Doesn’t the human race EVER learn? Why must we continually have to go through the same pains, trials and tribulations that our parents, grand parents and great grand parents went through? Same with the automobile industry. Same with how our nations handle their affairs– economics included. Even politics. Forever, politics.
1928: Times were “Terrific”. The “Roaring Twenties” they called them. After a short, sharp, 18 month long economic recession in 1920 – 1921, where the deadwood and dry brush was cleaned from the U.S. economy by an economic forest fire, new growth came along and prospered.
Even so, Chevrolet had come in at number one, selling 1,193,212 cars against Ford’s slow ramp-up of production of 607,592. Willys-Overland and sub-marque Whippet were third at 315k cars, with Hudson and sub-marque Essex at 282,203 following at number four. The total new vehicle market in the United States was 4,361,579.
Henry Ford finally listened to his son, Edsel, replacing the ubiquitous Model T “Flivver” with a new Model A car styled somewhat like a shrunken Lincoln. Yes, the great Henry Ford nearly destroyed his own nascent auto company with his stubborn demand that no change be made to what had been successful for so long. The Model T was his alter-ego, emphasis on ego. Finally, the market spoke and he at long last heard – at huge cost to his son who possibly alienated his father from that time on.
By August 1929, car sales dropped precipitously – even prior to the Great Depression which began on October 29. Even so, 1929 new vehicle sales amounted to 5,337,087. August car sales gave a warning that nobody heard.
1930 sales: 3,510,178 (a 34.2 percent drop year on year).
1931 sales: 2,472,359 (a 29.5 percent drop year on year)
1932 sales: 1,431,469 (a 42.1 percent drop year on year, a 73.2 percent reduction in sales compared to 1929. An auto market only a quarter the size of four years before).
1933 sales: up 38.7 percent year on year, to 1,447,018. (Still only about a third of the size of 1929).
1934 sales: up 45.5% year-on-year, to 2,669,963 (a 45.5% increase year-on-year). An auto market less than ½ the size of 1929.
The Great Depression dragged on until 1942, only interrupted by the great build-up of war materiel for America’s entry into World War II. Recently, only a year or so ago, people in charge of “The Fed” reluctantly admitted that the actions – or inactions – of their forbearers had not only caused, but exacerbated the Great Depression. “We’re sorry, we won’t do it again.”
So what are they doing now? Pretty much the same lever-pulling “never mind that man behind the curtain” antics that caused the ruination of the nation some 79 years ago. Throwing more paper money into a fire does nobody any good.
And things in 2008 are moving much faster than 1929. We have mountains of cash being thrown into a fire. The bail out with taxpayer money is for the sole “benefit” of the elite wealthy bankers.
Reminiscent of the Titanic, but instead of ladies and children getting the life-boats, it’s first class male bankers passengers, only, thank you – and the rest of you get locked into the hold to go down with the ship. Tough shit. We’re suddenly aware, as a people, that the politicians sworn to protect and “serve” us all have just locked us into a doomed ship and given the life rafts to others.
Are bank holidays next? Iceland’s economy has totally collapsed just within the last few days, the world’s economy is ever more interwoven. Messrs. Smoot and Hawley are ghosts now, but they are likely to begin haunting us again with protectionism rearing its head, further exacerbating the depth, length and longevity of the oncoming tsunami, just as happened in the 1930’s.
Much like our current “choices” between Presidential candidates, we can choose protectionism and certainly wreck our country, or choose a free market and watch it continue to be wrecked as it has been over the prior 40 years, when corporate managers began to decide to export jobs overseas in earnest. Is there a third way?
Yes. Ron Paul and others have been warning about the possibilities of all of this happening, and was ignored or received derision.
The underlying problem? As always, with humanity: a lack of morals. Corporate managers wanting more power and money at the expense of others. Union leaders and members wanting more power, money, less work and more influence at the expense of others. Politicians wanting more of everything and no accountability. Likewise bankers and financiers.
So how will this all affect Detroit, Inc? We’ll surmise about what might be happening very soon, in our next installment.
menno: nearly all academic macro-economists will tell you that your comparison of the current economic situation with the Great Depression is very much off. And Ron Paul, with all his merits, believes in Austrian economics – which is a type of economics that virtually no scholarly articles have been published about in the last 30 years, and that has its base in the 30s and 40s. To stay in car terminology: Ron Paul’s sense of economics is stuck in VW Beetle territory.
The notion that protectionism will certainly wreck our economy however is considered a near certainty among economists.
While I’m not fan of protectionism, no one has come up with another way to keep the tide of globalization from washing all our jobs overseas. We can’t all work at Wal-Mart.
There has to be a winner in this industry in the US. I think it will be Ford. GM is too big for its market share, Pontiac, Buick, and GMC have to go. GM will be Chevy and Cadillac after they pay all the P B and GMC dealers off. Ford already has a two brand structure, they have no independent Mercury dealers, so there is no cost in eliminating that brand. The only economical way for GM to get to two brands is backruptcy. Maybe it will work maybe not. Chrysler is done, Nissan will buy them and make Dodge trucks and Jeeps. So Ford will be the winner, at 2.50 a share its a good buy too. The current climate will just shake the tree, with lots of fallout. History will be repeated yet again.
And things in 2008 are moving much faster than 1929. We have mountains of cash being thrown into a fire. The bail out with taxpayer money is for the sole “benefit” of the elite wealthy bankers.
Not entirely true. What we learned from the Depression is that you must, must, MUST keep people gainfully employed. Once the workforce starts contracting, the death-spiral of reduced consumer spending takes hold until, well, I’m not sure. We had a war last time to break us out of it.
It stinks to essentially pay out Wall Streeters, but it hurts to let hundreds of thousands of jobs fail because available cash is evapourating. If the captains of industry and government have an iota of sense (I know, I know) their goal should be to stabilize employment to the point where wed have sustainable consumer spending with a solid foundation. You do not want freefall.
Ron Paul and others have been warning about the possibilities of all of this happening, and was ignored or received derision.
Ron Paul and other libertarians are precisely wrong on how this should be handled, but yes, the wa. Market corrections are always brutal, and the point of government regulation is to minimize said brutality by a) preparing for it in advance and b) discouraging rampant profiteering that’s beneficial to the captains of industry but harmful to everyone. Good regulation is best. Poor regulation and no regulation are functionally equivalent at times like this.
What happened here was that, in the hunt for profit, government let go the reigns and allowed the cart to run clean into a brick wall. No one, but no one, was going to challenge the free-market ethos when times were good–or worse, things got too far before the problems were noticed and they didn’t want to be the regulatory pinprick that burst the balloon.
Alan Greenspan is going to be looked on very, very badly in all this.
Robbie, thanks for your comments.
Here’s my video response: Old school 1930’s tech.
http://www.youtube.com/watch?v=UKf4dsn9Zs0
vs. 1970’s tech.
http://www.youtube.com/watch?v=caOqD54oxRA
(OK these are only for irony & humor, see my 2nd comment below!)
A quick search inside WSJ.com will show that Icelandic banks have been on ‘thin ice’ (couldn’t resist) for some time – due their own poor risk management. The goings on this past month can only be blamed for giving them the (eventual) nudge over the edge.
See, that’s what happens when a country is full of people with no last name….. (and you thought I could not find anything derogatory to say about Iceland)
While I’m not fan of protectionism, no one has come up with another way to keep the tide of globalization from washing all our jobs overseas. We can’t all work at Wal-Mart.
It would be nice if developed countries were as stringent in enforcing human rights and environmental standards in their second- and third-world trading partners as they are with WIPO or IMF enforcement.
Of course, that’s socialism..
Doesn’t the human race EVER learn?
No. Humans always think that they\'[re better and smarter than their ancestor, but having GPS and blackberries does NOT make us smarter. If anything, it just exacerbates our “herd” attitude.
And in an era where studying history is looked down, and where people (and in particular politicians) use history only as soundbites, I predict we’ll be in ever increasing trouble, as we’ll forget the painful lessons of the past.
Although I despise greed, I believe it’s actually arrogance that led us where we are now, i.e. the belief that we’re making the right decisions while in fact they are generally subjective, reptilian-brain decisions.
Re: Ron Paul. I’m not overtly familiar with his brand of libertarianism, but I can talk about the founder of classical economics: Adam Smith. While he makes a lot of sense, his assumptions mean that his theory cannot be applied in practice, just like marxism. The invisible hand works only if the participants to the market have access to objective information (1) and take rational, objective decisions (2).
For a very long time, 1, was impossible. With the rise of the internet, it is now possible. However, the sad truth is that most of us are too dumb or lazy to check for information and facts. I spend maybe 1 hour a month looking after my 401(k), which is not nearly enough to gain meaningful information.
Thus, 2 is pretty much out of the picture. But even with instant access to perfect information, we’d still make stupid decisions. I mean, EVERYBODY knew that house prices couldn’t go up forever, but we all though we could “beat the market”.
Ahh yes, economists: they can tell you why the last depression occured but not how to avert the next one. It seems the Dismal Science is not science after all.
The Beetle vs. Commodore Youtube video comparisons tells us exactly nothing. Are you asserting that 1930s technology was superior to 1970s based on a couple of video which don’t even tell us the relative speeds of the two crash tests?
The action by today’s governments is in marked contrast to what happened at the onset of the great depression. Back then the government mindset was to let things crash and burn as the magic of markets would cure all. Today we have massive intervention. I would argue that the deregulatory fervor which started with Reagan was let to run to excess and brought us where we are today.
