NYT Op-Eds: End of the Financial World As We Know It / How to Repair a Broken Financial World

Discuss

96 Responses to “NYT Op-Eds: End of the Financial World As We Know It / How to Repair a Broken Financial World”

  1. Falcon_Seven says:

    @32 – To say that the dollar is ‘doomed’ as a currency is at best naive. The link to the ‘currency converter’ will allow you explore the fact that the U.S dollar has actually strengthened against foreign currencies -to simplify, it takes less of ours to buy one of theirs- since 07/17/2008. This is good for trade -foreign goods cost less, ideally a one-to-one exchange rate should be the norm (although that would require one to ignore the ‘volume’ of goods produced by any one country)- and, conversely, bad for speculators in foreign currencies. Additionally, there doesn’t seem to be any ‘hew and cry’ from the world’s commodity traders to revalue the trading of gold, oil, and other commodities based on U.S. dollars, to ‘woolongs’ or some other imaginary currency.

  2. Jonathan Badger says:

    The point isn’t that China is a utopia — the point is that it is a far better place now than it was twenty years ago. As a scientist I have naturally many Chinese co-workers. In grad school, many Chinese who had suffered under the Cultural Revolution told me their stories and swore that China would never be a livable country until the Communist Party was out of power. And the events of 1989 seemed to prove their point. And yet, now, some of those very same people have (of their own free will) moved back to China.

    • Antinous says:

      The point isn’t that China is a utopia — the point is that it is a far better place now than it was twenty years ago.

      I can scarcely disagree. The question is whether that’s the result of capitalism or of the information revolution.

  3. Takuan says:

    I’ll bring up the neck-stretching in about a year. The mood will more receptive then. In the interim, what is going to keep it from happening again? – seeing as how there is no penalty. I suppose they will have to be extradited.

  4. Ernunnos says:

    #88, the Greenspan’s easy money policy started in the mid-’90s. Remember the dot-com bubble? And in the wake of that, the Fed started cutting interest rates in January of ’01. By 9/11 of that year, they’d already slashed 3.5% points off.

    Nobody wants to be the one to take away the punchbowl, war or no war.

  5. Dave says:

    @45 You’ll find no opposition from me for well-thought out and effective regulatory policy. I support freedom, not anarchy. Yet.

    • Antinous says:

      Likewise, I wish that we were grown up enough to dispense with government. But we’re not there yet. Fortunately, we seem to be in a growth spurt, a painful growth spurt, but still progress.

  6. PaulR says:

    Dave:
    1. The dollar is fine. Um, for now.

    GEAB N°22 published February 16, 2008
    Global systemic crisis / September 2008 – Phase of collapse of US real economy

    “According to LEAP/E2020, the end of the third quarter of 2008 will be marked by a new tipping point in the unfolding of the global systemic crisis. At that time indeed, the cumulated impact of the various sequences of the crisis (see table below) will reach its maximum strength and affect decisively the very heart of the systems concerned, on the frontline of which the United States, epicentre of the current crisis. In the United States, this new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles (1) and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively (2),…”

    http://www.leap2020.eu/GEAB-N-22-is-available!-Global-systemic-crisis-September-2008-Phase-of-collapse-of-US-real-economy_a1298.html

    Jeepers, sound familiar? Who are these people? And how did they get that one right?

    More frighteningly: according to GEAB #30 – December 16, 2008, less than three weeks ago:
    “The crisis will last at least until the end of 2010
    As we already explained in GEAB N°28, the crisis will affect in different ways the different regions of the world. However, and LEAP/E2020 wishes to be very clear on that aspect, contrary to the dominant stance today (coming from those experts who denied the fact that a crisis was coming up three years ago, who denied that it was global two years ago, and who denied the fact that it was systemic six months ago), we anticipate that the minimum duration of the decanting phase of the crisis is 3 years (1). It shall be finished neither in spring 2009, nor in summer 2009, nor at the beginning of 2010. It is only towards the end of 2010 that the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and the Eurozone, as well as in countries producing energy, mineral and food commodities (2). Elsewhere, it will continue; in particular in the US and UK, and in all the countries depending on their economy, were the duration could approximate a decade. In fact these countries should not expect any real return to growth before 2018.”

  7. Dave says:

    @46 It’s hard (but not impossible) to participate in the information revolution on $2 a day. And I think it’s hard to separate the information revolution from capitalism and free trade in general. Moore’s law would be pretty unsustainable without an international free market for crap we don’t actually need I think.

    • Antinous says:

      The thing about the information revolution in China is that it requires a very small percentage of participants. The PRC is ironically hypersensitive to bad PR. Back in the day, hundreds of thousands of people would die in a single flood and the rest of the world wouldn’t hear about it for half a decade. That’s no longer an option. A single camera phone could literally destroy a government now.

