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Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Hopefully Barack will socialize healthcare in America and put everybody into the same plan. I'm sick of the indirect method where my tax dollars only go to pay other people's healthcare after 100 different people from the doctor, the pharmacy rep, the medical device guy selling a tiny overpriced stent for a problem that could have been solved by diet and excercise, the drug company, the lab company, the doctors and companies all out their speculating to get rich(er) on this or that, have all had their thumbs in the pie, and then in the end, the company goes bankrupt, the employee gets the shove, the bankruptcy court removes the obligation and the employee ends up on Medicare anyway. It is stupid system and it is in a cost bubble, worse than the education cost bubble - which is a cost bubble for similar reasons - and at around 16% of GDP is a nightmare about to come unraveled!

The Case for Derivatives

You have done a fine job of explaining the uses of derivatives, but not so fine a job of explaining their value to the economic marketplace. You talk about banks and corporations wanting to offload risk. That is exactly the problem with derivatives is they allow that process to happen, but it is only happening as a mirage. If I buy up all your risk and take it onto myself then all we have done is transfer the promise to pay another party. My actual ability to pay may be a whole different issue. As the party offloading risk, your only concern is getting the risk off your books, onto mine, so you can continue leveraging up your asset portfolio. This ignores the problem that you are still the primary party on the risk as the original contracting party. If it turns out I can't pay, then you are still on the hook for the losses. At least it seems that is how things have turned out with the current crop of structured investment and false transfer of risk. On top of this, transferring risk away from the party that originated the risk invites lax lending standards. Obviously, if I don't think I will be on the hook for losses then I am not so concerned long term if the debtor can pay - as long as they can pay until I move the loan off my books. You did mention in all your examples a certain party that ought not be involved in transactions which underly the foundation of finance system - the Speculator. Currently there are speculative derivative transactions in force equal to ten times World GDP. Clearly, in a major world-wide economic dislocation, such as we are now experiencing, if even a small fraction of the contracts start going sour, then it bankrupts the entire planet since it is numerically impossible that a relative few speculators (such as AIG) have the financial means to cover bad bets a few hundred trillion dollars in excess of their aggregate capital base. The reckless buffoons who accumulated this nightmare did so in full possession of the knowledge of what could happen if things went south and knowing they could not cover their promises. They acted in the same manner as a consumer who runs up $100,000 credit card debt and puts it all in the equity market, knowing that if they don't get a quick payout they will be forced to declare bankruptcy, but also knowing that that if nothing goes wrong they will make sooo much money. They only do this transaction because they know that in doing so they are actually engaging in a derivatives transaction of sorts, where they incur the obligation and the benefit of a payoff, but since it is unsecured debt, the ultimate risk of the transaction is actually born by the card issuer. The card issuer, however, is not a victim in this scheme because they were aware of this potential risk but took it knowing they could transfer the risk by selling off the credit receivables through a derivatives transaction. So it just turns into a merry-go-round game of hot potato, but with nobody accepting ultimate responsibility for the debt until the final speculator - who is either a shark with no intent to make good if things move against him, or is a ninny that did not fully understand the risk he was engaging but just succumbed to some bully sales pitch. The economy is better served if risk taking parties are required to backstop the risk the introduce into the marketplace with their own skins - at least to the level of their commercial interest.

Leucadia National: Don’t Be Afraid of Companies Not Widely Followed

I worked for this company for ten years. The top guys are financial phenoms. I wish the U.S. currency said it was backed by the full faith and credit of Leucadia because I would have a little more confidence in the dollar. This stock is never a sell - take it from a guy who made that very mistake a couple of times. Because the company absolutely shuns publicity and the top guys are not glory hounds, they never get caught up in the euphoria and subsequent blood bath of market bubbles. They do what others just talk about - buy when there is blood in the streets, sell when everyone in the world is buying. Their website - in all its spartan glory - says all you need to know about this company: Don't spend money that will not yield at least a 30% ROI.

Could China Crash the US Dollar on a Whim?

In addition to the points made in the above comment, it is worthy to note that China's huge $1.4 trillion surplus is really just an earmarking technicality. If you kept U.S. government revenues at their current level and then eliminated all social programs, we would be running a huge surplus also. This is essentially the situation with China. They have no social security program, a massive 1.4 billion population, a one child policy (which means most the huge population is old), and no significant social programs for medical care, poverty reduction, etc. I would have a huge budget surplus too, if I put my paycheck in the bank and made my family live in a cardboard box. Now I'm not saying China is not in a good position to provide citizen benefits. I'm sure $1.4 trillion goes a long way in China. I'm just saying they use their $1.4 trillion to artificially peg their currency to the dollar, instead of allowing efficient market forces to do their work. Eventually, they will have to deal with the elderly and handicapped in their country (probably by allowing what will become known as The Great Dying). Eventually, they will have to float their currency to remain a member of the WTO. Remember, Japan was running a huge surplus when they were "buying America" in the eighties - back when they were the world's factory. Too many corrupt bank officials and non-performing loans to crony company executives, a high-flying domestic stock market, and overpriced urban real estate killed that off, and they are still trying to recover. Sound familiar?

Could China Crash the US Dollar on a Whim?

I haven't even read this article - only the first paragraph, and I am laughing. You compare this Chinaphobia with Japanaphobia that turned out to be nothing, then you dismiss that as a non-relevant fact for another discussion. China's economy is more dependent on the U.S. than we are on China. Sure 80% of our toys come from China, but we can get by without plastic fantastic toys for our children. Everything we import from China could be cut off and we would be just fine. No TVs, no game systems, no poison toothpaste. We don't import anything critical from China that could not be easily sourced somewhere else. We actually would emerge better off than ever. China on the other hand would be crippled trying to replace the U.S. market for its goods. If China did somehow crash the dollar it would be fine. Smart U.S. investors have a lot of international exposure right now and would see the value of those holdings increase. Oil prices would increase dramatically but all the money we would be saving not buying Chinese imports could cover that expense. It would also continue the trend towards investment in alternative/renewable/... energy sources and wean the U.S. off foriegn oil. Our exporters would be much more competitive globally - we are the breadbasket for the world. Maybe I should go read your article before I make all these comments. It is just that you summed up the whole thing when you said Japanaphobia turned out to be nothing. China's domestic economic boom, while real, is fueled by government spending. This is possible because of China's robust trade with the U.S. If we stop buying China, their boom is over, and they know this.