... doing the bail-out design, who do not see the problem as being the excessive size of the finance sector and the over-reliance on markets structures to perform activities like insurance, mortgage creation and deposit taking that ought to be done by going concerns ...
... they are going to see the "problem' as how to recreate the bull markets of the 90's and Naughties.
However, whether they are trying to perpetuate fictitious assets or whether they are trying to leave someone else holding the fictitious assets while they tiptoe out of those markets ... that would probable depend on where they are inside the system.
In the "too big to fail" banks, now that the distinction between commercial money center bank and investment bank has been erased, they really do not have a strong stake in the continued existence of some of these derivative markets. With their implicit government subsidy of not allowing them to fail, if they can get recapitalized without the equity stake that normally goes along with recapitalization, they can pick up the business that was previously going through the markets for fictitious assets.
Of course, for the core market participants, the financial firms writing the fictitious assets and collecting the signatures and credit ratings to maintain the fiction, "de-leveraging" as people try to back out of the markets means the end of their livelihood and, at the worst extreme, the need to get work in the lowly productive sector that they used to lord over, free to wreck at will.
So the big money center banks might be OK with some of the fictitious assets going away, as long as they can swap them for real assets before they do. But not the rest of Wall Street, which is double or treble the size it would be if it resumed its role of hand-maiden to industry rather than lord and master.
October 25, 1974
The new head of the Liaison Office, George Bush, arrives in China for talks with Chinese Vice Premier Deng Xiaoping.
January 1, 1979
U.S. and China establish full diplomatic relations.
April 10 , 1979
President Carter signs the Taiwan Relations Act, which legalizes new U.S. relationship with Taiwan.Under the bill, the U.S. essentially continues to treat Taiwan as an independent nation, sell it arms, lend it money, recognize its passports and grant its diplomats immunity from U.S. law.
Trade Act of 1974
The Trade Act of 1974 (actually enacted January 3, 1975 as Pub.L. 93-618, 88 Stat. 1978, 19 U.S.C. ch.12) was passed to help industry in the United States become more competitive or phase workers into other industries or occupations. It created fast track authority for the President to negotiate trade agreements that Congress can approve or disapprove but cannot amend or filibuster. The fast track authority created under the Act extended to 1994 and was restored in 2002 by the Trade Act of 2002.
They're asking for another four years -- in a just world, they'd get 10 to 20 ~~ Dennis Kucinich
No one is more concerned about the trade deficit than I, but I have to tell you that you're off base with your concern about Canada. Our trade deficit with Canada is due entirely to our imports of oil. Canada is our number one source of imported oil. We actually have a small trade surplus with Canada in manufactured goods, so no manufacturing jobs have been lost as a result of our trade with Canada. The problem with NAFTA is Mexico. I give Obama credit for not screwing up the highly beneficial trade relationship with Canada. Yes, any trade deficit is a concern, but to fix the deficit with Canada, we need to look to energy policy and population management, not trade policy.
Our trade deficit is an enormous problem, but we need to focus on the real root cause of the problem - the huge disparity in population density* between the U.S. and nations like China, Japan, Korea and Germany - to eliminate the deficit while preserving the many truly beneficial trade relationships we have with many other countries. In fixing this problem, we're going to need allies. It makes no sense to take a sledge hammer approach and end up angering everyone.
* For more info about the role of population density in driving our trade deficit, please visit my web site.
they are clearly nervous but not so condemning. I have watched Obama's economic advisers and what he says...and "worker and environmental standards" are the same blow off response that Robert Rubin spewed instead of fixing the real trade details so these are not glorified offshore outsourcing agreements and actually fair and encourage the trade of real products and are not arbitraging workers.
I'd answer yes to each of them. Those in charge chant the mantra -- "the markets will take care of it." They leave out the part about the markets being fixed. In a reverie of greed rarely seen in history, the Money Party has created an economy that's spent. The "legacy equity" that you talk about is the farewell to things making sense. Hence, we've got a furious effort to prop up the old system. But the same players and institutions with the same assumptions are being protected through the trillions of dollars worth of infusions. They'll behave for a bit and then it will be back to business as usual. We have a non functioning ecnomic system, soon to be non functional for even the rake off artists. Very well said.
let out those who committed property crimes less than the current value of any TARP legislation. If you steal an item worth $200 in many states, it's called a felony. But if you steal $140 billion (the code change that begat the $140 billion tax break), you're never investigated because it might "upset the market."
"the idea that a corporation should not be allowed to commit criminal acts...is still going by the way side, at least from policy makers, etc..."
Punishing criminal behavior in the financial system is about as likely to occur as bringing to certain justice those who fabricated the lies that got us into Iraq.
