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Five Lessons from AIG and Merrill Bonuses

Options and Econ.

Nice head fakes and diversions, but the Corporate Captains of America and neo-cons can claim full ownership to this latest debacle. Just make sure you and poster "dcb" know who to train their 2nd Amendment rights upon.

The introduction, ascendency and idolatry of Milton Friedman's brand of shock economics has done more to destroy the world's economy than any economic hypothesis in our lifetime. This is not just Reaganomics /Bushanomics, but the pitting of haves/have nots in a global play orchestrated through Milton's disciples within the IMF, World Bank, and governing neo-conservative world view since at least 1975.

Cutting taxes on the wealthy and re-distributing middle class income up to those captains of industry combined with wholesale deregulation and record deficits under Reagan, Bush I and Bush II, and conveniently leaving the $1 Trillion dollars of Iraq war spending off the books while the national debt ballooned from around $5 Trillion to $10.6 Trillion at last peek is an ingenious spin on what constitutes supply side stimulus, if not outright delusion.

Count the change left in your pockets, unless of course you are one of the few who benefitted from this latest episode of Shock Economics so popular with necons. I'll just ask you the same question Reagan used to ask: "Are you better off now than you were four years ago?"

If you're in the same boat as the rest of us, our "staying the course" has undeniably run the lot of us aground. If you have benefitted, then you're one of the lucky 2% that control 80% of America's wealth, completely comfortable that you'll ride out the storm until the next lunatic can covince most of the people all of the time into something completely counter to their own self interest.





On Mar 20 03:39 PM Econ 101 wrote:

> Options,
> I dont understand either. I guess there are too many "good germans"
> out there. Afraid to criticize the corruption in congress and afraid
> of losing what they have. Hoping, like little children, that it
> will just go away. Or maybe or schools have produced so many incapable
> of understanding they dont know. KENNNEDYKID, for example.

Five Lessons from AIG and Merrill Bonuses

Uh, dcb.

I know that your heart was in the right place, but the Constitution doesn't speak to covering one's arms or leaving them bare. If you meant "the right to keep and BEAR arms", please consider the much-disputed purpose of the phrase. It's not about hunting. It's not about personal protection. The framers had a very specific intent when phrasing the 2nd Amendment.

The prefatory clause of the Second Amendment is a shortened version of language found in the 1776 Virginia Declaration of Rights, largely the work of George Mason. Similar language appears in many Revolutionary Era state constitutions. This Declaration states:

That a well-regulated militia, composed of the body of the people, trained to arms, is the proper, natural, and safe defense of a free state; that standing armies, in time of peace, should be avoided as dangerous to liberty; and that in all cases the military should be under strict subordination to, and governed by, the civil power.

As to your point upon whom to use your arms, the government was a player in this latest episode, but the real culprits have been plying their trade at least since the the end of WW II. Read John Perkin's, "Confessions of an Economic Hitman" and Naomi Klein's, "The Shock Doctrine".

If you are ready to take up arms now, just wait until you see who are the real culprits!



On Mar 21 10:43 AM dcb wrote:

> I believe somewhere in the constitution we were given the right to
> bare arms. I believe the founding fathers had something like this
> current episode in mind when they decided the populace should always
> have the means to rebel against and unjust and corrupt government.
> This is tyranny and taxation without representation.

Efficient Markets Present Opportunities for Savvy Buyers

People are bandying about alternative meanings of Efficient Market Theory (and there is enough historical data to class this economic explanation as a theory). Some are calling it wrong, and that markets are inefficient, because of government intervention. Some misuse the word "rational" in place a efficiency.

If everyone will dust off their Burton Malkiel ("A Random Walk Down Wall Street), he effectively, efficiently and expertly deals with why this approach to long term investing is the best and safest strategy for investors.

His historical analysis, dating back well into the ups and downs since well back into the 1800's, factors in all of the comments about investor psychology, market conditions, access to information, etc. Though impossible to summarize his analysis in a post, basically he proves conclusively:

1. Technical analysis, reading tea leaves, hoping that the past movement in stock patterns predicts the future is simply wrong. For every guru (whether its the current doom machines like Rubini or the tech gurus of the late 1990's) with a system or explanation, there are always unforeseen counter forces moving patterns back to the mean.

2. We have always experienced market bubbles and we always will. These don't point to inefficiencies in markets, simply a demonstration of the greater fool who tries to guess or time the market.

3. Any historical analysis of asset classes and ROI comes up with roughly the same conclusion: stocks = ~8-11%; bonds = ~4-6%, etc. His recommendation about diversification clearly extends beyond investments in the stock or bond markets.

4. As boring as the approach seems, the only logical way to invest is broad diversification, dollar cost averaging when this is feasible, and stock investment predominantly in broad indexes that track the various market caps. In fact he suggests that the Wilshire 5000 is the best predictor of long term return of stocks.

I know. The counter to EMT is that in the long term we'll all be dead. Though I'm one of the current suffering along with all of you, I'm willing to admit that I'm not smart enough, unable to collect and absorb information that result in enough correct guesses to win the lottery, and unwilling to risk losing all my investment when a formerly "safe" company goes belly up.

I've ridden that rollercoaster since before 1987, and the worst that I can say is that I've lost no more money than the "active investor".

As for evaluating market inefficiencies and government ideology, it was the ideological mess of supply-side, Friedman shock economics and the Laffer Curve that got us into this mess, discounting all of the micro reasons (repeal of Glass Steagall, deregulation, creative debt obligations, etc.) driven by the theorectical approach, so I wouldn't recommend ever trying to figure out any magical answer to running an economy or market investing.