  8. Ugly Canuck says:

    Hey Tak no accident that; our mortgages are NEVER (and have never been) “non-recourse” and mortgagees can’t get cheap insurance on the loan if the mortgagor puts up less than 20% of the down-payment. Plus , individual residential (ie non-business) mortgage interest payments are not deductible from income tax payable. OTOH there is zero tax on the sale of your primary residence, even in the case of transfer as a result of death.
    Also our bankers seem to be the very epitome of the “if it is not explicitly permitted by rule & reg, then it may not be done” school of conservatism. Being some years behind the USA on most social fads, they had only just begun to use the instruments your bankers had so very enthusiastically adopted and advocated over the past 20 or so years, IE the type of instruments which destroyed the US investment banking industry, and other badly damaged other big corps to boot – the CDOs.
    I have always thought the risk of non-payment of any individual loan ought to be embedded in the interest rate and other terms of the loan itself. IMO these CDOs “off-loaded” that risk, distorting the prices creditors’ charged for their loans.
    Weirdly, these almost-to-a-man Republican bankers were very un-conservative in their ways of doing business.
    The US Republican party: helping radical risk-taking bankers pose as “conservative”. Conservative of what, precisely? Not, it would appear, of their capital, or to be more precise, the capital of others.

  9. pilcrow says:

    FALCON7. First, the value of today’s dollar is no guarantee of future stability. Google ‘weimar republic’ to find out why! I don’t need a simplified overview of the logic behind your yahoo currency convertor (but thank you! learning new stuff is so cool!) and instead direct you to post #19 where I put forth a terse but damning equation as to why the dollar is doomed.

    Brother, I gotta tell ya, it’s just a little naive to have blind faith that world currency will continue to prefer the US greenback when Greenspan himself indicated as early as 2007 that the euro would supplant it. So bank on that happening. This factor alone won’t destroy the dollar, per se, but as I said in #19 (qv) it is one factor of many that need to be carefully weighed together.

    Thanks for reading.

  10. Dave says:

    @48 Unless I misunderstand the prediction cited, the dates of predicted dollar collapse have come and gone with opposite results. Which is not to say the economy is all lollipops and sunshine. In fact, a weak dollar can assist recovery by increasing competitive exports of American goods. No dollar drop yet, though.

  11. Dave says:

    @52 I can’t say enough good about cameraphones as disruptive technology. It’s amazing the potential that such a simple invention has to bring liberty and justice to humanity.

    I still think that having an additional %20 of the population out of poverty and having that improvement be an obvious consequence of increased economic freedom is a very big deal for liberty in China.

  12. pilcrow says:

    @anintous. China is quickly emerging as a an economic juggernaut but much of that can be contributed to the twilight of america as the world’s lone superpower. Our twilight becomes their sunrise.

    Not long ago, Friedman idealogues sold america on the idea of a service-based economy, which meant farming out our industrial sector to other nations, namely China. It was all theory, of course, and no one factored in that the middle class would begin to erode when good paying factory jobs were supplanted with menial positions within the service sector.

    It was a mistake. They say “Only Nixon could go to China” and that’s more or less true–it took that big of an asshat to do so.

    I believe that China becoming “factory to the world” has contributed to their economic rise more than any other factor.

    @DAVE, It is entirely likely that many people are either ignoring or denying, mostly ignoring, the possibility of dollar collapse for the simple reason that the stir created would only serve as a catalyst of…

    DOOM!

  13. Dave says:

    @55 The future of the dollar is pure speculation so I’ll leave it at that.

    I think there’s some truth to your point about outsourcing manufacturing and counting on growth in the service sector. But I think the problem would be much smaller if it weren’t for the fact that manufacturing grew up in a time when it was legally possible to start a union and the service sector is growing at a time when it’s become essentially impossible to start a new union. So you have workers moving from trades in which they’ve been able to freely bargain collectively for a reasonable wage to trades in which that course of action has been effectively blocked by organized corporations with billions to spend on lobbying.

  14. Dave says:

    @55 Nonetheless. It should be noted that post-globalization, NAFTA, et al, EVERYONE in the US is doing better.

    http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1967-2003.svg

    Some are doing a LOT better, obviously, and I know that many find that distasteful, but I don’t measure my success by how well I’m doing compared to my neighbors and don’t recommend it as a path to happiness.

    Big caveat here. This just measures income. I don’t believe it measures things like healthcare, stability, retirement, etc. I think we’re going to need some serious reform in these areas if we are to avoid a big mess.

    If YOU want to personally avoid a big mess, see above for free investment advice. (Worth exactly what you paid for it.)

    • Antinous says:

      I don’t measure my success by how well I’m doing compared to my neighbors and don’t recommend it as a path to happiness

      Apparently that quirk is hardwired. There was a study where a majority of respondents chose to make $50K where the average was $25K rather than make $100K where the average was $200K, given identical purchasing power per dollar. It always goes back to jockeying for position in the pack.