Newsweek recently published a very interesting article by Francis Fukuyama on this subject:
http://www.newsweek.com/id/162401/page/1
As for trade and the boogieman protectionism: It seems obvious to me that over time no large economy can consistently import more than it exports and live to tell the story. Vigorous trade is good, what with the doctrine of comparative advantages and all, but imbalanced trade is simply unsustainable. We are now in the midst of a melt-down where a number of clearly and obviously unsustainable group behaviors are coming to an end all at once. Spending more than you earn, whether on a personal level or in global trade, cannot persist over the long term.
Is the problem deregulation or lack of enforcement? Is the problem deregulation or spcial-interest regulations to support certain industries, geographic locales, or poltical pressure groups?
Also, trade is only one variable. Nations themselves can be sources or sinks of wealth so it is simplistic to say that a negative balance of trade cannot go on forever. Whether a negative balance of trade is a good idea is another thing but it is not, in and of itself, an unstable situtation.
Morea: Ahh yes, economists: they can tell you why the last depression occured but not how to avert the next one.
Economics is the classic example of a pseudo-science. It is great at explaining past behavior, but worthless at predicting future behavior. Same thing with psychiatry.
And in an era where studying history is looked down upon….
This is an era when “smart” is looked down upon. Can’t be seen to be smart, that’s elitist.
That pisses me off. When did intelligence become a liability in a leader? We vote people in who a) don’t make us feel stupid by virtue of seeming less intelligent than we are, and b) on the grounds that they’re the kind of person we’d want to go to drinks with.
Look, if I was voting for the leader of the free-goddamn-world, I don’t want him to talk or think like Forrest Gump.
Hi John.
The videos were not to be taken as serious commentary, but more ironic and humorous.
In other words, a lot of people are stressed right now, and it’s probably better to laugh, than to cry.
Even President Hoover tried pulling levers, followed up by Roosevelt doing it even more so, and nothing helped.
Contrast the Great Depression – where two Presidents (the first, eventually not immediately) tried intervening in every way possible to end it – and only seemed to make it worse – against the 18 month long short, sharp recession/depression of 1920-1921 where the bankers were left to sort out the problem themselves, or die trying.
I’m not a sage with all the answers, I’m only trying to put one view forward and encourage commentary, independent thinking and friendly debate.
I have to completely agree with you about unbalanced trade. Balance is the key word, here, isn’t it? Another way of saying it would be responsible behavior, or even good stewardship.
Thanks for commenting.
By the way, a colleague of mine kind of freaked out about the relative safety of the old Beetle (since he does drive one as a daily use vehicle) until I showed him that crash video. The post 1967 Beetle with collapsing steering column is not so much a death drap as most other cars engineered even in the 1970’s, 1980’s or 1990’s, in some cases. Or, even now, if you’re talking about Chinese-marque cars.
As for the Holden, well, I think the speed was “up there” (unknown though) – and it sure tells me that if I’m kidnapped by the Aussie mafia and stuffed into a trunk (boot?), I might come out alive in a wreck… (tongue in cheek).
John Horner: Spending more than you earn, whether on a personal level or in global trade, cannot persist over the long term.
Exactly right, John!
Seems like our elected prostitutes officials thought it would be a great idea to mortgage the country to China. And if we sent all that cash to OPEC, it is still no problem. Dubya will ask them nicely to pump more oil. And if that doesn’t work, he may even send the heavy gun in to negotiate. Too bad Cheney couldn’t pull it off, either.
Of course, it won’t be long before some Kool Aid drinker claims it all part of a ingenious plan: why spend money fighting Al Qaeda when you can just kill it by eliminating its funding? And if you happen to kill the global economy in the process, well… you gotta break some eggs to make an omelet, don’t you?
We are now in the midst of a melt-down where a number of clearly and obviously unsustainable group behaviors are coming to an end all at once.
This is a big enough challenge strictly in economic terms, but the political aspects are much more difficult. Politicians have to give up their biggest “unsustainable behavior”: telling the people only what they want to hear. Horner’s completely right that these “unsustainable behaviors” have to go, but like the bad credit, there’s no telling where they end.
The first politician who tells the people what the NEED to hear is the first politician who loses his/her re-election. Good luck with that.
Help the man on the street? No. It is reminiscent of the Titanic. More men from 1st class were saved than children from 3rd class.
Engineer, it’s pretty much a given that most politicians worldwide are prostitutes. What’s up for debate, to paraphrase Churchill, is their price.
If only it were not so. That would be my wish.
Ron Paul and others have been warning about the possibilities of all of this happening, and was ignored or received derision.
The underlying problem? As always, with humanity: a lack of morals.
Yes and no.
The underlying problem with American elections is the outdated electoral college. Until it is eliminated, American elections will continue to be about manipulating the map.
With apologies to Leonard Cohen, democracy is still not coming to America…
Engineer – the electoral college is designed such that the smaller populated states don’t get completely trampled by the big states. I don’t know why you would be in favor of pure democracy, it’s worked wonders in Venezuela?
Yes, a straight “one-man, one-vote” would be best. That way we can demand nation-wide recounts and the Chicago Machine can run up the vote with homeless alcoholics…
Hindsight is always 20/20. Might I suggest that the world is not so clear cut as you have stated. Case in point: how many of us armchair quarterbacks have lost a bundle in the stock market over the last few weeks or watched our 401K waste away. Predicting such large scale world events is not as simple as learning from history. Even the Oil crisis, now winding down, was not the given that many made it out to be.
If we lived our lives, or invested our money like the next great depression, oil crisis, financial crisis was just around the corner, we would all be living in huts as the world would grind to a halt.
It is not true that either the Great Depression or the current economic mess are the result of a purely laissez-faire approach to the economy.
After October 1929, President Hoover took an activist approach to the economic situation, and some of his actions are widely credited with turning what should have been a short and sharp recession into the Great Depression. Candidate Roosevelt then took office, and instituted policies that, if anything, PROLONGED the economic downturn.
A big misconception is that the stock market crash of 1929 “caused” the Great Depression. It did not. The economy had been softening throughout 1929, prior to the crash. The crash itself was a needed correction to excessive stock market speculation that had been growing since 1927. Much like this year’s decline in home prices is a much-needed correction to the completely unsustainable increase in home prices we’ve witnessed since about 2001 or so.
Contrary to popular belief, President Hoover did not sit by and attempt to “let the market take its course.” He tried to prop up failing companies through the newly formed Reconstruction Finance Corporation (does this sound familiar?), instituted some public works programs (not bad, in and of itself, but obviously not enough to prevent the economy from faltering) and jawboned businesses into keeping wages high.
But the crisis deepened for two big reasons. One, the Federal Reserve was inexperienced in handling this type of situation, and believed that inflation was the main concern. Unfortunately, prices were deflating, so the federal government was essentially treating the patient for a fever after he had frozen to death.
Two, President Hoover and the Republican Congress passed the Smoot-Hawley Tariff designed to “protect” American industries. Other countries retaliated with their own protectionist measures. World trade was throttled, and the economic crisis deepened. Smoot-Hawley hit the American auto industry hard, as there was a thriving overseas market for American cars in the late 1920s. Just as the domestic auto makers were faced with the downturn in their home market, they were also hit with a decline in exports when they could least afford it. The devastation caused by Smoot-Hawley was one reason that the Roosevelt Administration worked to increase free trade.
Contrary to popular belief, Roosevelt and Hoover differed very little in how they believed the government should handle the economy. The primary difference between the two candidates was that Roosevelt favored direct relief to individuals (what today we call unemployment insurance and welfare), while Hoover opposed these measures. As governor of New York, Roosevelt presided over the only state in the union that had enacted these measures.
Roosevelt had his own problems – his theories on how gold prices impacted the economy were as nutty as anything put forward by today’s Gold Bugs; his National Recovery Administration was based on the silly idea that competition was BAD for consumers and had been partly responsible for the economic crisis; and many of his punitive taxes discouraged business formation and job growth just when the economy needed them the most.
Fortunately, the U.S. Supreme Court did him a favor by striking down as unconstitutional the National Industrial Recovery Act that had created the National Recovery Administration, and by 1938 even members of his own party were revolting against many of his economic policies.
Today’s problems are hardly the result of a laissez-faire approach to the economy; if anything, they have their roots in attempts to expand credit availability and home ownership to the poor. This led to lax lending standards – under government pressure – and soon spread to throughout the economy. George W. Bush rode into town touting the “ownership society” and made things worse. And the attempts to strengthen regulation of Fannie Mae were primarily fought by…congressional Democrats, with admittedly very little resistance from Congressional Republicans. Just ask Barney Frank…
(Maybe the new regulation we need is to go back to old lending standards, but that would us back where we were in about 1989, when ACORN and other groups were wailing that such practices constituted discriminatory “redlining.”)
Soon, everyone was jumping on the expanded credit bandwagon. GM, for example, discovered that it could inflate sales figures and keep the lines running by offering financing to anyone with a pulse. Pushing looser credit was easier than improving the vehicles, consolidating or pruning unnecessary brands or working with the UAW to get costs under control. Before, many of these people would have been (properly) directed to the used car market, or told to take public transportation.
Now we are rediscovering that many people should never have bought a house in the first place, or should have bought a much less expensive one. And some auto companies cannot survive if only people who can afford a new car can get the loans to buy them. But we can’t stop housing prices from falling, and we can’t indefinitely prop up companies (here’s looking at you, GM) that just aren’t viable in their present form.
