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Robert Reich says the problem with the economy is that it has doubled in size but wages have...

Robert Reich says the problem with the economy is that it has doubled in size but wages have barely increased. The middle-class has been bypassed as the super-rich get richer, buy political power and slash taxes. Lower taxes lead to higher deficits, a divided middle class, and ultimately, an anemic recovery.
Comments (131)
  • Problem is we saved too little(way too little) and let residential investment get to 6.3% of GDP when we should have kept it around 4
    to 4.5%...which is why we are stuck at 2.2% for awhile....
    16 Jun 2011, 05:15 PM Reply Like
  • Reich is full of effluvium.


    That the fruits of the growth went to the job creators - the John Galts - is as it should be. These are the people who by virtue of their great sacrifice, skill and fortitude create jobs out of thin air for the lesser mortals and in the process create great wealth, and, so, of course, they should be handsomely rewarded for their contribution to the progress and ever growing affluence of the human race.


    I say that there should be no capital gains tax and no federal income tax or social security tax or sales tax or state income tax or property tax for people whose annual income is more that $500K per year. Let them live in their huge mansions and drive in their gas guzzling cars and enjoy the fruits of their labor without having to pay taxes for schools and roads and hospitals for the lazy ones among us. If our idiot leaders implement this idea, the rate of growth of our economy will dwarf the growth during any era in the history of the mankind.
    16 Jun 2011, 05:30 PM Reply Like
  • varan you just made an idiot from yourself
    16 Jun 2011, 09:44 PM Reply Like
  • The usual class-warfare claptrap from a Big-Government liberal.


    Higher tax rates lead to even larger deficits, as economic activity is adversely impaired and even fewer people are hired, adding more stress to the public dole And, Government, far from frugally cutting deficits with the extra (if there even was extra) tax largesse, just levers this up further and spends all the "new" revenue, even before it's counted.


    It's like an alcoholic that's run short, begging for just a few more bottles, then, he'll have his act together. He promises!
    16 Jun 2011, 05:32 PM Reply Like
  • You are so right.


    The only kind of class warfare that should be permitted is one where the poor and the lower middle class - the burden of the society - is taught a lesson that unless they work hard silently - without any demands like equal pay for equal work and safe working conditions - in factories and malls that the rich people create so the poor people have something to do, the poor people's existence will be threatened.
    16 Jun 2011, 05:46 PM Reply Like
  • Tack the taxes and the growth during the Clinton years throws a hand grenade with the pin pulled right at your comment. Additionally, the lack of growth and low tax rates during the Bush years lobs a few mortar shells at your argument.


    I sick of this class warfare crap the rich use on supporters of the middle class in the country. The rich have been conducting class warfare on the middle class for thirty years. High productivity gains, no raises.


    We've been giving tax cuts to the rich for ten years and they've been investing the money in emerging markets instead of the good old USA.


    I call that treason.
    16 Jun 2011, 06:42 PM Reply Like
  • Sorry, Monn, you're all fouled up.


    During Clinton's presidency we had a relatively parsimonious Congress, run by Republicans, so the spending wasn't as absurd as typical. As much as I regret to say it, Bush was a RINO extraordinaire, who never saw a spending bill he didn't like, only if to ingratiate himself with teachers, Hispanics, you name it, so spending ran wild, with the predictable consequences.


    The very idea that giving more money to politicians and bureaucrats sounds reasonable and efficacious constantly astounds me. Apparently, we really do want endless socialism or its equivalent by any other name.
    16 Jun 2011, 07:19 PM Reply Like
  • and here you varan delivered
    more than an enough sufficient proof to
    what I said one post before
    16 Jun 2011, 09:48 PM Reply Like
  • what is it that you object to?


    no taxes on the wealthy?


    free market?


    incentives for the job creators?


    what exactly are you against?
    16 Jun 2011, 10:12 PM Reply Like
  • I'm not advocating giving more money to government. I'm advocating a more even handed approach to taxes. Just cause one is rich doesn't mean one shouldn't pay taxes. Your correct on the parsimonious Congress. What you fail to acknowledge is that the rich paid more taxes also, and it didn't hamstring the economy like some would have you believe.


    Bush wasn't a RINO he conducted himself just like a Republican. Given your definition of a RINO, Reagan would be one too. Starve the beast. In fact, he starved the beast so much, that when the financial crisis occurred we didn't have enough money to stimulate the economy properly. Of course, it wasn't stimulated properly anyhow, but, that's another thing.


    So, I can't be that fouled up. We agree on quite a bit. And now that I've clarified, perhaps more than you would like.
    16 Jun 2011, 11:56 PM Reply Like
  • Again I say who are the rich? Are you taxing income or wealth? The latter we have not done ever from what I know but when you start pointing fingers those are the people you are likely thinking about.


    People with high incomes pay the highest tax brackets and now over 50% of the population does not pay taxes. What do you want? Over 75% of the peopel not paying taxes?
    17 Jun 2011, 12:10 AM Reply Like
  • Monngie:


    You better go check, again. Bush was the biggest spender in history (before Obama) by a wide margin. He was a Democrat's Republican.


    As far as "fairness" in the taxation system, we now have 50% of the people paying absolutely no taxes at all. This is the most critical problem we face because these people have no fiscal incentive to support any prudence in endlessly-growing transfer payments to this subsidized voter class. These people and this phenomenon are the beginnings of the demise of a democracy, just as noted by Tyler and De Tocqueville more than a hundred years back.
    17 Jun 2011, 08:03 AM Reply Like
  • 'we now have 50% of the people paying absolutely no taxes at all.'




    your understanding of basic empirical facts is somewhat less that what would qualify a person to comment on topics such as this.
    17 Jun 2011, 10:11 AM Reply Like
  • My understanding of the facts is fine, unless you consider 43%, the actual number, materially different from 50%. It's still absurd and getting worse.

    17 Jun 2011, 10:18 AM Reply Like
  • he's referring to the fact that about 45% of Americans pay no federal income tax. These are the poor and working poor. After various credits, they pay effectively not Federal income tax and its true. Conversely, they pay a much higher percentage of their income in sales taxes and other use-fee's, like gas taxes.


    Its interesting to note that the perceived % of Americans that pay no Fed. income tax appears to have grown from 40% (perceived) to, apparently, now 50%. Its also interesting to note that many people believe that the affluent effectively pay no taxes either, which is also quite incorrect. If I recall, the top 1% of wage earners pay roughly 25% of all Federal income tax. Moreover, all those big, nasty corporations that arent paying any taxes.....the ones NPR likes to report on.....they represent 19% of all Federal tax collections. Apparently, US corporations do pay some taxes after all.....
    17 Jun 2011, 10:23 AM Reply Like
  • Jay:


    Here's more on that:


    Unfortunately, the class-warfare mongers are winning the opinion wars, facts be damned.
    17 Jun 2011, 10:29 AM Reply Like
  • That shows that you also have a reading comprehension problem.


    '43.4 percent of Americans now pay zero or negative federal income taxes' does not translate to 'we now have 50% of the people paying absolutely no taxes at all.'
    17 Jun 2011, 10:31 AM Reply Like
  • I meant Federal income taxes, and I meant to suggest that "about half" the people, of course, but guess I needed to state that more explicitly for your lawyerly mind. I think the point has been made.


    P.S. If all you can muster is ad-hominem attacks, why don't you just head back to the school yard before you're considered truant.
    17 Jun 2011, 10:35 AM Reply Like
  • yes. the point has indeed been made.


    if you base an argument on facts, facts have to be precisely understood and stated.


