We've Crossed the Line from Capitalism to Socialism 58 comments
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The U.S. Government's historic reaction to the financial crisis firmly puts us in a place not seen in generations. We have officially crossed the line from capitalism to socialism in less than a week. The Fed synthetically owns Wall Street as we speak.
The historic checks and balances built into the system, e.g. the ability to freely buy and sell, have been suspended for a large segment of the market. While the sayings "Wall Street privatizes gains and socializes losses" and "When there is too much capitalism you need a little socialism, and when there is too much socialism you need a little capitalism" have had symbolic meaning to me, they have never sounded so true than they have this week.
I believe in times of crisis that while moral hazard must be noted and managed, addressing systemic problems swiftly and decisively is absolutely critical. And to the Fed and the Treasury's credit, they appear to have shifted from a one-off crisis management model to a far-reaching, comprehensive approach for dealing with the crisis. However, there is a line between protecting the U.S. citizenry while supporting the health and functioning of the global financial system and pro-actively redistributing wealth based upon the political tides, and I believe this line has been crossed. And the line has been crossed specifically with respect to the temporary ban on short-selling 799 financial stocks.
It is very easy to dislike shorts. They profit if things go badly, and we in this country are an optimistic lot. It seems practically un-American to be shorting stocks, profiting at someone else's expense. The problem is, both ordinary citizens and those in Washington simply don't get it. Short-sellers keep companies honest. How many recent examples have we seen of companies being economical with the truth in order to prop up their stock prices and fatten the wallets of those in the executive suite (see FNM, FRE and AIG, for starters)? It is the shorts who sniff this out and make other investors aware in order that they can re-calibrate their expectations, and to perhaps sell before it is too late. This is how Enron was busted, with one of the catalysts being that now-famous conference call when Jeff Skilling went stark-raving mad on one of the Managing Partners at Highfields Capital who had factually cornered him.
We are now in the midst of a witch hunt, in order to pin the financial sector devastation on this particular group people love to hate. A scapegoat - how convenient! Of course, it was those shorts ganging up on those poor, well-managed financial firms with those sterling portfolios! Do rational people who know anything about the markets, capital structure and investor motives really believe this drivel? Consider some quotes from a recent Bloomberg piece, and think about the motives of those being quoted (my comments in bold):
``The shorting rules gave investors the belief the world is not coming to an end,'' said Phil Orlando, New York-based chief equity strategist at Federated Investors Inc., which oversees $334 billion. ``You had a lot of the hedge funds ganging up on these financial companies and putting them out of business.''
What Mr. Orlando really is saying is "Praise the Fed for protecting my long-only portfolios, because I'm getting totally smoked here."
Cuomo said he'll use the state securities-fraud law, the Martin Act, to pursue investors for illegal sales. The law permits criminal and civil actions. ``The federal government has been ineffective when it comes to regulating these markets,'' he said. ``I want the short sellers to know today that I am watching.''
Mr. Cuomo has now found his populist issue around which to mount his Mayoral campaign, following in the footsteps of fellow muckrakers Giuliani and Spitzer.
``You have to enforce the rules with regards to short selling,'' said Mario Gabelli, who oversees about $28 billion as chairman and chief executive officer of Gamco Investors Inc. in Rye, New York. ``Shorts were running amok.''
Mario, Mario, Mario. Just a little self-serving, no? You've taken lots of heat for your own comp package and now you are going to dish some out, huh?
``There is no rational basis for the movements in our stock,'' wrote Mack, who contacted Cox and Treasury Secretary Henry Paulson. ``We're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down.''
So when the dust settles, I'd recommend that Mr. Mack might just consider shutting down the stock loan piece of his prime brokerage operation, in order to conform to his views on fairness. Except that might drop revenues by, oops, several hundred million dollars?
``We seem to have capitalism on the upside and socialism on the downside,'' Chanos, one of the first to raise questions about Enron Corp.'s accounting, said on Bloomberg Television. ``That's a pretty heady brew for a country that holds itself out as a free market paragon.'' Chanos said his firm isn't shorting any of Wall Street's largest investment banks and is the ``least short the financial sector as we have been in three years.''