Cramer's Stop Trading! What Do Cramer and Rush Limbaugh Have in Common? (1/29/09)

Apparently, you've been listening a little too much to Limbaugh. To correct your revisionist history why not take a few moments to review what got us into the mess we are experiencing:

Flash back to the neo-con's answer to 1970's stagflation and Milton Friedman's Shock Economics Theory he plied so well in South America for right wing fascists.

Roll tape a bit forward to the Gipper. Cut taxes, spend on defense out the wazoo, run record deficits, de-regulate markets and watch Uncle Milties' magic work.

While every right wing neo-con tape loop is buzzing with out-of-control GSEs, we all seem to conveniently ignore how all of this silly and frightening theoretical economic approach played out around the world through the likes of the IMF, World Bank, Halliburton, and their ilk.

Look at any country where this supply-side, trickle down, deregulated gambit has played and look at how eeiry is the similarity between those countries and this one:

1. The top 1% control 40% of all financial wealth in the U.S. The top 20% another 52%, leaving the rest of us (80%) America's financial wealth at a whopping 8%.

2. In terms of inherited wealth only 1.6% inherit moe than $100,000. 91.9% receive nothing. Yet the "death tax" is the highest priority on the ultra-conservative agenda.

Now for some sobering reminders:

Under Clinton we enjoyed a $287 Billion SURPLUS that's now an ever-growing DEFICIT that at last peek was nearing $1.4 Trillion and national debt that has grown from $5.7 Trillion to $10.2 Trillion in just seven years.

It wasn't because Clinton was an economic genious. He simply returned out-of-control revenue reduction (tax cuts) back to the Reagan rates and chose folks who shared his philosophy of government and its role. I'll put my money in the hands of the guys that believe that it's the government's job to invest in the 80% of us that need practical ways to grow our own wealth (smart energy policy, infrastructure development, education).

As for trusting in the markets to right the ship....?



On Jan 31 05:03 AM Pipeliner wrote:

> Remember how Regan got us out of a big mess? It was a ten percent
> invester tax credit. Obamas' plan won't work any better then it worked
> in East Germany.

Nationalizing Bank Losses

One final observation to these manipulative solutions:

Communism won!

Cramer's Stop Trading! What Do Cramer and Rush Limbaugh Have in Common? (1/29/09)

As that great, silent man of letters, Calvin Cooledge, once said:

“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan "press on" has solved and always will solve the problems of the human race”

I would add that wealth is also no sign of greatness. It's our idolatry of lucre, focus on the short-term and delusion that we will some day have that great wealth that got us into this mess.


On Jan 30 08:53 AM Larry Gagnonl wrote:

> "Idiots" is an interesting word. How can they be "idiots" if they
> make millions of dollars to spew forth random thoughts without being
> responsible for the validity of those thoughts. I wish I could obtain
> such a job.

TARP Passes - Now What?

I am inclined to agree with poster: The Hand.

SA had an earlier article by Diane Ritter that explained the pprocess for those interested in this more palatable solution:

seekingalpha.com/artic...

Can Capitalism Survive Its Latest Entanglement With Socialism?

If you are really Jim Carey, get off your lazy duff and read the book.

It makes the most cogent argument possible of how the influence of Friedman and the Chicago School led us down this yellow brick road of fairy tales that pumping money into the hands of the wealthy, getting rid of all regulation and letting the market work would trickle down to all the peons.

Friedman even had a recipe for how to institute this radical, dangerous idea. He called it Shock Economics, using times of war and natural disaster to institute his policies while the country was literally in shock and looking for leaders to guide the country.

The Shock Doctrine details that path much better than any summary argument I could make. It is a cautionary tale far beyond the pseudo-economic opinions of me or anyone else that pretends to be an expert.

Can Capitalism Survive Its Latest Entanglement With Socialism?

Read Naomi Klein's "The Shock Doctrine" for the clearest explanation of The Mess.

For all you Milton Friedman addicts, der Fuhrer has been stripped of his clothing.

Can Capitalism Survive Its Latest Entanglement With Socialism?

TO Michael Z:

We either believe in capitalism or we don’t.

We will have displayed a pragmatic solution well within the parameters of capitalism.

While I agree with your conclusions about a proper rescue plan, maybe it's time we take a sober look at the fundamentals of the U.S. credit market. Everyone seems to admit that short-term lending to fund long-term investment has left us with a frozen credit market -- with lenders unwilling and sometimes unable to extend credit to other lenders.

There is another alternative, though I am sure that it will be frigthening to red-blooded capitalists.

Rather than beating around the bush by slowly nationalizing companies through the AIG model, take that $700 Billion and create the Bank of the United States of America. At a modest leveraged ratio of 10:1 the following would happen:

Begin lending to all of the credit worthy borrowers in the US that can't get credit from all of these crippled, dying banks -- with an equity stake of course, so the US taxpayer can get well after this crisis is over. Or let there be a reverse auction to find the 200 or 1000 strongest banks in the country, with the cleanest, strongest balance sheets, in each region, and inject equity capital into them. Congress ought to like that, since the most effective way to short circuit the recession would be to identify the BEST banks in each district, and inject $700 billion dollars worth of equity capital into them.

How to Spend $700B and Actually Solve the Problem

Couldn't agree more with the solution proposed by this article. Also, couldn't agree more with its political expediency as the main fault of the proposal. Also couldn't agree more with Tom B's analysis of the nearsighted Scrooge in the root cause.

So, where does that leave us? With a bunch of impractical and/or unpalitable "solutions" to the imminent crisis.

So,where are all the "capitalists" when we need them, salivating at the risk/reward opporunities? Why do we need government intervention is this supposedly "free market" of ideas and the homespun crap that we so often hear from "free market capitalists"?

All so strangely silent and willing to accept Paulson and Bernanke on their knees begging to save their Wall Street buddies.

Can anyone remember the last time that Paulson was on his knees?