    By the way, look up 'ad-hominem' also.
    17 Jun 2011, 10:46 AM Reply Like
  • Yes, Tack, thanks. I was a securities analyst on wall street for years and am quite familiar with the differences between tax-books and investor reporting books, accrual vs. cash accounting, etc. The public, spurred by the ignorant media, got it very wrong.


    Rich people and corporations pay more tax than the common man perceives and the shelter much more than individuals every could.


    Poor people effectively pay no income taxes, but they pay a much higher % of their income in user-taxes.
    17 Jun 2011, 11:29 AM Reply Like
  • The only taxes we have on net worth are the estate and inheritance taxes. If you want a good lesson on tax avoidance while growing net worth, check out Warren Buffett. We may be due for a net worth tax.
    17 Jun 2011, 12:58 PM Reply Like
  • Well, you could consider AMT and taxes on unearned income as a tax function of wealth or net worth. Dividends, rental income, capital gains (as a % of total income) and interest income are all taxable flows that people without wealth or net worth need never consider.
    17 Jun 2011, 01:12 PM Reply Like
  • Right, my wife works part time and pays much higher SS and Medicare taxes. Raise the retirement age, reduce those taxes by half, let the poor pay a little Fed taxes so they have skin in the game. I am sounding like a broken record on SA. SS and Medicare were not meant to allow people to retire "early". 65 was old in the '40's, it is not old now.
    17 Jun 2011, 02:22 PM Reply Like
  • Agreed. My point is that people who envy the guy living in a mansion and thinking he should pay more in taxes may not realize the guy is not even working. Instead tax policy is hammering people who are working and raising kids and driving a lot of W2 income that is taxed to the hilt.
    17 Jun 2011, 05:30 PM Reply Like
  • That's why I am more than happy to lower corporate taxes, particularly if the corporations use the money to pay more wages to employees.
    17 Jun 2011, 06:52 PM Reply Like
  • varan
    what is it that you object to?
    no taxes on the wealthy?
    free market?
    incentives for the job creators?
    what exactly are you against?
    I object to "no taxes on the wealthy"
    I object to your cheap mockery, which is bordering on slander


    If you have your agenda, go ahead with it.
    Don't put 'words' in mouth of your agenda opponents
    17 Jun 2011, 08:34 PM Reply Like
  • "In the subconsciousness of haters there slumbers a perverse feeling that they alone possess the truth, that they are some kind of superhumans or even gods, and thus deserve the world’s complete recognition, even its complete submissiveness and loyalty, if not its blind obedience. They want to be the centre of the world and are constantly frustrated and irritated because the world does not accept and recognize them as such; indeed, it may not even pay any attention to them, and perhaps it even RIDICULES them," - Vaclav Havel.
    18 Jun 2011, 01:17 AM Reply Like
  • varan


    Give us a list of all the haters so we know whom to avoid. Apparently you have that figured out.
    18 Jun 2011, 01:44 AM Reply Like
  • They emerging markets.
    18 Jun 2011, 11:42 PM Reply Like
  • I meant US employees.
    19 Jun 2011, 10:02 AM Reply Like
  • Perhaps I'm not communicating well. I do know Bush was the biggest spender in history and that he out Democrated the Democrats by a wide margin.


    I am coming to agree with you on the tax fairness issue. I do think the rich need to pay Clinton era taxes at least, but, the 50% need to contribute as well. I don't see that happening unless we have a VAT or some kind of consumption tax like a sales tax. The problem with that is some of these people are really poor and unfortunate (not just parasites) and that hurts them most. But, that can be fixed.
    20 Jun 2011, 10:55 AM Reply Like
  • Mongie, there was a boom in the stock market in the Clinton years, that it was an abnormally...nearly all stocks were rising 5-10 times in a matter of couple of years....take for example AMZN a low single digit stock that went into triple digits in a couple of years...


    What do you really think happened, to that middle class guy, that was up maybe 40,60 or 100K in his account? Well, he spent the money and boosted the economy.......


    Clinton was in the right time, that's all....


    I call that luck....
    25 Jun 2011, 09:32 AM Reply Like
  • He also had wind in his sails from the huge tax windfall from .com stock options and wall street trading. I think he also had Enron and WorldCom helping.
    25 Jun 2011, 05:01 PM Reply Like
  • Reich is correct about the causes of the economic quicksand we find ourselves in. However, he always appears to believe that taxing the wealthy is the universal answer to all our problems. On this, he is incorrect.


    Taxing the wealthy is not a bad idea, along with cutting budgets significantly. Both must happen and pain is not an option. Unfortunately, this is a solution to the deficit and debt problem. Its not a solution to the ever-eroding middle class household incomes, which is Reich's primary objective.


    In order to drive middle class prosperity again, we must develop an economy that thrives on building and selling "stuff". We need welders, wrench-turners and assembly workers. We dont need more insurance salesmen, CEOs and consultants. After all, some 75% of us dont have college degrees.


    Industries that require people who turn bolts are industries that sell those hard-goods, presumably domestically and internationally. Thus, we must develop exports.


    Lets face it, the "C" in GDP (70%) is living paycheck to paycheck. The "I" is playing rotate-the-bubble and there is almost no "S" to drive it further. "G" is in a margin call. This leaves "En" alone to drive GDP.


    Exports have fallen to only 12% of GDP from 50%, roughly 45 years ago.


    We cant drive "E" with a strong-$ policy. But we cant let the $ fall while oil is denominated in greenbacks.


    So.....lose the imported-oil dependance by converting our energy needs to domestically produced natural gas.


    And.....lose this stupid strong-dollar mentality. Let it float.....down.

  those exports drive economic expansion, on the backs of all those wrench-turners and welders. Put our guys back to work, building stuff to sell to somebody somewhere else. Drive middle class household income back to normalized levels so those families can start spending again.
    16 Jun 2011, 05:35 PM Reply Like
  • Taxing more the wealthy is a piss on the ocean.....


    Reverting to Clinton Tax rates, it raises revenue around $70B from the wealthy class....


    Let's boost our natural resources and you would see a real boom, feed itself by innovation and long-term investing...


    Enough of the class warfare propaganda instilled by the left....stop hijacking OUR energy resources....
    16 Jun 2011, 05:47 PM Reply Like
  • 70B is still 70B. If you don't raise that 70B in revenue, guess what the deficit grows by 70B. Oh, and by the way, ten years of 70B revenues comes out to 700B. That ought to put a dent in something.


    Joe your a freaking Financial Officer, don't you understand that. That's not right or left, its math.


    I'm tired of the class warfare stuff too. The rich and the righties have been conducting warfare on the middle class for 30 years. Never-the-less, everyone has to pay their fair share of taxes.
    16 Jun 2011, 06:51 PM Reply Like
  • JayMMe: Great comment. Not full of rhetoric or charged terms that sound like talking points with a political agenda. Just sound logic based on facts. Although, since I don't know those facts to be true, some citations would have added icing. I hope to see more comments like yours on this site.


    Morgan: Enough of the political crap, please. But, if you must, how about Nixon level tax rates? How about taking the two largest line items from federal spending and cutting them by half?
    16 Jun 2011, 07:16 PM Reply Like
  • Monngie
    Joe your a freaking Financial Officer, don't you understand that. That's not right or left, its math.
    15 of June came deadline for submitting CA budget by state legislature


    If it not
    16 of June and each next day every legislator would get paid not


    Since 75% of CA legislators are similar to Monngie in that sense
    they are evenly good at math and all other liberal arts, they was thinking rather quickly and did pass budget on June 15


    However CA Governor who is Liberal Monngie Belt in Mathematics, vetoed it the very next day, which coincided with today


    in other words today we have neither balanced or unbalanced budget
    16 Jun 2011, 10:05 PM Reply Like
  • Okay Cody. What don't you understand. The part about, if you don't collect 70B in taxes your deficit increases by 70B, or the part that 70B over ten years is 700B.


