other words I can choose to not accept responsibility and pass it over to someone else so I feel better, else I can look at me and say, what is REALLY happening here. Blame is such a futile excuse.As I explained to Inc readers in Wall Street vs. Main Street (http://www.itulip.com/forums/showthread.php?p=48482#post48482): "The hidden benefit is that if you've been smart about cash management and can quickly reduce the fixed costs, it [the recession] will be beneficial because your weaker competition will be probably going out of business. The pie will be shrinking, but you can increase your slice."

However, if we allow the recession to develop into a full blown recession. as I explained Sat. to a group of UMass, Amherst aspiring entrepreneurs – at a lecture at 8:30AM on a Saturday! – then human capital is wasted. You have a situation like we had in the early 1980s except not intentionally induced by the Fed: PhD physicists driving cabs and fixing the slurpy machine at the local 7/11.


I have read that the game has changed/is changing and the next 20 years will be nothing like the last 20. The whole financial system is changing, so therefore might not the rules need to change as well?? The only thing that is ever constant is change. It is just the degree of change that changes.I expect it will start off badly but end up well, but I'm an optimist.


We hear about all the banks on the"watch list" that will fail. By my count there are a lot of banks out there who will not fail (all going well). So why not do an about face and support those institutions that have proven to be more diligent rather than throw another bet into the Wall Street Casino. If politicians want to be re elected, then supporting their constituents local bank would surely find much more favour than another Wall Street gamble. Plus it just might make the population feel a lot more at ease, feel like someone actually cares about them. They just might start to relax a little and maybe even start to believe in something positive again. Hell they might even go out and Buy something. Now that might be a good thing, don't you think??Rewarding the well run banks by allowing them to buy the assets of the failed badly run banks is how it should work. Maybe government needs to step in and help float the deal but no more than that. When we schooled the Japanese on the S&L bailout we bragged to them that we did it that way. The right way. Put the assets on the open market to maximize the price. Throw the criminals in jail where criminal activity was proved. Reward the good banks with the assets of the bad banks. So why not this time?

The problem is that the whole banking system structure is broken because of debt securitization and no-acount transaction-based lending. It is as if we over 15 years allowed the oil companies to change the gasoline supply over to securitized gasoline. Then one day when we were all driving through the desert all the gasoline turned into water because, as it turns out, the new fuel doesn't work in the heat. Now we can either allow the government to replace enough of the securitized gasoline with real gasoline to get some of the engines started again to let us drive out of the desert or we can all get out and start walking. Some of us didn't even bring water. Our fault for letting the banks do it.


I don't doubt that my comments may bring some adverse replies and that is fine, because it will allow me to look at me and see if I have it wrong. Then I can either change me or live on in my delusion.

I greatly appreciate all of the comments here and have learnt a lot through the writings of each and every one of you.

Perspective is all that keeps us apart, but somewhere inside this mess there is a Truth and That Truth shall set you free, if it is ever found amongst this huge pile of exposed greed and deceit that we are ALL faced with now.

It doesn't really hurt that much when you step outside of the box and look at something from a different perspective. In fact doing just that is what has allowed us ALL to evolve and live in a world full of amazing technology and instant hamburgers. Finance is not sacred, there are no fixed rules. PEOPLE are sacred, ALL people. Be they Asian, Anglo saxon, African, purple, pink or green. THEY are the other side of the balance sheet. Too often, that simple fact is forgotten, usually because of Ego or Greed. The greatest wealth of any economy lies in its people.

There is great wealth here at itulip because of all of you.

CheersGreat to have your here.

grapejelly
10-01-08, 07:38 PM
that a depression will turn the usa into a 3rd world country. it will split politically along wealth lines like a log hit with an ax.

i ask abut travel becaues i know a dozen free market purists and they all have one thing in common... none of them has traveled extensively and seen how other countries do and don't work. every last one of them has developed a religious belief about markets and the gov't that cannot withstand a day's experience in a country that conforms to their fantasy world of tiny gov't, or can go a day without the services that gov't provides them that they don't even notice... but will after they're gone... safe food, safe roads, safe cars, etc.

I have traveled extensively in Mexico. I mean into the countryside and away from the tourist zones. I have also traveled in West Virginia (just KIDDING).

Government doesn't provide these services, Mega. Private actors do. And the sanctity of contracts and private property, and the predictability of the law in terms of enforcement, these are the things that make a country first world or third world.

If the US bails out the banksters, as it will without a doubt, it is rewarding irresponsible behavior that is costly to individuals. It is actually socializing the losses of a few, and placing them on the shoulders of the many who are innocent victims.

Socializing the losses of the few is a rather third world thing to do...



I too am hearing friends that business is evaporating. As a student of the Great Depression I can tell you that this is precisely what happened then. Try to explain this to market traders and academics and they won't get it.

As I explained to Inc readers in Wall Street vs. Main Street (http://www.itulip.com/forums/showthread.php?p=48482#post48482): "The hidden benefit is that if you've been smart about cash management and can quickly reduce the fixed costs, it [the recession] will be beneficial because your weaker competition will be probably going out of business. The pie will be shrinking, but you can increase your slice."

I am very appreciative of this point of view. I am an entrepreneur and have a large number of subscribers who are entrepreneurs and greatly affected.

As some wag observed, a recession is when your neighbor loses his job and a depression is when you do.

Many of my subscribers are ALREADY in a depression. They owe $300,000 on their house, they cannot afford the payment, the house is worth $200,000, they have massive credit card debts, maybe $30,000.

This is the reality for thousands of my subscribers. Thousands.

Now, they got drawn in, in many cases, by the promise of cheap and easy credit. And the banks and brokers who sold them on loans in many cases earned gi-normous commissions.

So who is going to bail them out? And why should these folks now face losses of $2700 or $5400 per household, or $10,800 per household (the cost pro rata of the "bailout") and still have their problems to deal with?



However, if we allow the recession to develop into a full blown recession. as I explained Sat. to a group of UMass, Amherst aspiring entrepreneurs – at a lecture at 8:30AM on a Saturday! – then human capital is wasted. You have a situation like we had in the early 1980s except not intentionally induced by the Fed: PhD physicists driving cabs and fixing the slurpy machine at the local 7/11. Yes this will happen. Remember Argentina in 2001? That is exactly what happened. But even there, a few years later, they dug themselves out of it.

The alternative is simply to spend huge gobs of government money, wildly inflationary, and in the end, crowding out of the private sector. A disaster.

And then they'll throw some sops at Joe Homeowner, who will not be fooled. And that is very, very bad for Big Business and Big Banking because the mob will be very angry.

This bailout smacks of the exact same process when the Patriot Act was passed, and when the Iraq war was started...the government whipping people up into hysteria and saying "we have to Do Something Now or else we are lost."

That type of process only works so many times. It can cause pretty devastating cynicism and eventually the widespread graft and corruption and cheating because the average little guy perceives the system as completely unfair (and he is right.)



I expect it will start off badly but end up well, but I'm an optimist.

Rewarding the well run banks by allowing them to buy the assets of the failed badly run banks is how it should work. Maybe government needs to step in and help float the deal but no more than that. When we schooled the Japanese on the S&L bailout we bragged to them that we did it that way. The right way. Put the assets on the open market to maximize the price. Throw the criminals in jail where criminal activity was proved. Reward the good banks with the assets of the bad banks. So why not this time?

The problem is that the whole banking system structure is broken because of debt securitization and no-acount transaction-based lending. It is as if we over 15 years allowed the oil companies to change the gasoline supply over to securitized gasoline. Then one day when we were all driving through the desert all the gasoline turned into water because, as it turns out, the new fuel doesn't work in the heat. Now we can either allow the government to replace enough of the securitized gasoline with real gasoline to get some of the engines started again to let us drive out of the desert or we can all get out and start walking. Some of us didn't even bring water. Our fault for letting the banks do it.



The bailout is all about preventing free market transactions. It is all about hiding the market value of securitized holdings.

It is ANTI MARKET and ANTI MARK TO MARKET. That's the bottom line. The ONLY reason for the bailout is to PREVENT price discovery.

That's why loaning money to the banks isn't enough. No, the banks need to sell off these assets without anyone knowing their market value.

There is NOTHING free market about it. It's like the government in your example saying "we'll buy gasoline from the oil companies at an unknown price that only we decide, and use taxpayer money to do it." Well, it's great for the oil companies. But ain't great for the consumers.

metalman
10-01-08, 07:46 PM
IRemember Argentina in 2001? That is exactly what happened. But even there, a few years later, they dug themselves out of it.


"EVER since Argentina began its recovery in mid-2002 from a devastating financial collapse, it has seemed to defy economic gravity. The country’s left-wing government, first led by Néstor Kirchner and then this year by his wife, Cristina Fernández de Kirchner, has violated many standard economic prescriptions: it has shunned the IMF and shafted private bondholders; kicked out foreign companies and set up new state-owned ones; imposed price controls; and even doctored the inflation figure. Yet over the past six years, Argentina’s economy has grown at an annual average rate of 8.3%—faster than any other big economy except China."

http://www.economist.com/displayStory.cfm?story_id=11966983

i rest my case!

grapejelly
10-01-08, 07:56 PM
"EVER since Argentina began its recovery in mid-2002 from a devastating financial collapse, it has seemed to defy economic gravity. The country’s left-wing government, first led by Néstor Kirchner and then this year by his wife, Cristina Fernández de Kirchner, has violated many standard economic prescriptions: it has shunned the IMF and shafted private bondholders; kicked out foreign companies and set up new state-owned ones; imposed price controls; and even doctored the inflation figure. Yet over the past six years, Argentina’s economy has grown at an annual average rate of 8.3%—faster than any other big economy except China."

http://www.economist.com/displayStory.cfm?story_id=11966983

i rest my case!

Argentina is an economic basket case in many ways but they recovered quickly. They had a depression there with PhDs unemployed and real incomes dropping off a cliff.

But they didn't have the scare story that the US Treasury department is putting out. They simply stopped paying people their USDs from their accounts. They renegged on promises, people lost everything, and in a few years they recovered.

That's my point. We takes our medicine and we recover better than before. Screw the banks. Screw the Billionaire Bailout. It ain't the end of the world. It is the end of fat and cozy Wall Street salaries and the FIRE economy ripoff which is over either way.