Quite possibly among the most feared (but respected) hedge fund managers on Wall Street. He's tired and frustrated by people telling him and his colleagues that they're crooks, bad guys, bad for the market. He puts out great research, has surfaced dozens of scandals yet gets no respect.
``Regulators are stepping in and saying, `This needs to come to a stop and this is how we're going to fix it,''' said Kelli Hill at Ashfield Capital Partners in San Francisco, which oversees $4 billion. ``This is the thing the market needed.''
No, Ms. Hill. This is not what the market really needed. What the market needed was for the Fed and Treasury to adopt a broad-based approach to the crisis, set up a Good Bank/Bad Bank vehicle to break the liquidity logjam, bridge Fannie Mae and Freddie Mac, and work on regulations that focus on disclosure and transparency in reporting. The market did not need a ban on shorts. The big institutional money management lobby needed it. The politicians who wanted to look strong, decisive and "in support of the people" needed it. But this type of move destroys confidence in the integrity and fairness of the U.S. financial system. It communicates that the game is rigged, and undoes some of the good provided by the certainty of an RTC-type solution. It will hurt capital flows and market efficiency if investors believe its effects will be anything other than short-term. And in the long run, this is good for no one.
Addendum: Please read my friend Howard's post here.
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This article has 58 comments:
If you are long a position you must reveal your investment.Short selling should be the same
The naked short rule was never enforced and without getting into details or naming names this action was sorely needed
Many Americans who worked hard at Lehman and others were financially crushed by the mistakes of Jimmy Cayne and Stanley O Neill Richard Fuld Angelo Mozilo and others.Capitalism like love and war is not always fair.
Destroying the US economy hurts all countries and don't think for one minute central banks across the globe were telling Paulson to do this.Some countries as they were covering their own short positions
Smart money has been covering their shorts for weeks now and contrary to the outrage you hear from Chanos and others they knew as me and my partners did that this day was coming
This summer this ban was put into place but afterwards the rules were flaunted and like reckless behavior of those who spawned the sub prime crisis
The same reckless shorts got to full of themselves and started tearing down the system they claim to protect. Certain firms were attacked by shorts who were not bound by any rules
The uptick rule is not feasible contrary to Jim Cramer's rantings .Trades happen much faster now and AIG traded over a billion shares the other day . This is not 1988
Shorting is not made illegal and those who continue to short bloated pigs will still be allowed to as long as they follow the naked short rules.Short selling is a necessary part of the market but personal freedoms that kill the goose who lays the golden egg benefit no one
There is a boatload of money on the sidelines and the housing and credit markets need its infusion
Bernancke is ten times the Fed leader Greenspan was
If the doctor told you to change your eating habits or die
Would listen to him or continue to say no one is going to regulate my diet
Paulson and Ben had no other choice
Let us assume even that a company is indeed not well managed and not well capitalized. These high-powered, privileged agents then make immense profits by selling said company with speed that does not allow a more proper unwinding of the positions that would occur by "owner-selling" alone. This is exacerbated by the practice of naked short selling.
But worst, most pernicious of all, is that these agents have the power to make self-fullfilling prophecies in times of panic - taking a company from operational viability, however precarious, to bankruptcy in a matter of days, by choking off confidence, funding access and credit ratings.
I can't see why shorting shouldn't be outlawed altogether - it appears to me the market doesn't nee agents selling what they don't have to amplify volatility - again, the actions of owners alone would regulate pricing just fine. But if it is kept in the name of a totally free market, the regulatory bodies should indeed at least have the power to suspend it at any given time without notice. There are too many huge pools of money with too much concentrated firepower which, again, can reap profits by making self-amplifying shorting bets that take companies all the way to bankruptcy, effectively clearing in profit all of the present value of a company (often along with immense accumulated goodwill) which might otherwise continue as viable businesses after proper, non-destructive corrections.
Condemning a particular policy because it is "socialism" or "savage capitalism" is doubly idiotic since the U.S. has always had a good dose of both and there has never, ever been a purely capitalistic society anywhere in the history of the planet.
Even if you could clearly define a particular action as socialist or capitalist to everyone's satisfaction, who cares? Have we crossed a line? Who cares? Even if you could firmly and clearly establish where that line is, we have and will continue to cross it back and forth until the end of time.