    This is pretty simple stuff Cody. You can't cut taxes and spend money like a drunken sailor. Its like supporting you family by charging more on you credit card and working 20 hours a week instead of 40.


    The math doesn't work.
    17 Jun 2011, 12:02 AM Reply Like
  • Jay


    So who are we going to sell all this stuff to that those wrench turners make? Who needs it and at what price point? If the price point is low then the wages must in turn be low. And China is making sure price points are low.


    We have a world of oversupply of manual labor and on a relative basis too few scientists, insurance guys, CEO's, etc.


    I don't see a sound strategy behind taking on the wrench turners of the world that own these markets for price points and wages our people don't want to accept. And if those companies don't make money then don't expect any tax receipts.


    It would be worth thinking about who made money in the CA gold rush. The miners who did the manual labor chasing a dream or the merchants who sold them equipment and services?
    17 Jun 2011, 12:21 AM Reply Like
  • Wow, mongie, your reasoning is just astounding....


    By your logic we should revert also the tax rates of the Middle Class and Lower class....that would raise around 200B per year.....and that's 2T in a decade......


    By your logic we should raise all taxes to 100% because we need it as you said to make a dent....
    17 Jun 2011, 06:31 AM Reply Like
  • TVP....I understand your point. However, you might note that $$ has fallen in FOREX by roughly 10% over the last year or so. In that time, our net exports have risen sharply, from about 11% to about 12% of GDP. That's not a coincidence. Manufacturing and exports have been the real "bright spot" of this dismal economic recovery and those two factors are driven by the falling dollar.


    Our "strong dollar policy", coupled with global use of the $$ as currency reserve for commodity trading, is designed to make foreign products (oil) relatively cheap for us. Hydrocarbons are traded in dollars in global markets. The relatively strong $$ makes foreign oil relatively inexpensive to import into the United States. It also makes any foreign made product relatively less expensive to purchase in the United States. The other side of that knife is that as the dollar falls, greenback denominated products become relatively expensive to import into the US. This is a major reason why the price of hydrocarbons have risen so significantly. This is why we must reduce our dependance on foreign oil. Yet, since we dont have enough domestic oil and, since neither solar nor wind nor nuclear are really feasible in the short run, we must have some energy source. Well, as it turns out, we have about 300 years worth of natural gas in the continental US....assuming we convert every house, truck and car into natural gas burning systems...300 years worth. So, if we switch to natgas (assuming we can solve the groundwater issues with fracking), we can abandon the strong dollar policy, and start exporting again.


    BTY...This is also the reason China and other BRIC countries are the largest investors in US Treasury debt, along with raw commodities. Of course, China for example, has little use for dollars. So, after we buy our Chinese manufactured products, our dollars flow to China, which must then spend those dollars on something that trades in dollars....US debt, US equity or commodities (which trade in dollars). With the growing US credit risk, China has opted to divert its $$ expenditures into commodities, rather than concentrating on Treasuries.


    There are many economists and market strategists that believe the Fed and Administration are engineering a falling dollar, specifically because the only way we can drive GDP growth is through driving net exports. And they are correct. The numbers are large, but the math is relatively simple. Net Exports are really the only way we can get out of this mess in a decent amount of time.
    17 Jun 2011, 09:16 AM Reply Like
  • JayMMe


    What you describe is a "beggar thy neighbor" policy which I assume you have heard of before and that has consequences also. Not the least of which is a falling standard of living as imports become very expensive. You also assume your neighbor will not react and devalue.


    The issue in my mind is that we have a mature economy and we are competing against immature economies with a competetive advantage in labor. Taking that on will take all of our treasure and we will lose. We have to chart a path based on our starting point which is not the same as Asian countries.
    17 Jun 2011, 11:40 AM Reply Like
  • TVP...its a valid point and obviously something that must be managed. However, the trade imbalance and all other related imbalances are undeniable.


    The standard of living issue you mention is a non-event as domestically produced goods will increase in relative value, offsetting the decrease in relative value of foreign goods. The largest COLA impact, by far, is the increase Px of oil. This is why we must consume domestically produced energy, rather than import it....natural gas is the answer. And this is a long-run event, no doubt. It will take years, but once we reduce our need to import cheap oil, we can shift currency reserve status away from the $$, which will decouple falling$$ and higher oil-Px. Then, we can let the $$ float and watch exports grow. Moreover, demand for domestic labor will stimulate household incomes, spurring a standard of living that is offset...where/how? By reduced demand in BRIC countries.


    We cant devalue our way to prosperity, but we cannot grow GDP without driving net exports. There must be a balance.


    17 Jun 2011, 11:58 AM Reply Like
  • Jay


    I don't agree with your premise and you are flying in the face of Ricardian theory which promotes competetive advantage. That logic is hard to refute and messing with exchange rates is tapping on the dials when you don't like the readings.


    We have a fundamental problem that is not fixed by playing with the symptoms but examining the true cause. It worthwhile contemplating that trade imbalances will exist as long as you have heterogeneous economies trading with one another. If they were all the same with the same level of maturity then trade imbalances would not exist because labor and production and ouput would be the same globally. Also consider that trade will likely balance over the long run but that is a long time when economies are so immature as in China and India.


    We have already been through our industrial revolution. Going back is a disaster. What Germany does which is smart is high end manufacturing. That we could possibly do but our education system is not geared for it.
    17 Jun 2011, 05:38 PM Reply Like
  • Monngie
    Okay Cody. What don't you understand.
    The only thing I don't understand, why you calling me Cody while it's clearly stated in my profile that I am coddy0.


    Collecting more taxes is not equal to more working


    In productive environment working means process of creation of useful product, which can be sold or exchanged with other useful product.
    As final outcome comes compensation for good effort


    Collecting more taxes, most of the time, means not doing good job with previous taxes.
    So more taxes in this case means compensation for bad job


    An then comes issue


    If you need it and they have it. Can you take it ?
    You said yes and I said no because I call it thievery
    17 Jun 2011, 08:13 PM Reply Like
  • Cody, I didn't read your profile, so now that I have let me begin all over again.




    Cutting taxes is not equal to more working either. We've proven that with the Bush tax cuts and continue to prove it with they're continuation.


    If you think we are going to pay down this monsterous debt by cutting taxes on the rich......your wrong........been there....done that.


    Now, a middle class tax cut would probably help. Even that will eventually lead to increased taxes to pay down the debt.


    I do agree with you, and it seems more and more, lately. The government has to be a good steward of the taxpayers money. I can't say that is the case or has been for at least twelve years. Perhaps the past 30 or 40 years. Yes, I call it thievery too. It's just that the thievery seems to be going on more with the middle class that the rich now. So, if we can't make the taxes more equitable, perhaps we can equalize the thievery.
    19 Jun 2011, 12:00 AM Reply Like
  • Mon


    Who are the middle class?
    19 Jun 2011, 10:27 AM Reply Like
  • Monngie
    So, if we can't make the taxes more equitable, perhaps we can equalize the thievery.
    Ups I was talking to wrong person
    19 Jun 2011, 11:16 PM Reply Like
  • TVP.....The problem with quoting theory in real world situations is that the real world does not behave as the controlled factors in the theory. Ricardian theory is great in a vacuum but it doesnt do much good when one or both players are manipulating FOREX, stealing intellectual property, bribing stakeholders and other factors. To your point though, I do appreciate specialization and competitive advantage. I also appreciate your view that education is the ultimate long-run answer. To this, its clear that our history of academics has fueled substantial innovations that drove our economy. But you cant make people educate themselves and, even if you could, its a long-run event. It will take a generation and, at what cost and to whom? Education sounds good, but TODAY....its not a practical solution to our short-run problems.




