Metro Jacksonville

This is the crux of our economic downturn:

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October 20, 2009
Op-Ed Columnist
Safety Nets for the Rich
By BOB HERBERT

The headlines that ran side by side on the front page of Saturday’s New York Times summed up, inadvertently, the terrible fix that we’ve allowed our country to fall into.

The lead headline, in the upper right-hand corner, said: “U.S. Deficit Rises to $1.4 Trillion; Biggest Since ’45.”

The headline next to it said: “Bailout Helps Revive Banks, And Bonuses.”

We’ve spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government â€" while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they’ve wanted.

And we still don’t seem to have learned the proper lessons. We’ve allowed so many people to fall into the terrible abyss of unemployment that no one â€" not the Obama administration, not the labor unions and most certainly no one in the Republican Party â€" has a clue about how to put them back to work.

Meanwhile, Wall Street is living it up. I’m amazed at how passive the population has remained in the face of this sustained outrage.

Even as tens of millions of working Americans are struggling to hang onto their jobs and keep a roof over their families’ heads, the wise guys of Wall Street are licking their fat-cat chops over yet another round of obscene multibillion-dollar bonuses â€" this time thanks to the bailout billions that were sent their way by Uncle Sam, with very little in the way of strings attached.

Nevermind that the economy remains deeply troubled. As The Times pointed out on Saturday, much of Wall Street “is minting money.”

Call it déjà voodoo. I wrote a column that ran three days before Christmas in 2007 that focused on the deeply disturbing disconnect between Wall Streeters harvesting a record crop of bonuses â€" billions on top of billions â€" while working families were having a very hard time making ends meet.

We would later learn that December 2007 was the very month that the Great Recession began. I wrote in that column: “Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar, the American dream is on life support.”

So we had an orgy of bonuses just as the recession was taking hold and now another orgy (with taxpayers as the enablers) that is nothing short of an arrogantly pointed finger in the eye of everyone who suffered, and continues to suffer, in this downturn.

Whether P.T. Barnum actually said it or not, there is a sucker born every minute. American taxpayers might want to take a look in the mirror. If the epithet fits...

We need to make some fundamental changes in the way we do things in this country. The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.

We should be going even further. We’ve institutionalized the idea that there are firms that are too big to fail and, therefore, “we, the people” are obliged to see that they don’t â€" even if that means bankrupting the national treasury and undermining the living standards of ordinary people. What sense does that make?

If some company is too big to fail, then it’s too big to exist. Break it up.

Why should the general public have to constantly worry that a misstep by the high-wire artists at Goldman Sachs (to take the most obvious example) would put the entire economy in peril? These financial acrobats get the extraordinary benefits of their outlandish risk-taking â€" multimillion-dollar paychecks, homes the size of castles â€" but the public has to be there to absorb the worst of the pain when they take a terrible fall.

Enough! Goldman Sachs is thriving while the combined rates of unemployment and underemployment are creeping toward a mind-boggling 20 percent. Two-thirds of all the income gains from the years 2002 to 2007 â€" two-thirds! â€" went to the top 1 percent of Americans.

We cannot continue transferring the nation’s wealth to those at the apex of the economic pyramid â€" which is what we have been doing for the past three decades or so â€" while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.

That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.

As an economist all I can say is that if the people don't have any money to spend, the economy will falter. But it's such common sense that most of us would agree with this.

Yeah, your typical system that privatizes the profits and socializes the losses.

No matter what you think about the guys with the bonus it is the administration that transfered the money without conditions that is at fault. 

I love it, the taxpayers as the enablers.  Who pays the taxes in this country? I'll give a hint by saying at least 50% of Americans pay NO fed income tax.  So who pays the vast majority of taxes in this country?

Don't begrudge wall street. Those mutual funds are owned by union members, pensions, 401ks and. IRA's. Corporate welfare is a big problem but they would be better off with a fair tax system that makes it easier to do business here than the constant favors. Government deciding winners and losers by changing the tax code every here according to who has the best lobbiests. Rich people have it better than not rich people that does not make them bad and often rich people are down right useful.

