The debt crisis in two steps

Let’s take the good old USA’s debt crisis in two steps.

Large nation states spend a lot of money on military defense and offense.  That costs money.  The money must eventually come from taxes.  Collecting taxes requires a fair amount of work, so governments create a big bureaucracy to do it.  And that costs money too.  Of course governments engaged in war seldom leak the precious information as to just how much a war will cost.  At the end of the day some poor stupid son of a bitch gets a tax bill for the whole thing and is totally mystified about the whole structure and process.

The market economy is wonderful right up until the time it fails.  Then it needs to get bailed out for an extravagant sum.  Unfortunately, the bail out gets distributed mostly to those privileged rich folks whose excesses created the failure.  Once again, taxes need to be collected by a large expensive bureaucracy.

If the taxes are not collected, then there is a deficit in the government budget.

There ain’t no such thing as a free lunch.  Why do people get so pissed about paying taxes for the stuff they’ve been given and grown to love and enjoy?  Let’s write it off to human nature.

Welcome to your bailout: “it’s your money–don’t you know

The conservatives just won’t let it go.  They insist President Obama is a socialist.  They forget that leftists, like me, think he is a centrist neo-liberal.  Whether he will return the US economy to a place where there is a broad middle class that shares in the real growth of the economy remains an open question.  Many leftists remain very skeptical.  Include me in that group.

Let’s leave all the political labels out of the discussion though.  Let’s concentrate on what has happened to the US auto companies.  When the economy turned down sharply.  The auto executives did not waste much time getting into their private jets, flying to Washington, and asking Congress for bailout money.  Some of capitalism’s finest hours occur when mighty corporations start to go broke.  They claimed they needed the money to stay competitive in the global economy.  What wasn’t mentioned is that we are in a global recession and all car companies profits are down.  If you can’t afford a Chevy, you can’t afford a Toyota either.

The car companies have gotten their bailout.  However, the Obama Administration has had the gall and temerity to take a stakeholder position in how that money is used even up to globally restructuring the industry.  Geez, that the taxpayer footing the bill for the auto company bailouts should have a stakeholder position via their elected officials consists of nonsense to conservatives, yet a supremely equitable arrangement to the rest of us.  Some us like to have some control over where our tax dollars go and want someone who is accountable for seeing that it cures the ills of those who get the money.

If I buy shares of common stock of General Motors I get voting rights with that stock.  I can also vote with my fingers and dump the stock with a few clicks of the computer keyboard.  Of course, for the small shareholder those voting rights are a sham since those votes don’t carry much weight, but at least it is something.  Let’s take the large institutional investors instead.  When billions of their dollars are at risk, you can damned well bet they’ll step in and take control of the Board to assure whatever restructuring needs to be done will be done.

Conservatives always have convenient memories when it comes to the rules of capitalism.  The rules they glory in when the cash is flooding into the coffers during the boom times change when spigot shuts off.  The simple matter regarding the auto companies is that the US government, hence, the US taxpayer is now the major stakeholder in those companies.  Asserting stakeholder rights and demanding accountability is prudent financial management.

In the words of President Bush, “it’s your money–don’t you know.”

Drunk on cheap interest rates

Today’s NY Times has a nice succinct article on the US economic relationship to China and the latest financial bubble. See Chinese Savings Helped Inflate American Bubble.

Live Nude Market Fundamentalism

Well, market fundamentalists have had to swallow some bitter pills.

• Meltdown in the financial markets caused by unregulated speculation in subprime mortgages.
• Executives of failed companies receiving multi-million dollar bailout packages while thousands of Americans have been thrown out of work with nothing for compensation.
• Greenspan testifying before Congress that he was wrong about markets ability to regulate themselves.
• Paul Krugman, mainstream liberal economist and harsh critic of the Bush Administration, wins the Nobel Prize for Economics.
• The second recession during the Bush administration, only this time much more severe.

Paul Krugman points out that this should be a time when Obama rolls back the policies of market fundamentalism and greed, and implements progressive policies that at least attempt to obtain broader prosperity for all Americans.

As for McCain, he was so busy catering to the fractured interests of the once vaunted Conservative Coalition he had no chance to respond to the failures of market fundamentalism. Of course, he never once suspected that greed is not always good.

Bailed out?

The quick and complete unraveling of the financial markets has been painful to watch, yet fatalistically fascinating too. Poor President Bush. This is the second time he has been the doe caught in the headlights of a financial panic. Whether earned or not (and I believe it to be earned) he holds no credibility when it comes to assuring the markets. It is hard to believe he has a Harvard MBA.

Be that as it may, I find it interesting that the latest bailout of unfettered and unregulated companies and the handsome compensation for the executives who ran them out of business has put President Bush and the libertarian crowd in a difficult situation, espousing as they do the notion that the government has no right to your money. Taken to extreme this is anarchy pure and simple, for without taxes there is no government. Of course, there are always cases, several trillion dollars for a convenient war or supporting multimillion dollar bailout packages for CEOs is fine and dandy. Tax dollars for Social Security, health care, and regulating the most the most egregious excesses and abuses of the economic system are not needed. The Invisible Hand will work its magic in those arenas when it comes to the common welfare of all.