I don’t know, gamper, I think that when I followed the advice of guys at
http://www.dailyreckoning.com/index.html
and yanked my 401k monies out of the stock market when it was 14,000 or so, then put them in bonds – pulled them when they said that was no longer viable – and bonds crapped out after that – then put my money into cash & high risk gold stocks 75%/25%.
I’m “winning” in the same way that some guy in a tsunami is “winning” by being the person to be dragged the least distance away from shore.
The guy who loses least, wins. In this environment.
BTW the dow just went under 9000.
Here’s an interesting read for you.
http://www.lewrockwell.com/dilorenzo/dilorenzo59.html
I disagree with one thing – I AM going to vote, and I’m going to vote for the party which Ron Paul suggests. It’s the Constitution Party (known in Michigan as the U.S. Taxpayer Party).
I’m still free to do that. I’m going to look at the glass and see it half full, instead of half empty as this writer Dilorenzo. Otherwise, I have to agree with what he’s written, personally.
Well said, Geeber.
If anyone can point out to me laissz-faire in the America after 1873, please do so.
Honda_Lover: Engineer – the electoral college is designed such that the smaller populated states don’t get completely trampled by the big states. I don’t know why you would be in favor of pure democracy, it’s worked wonders in Venezuela?
Adub: Yes, a straight “one-man, one-vote” would be best. That way we can demand nation-wide recounts and the Chicago Machine can run up the vote with homeless alcoholics…
Snap out of it, guys! This isn’t 1787. We are not trying to encourage people to move to the Wild West. The purpose of the electoral college has expired.
In today’s system the president gets elected by a few hundred votes in FL or a few thousand in OH. Call that fair? Instead of the small states getting tramped (as everyone seems so concerned about), the entire country is getting tramped by a handful of swing states. The biggest states in the union (CA, NY and TX) do not matter (except for funding purposes) because we all know which way they will vote. No wonder we’re electing such quality personnel.
As for Venezuela, or Zimbabwe, or any number of countries where elected officials when beserk: the problem is not “one man, one vote”, it’s “power corrupts, and absolute power corrupts absolutely”. One of the key principles in the US is separation of power. Take that away, and you have chaos. Just think what the current administration would have done…
As for concerns about voter fraud in Chicago: the same issue has been raised in OH, where it might have done a lot to decide the last election. Not saying that it did, but it could have.
Engineer – the Constitution doesn’t care that CA/NY/TX already have their minds made up. The system doesn’t take into account mood-swings.
Engineer: Snap out of it, guys! This isn’t 1787. We are not trying to encourage people to move to the Wild West. The purpose of the electoral college has expired.
The electoral college was not designed to encourage westward expansion. It was implemented because, among the original 13 colonies, the smaller ones (Rhode Island) feared undue influence over the outcome of elections by the bigger states (Pennsylvania and Virginia at that time).
Engineer: The biggest states in the union (CA, NY and TX) do not matter (except for funding purposes) because we all know which way they will vote.
That’s less an argument for abolishing the electoral college than for state residents not voting predictably in every election.
Engineer: As for concerns about voter fraud in Chicago: the same issue has been raised in OH, where it might have done a lot to decide the last election. Not saying that it did, but it could have.
The difference being that, based on history, the structure and character of the government in question and the scope of the allegations, the charges against Chicago have some credibility, while the Ohio charges, when examined closely, tend to fall into the tinfoil-hat category.
I,for one think that ‘living within your means’ is what everyone is touting since the market collapse.
But what are our examples of this..where is the reward for this…where is the “feel good” for this?
the consumer sure doesn’t have many examples ,with savings accounts paying what..1% interest,and our own elected officials writing bad checks..
I for one would love to get a new car,but have other priorities,like making massive credit card debt,just like our government..and now that I cant buy a car with 800 million payments to keep the monthly cost low…oh well there goes the industry!
Engineer – the Constitution doesn’t care that CA/NY/TX already have their minds made up. The system doesn’t take into account mood-swings.
My point remains. It’s absurd that the big three is relegated to the sidelines in a presidential election.
The electoral college was not designed to encourage westward expansion. It was implemented because, among the original 13 colonies, the smaller ones (Rhode Island) feared undue influence over the outcome of elections by the bigger states (Pennsylvania and Virginia at that time).
There is a word for having larger numbers dictate to smaller numbers: democracy.
That’s less an argument for abolishing the electoral college than for state residents not voting predictably in every election.
As a resident of CA I’d love to change that. Other than nuking San Francisco, I can’t think of any way to change it, though. Giving all of CA’s electoral college votes to one party makes no sense. (All you millions of voters who chose the other party: Too bad.) I’m sure residents of TX and NY feel the same way. Your advice then has no practical value.
The difference being that, based on history, the structure and character of the government in question and the scope of the allegations, the charges against Chicago have some credibility, while the Ohio charges, when examined closely, tend to fall into the tinfoil-hat category.
Be that as it may, the likelyhood that a few Chicago drunks could swing a presidential election is extremely remote.
I guess meteorology isn’t science either. I will stop there lest I get scene as being elitist.
As for predictions of this doom and gloom, I believe that prognosticators have accurately predicted 14 of the 5 last recessions.
Maybe we should all stop paying so much attention to Presidential contendors, and pay more attention to the real problem – Congress. Try thinking of a serious problem that we have had over the last eight years that Congress didn’t have a hand in. If you can find one, ask yourself if Congress did anything worthwhile to stop it either.
We are certain that we will get one of the people on one of the tickets (snipers on both sides have likely been practicing). It’s about time we figure out how to mitigate the damage by voting out career politicians at every chance. I am seriously considering voting against all incumbents and any previous office holders who I am not thrilled about.
I am also considering not pulling the lever on many races where I see no differrence in the choices. I suppose it’s a pipe dream, but wouldn’t the parties shape up a bit if millions of us went in to the booth, and only voted for the dog catcher.
“In today’s race, the incumbent got 33% of the vote, but he is only losing by 2 percent. Apparently, many voters simply didn’t like their choices. Amazing! Back to you, Bob.”
Engineer – I hate democracy. I prefer a republic.
I like the dog catcher idea!
maybe Ron Paul?
or…Paris Hilton….
The problem is with congress and the senate.
The president is the LEAST of our problems!
Term limits please,please,please….
Get the pac supported,in trenched lifetime politicians out of office so we have a chance to make America the world standard,not the worlds ‘fall guy’
psarhjinian :
October 9th, 2008 at 1:43 pm
And in an era where studying history is looked down upon….
This is an era when “smart” is looked down upon. Can’t be seen to be smart, that’s elitist.
That pisses me off. When did intelligence become a liability in a leader? We vote people in who a) don’t make us feel stupid by virtue of seeming less intelligent than we are, and b) on the grounds that they’re the kind of person we’d want to go to drinks with.
Look, if I was voting for the leader of the free-goddamn-world, I don’t want him to talk or think like Forrest Gump.
Well, right now the smart guys (Obama/Biden) seem to beating Old and Dumberer (McCain/Palin). So maybe this pattern is ending.
(Even if you don’t like their policies, I think it’s clear that Obama and Biden are more “intellectual” than McCain and especially Palin.)
I’d blame Government in general for the Great Depression much more than the Federal Reserve. Especially the Smoot-Hawley Act.
Psar: I’d say what we should have learned is that we must, must let the correction take place, and must, must not go protectionist. (I don’t see any reason to believe that government make-work hastened recovery, though it had useful effects in keeping people busy as opposed to just handing them food and hoping they stayed out of trouble when otherwise idle.)
There’s a reason the rest of the world recovered so much faster than the US, and it ain’t that they had a better version of the WPA.
Robbie: “But it’s not popular” is a lousy argument against the Austrians, especially given the fall from grace of the Keynesians.
(And one reason Austrians don’t get published? They’re not doing shiny mathematical models and trying to predict next week’s economic activity. Such things look great in journals and make economics look more scientific… but not doing them is hardly a rational basis for dismissing the Austrians as a whole.)
I am seriously considering voting against all incumbents and any previous office holders who I am not thrilled about.
Here’s the problem, courtesy of the beloved New York Times: Mr. Bland goes to Washington, written in the aftermath of the 2006 midterm election.
It comes down to this: any experienced politician sees his experience become a liability (“In 1975 you voted for a tax increase…”). Is it any wonder that the last two presidents were one term governors, without much of a record to speak of? Is it any wonder some see Sarah Palin as McCain’s saviour?
As I said, the dice is loaded in a way that gives us quality personnel…
Honda_Lover: Engineer – I hate democracy. I prefer a republic.
Semantically correct. But WTF does it mean in real life? Does America become a beacon of hope for nations stiving to copy her republican ideals? Weak…
I would argue that the deregulatory fervor which started with Reagan was let to run to excess and brought us where we are today.
I agree. Reagan was just a salesman for this stuff championed by Milton Friedman et al. He was too lazy to be involved in his own administration let alone thinking things through and developing a plan to a sought objective. Supporting this view is the vigorous way he has been sold since leaving office. Bullshit, sufficiently repeated, becomes received wisdom along with its mantras like unions are bad. Huge deficits be damned; deficits from pissing billions away on wars and tax cuts for the rich don’t matter, but money spent in providing health care for kids or investing in public education is bad; can’t have deficits you know. Reagan was a likable guy with a nice smile who looked good in a suit and knew how to sell bullshit provided a compliant media. The compliant media part is a piece of cake in the US since media members who actually do their job and challenge or even question the bullshit du jour are castigated. (Just more liberal media communist stuff.)