    "C" is tapped out and there's nothing you can do about it except offer high-risk and cheap credit.


    "I" isnt interested with capacity utilization rates still below trend and with negative real returns.


    "G" is in a margin call....Leaving....


    "E" to drive GDP. But how?
    21 Jun 2011, 09:54 AM Reply Like
  • Jay


    Theory is good for providing an analytical framework to help understand reality but nobody is asserting it replaces reality. However ignoring it can be painful. It is theory that hitting your thumb with a hammer hurts but common sense tells us it would be foolish to test the theory. If you do test it then you experience the pain and theory becomes a reality.


    I have been to Asia a fair amount and as I traveled I came away with the idea that Asia's competetive advantage is the size of their labor force. In addition you have governments that want to keep them employed so they are not thinking of ways to riot or take over the government. China has more raw labor and India has more educated labor.


    You hit on the dilemma I have been thinking a lot about as investing ahead of it would be really lucrative. And that is where is the growth going to come from when the effective labor rate has been falling globally for some time? Our uneducated labor force is directly exposed to that economic force and our educated work force to some extent. Our government has done nothing to get our uneducated out of the way. Thus far I don't see a way out especially with our current government's stance towards the private economy.


    If we keep going down this road then we need to come to grips with the fact that the going rate for raw labor is extremely low and we need to push people back to work at lower wages. This is a fall in standard of living that people don't want to accept but either it comes to the wage earner or the consumer pays higher prices for protected goods which is also a drop in the standard of living.


    I believe we need to do 2 things:


    First we need to get government out of the way of private industry or it will not matter what we do with education or anything else. As long as government wants to be the hero and the pig at the trough we will not make progress. We only end up with several hundred million people standing around waiting for the government to wax eloquent on their latest ideas. This has failed over the long run all over the world.


    Second rather than wasting money on helicopter stimulus we should have spent billions on technical training for our uneducated to take on higher end technical jobs and put them back in school to retool. And perhaps delivered it all over the Internet.


    We need different approaches other than 4 year colleges. In India there are a lot of schools that are focused on turning out engineers in 2 years. We should be thinking about different approaches with our education to get our people moved up the value chain.


    If we can do these 2 things I believe we can go a long ways in getting the economy heated up again. The first initiative is demand related and the second is supply related.
    21 Jun 2011, 05:34 PM Reply Like
  • Like how the government unwittingly unleashed hordes of engineers with the GI bill? They all got jobs, but we helped destroy the world's infrastructure so we were the only real manufacturing base.
    Tomas, it's all about making a selling widgets. And we produce the most and the best in the world. The smarter we get, the fewer it takes of us to make the widgets.
    Heat up the economy? No one will hire until we sell more widgets. You know one reason why crime went down so much in the '90's and '00's? No one could fence stolen goods. Everybody already had their little toy widgets. We sell tech widgets and drug widgets, tool widgets that gather dust. We can only buy so many widgets, even when a lot of new ones come out. Want to be green? Don't buy a Prius, keep your own car, carbon foot print is a tiny fraction of a new Prius. We need a new economy, Tomas. One not driven by the need for more toys.
    21 Jun 2011, 06:12 PM Reply Like
  • Option


    Don't know how you claim we sell the most widgets.


    Open to suggestions on the new economy. Agree with you on the green baloney.


    If food prices keep going up and the standard of living keeps going down people might need to work just for foodl
    21 Jun 2011, 08:49 PM Reply Like
  • In dollar value, we are number 1, Japan #2, China #3. (But I think China is about to surpass Japan).



    Suggestion on the new economy? Heck, do we have a choice as to what it will be?
    21 Jun 2011, 08:58 PM Reply Like
  • Option:


    Thanks............when I think widgets I think consumer goods and electronics but this looks like all mfg which includes CAT, etc.


    It does show we are prolific and not completely out of business though doesn't it?
    22 Jun 2011, 07:55 AM Reply Like
  • It is also what you manufacture. Germany is number 4, lot's of high end autos. I remember how rare BMW's were when I was a kid, now I see them everywhere. If the Chinese and Indian working class raise to where our working class is at, the demand for "higher end" goods will grow. But yes, the unskilled worker will be left behind, left to mow lawns and clean pools.
    22 Jun 2011, 08:59 AM Reply Like
  • You know?? I dont think a lower standard of living is an unrealistic outcome. The cost of labor dynamic is real. We could broaden that to contemplate the "cost to produce", which might include things like FOREX weightings, etc.


    Its worth noting that the American standard of living, even for the working poor, is higher than most other parts of the world, especially developing and 3rd world countries. I've read plenty of report describing what life is like at/below the "poverty line". Those descriptions often include multi-bedroom homes, 1+ cars, 1+ computers, multiple televisions and cable TV. There is a reason why all the old-timers rant about how hard they had it (compared to today). That reason is that their standard of living was lower. Maybe a return to "the good old days" wouldnt necessarily bad.


    Its funny....I recently watched a couple episodes of The Honeymooners. The set is a scantly furnished two room apartment. Gleason plays a bus-driver. They show was so popular because it was funny, but also because common people identified with that family. Compare that to today's "poverty line".


    Its an interesting question of the dogma of "needs vs. wants". In America is spoiled. We have lost our sense of the difference between what we really need, versus what we want. People seem to believe they "need" two cars, cable in every bedroom and a Costco membership. Why must we strive to constantly increase a standard of living, without real consideration of what is enough?
    22 Jun 2011, 11:09 AM Reply Like
  • Oh gosh, yes. We were five kids in three bedrooms and one bath. Crowded around one small TV screen. Everyone now has so much junk.
    22 Jun 2011, 06:27 PM Reply Like
  • Jay


    A lot of truth in what you say. I believe it is 100% certainty that the standard of living is going to go down for people working in manual labor jobs unless they work 3 of them which is really an impossibility.


    22 Jun 2011, 10:20 PM Reply Like
  • Option


    I had the same experience with 5 kids and 3 bedrooms and one bathroom which was on the first floor off the dining room. We read a lot of books which in retrospect has been a blessing.
    22 Jun 2011, 10:22 PM Reply Like
  • Yeah, privacy was at a premium. My dad would walk into the bathroom any time he felt like it, no matter what you were doing in it. Colleges now feel obliged to build private room dorms for all the kids growing up now that do not share a bedroom. Tax dollars.
    Yes, reading alone in a quiet spot was heaven.
    23 Jun 2011, 09:37 PM Reply Like
  • Yeah, well, out "working class" has been decimated over the last 40 years. They never had big lifestyles while working, but they had a roof over their head and food on the table and many were proud to be the guys that "did the work".


    I suspect they'd be happy to have those jobs back. They will, as the dollar falls.
    24 Jun 2011, 09:17 AM Reply Like
  • Jay


    I don't see it. The wage disparity globally for manual labor between the US and the rest of the world is too big.
    24 Jun 2011, 09:24 AM Reply Like
  • How do you explain the remarkable rise in US exports and manufacturing over the last year? Its widely associated with the weakening dollar over the last year.


