finance

Econ-Fin News Dec 1 2008 - Bernanke's Laissez Faire Dissected

Economics and Finance News - Dec 1, 2008

Bernanke and Paulson talk about the financial collapse
John Cassidy has a lengthy article in The New Yorker today which includes some excellent insights into U.S. Federal Reserve chairman Ben Bernanke and his miserable handling of the financial collapse, including, so far as I know, the first public discussion of an August 2007 meeting in Jackson Hole, Wyoming in which the Fed’s initial approach was discussed and decided by Bernanke and a small group of top advisers.

First, Cassidy provides some interesting details on how Bernanke became Fed chairman,

“I always thought that Ben would stay in academia,” Mark Gertler, an economist at New York University who has known Bernanke well since 1979, told me. “But two things happened.”

Econ-Fin News Nov 29 2008 - This is Worse Than Great Depression

We are in a worse situation than The Great Depression
Barry Ritholtz linked to a video of Paul Solomon of the PBS News Hour interviewing with Dr. Nassim Nicholas Taleb, famous economist and author of The Black Swan : The Impact of the Highly Improbable” and Taleb’s mentor, French mathematician, Dr. Benoit Mandelbrot, Professor Emeritus of Mathematics at Yale University. Dr. Mandelbrot, a pioneer in the development of chaos theory, is regarded as the father of fractal geometry. Both say that the present economic situation is actually more serious than the Great Depression. In fact, they fear the U.S. is in the worst situation it has been in since the American Revolution.

The reason, Dr. Taleb explained, is that “Never in the history of the world have we faced so much complexity combined with so much incompetence in understanding its properties.”

Economic and Financial News - Nov 28, 2008 - World War 2 was a relative bargain

Economic and Financial News Nov 28, 2008

The following items have come to my attention the past few days, and, dear reader, I deem them worthy of your attention and perusal, and just generally good stuff for your edification and amusement.



The Washington Post notes that Americans' Food Stamp Use Nears All-Time High of over 30 million.


Compared to Wall Street bailout, World War Two was a relative bargain

Neutron Bomb over Wall Street?

One of the heretical thoughts I continue to hold is that the "slow motion bust" that we are living through, may not proceed to destroy the entire economy like a nuclear bomb. Rather, like a neutron bomb over Wall Street, it might destroy the financial sector but leave most of the economic infrastructure in place. If it is a worthy goal that the doctrine of "Profits are privatized, losses are socialized" must cease, then it may be an absolute tonic if several financial enterprises thought "too big to fail", nevertheless do.

A noteworthy graph from Yahoo finance demonstrates that the "neutron bomb" scenario indeed may be unfurling. The graph below covers the last 3 years for the S & P 500 (red) and compares it with the financial sector as represented by the Financial SPDR (blue), starting from a baseline (0%) of 5 years ago:

The 401k Scam

Submitted by on

"The 401(k) will turn out to be the greatest systemic financial hoax ever perpetrated on an unsuspecting public."
- William Wollman, The Great 401(k) Hoax

Like most people I was told to plow as much money into my 401k as possible. So like millions of other workers out there, I did as I was told. By 2003 I had accumulated a nice little nest egg...that I couldn't touch.
Then one day I was in a bookstore and I happened across a book called The Coming Generational Storm. What I read about 401k's that day made me immediately stop all contributions.

Since then I came to realize that the 401k model is hopelessly flawed and will lead an entire generation to despair.

Author Laurence J. Kotlikoff made two points that were simply too logical for me to ignore:

Sovereign Wealth Funds: The Rise Of Corporatism

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"The first stage of fascism should more appropriately be called Corporatism because it is a merger of State and corporate power"
--Benito Mussolini

Last week Treasury Secretary Paulson had a meeting with representatives from Abu Dhabi and Singapore. The meeting involved setting up "rules" for future investments in America from their Sovereign Wealth Funds.

"SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government," the agreement stated.

No one noted the obvious irony.

A sovereign wealth fund (SWF) is a state-owned fund composed of financial assets such as stocks, bonds, property or other financial instruments.

The first ironic twist of this agreement is the fact that America has spent more than half a century pushing third world nations to open their markets to unrestricted foreign investment. Refusal to comply with America's wishes all too often meant a CIA-sponsored coup.
Now we are trying to put restrictions on how former third-world nation can invest in America.

The second, and more important, ironic twist is the obvious weakness this displays. If America had a strong economy would we really care what the motivations of the SWF's were? If we weren't desperate for the money, would there even be opportunities for the SWF's to buy significant amounts of American assets?

Corporations Owning Corporations

seem to recall that at one time it was illegal for corporations to own other corporations. I think this grew out of the abuses where A owned part of B and B owned part of A.

I think the two Phillips Electronics firms were involved in this type of trick.

If corporations were prohibited from owning other firms and if firms could not set up subsidiaries in other countries, perhaps the incentives to bad behavior would be reduced.

The most obvious present difficulty has to do with tax avoidance. Firms incorporate in tax havens and shift profits to these subsidiaries, many of which are nothing more than mailboxes.

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