But it’s important to understand that lots of people at the top have done very well building to this meltdown. Check into the annual returns of some of these private equity and hedge fund outfits, prior to the past few weeks. Tweaks to the tax code unnoticed by nearly all but the beneficially affected have been hugely important. Wagoner’s $15 or so million per year is a pittance to these people.
Things are different from 1929. Then, the US was ascending; not now. And now we have hellacious foreign debt, the world is pissed at us and tired of our domination and rightfully fearful of our power in the hands of the likes of Cheney and a puppet. So they have both emotional and logical reasons to want our power to be reduced. Plus, as said above, in 1929 people expected to work for their success and advancement. Look at random pictures of shirtless soldiers in WWII vs. what we see plodding along in a mall. Even many of those who bother to finish high school are functionally disabled due to ignorance and laziness.
The morals of those we elect to represent us really tell the whole story.
Ron Paul…the Buickman of Politics.
Rather than trying to ditch the electoral college, I would suggest a system where each state awards it’s electors proportionally by congressional district along the lines of what Maine and Nebraska do rather than the winner takes all scheme in place everywhere else. The overall winner of the state there still gets the two electors who are analogous to the Senators, so there would still be some bonus for taking the overall win in a state.
This way we would have Presidential campaigns which really do need to run a 50 state strategy. Austin, Texas would suddenly have a real say in the outcome, as would upstate New York and the California central valley.
Well, right now the smart guys (Obama/Biden) seem to beating Old and Dumberer (McCain/Palin). So maybe this pattern is ending.
I think that has a lot to do with Bush’ burning bridges than anything else. Were McCain following a less distasteful administration, he’d be far more saleable.
I stand by the point: the number one critique leveled at Gore, Kerry and now Obama (or, if you’re Canadian, against Stephan Dion) is that they’re. too academic, too elitist, too smart.
As opposed to, you know, George Bush. Regardless of the man’s actual ability, it’s his perceived salt-of-the-earth, don’t-seem-too-smart personality that swung a lot of voters. And I find that despicable.
I’d say what we should have learned is that we must, must let the correction take place, and must, must not go protectionist.
I’m not saying don’t let the correction happen. I’m saying anticipate it and reduce it’s impact. Had Greenspan started deflating the bubble years ago and slowing tightening credit, we might not have had the bonanza years we did, but we’d also have avoided the utter cratering of the economy.
Now, though, it’s too late. The correction might well be worse than anything we can contrive ourselves. Taking money our of circulation is about the worst thing you can do in these circumstances, and since you can’t pry a dollar out of a rich investor in these times, the government more or less has to step up to the plate.
It’s the same with fuel prices: if we had tightened CAFE and/or introduced gentle increases in the price of fuel, we (and the automakers) might have been spared the pain of a spike in the price in fuel. But no, we rode cheap gas until we couldn’t get off, then hit the wall.
Reaganomics needs to die, I agree.
Today’s banking meltdown is NOT a product of deregulation. Quite the opposite.
There were regulators and regulation all over the mortgage backed securities. They were created by regulation, they were okayed by regulation, and they were given a stamp of approval by highly regulated ratings agencies. The large financial firms now failing ALL got approval from several regulating bodies on how they accounted for the values of those securities.
It was a case of BAD regulation, not DEregulation.
Reagan lowered taxes drastically, and it worked. Reagan used leadership skills and the tax cuts (which raised revenues) to rally this country’s military and industry in order to force the Soviets into quitting the cold war. GIVE THE MAN HIS DUE.
The whole deregulation thing tagged along for the ride, and is not really understood or properly utilized by most modern Republocrats. The point is that overregulation is BAD. Overregulation is a natural product of too much government. The idea that anything can be made better by deregulation is false, believed by no one of consequence, and, as far as I can tell, NEVER been tried.
What passes for deregulation is simply a change from one set of regulations to one supposedly less onerous set that supposedly allows more free market influence. Unfortunately, they mostly botch the job because politicians are allergic to risk. The key phrase to look out for is “market mechanisms”. Whenever you hear that, think about the California energy deregulation, and then vote no. It has NOTHING to do with free markets, and everything to do with policy wonks thinking they are smarter than God and the rest of humanity.
I have twice opened a business. Having learned about the deluge of government bureaucrats and thugs that immediately take an interest in every part of my life, I won’t likely do it again. Sorry about your children, YOU HIRE THEM.
Been saying pretty much the same thing for years. Have been told to STFU for years. Now I have the satisfaction of saying, “I told you so.”
“Everything is going to burn.
We’ll all take turns.
I’ll get mine too.
This monkey’s gone to heaven.”
Today’s banking meltdown is NOT a product of deregulation. Quite the opposite.
The Gramm-Leach-Bliley Act passed in 1999 and pretty much opened the gates so that anything went in banking. It’s not a Republican vs. Democrat thing; they were almost all in favor of it. The bill passed the Senate 90-8 and the House 362-57. But that’s just one of the major milestones on the path to hell that we’ve taken. The rating agencies, S&P etc. have been too busy collecting fees from the companies they’ve rated to be honest in their ratings. And when things got tense, a realistic rating would have resulted in required shoring up of assets which some couldn’t do; so they let it slide. William Martin would have taken away the punch bowl, but Greenspan let the party go on. And the public borrowed and spent. Happened before and it’ll happen again on some, probably necessarily lesser, scale. Lesser because we’ll be poorer as a nation. Then we can watch the Chinese have their party.
I suspect climate change and/or one or more epidemics will take our minds off this stuff though before long.
psarhjinian :
I stand by the point: the number one critique leveled at Gore, Kerry and now Obama (or, if you’re Canadian, against Stephan Dion) is that they’re. too academic, too elitist, too smart.
One of William F. Buckley’s most prescient observations was that it would be better to be governed by 400 random Bostonians than the faculty of Harvard University. Americans mostly agree with that.
Of course, that’ll most likely change this November. It’s the nature of elections that the Democrats would one day be in charge. We’ll see if responsibility keeps them sane. The ghost of Smoot-Hawley is restless…
One of William F. Buckley’s most prescient observations was that it would be better to be governed by 400 random Bostonians than the faculty of Harvard University. Americans mostly agree with that.
We’re not talking about the faculty of Harvard versus four hundred random people, we’re talking about people deliberately voting for someone who makes them feel smart by appearing stupid.
It’s pandering to the intellectual insecurities of the average voter. And it’s sets an awful, awful social precedent.
The Gramm-Leach-Bliley Act passed in 1999 and pretty much opened the gates so that anything went in banking.
while the law may have changed the regs weren’t reduced at all just changed. but the expectation never did and that meant, if things turned to custard (of course dear boy they never would), that the government would help out.
If things were really deregulated and government said you’re on your own chum (Ha) than this depression/recession/WTF would have never have happened
FA Hayek was an Austrian economist.
psarhjinian: we’re talking about people deliberately voting for someone who makes them feel smart by appearing stupid.
Well, it’s your belief that people are voting for someone who makes them feel smart, which I think has no role in the decision making process of an average voter.
HEATHROI:If things were really deregulated and government said you’re on your own chum (Ha) than this depression/recession/WTF would have never have happened
Certainly the fact as applied to the reasons for the housing bubble.
If things were really deregulated and government said you’re on your own chum (Ha) than this depression/recession/WTF would have never have happened
Of course not, because we’d all be landed serfs.
In 1958, the economy was sinking and I recall seeing newspaper headlines equally worried as todays. My parents and their peers, having lived through both the Depression and WW2, fretted that the expected depression dodged in 1946, was finally home to roost. The downturn was “the worst recession since the Great Depression.” People worried that the Soviet Union was outperforming the U.S. economically as late as 1960. It wasn’t unheard that “America is finished.” I saw Pittsburgh lose most of its steel businesses in about five years in the 1970s. Pundits and economists talked about Pittsburgh being a lost city for at least 50 years. Pittsburgh was smaller but vibrant and diversified by 1985.
We had the long 1960s boom and by 1970, Lyndon Johnson’s decision to pay for the Vietnam War by printing money rather than through timely taxation began to drag on the economy. The Dow hit 1000 for the first time in 1966 (well…995 in February that year), bounced around for the next few years, and hit 1000 in 1972. We had a decade of non-performance in stocks until the early 1980s, when the Dow finally sustained 1000+ in 1983. During this time, however, DEC, Apple, Microsoft and Oracle were created. Stagflation (though only half the unemployment and inflation of Europe) stalled everything in the 1970s and the credit crisis circa 1980 was that money was too expensive for most people to borrow. My first new car loan in 1980 was 18%. My first mortgage in 1983 was 13.5% and required 20% down. All because Paul Volcker chose to wring inflation out of the economy. When the Soviet Union invaded Afghanistan in 1979, the intelligentsia said, “America is finished, exhausted and demoralized.”
I had made a fairly dramatic career switch just before the Dow meltdown of 1987. 500 points lost in one October day against a 2300 point market. The intelligentsia said that Reagan’s folly deficits had come home to roost, and “America is finished” as a dominant power. By January we’d shaken it off.
In 1991, pundits said it might be that the US can’t sustain a high-performance economy without a major adversary to pump up the defense sector. I bought a house in California in 1990 and was under water by 1992. But I was above the line again by 1997. I never thought once about not making my mortgage payments because my house had fallen into negative equity.
In March 2000, the tech boom came to an abrupt halt. I was in a start-up and we had to pull a planned IPO. The tech sector lost 800,000 jobs between 2000 – 2002, half of them in Silicon Valley. It was “the worst recession since the Great Depression,” and some people thought it would take decades to recover. We were deep in a “Web 2.0” boom by 2004.
