Deere & Company: Canary in the Austerity Coal Mine [View article]
Markos, your statement "... Yes, our entitlement programs are out of control, and yes our democratic demigods have reached the limit of sane spending. But no, now is not the time to implement austerity...." is incomplete without telling us when is the time to implement fiscal and monetary sanity and return to a semblance of sound money, budget balance, and bearable deficits? Next year ? 2012 ? 2013? The excuse that "now is not the time" will be always with us.
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
I am constantly bemused by those who accept, without any further logical analysis, the notion of "too big to fail" or TBTF.
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
2010: Time to Arrest the Oil Extortionists? [View article]
If we follow the logic of this silly article, we would need to file anti-trust and gouging charges against many, if not most, of our corporations.
The author, and some commenters, are upset that the price we pay for oil greatly exceeds the cost of pulling it out of the ground at the world's cheapest wells. By this logic, how about the price we pay for cereal? Grains cost about $5 for a bushel (about 50 lbs). Most kids need to eat cereal, and their parents are forced to pay $4 for a box that contains 10 cents worth of grain. After adding some sugar, etc, the cost of the contents of a box of cereal is 20-25 cents, yet the poor consumer has to pay 15x-25x that cost. Should we haul the managements of the cereal companies off to jail?
How about clothes? People need underwear and socks, and our retailers sell them for 10x-20x what they pay the Chinese for them, so why don't we haul our retail executives off before the courts or the congress too?
How about tomato soup, or pasta, or soap, or toothpaste? Do you think the cost of ingredients in the package are commensurate with the price charged to the consumer? Should we sue their producers' executives too?
There are many other examples of necessities for which the consumers' final price greatly exceeds the basic cost of the goods or the raw material. This is natural, as there are many other components of cost, and if business cannot profit, it will not make the effort to develop a product and bring it to the consumer. However, the author's deficient logic implies that all these goods have to be subjected to price controls by the state. This is what centrally-planned (aka communist) economies have attempted, and the result was that production of all these necessities dropped, and so did their entire standard of living.
2010: Time to Arrest the Oil Extortionists? [View article]
Oil is too cheap. We waste too much of it unnecessarily, destroying our health by breathing pollution as a result. It is a finite resource, and its price will continue to trend inexorably upwards. We need to accept facts and plan accordingly, rather than bury our heads in the sand and blame cartels and manipulators.
We need to stimulate the economy by investing in jobs for energy efficiency, not by wasting money on pork. We can stimulate the auto industry by subsidizing smaller, fuel efficient cars and can create jobs building high-speed rail that reduces pollution, reduces highway and airport congestion, and reduces oil consumption. Ditto for nuclear and renewable energy.
If high oil prices are the only way to motivate us to implement such necessary changes to our economic model, then they are a blessing, even though those with limited vision are unable to see it as such.
The notion that if only the evil cartel were to pump out an extra 5m bbd then price will drop and all will be well forever is silly. This simply creates a greater crisis for our children and prevents us from implementing policies that create useful jobs that truly benefit our economy.
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
"On the latter, the aggregate sum looks easily within the bounds of the deep pockets of Uncle Sam, and thankfully so ...". Apparently, the uncle has very deep pockets for banks and pork, but not for honoring obligations to creditors.
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Bad Bank and Draft Bill Spook CDS Traders and Wall Street [View article]
I suspect that it would benefit our economy in the long run if banks were to become a bit less modern, a bit more old-fashioned.
Instead of trading CDS's, or manufacturing CDO's, etc, we just need old fashioned banks that lend or raise capital for companies that make useful things, so they can expand and make more, or build useful projects that can pay back their loans over time. These activities produce real value and employ people with real skills.
This would make banking more stodgy, more stable, and less profitable, and needs a much smaller workforce in banking. But is a proven model. Many of the talented people in banking can apply their creative talents just as well, but in other productive areas.
Bailout Accountability: Something's Rotten in the Treasury's Kingdom [View article]
The bailed-out banks should have been given the same oversight that the bailed-out auto companies are being subjected to. While I am personally against all bailouts, if we really have to do them, at least we should avoid double standards.
Financial Engineering and Wall Street Compensation [View article]
Congress should consider a retroactive clawback provision as a condition for releasing more TARP funds. Before receiving more taxpayer money, banks, or congress, need to first define a legal mechanism to recoup the hundreds of billions of bonuses that were based on illusory profits that have now turned into taxpayer-funded losses.
Deere & Company: Canary in the Austerity Coal Mine [View article]
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
2010: Time to Arrest the Oil Extortionists? [View article]
The author, and some commenters, are upset that the price we pay for oil greatly exceeds the cost of pulling it out of the ground at the world's cheapest wells. By this logic, how about the price we pay for cereal? Grains cost about $5 for a bushel (about 50 lbs). Most kids need to eat cereal, and their parents are forced to pay $4 for a box that contains 10 cents worth of grain. After adding some sugar, etc, the cost of the contents of a box of cereal is 20-25 cents, yet the poor consumer has to pay 15x-25x that cost. Should we haul the managements of the cereal companies off to jail?
How about clothes? People need underwear and socks, and our retailers sell them for 10x-20x what they pay the Chinese for them, so why don't we haul our retail executives off before the courts or the congress too?
How about tomato soup, or pasta, or soap, or toothpaste? Do you think the cost of ingredients in the package are commensurate with the price charged to the consumer? Should we sue their producers' executives too?
There are many other examples of necessities for which the consumers' final price greatly exceeds the basic cost of the goods or the raw material. This is natural, as there are many other components of cost, and if business cannot profit, it will not make the effort to develop a product and bring it to the consumer. However, the author's deficient logic implies that all these goods have to be subjected to price controls by the state. This is what centrally-planned (aka communist) economies have attempted, and the result was that production of all these necessities dropped, and so did their entire standard of living.
2010: Time to Arrest the Oil Extortionists? [View article]
We need to stimulate the economy by investing in jobs for energy efficiency, not by wasting money on pork. We can stimulate the auto industry by subsidizing smaller, fuel efficient cars and can create jobs building high-speed rail that reduces pollution, reduces highway and airport congestion, and reduces oil consumption. Ditto for nuclear and renewable energy.
If high oil prices are the only way to motivate us to implement such necessary changes to our economic model, then they are a blessing, even though those with limited vision are unable to see it as such.
The notion that if only the evil cartel were to pump out an extra 5m bbd then price will drop and all will be well forever is silly. This simply creates a greater crisis for our children and prevents us from implementing policies that create useful jobs that truly benefit our economy.
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Bad Bank and Draft Bill Spook CDS Traders and Wall Street [View article]
Instead of trading CDS's, or manufacturing CDO's, etc, we just need old fashioned banks that lend or raise capital for companies that make useful things, so they can expand and make more, or build useful projects that can pay back their loans over time. These activities produce real value and employ people with real skills.
This would make banking more stodgy, more stable, and less profitable, and needs a much smaller workforce in banking. But is a proven model. Many of the talented people in banking can apply their creative talents just as well, but in other productive areas.
Bailout Accountability: Something's Rotten in the Treasury's Kingdom [View article]
Financial Engineering and Wall Street Compensation [View article]