    Dont get me wrong. Im not discounting the wage differential or suggesting a weaker dollar can completely offset the obvious wage disparity you point to. However, there is more weighing on our exports than wage differentials. This is the point of worker productivity measures that show US workers are more productive than Chinese. The runmimby's peg below the $$, the imbalanced exchange rate, makes chinese products relatively less expensive to US consumers than US products.
    24 Jun 2011, 09:47 AM Reply Like
  • Jay


    Look at what we are exporting. Heavy capital is not something that Asia companies can produce very easily. But at some point I assume they will get better and start producing those assets as well. Then we will have huge problems.


    Our advantage right now is more sophisticated manufacturing but you have to assume that is not a forever advantage. Then it all comes down to input costs and salaries are probably on top or close to it.
    24 Jun 2011, 09:38 PM Reply Like
  • You've asked this question at a couple of these forums, and no one has answered (means it's a good question). If you ask any two people this question, you will get three different answers. The middle-class is not only a moving target (changes with the economy and the change in social perceptions), but also a group whose parameters are always under argument.
    No one is going to give you an answer, you're just trying to stir the pot by asking it.
    27 Jun 2011, 10:38 AM Reply Like
  • I'll answer it......


    Who are the middle class????


    The middle class is that percentage of households who must work to pay their bills AND do not need assistance to pay the bills while they are working.


    27 Jun 2011, 04:06 PM Reply Like
  • Option


    I am only asking the question because there is a lot of talk about helping them so why not quantify who is in this group. Otherwise nobody really knows what we are talking about and there is no idea how much it might cost to help them.


    Politicians have overused this term to the point I don't know what they are talking about until they state the parameters. And usually they make a lot of creative assumptions around it based on their own agendas.
    27 Jun 2011, 10:33 PM Reply Like
  • Well, you can start with me Tommy. So now you have one member of the middle class to answer your incessant question with.
    28 Jun 2011, 10:05 PM Reply Like
  • Monngie


    Most everyone thinks they are middle class. If you want to add some value and think you know then define the parameters.
    29 Jun 2011, 12:22 AM Reply Like
  • You would think that being middle-class would mean you do not require any help from the government.
    Except for just two important needs: Health-care and higher education.


    We haven't figured those out yet.
    29 Jun 2011, 05:28 PM Reply Like
  • The problem with our economy goes back to education and training. Generations have come and gone depending upon what others have built before them. They expected jobs that would require little or no skill that they felt they could obtain later. Now as they've come to realize little or no skill is a cheap worldwide commodity they're left jobless. Within the bulk of the population, generations of Americans have put little emphasis on getting an education. They've put little emphasis in upgrading their professional skills so that they wouldn't end up just a cheap commodity. This is a harsh reality, but it ought to be expressed to every young teen before they make the same mistakes their parents made.
    16 Jun 2011, 05:43 PM Reply Like
  • It has been in vogue in the recent past, with all our politically-correct relativism, to denigrate those with higher educations and/or better skills, as "elitists," who think they're better than everybody else.


    Well, guess what? When it comes to getting ahead in life, they are.
    16 Jun 2011, 05:52 PM Reply Like
  • might be correct. But all those people need a job doing something that fits their skills, as rudimentary as they may be. Moreover, the BRICs are not out-skilling us really. They are out-cheaping us. They can produce stuff more cheaply than us for two reasons.....A) Their labor costs are orders of magnitude less than ours, primarily because they are unskilled/educated and 2) Their currencies are less expensive than the US$ in FOREX, making their products relatively cheaper.


    We have plenty of people to assemble, weld and turn bolts. What we dont have is a FOREX position that does anything except drive cheap imports....of OIL.


    And dont believe for a minute that we actually pursue "free trade". We dont. We have just as many subsidies and tariffs and duties as other countries. That's just a marketing gimmick that politicians use to point the finger of blame at someone else, while they take campaign dollars from the oil companies who want the strong $$ to maintain import levels. Its all BS.


    We did just fine, economically and globally, before we decided higher education was the only way to prosperity. We did just fine, but putting our grease-monkey middle class to work building stuff.
    16 Jun 2011, 05:54 PM Reply Like
  • I am proud to be an engineer. We are the most well-educated of the blue-collar workforce or the guys with the different color hard-hat.


    I have no problem with the wealthy that have gotten that way by innovation and creativity. Those that provided value to society and were rewarded for their contribution. And, yes, as much as I loathe to admit it, a weaker dollar would do great things for renewing our ability to move back toward a production-based economy.


    My biggest concern is that, despite the term "financial innovation" being tossed around as a currency of sorts...careful examination of many of the "innovation products" such as CDSs, CDOs, and MBSs...I do not believe that a single one creates much, if any, value.


    I believe that each transaction utilizing these instruments is a zero-sum game which means that the only way for many of these instruments to generate profits is to find fools willing to be on the wrong side of the trade.


    No, I don't think that snake oil salesmen deserve the spoils of their victories, especially when they can charge the U.S. government for losses.


    I read recently that 20% of all revenue in the U.S. was made by financial companies and, for companies that neither produce nor enhance nor contribute to productive efficiency...I strongly believe that this is unsustainable and catastrophe will occur when everyone is trying to sell snake oil to each other.
    16 Jun 2011, 06:19 PM Reply Like
  • I want to state that, if banks were not permitted to leverage their own books, then CDOs and MBSs could actually produce value. But, because banks can already borrow money cheaply, all these instruments actually accomplish is to provide a secondary source of leveraged capacity.
    16 Jun 2011, 06:23 PM Reply Like
  • My kids have learned a vast more amount than my parents did. A 12th grade calculus textbook is now akin to what a 4th year college student would have used 30 years ago. I know, Chemistry major who took a lot of calculus and was amazed what my son was learning in highschool.
    16 Jun 2011, 06:27 PM Reply Like
  • "..all those people need a job doing something that fits their skills, as rudimentary as they may be."


    And there will always be work available for those with just that skill-less set. In our economy we will always have a service sector but they'll need to be aware that a lot more Americans will be willing to do that same work which will drive wages lower. Add to that new immigration reform and you can see we have a problem here.


    "And dont believe for a minute that we actually pursue "free trade".


    I agree. The term "free trade" is a misnomer. Our so-called "free trade" agreements are really just a reduction in current tariffs, and quotas in exchange for the other party to also reduce tariffs and quotas. Both sides still protect specific industries. But quota and tariff reduction agreement is too many words.
    16 Jun 2011, 07:35 PM Reply Like
  • Fr


    Spoken like an engineer who deals with tangible things and equations and certainty and struggles with esoteric instruments and modern finance and portfolio management.


    First if there is no value in anything it will never get sold. The buyer has to see how the instrument fits into their strategy which is based on their obligations and financial circumstances. An outside party may see no value but the buyer understands the value as it fits in their unique strategy.


    Secondly the packaging and repackaging of financial assets is to allow someone to take a positon either short or long that addresses a specific need they have in their financial situation. Someone takes the other side of the trade that has the opposite need or is willing to speculate that the event will not occur so they are providing insurance of sorts to the buyer.


    Thirdly when an economy matures and the wealth of the population increases the financial sector should be a robust part of the economy. It is not a symptom of a problem but a sign of need and maturity. By the way we have only 25% of the banks that we had 100 years ago and our economy was very small back then so you could say we have downsized as far as number of players.


    We will rue the day if we take our financial sector apart because it will reappear on a foreign shore and with it will go a lot of America's power and wealth.
    17 Jun 2011, 12:34 AM Reply Like
  • Forget free trade. The issue is that the wages for low end wrench turners has been dropping on a global basis for a long time. Why would we ever move our economy in that direction?