Congress can't afford to do either. Whether they voted for initial legislation or not, they voted for continued functioning and funding and they didn't say a single word, with a very few exceptions. They don't even read the legislation that they vote on, let alone consider the impact on citizens of this or any country who get in the way of their calculated plans for excessive profits.
When borrowers can't make their payments, shouldn't we be asking why? Is it because...maybe their real wages have declined to the point at which they're unable to service debt? And why is that? What could possibly have resulted in
a serious loss of purchasing power throughout the economy? Too much leverage? Too much debt? Why was borrowing so necessary in the first place...was it perhaps because of declining real wages? Could outsourcing have been a factor? Might borrowing have been not strictly a discretionary choice, but an attempt to make up for actual losses that have been occurring for the past 15 years? Is it possible we've been living off of legacy equity for the past 15 years...and we've simply run out...like bye, bye Miss American Pie?
On the topic of using US in names . Let's take a look at changing the US patent and trademark laws. Why should the American taxpayer support govermental laws allowing companies to use US patent law to protect their names and products when manufacturing is shipped to other countries? We as American taxpayers should push to have this changed. Products not made in US and companies not manufacturing/headquartered in the US do not deserve the protection of US patents or trademark/registered names. These companies are using the US laws for private gain, this needs to stop. Our government seems to approve of this for some reason?
to run TV ads 24 hours a day trying to convince stupid and desperate people to put the family jewels in an envelope to "get some money" for that "oh so useless gold" that is just "laying around the house".
I bought Kevin Philips' most recent book 'Bad Money' last May and I confess it took me awhile to understand CDS, CDO, CLO and all the other techniques used but I persevered....your post is remarkable for it's clarity and I will bookmark it to give to people( too many people say 'how did this happen?')...your post and Philips book , I consider both to be essential reading to understanding this current economic situation.
I've been a Gold-Hoarding-Seditionist(tm) for many years now. Every time I bring up gold there are always plenty of people who are ready to criticize the very concept. The contempt for gold (and silver) has gotten to the point of being irrational. Gold is entering its 8th year of a bull market, yet few in America are interested. The average American actually owns less gold today than he/she did 4 years ago.
Can you imagine an 8-year long bull market in stocks or bonds being ignored by people?
I can understand why Wall Street hates it - they can't profit from it. I can understand why the government hates it - they can't track it because it isn't attached to debt.
But why would the Main Street hold it in contempt?
are all of these bail outs and huge spending simply an attempt to save a large fictional market?
YES! That is, in fact, what I was trying to clumsily point out last September- whenever you have a market that supposedly has a value several times all of the assets in the world, you have a fictional market, one that can only be destroyed through massive deflation.
To give them their smart grid- then restrict all money spent to domestic-only companies. If you've got a branch office in another country, you're SOL on the contract.
are all of these bail outs and huge spending simply an attempt to save a large fictional market?
What is the true value of these derivatives as well as horse trading behavior on real estate?
How much would it be if all of this went away?
Is all of this trying to save this "money" in CDOS, CDSes, brokering, packaging up mortgages and so forth where this money has no real value in comparison to the "value" of these various structured financial instruments and insurances?
... if you have an insurable risk, take out insurance. If insurance cannot be obtained for something, why is it a good idea to "insure" it by increasing the exposure of the economy to systemic risks?
And if you don't have an insurable risk, then there is even less justification for permitting you to amplify system risks by buying a CDS.
On Collateral Debt Obligations ... note that the central problem of moral hazard with CDO's is intrinsic to CDO's.
Picture it, here you purchased a home with a new mortgage. The mortgage was sold to other investors because the bank that issued you yours needed the cash to make more lending.
That's the problem ... rather than holding the paper, the bank sells the paper on. That puts the bank in the position of being a mortgage broker, and a mortgage broker's incentives are like the incentives of a used car salesman working on commission ... to "sell" the loan to potential buyers.
We ought to have a system where the bank holds onto the majority of those loans, and where selling loans on are part of a public program in pursuit of public policy objectives, rather than part of an effort to generate transactions income for participants in financial markets.
However, at least with respect to CDO's, its possible to distinguish two classes. First tier CDO's, composed entirely of primary financial assets, shift systemic risks around, but do not necessarily amplify them. It is second and higher tier CDO's, which include derivatives (often CDO's themselves) which are systemic risk amplifiers.
So it may be OK to permit first tier CDO's, properly regulated. But there's no reason to permit multi-tier CDO's. And certainly no multi-tier CDO should ever be permitted to be held by financial institutions that are limited to holding investment grade financial assets.
... doing the bail-out design, who do not see the problem as being the excessive size of the finance sector and the over-reliance on markets structures to perform activities like insurance, mortgage creation and deposit taking that ought to be done by going concerns ...
