Have Financial markets gone socialist

[YellowLinesandArmadillos]

So much for all those free market traders. I am glad that the financial markets were helped, a guess Keynesian principals work!

[molson_golden2002]

A half hour and no replies yet?

[YellowLinesandArmadillos]

A half hour and no replies yet?

Yeh I know, trying to provoke doesn't work anymore. It is no fun Back to editing photos, still have a couple of hundred to go.

[John Adams]

Seems like this is a loan. The econ geeks can fill this in but it seems like AIG's problem is more one of liquid, not of having assets. The panic is forcing it to liquidate a lot of assets and it can't do it fast enough so the gov't loaned it cash while it sells off the assets. It's not a great solution to be sure, but from what I read, the taxpayer won't likely be stuck with this one.

 

If the Dwight Drane's of the world would calm the !@#$ down, the market would calm down too.

[YellowLinesandArmadillos]

Seems like this is a loan. The econ geeks can fill this in but it seems like AIG's problem is more one of liquid, not of having assets. The panic is forcing it to liquidate a lot of assets and it can't do it fast enough so the gov't loaned it cash while it sells off the assets. It's not a great solution to be sure, but from what I read, the taxpayer won't likely be stuck with this one.

 

If the Dwight Drane's of the world would calm the !@#$ down, the market would calm down too.

I here you, I don't fully understand the ins and outs of all this other than someone figured the good make bank by creating panic while shorting a lot of these ill liquid financials. the rules allowed them to get this way and the shorters to induce selling. Nice work, sounds like an Enron debacle only sanctioned. Wonder if any heads will roll.

[OCinBuffalo]

Is the government going to regulate prices of AIG products, and all other insurance/capital companies? Are they going to regulate the wages of AIG employees? How about the wages of all the other financial institutions who didn't over-extend themselves?

 

If you answered no to any of those questions, then, by definition, there is no Keynesian model here. Moreover, the government won't be buying AIG insurance, nor will it be hiring AIG financial planners any time soon, which again, by definition, is contrary to Keynesian economic theory.

 

So this is in fact, by definition, a silly comparison. IMO, sticking to one economic ideology for the sake of the ideology, instead of thinking about the best way to solve the problem is also silly. So often I see silly comparisons like this and so often they are based on some tool trying to appear "right".

 

The simple fact is: our government bails out plenty of companies, all the time, no matter who is in charge. Airlines anyone? Why? Because it saves jobs and it basically makes sense. The momentum and diversity(now - mostly due to massive amount of small businesses) of the US economy means that one or two companies, or even one or two vertical industries, will not be able to haul down the rest, no matter what. So, the government basically acts like a medic, patches up the bad company, and puts them back in the game. In 2 years, nobody knows the difference, except for the middle/top management(usually the middle gets blamed) who end up in new jobs or forcibly retired. If all the money gets paid back, which it obviously will, we are talking a 33 country outfit in AIG's case, it will be like it never happened at all.

 

How many airlines are still in business? How many have been bailed out? How many times? Why does it happen to certain airline companies and not others?

 

Why does Southwest beat their competition and never need a bail out? Easy one. Southwest has no fixed wages...because it has no collective bargaining agreement...because it has no employee union. ONCE AGAIN, we see the fact that the LEAST socialist business model has the MOST success. Southwest is an object lesson in treating your employees well, thereby removing the need for a union. In fact, Southwest treats its stars like stars, its duds like duds, which is the very reason unions were started in the first place.

 

The stars didn't want to be paid the same as the duds, which is as non-Keynesian as you can get, because they sell their labor freely, without forced regulation or limitation. Free trade has been, is, and will always be superior to John Maynard's fanciful ideas under normal circumstances.

 

In fact, his ideas belong in a glass case, labeled: "Break only after an all-out war, where one side destroys the other's economy, and then over-extends itself to FUBAR levels and an inevitable crash occurs". Essentially: break only if the year is 1932 AD.

[pBills]

Yeh I know, trying to provoke doesn't work anymore. It is no fun Back to editing photos, still have a couple of hundred to go.

 

 

 

Now editing photos sounds like fun. Yikes!!

[YellowLinesandArmadillos]

Is the government going to regulate prices of AIG products, and all other insurance/capital companies? Are they going to regulate the wages of AIG employees? How about the wages of all the other financial institutions who didn't over-extend themselves?

 

If you answered no to any of those questions, then, by definition, there is no Keynesian model here. Moreover, the government won't be buying AIG insurance, nor will it be hiring AIG financial planners any time soon, which again, by definition, is contrary to Keynesian economic theory.

