The bright side of the stockmarket collapse

and the european collapese? did we cause that too?

Maybe not here on this news group, but a few of my friends have written along those lines.

My girlfriend is devising down right mideveal stuff for them.

And she's a real sweety.

I thought!

Fractional banking: Everything has its use and everything has its abuse. We have just seen it abused to the point it just may bring down the entire global economy.

When something is not working it is time to try something else. Like Grandma said "don't send good money after bad." Lack of liquidity is a symptom not the problem. The problem is the solvency/honest of the major players, banks and other institutions. Pouring money in the top with a fire hose is not resulting in any trickle down [of money] but a huge waste of taxpayer money and additional wealth for those responsible. If government intervention is needed it is time to inject the money as capital by the purchase of preferred stock or warrants in the smaller regional and local banks that are making and would make more loans if they had more capital. The first tier banks, brokerages, and corporations are "gonners" no how much tax payer money is pumped in [and wasted].

It may well be there will wholesale bank and business failures no matter what is done.

Because the top tier banks can get more money than they need at the FRB discount window. The problem is they won't lend any of it.

We did raise hell, and we voted against the pols that got us here. They still got elected. Questions were raised by the stockholders repeatedly about excessive executive compensation, speculation, dodgy assets, etc. and the Board of Directors in every corporation blocked any action or limits.

This is one reason for the decline in stock prices. The people are voting NO with their feet.

One of the better lines on the financial sites was the ransom note just delivered to the FRB and Treasury. It read "We have kidnaped your 401K. If you want to see it alive again send us

================= Actually in one sense the markets still are self-correcting, and we are seeing the process. The whole idea is to avoid natural disciplines such as disasters, plagues, wars, famines, etc. by the application of a little foresight and a little self discipline.

They vote, too.

-- Ed Huntress

Reap = sow. I'm hiring, and have already added 5 new jobs this year and plan at least 2 more. Too bad you have to wait in a food line, try to get some meat...meat's good! Can we help? Maybe take up a collection for you so you can buy your meds. My people and I are always glad to help the less fortunate.

IMO, this should not be a surprise. The surprising thing, to me, is that people like Greenspan counted on (he says this in his speeches now) the basic integrity and prudence of the Masters of the Universe. I wonder if Greenspan ever had the tape deck stolen out of his car, or if he learned anything from the Keating affair, or Enron, Monsanto, Parmalat, or the Bank of New York's money laundering for the Russians...Where was his head?

With little regulation or auditing, and billions on the table, what in the hell did he expect to happen?

So, you really want the US government to take equity stakes in banks and other large institutions? I don't. I see trouble with that course of action that we may never get out of, and we'll wind up with a nationalized finance industry.

I'd have to see the details to buy that.

Not enough of them. I don't remember hearing much about such questions and complaints except by minorities of stockholders.

I doubt that very much, George. I think what has their feet moving is that they're afraid they're going to lose big chunks of their capital. I really don't believe that moral outrage is driving the market. And, as outrageous as it is, those salaries are usually small potatoes compared to the wins and losses that result from just a few percentage points of upward or downward swing in stock prices. Stockholders are watching the value of their investments, not trying to purify the morals of CEOs.

Ha-ha! Good one.

-- Ed Huntress

In 2003 (IIRC) one of our congress critters had either CBO or GAO look at the derivatives market with an eye towards what they really were and also to asess the risk posed to the markets. The research took an entire year and when all was said and done the report published indicated that the consequences of allowing unfettered trading of these financial instrumants and the leverage involved could lead to a catastrophic failure of not just our banking system but of the worlds monetary structure. Legistlation was written to provide both transparency and oversight, but not passed. Ronald Reagan once said "Trust, but Verify". Putting 150 trillion dollars on the table and then not checking in once in a while to see what's going on is the act of fools and as we all know, fools and their money are soon parted.

JC

AWright, Ed.

Ferinstance...

Johnson said, "I refuse to send American Boys..." Got himself elected, Then ?

