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Sunday, Nov 8, 2009
I pulled out of any index funds a few weeks ago, and I'm glad. The stampede of the elephants runs down the 401Ks and mutual funds of ordinary persons.
The bright side is that Bush's moribund plan to privatize social security and hand those massive assets over to Wall Street has another stake in it's heart.
And step back, the real key here is that since 2003 the U.S. economy has become dominated by the financial sector and their 'products' - derivatives, etc. - and not by producing actual products. This is according to Kevin Phillips in his book "American Theocracy." In his view, this is the formula for historic economic weakness.
Domination by the financial sector also results in less employment, because the financial sector does not create the jobs the productive part of the economy did. And the kicker is the government and the economic establishment INTENDED to do this - weaken or offshore the productive economy. NAFTA was just a part of this move. Blue collar workers should take note.
What parties and people are in bed with Wall Street? Republicans AND Democrats...
They created this mess. They want government out of their way. They have to suck it up. But no the Fed and the National banks stepped in to save their little skins. You want free market, here boys, take it. But they are cowards when it goes sour, their little get rich scheme.
You don't want government restrictions free marketeers, take the China lead based paint toys. Go ahead, imagine that government regulations are not necessary and that lending standards are not important. I think this is a great time.
This is proof that all the restrictions and all the requirements (lending etc) serve a purpose and they need to be imposed on the world market. Labor standards to environmental and so on, I was amazed at how much of this junk the world market bought into. Making loans just for fees. I would not be amazed if the same boys that brought us the S&L fiasco did not reinvent themselves and brought us this debacle.
One question I am no genius but I saw this coming years ago when I saw the lending products they were advertising and the push for refinances, and Bush telling people to shop after 9/11. People shopping with money they got from taking out their equity to buy crap made in China.
So now what? What is the next bubble from our bubble boys in Wall Street. I know, green investing, watch my words.
Thank you for the primer. For those of us who follow the markets peripherally and get most of their financial news from "Squawk Box", this is a nice introductory article on the problems we are experiencing.
when his update on the Lexus and the Olive Tree is coming out ... since, in that, he argued that the world markets needed to emulate American transparency if they wanted to get the kind of investment they needed... to the point, irrc, that he recommended American accounting giants be employed until local clones could get properly trained and established along the lines of Arthur Anderson and Company.
I read about these "shenaningans" and wonder, "but, isn't that dishonesty somehow illegal?"
Tom's apparently on either vacation or a book tour (the world is flat has been issued in paperback -- a more tugid mass of self-important hot air I cannot recall encountering and finally returning to the library unread -- his "telling anecdote" format having lost its boyish charm ...)
I'm sure he'll get right on this story when he gets back .... unless some new "miracle" or "green" story doesn't edge out these petty transitional matters.
Mr. Leonards article was very informative and disturbing. It seems to me that this is just a further development in the uncovering of unsavory business/financial practices that our regulatory agencies fail to police or govern?? More of the Enron, Tyco etc etc syndrome. Lack of transparency. Unfortunately the uncovering comes at the expense of a lot of home owners and small investors. And what do the leaders in waiting of both parties have in mind as a fix if and when? Are our legislators incapable of seeing the mess for what it is or are they too timid to tackle a system that feeds their political ambitions? My fear is that this mess will be just like the "war on terrorism"/Iraq conundrum. A problem with no end. As long as Wall Street fails to police its financial practices, I strongly doubt that our politicians/government will do anything effective to do it for them.
so what else is new ....
oh, you thought Wall Street wasn't Vegas -- think again.
Personally, I marvel daily at our accounting failures (and lack of "transparency") regarding billions unaccounted for in Iraq reconstruction funds (your tax dollars vanished)... somehow we even managed to fail to buying friends or influencing anyone much ...
must refresh memory on definition of "robber barons"
you collect premiums for a hundred years - when the quake finally occurs, you declare bankruptcy. the American Way. every ten years we have a "scandal". Ford bails out the S&L's. Greenspan bails out LTCM. Clinton bails out the mexican bondholders. the Fed is now hard at work bailing out the hedge funds. after a century, people get fed up. when it starts to smell like a french or russian revolution might occur someone like FDR co-opts and props up. saves the investor class by giving something to the peons. then slowly, it starts up again - a thinker class emerges explaining why everyone eventually benefits by exploitation.
I also have trouble with the gambling analogy, although there is some clear truth in it.
The problem with it is, there isn't the total disassociation between the "real" and the "unreal" economy as described here. In sports, a point made on the field has no intrinsic value. Outside of how you bet, there is no way to say "that's a $100 point".
In the world of investments, the betting is on how valuable something is going to be in the future. If I think this high risk loan is likely to pay full value, it's going to be worth $120 next year. If I can get it for $100 today, that might be worth the risk that it's worth $0 in a year.
If people get in the habit of thinking that this $120 next year is less risky than it really is, you have a lot of people buying something for $100 and ending up with nothing. Once this happens a few times, the next guy says, "whoa, wait a minute, I underestimated the risk here, I don't want this anymore and I want to sell it right now for $100". You get enough people trying to sell for $100 and suddenly nobody wants to buy for $100, they want to pay $90, or $80, or $50. Suddenly huge swathes of money just disappear when people own millions of $100 units that are now $50 units.
There's a huge ripple effect from there. Say my bank bought a million units for $100 and the market now thinks they are worth $50. That's $50 million that my bank no longer has. People who invested money in my bank now start to worry if my bank is still a good investment and the stocks and bonds that my bank used to fund these purchases become devalued. The banks and funds that own much of my bank lose value, and so on and so on.
The truth of the betting analogy is that people get carried away with their estimates of what that future value is going to be. They decide that the risks are minimal because the economy will always grow, or because the internet is raining gold on anyone with a smart developer and a smart lawyer, or because oil will never go above $50/barrel, or "they're not making any more land in San Francisco" or whatever.
Also, people bet on what other people are going to bet on. If I think that the future stream of income from amazon.com is going to be a lot higher than most people estimate I'll be willing to bet higher than the next guy will - I'll be willing to buy their stock for more than the next guy and bid up the price, expecting my return on the stock to justify that price.
Now if I think that THE OTHER GUY thinks that the stock price is going up, I may also be willing to pay more for the stock because I think the value of the stock will go up when he outbids me.
So yeah, lots of gambling. But all the gambling is (or should be!) fundamentally rooted in expected future dollar flows. If you lose sight of that, you are in trouble. I think that is the real argument here, that people treat it as though it were as disconnected as betting on sports, and get themselves in trouble.
Much of the initial coverage about Fort Hood turned out to be wrong. Is there anything wrong with that?
The accountability imposed by another country for the CIA's kidnapping and torture reveals much about our own.
Fox News' morning show plays to type, talking about whether Muslims in the Army should face "special debriefings"
219 Democrats and one Republican join in favor of the legislation, which passed by a narrow margin
The survivor and author is upset about comparisons some on the right are making to genocide
Salon headlines in your mailbox