    People without educations will be poor and there is nothing anyone can do to hold back those forces. Consumers made the choice for everyone.
    17 Jun 2011, 12:39 AM Reply Like
  • TVP:


    Excellent points.


    The collectivists want to destroy the capitalism and the banks, along with it. It doesn't matter if the standard of living collapses, as long as the misery is all "shared."
    17 Jun 2011, 08:06 AM Reply Like
  • are also correct that there is lots of work in the US that many people choose not to accept. However, those jobs dont support households. They support teenagers looking for weekend beer money. You dont need a highschool education to sweep floors. Yet, while 75% of us dont have college degrees, about 85% of us have highschool certificates. Thus, the majority of our working class are over qualified for that plethora of work you point to and they cant support their families on $6.50/hour, part time.


    The average household income in the US has been effectively flat for 10 years. Reich is not wrong about that. Adjusted for inflation, I believe household incomes have actually fallen fractionally over that time.
    17 Jun 2011, 09:25 AM Reply Like
  • And who's incomes have skyrocketed? There is no question that the redistribution of wealth has moved from the middle-class to the very wealthy. But what is the answer? No, we do not want class warfare or class hate, but there will be a real tug of war as to what will be "fair".
    17 Jun 2011, 10:10 AM Reply Like
  • On a global basis? No, Chinese laborers are making more now than in the past, and trure for a lot of emerging nations.
    17 Jun 2011, 10:10 AM Reply Like
  • Know three "kids" who graduated with engineering degrees. Companies upped offers to grab them.
    17 Jun 2011, 11:37 AM Reply Like
  • Man, Tack, you've got that right. Home-spun wisdom has never been more in vogue. Unfortunately, most of what we hear is made up home-spun wisdom.
    17 Jun 2011, 11:39 AM Reply Like
  • Tack


    Your words echo Alexis de Tocqueville from 2 centuries ago about Americans which I paraphrase "they would rather be equal in poverty than unequal in wealth."
    17 Jun 2011, 11:46 AM Reply Like
  • Option


    So they were making $400 per year and now they are making $3K?


    Find our workers that want to accept those pay packages.
    17 Jun 2011, 11:47 AM Reply Like
  • JayMMe


    A lot of those are known problems. The real issue is that there is an oversupply of manual labor on planet earth and it is supressing manual labor rates. Supply and Demand are at work and they are terrible things to try and manage. People need to get to work.


    What our government has failed to do is work with industry to provide higher skills in the workforce through schools which would avoid some of these problems. And they have went union and decided that capital is bad so good bye capital. Dumb and dumber.


    My daughter has 2 jobs right now which took her 3 weeks to land. So much for people not having a job.
    17 Jun 2011, 11:52 AM Reply Like
  • Option


    Wealth has accrued with people who are highly educated and can manage capital and solve tough problems.


    Working 40 hours in a brain dead job and getting drunk on Saturday has disappeared.


    And consumer choice has driven both of the above.
    17 Jun 2011, 11:53 AM Reply Like
  • Just saying, they are making more than they were, and their lives have improved. Yes, it is all relative. Hey, I watch HGTV House Hunters International. Most of the rest of the world is happy with a closet. We are used to walk-ins the size of bedrooms.
    There gap between US workers and emerging market workers is growing smaller (still big, I grant you). Not so with our CEO's.
    17 Jun 2011, 01:38 PM Reply Like
  • Please, don't put all hourly workers in that catagory. They are not all drunkards, and plenty have gone past a HS diploma. I see these fathers and mohters every day. They are not deadbeats bleeding your wealth. The real world out there? There is just not enough jobs. If there were fewer workers than jobs, they would be paid well. Fewer workers per widget, the newest economy, I know that is the reality of the situation. But don't ask for another tax break for those of us paying a 15% tax rate on our dividends, that yes we researched and bothered to save for. I think those that do work hard deserve more than a survival of the fittest world.
    17 Jun 2011, 01:43 PM Reply Like
  • OM...I agree, but at the same time I don't think we can take care of the whole world. Thus my contention is America for Americans first. The illegal immigrant community has served to lower the wage base and taken jobs from the low income pool of Americans. That has translated into higher social costs re: unemployment, etc.


    I'm fine with tarriffs that would kill incentives for US companies to offshore to low wage countries. At the same time, I know we have to change the nature of our economy from 70% consumption to something less. Thus I go back to my public private partnership to build nuke plants, electric cars and sponsor VC start-ups.
    17 Jun 2011, 01:54 PM Reply Like
  • They are deadbeats, simple as that....MSNBC is clouding your thinking.....


    If they want better jobs, then they need to improve their quantitative methods analysis....we need math and science....
    17 Jun 2011, 02:05 PM Reply Like
  • WM:


    We have "public-private partnership" now. It's called Government meddling, regulation and interference in almost everything anybody tries to do. It's the root of the problem, not the solution. Get Government the hell out.


    The words of Ronald Reagan never rang more true:


    "What are the nine most terrifying words in the English language? 'I'm from the Government, and I'm here to help.'"
    17 Jun 2011, 02:09 PM Reply Like
  • Tack....I wonder if you understand what would have happened to Corporate America if the Govt had not stood up funding vehicles for corporate paper and working lines of credit for the money center banks.
    17 Jun 2011, 02:17 PM Reply Like
  • Jay:


    If you read my historical posts, you'll find I am one of TARP's biggest supporters, but this extraordinary action at an extraordinary moment isn't the same as and doesn't justify the Government's insidious intrusion and assertion of control over everything that occurs in the private sector. The endless regulations and mandates have provided a disincentive for companies to hire or invest and furthered their interest in finding friendlier locales in which to conduct business.


    Those that believe Government is the answer and should be encouraged to do more are only, perhaps unknowingly, wishing for a more Soviet-like economy (living standards included).
    17 Jun 2011, 02:23 PM Reply Like
  • Tack,
    That little diatribe sounded like something a politician would say when they have no idea what they're talking about. When in doubt, go the condescending route.


    Financial advisers are professional gamblers and portfolio structuring is truly an art form. I do not pretend to fully understand the mechanisms of portfolio theory but the fundamental objectives are not that difficult.


    The objective is to maximize the risk-adjusted return (WRT the risk profile of the individual) of a given portfolio...this is neither novel nor difficult to understand for anyone that has taken a calculus class.


    "First if there is no value in anything it will never get sold. The buyer has to see how the instrument fits into their strategy which is based on their obligations and financial circumstances. An outside party may see no value but the buyer understands the value as it fits in their unique strategy.


    Secondly the packaging and repackaging of financial assets is to allow someone to take a positon either short or long that addresses a specific need they have in their financial situation. Someone takes the other side of the trade that has the opposite need or is willing to speculate that the event will not occur so they are providing insurance of sorts to the buyer."


    I am often amazed by the number of ways to sound intelligent but say absolutely nothing of value.


    Financial instruments are designed to provide revenue for a given up front price. Financial Instruments are generally produced by the most knowledgeable person in the custody chain and so they have the best estimate of the true expected value of the instrument. To purchase a financial instrument at an informational disadvantage is a virtual guarantee of getting a price that is above the time and risk-adjusted true value of the instrument.
    17 Jun 2011, 02:50 PM Reply Like
  • Tack, Im with you. I have not read your posts and wouldnt know what you understand about TARP and the other $2.6 trillion in funding from the Fed and Treasury. As Im sure you are aware, those programs basically bankrolled 80% of US corporations, via the money center banks. Without those WLOCs and CP, most US companies would have been unable to meet payroll and other short term working capital needs. It would have been chaos and blood in the streets.