Those from the right who invoke "socialism" as the Great Satan that will destroy us and those from the left who do the same with "Savage Capitalism" are useless religious fanatics who treat the isms of economic theory as an end in themselves rather than as what they are, a tool to improve society's standard of living. Crossing lines is not only acceptable, but necessary according to current situations and events, it is not like violating the Ten Commandments.
I don't know whether this bailout is the right medicine or the road to perdition, but I really could give a rat's pitui whether it's "socialist" or not.
the idea of capping things seems unamerican, but we do recognize that extremism, as in monopolies, can interfere with fairness in free markets. so, let's limit fund sizes.
while we're at it, let's also limit salaries of attorneys, ceos, sports figures, movie stars, etc. the gov't already limits what doctors can make. people who save lives should have the highest salaries. if we think it's fair to limit them, limit everyone. that will reduce corruption, reduce inflation and decrease the disparity between wealth classes.
why do democrats think it is fair to tax the rich more and more? once you let someone become the banker in the game of monopoly, isn't the game over? let's level the playing field. put caps in place. people will still have sufficient motivation to succeed and work hard. in fact, people at the lower end of the spectrum will have improved motivation because they will perceive the system as fairer.
Don't get me wrong, I understand that this bailout was necessary, although I doubt it is sufficient.
We have certainly crossed some sort of line, perhaps a bit closer to classic fascism, but we will have to await how this plays out before coming to such a conclusion. The preposterous Orwellian claims that the bailout or the temporary limiting of shorting is a move towards socialism, coming not just from Mr. Ehrenberg, actually bolsters the idea that many prefer the fascist model. And the chants of "USA, USA, USA" at the recent Republican convention, the subtle implication that the opposing side is not American but some sort of Soviet hockey team, should give pause, at least to those of us with a bit more historical experience or education than Mr. Ehrenberg.
And who are you kidding, the game has always been rigged.
I hope that people begin to realize that the end game for capitalism is always bailouts. I hope that in the future the taxpayer will lend money during good times to make profits as well as bad times to socialize losses. Fannie and Freddy should have never been quasi public, they should have been all public, that way during good times the taxpayer would have made enough money to pay for this bailout.
The "government" (writ, taxpayers!) will NOT make money. We will lose money. The fed will be forced to inflate at an even greater rate than usual, which will siphon off more wealth from the poorer classes. You write as though you have some great, secret, inside knowledge about the value of these toxic debt assets on the banks' books. You don't, so stop already with the claim that they'll be sold at a profit. If the entities that actually held them believed they had value then the banks would lend to each other and the credit markets wouldn't be frozen. Even the traitors Paulson and Bernanke admit this. Egads, you're a moron!
You also don't understand true conservatism. It is not, as you apparently support, socialist welfare for losing bankers. It rather seeks a level playing field for all participants in the economy. If one makes a bad business decision, then he fails without a safety net from daddy government.
You have also have an extemely poor and entirely too common misunderstanding of economics. Inflation is a tax on everyone, and yes, it has a disproportionate impact on the poorer classes. Your type of Obamaniac socialists claim you advocate for the poor but in reality you seek to destroy them.
Highfields Capital analyst Richard Grubman joined a conference call at Enron and asked, for the sixth consecutive quarter, for a balance sheet with the earnings statement. For the sixth time, Jeff Skilling told him that at Enron, the balance sheet was not released with earnings statements (at trial, the reasons for this were covered at length; there was nothing illegal or untoward about it - there was a very deliberate business purpose for doing things the way Enron did.) The following is a transcript of the challenged part of the call:
Grubman: You’re the only financial institution that can’t produce a balance sheet or cash flow statement with their earnings.
Skilling: You…you…you. Well, uh…thank you very much. We appreciate it. Asshole.
At this point, everyone inside the Enron building was jumping up and down and high-fiving each other because their CEO had finally said something to this guy who had been talking down the stock for quite some time - and even the question was a sort of accusation. Enron folks thought Skilling handled the call just fine. Of course, it wasn’t as well received in the rest of the business world.
It caused such a kerfluffle that it was even brought up at trial by Sean Berkowitz. To which Skilling replied, “The now infamous ‘asshole’ quote was used as an example of arrogance or something. It wasn’t meant that way.”