Excellent comments Jeffrey.  To get to the root of the economic problems you will have to start with with the core which is government interference and the actions of the Federal Reserve.  Work back from recent crises and other government to the rescue programs and you will find the unintended(?) consequences of politically expedient cures.  Unfortunately, you won't see this happen when it's so easy to play the class warfare blame game.

Quote from: Overstreet on October 20, 2009, 01:05:03 PM
No matter what you think about the guys with the bonus it is the administration that transfered the money without conditions that is at fault. 

This is very true. Where is the Oversight and accountability we as Americans who love our Checks and Balances so believe in?

But that doesn't give anyone the right to rip off our treasury. So the perpetrators are definitely also responsible. I thought we all believe in "Personal Responsibility,"....................then why is everyone so eager to excuse the looters?

This just is the problem with America's "greed is good" culture, and the sense of entitlement among the Wall Streeters who destroyed the economy and nonetheless continue making big money off taxpayer bailouts:

QuoteDr. Daniel E. Fass, another chairman of the [Obama fundraising] event who lives surrounded by financiers in Greenwich, Conn., said: "The investment community feels very put-upon. They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."

http://www.nytimes.com/2009/10/20/us/politics/20donate.html?_r=1

The range starts from a reasonable $1 million range to a totally outrageous $200 million.

The idea that we went from CEOs making 50 times the average American income in the 70's to now over 4,000 times or more of the average American income is absolutely ludicrous.

It's stealing from the poor and average folks and giving to the ULTRA rich.

As the article says: That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.

I agree that people operating bailed out banks should not get a bonus for fixing something that was fixed with taxpayer money, which is what it looks like on the surface. AIG could have failed, and other banks and institutions would have cast a shadow over the carcus and devoured the institution. Who knows, they may all get their chance with Citibank.

Our President needs to learn he can't fix Healthcare, Social Security, Medicare and every failed bank that comes along all in the same breath. Capitalistic societys allow for the weakest to fail, which will create new life for new entities. There is too much money involved to let these programs or companies die by the wayside. Perhaps the fact that the opportunity for money is the new greed that the bankers and politicians are all chasing.

It's a good thing that President Obama has put an end the this corporate welfare!

For a study on actions in a monetary crisis one may start with the 1921 episode:

QuoteFriday, July 10, 2009
The 1921 recession
Is the stimulus working? Is a second round of spending needed? These are some of the questions being asked in Washington today. Perhaps a better question is whether the stimulus package was even needed in the first place. After all, President Bill Clinton, after riding to the White House on the back of the famous campaign slogan "It's the economy, stupid!" ended up with a stimulus bill that was restricted to a mere $4 billion in extended unemployment benefits. As we all know, the economy went on to recover quite nicely.

Another interesting example is the 1920-21 recession and the public policy response -- which was essentially nothing. Although overshadowed by the Great Depression this recession was a pretty nasty little episode in American economic history. As wikipedia describes it:

Various estimates show that one-year deflation figures were 18 percent, 13.0 percent, and 14.8 percent, respectively. The closest comparator is the 11.5 percent deflation recorded for 1931-32, the third year of the Great Depression. Wholesale prices declined by 36.8 percent for 1920-21, the largest one-year decline on record, going back at least to the American Revolutionary War period. The 1921 deflationcontains another striking feature. Not only was it sharp, it was large relative to the accompanying decline in real product. The ratio of the percentage decline in the GNP deflator for 1920-21 to the percentage decline in real GNP is 2.6 using the Department of Commerce figures. By contrast, during 1929-30, the first year of the Great Depression, the GNP deflator declined by 2.7 percent and real GNP by 9.4 percent, for a ratio of 0.3. The ratios of the percentage decline in GNP prices to the percentage decline in real GNP for 1930-31, 1931-32, 1932-33, and 1937-38, the other Great Depression years in which real GNP declined, were 1.0, 0.9, 1.2, and 0.3, respectively, all well below the 1920-21 figures.

Deflation was so sharp, both in itself and in relation to the decline in real product, because the deflation was produced by a sharp decline in aggregate demand combined with an increase in aggregate supply, a supply increase in which deflationary expectations played a prominent role.
Deflation can be considered more worrying than inflation because it encourages consumers to delay purchases -- after all, why buy now when in a few months time goods will be cheaper? Once you're in a deflationary spiral it can be tough to get out.