I promise not to cum in your mouth!

I'm not following what you're getting at, Richard. My point is that this is a government we elect; we're responsible. That doesn't mean we know enough, individually, to anticipate and direct our voting to solve these problems. But we're still responsible. That's democracy. It sometimes can be frustrating.

But we're still responsible for it. If we elected people who aren't able to understand the economy, either, that's just too bad. It doesn't relieve us of responsiblity.

If you're interested in an article that provides some exceptional insights into who let this situation get out of control, who made the decisions, and how this relates to our responsibility, here's one that just popped up: "The Reckoning: Taking a Hard New Look at a Greenspan Legacy."

-- Ed Huntress

I concede your point, Ed,

Problem is, this government is not responsible to US.

Wallmart gives both sides a $10,000 election fun donation. It called 'buying access' - and they get it.

How the heck does John Q Public compete with that?

AND - just as an aside - we have TWO condidates running for head of the government.

I personally don't want either one of them to be elected. I don't think they are going to do anything in MY best interest.

Theory and reality are only related - in theory.

Well, hopefully C-span will re-air them over the weekend.

Wes

You may find this strange, but I've never, ever thought of electing a president in terms of what they're going to do in my best interest. It's always been the country's best interest, and I assume we'll all be better off when that's what they do.

Maybe that's why I find both of our current candidates acceptable. I believe they're both pursuing the country's best interest as they see it. McCain doesn't bother me because I don't think he's a doctrinaire, ideological conservative. And Obama most certainly is no doctrinaire liberal. They both have a pragmatic, one-problem-at-a-time approach, to greater or lesser degrees.

So I can't identify what you wish you had here, in terms of choices, and what you find objectionable about the candidates we have. If you're suggesting you want some more choices, I suggest you look first at Italy and Israel to see what that implies. My opinion about that has been shaped by a year of studying comparative politics in Europe more than by the sketchy history we have of multiple parties in the US, but my conclusion is that real multi-party politics inherently stinks to high heaven. It's all a matter of coalitions ganging up on other coalitions, broad national interests be damned.

As for big business having an excessive amount of political power in this country, yes, during most of our lifetimes. We have four important elites in this country -- business/professional, academic, military, and political. They're all pretty open meritocracies, compared to the elites of most other countries. Fortunately the military elite remains subservient. The academic elite, which ruled during Kennedy's and Johnson's administrations, and part of Carter's, are not held in very high esteem these days. So the political and business/professional elites are in charge. And an elite necessarily will be in charge. There is no successful alternative.

We may be near the end of the business/professional's reign of power; they're currently regarded about the same as the way we regarded the academic elite around 1966 - 1978. They're now regarded as failures in terms of governance, as any individual elite will be if their expertise is interpreted too broadly or for too long. The popular impression now is that their interests are not really the country's interests.

Now we're expecting the political elite to put it all in perspective and to rise to the top, keeping business and academic elites' ideas in check to serve the interests of the country. That's a big order, since we've allowed the business elite to acquire so much power, and for its tentacles to reach into every corner of society.

You can't expect high-level politicians to turn it all around at once. We've been too acquiescent in the process ourselves. I look for the apparent motivations of the candidates and the likelihood that they'll put elite ideas in perspective, and that they'll find a way to implement some shifting of power towards the ideal political, the politics as Aristotle described it, by using power to undermine power. At the same time, I'm looking for real intellegence and popular support for a leader so they'll be able to make some positive things happen.

That doesn't feel to me like a self-interest focus, although, in the end, I'm talking about my own ideas of how things should be, so I guess that's self-interest. It isn't narrow economic self-interest.

Does that sound alien to you? Or are you thinking of something similar, without going to so much length to describe it?

-- Ed Huntress

Personally I just can't believe those inflation numbers and for years of them saying it on TV. Sure seemed be going way up to me. Bubbly sugar water at a convenient store went from 75 cents to $1.75 in no time. Beer has gone way up, cigs., building materials, cars, houses,gas, ect... Way more than 3% a year in my perspective.