Clearly, we’ve been riding a hazardous economic vector for awhile, perhaps a decade. Bush and the Republicans exacerbated a cultural liability but it began earlier, and both political parties dropped the ball. But really, just look in the mirror. No one forced us to take that extra credit card, or stretch for that extra 2000 square feet of house with a pool. Or step up from a Chevy or Toyota to a Mercedes or BMW. No Wall Street money manipulator forced us to buy job-exporting Chinese goods — nor Japanese, Korean or European cars for that matter — instead of purchases that would have kept jobs and money at home. The average American indulged his personal greed as much as any Wall Street trader who pulled down $40 million dicking with our economy. They just weren’t located to exercise the same kind of leverage on the income side of the equation.
There is only one way out of this predicament, and that is to grow our way out of it, and save prudently. Guess what, we’ve always done it that way. We ran deficits during WW2 that were *multiples* of GNP, and we grew our way out of it. We reversed course on the Reagan deficits by growing out way out of it. We have a $14 trillion economy — still the most productive large economy. We have a crisis of trust that is strangling credit markets — understood by many as the real trigger for the Great Depression — which will also burn itself out eventually. Once again, we have the “worst crisis since the Great Depression.”
Well, this time that looks to be true. Which is not the same thing as saying that it will have the same outcome. It’s really up to us. Even if auto demand falls to 10 million annual new car units, Americans *can* — i.e. they have the option to — buy Detroit products. The good ones. There are plenty now.
I’m braced for trouble because markets are emotional, not rational. Americans have trouble seeing their self-interest at the moment, but events might redirect us. At best, markets are emotional tempered by rational flashes of insight, and that’s rare. But at the end of the day, what this means for Detroit is what Americans choose it to mean. Even a seriously shrunken market has the means to swing a few million units from Japan and Europe to Detroit. Is there enough communitarian spirit left in the US to follow through? You get the economy your actions mandate, folks. We have an election coming up. We participate in an election every time we buy something. If you’re working, are you ready to be accountable to your fellow Americans?
Warren Buffet’s net worth *gained* $8B between August 29 and Oct 1st….
Phil
Landcrusher and geeber are peddling the Republican talking point; blame poor people for the whole thing through Freddie and Fannie and the CRA act. Yet all statistics show that the people who made the killing over the last decade are the top 1% in income and the bottom I don’t know how many percent actually lost economically. So I guess that those brand new shiny houses that the poor people bought through Freddie and Fannie somehow didn’t make it to the stats but the 2,3,4 houses the rich gained over the last decade did.
Yes there is a lot of regulation but not much of it in investment banking any more and virtually none in derivatives trading. Derivatives trading is singlehandedly responsible for the fact that there is no trust left in banking because nobody knows what derivative contracts are out there, their face value, their counterparties and their actual values. Why is that? Because the government didn’t force the banks to disclose them, it’s that simple.
It’s a well known fact by now that Greenspan vociferously opposed any regulation of derivatives , banking on the honor of the bankers, pardon the punt, and their ability to use the derivatives to spread and control the risk. And that’s exactly what they did and they could do it only because the investors weren’t aware of what they were buying when they bought CMOs or were not aware of what derivatives investment banks that they bought shares in had on their books.
There is no regulation for credit rating agencies, none. The idea I suppose here is that credit agencies don’t actually buy and sell any real financial instruments so they can’t do much harm. Alas, no need to supervise them.
Except the credit agencies assign in essence prices for bonds through their credit ratings. And they worked hand in hand with the investment banks in tweaking the CMOs so that they could all get triple A ratings. These were then used by investors to evaluate and buy into their portfolios.
If one looks closely at how this whole system works one sees that the whole financial system has essentially become a huge pyramid scheme that is no longer concerned with profitable investment in the actual brick-and-mortar economy but rather with creating mini-pyramids and other schemes within the overall pyramid to show paper profit. The pyramid can work for years even decades as long as there is new money coming (from the actual productive economy) in and the players all believe and trust the scheme. Once that is lost everything collapses. That’s what’s happening now.
Engineer: There is a word for having larger numbers dictate to smaller numbers: democracy.
Which is precisely why we have the electoral college. The Founding Fathers did NOT want the U.S. to be a pure democracy.
Engineer: As a resident of CA I’d love to change that. Other than nuking San Francisco, I can’t think of any way to change it, though. Giving all of CA’s electoral college votes to one party makes no sense. (All you millions of voters who chose the other party: Too bad.) I’m sure residents of TX and NY feel the same way. Your advice then has no practical value.
The electoral college seeks to prevent this from happening on a national scale. If we did abolish it, then what you complain about as a California resident versus the residents of San Francisco would happen on a national scale to residents of, say, Idaho, Wyoming and Delaware versus residents of California, New York, Texas and Florida.
Engineer: Be that as it may, the likelyhood that a few Chicago drunks could swing a presidential election is extremely remote.
The fraud in places like Chicago (and Philadelphia) goes far deeper than getting a few drunks to vote multiple times.
mel23: The Gramm-Leach-Bliley Act passed in 1999 and pretty much opened the gates so that anything went in banking.
Gramm-Leach-Bliley did not cause this meltdown, which has its roots in decisions made in the early 1990s to rewrite (i.e., loosen) credit guidelines to extend credit to those who previously would have been ineligible.
psharjinian: I stand by the point: the number one critique leveled at Gore, Kerry and now Obama (or, if you’re Canadian, against Stephan Dion) is that they’re. too academic, too elitist, too smart.
You misunderstand the critique.
The critique isn’t that Obama is too smart. I’ve watched the man, and while he’s eloquent (when he’s reading from a script – he’s not that good when he goes off script), charming when he wants to be (i.e., a good actor) and good looking, he isn’t super intelligent. Neither were Gore or Kerry.
If anyone is falling for superficial appeal in this election, it’s the Obama supporters, who are apparently projecting their feelings on to everyone else.
The problem is twofold. Most Obama supporters forget that there are two kinds of intelligence. There are book smarts (which people ASSUME that Obama has, because he received a degree at a prestigious Ivy League university, much as people ASSUME that someone driving the Mercedes E-Class is rich), and there are street smarts (which we also call “common sense”).
Obama gives off the impression of being book smart. I would be willing to bet that he aced the LSAT, although I would note that George W. Bush had a better GPA than Al Gore did in college.
The problem is that book smarts don’t necessarily translate into street smarts.
Second, those of us with at least a modicum of experience in the real world (particularly the working world) know that book-smart people aren’t always the best employees or leaders. They often have average or below-average people skills, and can be aloof and arrogant. This doesn’t matter as much in academia, where book smarts are valued over people skills, and where students haven’t had much experience in the real world (and can’t effectively challenge tenured professors).
Note that Obama receives a great deal of support from people in academia and young people who haven’t had much experience in the world outside of the university.
Second, the charge of “elitist” is not that Obama is too smart, or has an Ivy League degree. It’s that he, like many on the left, have no clue how many Americans live or understand why they like to do the things that they do. Saying that people cling to “religion” because they are “bitter” shows a profound ignorance, or maybe he is projecting the Rev. Wright’s views on to everyone else.
He should come to my church – the people there aren’t bitter; they aren’t unhappy (although they have problems, and readily admit to them); and they aren’t using the church as a shelter from the real world.
It’s the same with saying that people cling to their guns because they are bitter – newsflash, in many areas guns are necessary for self protection (and don’t give me the baloney about gun control – even the Clinton Administration found that taking guns away from law-abiding citizens does not reduce crime), and many people like to hunt and engage in target practice.
They aren’t bitter, but they are mad that a bunch of ignoramuses who know nothing about an issue (or deliberately distort the facts to make the case for gun control) try to dictate what they can do, or talk down to them. Never mind that those “bitter” people know more about the issue than they do (which I’ve seen in debates over gun control – the gun “nuts” inevitably mop up the floor with the gun control advocates, who quickly show themselves to be woefully ignorant on this issue).
HEATHROI – get’s it
psar – is actually making part of my point (strangely)
Phil – is absolutely correct, and put it very well.
ra_pro – I only read your first line, it was blatantly false. Why should anyone try to have a discussion with you if you either don’t even try to understand them, or just lie about what they said?
Geeber – I understand that going by IQ, Kerry is actually a really smart guy. I would argue that IQ is a limited indicator, and that it’s certainly no indicator of judgement and wisdom, but his IQ is high. I also think that his IQ directly contributed to his inability to make a connection with the voters. Gore, OTOH, is a nut. Now, he might be a really smart nut. High IQ folks tend towards nuttiness. However, I think his elitism label originates from his consistently taking up the causes of the chattering classes. Strangely, it’s usually the cons that get smeared with being “out of touch”.
Are they “super smart”? No, I saw an estimate of Kerry being just in the third standard distribution (mid 130’s). That’s in the top 2% which is high, but not that big of a deal on the national scale. Hell, even being a genius (over 150 I believe) is not big deal when you realize their are 100 million people in the US. Of course, a lot of the geniuses can’t really function socially, so guys like Dean Kamen (sp?) aren’t found on every block.
Sigival wrote:
Robbie: “But it’s not popular” is a lousy argument against the Austrians, especially given the fall from grace of the Keynesians.
My argument is that economics as a scientific discipline has long ago moved on beyond Ron Paul’s Austrian economics. Austrian economics is comparable to alternative medicine: it lacks scientific basis, and any possible merit of the approach has long ago been absorbed by the discipline.
ra_pro: Landcrusher and geeber are peddling the Republican talking point; blame poor people for the whole thing through Freddie and Fannie and the CRA act.