 

So this is in fact, by definition, a silly comparison. IMO, sticking to one economic ideology for the sake of the ideology, instead of thinking about the best way to solve the problem is also silly. So often I see silly comparisons like this and so often they are based on some tool trying to appear "right".

 

The simple fact is: our government bails out plenty of companies, all the time, no matter who is in charge. Airlines anyone? Why? Because it saves jobs and it basically makes sense. The momentum and diversity(now - mostly due to massive amount of small businesses) of the US economy means that one or two companies, or even one or two vertical industries, will not be able to haul down the rest, no matter what. So, the government basically acts like a medic, patches up the bad company, and puts them back in the game. In 2 years, nobody knows the difference, except for the middle/top management(usually the middle gets blamed) who end up in new jobs or forcibly retired. If all the money gets paid back, which it obviously will, we are talking a 33 country outfit in AIG's case, it will be like it never happened at all.

 

How many airlines are still in business? How many have been bailed out? How many times? Why does it happen to certain airline companies and not others?

 

Why does Southwest beat their competition and never need a bail out? Easy one. Southwest has no fixed wages...because it has no collective bargaining agreement...because it has no employee union. ONCE AGAIN, we see the fact that the LEAST socialist business model has the MOST success. Southwest is an object lesson in treating your employees well, thereby removing the need for a union. In fact, Southwest treats its stars like stars, its duds like duds, which is the very reason unions were started in the first place.

 

The stars didn't want to be paid the same as the duds, which is as non-Keynesian as you can get, because they sell their labor freely, without forced regulation or limitation. Free trade has been, is, and will always be superior to John Maynard's fanciful ideas under normal circumstances.

 

In fact, his ideas belong in a glass case, labeled: "Break only after an all-out war, where one side destroys the other's economy, and then over-extends itself to FUBAR levels and an inevitable crash occurs". Essentially: break only if the year is 1932 AD.

 

What you described is a socialistic model of government running the economy not Keynesian. Keynesian econ is one of intervention to take the edges off downturns and have rules in place to avoid excesses of downturns. Laissey Faire or Free Market is let them all fail and the market will eventually correct itself.

[OCinBuffalo]

So much for all those free market traders. I am glad that the financial markets were helped, a guess Keynesian principals work!

Well, you got your response, I guess "there's no reply at all", once again.

 

How many more times do we have to repeat this lesson?

 

There is a reason why we keep batting averages rather than single game or single at bat stats. Keynesian Theory is batting about .100 for the last 50 years. Supply side is batting about .250. Free trade however, whether you like it or not, is batting about .750 directly due to its uncanny ability to prevent full-scale war, open markets, reduce inflation, and INCREASE the earning power of the world's poor. That's right, it helps the poor. Anybody who wants to help the poor CANNOT, by definition, be against free-trade. And I am talking the real poor here. The definition of "poor" people in this country is fanciful at best. If poor means you have to work 60 hours a week at minimum wage, you are doing better than 85% of the rest of the worlds poor.

[YellowLinesandArmadillos]

Well, you got your response, I guess "there's no reply at all", once again.

 

How many more times do we have to repeat this lesson?

 

There is a reason why we keep batting averages rather than single game or single at bat stats. Keynesian Theory is batting about .100 for the last 50 years. Supply side is batting about .250. Free trade however, whether you like it or not, is batting about .750 directly due to its uncanny ability to prevent full-scale war, open markets, reduce inflation, and INCREASE the earning power of the world's poor. That's right, it helps the poor. Anybody who wants to help the poor CANNOT, by definition, be against free-trade. And I am talking the real poor here. The definition of "poor" people in this country is fanciful at best. If poor means you have to work 60 hours a week at minimum wage, you are doing better than 85% of the rest of the worlds poor.

 

I think you misunderstand my response, I was being sarcastic. I understand fully Laissez Faire econ. Don't think you understand Keynesian. Supply side econ only works when money supply is too great because it doesn't increase the velocity of money and slows growth by putting cash in the hands of too few who don't in fact spend at the rates necessary to create growth. It does help with capital investment and so I don't discount it totally. Sometimes incentives for capital investment are important when the pendulum has swung too far. Keynesian econ is suppose to be toned down short term intervention policy to take the edges off the wild swings of Laissez Faire Capitalism.