  15. Ugly Canuck says:

    As to gov solutions, income support (ie the dole) is needed more than tax cuts.
    Any bets “fiscal stimulus” = “increased military spending” for the US gov?

  16. Dave says:

    @55 PILCROW – You seem to be a implying a zero-sum game re: China and the US, but the facts have not borne this out, either in terms of GDP or income growth. Both economies (and labor markets) have benefited from their freedom to interact financially.

    GDP is more clear cut but I imagine you’ll find that figure suspect, so I’ll just show the income figures.

    “China’s per capita income has grown at an average annual rate of more than 8% over the last three decades drastically reducing poverty..”

    http://en.wikipedia.org/wiki/Economy_of_the_People%27s_Republic_of_China

    American median income growth during the same period looks to be about 6%. Lots of numbers here.

    http://en.wikipedia.org/wiki/Household_income_in_the_United_States#Household_income_over_time

  17. pilcrow says:

    @DAVE, yes the collapse of the dollar is speculation. But it is far from wild speculation. Not long ago people were saying that a treasury market bubble was speculation, but now they’re coming to grips with the fact that the speculation of a treasury market bubble has become reality. The point is this: The easiest and cost-effective way to avert a harmful reality is to take action while it is speculation, before it becomes a reality.

    Speculation also happens when you bet long on Africa. For what it’s worth, I am also long on Africa! However, I think returns on any bet on Africa won’t materialize until a window is reached that is still 20 or 30 years out, and with the prevailing climate of political instability I am not rushing to the betting window.

  18. pilcrow says:

    @DAVE. The key word in your statement of american median income growth is, you guessed it, median. What happens to your figure when you throw out the top and bottom 5%?

  19. Dave says:

    @61 PILCROW – You should check out the Africa article I linked at the NY Times above. I honestly think that Africa will _start_ to get its shit together in the upcoming decade. When the market realizes that this is happening, I think we could see some serious market shifts. Remember, it doesn’t have to actually come to fruition. The market only has to guess that it WILL come to fruition for prices to adjust.

    But as we say in the business, it’s time in the market not timing the market that makes you wealthy.

  20. Dave says:

    @62 Hell, brother, I’m a poli sci major. Don’t ask me to do the maths. But if you look at the charts at that wikipedia article all the percentile lines are going up. Some are just going up a lot faster than others. I’d be more worried if some of the lines were going DOWN.

  21. pilcrow says:

    @DAVE, I’ve reviewed your chart and would like to point you here:

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

    It includes the same figures, but more in depth, painting the dire reality that cannot be simply whitewashed away. And it includes a rather apt quote from Greenspan:

    “this [increasing income inequality] is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing.”

    I don’t consider myself a rich person. Most smart rich people shouldn’t, not if they know what’s good for them. I like to say that I make a comfortable living, but I do realize that my comfortable living depends on the success of average households, not the elite mansion-dwellers.

  22. pilcrow says:

    Bedtime calling and we seem to be barreling off topic. Peace out everyone. Love your neighbor, but don’t get caught loving your neighbor’s wife

    p.s. DOOM!

  23. Antinous says:

    How about a chart of percentage of US households with employer-paid health insurance by income from 1965 to 2005? Is that comped into those figures, because that would largely negate the gain. Meanwhile the median gained 6% in 40 years and the top income group nearly doubled.

  24. Ugly Canuck says:

    RE Post #1:
    Do not confuse parasites and symbionts.

  25. pilcrow says:

    One more thing, Dave. I can’t sleep so I have been pushing around some figures, figures googled during our convo.

    And here is something alarming:

    It initially appears that if we exclude the top 5 percent and bottom 5 percent from your chart, the graph would show zero or perhaps negative growth for the median. What I’m saying is that the growth of the top percentile is ginormous enough to skew the chart for the other percentiles. My figures are still preliminary and I’m too tired to trust them. In fact I’m not sure if they are the exact figures that were used to generate the initial graph. I will give things another look over in the morning and post when I am certain and if you are interested.

  26. Cicada says:

    #68- So do you suppose that somewhere out there in a third world village there’s someone railing about how those robber barons in the US making 30k a year need to be hanged…

    • Antinous says:

      So do you suppose that somewhere out there in a third world village there’s someone railing about how those robber barons in the US making 30k a year need to be hanged…

      I don’t think that you’d have to leave the US to find them.

  27. Anonymous says:

    I’m surprised that the article author found these articles to be so intellectually intimidating. I can read a 2000 word article in about ten minutes, and it doesn’t give me a headache.

  28. Cicada says:

    @71 Because obviously, anyone making thirty grand a year must have been using some underhanded methods to get that, and how dare they make that much money when so many people are living on a couple bucks a day?