    Im also with you on the govt meddling, as far as regulations, etc. Even Obama is working to curtail oppressive regulatory structure and other unnecessary things. However, I am quite sensitive of externalities that corps love to ignore. These are things only govt can protect against, as the cost is born off the typical P&L or balance sheet. For example, I've spouted about domestic natgas. Fracking is the process developed to extract resident natgas from shale formations. Fracking is not a regulated process and gas drillers have been caught putting some pretty scary things down those holes. One, for example, was caught dumping benzene down the shoot....several hundred gallons, if I recall. Its enough to kill off a medium sized town and its now churning around the ground water in parts of TexArkana. Another good externality example....AIG and its unregulated swaps business. Who would have thought AIG would actually be expected to repay a couple hundred billion $$ in insurance on debt defaults?? Well Goldman saw it, but they built it and sold it. Other than that, we all were left holding the AIG externality bill, currently to the tune of $138 billion. Externalities....


    Anyway, I think we agree. Thanks.
    17 Jun 2011, 02:53 PM Reply Like
  • Fr:


    Are you sure you're responding to me?


    I have no idea what the particulars of financial instruments or portfolio planning have to do with anything I said. However, as an observation, if anybody has offered diatribe that makes it sound as if it's impossible to make value judgments in the market, it's your last post.
    17 Jun 2011, 03:56 PM Reply Like
  • Fr


    You are responding to me and you are wrong again and you do not understand portfolio management. You come off like an engineer so stick with engineering where you likely have some real expertise and training.


    The objective is not always to maximize the risk adjusted return but can also be to match returns with obligations. There are all kinds of objectives and strategies which you would not be exposed to because well you are not a CFO or portfolio manager.


    As far as your other other cheap comments, if you don't appreciate finance that's fine but that does not give you the insight or credibility to say anything intelligent about it.
    17 Jun 2011, 05:48 PM Reply Like
  • I agree.........that gap has to close more to get our workers on a reasonable playing field to compete. The dilemma is the gap is either closed by them increasing their standard of living or ours dropping or both.
    17 Jun 2011, 05:55 PM Reply Like
  • The government should be a guy who gets on his hand and knees so we can stand on his back to grab what is just out of reach.
    17 Jun 2011, 05:56 PM Reply Like
  • Agreed, WM.
    17 Jun 2011, 05:57 PM Reply Like
  • OM


    Not all workers are in that category for sure I am just addressing the dreams of going back to those days. They don't exist any longer.
    17 Jun 2011, 05:59 PM Reply Like
  • I would characterize our government as doing the right thing when a gun is to their head. TARP was necessary and it has mostly come back to the Treasury. However up to TARP it has been an ugly display of not much done right.
    17 Jun 2011, 06:03 PM Reply Like
  • You are right. But I can't imagine business (at least today) coming up with $1T to build 200 nuke plants. Sure if we could get the regulators to take a hike. If I were President, I'd say no environmental studies required to build new nuke plants. Do it now on basis of national security. If industry weren't forthcoming to come up with the money, then I'd say do it anyway, just like the interstate system. Later I would sell the facilities to industry. Sure there are lots of "issues" to get it done, but at a potential for saving $200 billion or more in oil imports annually, it's worth a huge try.
    17 Jun 2011, 06:58 PM Reply Like
  • I think the Japanese tried the no environmental study trick. They built on a fault zone susceptible to tsunamis. If we spent a trillion dollars on PV, Wind, EVs, and NG conversion in our transportation sector, we could pay ourselves back in two years of not sending 600-800 billion to other countries. I'm not opposed to nukes, I just don't think they provide the bang for the buck other options provide. Additionally, the investment would put us in the lead on emerging high technology.
    19 Jun 2011, 12:12 AM Reply Like
  • I was replying to you Thomas.


    Mind you, I am operating with the perspective of the investor entrusting their assets to asset managers.


    And, for the record, Engineers need to justify projects based on expected ROI and so their investment decisions are structurally aligned with their "investors" as opposed to asset management companies that profit more from ignorant investors than knowledgable ones.


    Please explain "match returns with obligations".


    It sounds to me like this is a phrase identifying the minimum ROI required by customers not to bolt. If this is the case then its a term designed to maximize the returns of the asset management company and not of the individual investor.


    I am capable of admitting when I'm wrong but neither of you have given me a valid counterpoint to any of the points that I have made.


    In my book, "you don't understand because you're not a CFO" is simply a misdirection. One of the reasons I became a member of this site in the first place is to learn more about what is going on financially in the world.


    I look forward to hearing insightful comments from both of you to bolster my understanding of the functioning of the world of finance.
    19 Jun 2011, 03:29 AM Reply Like
  • Fr


    You are making broad sweeping statements and then you claim you are only speaking from the "perspective of an investor." The industry is larger than just retail investors.


    Then you throw on comments like "I am often amazed by the number of ways to sound intelligent but say absolutely nothing of value." That is uncalled for as you don't understand the industry and would not know if it was intelligent or not. You should buy a text book or take a class on Investment Theory as you barely have your toes in the water.


    And let's be real about the record with respect to engineers. If I had a dollar for every project that engineers fail to deliver on time, within budget and to specifications I would be incredibly wealthy so saying engineers are aligned with investors is a stretch.


    But putting that aside you ask about "match returns with obligations" which is a very basic financial need so I can tell how much you don't know. However if you are a pension fund or an insurance company and you have forecast financial obligations for X period and these payments must be made without fail then you might look for an investment that has a return over X period that mirrors those obligations with minimial or no risk. You are not looking for the best return or even the best risk adjusted return available but a return that close resembles your obligations with as close to 100% certainty as possible.


    You might turn to an IB and tell them your need and they may take it on as an investment by guaranteeing you that return and they in turn will invest the money at higher rates but more risk and they pocket the difference which is the risk premium. If they don't do a good job investing the money then they lose money. Or they may find another party that has can guarantee the payout for a premium. There are endless variations on these types of investments. This is just one example of the myriad of needs that companies have that they need someone to help them solve.
    19 Jun 2011, 11:19 PM Reply Like
  • I must offer my sincere thanks because my frame of perspective rarely includes payout duties such as those from annuities, pensions, and insurance contracts.


    Because these contracts are, understandably, very complicated I am sure that the instruments used to support these contracts must be similarly complicated.


    Just like there are a lot of things going on to make the acceleration response feel natural when you depress the accelerator on a sports car.


    I still think that many (Not all) financial products are intentionally obfuscated to sell at premiums not justified by the quality of the instruments contained within. But, like cars, marketing and salesmanship keep Jaguars on the road despite their long history of reliability issues.


    Every industry has their own jargon but, sometimes, to have discussions with people outside our own field we have to dispense with some of the jargon and we can have intelligent discussions that are, shall we say, non-partisan.


    But, as it is customary to end these conversations with a manufacturers are accountable for the quality of their products for over a decade where, if a financial products producer constructs something that blows up after a year, they are rarely held responsible.


    No industry has more opportunities to profit from malfeasance than the financial industry.
    20 Jun 2011, 04:46 PM Reply Like
  • Fr:


    "No industry has more opportunities to profit from malfeasance than the financial industry."


    I would beg to differ. Government can lie straight to your face when in campaign mode the day before the election to get your vote and then do nothing for you over the next four years. They can also spend 100's of billions to pay for votes, start wars, blow up the economy, tax you into oblivion and inflate away the value of the dollar. And you don't get your money or your vote back.


    Enron and MCI did a spectacular job of stealing money and they are not in the financial space. Our auto companies need a bailout every few decades so why isn't that stealing?