[OCinBuffalo]

What you described is a socialistic model of government running the economy not Keynesian. Keynesian econ is one of intervention to take the edges off downturns and have rules in place to avoid excesses of downturns. Laissey Faire or Free Market is let them all fail and the market will eventually correct itself.

Wrong on the Keynesian definition, and we haven't used laissez faire since the Great Depression, and we aren't now, nor have we been since Bush has been in office, as you, lamely, suggest.

 

I exactly described the Keynesian model = regulation, taxation, and spending. A Keynesian:

 

1. Attempts to set price and wages, albeit roughly at best, through regulation.

2. Limits profits through taxation, supposedly thereby "fostering competition"(some of what Keynes said makes sense, this does not, because it is completely free of the concept of using profit for R&D = better, more competitive products. No surprise that he missed this, you would too if you were Keynes and were living in those times).

3. Competes with existing business(because it has all mostly failed in 1932) to buy products = government spending, even when it doesn't have the money. Thus, this government-based, Demand-Side Economics means the government creates false demand for products by buying things it otherwise doesn't need.

 

So again, I ask you, is the government going to do any of 1-3?

 

The answer is no, and the comparison remains as I said = silly.

[YellowLinesandArmadillos]

Wrong on the Keynesian definition, and we haven't used laissez faire since the Great Depression, and we aren't now, nor have we been since Bush has been in office, as you, lamely, suggest.

 

I exactly described the Keynesian model = regulation, taxation, and spending. A Keynesian:

 

1. Attempts to set price and wages, albeit roughly at best, through regulation.

2. Limits profits through taxation, supposedly thereby "fostering competition"(some of what Keynes said makes sense, this does not, because it is completely free of the concept of using profit for R&D = better, more competitive products. No surprise that he missed this, you would too if you were Keynes and were living in those times).

3. Competes with existing business(because it has all mostly failed in 1932) to buy products = government spending, even when it doesn't have the money. Thus, this government-based, Demand-Side Economics means the government creates false demand for products by buying things it otherwise doesn't need.

 

So again, I ask you, is the government going to do any of 1-3?

 

The answer is no, and the comparison remains as I said = silly.

 

Ok, I respectfully disagree, I think your definition is one of Socialism, not Keynesian.

 

I know how we all feel about wiki, but here is its definition in short:

 

http://en.wikipedia.org/wiki/Keynesian or PBS

http://www.pbs.org/wgbh/commandingheights/...siantheory.html

[molson_golden2002]

Seems like this is a loan. The econ geeks can fill this in but it seems like AIG's problem is more one of liquid, not of having assets. The panic is forcing it to liquidate a lot of assets and it can't do it fast enough so the gov't loaned it cash while it sells off the assets. It's not a great solution to be sure, but from what I read, the taxpayer won't likely be stuck with this one.

 

If the Dwight Drane's of the world would calm the !@#$ down, the market would calm down too.

I think Alexander Hamilton would have supported this move.

[OCinBuffalo]

I think you misunderstand my response, I was being sarcastic. I understand fully Laissez Faire econ. Don't think you understand Keynesian.

You really want to do this with me? First of all, I have studied the material, use it every day, so I know the concepts as well as, if not better, than you do. So spare me the definitions, I'll stipulate that we both know what the words mean here.

Supply side econ only works when money supply is too great because it doesn't increase the velocity of money and slows growth by putting cash in the hands of too few who don't in fact spend at the rates necessary to create growth. It does help with capital investment and so I don't discount it totally. Sometimes incentives for capital investment are important when the pendulum has swung too far. Keynesian econ is suppose to be toned down short term intervention policy to take the edges off the wild swings of Laissez Faire Capitalism.

1. Supply-Side Econ was a great solution to an immediate problem, no different than Keynesian Econ was. In both cases, they represent EXTREMIST action that had to be taken to correct the mess we were in.

2. Supply-Side only had to be invokes directly due to years of government over-regulation, over-taxation, and over-spending. All three created such a unnatural influence, they found a way to create the infamous Stag-Flation. What was needed was an immediate shot in the arm.

3. I have no idea why you think that, in a period never seen before, or since, of Stag-Flation, that the money supply being "too great" was the disease, and not the symptom. Perhaps I need to re-think my stipulation. Explain this.

4. Again, the Reagan years saw massive growth in the economy. That's the fact. It did work. Like it or not getting immediate capital in the hands of BUSINESS, not individuals, meant that we got the time to re-tool our factories, re-educate our workers, and re-think our management in response to the re-emergence of Japan and Europe. We were living in a dream-land in the 1960's, as evidenced by the realities of the 70's. Basing any economic view on the post war 50-60's is flat out retarded.