  29. nprnncbl says:

    Pilcrow #62, #69: If you exclude the bottom and top 5%, the median does not change; this is a mathematical fact. Think about it: the median is the 50th percentile, the point at which half are above, and half are below. If you exclude the top and bottom x% equally, you still have half above and half below the same cutoff.

    The mean might change, and this is one reason that the median is sometimes preferred as a summary statistic: it is more robust to outliers than the mean.

  30. Takuan says:

    the irony, Dear Cicada, is that there not necessarily any irony.

  31. Ernunnos says:

    Not a single word about the Greenspan money bubble? More regulation will fix the problem!

    Bah. You might as well spike the school bus drivers’ coffee pot with bourbon and propose stricter enforcement of traffic infractions to keep the children safe.

    The real solution is clear, but not worth mentioning, because we’ve gotten used to the way that coffee tastes…

  32. Cicada says:

    @73- Well, that dumps us back at core moral questions, doesn’t it? Chiefly, does person A have any responsibility to make sure person B is happy (fed/educated/not bleeding, etc) if doing so compromises his own happiness?

    I imagine most people would agree in theory and proceed to disagree violently in practice.
    “What, no cell phone/TV/laptop/automobile/second serving at dinner/new shoes/new art/science fiction novels until everyone’s had enough to eat? Go to hell.”

  33. gollux says:

    One of the most infuriating things underlying all this is that all the auditing firms had all the integrity of Arthur Anderson.

    Especially in the case of Mr. Madoff’s Jury Rigged Junk and Investments company. All the Independent Audit Reports were based on taking at face value the word of an unknown one-accountant shop that existed with no other known clients but Madoff’s Ponzi Shop and Wealth Sink.

    Here’s hoping that a lot of auditing firms will be sweating profusely in the upcoming wave of lawsuits.

  34. Takuan says:

    where’s the plenty capitalism promised? Didn’t everyone go along for the ride for pie tomorrow? It’s tomorrow already.

  35. Takuan says:

    “hamstrung”?

  36. a_user says:

    @Falcon Seven
    The link to the ‘currency converter’ will allow you explore the fact that the U.S dollar has actually strengthened against foreign currencies

    I rather think it’s more to do with the health of the world economy in the light of banks suddenly finding whatever-to-the-googol-power of dollars they thought they owned, don’t actually exist. Lest we not forget, the last time there was a depression this bad, it caused a world war. Or to put it another way, just because the aft stood higher than the prow of the Titanic as it sank, it was not a sign of the ship refinding its ability to float.

    Don’t forget paper money is only a promise to honour its face value. Modern economies moved away from being linked to actual material goods, and onto essentially performance ratings for measuring credit worthiness, allowing them to increase their perceived value. This is the real problem, all the richest countries were borrowing from each other, based on inflated assessments of how much money was actually in their economies. But if all their debts were suddenly to be called in at once, like now? Well then just ask Mr Madoff. He made the mistake of not being a in high government office and accountable to the laws of his country.

    @ Dave
    what would you do, as a MD or CEO, if you had an entire department from the top down so intent in padding their own personal fortunes, that they put the bank’s interest in second place to the point of threatening the bank’s existence. Would you

    a) ask the same department for advice on how to rectify things
    b) fire them and get people who didn’t behave like that.

    It’s a no brainer eh. Anyone currently in the field of economics and banking, or who has been schooled by it, has proved themselves to be at best ‘misguided’.

  37. pilcrow says:

    @nprnncbl Thanks. Yeah, wires crossed. Posting on too many damn forums.

    I’ve researched the problem I was spotting in the statistics, it’s called “top coding” where individuals who earn an insane amount of money are recorded as earning “more than X amount” only. Census data also excludes several important factors, like capital gains and healthcare.

    Fortunately, CBO data corrects or this. And if you have time and interest you should really check out the Congressional Budget Office (CBO) data, which uses the census data but corrects the top-coding problem with IRS data. Doing so paints an entirely more accurate (and accurately damning) picture of inequality in income growth:

    http://www.epi.org/content.cfm/briefingpapers_inequality_inequality

    A very telling figure is table 3 where the CBO data compares pretax and aftertax income from 1977-98 to illustrate a slight decrease for nearly 2/3 of America while income for the top 20% increased greatly, by a margin of nearly 35% with the top 1% driving most of that growth. There are a couple of different ways to look at things, depending on which figures you push. But the net net is that real economic growth for the middle class has been effectively stalled.

  38. Ugly Canuck says:

    I had thought Greenspan kept the price of money cheap to keep the costs of the gov borrowing undertaken to fight the “war on terror” in check.
    I was amazed that all those extra military $$ (borrowed by Uncle Sam) did not affect the cost of $$ at the time…I see this whole econ. mess as a variation of the old “guns-or-butter” debate. Looks like guns won…

  39. Ugly Canuck says:

    If you’re going to “deregulate”, may I suggest that you begin with marijuana and copyrights/patents, and leave the deregulation of those, whom you entrust to preserve and augment your life savings, for last?