... they are going to see the "problem' as how to recreate the bull markets of the 90's and Naughties.
However, whether they are trying to perpetuate fictitious assets or whether they are trying to leave someone else holding the fictitious assets while they tiptoe out of those markets ... that would probable depend on where they are inside the system.
In the "too big to fail" banks, now that the distinction between commercial money center bank and investment bank has been erased, they really do not have a strong stake in the continued existence of some of these derivative markets. With their implicit government subsidy of not allowing them to fail, if they can get recapitalized without the equity stake that normally goes along with recapitalization, they can pick up the business that was previously going through the markets for fictitious assets.
Of course, for the core market participants, the financial firms writing the fictitious assets and collecting the signatures and credit ratings to maintain the fiction, "de-leveraging" as people try to back out of the markets means the end of their livelihood and, at the worst extreme, the need to get work in the lowly productive sector that they used to lord over, free to wreck at will.
So the big money center banks might be OK with some of the fictitious assets going away, as long as they can swap them for real assets before they do. But not the rest of Wall Street, which is double or treble the size it would be if it resumed its role of hand-maiden to industry rather than lord and master.
October 25, 1974
The new head of the Liaison Office, George Bush, arrives in China for talks with Chinese Vice Premier Deng Xiaoping.
January 1, 1979
U.S. and China establish full diplomatic relations.
April 10 , 1979
President Carter signs the Taiwan Relations Act, which legalizes new U.S. relationship with Taiwan.Under the bill, the U.S. essentially continues to treat Taiwan as an independent nation, sell it arms, lend it money, recognize its passports and grant its diplomats immunity from U.S. law.
Trade Act of 1974
The Trade Act of 1974 (actually enacted January 3, 1975 as Pub.L. 93-618, 88 Stat. 1978, 19 U.S.C. ch.12) was passed to help industry in the United States become more competitive or phase workers into other industries or occupations. It created fast track authority for the President to negotiate trade agreements that Congress can approve or disapprove but cannot amend or filibuster. The fast track authority created under the Act extended to 1994 and was restored in 2002 by the Trade Act of 2002.
They're asking for another four years -- in a just world, they'd get 10 to 20 ~~ Dennis Kucinich
No one is more concerned about the trade deficit than I, but I have to tell you that you're off base with your concern about Canada. Our trade deficit with Canada is due entirely to our imports of oil. Canada is our number one source of imported oil. We actually have a small trade surplus with Canada in manufactured goods, so no manufacturing jobs have been lost as a result of our trade with Canada. The problem with NAFTA is Mexico. I give Obama credit for not screwing up the highly beneficial trade relationship with Canada. Yes, any trade deficit is a concern, but to fix the deficit with Canada, we need to look to energy policy and population management, not trade policy.
Our trade deficit is an enormous problem, but we need to focus on the real root cause of the problem - the huge disparity in population density* between the U.S. and nations like China, Japan, Korea and Germany - to eliminate the deficit while preserving the many truly beneficial trade relationships we have with many other countries. In fixing this problem, we're going to need allies. It makes no sense to take a sledge hammer approach and end up angering everyone.
* For more info about the role of population density in driving our trade deficit, please visit my web site.
Pete Murphy
Author, "Five Short Blasts"
The safest investment in messy longterms is buying land that eventually can be seed (good for catastrophic times).
they are clearly nervous but not so condemning. I have watched Obama's economic advisers and what he says...and "worker and environmental standards" are the same blow off response that Robert Rubin spewed instead of fixing the real trade details so these are not glorified offshore outsourcing agreements and actually fair and encourage the trade of real products and are not arbitraging workers.
I'd answer yes to each of them. Those in charge chant the mantra -- "the markets will take care of it." They leave out the part about the markets being fixed. In a reverie of greed rarely seen in history, the Money Party has created an economy that's spent. The "legacy equity" that you talk about is the farewell to things making sense. Hence, we've got a furious effort to prop up the old system. But the same players and institutions with the same assumptions are being protected through the trillions of dollars worth of infusions. They'll behave for a bit and then it will be back to business as usual. We have a non functioning ecnomic system, soon to be non functional for even the rake off artists. Very well said.
mistake
let out those who committed property crimes less than the current value of any TARP legislation. If you steal an item worth $200 in many states, it's called a felony. But if you steal $140 billion (the code change that begat the $140 billion tax break), you're never investigated because it might "upset the market."
"the idea that a corporation should not be allowed to commit criminal acts...is still going by the way side, at least from policy makers, etc..."
Punishing criminal behavior in the financial system is about as likely to occur as bringing to certain justice those who fabricated the lies that got us into Iraq.