It's a question of the FIRE economy being over in one day (you can't withdraw any of your US dollars, they're gone from today onwards) or over in a period of years (slow dribbling away of your account through loss of purchasing power and struggle.)

phirang
10-01-08, 07:58 PM
Argentina is an economic basket case in many ways but they recovered quickly. They had a depression there with PhDs unemployed and real incomes dropping off a cliff.

But they didn't have the scare story that the US Treasury department is putting out. They simply stopped paying people their USDs from their accounts. They renegged on promises, people lost everything, and in a few years they recovered.

That's my point. We takes our medicine and we recover better than before. Screw the banks. Screw the Billionaire Bailout. It ain't the end of the world. It is the end of fat and cozy Wall Street salaries and the FIRE economy ripoff which is over either way.

It's a question of the FIRE economy being over in one day (you can't withdraw any of your US dollars, they're gone from today onwards) or over in a period of years (slow dribbling away of your account through loss of purchasing power and struggle.)

Door #2: coerce more nations to buy our debt, attack trade deficit through weak dollar etc, and then ever so slowly re-industrialize etc.

Through in a war or two to keep things interesting, if necessary.

Louie.G
10-01-08, 08:00 PM
The secret to the success of functioning capitalist systems is accountability and reward. The reason government can be so bad at delivering products and services is that the people who work for them are not measured based on performance. The result of success and failure is the same.


Hi EJ

Thank you for your words. Maybe my own definition of Politics could be enlightening after all

Poli = Many (OK Excuse the i instead of y)

Tic = A blood sucking leach.

Too many tics will eventually consume and kill the host feeding them, then they too die.... eventually. (Unless they can find another host quickly).

So do we start walking out or wait for the Government to send a school bus to take us home?? Either way, the car probably stays in the desert to rust away cause the engine is knackered. LOL

Again thank you. It is great to be here.

Cheers

metalman
10-01-08, 08:12 PM
Argentina is an economic basket case in many ways but they recovered quickly. They had a depression there with PhDs unemployed and real incomes dropping off a cliff.

But they didn't have the scare story that the US Treasury department is putting out. They simply stopped paying people their USDs from their accounts. They renegged on promises, people lost everything, and in a few years they recovered.

That's my point. We takes our medicine and we recover better than before. Screw the banks. Screw the Billionaire Bailout. It ain't the end of the world. It is the end of fat and cozy Wall Street salaries and the FIRE economy ripoff which is over either way.

It's a question of the FIRE economy being over in one day (you can't withdraw any of your US dollars, they're gone from today onwards) or over in a period of years (slow dribbling away of your account through loss of purchasing power and struggle.)

you are evading the fact that you have made ej's point after arguing with him... the free market didn't fix argentina, the heavy handed, anti-market lefty gov't did that the depression emboldened and justified. just like in the usa in the 1930s with fdr. just like will happen in 2009 in the usa if we don't get on the stick with the king plan.

that is ej's whole point! thanks for making it so eloquently :D:D:D

GRG55
10-01-08, 08:12 PM
The Senate is preparing to vote on a version of the BBB or the MOAB that includes extensions of many tax incentives, (including renewable energy), and a suspension of the ATM among other vote-getting add-ons. The vote is scheduled for later tonight. It appears we're going to try and pull a rabbit out of our financial hats and hope for the best. The House will vote tomorrow and the White House has said it will sign before the end of the week.

If the media reports coming out of the USA are accurate, it appears that the public remains overwhelmingly opposed to "any bailout". That both McCain and Obama have spoken in favour of passing a bill [the bill?] and the Senate is rumoured to be likely to pass the bill shortly, is quite remarkable imo.

Is this an indication of real leadership? Or is it simply another example of how remote Washington is from the rest of the nation? In his remarks supporting passage Obama made some mention of everyone now realizing how connected "Main Street" is with Wall Street. Not much change happening there...:p

ocelotl
10-01-08, 08:20 PM
http://www.itulip.com/images/listing.jpgNo Time for Utopian Anti-Interventionism

Anti-interventionist utopianism has no place in a financial crisis that is rapidly developing into a self-reinforcing debt deflation. The credit markets and this economy will not self-correct any more than a damaged ship that is taking on water will right itself. Righting a ship that is listing is expensive, but trying to raise one that has been allowed to capsize is vastly more so. After declaring victory yesterday over the defeat of the poorly conceived Paulson Wall Street bailout, it's time to get practical proposals in front of Congress now.

My friends and readers know me as a Libertarian. My experience is as an entrepreneur first and investor second. Rest assured I am not I am not a socialist third: you will not find among entrepreneurs and capitalists anyone who promotes the idea that government is the driving force behind a dynamic and growing economy.

That said, my libertarianism is practical not ideological. Markets determine prices and allocate economic resources better than governments can most of the time. But markets can fail, and when they do sometimes only government can provide a floor to stop their self-destructive, self-reinforcing collapse and get them moving again. A constructive, rational debate is over how to stop the collapse – and fast – not whether we should try to do so at all.

Today Jeffrey A. Miron, senior lecturer in economics at Harvard University, represents the Libertarian fundamentalist perspective on the financial and economic crisis in an article Bankruptcy, not bailout, is the right answer (http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html) for CNN.

The essence of Jeffrey A. Miron's argument is this: "Talk of Armageddon... is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen."

He believes that eventually the credit markets and banking system will self-correct. The problem with this assertion - and it's a big one - is that there is not a single piece of historical evidence to support it and many to contradict it.

No self-correcting debt deflations

US economic policy-makers awaited a self-correction in the 1930s as did Argentina in the 2000s. The policy failed. The problem is the antecedents; our financial system is experiencing a debt deflation following a period of credit expansion that resulted in over-indebtedness. Credit and banking contractions following periods of over-indebtedness result in a self-reinforcing process of debt deflation.

http://www.itulip.com/images/OglalaCapsized.jpgA summary of Professor Irving Fisher's theory of debt deflation, which was later more completely developed by Minsky, extracted from a lecture by Steve Keen Modelling Debt Deflation (PowerPoint file) (http://www.debunking-economics.com/Lectures/Money/Lecture_07_Minsky_FIH_Dynamics2006.ppt):

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to
7. Pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation. The above eight changes cause
9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (1933: 342)
10. With deflation on top of excessive debt, “the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing” (Fisher 1933: 344).

The Libertarian fundamentalist "let the market take its course" prescription is not a real world option under the circumstances of a debt deflation. It is a misapplied Utopian vision that is guaranteed to turn into a Depression nightmare for the US much as in the 1930s.

The key difference is that today the US is a net debtor versus a net creditor, making the circumstances of its debt deflation and financial crisis more similar to Mexico's in the mid 1990s and Argentina's in 2001.

A recent Forbes article lays out the real world choices the US faces, Lessons from a Mexican bailout: (http://www.forbes.com/feeds/ap/2008/09/28/ap5480120.html)
"It's a long, complex road," said Carlos Nunez, head of equity consulting at Grupo Financiero Monex, a Mexico City brokerage. But while painful and expensive, the bailout was necessary to avoid inevitably worse consequences - like those seen when Argentina declined to shore up teetering banks in 2001, prompting a run and then a freeze on deposits, and ultimately, the world's largest-ever government default, he said.
Which do we want? The Argentina 2001 financial crisis outcome or the mid 1990s Mexico financial crisis outcome? It's a two item menu – there is no real "sinking ships right themselves" choice. It's a myth, albeit an appealing one.

Like it or not, those are our options. It is unfortunate that there is among our leadership no one left with any credibility to explain this truth of our circumstances, and that many of my fellow Libertarians are taking an ideological versus a pragmatic approach.

Alternatives

As an alternative to doing nothing or the Paulson plan I support the plan proposed by Bill King, author of The King Report (http://www.mramseyking.com/thekingreport.html).
King Report Bailout Plan

Premises:
• The US credit system is broken.
• The Paulsen-Bernanke Bailout Plan does not insure that those banks and brokers that receive bailout aid will increase lending. The reality is the market is hoarding liquidity and these banks are likely to do the same. More importantly consumer lending has been a small, often insignificant part of their business. They made money by trading and through securitization of debt.
• It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking.
• The Wall Street model, securitization and extreme leverage, is obsolete.
• US financial institutions need to recapitalize.
• Hank and Ben assert that it is paramount to keep credit flowing to consumers; the bail out is a necessary adjunct.
• Paulsen and Hank’s bailout plan is tantamount to bailing out Univac, Digital Equipment, etc, in the eighties, which would’ve retarded the development of Dell, Microsoft, Intel and other nascent technology companies.
• It’s wasteful & foolish to put more money in an obsolete non-functioning system
• Big banks and brokers made most of their earnings over the past several years in trading, not consumer lending. And now their derivatives are THE problem
• If you want to get money to the consumer: the less middlemen, the better.
• Decentralization of liquidity, lending and risk is necessary to refurbish the financial system. The illiquidity of a few large banks is collapsing the system.

Basics of the King Report Bailout Plan
• Directly recapitalize banks by the US government allocating $500B into a plan for community-type banks to increase their capital in partnership with the government.
• The government would match existing or some percentage of existing bank capital. If it would be better, a separate bank could be created. Place a limit of say $1B per bank.
• This would create $5 trillion of credit at conservative 10 to 1 leverage. This is more than the entire private mortgage market. It is a much better use of capital instead of absorbing $700B of losses with no means to discern resultant credit creation.
• Give the banks a tax rate of 15% on consumer and commercial lending for 5 years and the right to buy out the government share of the operation at some premium.
• Only banks that meet some metric, like a Texas Ratio of 50, are eligible.
• To help the big banks, allow them to create a consumer & commercial lending facility with the 15% tax rate benefit. This should entice private equity and sovereign funds as well as Wall Street remuneration that was garnered over the past decade or so.
• Prohibit trading, especially derivatives, in consumer & commercial lending operations. However, pure hedging would be allowed.
• Immediately increase FDIC-insured bank deposits and money funds to $1 million per eligible account.