Sure seemed like cars went from $18,000 to $35,000 fast. I hate to bring up houses, but I bought my first around 1993 for $45,000 and before things started downward it was appraised at $210,000. I sold it in June of this year for $135,000, still that is 3X as much in 15 years.

Maybe my math is all wrong. 3 cents on the dollar per year? I don't recall anything rising in price so slow in the last 10 years.

What really gets me is that no one will say anything about the truth like the perpetuation of lies will make everything better. Take nine eleven for example. Everyone almost wanted to believe that there was no reason what so ever for an attack on America. Or, don't worry your money is safe, and no one ever even brings up how much paperwork or lack of it and time it will take you to get it in your hands if your bank closes. Don't worry, everything is under control. Perclorate in your water supply? No problem, we raised the toxicity level so that is safe now. Have a chlorine rail car runaway through your neighborhood? No problem, we had it under control. Everything going sky high in prices? No problem, we calculate it at only less than 3%.

Am I way off here or what? I admit I don't understand that one graph, what is M-1, M-2, and M-3?

Don't confuse moral outrage with the sudden realization that you have been lied to and have been had big time, although one frequently results in the other.

In many, but not all, cases the people are getting out of what they now preceive to be a rigged game, with all the cards stacked against them.

As I indicated in other posts, the foundational financial problem appears to have been the gross proliferation of megalomaniacs in charge of increasingly powerful institutions rather than any criminal cabals or plots.

However this was possible only because of the general acceptance of societies's myths and legends such as the unquestioning belief in Santa Claus, the Easter Bunny, the Tooth Fairy, the Great Pumpkin, etc. that brings toys to all the "good" little boys and girls, i.e. the reality of the existence of a cornucopia or "horn of plenty," that [only] the megalomaniacs know how to operate. A second "assumption of facts not in evidence," but widely assumed, is that the cornucopia operators will share the bounty generated.

It should be obvious that a critical reexamination/reevaluation of the basic beliefs about the way the economy/society works by a large number of citizens, possibly a majority, will be "destabilizing," to say the least.

It's a big issue -- entire college courses are devoted to inflation. Wikipedia may have a summary. Otherwise, you have to go to government sites to see how it's measured and what the numbers look like over time.

Not in the last 10 years, because inflation is up the last few years. But the period from 1995 to 2005.

Those are the different measures of "money." Again, it's a full college course. However, there are brief definitions here:

I'm not suggesting you have to absorb all of that, and this is the bottom line about what I was saying: There are some really misguided ideas around about what money is and what causes inflation, but the basics were laid out over 200 years ago in Adam Smith's _The Wealth of Nations_. The wealth of a country is the output of goods and services that country produces in a unit of time -- usually a year, for purposes of discussion. The right amount of money for that country is an amount that equals the output of goods and services. This "amount" is a product, more or less, of money supply (say M2) and something called money's "velocity." Don't worry about that part. Just think, "money supply should equal output of goods and services." If the supply of money is too high (think 1978), we have inflation. If it's too low (1932) we have deflation. Inflation screws up the economy. Deflation can kill it. So in modern economies the central banks generally shoot for an ideal of 1% - 2% inflation, as a cushion to help guard against deflation. Hardly anyone hits that target for long. Money supply tends to grow a bit on its own, from "irrational exuberance," so inflation usually is a bit higher than the ideal. You want to keep it well under 4%, though, if you possibly can.

It doesn't matter if that money is backed by gold, clam shells, or Fruit Loops. Not in a modern economy with a decent monetary policy, anyway. Gold, despite what Ron Paul thinks, can cause a modern economy more problems than it solves. Gold-backed currency tends to be deflationary.

The whole thing runs on trust, not gold. If you had a gold-backed system and people lost trust in the paper money and cashed it in, all they'd wind up with is the same amount of gold. You'd still have the same amount of money. And that makes economic growth extremely difficult.