No, I said that one of the root causes was forcing lending institutions to make credit available to people who really weren’t qualified to get it. Soon lax standards spread to all income classes (thus fueling the demand for more expensive houses, which, in turn, fueled the unsustainable price increases of the last decade). And then other industries (the automobile industry, for example) got in on the act.
ra_pro: Yet all statistics show that the people who made the killing over the last decade are the top 1% in income and the bottom I don’t know how many percent actually lost economically.
Completely irrelevant to the discussion.
ra_pro: Derivatives trading is singlehandedly responsible for the fact that there is no trust left in banking because nobody knows what derivative contracts are out there, their face value, their counterparties and their actual values. Why is that? Because the government didn’t force the banks to disclose them, it’s that simple.
It goes way deeper than that.
ra_pro: There is no regulation for credit rating agencies, none. The idea I suppose here is that credit agencies don’t actually buy and sell any real financial instruments so they can’t do much harm. Alas, no need to supervise them.
Considering that credit rating agencies didn’t cause this crisis, your point is irrelevant.
The massive speculative market in derivatives turned Wall Street into a big fancy casino. These instruments are what brought Lehman Brothers crashing down, not loans to the poor in bad neighborhoods. Far more money went into condo flipping schemes in Florida then went into putting unqualified poor people into houses.
Derivative instruments of all forms are not investments, they are bets. Puts, calls, credit swaps and the rest are nothing but roulette wheels. Oddly enough, most conservatives are against the “vice” of neighborhood gambling halls, but advocate for the unfettered right of so called investment bankers to run the world’s largest casino. Playing cards for money on the internet: illegal. Speculating via E-trade on the internet: “capitalism”. WTF.
The Reagan-Thatcher doctrine era has just come to an end. Those who have invested their mental and emotional energies in said doctrine are feeling the pain. W. Buckley, patron saint of modern conservatives, urged the US to get into a hot war with Russia using nukes if neccessary. Fortunately he didn’t get his way. Buckley threw an apoplectic fit when Eisenhower had the gall to actually meet with Khrushchev. You want to talk about radicals? Buckley and his ilk are the real radicals.
“ra_pro: There is no regulation for credit rating agencies, none. The idea I suppose here is that credit agencies don’t actually buy and sell any real financial instruments so they can’t do much harm. Alas, no need to supervise them.
Considering that credit rating agencies didn’t cause this crisis, your point is irrelevant.”
Sorry, you are both wrong.
Saying there is no regulation on credit rating agencies is just absolutely incorrect. I have been posting about that here, so you don’t even have to read the Wall St. Journal to know about that.
The credit rating agencies made the whole thing possible with their incompetence. They rated used toilet paper as triple A investments. There is no punishment for this either, because they have a Congressional REGULATED oligopoly. They continue to have buyers for their services because there is no choice to dump them (once again due to REGULATION).
Landcrusher: Sorry, you are both wrong.
My mistake. Thank you for explaining that.
Ron Paul is a gynocologist. I would no sooner trust him for an economic opinion than I would expect Hank Paulson to give a woman a pap smear. If anything, Paulson would be better qualified to switch over to the stirrups than Ron Paul would be to comment on anything beyond his checkbook balance.
It’s a shame that political ideology gets in the way of so many peoples’ ability to understand what is going on. Allow me to cast aside slavery to political religion and get to the heart of the matter.
Finance 101: There is an established correlation between risk and return. The greater the opportunity for return, the greater the risk. A great stock picker finds ways to arbitrage risk (to find relatively low risk stuff that is priced lower than it should be), but by definition, most will not do this.
Banks used to be boring businesses. The deregulation of the business, combined with the expansion of global equity (stock) markets, created pressure for banks to earn higher returns. The creation of enablers such as credit default swap providers allowed them to do it to extremes.
That’s important to remember. The way to generate higher returns is to take on more risk. That’s exactly what the banks did, and now we are all paying for it.
No politician can change this. Here’s the lesson of 2008 — banks and major financial institutions have no business taking on great risks, that is antithetical to their role in the economy. Banks should be conservative, low profit institutions that do not behave like internet companies, satellite radio providers or coffeehouses by taking big risks in the market.
Unlike Sirius-XM or Starbucks or Yahoo, the banks cannot be allowed to fail, because their failure can make the rest of the economy fail. The world cannot afford global economic collapses, no matter what the theorists may claim.
Like it or not, their pursuit of risk forces us to socialize the losses. While it is not possible or even desirable to eliminate all risk, their risks need to be capped and managed.
Don’t allow political drum beaters to rewrite this basic principal of finance. It’s like gravity — if you try to defy it, you’re going to fall quickly and end up dead.
John Horner: The massive speculative market in derivatives turned Wall Street into a big fancy casino. These instruments are what brought Lehman Brothers crashing down, not loans to the poor in bad neighborhoods. Far more money went into condo flipping schemes in Florida then went into putting unqualified poor people into houses.
If credit standards had remained tight, the speculators wouldn’t have received loans, either. As I said, the lax lending standards soon spread throughout the entire sector.
The claim is that deregulation caused this mess. One root cause that started the whole mess was government pressure – through a strengthened Community Reinvestment Act – to expand credit availability to the poor. Soon banks and Wall Street thought that they could make money off of this, and then standards went out the window for everyone.
The call is for “more regulation.” I guess that would mean that we return to those pesky loan lending standards that financial insitutions were using prior to the early 1990s…
In essence PCH, I agree with you on this.
Banks HAVE to be regulated. Regulation on them should be to force them to be conservative in their risk taking and business models.
Brokerage houses should not be gambling on the outcomes, they should be making money on transactions.
Engineers should run car companies, and their leasing arms should be kept in check.
Much of the technicalities of what makes one company a bank and another insurance and another a broker has gotten all mixed up.
You can call me a drumbeater, if that was your intent, but I see the changes as bad changes in regulation, not deregulation.
Fundamentally, the regulators will NEVER be as smart as the business people. The businesses will always be ahead, because if a regulator figured out how to make a million bucks, he quits his government job. Sure, you have the retired guys doing their duty for public service, but they are WAY outnumbered.
So, the regulations need to be simple, understandable, and only changed marginally and when failure to change is a great risk.
Well, Psy101, thankfully Ron Paul isn’t the only person with brain-power behind these economic ideas. And as we can see right now, the “current system” is working SO well, that the powers that be are considering CLOSING IT ENTIRELY DOWN. They’ve already nationalized most of the banks worldwide and it may even happen here in the US.
Perhaps you would prefer a Chicago machine politician (professing for “change”) as Prez, or a snowmobile shop owner as VP?
Besides, not to put too fine a point on the idea, but a gynecologist at least can fathom (to a degree fathomable by mere man) how something highly complex and mysterious “sort of” works – that’s a great description of someone I’d like to see run the country, economically speaking….
Honestly, I think I’d prefer to grab an Escanaba, Michigan phone book and pick names at random, to put in control of the Congress and Administration, and we’d do better that the bunch we’ve got.
Ron Paul isn’t the only person with brain-power behind these economic ideas.
OK, so they’re all wrong then. Good for them.
It’s a shame that people refuse to learn their lessons. The lesson here is that political ideology has no place in economic policy, because what we may want or not want from our government has nothing to do with the proper management of the monetary system.
I will repeat my point, because it is a fundamental demonstrated fact and not an opinion — risk and return generally correlate. This is an inescapable fact that must be dealt with. Nobody who fails to understand this has any business tinkering with our economy.
This is not a time for politics. I refuse to see the economic system destroyed because political clerics want to prove some point. Right or left, up or down, it makes no difference to me — politics does not belong in the analysis. Not at all.
pch101: This is not a time for politics. I refuse to see the economic system destroyed because political clerics want to prove some point. Right or left, up or down, it makes no difference to me — politics does not belong in the analysis. Not at all.
I’ll just leave it at this…the next few months are going to be very challenging for our nation. The government’s actions don’t appear to be propping up the stock market; it looks as though a GM bankruptcy is inevitable; and on an anecdotal level, I know of no one who is planning a major purchase – if anything, they are cutting things to the bone (even if they are employed and not having mortgage problems).
Whoever “wins” in November is going to have his hands full.
The government’s actions don’t appear to be propping up the stock market
Unfortunately, we have developed an instant gratification society that wants immediate results. That flows into the dumb money which is currently fleeing the markets.
That sort of immediacy is not possible. If it was, this would never have gotten this bad in the first place, because we could have pushed a few buttons long before we got here.
Markets tend to overreact, in both directions. That’s one reason why they surge and dive, because a lot of people buy high and sell low during the extremes.
The government needs to fix the credit markets, and to control the emotions of the stock markets just enough to keep them from creating a stampede. The liquidity plans need time to work, but once they kick in, they should ultimately be effective. Once it becomes obvious that the banks are going to loan again, the stock markets will respond accordingly. Stocks will be the lagging indicator for this, not the leading one.
pch101: This is not a time for politics. I refuse to see the economic system destroyed because political clerics want to prove some point. Right or left, up or down, it makes no difference to me — politics does not belong in the analysis. Not at all.
If you mean that no one should be using this as a chance to gain turf in the contest for political offices, then I agree. If you think that we should be abandoning our principles, then I do not. I don’t expect Dennis Kucinich to change his, mind on what sorts of things will work or are best, and though I almost always disagree with him, I value his opinion. He believes what he says. OTOH, there are guys who run around trying their best to appear non partisan when that is all they ever do except when they are trying to get something for their constituents at the cost of the country.