Further considerations:
• Foreign banks in the US could be included if they have respective funding from their government.
• The real estate problem is due to the fact that American incomes do NOT support current prices. Easy credit allowed them to purchase homes they couldn’t afford.
• Any solution to clear the real estate market must entail hiking income, which is very difficult, or allowing prices to drop to levels that the average American can support. This helps average Americans, not the big banks and investors stuck with overpriced mortgages.
• No bailout for the imprudent and reckless but a means to directly help Americans and procure capital from private and sovereign sources because a new financial system must be implemented.
• This is not likely to be the final model but it is a stop-gap measure that will resonate with average Americans. It’s a way to connect with Middle America because it benefits them directly and is not an exclusive Wall Street bailout.
• The cause of our current financial morass is Big Government + Big Business = Crony Capitalism + Funny Money = concentration of wealth and risk + declining US living standards.
• The solution is decentralization of the financial system, like the tech industry, which will lower systemic risk, foster competition and yield better ideas, services and companies.
Non-intervention is not the answer. Congress needs to move quickly to draft legislation that conforms to the principles put forth in the King plan.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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EJ, you stepped ahead of us again, by explaining all this.

As mentioned in your post and also here (http://www.itulip.com/forums/showthread.php?p=51124#post51124), :o, there are previous experiences on a bailout of the financing industry.

As for what I remember on Mexican bailout of 1995, there are several polemic points that are still the source of discussion to this day:

- As of the debt trespassing, it was never clear which was the criterion used on the bailout of individuals or enterprises, so it all was seen as a "siding" bailout, on which most of the favored individuals and enterprises were due to their influence in the government.
- It was never clear the mechanism upon which the favored individuals and enterprises had their debt refinanced, or how the liquidation of such debts was considered into the Fobaproa/IPAB accounts or if it could be made public or not.
- At one point in time, an external audit was hired and paid by the government (our taxes) to check the procedure upon which all the bailout proceeded. Such audit, even when it was of the use of tax fund, was not made public instantly, and upon request of opening due to ruling transparency legislation, always the answers have been vague.
- The obscurity and murkiness of the mexican bailout has been one of the base arguments from mexican left parties on their reject to several high funds projects since.

In my opinion, and I've sustained it for at least 6 years, even when all the accounts included in the Fobaproa are opened to public knowledge, all that money has already moved. At this point we need not only an opening of the Fobaproa procedure, but also a follow up of all the individuals/enterprises included, in order to have a real grasp of the debts bailed out and the repay balances. Also it would be good to know how current legislation on debts to federal government can be applied now to have an idea of how much can this internal debt be reduced and how it will be paid.


And Argentina, and Mexico...they did similar things, no? I mean, the whole reason for this crisis was moral hazard and money printing in the first place.

Not exactly.

During the Salinas Period, the main monetary compromise was to reduce inflation, and in 1993, we got to 1 digit yearly inflation. I remember most of us were happy we were at last leaving behind the monster that had been eating us alive for the preceding two decades. Getting back to price levels that were in most cases below the earliest of my memory and having circulating silver coinage was a source of pride I haven't felt before.

In Argentina, they limited to 250 USD a week per individual the amount of money that could be taken out of banks. As far as I remember, there was no such limitation here. And I remember it since I was working on the terminal project that I proposed for my University graduation, and I had not many problems getting the money I had already saved. The problem was that my budget had to double in a matter of days, since the high level parts needed were priced in USD...

In Mexico, the main problem was the amount of treasury bonds linked to USD that were sold by federal government without a clear mechanism of reserve accumulation as was developed later. Instead of getting out of the peg that MXN was set on in february or march of that year (as of what I've read, a 25% devaluation would be enough and would release the pressure that was left accumulating) It all was left until the Bank of Mexico had to declare the default on the USD denominated bonds.

Along with the points already posted, your government has to left clear the mechanisms upon which the proposed bailout is going to work, how the liabilities included in it are going to be treated from now on and how the debt will be considered in the public financing. Of course, people that regulate this package has to be accountable of the proceedings of the money used for the bailout, to assure it all will be restructured in a way that harms the least the US populace and serves as a base for a wealth creation system, instead of just a money pit. (O.K. I just left my idealism roll on this)

orion
10-01-08, 08:23 PM
"EVER since Argentina began its recovery in mid-2002 from a devastating financial collapse, it has seemed to defy economic gravity. The country’s left-wing government, first led by Néstor Kirchner and then this year by his wife, Cristina Fernández de Kirchner, has violated many standard economic prescriptions: it has shunned the IMF and shafted private bondholders; kicked out foreign companies and set up new state-owned ones; imposed price controls; and even doctored the inflation figure. Yet over the past six years, Argentina’s economy has grown at an annual average rate of 8.3%—faster than any other big economy except China."

http://www.economist.com/displayStory.cfm?story_id=11966983

i rest my case!

Don't close that case too quickly. I have family in Argentina and they don't seem too happy or well off (a mix of middle and lower class folks). So I shot over to the Economist (a first rate group) and read the rest of the article that ends with;

"This time the government has plenty of policy tools with which to stabilise the economy. Start with energy, for which Argentines still pay a third less than their neighbours. Further hikes in energy tariffs would improve the public finances, and attract investment. Settling with the Paris Club and the bondholders would enable Argentina to secure financing from the markets on relatively favourable terms. Many economists reckon that these measures would be enough to keep the country growing at a still-healthy annual rate of 4% or so for several years. “These problems should not be difficult to solve,” says Javier González Fraga, a former Central Bank governor. “But no one seems to want to do so yet.” By delaying the necessary adjustments, the government has already made them more painful. And the Kirchners, who govern as a couple, have made their defiance of the IMF, the Paris Club and the bondholders a point of pride. Unless they now swallow that pride, it will be followed by a fall."


http://www.economist.com/displayStory.cfm?story_id=11966983


There are more less than glowing comments on the economist Argentina page;


http://www.economist.com/Countries/Argentina/



(http://www.economist.com/Countries/Argentina/)

grapejelly
10-01-08, 08:25 PM
If the media reports coming out of the USA are accurate, it appears that the public remains overwhelmingly opposed to "any bailout". That both McCain and Obama have spoken in favour of passing a bill [the bill?] and the Senate is rumoured to be likely to pass the bill shortly, is quite remarkable imo.

Is this an indication of real leadership? Or is it simply another example of how remote Washington is from the rest of the nation? In his remarks supporting passage Obama made some mention of everyone now realizing how connected "Main Street" is with Wall Street. Not much change happening there...:p

I tried to fax and call my senators but their lines were busy. And they have heavy duty phone lines. My belief is that people *are* overwhelmingly against the bailout.

But those in power want it.


you are evading the fact that you have made ej's point after arguing with him... the free market didn't fix argentina, the heavy handed, anti-market lefty gov't did that the depression emboldened and justified. just like in the usa in the 1930s with fdr. just like will happen in 2009 in the usa if we don't get on the stick with the king plan.

that is ej's whole point! thanks for making it so eloquently :D:D:D

Argentina administered its medicine on one day when nobody could ever after withdraw US dollars from their bank account.

The rest of it is lefty nonsense. But the fact is, that one day, that was it, door shut and the end of your savings if you had US Dollar denominated accounts.

If the US were to just say "no" to bailouts, it would be the equivalent. And after a year or two, things would be well on their way to a nice recovery. What FDR did was prolong a sharp and short recession into a long protracted Great Depression. Argentina lacked the surplus savings to do it. FDR still had great borrowing authority especially after seizing the gold.

Unfortunately, the Fed is going to keep printing money one way or another. So there is going to be a bailout no matter what we argue here.

The bailout in Washington is all about hiding price discovery, and is so vital to the banks so they don't have to mark to market and so they can have a ready market for assets they never should have acquired in the first place.

The result of no Washington bailout will be a Fed engineered bailout but there will be more daylight in the process unless they suspend FASB rules altogether (which they might).

ocelotl
10-01-08, 08:58 PM
I have traveled extensively in Mexico. I mean into the countryside and away from the tourist zones. I have also traveled in West Virginia (just KIDDING).

Government doesn't provide these services, Mega. Private actors do. And the sanctity of contracts and private property, and the predictability of the law in terms of enforcement, these are the things that make a country first world or third world.

Well, if it accounts for something, In my job I've been in telecoms infrastructure installations in places that are not in common maps, where you need to travel 4 hours on dirt roads in mountain ranges just to get there. So far, I've done my best to do my part on improving services in rural Mexico.

My opinion has always been that we need first to develop a reliable road and communications infrastructure to ease people their inclusion on the market with their products. Along with this, an update of the education system, so even in the deepest places on the countryside there are the tools needed to give a reliable education to everybody. Third, a nationwide restructure of public health system, to reach the furthest places of the country.

Just complying with these three points: Communications infraestructure, Improved Education and a Reliable Nationwide Health System, we will have the base needed to build a strong and productive economy. Well, it's always worth dreaming, but it gets better when you are part of it all.

santafe2
10-01-08, 11:17 PM
If the media reports coming out of the USA are accurate, it appears that the public remains overwhelmingly opposed to "any bailout". That both McCain and Obama have spoken in favour of passing a bill [the bill?] and the Senate is rumoured to be likely to pass the bill shortly, is quite remarkable imo.

Is this an indication of real leadership? Or is it simply another example of how remote Washington is from the rest of the nation? In his remarks supporting passage Obama made some mention of everyone now realizing how connected "Main Street" is with Wall Street. Not much change happening there...:p

Since we're Los Angeles ex-pats, tonight we were switching back and forth between the Dodgers/Cubs game and "The Bill", which passed the Senate 74-25. The pork, or what CNN is calling "sweeteners", was staggering. I tried to count as they listed the add-ins and it sounds like $150-300 billion dollars in additional tax incentives and tax breaks.

There was one "sweetener" in the bill that allows for mostly Western states to receive money from the Federal government based on the amount of land owned within the state by the Federal government and therefore one assumes, off limits for building. Harry Reid could hardly contain himself as he giggled his way through an explanation of how the Federal government controlled 40% of Nevada. A simple cha-ching would have sufficed.

On a side note, Larry Craig took a wide stance for Idaho and voted yes. I'd forgotten that clown was still in the Senate. On to the House vote tomorrow or Friday.

brucec42
10-01-08, 11:24 PM
I will paraphrase Lloyd Bentsen's famous comment (was it directed to Dan Quayle?) "You're no Libertarian", EJ.

This is so untrue that it is staggering and hard to argue with the rest of your essay. It is a Big Lie, not a little lie, and I am surprised that you can even say this.

The US did nothing but intervene. Let's see, spending staggering amounts of money on make-work programs, numerous "bailouts" of industry and control over industry, seizing gold, closing the banks, setting up bogus "deposit insurance" schemes, etc. etc. etc.