It was clearly not - and though Jeff was an executive who should have just rolled his eyes and passed the call to someone else, that wasn’t his style. He got his hands dirty. He talked to short sellers. He tried to get people to see Enron for what it was. As he said right after the verdict at his trial, some things work and some things don’t. Calling Grubman an asshole, as a strategy for handling pests, didn’t.
But the comment was never as earthshattering as the revisionists would like to believe. It did not signal some sort of meltdown. It didn’t mean that Skilling feared the question or was trying to deflect Grubman. Even Jeff Skilling is entitled to lose his temper once in a while.
www.usalone.com/help_p...
You've posted the exact same comment about 20 times today already on multiple articles. Is Treasury paying you overtime for this?
This has to be the most entertaining and sad thing I've read all week. And that's saying a lot given the week we just had. The reasons were convoluted -- deliberate sure, but convoluted -- and the reasons were little more than obfuscation of the financials. Enron could have simply not done earnings calls at all if they had so much sensitivity to timing of their SEC filings.
And of course, we have the luxury of ex post knowing that Enron was indeed engaging in a culture of intentional distortion.
<b>Cara Ellison: Are you really taking the position of an Enron defender in 2008?</b>
Absolutely. Check my blog for my Enron love fest. I absolutely adore Enron and will defend it until my dying breath.
<b> The company went bankrupt and top executives were convicted of fraud. </b>
Yes and no. Yes that happened, but no, that's not the full story.
<b>You're going to need to do a little better than "there was a very deliberate business purpose": what was it? </b>
The balance sheet was not released with the earnings statement because the numbers were still being collected and collated deep into the third quarter. It was impossible for Enron to provide both at the same time, and it had been done that way since way before Jeff Skilling became the CEO.
<b>Also, if Skilling was in the business of "[trying] to get people to see Enron for what it was", please explain why he committed fraud, resigned just ahead of bankruptcy, and dumped his stock for personal gain.</b>
Obviously I don't believe he did any of that. He didn't commit fraud and any cursory investigation into the matter will bear that out. He LOST money on Enron. Furthermore, when he left he was entitled to a $22 million severance package, plus forgiveness of a $2 million loan. Skilling took NOTHING. He paid back the loan out of his own money and took no severance. Is that really the action of someone who is committing fraud? Furthermore, when he was transitioning out of the wholesale group, he was entitled to $50 million dollars because he'd been given an equity stake in that business. He took less than half because he decided he didn't need it and it wasn't good for the business. Again, is this really the action of a man who was consumed with greed?
hussmanfunds.com/wmc/w...
Inflation
or
Deflation
Historically, I searched for examples where governments have added massive amounts of debt to their balance sheets.
Because the government gets the benefits immediately from inflation, (and controls the printing press) but the costs are delayed--the odds favor inflation to a great degree.
And inflation is a tax on everyone, although obfusticated, and it does hit the lower classes harder.
In effect, it is regressive.
Eventually we must raise real taxes to pay off the debt, in addition to the higher taxes of inflation.
Its a double whammy in the offing.
The saddest part of this mess is that it could have been avoided by a different ideology, (and different leaders)---that government has a legitimate role to play in the regulation of markets.
Good government is not synonymous with socialism.
Now the price for the Bush administration's incompetence can be measured in trillions and decades.
The price of this Hooverian administration will be measured in higher taxes and higher inflation down the road for the next leaders who clean up this mess.
Ironically Hoover was also a Businessman who didn't understand Capitalism like our current MBA President who also doesn't understand Capitalism, and ironically they both made crises worse with bumblefingers, and "the damage is contained" statements.
Our country has been gravely injured.
We are bailing rich guys at the expense of poor (taxpayers) guys. What we need is to create sort of USA Bank, in order to loan money to the legitimate borrowers. The moronic US banks don't want to lend - that's fine. Let them go down the sewer, with names of their CEOs casted in stone in the Hall of Shame. The bad and stupid banks need to go, period. We have a clique bailing themselves out at the taxpayers expense.
The next President, should open criminal investigations against: Cox, Paulsen, Bernanke. In my view they all should be behind the bars now: for the reason of corruption of stupidity - does not matter.
I escaped socialism, by jumping across Atlantic. Now what?
Moreover, while offering the Secretary of the Treasury unlimited authority and $700 billion to bail out his friends on Wall Street, the only thing the other 300 million Americans will get is a larger national debt and a bigger tax bill.