 

We basically agree: sometimes you need government intervention one one side, sometimes on the other. It depends on the nature of the problem we are trying to solve. In all cases, saying that one solution framework(BS ideology) cures everything, especially when we are talking EXTREMIST methods, is ridiculous. Both strict Keynesian policy and strict supply side belong on the shelf, only to be used in an emergency, because, as evidenced by history, both are short term solutions. If either is left in play for too long, they both will inevitably create a LARGER problem(Stagflation or Stock Market crash).

 

In all cases, like I said, when things are relatively stable, free trade, minimal taxation and regulation is most likely to keep things that way.

[OCinBuffalo]

Ok, I respectfully disagree, I think your definition is one of Socialism, not Keynesian.

 

I know how we all feel about wiki, but here is its definition in short:

 

http://en.wikipedia.org/wiki/Keynesian or PBS

http://www.pbs.org/wgbh/commandingheights/...siantheory.html

And I will say, respectfully, that what I wrote is right out of my ECON 110 book. What's yours say?

[Dwight Drane]

Seems like this is a loan. The econ geeks can fill this in but it seems like AIG's problem is more one of liquid, not of having assets. The panic is forcing it to liquidate a lot of assets and it can't do it fast enough so the gov't loaned it cash while it sells off the assets. It's not a great solution to be sure, but from what I read, the taxpayer won't likely be stuck with this one.

 

If the Dwight Drane's of the world would calm the !@#$ down, the market would calm down too.

 

 

Do you blame Ron Jawarski for the Bills loss just because he said JP is reckless with the ball at times and then JP goes on throw 3 INT's?

 

I am quite calm....now is the fun part. I did my job trying to tell everyone what was about to happen. Bernanke said in STL himself last week that the Fed is waiting to merge all the big players into a few giant institutions in order to attempt to get a handle on all the Level 3 assets and then regulate what they can of them. All this is now is financial dodgeball where places will be plucked one by one and three by three.

 

Go ask your local GM dealer if they feel good because they have tons of assets yet not much liquidity in the market. Last time I looked they were selling new SUVs and Pickups at 60% retail and still nobody is touching them. Everyone needs to understand it is one in the same at this point. Ain't nobody got no stinkin cash.

 

Bills tickets however....remarkably resilliant in the resale market.

[John Adams]

I am quite calm....now is the fun part. I did my job trying to tell everyone what was about to happen. Bernanke said in STL himself last week that the Fed is waiting to merge all the big players into a few giant institutions in order to attempt to get a handle on all the Level 3 assets and then regulate what they can of them. All this is now is financial dodgeball where places will be plucked one by one and three by three.

 

Yes. We all recall. How are the commodities doing?

 

Go ask your local GM dealer if they feel good because they have tons of assets yet not much liquidity in the market. Last time I looked they were selling new SUVs and Pickups at 60% retail and still nobody is touching them. Everyone needs to understand it is one in the same at this point.

 

SUV and pickup shortage is less about people not having money and more about the reality of gas prices and the stupidity of US manufacturers pinning their hopes on big vehicles. Smaller cars like the Prius are selling for 125% retail.

[YellowLinesandArmadillos]

You really want to do this with me? First of all, I have studied the material, use it every day, so I know the concepts as well as, if not better, than you do. So spare me the definitions, I'll stipulate that we both know what the words mean here.

 

1. Supply-Side Econ was a great solution to an immediate problem, no different than Keynesian Econ was. In both cases, they represent EXTREMIST action that had to be taken to correct the mess we were in.

2. Supply-Side only had to be invokes directly due to years of government over-regulation, over-taxation, and over-spending. All three created such a unnatural influence, they found a way to create the infamous Stag-Flation. What was needed was an immediate shot in the arm.

3. I have no idea why you think that, in a period never seen before, or since, of Stag-Flation, that the money supply being "too great" was the disease, and not the symptom. Perhaps I need to re-think my stipulation. Explain this.

4. Again, the Reagan years saw massive growth in the economy. That's the fact. It did work. Like it or not getting immediate capital in the hands of BUSINESS, not individuals, meant that we got the time to re-tool our factories, re-educate our workers, and re-think our management in response to the re-emergence of Japan and Europe. We were living in a dream-land in the 1960's, as evidenced by the realities of the 70's. Basing any economic view on the post war 50-60's is flat out retarded.