And Argentina, and Mexico...they did similar things, no? I mean, the whole reason for this crisis was moral hazard and money printing in the first place.

Bottom line, your solution is to continue the same thing, but do it with more "regulation." It is doomed not only to fail, but to lead the country and the world into a second Depression.

The *only* solution is to simply let assets plunge in value, take our medicine, and in a year or two things will be fine. Argentina worked out quite well because they had no choice. Domestic industries rose to replace imports. And a depression pulled asset values down until everything was a bargain.

Then things started to shape up.

That is *exactly* what we need right now.

Oh really? I think your "solution" is guaranteed to do that.

Irving Fisher is the same person who proclaimed famously that stock prices were at a "permanently high plateau" or some such quote, no? Just before the Crash of 1929. I am sure he was brilliant, but that doesn't make him right.

What we need is asset prices to fall.That is what is happening. Then a lot of banks go out of business. House prices fall. Everything falls. And credit becomes hard to get. Then people start saving, not hoarding. It's called saving and investing.

The FIRE economy is history. People buy up old factories and start making things to sell domestically. There is a depression but it lasts a year or two.

The "bailout" way will assure that the depression will happen, but it will last and last and last. Because government malinvestment will replace public/private malinvestment. Big public works and bailouts will be financed by scared investors so that money will not go into productive uses. We will still be stalled out in the FIRE economy, but nothing will be left in terms of capital surplus to invest in producers and consumers economy.

I agree with this post. I was undecided on the bailout issue but with more and more research I am leaning against it, especially as I see it as a neverending black hole of federal money and currency debasement.

While I know little of it I am surprised that EJ claimed the govn't did "nothing" during the depression, when their interference is cited by many as a cause (various wage controls, etc) of its duration and depth. Didn't govn't interference cause the crash in the first place?

I have a lot of questions that experts we rely on like EJ are strangely vague on lately. We get broad terms like "meltdown" but so far I have read nothing saying what unemployment will be, how far GDP will fall, etc. I suspect that this is so because they just don't know exactly what will happen. And one thing I've noticed about economists and financial pundits. You don't hear them say "I just don't know" very often! Is there intellectual hubris, or ego at work here?

Economies are very complex, and certainly more so today than in 1929. I would have a lot more faith in EJ's pro-bailout conclusion if he were to give more specifics on what will happen after the bailout and how it will solve the problem, rather than just put off judgement day.

Meanwhile, I have questions galore. I'm open to changing my mind. But it will take more "meat" than I've seen so far from pro-bailout people.

I note that nobody (other than perhaps Ron Paul) has suggested massive cuts in govn't spending to pay for the bailout costs. That tells me a LOT about the mindset of its proponents. Because if we don't cut spending and future promises (medicare, social security etc) then what's the point? We're cooked anyway. We're just passing it off to our children.

Perhaps the braver action would be to absorb the depression now while we can still recover. What happens in 25 years when we start even further in debt and with a worthless currency?

CDS, auto loans, credit cards, won't they all need bailouts also? What "assets" can the government recover from unsecured loans like on credit cards? Will they hire 10,000 lawyers to track down millions of $5,000 balances? CDS are so huge I can't even comprehend the problem. Will it swamp the boat even if we recover from the mortgage debacle?

Meanwhile, I am hearing more and more reports of credit not being as tight as reported, or rather being tight FOR GOOD REASON! That reason being that people and businesses being denied loans CANNOT PAY IT BACK reliably. I am hearing numerous anecdotal reports of credit for good risks being adequate. Wasn't this the whole problem? Lending to marginal credit risks as business as usual?

I'm also curious about why interest rates are considered "too high" on short term business loans if the market is setting them? How free market is that attitude? If it costs more to borrow, I guess they'll have to cut costs elsewhere, gain efficiencies, raise prices, or fail. That's the price we pay for a society based on debt. We'll have to take our lumps. Isn't trying to force continuation of low interest rates using govn't power much of what got us into this mess in the first place?

Did we really think we were that prosperous? Going from 1400ft modest homes to 2500 ft much more opulent homes in a generation? A generation that saw real wages stagnant? How is perpetuating a debt based economy going to "solve" the problem?

And if money is so tight how come I can still get a below 6.5% no-cost refi? Shouldn't those rates be rising if the suppy/demand equation for money is changing? I just borrowed $10,000 at 0% for 9 months 3 days ago on a credit card. That money will sit in a CD and make me a little spread. If they have such little money to lend why aren't they lending it at 15% rather than 0%? Maybe they'd rather lend it to me than to those who won't pay it back? And why do a teaser rate to me if they think they won't be able to continue lending me the money when the rate jumps later?

Foreigners are sitting on Trillions of US dollars. How come they would not lend us money to continue operating businesses if these are good credit risks? My wife's company lends every day now to good businesses. They are booming and have plenty of cash to lend (via a SWF). But I can give you one GREAT reason they would refuse to lend to us. That would be if our currency dropped in value so fast they lost real value! And what could cause that quicker than printing money to buy marginal bank assets?

As for the oft-cited businesses lacking ability to borrow to make payroll. Can someone explain why, in an era where you can invest at 2% after taxes and have to pay 10% on short term loans, businesses wouldn't just retain more earnings in reserve so they wouldn't have to go to the bank every time they need to buy some paperclips? Isn't this just poor business practice? I have a very small business and I can buy major equipment without loans. Why can't they make payroll?

I think it may be time for the overly convoluted FIRE economy to have a stake driven through it.

We'll see quite hard times. But why rob retirees and savers to transfer their wealth to fools who never saved and companies who were foolish and based their business models on neverending cheap credit? (GM, Ford, Circuit City, Best Buy, any hot tub store, etc) How does continuing that trend solve anything? It just postpones the crash and then makes the crash that much worse as now our currency is worth less and those previously able to weather a storm on savings no longer can.

It sounds a lot like we're wanting a "do over" , with the money for it stolen from savers and good investors. Kind of like starting a game of monopoly and doling out equal amounts of cash to all.

Might at some point the $1 Trillion (for starters) be better spent as a safety net for the unemployed for a couple of years till we recover? (not that I'm suggesting we do this) A quicker recovery might help us pay it back faster.

And if home prices are allowed to continue to fall, wouldn't that make housing more 'affordable", which was what was touted as the whole reason behind the lowered underwriting standards in the first place?

Can we not sell our cars to foreigners instead of borrowing money to buy them domestically? If there is indeed excess capacity in the world, should we really prop them up for decades more?

I have a lot of questions. But if only one gets answered, that would be..."how is a bailout not crony capitalism, EJ?"

PS. Any disclosures to make on how your firm's businesses would be impacted by a financial meltdown?

My disclosure. My bet is on the bailout deal going through, gold falling and oil rising somewhat in the short term, then back to the long term trends specified by the itulip thesis.

I'd love to be convinced that the bailout will be great and allow me to live normally for many more years.

phirang
10-01-08, 11:26 PM
Since we're Los Angeles ex-pats, tonight we were switching back and forth between the Dodgers/Cubs game and "The Bill", which passed the Senate 74-25. The pork, or what CNN is calling "sweeteners", was staggering. I tried to count as they listed the add-ins and it sounds like $150-300 billion dollars in additional tax incentives and tax breaks.

There was one "sweetener" in the bill that allows for mostly Western states to receive money from the Federal government based on the amount of land owned within the state by the Federal government and therefore one assumes, off limits for building. Harry Reid could hardly contain himself as he giggled his way through an explanation of how the Federal government controlled 40% of Nevada. A simple cha-ching would have sufficed.

On a side note, Larry Craig took a wide stance for Idaho and voted yes. I'd forgotten that clown was still in the Senate. On to the House vote tomorrow or Friday.

The business lobbies, i.e. the people who actually pay for campaigns unlike the irate retards calling on c-span, have been entreating for this intervention to happen.

The house of reps, I think, will realize who butters their bread. The insipid demagogues in the public media likewise don't finance campaigns: FIRE does.:)

jimmygu3
10-01-08, 11:28 PM
On a side note, Larry Craig took a wide stance for Idaho and voted yes. I'd forgotten that clown was still in the Senate.

I got a good laugh out of that, sf2! :D

brucec42
10-01-08, 11:58 PM
Eric, based on my read of Rothbard's 'Great Depression,' it is clear to me that Hoover was an interventionalist, big-time, over '30-'32, and that FDR merely amplified the radical interventions that Hoover took. Thus, there was no attempt at 'self correction' in the G.D.

I do not have the stats on the post WWI wind down, but, purportedly, that was a big, big slowdown, which was painful, but short. It was painful, but short, because of little/no government intervention.

I agree with your logic in steps 1-9. However, in step 10, do note that if there is no government intervention, non-performing debts will be written off, freeing debtors. Then, after non-performing debts are written off and bad lenders are eliminated, folks like me with savings will step into the void. But, I guarantee that I will not step in when the rules are rigged and changing, which is what we see today and would have with The Bailout.

Let the banks fail, let the debtors declare bankruptcy, let soup lines flower and multiply, let attitudes about debt change (back to 'debt = bad'), then let the system regrow, properly.

I think you make an excellent point. What is lent but savings? Currently, with real returns on deposits in the negative range, what incentive is there for investors to put their money in banks? Or to save, period?

Would not rising interest rates cause money to flow into banks?

Wasn't the whole scam of low interest rates to get people to spend and borrow rather than economize and save?

brucec42
10-02-08, 12:25 AM
I will take a hit on this, but I was trying to illustrate that exact point.

(no the ends, don't justify the means)

Just calling a spade "a spade" when I see one. You are both correct, I was a spade in this case too.

Is that Karl Marx as your pic? If so, are you sure you're in the right forum?

Supercilious
10-02-08, 12:40 AM
The risk of our government devolving into a dictatorship, considerable as it may be, is not my primary reason for wanting to see the King plan implemented versus non-intervention.
The King Plan doesn't do anything else than kicking the can further down the road. As long as there is no real and complete overhaul of the markets rule, regulatory conditions and a strict control of leverage/risk loopholes we are just throwing good money after bad.


We lack the experienced leadership needed to steward the economy through the kind of crisis an unmanaged debt deflation will create. For that reason I believe that road leads to disaster.