My point to George was that Ron Paul's prescriptions wouldn't, in themselves, have an influence on our current situation. Whether the currency is fiat (like ours) or gold-backed, the money supply is determined mostly by the amount of credit that banks give out -- that's fractional-reserve banking. But every country has fractional-reserve banking, and they have, for hundreds of years. Without it, an economy couldn't grow.

This is so grossly simplified that any economist would boil me in oil, but it does explain, I hope, my comment to George and my evaluation of Ron Paul's economics. As an economist, Dr. Paul is a heck of a good obstetrician.

-- Ed Huntress

It would be, if it happens. I doubt if it will happen. Again, what people care about with their investments is whether they're making money. When they aren't, everything and everyone is a potential scapegoat.

Here's what I don't get about your point, and that of Herr Greenspan. You talk about "the gross proliferation of megalomaniacs," as he talks about "greed." Well, duh, who in the hell did we think these people were, anyway? Mother Theresa?

The pirates have always been there. Wall Street draws them like flies, for obvious reasons. I know some of the minor ones. They're all self-justifying purveyors of greed.

So why turn attention to that now? Are we really surprised that when we turn over the rock, we find that all the goodies are in the hands of the greedy ones?

The issue is not that there are greedy people on Wall Street. They've always been there. The issue is that we've let them run wild. We opened the barn door and they tried to clean the place out. Hello? Are we on the same page here?

Now Alan Greenspan, and Ron Paul, and John McCain are wringing their hands about the proliferation of greed. Well, who gave them the chance? Who opened the barn door? They only have to look to themselves.

On a lighter note, I love this characterization of them by Tom Wolfe. I posted this to John Carroll a while back and he got a kick out of it. If you need some entertainment, you'll appreciate this, "The Pirate Pose. " My favorite scene in this article is about a hedge fund manager who was attending his daughter's hockey match:

"He told his daughter's coach how to play her and all her teammates and kept him abreast of his mistakes in strategy. He scolded the Port Chester coach and the players for their incessant cheating and malicious roughness. Finally a Port Chester player, a big girl, an Amazon on ice, skated to the stands, charged up the stairs on her skates, and accosted the Mouth, putting her gloved fist six inches from his face and saying, "If you don't shut the f*ck up, I'm gonna come back and beat the shit outta you!" He shut up.

-- Ed Huntress

I bet, I gave about 3 weeks to that course and dropped out , cause I don't think I'd ever see the forest from the trees. Interesting , but like trying to learn programming from a book.

Thanks, that looks better.

I got a good idea how the tread was going, just couldn't pass up you bringing up the inflation #, is all.

Let them think to boil ya, your just trying to explain it and I appreciate it. I've known for a while your into economics and I think it's cool that ya'll discuss it here, even though some think metalworking talk is just metalworking.

But still, you won't commit the two are way out of line? 3%, yeah right. Just took a survey and with 6 people, instantly someone showed me a can of soup with the price tag on top at $1.65 for spit peas from ahhh wallmart.

Again, we've had much higher rates of inflation over the past three years. Maybe we don't remember very well how stable prices were through the '90s, or from '95 through '05, but those numbers hold up according to several different measures of inflation -- "basket-of-goods" measures and "cost of living (COL)" measures. I'd have to go look to see about housing; it probably isn't in the basket-of-goods measures at all, but I think it's in the COL measures.

Anyway, the numbers at least serve as a relative comparison between periods of time, and it's easy to see that we had much greater growth in the money supply than we had inflation. That agrees well with the increases in productivity rates through the same period.

I'm not trying to measure inflation here so much as to show that the idea Ron Paul is promoting, that a lack of "sound" (i.e., gold-backed) money somehow led to our present fix. That isn't where these bubbles come from. They come from an excess of credit and borrowing. You can have such an excess with gold-backed money just as well as with fiat money. It's mostly caused by things that go on in the banking industry, not the Treasury.

-- Ed Huntress