  40. noen says:

    First rule of parasites is don’t kill the host.

    John Quiggin over at Crooked Timber has a good post:
    Refuted economic doctrines #1: The efficient markets hypothesis

    However the human capacity for self delusion is infinite. Therefore it’s obvious this is all someone else’s fault.

  41. Ghede says:

    @1

    Of course, like any other parasites that DO harm the host, they have no idea how the host functions, and how not to harm it.

  42. Chas44 says:

    I hope this signals the beginning of a new time in human history, where you and me and everyone else figures out what’s truly important — family, friends, experiences, music, art, thought, love. Not the balance in an account. Not the title on our business card. Not Wall Street or its activities. Not Hollywood or Madison Avenue. Who gives a crap? Our finanical system is melting down, but we’re all still alive. Do yourself a favor. DON’T read the articles. Instead, go out and watch the sunset. Then read a book. You’ll be MUCH happier at bedtime tonight.

  43. Cicada says:

    @76- What’s your definition of “plenty”, and are you presuming that in situations of plenty there’s harmony, security, and a general sense of wellbeing?

  44. noen says:

    “You’ll be MUCH happier at bedtime tonight.”

    Yes, you’re right. I’ve always found the cardboard box to be much more comfy when I’m bone tired.

  45. manicbassman says:

    manufacturing in the first world won’t recover until the Chinese are hamstrung by the same labour, health & safety and environmental legislation the rest of us have to comply with… until that happens, jobs will continue to move to China.

  46. gollux says:

    Increasing Stockholder Value: definition -> sacrificing collective long-term interests for short-term gain

  47. Cicada says:

    The assumption here seems to be that long-term thinking and caution will produce better long-term results than short-term thinking with high-profit seeking, and the confusion of volatility with bad financial planning.

    For example, which is better– a system where you start the year with a thousand dollar investment which slowly accrues in value until you have 1100 bucks at the end of the year, or one which fluctuates like mad, hitting three or four grand at its high, a hundred bucks at its low, and (randomly) ending the year at 1250?

  48. Takuan says:

    a tenant farmer/serf may have been tied to his land and enslaved by the local lord, but at least he was valuable farm equipment.

  49. noen says:

    Do not confuse parasites and symbionts.

    Sociopaths don’t DO symbiosis. That would mean giving back to the host and being concerned about the survival of someone other than yourself. Both things parasites and republicans are incapable of doing.

  50. PaulR says:

    Michael Lewis was interviewed on EconTalk:
    Michael Lewis on the Hidden Economics of Baseball and Football
    http://www.econtalk.org/archives/2007/01/michael_lewis_o_1.html

    and an interesting read here, also by Michael Lewis:
    The End (of Wall Street’s Boom?)
    http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true

    These people (Lewis’s subjects) really don’t know what they’re doing. This needs to be be repeated, over and over: Just because someone’s wearing an Armani suit and has shiny Italian shoes doesn’t mean they know what they’re doing…

  51. imipak says:

    The evasion of long-established rules on capital bases by banks, via securitisation of debt and risk, is going to dominate the next century as a terrible warning to governments everywhere of why proper regulation of financial markets is essential.

  52. Anonymous says:

    For those with WSJ subscriptions (sorry), here’s a very good reconstruction of Markopolos’s 10-year campaign against Madoff:

    http://online.wsj.com/article/SB122956182184616625.html

    Note the accompanying PDFs– which are Markopolos’s actual (very detailed) letters to the SEC, which the SEC basically ignored.

  53. Takuan says:

    oddly enough, the Canadian banks went relatively unscathed. As I understand it, the primary law (Bank Act) was originally written by the bankers. Passing strange it turns out thus.

  54. bazzargh says:

    Just read Markopolos’ submission to the SEC (via talkingpoints.net). Frankly, if I was the SEC and I read that, I might have tossed it too.

    The guy had some reasonable points, from Madoff’s cloak of anonymity to the unrealistic rates of return, but it was drowned in so much verbiage and anecdote (‘Red Flag #17′, ‘I have proved Mathematically that…’ (he hadn’t))

    In fact, it struck me as the language of a rambling internet blog commenter, down to spelling ‘bought’ as ‘bot’. Believe me people! I am the prophet of DOOM!

    The most interesting thing you get from it is that he was trying to give the SEC a heads up for when hedge funds finally got regulated, in 2006. 2006? WTF? Like most people, I guess, I thought that Wall Street had been regulated since before the film came out.

  55. pilcrow says:

    The article doesn’t mention the fact that the dollar is doomed. Doomed, doomed, doomed. Hanging by a splintering thread over a huge precipice of doom.

    #Ahem. We might want to address that soon.

    p.s. Doom!