We will have very soon experienced leadership when Obama becomes president, I'm talking about Obama's banking committee and Obama's pool of financial and market experts (http://en.wikipedia.org/wiki/Council_on_Foreign_Relations#Corporate_Members)

EJ I really don't think that an economic crisis represents a serious factor favoring dictatorship/fascism in America. By the contrary a short economic crisis would make the prospect of corporate fascism/dictatorship less likely than a prolonged period of uncertainty that can expose masses through scare tactics manipulation.

Fascism/dictatorship can take over America without any economic crisis, the MSM can create climate of permanent fear and false solutions for channeling popular hope can do it much better an easier than a crisis.

Now on a completely unrelated topic, let's not forget to vote. It is a patriotic duty and we have to put our best hopes in the result of the elections. Here is a wonderful reminder that we need to vote:


<object width="425" height="344">

<embed src="http://www.youtube.com/v/TW9b0xr06qA&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></object>




<object width="425" height="344">
</object>(In case you believe I'm biased and you are wondering about my political affinities I will declare in public that I'm a Marxist ... although not a mainstream one, but a ...Groucho Marxist)<object width="425" height="344"></object>

brucec42
10-02-08, 12:51 AM
"affordable furniture to go". LOL.

I have lived 27 years as an adult, with about 20 of those at an income level (often far) below the median, without ever once borrowing money to buy furniture, electronics, clothing, household items, luxury items, or anything besides a home mortgage , two relatively small car payments (less than 80% LTV), one auto lease (subvented, was cheaper than paying cash), and one lease of business equipment worth less than $2500. I have never been late a single day on any loan despite all these loans being taken out when I made below average income, and had credit not been available I could have purchased less expensive items with savings.

My parents borrowed money exactly once (other than a mortgage under even more strict lending standards), to buy christmas presents when I was a young child, and I am told that loan was paid off within a few months.

I have run a small business without extending credit (beyond waiting 30 days to get paid, but that doesn't require a bank's involvement). I have worked for a couple other small/med businesses, neither of whom needed to extend credit to sell their product/services.

I shopped at Walmart, Sears, JC Penney, etc all my life without ever feeling the need to open a charge account to do so.

So tell me exactly why it's impossible to have an economy that doesn't rely on the entire population consuming before they save for every ridiculously frivolous item? I didn't own a piece of new furniture until I was probably 30 years old and you can furnish a home with about $2,000 from hand me downs, yard sales, and used mattress sellers. Less if you are single. My furniture was the kind you assemble yourself or second hand.

Maybe "Affordable Furniture to go" needs "to go" if they can't make it with customers who have actually saved for furniture.

This whole mentality that we consume now, pay later, is what is behind the entire mess. From our government to businesses to consumers. They're all doing it and this simply has to end. Does anyone really think the idea of $700 cellphones for children is viable when the people buying them can't even afford to retire? The reason we have such silly things is that we got the idea we could buy without saving first. It's the EASY CREDIT that put us in this mess. Enabling it doesn't seem to be the solution.

Go to any strip mall in a reasonably upscale part of town. Read the signs of the STUPID businesses. Stuff nobody needs paid for with money nobody has. Are we supposed to let these clowns hold us hostage?

"but how can I extend credit to my customers to buy my papier mache' art if credit freezes up!"

Chris Coles
10-02-08, 04:39 AM
Well, if it accounts for something, In my job I've been in telecoms infrastructure installations in places that are not in common maps, where you need to travel 4 hours on dirt roads in mountain ranges just to get there. So far, I've done my best to do my part on improving services in rural Mexico.

My opinion has always been that we need first to develop a reliable road and communications infrastructure to ease people their inclusion on the market with their products. Along with this, an update of the education system, so even in the deepest places on the countryside there are the tools needed to give a reliable education to everybody. Third, a nationwide restructure of public health system, to reach the furthest places of the country.

Just complying with these three points: Communications infraestructure, Improved Education and a Reliable Nationwide Health System, we will have the base needed to build a strong and productive economy. Well, it's always worth dreaming, but it gets better when you are part of it all.

You are missing the most essential element in a successful economy Capital. None of what you list has any true effect long term without a fourth ingredient. Access to capital. In the US, the problem has, in the recent past, been solved by credit cards. Many of the most successful companies today were started that way. Apple and Google are two excellent examples. But their success was in turn predicated by the originators having sufficient income in the first place to ensure they had the credit available.

If you have insufficient income the only way forward is through access to capital. A loan does not answer the problem as start ups do not have income. That is the precise reason for capitalism becoming the successful system.

And, perversely, that is precisely why the present problems have surfaced. We are not running a capitalist system at the moment.

Credit is not any form of replacement for capital. Working capital yes, when success demands the period between sale and income is covered. But to try and say you only need communications, education and health care is the great illusion. You must have a free market for capital. That is the missing element and no other mechanism will serve to replace it.

D-Mack
10-02-08, 06:39 AM
We will have very soon experienced leadership when Obama becomes president, I'm talking about Obama's banking committee and Obama's pool of financial and market experts (http://en.wikipedia.org/wiki/Council_on_Foreign_Relations#Corporate_Members)


I think his advisers are more from the Trilateral side (Brzezinski, Volcker)


The guys who wrote about the end of democracy 30 years ago


In recent years, acute observers on all three continents have seen a bleak future for democratic government. Before leaving office, Willy Brandt was reported to believe that "Western Europe has only 20 or 30 more years of democracy left in it; after that it will slide, engineless and rudderless, under the surrounding sea of dictatorship, and whether the dictation comes from a politburo or a junta will not make that much difference." If Britain continues to be unable to resolve the seemingly unresolvable problems of inflation-cum-prospective depression, observed one senior British official, "parliamentary democracy would ultimately be replaced by a dictatorship." "Japanese democracy will collapse," warned Takeo Miki in his first days in office, unless major reforms can be carried out and "the people's confidence in politics" be restored.1 The image which recurs in these and other statements is one of the disintegration of civil order, the breakdown of social discipline, the debility of leaders, and the alienation of citizens. Even what have been thought to be the most civic of industrialized societies have been held to be prey to these disabilities, as observers speak of the Vietnamization of America and the Italianization of Britain.

This pessimism about the future of democracy has coincided with a parallel pessimism about the future of economic conditions. Economists have rediscovered the fifty-year Kondratieff cycle, according to which 1971 (like 1921) should have marked the beginning of a sustained economic downturn from which the industrialized capitalist world would not emerge until close to the end of the century. The implication is that just as the political developments of the 1920s and 1930s furnished the ironic -- and tragic -- aftermath to a war fought to make the world safe for democracy, so also the 1970s and 1980s might furnish a similarly ironic political aftermath to twenty years of sustained economic development designed in part to make the world prosperous enough for democracy.

Social thought in Western Europe and North America tends to go through Pollyanna and Cassandra phases. The prevalence of pessimism today does not mean that this pessimism necessarily is well founded. That such pessimism has not been well founded in the past also does not mean that it is necessarily ill founded at present. A principal purpose of this report is to identify and to analyze the challenges confronting democratic government in today's world, to ascertain the bases for optimism or pessimism about the future of democracy, and to suggest whatever innovations may seem appropriate to make democracy more viable in the future.
http://www.trilateral.org/projwork/tfrsums/tfr08.htm

raja
10-02-08, 06:58 AM
We'll see quite hard times. But why rob retirees and savers to transfer their wealth to fools who never saved and companies who were foolish and based their business models on neverending cheap credit? (GM, Ford, Circuit City, Best Buy, any hot tub store, etc) How does continuing that trend solve anything? It just postpones the crash and then makes the crash that much worse as now our currency is worth less and those previously able to weather a storm on savings no longer can.

Without the bailout, the stock market crashes and the retirees and savers lose all or most of their money.

With the bailout, big inflation or hyperinflation happens, and the retirees and the savers lose all or most their money. Oh . . . and the stock market probably crashes anyway.

The only difference in my mind is that with a bailout, the rich folks get to unload their bad debts at tax-payers expense, so they've got more money to spend on building their fortified compounds and/or offshore villas.

I say, if there's going to be pain anyway, let's have the rich folks join in the fun.

The only bailout that I would consider acceptable is that one includes punishing those who have profited from making the bad bets that impoverish the savers and retirees.

I don't know how that would work . . . . maybe:

1) Heavy fines for endangering the savings of retirees' and savers' money. Make the money-men refund their profits in cases where their clients lost money.

2) Immediately ban these "financial wizards" from working in the financial or banking industry, and prevent them from doing so in the future.

3) Or . . . . we could just deliver these "masters of the universe" up for public execution, like the Chinese do to those who damage society. :eek:

Rajiv
10-02-08, 07:18 AM
Also when putting the same letter on Op-ed news (http://www.opednews.com/articles/The-Bailout-and-What-s-Nex-by-Dennis-Kucinich-081001-174.html), Kucinich asks readers to comment on Paul Grignon's 47-minute Money as Debt (http://video.google.com/videoplay?docid=-9050474362583451279) animated documentary

Chris Coles
10-02-08, 07:20 AM
Democracy works when there are enough individuals, (a prerogative to many), prepared to work their entire lives to EMPLOY the citizens that surround them. To be able to employ, you must have access to capital. Without a free marketplace for the provision of the necessary capital injection down to the grass roots of any society, then who employs? Government? Warlords? Anyone but that free, hard working, individual.

Charles Mackay
10-02-08, 08:10 AM
Senator Chris Dodd wins Chumpzilla award for buyout (http://chumpzilla.wordpress.com/2008/10/02/senator-chris-dodd-wins-chumpzilla-award-for-buyout/)

Filed under: Uncategorized (http://chumpzilla.wordpress.com/category/uncategorized/) — chumpzilla @ 5:46 am

Are you wondering why members of both parties are so ready to insist that there must be a bailout evne though their constituents are more oftne than not shouting “NO!” ?
The answer is easy: follow the money. It appears that Senator Dodd (and the two major party presidential candidates) are very much dependant on the moneys that have flowed into their pockets from the financial organizations that they are bailing out.
For example, review Senator Dodd’s financing sources:
Chris Dodd: Top 5 Contributors, 2003-2008
Citigroup Inc - $314,694
SAC Capital Partners - $282,000
United Technologies - $263,400
Royal Bank of Scotland - $229,950
American International Group - $224,678
Chris Dodd: Top 5 Industry Contributions, 2003-2008
Securities & Investment - $4,267,896
Lawyers/Law Firms - $1,990,713
Insurance - $1,439,672
Real Estate - $1,262,691
Commercial Banks - $861,944

Thailandnotes
10-02-08, 08:17 AM
This is worth the listen or read...gets to the heart of the debate here.

http://www.democracynow.org/2008/10/1/as_senate_prepares_to_vote_on

WILLIAM GREIDER: I think the government needs, right now—I don’t think they’re going to go that way just yet, but I think ultimately they may have to—step up, exercise its full powers in emergency, and literally take control of the banking system and the financial system and supervise it as it deals with the realities of firms that will not survive and those that can survive; husband, if solvent, banks and make sure they stay solvent instead of tipping over; and then use that power to guide economic policy for the country, that is, make sure those financial institutions are lending and keeping the credit spigots open for businesses, for families, for all of the uses that go on in our society; and then add the stimulus alongside it, and I mean major stimulus, to encourage all of those players.