If you think that we should be abandoning our principles, then I do not.
I don’t see what principles are at risk here. There’s nothing particularly patriotic about allowing bankers to do stupid stuff with will inevitably become our money.
In my view, an effective system would put constraints on the kind of stupidity that can destroy the rest of us, so that the likelihood of stupidity turning into action is low. We can’t force them to be smart or good, but we can make sure that their greed, ignorance or lack of restraint don’t hurt us.
So, Pch101, having actual gold-backed money in your hand (or better yet, gold and silver in your hand) with no fractional banking, no mysterious back room deals and so forth – as prescribed by many who follow Ron Paul and others – is in contrast or against what you just wrote?
Seems to me that if you go back to absolute basics in economics, that honest, sound money without it being manipulated, inflated (which is only slow theft of the people), or illegal/un-constitutional taxation (which is only fast theft of the people), then an economy can flourish.
Think of foundations of a home built on a rock (honest) rather than sand (lies).
Seems to have worked pretty well for thousands of years, off and on. It appears to me that when people behind curtains pull levers to and fro, that’s when things end up looking like a train wreck….
psarhjinian :
It’s pandering to the intellectual insecurities of the average voter. And it’s sets an awful, awful social precedent.
I don’t think it’s pandering. Academics often make horrible leaders. They’re not the type of people you want to share a foxhole with.
Truman, JFK, LBJ, Nixon, Reagan, Bush43 were leaders and politicians.
Carter, Bush41, Clinton, Gore, Kerry were politicians.
Well, that answers my question, PCH. Politics has a broad meaning. You apparently meant it in the way which doesn’t include principles and ideology, only the more base arena of wrangling for position.
Gold standards are simply wrong, wrong, wrong. They cause depressions.
During the 19th century, the US experienced several depressions because of its gold standard. When there is a gold standard, governments effectively have zero control over their monetary systems. They cannot create liquidity, so their economies collapse during times like this.
If you want to learn from history, learn from that. There is a reason why we haven’t had a depression in many decades. If we had kept a gold standard, you would have already lived through a few of them. If these guys play it right, you won’t have to live through one at all.
Hope you’re right, Pch101. Hope you’re right. NOBODY wants a depression.
Thanks for being in on the discussion, and to everyone else, too.
What’s really nice about TTAC is that the B&B are generally so civil. Nobody’s been on hear “shooting at the messenger because they didn’t like the message” (me).
I think recessions are cyclical, depressions are screw-ups, but I’m no expert.
Back in 1979 I recall people saying “the difference between a recession and a depression, is whether you have a job or not.” (I was in Michigan and Michigan nearly collapsed – over 50% unemployment in Flint, for example).
I don’t think it’s pandering. Academics often make horrible leaders. They’re not the type of people you want to share a foxhole with.
I think people are misunderstanding me: I’m not saying that leaders should be academics, but that we shouldn’t be automatically discounting people because they’re smarter than average, or promoting stupidity–or at least the theatrical down-homeishness that masquerades as it–as some kind of virtue. It bothers me that, according to much prevailing public-relations thought, intelligence, or at least the appearance of it, is a detriment. It means, by inference, that we value stupidity.
Again, I’m not saying that only smart people should be leaders, but that it shouldn’t even be on the table, let alone be the prima face reason for discounting someone.
To your example: sharing a foxhole is not the same as being the executive leader of a country because there’s a big difference between tactical and strategic leadership. I wouldn’t want someone in a foxhole thinking about the overall front and it’s progress over the next years, but I also wouldn’t necessarily want a paratrooper deciding troop placement and resource allocation for a hundred thousand troops over a five-year engagement.
Granted, the two skills aren’t mutually exclusive, but people tend to be strong in either one or the other (unless you’re a GM Director, in which case you probably are equally bad at both). I would hope that a president or elected federal politician or senior captain of industry would be strong strategically, with good tacticians working under him/her.
What I am seeing more often in politics and industry, is that we’re picking people who make us feel good about ourselves, not people who are necessarily good leaders.
menno,
I believe the saying you are looking for is, “A recession is when your neighbor loses his job, a depression is when you lose your job.” (or something like that).
You are correct that this is a great place to have a decent discussion for folks who are capable of it.
Psar,
I agree with your basic point. Surprise! Anti-intellectualism goes too far in the US.
PCh,
And, you are correct about the gold standard. Gold standards allow wealthy folks too much power. Under a gold standard, manipulators can play some awful tricks. Our present system may not be ideal, and it may violate the KISS principle, but I still prefer it over a gold standard.
Truman, JFK, LBJ, Nixon, Reagan, Bush43 were leaders and politicians.
Carter, Bush41, Clinton, Gore, Kerry were politicians.
I think you’re equating showmanship and salesmanship with leadership, especially in the case of Reagan and GW Bush (and possibly Johnson). It’s actually part-in-parcel with anti-intellectualism.
Now, they’re not bad leaders per se, but their strength was selling an ideological package, not necessarily making the unpopular-but-necessary changes that a leader sometimes must. Bush is about the worst example of this: his administration’s worst mistakes were the result of his inability to lead and direct his cabinet; instead, he became responsible for selling his colleague’s policy to Americans.
He’s like an inverse Jimmy Carter, in that respect. Carter just looks better and better as time wears on; GW Bush is assuredly going to look worse and worse.
I certainly think you have HG Bush and Clinton in the wrong place; possibly Nixon as well. Both deserve a lot more credit than they commonly receive from their detractors, and for much the same reason: they did make some principled if unpopular and unpleasant choices. Clinton and Nixon suffer for being morally compromised, but HG Bush gets a raw deal from public opinion for no reason I can really determine, other than that he got stuck with Reagan’s legacymess. I think he, like Carter, is going to look better with time.
psharjinian: I think you’re equating showmanship and salesmanship with leadership, especially in the case of Reagan and GW Bush (and possibly Johnson). It’s actually part-in-parcel with anti-intellectualism.
The only problem with your theory is that President Kennedy (and his immediate family) in many ways invented the modern concept of showmanship as a large part of the presidency. And part of the image created by that showmanship was his intelligence and “sophistication.”
People forget that during the famous televised debates, people who watched the debates on television thought that he had won, but those who listened to it on the radio thought that Nixon had won. Kennedy used his family’s money, his showbiz connections (his sister Patricia was married to actor Peter Lawford) and his good looks to create an aura of youthful glamor.
Kennedy’s appeal was based on his supposed intelligence and sophistication, even though a large part of that was because of his wife, who was smarter than he was and more sophisticated about things like the arts and history.
psar, psar, psar,
There you go again…
Reagan was a great leader. As a military officer, I studied leadership. He had all the traits down just fine. If you didn’t like his ideology, that doesn’t disqualify him. He also pushed some unpopular stuff, but he made it popular using great communication and influence.
Obama has much of the stuff to become a Reagan, except he is tragically flawed. He isn’t ready. He hasn’t earned the top office, and he doesn’t have the humility. I am afraid he may melt down at a bad time. He really, really needs seasoning and a chance to run something other than a campaign. He doesn’t know his limits.
Nixon was flawed in many ways. Primarily, he really wasn’t a leader. He knew how to act like one, but he really wasn’t one. It’s a fine line between wanting to lead, and really accepting leadership as a duty involving self sacrifice.
Carter looks better and better? What gives you that idea? The guy was a micro manager. A wonderful human being in most ways, but he rose above his ability. Knowing your own limitations is a key leadership trait.
Bush 43 has a lot of good leadership traits, but he is flawed in that he believes too much in abandoning principle for consensus. It must sometimes be done, but it’s not meat and potatoes. I don’t believe 41 or 43 was ever a conservative at heart. Certainly not a small government conservative. If they didn’t have the Texas connection, they would never have made it to office.
Lastly, being morally compromised is a tragic flaw for government and military leaders. Business leaders should be able to get away with violating many traditional western civilization taboos, but not those in government. You can’t do it without getting caught anymore, so doing it is simply a sign of bad judgement.
The only problem with your theory is that President Kennedy (and his immediate family) in many ways invented the modern concept of showmanship as a large part of the presidency.
Oh, it goes back further than that. Much further. Harrison and Jackson come to mind, but there’s a lot of precedent when it comes to showboating in American politics. This is the country that saw David Crockett as a Senator.
Giving showboating credence as a leadership attribute can lead to some unfortunate excesses. Politics may be showbusiness for ugly people, but you don’t want to let it get too far.
It’s hard to say much about Kennedy: we really didn’t get much of a chance to know him. The handling of the Cuban Missile Crisis is about the only test we have, and there’s a lot of debate as to what actually happened. But I wouldn’t credit him with starting the Presidential cult of personality.
geeber: Which is precisely why we have the electoral college. The Founding Fathers did NOT want the U.S. to be a pure democracy.
Look, I admire the Founding Fathers as much as the next guy, but is it too early to say that MAYBE they got some of the details wrong? Are we forever going to be looking back at what the intentions of the Founding Fathers were? How about we step up to the plate and think for ourselves? Or is that too radical?
geeber: The electoral college seeks to prevent this from happening on a national scale. If we did abolish it, then what you complain about as a California resident versus the residents of San Francisco would happen on a national scale to residents of, say, Idaho, Wyoming and Delaware versus residents of California, New York, Texas and Florida.
Too bad Idaho, you’re part of the union! WY and DE, that’s called democracy. Is it my imagination, or are these three states getting ignored anyway? So remind me again, what good is the electoral college doing?