  56. Spikeles says:

    @Pilcrow

    And here is the theme song we should all sing while being doomed: Doom song

  57. Tom Hale says:

    Let’s take a quick time out for me to ask an important question.

    What is the name of the Irish/Scottish band (or singer)on NPR right now? They are playing traditional Scottish/Irish music. I figure most of you are NPR listeners, so this is the perfect place to ask. Or – I’ll DV’d, so no harm done either way.

    Thx

  58. js7a says:

    I put a summary of one of the things going wrong on Wikipedia:

    The Fed announced that it would begin paying increased interest on reserve balances on October 6, 2008. Banks immediately increased the amount of their money on deposit with the Fed, up from about $10 billion total in September to $800 billion by the end of December…. Reactions to the change were mixed, with banks generally approving of their new ability to earn high interest without risk on funds that they would otherwise need to use to extend credit in order to make a profit for their shareholders, while those involved in the commercial paper markets, the primary and secondary sectors of the goods and services economy, shipping, and others depending on the liquidity of credit from banks were more skeptical of the further pressure against credit availability in the midst of the ongoing credit liquidity crisis….

  59. noen says:

    Concern trolls are concerned.

  60. idontwant2liveinoprahsworld says:

    Hello All,
    Milton Friedman was WRONG, I never trusted economists’ from Chicago.
    NAFTA has a role as well. In theory, free trade is supposed to improve economic efficiency. The real world took it to mean to ship out jobs to sweatshops. What the CEOs/Investors/Politicians forgot was that if you ship out jobs, people will be unemployed, under employed and will increase the competition for the jobs that remain.
    It’s clear that the SEC kept a blind eye to a lot of things. Didn’t anyone learn something from the Japanese banking crisis? Their banking system was built on the honor system, when honor was iron-clad. Once erosion began of “honor”, the system fell like dominoes.
    The SEC needs to be cleaned up as well, it appears they were (at the very least) asleep at the wheel. Bankers and Brokers need to be regulated. It’s the only way our financial system had developed to this point.
    Brokerages are full of wannabe hotshots (which is why I left the field) and they need to be held in check. All they see is the bottom line and are constantly looking to subvert the regulations.

    Well thanks for the bandwidth…

  61. Takuan says:

    what happened and how to fix it? Simple: get on with the fair trials and public executions of the outgoing junta (remember the SEC that ignored Markopolos and bent the rules for the first bankruptcy dominoes were Bush appointed and controlled). Then the world that America needs the cooperation of to save the economy will see that there is some sense and justice left and WILL cooperate. Make the connection: right now in China the corporate baby-murderers in the melamine scandal await trial and the bullet. People outside China secretly say “good”. Show the world America has some decency and sense left and hang those bastards high. Then maybe they’ll lend you some money.

  62. Dave says:

    Couple of points.

    1. The dollar is fine.

    http://www.economist.com/opinion/displayStory.cfm?story_id=12494697&source=most_read

    2. Former broker here (Merrill Lynch, UBS). A lot of what these guys sell you is bullshit. The idea that they can beat the index, for instance.

    _The market itself, however, is doing essentially what it’s supposed to do._ It goes up. It goes down. When a bubble pops it goes down a lot. Like it always does.

    This is no surprise to anyone who has studied the market and understands the risk they’re taking when they buy equity. Unfortunately a lot of people buy equity without understanding the risk. A lot of this is due to the previously-mentioned broker-dealers doing their jobs poorly or dishonestly, but that’s not new. Even more misunderstanding is due to innovations in financial instruments that hid risk. This is not the first time that that’s happened, it won’t be the last and it’s not hidden anymore.

    But people are saying that the equity market is broken because it’s going down. That’s a fundamental misunderstanding of the market. It’s not designed never to go down. It’s designed to accurately communicate the value of equity based on the most up-to-date news. Sometimes news breaks that makes equity worth a lot less. If the market goes down a lot on that day, the market isn’t broken. It’s doing exactly what it’s supposed to do.

    Bottom line, if you’re in a heavy-equity portfolio and you’re completely surprised that the market dropped almost 40% during one year out of your long-term plan you’re doing it wrong.

    To start doing it right, start here.

    http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393330338/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1231116815&sr=8-1

    http://www.amazon.com/How-Buy-Stocks-Louis-Engel/dp/0316353809/ref=sr_1_10?ie=UTF8&s=books&qid=1231116819&sr=8-10

    3. If you’re young this is actually a good thing. The point is to buy low and sell high. When you’re young and buying IN to the market you want it to be as low as possible. Wish granted. Put your raises in your 401k until you have it maxed out. Put it in a lifestyle fund (automatically allocated based on age) and forget about it. You’ll thank me for it. I promise.

    I used to charge people thousands of dollars to tell them this.