Here’s what happens in a situation like this, at least historically, and I think it’s beginning to happen now. Everybody, quite reasonably, hunkers down. That’s a rational decision: I know we’re in trouble, I know the system is crumbling, I’m going to put my money under the mattress, so to speak, and wait this out. So, that means people stop spending, and they stop borrowing and can’t borrow, and bankers, likewise, stop lending. The government is the only player with the power to step in and reverse that dynamic. That is what the federal government should be doing forcefully right now...

What Paulson is doing is—the bankers got stuck with all these rotten assets, which they created and sold to each other and to the world; now let’s take those off their hands, and they’ll be OK again. I’m not alone in saying that that’s a real crapshoot as to whether that works, first of all, because those banks, as I said, are going to get smaller, and they’re collapsed, and they may or may not start lending again. I would guess not, not until they see a vibrant economy again.

But it’s also—and this is where the public stepped up—it’s profoundly illegitimate as an act of democracy to take the money from taxpayers and say to the villains in this story, “Here, here. Can we help you out of your troubles?” No rules, no guarantees that these villains will correct their behavior, no really serious effort to write into this legislation a sense of where the system goes from here that’s honest.

jtabeb
10-02-08, 08:47 AM
FYI

Dean Baker at CEPR disagrees with you


Dean Baker (http://www.huffingtonpost.com/dean-baker)

Posted September 30, 2008 | 11:53 PM (EST)

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That's easy. You ask them how failure to pass the bailout will give us a Great Depression.
The odds are that your favorite DC intellectual type has uttered some dire warning like that. After all, they all heard some authority like President Bush or a highly respected news reporter (http://www.nytimes.com/2008/10/01/business/economy/01leonhardt.html?ref=business) make such a claim. All right-thinking people know that we just have to give $700 billion to the Wall Street crew or the economy will collapse.
While all right-thinking people might know we need the bailout, just about all right-thinking people don't have a clue as to what they are talking about.
The Great Depression story is of course the most extreme case. No one has yet sketched out the sequence of events that will give us ten years of double-digit unemployment. But hey, if the scare story helps get the bailout passed -- and gets those uneducated skeptics in the hinterlands to buy it -- why not talk about the Great Depression?
I was on a talk show today in which one of the other guests (a representative of the security industry trade group) told listeners that you can't get a mortgage unless you put 30-40 percent down. This is of course total garbage (the interest rate on 30-year fixed rate mortgages is a very low 6.0 percent) and the vast majority of loans are being made with 10-20 percent down, but lying for Wall Street is no sin.
The host of the show was appalled to find that neither I, nor the other in-studio guest, supported the bailout. At one point he became exasperated and told me that because companies can't get access to credit they might have to lay off workers. He told me that United and GM may have to begin laying off workers next month if the credit squeeze doesn't ease.
Of course if United and GM actually do lay off workers, the credit squeeze will be a very small part of the story. The airline and auto industry face really big problems for reasons that have nothing to do with the credit squeeze, although paying higher interest rates on borrowing clearly does not help.
It is remarkable how the contemptuous comments that the elites have directed at the masses for opposing the bailout can be so much more accurately directed back at themselves. In fear and anger they have embraced a bailout that makes little sense in the context of the economic crisis facing the country. Rather than listening people who actually understand the economy (I doubt a single economist in the country believes that the bailout is the best way to help the economy) they have shouted down and shut out critics of the bailout and have been willing to spread all manner of outlandish scare stories to advance their case.
It was impressive to see the mass outrage over the bailout at least temporarily stop the bill. But, the full court press by Wall Street, the media and the entire political establishment is hard to counter. If the bill is not stopped, those who vote for it should at least be held accountable for the economic mess they create. Remember, these are the folks that couldn't see the housing bubble.

Rajiv
10-02-08, 09:02 AM
See also - Nouriel Roubini on Hardtalk (http://itulip.com/forums/showthread.php?goto=newpost&t=5623)

Slimprofits
10-02-08, 11:48 AM
It is necessary to create a new system parallel with the existing dysfunctional system in order to mitigate the inevitable economic and financial damage and to facilitate, as seamless as possible, the transition to a functioning financial system or new model of credit and banking.

The credit system is broken, but at the same time people are more dependent on credit than ever with the recession and lending standards have been tightened.

The Globe article that you cited pointed to tighter lending standards, not a broken credit system and you're right that is typical from newspapers all around the country right now. I see a big fleecing going on with this Paulson plan as the politicians and the MSM commentary are telling people that credit standards can be loosened again if we just agree to their plan.

grapejelly
10-02-08, 11:57 AM
The Globe article that you cited pointed to tighter lending standards, not a broken credit system and you're right that is typical from newspapers all around the country right now. I see a big fleecing going on with this Paulson plan as the politicians and the MSM commentary are telling people that credit standards can be loosened again if we just agree to their plan.

I wrote this email today, apologize for the "spam killing" spellings etc.:

In October 1929, the stock market crashed. Fortunately,
President Herbert Hoover was ready! He had already
presented the Hoover Plan for "permanent prosperity".

Hoover injected a phenomenal amount of money into
the economy via the Federal Reserve -- a 10 percent
increase in cash deposits on one week!

The interest rates that the Fed applies to its
member banks dropped to 2 percent.

Bank reserves continued to increase through 1930.

Since stock prices were falling, Hoover forbade
short selling of stocks. Short selling has been
made illegal today for many stocks too. The idea
is that short sellers make clams when stocks
fall, so if you ban short selling you won't have
stocks fall.

Stocks continued to fall in 1930.

And Hoover pushed through the National Credit
Corporatino (NCC) to invest 500 millyun into
shaky banks.

Congress passed into law the Reconstruction Finance
Corporation in early 1932, empowered to issue
1.5 billyun in debt.

Unlike today, that was a lot of clams then!

The RFC could lend clams to commercial banks to
tide them over and to large corporations such as
the railroads.

Meanwhile, peeps were losing their houses and
farms at a record rate.

In a few months time, the RFC lent out 1 billyun
clams, all under great secrecy, to a variety of
favored businesses, especially big railroads.

Unfortunately, all this cash flying around didn't
do much good for the economy.

Banks were not in a mood to lend and Americans
started dealing more and more in cold hard
ca_sh rather than cr_dit.

You see, those bad citizens had withdrawn
800 millyun in currency. Hoover railed against
the average American and blamed them for
"hoarding" clams.

Hoarding isn't a bad idea even today.

Point being: the erroneous conclusions of Bernanke and company, that the Fed did not do enough, and that the US government did not do enough, to forestall the Great Depression.

The government did a LOT. In fact, what they did resembles, quite eerily, what they are doing now. And it did not do any good.

It did harm.

Why didn't it do good? Because banks didn't want to lend and people didn't want to borrow. Mish is right in this one.

Japan pursued a reckless "rescue" fiscal policy post-1990. The US did post-1929. In both cases, as will happen today, the effect was the opposite to that intended, and served to prolong the depression or recession.

nathanhulick
10-02-08, 01:45 PM
It is certainly interesting to see how some people throw their principles under the bus in times of crisis.

jtabeb
10-02-08, 01:58 PM
Is that Karl Marx as your pic? If so, are you sure you're in the right forum?

Yeah it is, (they didn't have a picture of Ayn Rand, so I chose her antithesis).

Marx wins if you don't have a gold based monetary systems.

Rand Wins if you do.

So both are right or wrong, it depens on the enviornment.

I hope we will be a great country again, but to do that we will need at least a parallel system with metallic money competing with paper money. I would argue that is the BEST system to pursue at this time, you get the flexibility of FIAT with the ability to opt out and have the security of a Gold/silver based system.

You need to have both because you will need the unlimited credit potential of the first (to save the economy and fund the next bubble) backstopped with the safety of the second.

(I'm a little bit socialist, little bit coutry, oops, I mean rugged individualist)

jtabeb
10-02-08, 02:35 PM
It is certainly interesting to see how some people throw their principles under the bus in times of crisis.


Funny too, I thought that by holding on to principles you avoid crisis and get them over quickly if they happen.

That being said, yeah we need something like the king plan (it keeps the "next bubble" open as a possible policy option, doing nothing removes the "next bubble" as a possiblity completely. And I think that is what EJ is NOT saying.

No bailout = NO NEW BUBBLE. That's the sad fact.

Supercilious
10-02-08, 02:40 PM
I hope we will be a great country again, but to do that we will need at least a parallel system with metallic money competing with paper money. I would argue that is the BEST system to pursue at this time, you get the flexibility of FIAT with the ability to opt out and have the security of a Gold/silver based system.

You need to have both because you will need the unlimited credit potential of the first (to save the economy and fund the next bubble) backstopped with the safety of the second.
Not sure about that, but that's off topic. I've opened a new thread on this subject:

http://www.itulip.com/forums/showthread.php?p=51642#post51642

bart
10-02-08, 02:51 PM
The unexpected consequences are so far beyond the pale that I won't even try to put it into words.

A very painful education is ahead, and many will never get it.

brucec42
10-02-08, 03:18 PM
Without the bailout, the stock market crashes and the retirees and savers lose all or most of their money.

With the bailout, big inflation or hyperinflation happens, and the retirees and the savers lose all or most their money. Oh . . . and the stock market probably crashes anyway.

The only difference in my mind is that with a bailout, the rich folks get to unload their bad debts at tax-payers expense, so they've got more money to spend on building their fortified compounds and/or offshore villas.