Congress can't afford to do either. Whether they voted for initial legislation or not, they voted for continued functioning and funding and they didn't say a single word, with a very few exceptions. They don't even read the legislation that they vote on, let alone consider the impact on citizens of this or any country who get in the way of their calculated plans for excessive profits.
Wasn't it Ross Perot, back in 1992 that referred to "that sucking sound" in reference to NAFTA?:-)
When borrowers can't make their payments, shouldn't we be asking why? Is it because...maybe their real wages have declined to the point at which they're unable to service debt? And why is that? What could possibly have resulted in
a serious loss of purchasing power throughout the economy? Too much leverage? Too much debt? Why was borrowing so necessary in the first place...was it perhaps because of declining real wages? Could outsourcing have been a factor? Might borrowing have been not strictly a discretionary choice, but an attempt to make up for actual losses that have been occurring for the past 15 years? Is it possible we've been living off of legacy equity for the past 15 years...and we've simply run out...like bye, bye Miss American Pie?
"The problem doesn't appear to be so much corruption as a distinct lack of understanding of how we got here, and a lack of vision for where to go."
Ed McMahon couldn't have said it better, "You are CORRECT, sir!" Neoclassical approaches may not work at this stage.
On the topic of using US in names . Let's take a look at changing the US patent and trademark laws. Why should the American taxpayer support govermental laws allowing companies to use US patent law to protect their names and products when manufacturing is shipped to other countries? We as American taxpayers should push to have this changed. Products not made in US and companies not manufacturing/headquartered in the US do not deserve the protection of US patents or trademark/registered names. These companies are using the US laws for private gain, this needs to stop. Our government seems to approve of this for some reason?
to run TV ads 24 hours a day trying to convince stupid and desperate people to put the family jewels in an envelope to "get some money" for that "oh so useless gold" that is just "laying around the house".
Is it worth spending my vacation panning again?
I bought Kevin Philips' most recent book 'Bad Money' last May and I confess it took me awhile to understand CDS, CDO, CLO and all the other techniques used but I persevered....your post is remarkable for it's clarity and I will bookmark it to give to people( too many people say 'how did this happen?')...your post and Philips book , I consider both to be essential reading to understanding this current economic situation.
I've been a Gold-Hoarding-Seditionist(tm) for many years now. Every time I bring up gold there are always plenty of people who are ready to criticize the very concept. The contempt for gold (and silver) has gotten to the point of being irrational. Gold is entering its 8th year of a bull market, yet few in America are interested. The average American actually owns less gold today than he/she did 4 years ago.
Can you imagine an 8-year long bull market in stocks or bonds being ignored by people?
I can understand why Wall Street hates it - they can't profit from it. I can understand why the government hates it - they can't track it because it isn't attached to debt.
But why would the Main Street hold it in contempt?
YES! That is, in fact, what I was trying to clumsily point out last September- whenever you have a market that supposedly has a value several times all of the assets in the world, you have a fictional market, one that can only be destroyed through massive deflation.
To give them their smart grid- then restrict all money spent to domestic-only companies. If you've got a branch office in another country, you're SOL on the contract.
in reading your comment I just had a thought...
are all of these bail outs and huge spending simply an attempt to save a large fictional market?
What is the true value of these derivatives as well as horse trading behavior on real estate?
How much would it be if all of this went away?
Is all of this trying to save this "money" in CDOS, CDSes, brokering, packaging up mortgages and so forth where this money has no real value in comparison to the "value" of these various structured financial instruments and insurances?
... if you have an insurable risk, take out insurance. If insurance cannot be obtained for something, why is it a good idea to "insure" it by increasing the exposure of the economy to systemic risks?
And if you don't have an insurable risk, then there is even less justification for permitting you to amplify system risks by buying a CDS.
On Collateral Debt Obligations ... note that the central problem of moral hazard with CDO's is intrinsic to CDO's.
That's the problem ... rather than holding the paper, the bank sells the paper on. That puts the bank in the position of being a mortgage broker, and a mortgage broker's incentives are like the incentives of a used car salesman working on commission ... to "sell" the loan to potential buyers.
We ought to have a system where the bank holds onto the majority of those loans, and where selling loans on are part of a public program in pursuit of public policy objectives, rather than part of an effort to generate transactions income for participants in financial markets.
However, at least with respect to CDO's, its possible to distinguish two classes. First tier CDO's, composed entirely of primary financial assets, shift systemic risks around, but do not necessarily amplify them. It is second and higher tier CDO's, which include derivatives (often CDO's themselves) which are systemic risk amplifiers.
So it may be OK to permit first tier CDO's, properly regulated. But there's no reason to permit multi-tier CDO's. And certainly no multi-tier CDO should ever be permitted to be held by financial institutions that are limited to holding investment grade financial assets.
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