If there is going to be an effort to stabilize financial markets involving large sums of taxpayer money, it needs some balance. For example:
--The boards of directors and executive committees (and maybe others) at the banks receiving US taxpayer money are automatically fired, forced to return their ill-gotten bonuses for the last 3 or more years, and banned from any executive or board position in a publicly-traded US company for 5 years. (Its the Millken solution.)
--Ban the creation, sale, purchase, or brokering of any asset-backed credit derivative by any bank operating in the United States. Similarly, ban the placement of any asset-backed security in foreign credit derivatives.
--Every American taxpayer receives a stimulus check of approximately $6,300 to offset the cost he/she will absorb for this $700 billion bailout. (It makes as much sense as spending the money on banks that knowingly took excessive risks for big profits.)
--The $700 billion may only be used to acquire the mortgage-based assets of US banks (only) that are insolvent, not just illiquid. This was the way the RTC handled assets. Otherwise, the bailout only rewards the outrageous behavior of the banking sector and its shareholders--not all Americans. (So, it could buy LEH assets, but not GS or MER assets.)
--Require that the money be used to acquire a just less than 80% equity in the bank (a la AIG) to ensure effective USG control over banking practices. Also cut out preferred shareholders all together and establish a 30-70% haircut on the bank's outstanding bonds--consistent with the toxicity of its asset holdings.
--Finally, absolutely and completely eliminate any language (such as is the current draft) that puts the Secretary of the Treasury above the law ("non-reviewable"). In fact, put stringent language in that states he must obey all US laws.
The draft legislation is an outrageous effort by the Administration to bail out its buddies. It defies the Constitution, destroys free markets, insults the role of Congress in overseeing national policies and laws, and irrepairably damages all American taxpayers for the benefit of a few.
IT CAN NOT BE PASSED! WRITE YOUR CONGRESSMAN/CONGRESSWO... RIGHT NOW AND TELL HIM OR HER IN CLEAR, SIMPLE, POLITE, AND EVEN CONSTRUCTIVE TERMS WHAT YOU THINK OF THE PROPOSED BAILOUT
mining101.blogspot.com...
-Iz
No rational "capitalist" can complain about the coordinated action to abort the speculative assault on the global equity markets.
With additional coordinated help from the Central Banks we may have finally defined market bottom with a major rally on the way.
The 700 billion dollar "stability package" is not a social charity ,but a collateralized loan which will likely be cost free to the taxpayers .
With the record open short interest (equities) ,we should expect psychological attempt to bring the indices down(rumors and whining ).
volatility will continue ,but there lies a major rally (equities) and a major economic rebound in the period ahead .
so... what line are you talking about?
This not socialism. This is a government acting to avoid a depression caused by fear. The people of this country got themselves into this mess by purchasing homes and other assets they couldn't afford to pay for. The government failded also in not providing the regulations needed to put a stop to our own nonsense. There is plenty of blame to go around. The only cure that makes any sense is follow exactly the actions that the Treasury is now proposing. The other option is economic suicide. Which one do you choose? I suggest youp put your free market at all cost nonsense away and smell the roses and maybe you'll come to your senses.
The comments on SA are some of the most well put, intelligent, and interesting, that I've ever come across. I can think of no other site that comes close.
Great job, regardless of your points of view.
He will not answer to any agency, will be free from any oversight and can spend well beyond $700 billion.
The $700 billion is at any given time. He can spend $700 billion in the first week buying up mortgage-related assets (they don't have to bad assets) at par or better and sell them back at, oh let's say a penny each, to the firms he bought them from. Then he starts with a fresh $700 billion.
Oh yeah and he is in an UNELECTED position?
What??!!
The underlying conditions must all be resolved before you can really see improvement again:
1. Housing prices need to stabilize - and that's a function of the average Joe, not the bankers on the Street holding those subprime mortgage papers.
2. Banks need to deleverage - this new bill does that.
3. People have to regain their confidence in the economy - that will take a great deal of time.
It would also be nice if:
4. Irresponsible behaviour is punished. Fundamental to our capitalist free market philosophy is that the market will mete out its rewards and punishments by the worthiness of your own actions.