I say, if there's going to be pain anyway, let's have the rich folks join in the fun.

The only bailout that I would consider acceptable is that one includes punishing those who have profited from making the bad bets that impoverish the savers and retirees.

I don't know how that would work . . . . maybe:

1) Heavy fines for endangering the savings of retirees' and savers' money. Make the money-men refund their profits in cases where their clients lost money.

2) Immediately ban these "financial wizards" from working in the financial or banking industry, and prevent them from doing so in the future.

3) Or . . . . we could just deliver these "masters of the universe" up for public execution, like the Chinese do to those who damage society. :eek:

Let me disagree with your first statement. They didn't HAVE TO lose most of their money. Retirees and other savers have free choice and have had it for the last few years, far before any "crisis" occured, and could have moved their money out. Even those stuck in 401k's could have gone to cash and avoided the nominal losses. When I was buying gold and oil and agriculture they were still buying US stocks and their icons were mocking those of us who did.

Isn't this just the free market at work rewarding those with the right vision (or willingness to listen to those with it) and punishing those who ignored the (pretty obvious) signs? Yes, grandma got carried along for the ride, but ultimately we have to take responsibility for our investments. The true "savers" who don't invest but rely on CD's are the ones who you might claim are screwed (by inflation). The govn't is doing it to them. But stock owners? Easy come, easy go with that.

I agree with at least the concept of "punishing" those who misbehaved. Whatever happened to the concept of Fiduciary Duty? Did something change in the laws that encouraged the insane risk taking and lack of prudence? I don't remember hearing about such insanity as a kid. People who got that far in life were assumed to be "grownups".

Contemptuous
10-02-08, 03:44 PM
Bart - You are referring to unexpected consequences corrolary to the passing of a bailout, not the rejection of a bailout. What consequences in broad line are you referring to? Maybe just a bullet list?


The unexpected consequences are so far beyond the pale that I won't even try to put it into words.

A very painful education is ahead, and many will never get it.

Charles Mackay
10-02-08, 05:41 PM
Without the bailout, the stock market crashes and the retirees and savers lose all or most of their money.

With the bailout, big inflation or hyperinflation happens, and the retirees and the savers lose all or most their money. Oh . . . and the stock market probably crashes anyway.

The only difference in my mind is that with a bailout, the rich folks get to unload their bad debts at tax-payers expense, so they've got more money to spend on building their fortified compounds and/or offshore villas.

I say, if there's going to be pain anyway, let's have the rich folks join in the fun.

The only bailout that I would consider acceptable is that one includes punishing those who have profited from making the bad bets that impoverish the savers and retirees.

I don't know how that would work . . . . maybe:

1) Heavy fines for endangering the savings of retirees' and savers' money. Make the money-men refund their profits in cases where their clients lost money.

2) Immediately ban these "financial wizards" from working in the financial or banking industry, and prevent them from doing so in the future.

3) Or . . . . we could just deliver these "masters of the universe" up for public execution, like the Chinese do to those who damage society. :eek:

Too bad we are low on tar from peak oil and feathers due to bird flu... otherwise we could right the wrong the old fashion way. :D:D:D

phirang
10-02-08, 05:44 PM
Too bad we are low on tar from peak oil and feathers due to bird flu... otherwise we could right the wrong the old fashion way. :D:D:D

The really rich people wont suffer w/o a bailout.

Trust me.

Charles Mackay
10-02-08, 05:47 PM
The really rich people wont suffer w/o a bailout.

Trust me.

Depends where they have their money... just like it does for all of us on this board.

santafe2
10-02-08, 05:57 PM
The unexpected consequences are so far beyond the pale that I won't even try to put it into words.

A very painful education is ahead, and many will never get it.

Although I tend toward a very conservative crowd anyway, I've been surprised over the last few weeks how many friends, family and associates have put all spending on hold. They're using the current period to raise cash and pay down debt, (cars, mortgages, etc.). I wonder if it will last, maybe become a new life style. That will certainly be a problem.

Charles Mackay
10-02-08, 06:45 PM
Buffett: $700 billion bailout may not be be big enough (http://money.cnn.com/2008/10/02/news/newsmakers/buffett.fortune/index.htm?postversion=2008100212)

"It will cost more to solve this problem today than it did two weeks ago," said Buffett, referring to when Treasury Secretary Henry Paulson's first proposed that Congress help rescue Wall Street, which has seen the collapse of Lehman Brothers and Bear Stearns and the sale of Merrill Lynch. "It's that bad. If we don't get it solved next week, I may go back to delivering papers."




;) Spoken like a true FIRE elite!

D-Mack
10-02-08, 06:53 PM
Buffett: $700 billion bailout may not be be big enough (http://money.cnn.com/2008/10/02/news/newsmakers/buffett.fortune/index.htm?postversion=2008100212)

"It will cost more to solve this problem today than it did two weeks ago," said Buffett, referring to when Treasury Secretary Henry Paulson's first proposed that Congress help rescue Wall Street, which has seen the collapse of Lehman Brothers and Bear Stearns and the sale of Merrill Lynch. "It's that bad. If we don't get it solved next week, I may go back to delivering papers."




;) Spoken like a true FIRE elite!

He could go help the sharecroppers....

Charles Mackay
10-02-08, 07:09 PM
Did anyone post Catherine Austin Fitts objections yet?

Ten Reasons Not To Bail Out Wall Street (http://solari.com/blog/?p=1646)

<abbr class="published" title="2008-10-01T18:58:06+0000">October 1, 2008 at 6:10 pm</abbr>

<!-- .entry-meta -->
<!-- .entry-head --> by Catherine Austin Fitts and Carolyn Betts, Esq.


(1) Crime that pays is crime that stays.
There is reason to believe that Wall Street and those they represent are holding loans without collateral, multiple loans secured by the same properties, and other fraudulent instruments among the “troubled assets.” Based on the secret “Treasury Conference Call (http://solari.com/blog/?p=1634)” with 800 Wall Street insiders, we know the deal proposed to be passed by Congress isn’t the real deal promised to Wall Street.


(2) This smells like obstruction of justice.
Bail-out without due diligence of so called “troubled assets” is a perfect way to hide documentation of financial crimes. It is also a perfect means to launder both the past ill-gotten gains and new federal money spent recklessly and without necessary safeguards and oversight mechanisms. Be very suspicious when they tell you “we just can’t tell what’s in these troubled assets.” We can assure you that the federal government has field offices all across the country that deal with significant amounts of real estate and mortgage assets on a dailyl basis. If Treasury refuses for more than a decade to comply with the laws, with approximately $4 trillion missing (http://solari.com/archive/missing_money/) (and counting), it is not competent to manage $700 billion of taxpayer money while its arm is twisted by Wall Street.


(3) Wall Street owes the federal government money.

We need to get stolen money back from the banks that served as depositories for the US government (including trillions for which the Pentagon and HUD could not account (http://solari.com/archive/missing_money/)) and punish them, not create another opportunity for them to game the system and engage in criminal enterprises to rob consumers. To the extent there has been regulatory wrong-doing, let’s not let the miscreants leave town with the evidence.



(4) Good guys are shut out.
A bail-out provides no way for honest leaders to come to the fore and use their creativity and expertise to restore balance and integrity to the system or for unproductive and poorly-managed banks that contribute to current over-capacity in the banking system to die a dignified death.


(5) This results in more investment in the “bubble economy.”
Spending massive amounts on non-productive uses (“buying” worthless credit default swaps, mortgages with no collateral and derivatives, which could even include the derivatives used to manipulate the precious metals markets) as opposed to productive uses (repairing infrastructure, creating alternative energy systems, supporting inventing and production of “green” products) is inflationary.
This bail-out will drive prices of food, water and energy up for the people who can least afford it.


(6) Bail-out does not result in capital circulating in healthy ways.
The bail-out of Wall Street and too-big-to-fail banks and insurance companies that are getting bigger by the minute by swallowing up other failing financial institutions (and creating more institutions that are “too big to fail”) does not result in trickle-down to those whose money was stolen in recent swindles (S&L, dot.com, current housing crisis), i.e., the taxpayers/middle class and working poor.


(7) These arrangements will result in more corruption.
Centralized “fixes” are sure to result in black holes, no-bid contracts and other scandals.


(8) The bail-out drains the real economy, rather than invests in the real economy.
The US economy can’t be productive or grow if consumers don’t have jobs and can’t afford to purchase goods and services. Real stimulation of Main Street is accomplished through productive investment, not bail-outs that shift money to unproductive sectors. We should use all of our precious resources to reinvest in our people in the real economy.


(9) It props up sectors that need to downsize and consolidate.
There is significant overcapacity in the financial and banking sectors. Brainpower and talent needs to stop blowing financial bubbles and shift to economic activities that create real value.


(10) It is a temporary “fix” to keep Wall Street afloat until after the election.
Our resources are better invested in permanent, long-term solutions. This bail-out will not fix anything. Rather, it will help the perpetrators get away and ensure that the ultimate day of reckoning is worse.
The Administration wants to drain the real economy to bail out Wall Street. It seems to us that the more appropriate plan would be to require Wall Street to return the $4 trillion plus that is missing and use that to rebuild the real economy.
We think the time has come to reverse the flow. Go to any business school in the country. That is what they teach. Money should move out of unproductive sectors into productive sectors. The bail-out does just the opposite.


“Just say NO!”

Rajiv
10-02-08, 07:15 PM
I posted it (http://itulip.com/forums/showthread.php?t=5644) in the News section -- and was royally panned for doing it!

Contemptuous
10-02-08, 07:23 PM
Rajiv - You weren't royally panned. Only a couple of objections were posted. You don't expect everyone to be aligned in agreement on this in black and white terms, do you?


I posted it (http://itulip.com/forums/showthread.php?t=5644) in the News section -- and was royally panned for doing it!

Rajiv
10-02-08, 07:32 PM
I should have added a smiley, but I wasn't in the advanced editor ;)

However, I am really liking what Kucinich is saying in the house right now! (http://play.rbn.com/?url=cspan/g2cspan/live/cspan1-g2.rm&proto=rtsp)

starting roughly 7:15 EDT -- I hope that this gets put on google video soon!

santafe2
10-02-08, 07:39 PM
I posted it (http://itulip.com/forums/showthread.php?t=5644) in the News section -- and was royally panned for doing it!