So how did President Calvin Coolidge respond? Well, he put together a Conference on Unemployment (at the behest of Herbert Hoover) that mostly conducted studies and served as a "clearinghouse of ideas." Other than that, not much. So how did the economy respond? Pretty well:

A buoyant expansion followed the severe contraction of 1920-1921. In the 22 months after the depression bottom, industrial production rose 63%, the money stock expanded by 14%, and wholesale prices rose by 9%. Net national product rose 23% in the corresponding two calendar years.

...The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The recession was over in one year.

Economist Thomas Woods argues that President Harding's laissez faire economic policies during the 1920/21 recession, combined with a coordinated aggressive policy of rapid government downsizing, had a direct influence (mostly through intentional non-influence) on the rapid and widespread private-sector recovery. Because there existed mass distortions in private markets due to government economic influence related to World War I, an equally mass "correction" to the distortions needed to occur as quickly as possible to realign investment and consumption with the new peace-time, government-free economic environment.
Indeed, the aftermath of the recession was the "roaring twenties."

togetrichisglorious.blogspot.com/2009/07/1921-recession.html

Shouldnt you be at the dinner thing tonight Stephen? =o Im rather suprised to see you on

oooo sorry things are goin that way man o.o

Quotethe Great Crash.

Started less severely than the 21 crash and then extended and extended and made worse by disasterous interventions.  These seem to be the lessons being followed in the present.  Remember, "can't let a good crisis go to waste".

QuoteI thought we all believe in "Personal Responsibility,"....................

We do.  Thay said your need to single out evil "Wall Streeters" shows you are unwilling to place equal blame on society as a whole.  You put blame on the...

QuoteThis just is the problem with America's "greed is good" culture

But cannot find room to blame our apparent "entitlement society".

Personal credit card debt has risen steadily.  Way out of proportion to earnings.  Personal savings rates were abysmally low (until very recently).  We demanded to buy big ticket items with "no money down" and mortgages in the same manner... enabling anybody to simply walk away from obligations with no real penalties.

Wall Street simply provided the drugs... we... as a society... shoot the stuff into our veins...

BT, yes we do have an entitlement society, but it is an entitlement society for the ULTRA rich.

I find it painfully comical that everyonewho  was so eager to jump on the so-called welfare queens, are now loath to take on corporate welfare queens, and hold them to that same standard of personal responsibility.

Those corporate welfare queens have looted the country to the brink of collapse, and you still give them a free pass, because there is some other more minor blame to pass around?

Lets look at the subprime mortgage crisis with its repackaged derivatives that set off the chain of events that brought our economy to the brink of collapse:

QuoteTestifying before the House Financial Services Committee in February, University of Michigan law professor Michael Barr reported that only about 20 percent of subprime mortgages were issued by banks regulated by the CRA. The other 80 percent of predatory and high-interest subprime loans were offered by financial institutions not covered by the CRA and not subject to routine examination or supervision. "The worst and most widespread abuses occurred in the institutions with the least federal oversight," Barr told Congress.

In contrast, the CRA actually penalizes banks for reckless, irresponsible or otherwise predatory lending. According to Ellen Seidman, director of the Treasury Department's Office of Thrift Supervision from 1997 to 2001, federal regulators warned CRA-covered institutions that "badly underwritten subprime products that ignored consumer protections were not acceptable." Lenders not subject to CRA did not receive similar warnings.

And unlike the institutions that offer unregulated predatory subprime loans, banks that make CRA loans are required by federal regulation to verify borrowers' incomes to make sure they can afford the mortgages. In 2006 the Federal Reserve reported that just 11.5 percent of mortgages made by CRA-regulated institutions were high-cost loans, compared with 33.5 percent for lenders not covered by the CRA. Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, has criticized those who blame CRA lending for the subprime crisis: "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."

While the CRA helped boost the nation's homeownership rate, particularly among black and Latino borrowers, subprime and other exotic mortgages had very little impact on homeownership. Most subprime loans were refinances of existing mortgages. From 1998 through 2005, more than half of all subprime mortgages were for refinancing, while less than 10 percent of subprime loans went to first-time home buyers.

http://www.thenation.com/doc/20081110/dreier_atlas

I will close by quoting JFK:

........if by a "Liberal" they mean.....