    Financial products are outlined in the contracts they sign with their clients. That is their guarantee. These are complicated when it is sold to an insurance company but both buyer and seller have dedicated staff to read the legal language. On the retail side a lot of the language has been written by government regulation along with court case experiences. If it is hard to read than welcome to America where litigation drive legal documentation. In many of the tables you see in the financial documents those tables are mandated by law.


    Auto manufacturers will sell you bumper to bumper warranties for another $2,000 but they will not warranty anything for 10 years that I have seen. Your example does not stand up to scrutiny.
    20 Jun 2011, 06:42 PM Reply Like
  • Problem is, there are a lot more of them than us, which means we have to budge. Ouch.
    20 Jun 2011, 08:01 PM Reply Like
  • Enron was blown up by its traders on the energy exchange that it created. If you don't consider that part of the financial industry then you don't consider futures markets part of the financial industry either.


    Transactions in the financial industry tend to be much more adversarial than in other industries. If you overprice a security and sell it off of your books then you are a hero. Many wins in the financial industry happen in zero-sum scenarios.


    When I say that no industry profits more from malfeasance I'm not including the public sector. I mean simply that, when you are conducting financial transactions, the most profitable ones are conducted with "useful idiots" on the other side of the trade. As long as no legally binding statements were made, and the patsy is made to believe that the transaction was in good faith, then there is no legal recourse for being sold financial snake oil.
    20 Jun 2011, 09:12 PM Reply Like
  • You are trying to prove that that the earth is a spherical object to the diehard members of The Flat Earth Society. It has never been done.


    Anyone who thinks that the financial industry serves the public at large rather than the interests of the industry insiders after all that has happened in the last 12 years cannot be in any way be convinced otherwise.
    20 Jun 2011, 09:48 PM Reply Like
  • Fr


    You are making statements that are true about every industry but your bias against the financial industry and likely your own ignorance leads you to think that it is atypical. A fool and his money are soon parted is true in any industry in any place.


    And you are also glossing over retail versus wholesale banking differences and the fact that the disclosures are driven by your government looking out for you.


    This is boring and juvenile. I am moving on.
    20 Jun 2011, 11:50 PM Reply Like
  • varan


    Pull your lawn mowing money out of the bank and convert it to silver and just pay in silver or barter for goods because the financial industry can do nothing for a guy like you who has it all figured out.


    You have nothing insightful to say but to insist on writing the same boring and predictable comments which only reflect your bias and ignorance.
    20 Jun 2011, 11:53 PM Reply Like
  • Article in the New York Times - 30% of college freshmen did not know that Abraham Lincoln was president during civil war. Article decried state of US education. Article dated 1941. When education testing was first done and compared to the rest of the western world in the '60's, the US was dead last. We have been steadily climbing since then. We produce the most inventions and have the highest worker productivity. Stop making teachers the enemy because your taxes pay their salaries. I will repeat, my kids learned a hell of a lot more than my mom and dad did in school.
    21 Jun 2011, 05:26 PM Reply Like
  • Geez Thomas, don't move on. You've got your hands full with Fr and I think he's winning. This discussion is far from boring and juvenile. You should stay engaged.
    27 Jun 2011, 07:12 PM Reply Like
  • CEO's now make 200x hourly earning when 20 years ago it was 40 times. The upperclass get to set their own salaries while the hourly is set by the free market. Unions or not, hourly wages have gone down. And we are told that it is only fair that those who dictate wages should pay lower taxes.
    16 Jun 2011, 06:25 PM Reply Like
  • Yep, isn't that a crock.
    16 Jun 2011, 06:56 PM Reply Like
  • But the real road to great wealth is public service. Look how well the Clinton's have done. And do we have any paupers in the Senate? Of course you might say that their wealth comes from being corrupt and ignoring the common good. But Robert Reich wouldn't agree with you.
    16 Jun 2011, 07:44 PM Reply Like
  • As a shareholder I'm certainly not fond of paying CEOs what I believe to be outlandish salaries. But when you talk about the regular hourly worker's wages being set by the free market and CEOs setting their own, I have to disagree. This is not unlike what happens in a Hollywood movie production. Production might hire a big name star and a cast of 100. The big star may make $20 million for 2 weeks of actual acting that's spread over 4 or 5 months of production. If you're among the cast of 100, you might make a few thousand. They both get wages based on the free market. But the star's free market wage, which he may name himself, is a more rarefied free market than that obtained by the cast of 100. He might compete with a far smaller free market of marketable stars but it is a free market. If he is unwilling to come down in price, he's not quite that marketable anymore.
    16 Jun 2011, 07:49 PM Reply Like
  • Duude, this is a rare occasion where I agree with you.


    The highest paid CEOs are master salesmen and negotiators. They could sell ice cubes to Eskimos and encourage Alaskan governments to subsidize the transaction.


    The reason why the discrepancy between worker salaries and CEO salaries have gotten so much bigger over time is that many CEOs (especially financial CEOs) have moved away from providing corporate value (i.e. superior products) and towards providing short-term shareholder value, favorable governance, and an extraordinary perception of value.


    But, to move left a bit...I do not think that favorable tax treatment for the wealthy is a positive move at all. The wealthy benefit more from public services than those of lower income and, to pay less on a percentage basis than the wage slaves that serve them is absurd.


    Just look at all of the wildfires in Malibu and how difficult it is to fight those fires. The areas that are the most difficult to protect from fire and the areas that demand the most from the police are also the areas with the highest per capita wealth.
    16 Jun 2011, 09:02 PM Reply Like
  • Why single out the Clinton's? The Bushes are doing very well for themselves. Probably make the Clinton's look like they come from the other side of the tracks. But, they're not from Texas are they. Hell, Arkansas is close enough. What about every political family in WDC and every state.
    17 Jun 2011, 12:10 AM Reply Like
  • Couple things. How many CEO's sit on each other's boards and dictate each other's compensation.
    The other is a change in culture. When our grandfathers started companies, their reward was a well run company while being able to live very comfortably. Of course, if you start a company that is successful you should be able to make yourself wealthy. Now it seems if there is a bump in the road, stay wealthy and let the employees take the major hit. A neighbor complained to me that the shop was cut to 30 hours and benefits cut, yet the owner still bought his annual $90K Porshe. Something my grandfather would never do. Well, the depression taught people a lot of things, humility and not having to have a mass of material goods being two. There is less an inclination to share the wealth by those that have it. We no longer grow up in large families where sharing is a necessity, but as one or two kids who are given everything, and we can't wait to make the bucks so we can keep on getting.
    Once again, my hat is off to those with the brains, guts, and work ethic to start a new company.
    17 Jun 2011, 07:28 AM Reply Like
  • Option


    Agree with you that the level of insensitivity and selfishness is shameful. I see it the world over as I travel so cannot say we have cornered the market but I don't like it regardless.
    17 Jun 2011, 11:55 AM Reply Like
  • Thanks, Tomas - I've had both kinds of bosses. Lucky to have had both.
    17 Jun 2011, 01:45 PM Reply Like
  • I suspect that screaming at each other won't solve too many of our problems, however much fun it might be. I sense from my lobbying days in the late 80s that the balance of power has dramatically shifted away from the middle class in favor of more organized corporate interests. Of course, the middle class needs to get organized to "take back" what they think they have lost. I hope they've learned that a cool leader like Obama isn't going to do anything for them. If the US continues its underclass expansion it will not be pretty for either class.
    17 Jun 2011, 06:01 AM Reply Like
    20 Jun 2011, 08:08 PM Reply Like
  • Made on the backs of hourly wage earners.
    21 Jun 2011, 05:31 PM Reply Like
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