 

We basically agree: sometimes you need government intervention one one side, sometimes on the other. It depends on the nature of the problem we are trying to solve. In all cases, saying that one solution framework(BS ideology) cures everything, especially when we are talking EXTREMIST methods, is ridiculous. Both strict Keynesian policy and strict supply side belong on the shelf, only to be used in an emergency, because, as evidenced by history, both are short term solutions. If either is left in play for too long, they both will inevitably create a LARGER problem(Stagflation or Stock Market crash).

 

In all cases, like I said, when things are relatively stable, free trade, minimal taxation and regulation is most likely to keep things that way.

 

 

Can't argue with anything you just said above. My macro econ 101 book was put away three years ago when I left the Hill, I deal only in balance sheets and maximizing profits as a small business owner now, micro 102.

 

My only question for you is that I thought what you wrote about Keynes was more socialism then Keynesian, how would you differentiate the two or would you?

 

As far as your question on 3 goes, I think that the monetary supply being "too great" is both a solution, but also right now the problem. Money when the real estate market recently became over leveraged and money was still too accessible. There was great political pressure on all sides to keep it this way, but rates should have been raised a lot sooner than they were. The effect would have been to tighten credit requirements earlier and lessened the extent of the current problem. Politically, it probably would have been suicide, Americans were drunk off lots of money at home while the value of dollar was still sky high and changes couldn't have occurred until some negative consequences started happening. Not sure when this should have occurred but sooner than it did.

[molson_golden2002]

Pretty interesting:

 

http://www.washingtonpost.com/wp-dyn/conte...id=opinionsbox1

 

Wall Street as we know it is kaput. It is not just that Merrill Lynch agreed to be purchased by Bank of America or that the legendary investment bank Lehman Brothers filed for bankruptcy or that the insurance giant AIG is floundering. It is not even that these events followed the failure of the investment bank Bear Stearns or the government's takeover of Fannie Mae and Freddie Mac, the largest mortgage lenders. What's really happened is that Wall Street's business model has collapsed.

 

Greed and fear, which routinely govern financial markets, have seeded this global crisis. Just when it will end isn't clear. What is clear is that its origins lie in the ways that Wall Street -- the giant investment houses, brokerage firms, hedge funds and "private equity" firms -- has changed since 1980. Its present business model has three basic components.

[OCinBuffalo]

Do you blame Ron Jawarski for the Bills loss just because he said JP is reckless with the ball at times and then JP goes on throw 3 INT's?

 

I am quite calm....now is the fun part. I did my job trying to tell everyone what was about to happen. Bernanke said in STL himself last week that the Fed is waiting to merge all the big players into a few giant institutions in order to attempt to get a handle on all the Level 3 assets and then regulate what they can of them. All this is now is financial dodgeball where places will be plucked one by one and three by three.

 

Go ask your local GM dealer if they feel good because they have tons of assets yet not much liquidity in the market. Last time I looked they were selling new SUVs and Pickups at 60% retail and still nobody is touching them. Everyone needs to understand it is one in the same at this point. Ain't nobody got no stinkin cash.

 

Bills tickets however....remarkably resilliant in the resale market.

And if this was 1975, you'd be right. But it ain't, so you're not.

 

You are forgetting that so, so, so many jobs in this economy are not based on working for "the man". Small businesses are now the majority in this country in terms of where people work. If anything, the failure of the creditors is likely to help small business, rather than hurt it, because the cost of money is cheap, and everybody needs to generate some loans right now. That makes it highly competitive = low interest rates, and less cost for investment.

 

The biggest strength of small business: it's diversity. Sure there are many that are likely to fail, but there's also many that are likely to pick up their customers and grow. The point is that it's not all based on one or two big companies, and therefore it's not based on unions and union people.--> and this is where this hysteria is coming from.

 

Otoh, Wall Street people always think the sky is falling, or that everybody must be failing, when their own stupidity causes them to fail. The self-absorbed can't help feeling that everything is going to hell, just because what they do is going to hell. But, that part of NYC has been around for a long time. Way, way longer than them, and it will be around loooooooong after they are gone.

 

The smart view is this: no matter who wins the election, their Treasury and Labor Secretaries aren't going to deal with this properly. They will fail massively just like they always have, and then some capital will get organized and start lobbying to buy the assets of these companies. Then, we will have brand new companies, with new acronyms or nicknames, and they will be ready and willing to perpetuate the myth that all Wall Street people are infallible, because of where they go to work, eat and live.

 

Life will go on, and nobody will end up caring one way or the other, because there's always that next deal to work on, and there's money to be made.