......someone who looks ahead and not behind, someone who welcomes new ideas without rigid reactions, someone who cares about the welfare of the people - their health, their housing, their schools, their jobs, their civil rights, and their civil liberties.....

.....then I'm proud to say "I'm a Liberal"

Protecting the Ultra Rich is not part of the quote. And as I said in the post that started this thread,........too much trickle up toward the Ultra Rich, leaves little spending money among the regular folks, and small business owners that are the real underpinning of our economy.

Listen to an Economist who won the 2008 Nobel price in economics, who explains how more people are worried about Big Insecurity today, than they are worried about Big Government. In fact most will thank Big Government for averting the worst in our current economic crisis:

QuoteAugust 10, 2009
Op-Ed Columnist
Averting the Worst
By PAUL KRUGMAN

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The nation has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, we’re probably around nine million jobs short of where we should be.

And the job market still hasn’t turned around â€" that slight dip in the measured unemployment rate last month was probably a statistical fluke. We haven’t yet reached the point at which things are actually improving; for now, all we have to celebrate are indications that things are getting worse more slowly.

For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss.

A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators â€" world trade, world industrial production, even stock prices â€" were falling as fast as or faster than they did in 1929-30.

But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits â€" which are a bad thing in normal times â€" are actually a good thing right now.

I said nothing about welfare queens.  You pulled that out of your own overactive imagination.  I also did not defend the "ultra rich"  Whoever they are.  (just what is that definition BTW?)  I am saying there was plenty of blame to go around.  Those with 5-20k+ in credit card debt, coupled with a 0% down mortgage, a home equity loan, and nothing in savings expecting the economy to be forever rosy are a large part of the problem also.

We... as a society... embraced the easy credit, no responsibilty tripe that some were pedalling.  Wall street and the banks may have given us the bed... but we made it... then slept in it.

Blaming Wall St. and Banks and "Ultra rich?" is populist and too easy.  No one really wants to take a hard look at themselves...

Quote from: BridgeTroll on October 21, 2009, 11:00:49 AM
I said nothing about welfare queens.  You pulled that out of your own overactive imagination.  I also did not defend the "ultra rich"  Whoever they are.  (just what is that definition BTW?)  I am saying there was plenty of blame to go around.  Those with 5-20k+ in credit card debt, coupled with a 0% down mortgage, a home equity loan, and nothing in savings expecting the economy to be forever rosy are a large part of the problem also.

We... as a society... embraced the easy credit, no responsibilty tripe that some were pedalling.  Wall street and the banks may have given us the bed... but we made it... then slept in it.

Blaming Wall St. and Banks and "Ultra rich?" is populist and too easy.  No one really wants to take a hard look at themselves...

Thank you for that excellent opportunity to expand on what we're talking about here.

While there is plenty to be said about the rampant consumerism that was the hallmark of our economy, and which was fed by an ever increasing range of consumer products ( many produced with built-in obsolescence), the real reason people went into credit card debt was because their incomes didn't keep up with increases in economic productivity,......increasingly people were using their credit cards to pay for everyday necessities such as food and medical expenses:

(http://i190.photobucket.com/albums/z276/fayeforcure/wagesvsproductivity.gif)

Pretty shocking really, to see how the ULTRA Rich reaped the benefits of our increased productivity, but the average Joe had to resort to going into debt more and more, just to keep their heads above water.

Quotejust to keep their heads above water.

I have no doubt some have used this method to "keep their heads above water" as the economy went south.  But how did they get in that situation?  It is called not living within your means.  If you make xk per year in wages you should be only spending xk per year.  If spending more than that over a few years you are now deep in debt.  You have purchased things that you should not have. You have used credit unwisely.  You can blame the banks and credit card "pushers" all you want but it was you who stuck the needle in your arm.

QuoteGreedy-Bastard Economics
Mises Daily by Gary Galles | Posted on Tuesday, October 06, 2009

If your landlord or apartment manager hasn't gotten around to fixing your garbage disposal for weeks, how carefully do you think about why? If you are like many people, you simply blame your landlord or manager, rather than inquiring further.