  63. js7a says:

    Takuan: Killing people will not help, okay? It’s hard enough just to get people to read about what their own government is doing without executions distracting them further.

    What we really need are Federal practice appelate attorneys willing to do a few pro bono petitions for review. Yeah, you read right: The only way to solve this is with relentless litigation. You want make a lawyer joke and lop off my head now?

  64. Cicada says:

    @80- That seems to recall some of the arguments made in favor of slavery back in the day– sure, the slave might be property, but at least he got fed in his old age by his master, unlike the factory worker who was free to starve once his usefulness was over.

  65. pilcrow says:

    @Dave. Two quick points:

    #1. Printing of money + massive debt accumulation + treasury market bubble burst + selloff of dollar by reserve banks = dollar collapse. Not in the immediate future, but in the near to medium future.

    and

    #2. Doom.

    Thanks for reading.

  66. pinehead says:

    @3
    Your point of view is still most agreeable. But, as with any great revelation, let it happen within you first. There are a surprisingly large number of people out there who share your view.

  67. Dave says:

    @PILCROW We used to say something to guys at Merrill who said they could predict what the market would do next. If you could really do that, you’d be in a Swiss Chalet fucking twins.

    If you really think the dollar’s going to collapse the way you say, put your money where you mouth is, buy some futures, short the dollar, then invite me to your chalet and gloat next to your Bugatti and trophy women.

  68. Daemon says:

    Adam smith forgot to mention that the invisible hand is attached to the wrist of a kleptomaniac.

  69. jjasper says:

    I’m sort of wondering if that (a) was Takuan, and (b) if it was, was it satire. It’d be sad if it’s yes to (a) and no to (b). I sort of respected his thoughts, from what I knew of them.

    Anyhow, the Lewis and Eninhorn essay is brilliant. Thanks, BB, for pointing it out.

  70. pilcrow says:

    @DAVE. The twins send their regards.

  71. ridl says:

    Banks are the enemy of the vast majority of the world’s population. They have been for a very, very long time. The less regulated they are, the more they act against the common interest.

    They are the enemy of labor, they are the enemy of the environment, they are the enemy of democracy, they are the enemy of a “free market” if you believe in such a thing, they are the enemy of our great-grandparents and our great-grandchildren.

    Nothing’s black and white, claro, but pretending that this was somehow a beneficial system that’s suddenly turned rotten is absurd. This is a vicious, corrupt, predatory system bent on maintaining its bloody dynasty of power, and it is using these crises to further its own ends just as it used the blindingly obvious credit bubble to further its own ends.

    I have nothing constructive to say. I just get sick of people standing around the bloody pile of entrails and limbs left by the rabid mutant cyborg kill-wolf they let loose in the playground scratching their heads and wondering why it would ever do such a thing, and discussing if perhaps taking it to a new groomer would calm it down. IT’S A RABID MUTANT KILL-WOLF. Call up the militia and take it down! Then buy a puppy. A friendly, children-loving, intelligent puppy. And this time try training it (rather than feeding it mutagen and babies and fitting it with laser-guided depleted-uranium bunker-busters).

  72. Dave says:

    @ PILCROW :-)

  73. Dave says:

    Not many folks willing to stand up for free trade and global capitalism, so I’ll step up, or at least pass the ball to someone who will.

    http://www.reason.com/news/show/28968.html

    It’s pretty easy to defend a policy that has pulled a billion people out of poverty and starvation in only a couple decades.

    • Antinous says:

      It’s pretty easy to defend a policy that has pulled a billion people out of poverty and starvation in only a couple decades.

      Odd. I had rather gotten the impression that poverty levels had increased worldwide in the last few decades. Do you have any citations from reliable news sources to back up your claim?

  • pilcrow says:

    @DAVE I am all for helping out other countries, which is one of the wonders of free trade and global capitalism. These are good things.

    But the problem is unfettered free trade. Which is an entirely different animal. Unfettered means that the policies lack sufficient oversight and accountability to such a degree that the financial stability of the country in question (ours) becomes threatened. Capitalism practiced by robber barons isn’t capitalism at all. It’s downright tantamount to treason.

    There. Your wish has come true. Someone in the thread has knocked free trade and global capitalism, justifying your platform to defend it.

    p.s. Doom!