5. Those that need the bailout get it. Why can't you or I get bailed out on our debts (credit cards, mortgages, HELOCs) when we make stupid decisions, and yet the rich bankers on the Street with their 6 and 7 digit bonuses get to gorge from the taxpayer trough?
I'm unconvinced that this bailout is going to do more than the inevitable... from my perspective, the inevitable is a high inflation level (to wipe bad debts away) and a dramatic decrease in US consumption.
I believe you are not analyzing the significance of this action correctly. The real problem of moving from capitalism to socialism really occurred with the political decision to subsidize home ownership for people who could not afford it. It provided WPA of homebuilding, houses for the poor and false financial profit for the financial sector. The decision to securitize the mortgages was a reasonable decision based on the nature of the market as were the employment of CDS's.
Due to the first step into socialism, the second step has been necessitated. The only remaining hope is we have seen this in the past and not all was lost.
Fact is you ilk said that tax cuts would stimulate the economy, fact is the economy is tanking.
The implications are that the government can, at any time, unilaterally take over a privately owned company without just compensation to the current owners ("for the good of the country" naturally).
AIG was a public corporation, owned by the shareholders. Have the shareholders ever voted to authorize the board to agree to the "deal" made with the FED/Treasury? If not, how can any such "deal" be valid? Do the company bylaws hold or not? Does the law matter or not?
What legal footing does the FED/Treasury/Congress have to "take" 80% of the shares in a company by means of loaning money to the business without shareholder approval?
Does the Fifth Amendment's guarantee ''that private property shall not be taken for a public use without just compensation" hold or not? If not, does that mean that 80% of AIG is worth only $85 Billion and all the remaining shares are worth only $21 Billion? Can we get a second opinion on that?
A defining characteristic of economic fascism is that private property and business ownership are permitted, but are in reality controlled by government through an unstated business-government "partnership", however, in such a partnership government is always the senior or dominating "partner" and can at the government's whim, dispossess the private owners.
I don't know what others are thinking, but that last paragraph seems to identify exactly what happened to AIG.
The short selling ban is small potatoes. Blatant violation of the Constitution by government actors is the threat to worry about.
If the government won't obey the Constitution in this case why should they bother to obey it at all?
This week AIG, next week who? Are the stocks you own safe from government takeover? If not, are you prepared to have the value of your shares re-stated based on a weekend deal cut with the FED behind your back?
GM? Ford? United? Morgan Stanley? Goldman Sachs? ETC?
The government has just struck a match and lit the Constitution on fire.
Seig Heil!! (Sorry, I couldn't resist)
Let me start by stating that I believe Hank “Warlord” Paulson is out of control. Whether his intentions are good or bad, I need not confront. The fact is that his actions are far against the moral standing of my (our) collective conscience. We are a nation that will not tolerate totalitarianism; we will not be subject to a “financial market Warlord” who uses current market fears and dramatic, and unfortunate, circumstances to buttress his own agenda. Fear is never the proper motivation for sound action. Action based on fear is action doomed to failure. Fear is a device of the weak. Fear is a device of predators. Let us not be afraid.
Thankfully, at least historically, America - indeed all Americans - are not a fearful lot. We the People, in order to preserve this Union, are more than happy to take the downside risk of systemic failure if, in the extreme, the alternative is systemic nationalism. A system that expunges the small, the weak, the masses for the sake of the few. These are the people, the Union, that won’t tolerate a socialization of losses and a privatization of gains, such as those enjoyed by you and your family Secretary Paulson.
I would rather count a week of my life in the embrace of independence and freedom than in the embrace of a wicked sort of market manipulation and control as proposed by Hank “Warlord” Paulson. I would rather myself, and my family, eat in soup kitchens for a decade than submit to a top-down takeover of the entire free-market system by the former CEO of Goldman Sachs.
Why are so many so silent? If you want to save this system, you cannot trust the likes of Paulson. Bring a special council of experts to address the systemic issues. Real men of integrity, rather than snakes in the grass like Paulson, or imbeciles like Bernanke.
Convene a council of experts like Volker, Gross, Buffett, Soros, Rubin, and – yes- even Greenspan (even with his culpability). Let them propose a meaningful solution. Let us weigh and measure, and determine an action of appropriate strength and depth. Do not cave into the dictums of those seeking political expediency. Stand firm. Be strong. Bear the faith. We will overcome, but this nation needs leaders, not managers. We need leaders, not politicians. We need leaders, not zealots.