This is an example of greedy-bastard economics: rather than tracing their understanding of something they dislike back to its ultimate source, people only trace it back until they get to someone they can demonize as a greedy bastard. That is, scapegoats become what Frederic Bastiat called "what is seen," while the real cause remains "what is unseen." Unfortunately, that real cause is frequently the coercive hand of government, moving control of resources to itself, and the blame for the resulting consequences to others.

In the case of rental housing, rent control rather than the "greedy-bastard" landlord may be the real cause. Rent control undermines landlords' incentives to provide the services tenants want, because it denies landlords the ability to receive adequate compensation to make their efforts worthwhile. What landlords are blamed for is in fact one of many predictable, adverse consequences of rent control, including housing shortages, increased discrimination, increased uses of subterfuges to evade the controls (like tying willingness to rent to astronomical key deposits or the simultaneous rental of furniture, parking or other goods), reduced construction, and deterioration of the housing stock.

All these predictable effects follow without landlords being any greedier than anyone else (although rent control might attract greedier people, who are more willing to do what it takes to get around the regulations), which should properly placesthe blame at the feet of the government body that imposed the controls. But instead, government gets to control resources without paying for them, while "greedy-bastard" landlords who would otherwise look for ways to cooperate with renters get the blame.

Rent control is not the only example of the adverse effects of price controls. All price ceilings reduce the quantities traded, wiping out the wealth that would otherwise be created by mutually agreed-upon arrangements. They also increase discrimination (and evasion efforts) by lowering the cost of saying "none for you." And people blame the greedy bastards they deal with directly rather than the greedy bastards in government who are the actual cause and who impose the cost of doing their will on others without compensation.

Price floors such as minimum wage laws, Davis-Bacon "prevailing wage" requirements (which far exceed prevailing wages), and agricultural price supports push allowed prices up instead of down. However, they also increase discrimination (by buyers rather than sellers), and reduce the quantity of mutually agreed arrangements and the wealth they would have created (by making buyers willing to buy less).

All of them increase the costs borne by producers, and therefore by consumers and taxpayers, but place blame on producers rather than the policy makers responsible. And as with all price controls, they make prices, which are the signals of relative scarcity by which social cooperation is maintained, misleading indicators. Market prices are messengers of the effects of government restrictions, but they are not themselves to blame.

Hidden taxes are another mainstay of greedy-bastard economics. They give the government resources and control, but give the blame to those whom people deal with directly. The employer half of Social Security and Medicare is a prime example. Employers must pay 7.65 percent directly to the government, on top of the wages they pay employees.

"Market prices are messengers of the effects of government restrictions, but they are not themselves to blame."But since employers know they must bear those costs, they offer less pay for a given level of employee productivity. The consequence is anger at employers for not paying employees what they are worth, when any such effect is actually the result of compensation being siphoned off by government.

Similar effects are triggered by employer-paid unemployment, worker's compensation insurance, and other nonwage forms of compensation. The resulting government rake-off from employees' total compensation leaves them less to take home, triggering resentment at employers. But government claims credit for all the benefits those dollars finance.

Corporate taxes, which economists particularly object to for the large distortions and costs to society they cause, are another major example of greedy-bastard economics. To the extent that those higher costs result in higher prices, the corporations are demonized for greed, but government gets the resources. Similarly, to the extent these costs lead to reduced wages, workers blame employers, but government gets the resources. In addition, these taxes reduce the after-tax rate of return on corporate investments, reducing the level of those investments, slowing the growth of worker productivity and the income it would generate.

Similarly, taxes imposed on "not me" are ways for government to claim credit for the resulting spending without the blame for the tax burden. America's highly disproportionate, "soak-the-rich" income-tax burdens are the largest and most obvious example. These income taxes not only finance the largest fraction of government spending, but also allow almost two in five households to have negative income taxes, largely because of the refundable Earned Income Tax Credit.

In addition, taking away a great deal of the after-tax incentive for high-skill individuals to bear the risk and put in the effort to find ways to benefit others reduces the value of output supplied. Thus, it acts as a tax on others when the reduced supply of productive services raises prices.