  • Falcon_Seven says:

    Harry Markopolos should be applauded for his attempt to alert the SEC to the Madoff fraud. The SEC, on the other hand, should be eviscerated for the lack of action -on their part- to investigate the claims that Mr. Markopolos made in his submission to them. Granted, Mr. Markopolos did submit it anonymously out of fear that something could happen to him, but, that should not have stopped Jonathan S. Sokobin of the SEC’s Risk Assessment Office from tossing it off to some of their brainiacs who had the mathematical smarts -that both Sokobin and Meagan Cheung, the branch chief, seem to lack- and the aggressive instinct to investigate the claims that were made in the letter. After all, if someone keeps telling you for nine years that something stinks, you might want to take the time to sniff around a bit.
    Discussions of the dollar’s demise have no relevance to this article. However, those that wish to see what’s happening to the dollar versus other currencies, can play with the currency converter at Yahoo Finance to see how far their dollar will go when they travel to Europe, now, as opposed to five months ago. Doomed indeed. Honestly.
    Scans of the original Markopolos letter to the SEC are available from the WSJ as ‘talkingpoints.net’ doesn’t exist. You can also look at the les-than-lame ‘Case Closing Recommendation’ from the SEC dated 11/21/2007, that basically says, “We don’t get it.” Those too young to remember the repeal of the Glass-Steagall act by Obama-buddy, Phil Gramm, should catch up on current events. As to Takuan’s suggestion to ‘hang-’em-high’, it’s too good for them. They should live out their lives in a pain amplifier or, not having one of those handy, continuous electric shock to their genitals would suffice.

  • pilcrow says:

    @FALCON7 So you’re saying that the dollar’s future demise has no relevance in repairing a broken financial world? And a yahoo currency converter proves it!

    Fail

  • Jonathan Badger says:

    Precisely. World poverty is falling. However, as the article which that graph is taken from states, in places like Africa, poverty is actually rising — it’s just that it is falling in China and China has a lot of people.

    http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2004/07/22/000112742_20040722172047/Rendered/PDF/wps3341.pdf

  • Jonathan Badger says:

    Are you holding China up as a model for free market values and individual liberty?

    Not compared to the West, no. Compared to Africa, hell yes.

  • buddy66 says:

    Markopolos will be treated like any other whistleblower by the Good Old Boys …with contempt.

  • Dave says:

    It doesn’t exactly hurt my case that the region that has been the most aggressive with free trade and capitalist reform has experienced the fastest rise from poverty.

    And I’m bullish on Africa for the upcoming decade. I’m putting my money where my mouth is, by the way. I’m long on Africa.

    http://www.nytimes.com/2008/08/21/opinion/21Cohen.html?_r=1

    • Antinous says:

      It doesn’t exactly hurt my case that the region that has been the most aggressive with free trade and capitalist reform has experienced the fastest rise from poverty.

      And the ruthless suppression of human rights, systematic oppression of non-Han ethnic populations, chattel slavery in brick factories in the provinces? Melamine laced milk is the very secretion of unregulated capitalism.

  • rossviolin says:

    I’m calling for a season of GRACE.

    GRACE extended to everyone. People in need, people not in need, people of every age, race, gender – you name it, GRACE should be at hand.

    Why?

    What’s going on in Washington D.C. is nuts. On one hand you have corporate executives failing at their jobs; producing products that don’t sell, can’t compete in free markets, lend to risky individuals, and in turn have collapsed a system that is spiraling out of control. On the other hand, you have the media screaming that “the sky is falling!” Possibly. Probably not.

    Nonetheless, their voice is loud and people are scared.

    So what does Washington do?

    Washington writes HUGE checks labeled “bailout” and our fears are all supposed to be quelled. Banks were given billions – that’s with a “b.” They were given billions to in turn lend to builders, buyers, manufacturers, importers and exporters, on and on and on. They were given the task to help UN-freeze the credit market. In essence, to extend GRACE.

    But each day the DOW continues to fall and fall and fall and fall and fall and fall…

    These folks not only NOT un-freezing loans, they are using this government “bailout” to recoup their own resources, failures, and the like. No GRACE.

    I don’t like the direction D.C. took this whole thing. But in the end what they did was extend some real GRACE to help cover our rears and HOPEFULLY stop the media-supported (if not created) crumble of America.

    GRACE should beget GRACE.

    Maybe I’m giving D.C. way too much credit, but is it possible we could all learn from this season of generous printing of money and loan taking from China and the like? Its by no means ideal, but maybe we could turn a crappy situation into a time of Jubilee (see the Jewish tradition of Jubilee).

    Not sure how to close other than persuading you to extend grace whenever you can. When you are shown grace, give thanks. Lets turn our chins up and make this a time of Jubilee!

    Grace & Peace,
    Ross Christopher

  • Dave says:

    Economic systems, like other tools, don’t have a conscience or a soul. They can be used by good people or bad people. The fact that a nail gun can be used to kill people doesn’t lessen its effectiveness at relieving homelessness when used by Habitat for Humanity. Guns can be used by Nazis, peacekeepers and cops.

    Capitalism is good for creating wealth. Communism and socialism less so (though they have other advantages). There are socialist countries that protect civil rights and there are capitalist countries that don’t. They’re not necessarily connected.

    • Antinous says:

      Economic systems, like other tools, don’t have a conscience or a soul.

      Appropriate regulation of capitalism, however, prevents things like melamine laced milk.

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