The answer can not be the often touted "greed" because there is always a certain level of greed (and also generousity) that is more or less constant in people. Were people less greedy 10 years ago, more greedy over the past 5 years and now less greedy? Impossible.
I think Peter Shiff found the answer. Ever since the dot com bubble burst and the events of 9/11 the Fed has relentlessly expanded the money supply at an accelerated pace while lowering interest rates. Both had the desired affect of inflating asset prices for all dollar denominated real assets including housing prices in general.
Now here's the key. After watching housing steadily rise at a qick clip over a number of years market observers and participants RATIONALLY viewed this growth as occuring for fundamental reasons (must be strong demand for homes for it to occur across so many regions and over so many years). So they baked the recent elevated growth rates of real estate into their forecasts not realizing that the driving force behind escallating prices was non-fundamental -- inflation was sending false signals to RATIONAL market participants.
You know the rest of the story.
Perhaps the best way to generate a real return is to assume that we will see more of the same -- inflation and falling dollar -- and invest accordingly.
C'mon comrades - there's no Pravda in Izvestia and no Izvestia in Pravda as they say.
www.nytimes.com/2008/0...
I would agree that the intervention is so massive that the bias is toward inflation, except that the deflation of asset classes is so massive I wonder if there is a chance for equilibrium overall. The deflation of assets is really starting to kick in. The free falling market was paralleling the free falling real estate, no question.
One of Obama's big supporters has been Soros, who is on record favoring communitarianism, his code for socialism. He thinks, now that he has made a pile, everyone else should be under socialism.
And now that the investment banking crowd have made their pile the last few years, they are throwing the business to the communitarians too. There will be fewer people coming along to catch up with them.
RIP Democracy, it also stands for Rest In Peace
It's a fight for money and power as it has always been and the players are the same.
The furniture is simply being rearranged, very quickly, and it is our task to try to find a chair to sit in.
You know that the IRS cross-checks your W-2 form with your company's payroll numbers, right? If the numbers don't match, they start digging. I hope you run your own business if you plan to use those things.
so...
Government = National Debt + Taxpayer Equity
Which do you think has control over the assets - the foreign creditors who own the debt or the taxpayers?
Since the government would run out of money if the lending was ever cut off, I would say the foreign creditors. Just like in a bankruptcy, the assets have been seized and used to try to make the creditors whole. The fact that our own government would shift open market investment losses from the creditors to the taxpayers illustrates this realization nicely. We no longer own the government. We squandered it away on silly wars and porky budgets.
1) Credit markets would tighten up (so what? live within your means and you won't need to borrow anyway)
2) Businesses and consumers would stop borrowing (again, so what? Any well run business can survive without borrowing, as can any sane consumer)
3) Without borrowing, the economy wouln't expand. (sure it would, businesses would use those things we call profits to expand instead of debt)
Those are the three I recall off the top of my head from watching at lunch.
Anybody else notice the moneterist mindset implied in their claims? That without borrowing the economy would just collapse?
Well, we've tried thing their way for the last 20 years and look where it got us. 10 TRILLION in debt and wondering how to keep the wheels from coming off.
Maybe it's time to switch to the "old fashioned" system of using actual savings to fund business growth instead of debt. At least then when a business goes under only the people who risked THEIR savings lose out.
It seemed to work pretty well from 1870 to 1910, even with the so-called panics that sprang up from time to time.
We went from an agrarian backwater country to world economic powerhouse during that period without the Federal Reserve. Now that the FED has been "helping" run things, we're back to banana-republic in the financial sense.
It only stands to reason that the FED must be contributing to the problem based on past performance.
Instead of this, We the People will have Chinese water torture as the wealthiest make there exit. Drip. Drip. Drip. And in the end, the American Middle Class will revolt and default en masse anyways to foreign creditors a couple of years from now. Then the American people will restore much, but we will face very large powerful enemies overseas, who will use our technology and cash to send some angry signals over the debt defaults. Such is the way of nations led by hubristic baboons. Welcome to Fascism Amerika. I will stay and protect what people I can. Good luck to all -