"Not me" taxes include hotel room taxes, which are largely imposed on people from out of state to finance benefits for residents. They also include import tariffs and quotas, dumping restrictions, and other barriers to international trade. By the time the goods reach consumers, their burdens are already included in the price (as with value-added taxes in other countries), and sellers can once again be blamed for the revenues government receives.

Government mandates and regulations, whose estimated burdens exceed $1 trillion a year, also take advantage of greedy-bastard economics. The web of restrictions is vast, running the gamut from Sarbanes-Oxley burdens to low-income housing set aside to qualify for permission to build, yet buyers are only dimly aware of the burdens these rules impose on producers.

But whatever they are called, those regulations give government added control over resources. And, since they act like taxes (an employer doesn't care whether a $100,000 burden of dealing with government is called a tax or a regulation), they raise costs and prices to others, for which suppliers will largely be blamed.

Similarly, government barriers to entry, like licensing regulations, restrict supply and competition, but focus complaints about prices and shoddy performance on those in the industry. Antitrust laws, which often restrict competition in the name of protecting it, are used to demonize efficient firms and practices. Such laws let the government claim credit for consumer protection even as they undermine the competitive process that is the real protection.

Inflation is another page from the same playbook. While it is caused by government expansion in the money supply, those in government can always point fingers at some greedy bastards other than themselves, whether it is businessmen raising prices or workers demanding higher wages in response.

Greedy-bastard economics is also used to separate responsibility from blame for financial bubbles. For instance, the housing and bad-loan bubble was widely blamed (especially by those overseeing government regulations) on greedy loan originators and unregulated markets. This blame was used to promote increased government intervention as a cure.

"Greedy-bastard economics is also used to separate responsibility from blame for financial bubbles."But government's hand was everywhere you looked in any serious attempt to understand the alleged "market failure." The Fed's maintenance of interest rates far below what the level of savings would actually sustain made housing falsely profitable. Allegations of redlining led to implicit government requirements that banks lend to borrowers who didn't meet conventional financial standards, and whom banks knew often couldn't repay their debts.

Under pressure for financial malfeasance and other failings, Fannie Mae and Freddie Mac made it clear that they were in the market for "bad" loans in a big way (well over $1 trillion). Given that their hidden subsidies (particularly implicit government guarantees worth over $2 billion a year and lower capital requirements than the rest of the financial system) had made Fannie and Freddie by far the dominant players in mortgage lending, this declaration told others that bad loans were far safer than they really were. No matter how bad the loans, Fannie and Freddie would take them off your hands. When that implicit guarantee suddenly dissolved, market participants (worldwide, not just in the United States) were suddenly faced with the real risks and far-lower values of these assets.

Even the latest healthcare "reform" reflects greedy-bastard economics. Pundits blame insurance companies for rising healthcare costs, yet ignore the plethora of government mandates and restrictions, not to mention subsidies to subgroups of citizens (e.g., the elderly or poor), which raise the costs to everyone else. Similarly, insurance companies are blamed for excessive administrative costs, even though these are directed largely at dealing with fraud, government impositions, and the supposedly obvious waste of profits.

Having tarred insurance companies with the blame, government now proposes more greedy-bastard economics as the solution. Such policies will further increase costs that can be blamed on insurance companies: Companies won't be able to deny coverage for preexisting conditions, which means they must pool higher cost customers in with lower cost customers, thus requiring higher premiums. They will not be able to control risk by putting annual or lifetime caps on coverage, similarly raising costs that must be borne by all policy holders. They will be required to include certain preventative care with no extra charge, and to limit out-of-pocket costs, which also may maim the private markets for catastrophic coverage.


"Government has no power to eliminate scarcity."In reality, scarcity is the cause of many of the difficult choices individuals face. However, governments prefer to find "greedy-bastard" bogeymen to blame. This allows governments to play as saviors rather than as the parasites causing the problems in order to benefit favored constituencies at others' expense. But government has no power to eliminate scarcity.

Government, beyond its role of defending voluntary arrangements against force and fraud, only makes the effects of scarcity worse. It substitutes decisions by people with worse information and incentives, backed by the power of coercion, for decisions by people with better information and incentives. That is why it is actually government "solutions" that increase the influence of greedy bastards in society. After all, "greedy bastard" is an excellent description of someone who demands power over others without cost or their willing consent; and falsely blames others to gain it.