Rajiv are you looking for a different opinion on this thread? CAF is a complete conspiracy theory nut job. She can, on occasion, tone it down when she's in the right environment but left to her own devices she'll pull out the room temperature IQ and start writing.

And it's not you that's being panned, it's the ideas contained in the above linked article.

godraz
10-02-08, 07:57 PM
I met Catherine Fitts in person after reading her Dunlop & Read expose of how crony capitalism works between Wall Street & Foggy Bottom, and following a lot of other bread crumb trails about the rot in our system. She is a damn fine person -- incorruptible.

I think her thoughts on this matter are dead on. But having said that, I do think something should be done, just not what is being attempted -- AGAIN! -- by these thieves with an assist from the Senate.

I am so pissed off! (Check out the Treasury Conference Call link.) Earlier today I wrote my senator a Dear John letter, informing him that he just lost my vote this November, and anyone else I know whom I can persuade to not vote for this bum. Then I went and sent money to another Senator not in my state who is up for re-election who voted against this abomination. I did the same for several Congressman who I believe will stick to their principles on this House re-vote. I also wrote and called my Congressman who voted against this Bailout proposal and implored him to do so again.

I am sick of getting shafted this way! Yes, it will get ugly if nothing is done, but this is just as ugly if not more so because having escaped getting raped the first go round, now the Senate sez, wait, we didn't get our chance to get off!

This whole thing stinks! Yes, we are over a barrel here, but it helps not a bit to finally see revealed how brutal our political system works. As in, gee, you seem to have something stuck in your bum -- here let me shove it in deeper!

:mad:

Rajiv
10-02-08, 08:06 PM
Conspiracy (http://www.answers.com/topic/conspiracy)


n., pl. -cies.

An agreement to perform together an illegal, wrongful, or subversive act.
A group of conspirators.
Law. An agreement between two or more persons to commit a crime or accomplish a legal purpose through illegal action.
A joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas.



If you saw the Senate in action and all the boondoggles that got appended to the bailout bill -- can you really say that conspiracies do not exist -- Why did this wooden arrow addition (http://www.newser.com/thread/1889/1/wooden-arrow-bailout.html) take place in the Senate Bailout Bill

Was that not because of a conspiracy?

Much of CAFs thoughts come from her personal experience in the US Government and Investment Banks -- either you invalidate her experience in the US Government and in Investment Banks, and tell me why those experiences are invalid - or you have to give a degree of validity to what she says.

On the credit crunch, the problems that are now surfacing are because of a defect in the Financial system -- the Bailout bill even if it passes will not have much effect. The basic problems with the system are not being addressed. Unless these issue are addressed, the system is headed for a crash -- and I see no way that these issues will even be considered until after much hardship has occurred -- So I see no reason why the US taxpayer should be bailing out rich fat cats when the systemic problems are not being addressed.

The argument that if a house is burning down, I should be trying to put out the fire before trying to find out why the house is on fire in the first place is faulty -- because if you do not understand the cause of the fire, you may in fact be exacerbate the fire if you choose the wrong method of fighting the fire.

santafe2
10-02-08, 08:51 PM
Much of CAFs thoughts come from her personal experience in the US Government and Investment Banks -- either you invalidate her experience in the US Government and in Investment Banks, and tell me why those experiences are invalid - or you have to give a degree of validity to what she says.

Rajiv, my opinion of CAF, is just my opinion and stems from my general view of the world. That view forces me to look for more simple answers than a conspiracy would allow. It doesn't mean I'm right, but I'm not likely to find even the best conspiracy theory more than just interesting.

As for the proof you asked for; the proof is not up to me. I'm not formulating the argument, simply responding to an argument I find less than compelling. It is up to you to offer the the unassailable proof. Your argument above uses a common logical fallacy, that is, something is true because it has not been proven untrue. This thinking is, to my mind, at the root of many conspiracy theories.

There is a second fallacy in your appeal to her authority as a proof of the validity of her ideas. We might read her proof more seriously based on her position but the position alone lends no credence to the argument.

It doesn't mean none these people she attacks are crooks and/or liars or that I think the bailout plan is not without serious flaws. I just think CAF lit her hair on fire and ran down the street with this article and it adds no proof that EJs proposition "No Time for Utopian Anti-Interntionalism" is not correct.

rj1
10-02-08, 09:03 PM
2) Much worse education systems in 3rd world. In many cases, People arent just poor but ignorant, so much more limited in job choices. You need an educated population to climb out of a depression. They don't have it and the rulers plan to keep it that way on purpose. I don't see that being an issue here.

Some adults I run into here are incapable of doing math. Great education system?

Chris Coles
10-03-08, 01:35 AM
I believe that the answer to this part of the debate is here in The Times, London:

European bank rescue plan in tatters amid savings stampede

"Plans for a pan-European response to the global financial crisis lay in tatters last night as Greece followed Ireland in unilaterally guaranteeing all bank deposits.

Amid reports that Greek depositors were rushing to withdraw their savings, Greece's Cabinet agreed to protect all deposits whatever their size. Previously the maximum guaranteed was €20,000 (£15,600).

A proposal by President Sarkozy of France to create a European €300 billion bailout fund also collapsed, leaving attempts on this side of the Atlantic to calm investor panic and lubricate the money markets in chaos."

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4870873.ece?&EMC-Bltn=JPU9N9

The majority of the people have made their own decision about the present banking arrangements and are acting unilaterally to move their money out of banks.

The people do not believe the system is honest. So if you need proof, here it is. Catherine Austin Fitts is absolutely correct and her list is right on the button.

As for Warren Buffet suggesting that there is a need to reinvigorate the very market, mortgage backed securities, that are right at the heart of this debate, at a mere 20% of value when we know the securities are produced by as much as 30 times leverage, (making them worth perhaps 1/30th, and not 1/5th), is breathtaking.

Supercilious
10-03-08, 01:56 AM
The unexpected consequences are so far beyond the pale that I won't even try to put it into words.

A very painful education is ahead, and many will never get it.

You are right. They will educate us to obey.

The bailout will go through one way or another:


<object width="425" height="344">

<embed src="http://www.youtube.com/v/HaG9d_4zij8&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></object>

brucec42
10-03-08, 02:51 PM
Well, if it accounts for something, In my job I've been in telecoms infrastructure installations in places that are not in common maps, where you need to travel 4 hours on dirt roads in mountain ranges just to get there. So far, I've done my best to do my part on improving services in rural Mexico.

My opinion has always been that we need first to develop a reliable road and communications infrastructure to ease people their inclusion on the market with their products. Along with this, an update of the education system, so even in the deepest places on the countryside there are the tools needed to give a reliable education to everybody. Third, a nationwide restructure of public health system, to reach the furthest places of the country.

Just complying with these three points: Communications infraestructure, Improved Education and a Reliable Nationwide Health System, we will have the base needed to build a strong and productive economy. Well, it's always worth dreaming, but it gets better when you are part of it all.

While nice goals, this is like furnishing your new home before you've roofed it. Before any of this can be accomplished, they first need.

1. A system of laws that are enforced properly and fairly
2. A no-tolerance policy for corruption
3. Economic freedom and guaranteed enforcement of property rights.
4. Democratic principles so a government denying either of the above 3 things can be removed and replaced.

The above things plus perhaps others will lead to healthcare, roads, education, etc.

What is often missed is that these things ultimately come from the PEOPLE, be it at a ballot box or by the sword. We don't openly tolerate cops taking bribes to enforce your rights. We don't tolerate (for now) government seizing industries because they're "too important" not to. We don't tolerate being disarmed to the degree we are easily bullied. If we hear about a corrupt official taking bribes we demand his imprisonment, not ask "hey, how much does he want for me to get a business license" ? It's a matter of values. You have crummy ones you get a crummy country.

Contemptuous
10-03-08, 05:47 PM
Hey Bruce - as our country is going through a financial heart attack brought on entirely due to gross financial speculative mismanagement, massive public delusion and folly about get rich quick schemes, not to speak of world class fraud worthy of an unscrupulous riverboat gambler, perpetrated by our investment banks expressly upon banks and savers/investors in the rest of the world, it seems we are no longer in a position to comfortably point out the socio-political limitations of other countries - e.g. "rule of law", and "respect for property", "incorruptible public servants" and "stable civic institutions", etc.

When you factor in all of the above warts upon the US's public image these days, it requires a bit of chutzpah on our part to offer any advice to other nations about the basic pre-requisites for the status of "advanced economy", no? We may have some of those attributes still, but they are looking really shabby at this time, and they are attributes we inherited from an earlier generation, and have largely pissed away in deluded "get something for nothing" follies. I am not any "hair shirt" kind of guy at all, but I would feel uncomfortable about "offering advice" to any other nation at this time.


Before any of this can be accomplished, they first need.

1. A system of laws that are enforced properly and fairly
2. A no-tolerance policy for corruption
3. Economic freedom and guaranteed enforcement of property rights.
4. Democratic principles so a government denying either of the above 3 things can be removed and replaced.

... We don't openly tolerate cops taking bribes to enforce your rights. We don't tolerate (for now) government seizing industries because they're "too important" not to. We don't tolerate being disarmed to the degree we are easily bullied. If we hear about a corrupt official taking bribes we demand his imprisonment, not ask "hey, how much does he want for me to get a business license" ? It's a matter of values. You have crummy ones you get a crummy country.

Chris Coles
10-03-08, 05:56 PM
Hey Bruce - as our country is going through a financial heart attack brought on entirely due to gross financial speculative mismanagement, massive public delusion and folly about get rich quick schemes, not to speak of world class fraud worthy of an unscrupulous riverboat gambler, perpetrated by our investment banks expressly upon banks and savers/investors in the rest of the world, it seems we are no longer in a position to comfortably point out the socio-political limitations of other countries - e.g. "rule of law", and "respect for property", "incorruptible public servants" and "stable civic institutions", etc.

When you factor in all of the above warts upon the US's public image these days, it requires a bit of chutzpah on our part to offer any advice to other nations about the basic pre-requisites for the status of "advanced economy", no? We may have some of those attributes still, but they are looking really shabby at this time, and they are attributes we inherited from an earlier generation, and have largely pissed away in deluded "get something for nothing" follies. I am not any "hair shirt" kind of guy at all, but I would feel uncomfortable about "offering advice" to any other nation at this time.

Well said.