Surely having OH decide who the next president is is neither sensible nor what the Founding Farthers intended.
geeber: The fraud in places like Chicago (and Philadelphia) goes far deeper than getting a few drunks to vote multiple times.
Still irrelevant in the big picture.
John Horner: Rather than trying to ditch the electoral college, I would suggest a system where each state awards it’s electors proportionally by congressional district along the lines of what Maine and Nebraska do rather than the winner takes all scheme in place everywhere else. The overall winner of the state there still gets the two electors who are analogous to the Senators, so there would still be some bonus for taking the overall win in a state.
This works for me. Of course, a bunch of Republicans tried to get CA into this system, but the Democrats killed it. In fairness, doing so in CA only would have made it almost impossible for Obama to win, at least until the economy blew up. John, is there a way to do this on a national scale?
Pch101: Like it or not, their pursuit of risk forces us to socialize the losses. While it is not possible or even desirable to eliminate all risk, their risks need to be capped and managed.
Pch, I actually agree with much of what you are saying, for a change. Except this paragraph. Won’t it make more sense to force the players to have enough chips off the table, so that they can afford losing everything they choose to gamble? I don’t see the need to socialize the losses.
Oh yeah, on Ron Paul, I don’t know about you, but I’d rather see him in control of the economy, than trust Hank Paulson with the reproductive functions of any woman I know.
BTW, have you bought any Ford stocks (lately)? Now would be a good time to get ’em, what with oil dropping to 50% of its previous high…
psarhjinian :
Giving showboating credence as a leadership attribute can lead to some unfortunate excesses. Politics may be showbusiness for ugly people, but you don’t want to let it get too far.
We live in a celebrity age. What can you do?
What really grinds my gears are lame, ditz-level media questions that begin, “How do you feel about…”
The reply ought to be:
“My feelings are irrelevant. It’s what I think that matters. Next question!”
psharjinian: It’s hard to say much about Kennedy: we really didn’t get much of a chance to know him. The handling of the Cuban Missile Crisis is about the only test we have, and there’s a lot of debate as to what actually happened. But I wouldn’t credit him with starting the Presidential cult of personality.
He adapted it to the television age, and carried it to new heights. With Truman and Eisenhower, what you saw (in public) was essentially what you got (in private). Kennedy skillfully used the media, his family, his wife and his own public relations to create an image…and a big part of the appeal was his supposed intellectualism.
Engineer: Look, I admire the Founding Fathers as much as the next guy, but is it too early to say that MAYBE they got some of the details wrong? Are we forever going to be looking back at what the intentions of the Founding Fathers were? How about we step up to the plate and think for ourselves? Or is that too radical?
I don’t see where they got this one wrong. And, yes, we should be looking back to what the intentions of the Founding Fathers were. The point was to design a system that does not always submit to the “tyranny of the majority.” I’d say that it has worked pretty well, and continues to do so. Minority viewpoints often deserve protection.
Engineer: Too bad Idaho, you’re part of the union! WY and DE, that’s called democracy.
We don’t live in a pure democracy…and I’d like to keep it that way.
Engineer: BTW, have you bought any Ford stocks (lately)? Now would be a good time to get ‘em, what with oil dropping to 50% of its previous high…
I think that Ford is more likely to survive than GM, but at this point, I would only invest in Ford money that I can afford to lose.
Well whatever. All I can say is that I’d rather have the tyranny of the majority than the tyranny of OH, FL, PA or the like. It makes no sense to have a handful of states in this powerful position just because they happened to end up with roughly a 50:50 split between the two parties.
Not sure what makes you so fearful of a true democracy. That’s afterall the model the US exports to everyone else. Kinda like the IMF/World Bank model: Do as we say, not as we do!
I thought we were talking about cars…………..?
Damn,I can read this s_ _ _t on many other forums…
Everyone seems to find someone to blame,but really the blame is on us!
WE elect our representatives(good or bad)
WE decide to mortgage our homes to the stratosphere.
WE decide to buy SUV`S
WE want whats best for our kids,if the taxes/tuition don’t interfere with our car payments!
WE want a strong military..as long as they are ‘boy scouts’
WE want to retire millionaires!
WE,WE,WE bought into this mess,hook,line and sinker!
maybe its time to trade down the mortgage you cant afford(sorry if you loose your house)the car payments that you make on your Audi,Mercedes,Lexus,Saab…even a $40,000 Hundai,and spend the money living!
Yea,living…real world!
Spending time with your family,friends,relatives!
Talk about the issues with them!
Realize that the American Dream is A state of mind,not a GIVEN RIGHT to intercede when you fuck up!!!
I`v said too much,and I`m sure I`ll get a little note from Robert…
Wow, there’s a lot of information and insight in these comments. And to think that my wife assumes I’m not learning anything while surfing forums…
As a Ron Paul supporter (at least we tried), I have to say that he is much more involved (several decades) and knowledgeable in economics than Paulson in gynecology. Come on guys, even Wikipedia will tell ya that. Paul is just too radical for most of America. They don’t want to hear about eliminating these huge institutions (read: money/power) that we’ve all grown so accustomed to. There is a lot to recommend in someone like him who has, for years, stuck to his guns and has a common-sense approach to things like the ridiculous War on Drugs, the behemoth that is the IRS, the so-called Department of Education, etc.
There is far too much hidden in the mind-numbing details of legalese than can be deciphered by most of America. We trust someone’s reading the fine print. Well, looks like they’re not. Or if they are, they’re in bed with those that they are supposed to be regulating for us.
I agree with certain regulations – what is government but that in its essence? It is when these regulations are an impediment (Sarbanes/Oxley) to doing business that they become ridiculous – like many government agencies themselves that seem to exist only to complicate and mire the process in red tape.
As for the candidates, I cringe to vote for someone so liberal as Obama, but can’t bring myself to vote for that train wreck of a ticket that is McCain/Palin. That just scares me too much.
I have to say that he is much more involved (several decades) and knowledgeable in economics than Paulson in gynecology.
From what I’ve read of Paul, I’d feel far more comfortable with Hank Paulson’s scrutiny of female private parts than I am with Paul’s notions about the economy.
Here’s a suggestion — run like hell from anyone who starts prattling on about “fiat money.” Or if you are unable to flee quickly enough, quiz them instead about US economic history and see if such people realize how many depressions that the US has had and how gold standards contributed to their occurrence.
Unlike Paul, Ben Bernanke has studied the history of economic downturns, so he has a strong sense of the mistakes made in the past. There is a reason why the Treasury is doing what it is doing now, and why Bernanke supports it.
Ron Paul clearly doesn’t comprehend any of this stuff. I wouldn’t want him to be president of the local chess club, let alone the one in the White House.
Thanks much to those, such as geeber and Phil, who submitted comments that are well-informed and reasoned. So many Internet comments are just recitations of politicians’ campaign talking points.
For further understanding of how people keep getting into messes like the current one, Charles MacKay’s “Extraordinary Popular Delusions and the Madness of Crowds” is useful.
Rating agencies have come in for a lot of criticism, and understandably. They really blew it. But how about the experts that annually spend weeks if not months scrutinizing the books of AIG, Washington Mutual, et al, looking for signs of trouble? Did any–even one!–independent auditor warn in Spring 2008 that AIG, Washington Mutual, etc. were at great risk of collapsing in the near future? None I’m aware of.
I just wanted to say that I enjoyed reading this discussion and learned a lot. History is fascinating, and this gives perspective to the current economic situation.
Sorry but for all the moronicus running about in our economy, there is still a heaping portion of us old fashioned debt hating types.
“I thought we were talking about cars…………..? Damn,I can read this s_ _ _t on many other forums…”
I would love to find another place that is even a tenth as civil as this one. If folks want to talk about the economy here, I’ll enjoy the reading. A lot of bright minds visit this place and I welcome the mind-meld.
“Everyone seems to find someone to blame,but really the blame is on us!”
BS… most of the folks in my neck of the woods don’t do the things you mentioned from this point forward. I’ll spare you the details except to say that most of the people in my neighborhood are not the ostentatious Joneses of the popularized media. Why we here in Deliverance, Georgia proudly display our pimped out clotheslines, our occasional bouts of hygiene, and always arrange our picks in proper working order (guitar, tooth, nose).
“Talk about the issues with them!
Realize that the American Dream is A state of mind,not a GIVEN RIGHT to intercede when you fuck up!!!”
I find a well thought out answer goes far further than caps, exclamation points, and grammatical mistakes ad nauseum. Your mindset may obviously vary. But then again, I think Billy Carter used to write like that. On second thought you may want to run for mayor in my town. The last one got greased for too much moonshine and shooting an angry rabbit that had once chased former President Jimmy Carter. Unfortunately, the rabbit represented all of our tourist dollars and worked for cheap as the local hedge fund manager. From what I hear we’ve got all our savings invested in the great commodities of carrots and cabbage.
If it fails we’ll all here be waiting for the ‘Great Bunny Bailout’.
Landcrusher:
Maybe we should all stop paying so much attention to Presidential contendors, and pay more attention to the real problem – Congress. Try thinking of a serious problem that we have had over the last eight years that Congress didn’t have a hand in. If you can find one, ask yourself if Congress did anything worthwhile to stop it either.
Landcrusher is a genius. I thought about this a long time ago, the president is only one person and congress is supposed to slow him down if he’s doing a terrible job. We can see that hasn’t been done. It may not do anything, but I’m not voting for any incumbent politician, they’ve done a crappy job.