Quote from: buckethead on October 20, 2009, 06:36:52 PM
It's a good thing that President Obama has put an end the this corporate welfare!

LOL LOL LOL  :D :D  :D :D :D :D

A superb discussion on the economy with two great minds -- Martin Wolf, the columnist for the "Financial Times," and Robert Shiller. Shiller is the economist who accurately predicted the financial crisis, but also, the stock market collapse of 2000. You will want to hear what he has to say.

QuoteI must say that, I am myself pretty irritated, to put it mildly, about the bonus story, because this is -- as George Soros pointed out very recently -- this is a gift, essentially. They didn't earn it. It was transferred to them from the state, from the state, broadly speaking.

SHILLER: Well, I agree with Martin that it's an annoying issue. And it's breaking our sense of social compact. People are angry, and justifiably so.

But what to do about? To me, I would hope that this would spur public discussion about the structural problem that inequality, economic inequality, has been worsening in the United States and in other countries for 30 years. And it's gotten really -- especially at the high end -- it's gotten really off.

And it's not like we want to level income. I'm not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

This, I think, is potentially the big problem which is bigger than this whole financial crisis. If these trends...

ZAKARIA: Why?

SHILLER: If these trends that we've seen for 30 years now in inequality continue for another 30 years, we're going to look like -- it's going to create resentment and hostility. It's not a country that -- we could turn into a country that even the rich would rather not be in.

We need -- what's beautiful about America is our sense of cooperation, our sense of we're all in this together, we're all citizens of this country. And we don't want an economic system that has a winner-take-all aspect to it.

And I think we ought to think about -- I have a proposal. I've talked about this in my other, some of my books. I have proposed that the government should index the tax system to inequality. I have a paper with Len Berman on that.

ZAKARIA: So, in other words, as inequality rises...

SHILLER: Automatically.

ZAKARIA: ... taxes rise, so that you... SHILLER: That's right.

ZAKARIA: ... can dampen some of this effect.

SHILLER: And we do that now in advance, even on a partial basis. So, we do have a progressive...

ZAKARIA: You know, lots of people probably think this is kind of quasi-communist.

SHILLER: I've heard that, but I don't think -- I think this is free market. This is to forestall the kind of resentment that leads to revolutions like that.

This is keeping our capitalist system and allowing people to get rich.

But just as rich as they are today -- let's not let this go astronomical, which is what it might do.

ZAKARIA: We will take a break, and we will be right back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Robert Shiller and Martin Wolf, two of the great minds of economics.

Just on housing, because you really know this subject, do you think that it is unsustainable to have this return, these 10 percent rises in housing prices that are happening in urban markets in America?

SHILLER: Well, home prices have come down a lot, and so they're no longer so pricey. And in some cities, you know, in Vegas they're down 55 percent from the peak just a few years ago.

So, there's real -- and we could have some further increases. But I just -- still my instincts are that we're not going to have a bubble like we just had, which was historic. It was the biggest ever.

How could we have such a big bubble now, with all the problems that we have?

ZAKARIA: But does it mean these increases are real? Or does it mean that -- what?

SHILLER: Well, I think that it's plausible that they will increase for a while, in the short run. It's such a -- one thing I've learned about housing is momentum. Housing prices, they can go for years in the same direction. It's not like the stock market.

And they've been going up so smartly, that it is very plausible to me that we're going to see months more of increases. But whether it's years more, that's another thing.

ZAKARIA: In other words, whether it's sustainable. SHILLER: And the worry is...

ZAKARIA: Isn't housing meant to be a product of employment numbers? That is, as more people...

SHILLER: Right.

ZAKARIA: Right. But in the long run, if you don't have rising employment, how can you have rising home prices?

SHILLER: Well, that's what we've learned. I used to forecast home prices. And we learned: number one thing, momentum; number two thing, employment.

http://transcripts.cnn.com/TRANSCRIPTS/0911/01/fzgps.01.html

Quote from: BridgeTroll on October 21, 2009, 12:33:59 PM
I have no doubt some have used this method to "keep their heads above water" as the economy went south. 

Excuse me BT, but I'd rather think of it as... "The economy went NORTH!" (Hell it froze over).

OCKLAWAHA
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