However, there is no Invisible Hand. All that exists are the hands and minds of people. Those hands create financial bubbles and pop them too.

So, as the subject of taxes arises during the 2008 election, and you hear, “its your money,” watch your wallet if you have any money left in it. The beneficiaries of the Bush tax cuts have been the very rich. You might be a recipient of the trickle down effect from the $700 billion bailout, but you will not need an umbrella to keep you dry.

GM strike and labor solidarity

I was talking to two guys who belong to unions yesterday afternoon. They were siding with GM management over the auto workers in the GM strike. They complained that the auto workers had many more benefits than they did in their respective unions. They said the excess made it more difficult for them to negotiate contracts.

I was surprised to hear their attitudes and rationales.

Housing market meltdown: thanks, may I have another helping of market fundamentalism, please?

The sun actually rises over Chicago in a spectacular clear blue sky. You almost forget that Marx had it right. The dominate ideology is at the service of the dominant force of production. I am not doing the normal bitching about how terrible Wal*Mart is. I am talking about the housing market melt down.

The issue of moral hazard in the housing market is getting some play by the President and prominent economic policy makers such Bernanke and Feldstein. Golly.

Everyone wants to assist the housing market so that it remains orderly and liquid and hard working folks do not lose their homes. Nobody claims they want to bail out those imprudent lenders who created the dire situation of an illiquid housing market. However, it is unavoidable. Money injected into the system will slosh around until it winds up in the pockets of those who deserve it least. It is baked into the cake also known as the global financial system. When these crises arise, they crush the little people and bail out the large corporations supported by the governmental institutions. That does not deter the hopelessly naive market fundamentalists from saying we need more of the same shit rather than less.

For every failed borrower there is failed lender. A correction in an exuberant housing market does not seem all that bad until things unravel. When global financial markets become unhinged the Powers That Be finally decide it is time to fix the door. After all, there are corrections, then there are millions of people losing their houses and sleeping on the street.

For many Americans, the lucky circumstance of owning a house represents the majority of their financial assets. Once they lose that asset, they lose all security in the present and the future. For some lucky few this seems a trifle. Let the losers work harder next time and invest smarter too.

Some naive market fundamentalists see any regulation of financial markets as leftist communism. The fuck if it is. I suppose they consider Bush and Bernanke communists now that they want to intervene in the housing market to prevent unqualified disaster. The aptness and logic eludes the naive market fundamentalist.

You cannot have big business without big government. They are mutually reinforcing whether you like it or not. The smart money knows that, and occasionally tips its hat to it.

The stupid money loses its house, livelihood, and still preaches market fundamentalism in the teeth of the perfect storm.

Capitalism and iPhone wagering: sports, the financial markets, and houses

I have not made a wager using my iPhone thus far. Betting on the laptop at home keeps the pretense alive that I am making an informed judgment about a sporting event. Ha.

However, with the iPhone the world becomes my virtual casino as I can follow the results of the sporting events on which I have wagered anywhere I go. I can log into my sportsbook and see how my money is doing. (My money did not do well yesterday thanks to some trashy baseball bets I made.) Of course, I view this as a good thing while many find it deplorable or depraved. All I can say is that anyone who has the stomach to bet on the financial markets, stocks, bonds, etc., should have no qualms about throwing a few bucks down on a football game. For instance, I am watching the Man U vs. Sunderland game right now. I have Man U in a four team Premier League parlay this weekend. My guts are not churning as badly as when the stock market is open for business, and these days it’s always open for business somewhere.

The iPhone has a nice button on it to retrieve market results. With the volatility in the current market, I find myself pushing it often. That is probably not a good thing, for about the only thing you can predict about the market is that it will fluctuate as J. P. Morgan well remarked.

I sold a house recently. I should have sold it a year or two ago when house prices peaked in the neighborhood. I did manage to get out near the top. I am using the proceeds to buy property. I plan on buying a place next year somewhere in between Costa Rica and Chicago. At this time, a small condo in Las Vegas sounds intriguing. And a small place in downtown Chicago. I could jump back and forth between both places. Betting on sports in a Las Vegas casino has more cachet than betting on them in my living room while sitting around in my underwear trying to write. I figure housing prices ought to be cheaper next year with the debacle occurring in the housing market.

Selling the house was an interesting exercise. I did my own market research as the real estate agent I used was not much help in doing that. The Internet makes it easy. The Internet makes buying and selling anything easy. Whether that is good or bad depends upon the disposition of one’s assets. I plan on buying low next year when more properties, borrowers, and lenders are distressed.

Capitalism is gambling in it’s purest form. In fact, capitalism might be defined as organized gambling. Lots of folks extoll the virtues of capitalism right up until they crap out in the game. Then the government or somebody else giving them a helping hand does not sound like such a bad idea. Funny how that works. You don’t miss your water until the well runs dry.

The trick to moving to a more humane and rational economic system is finding the right changes at the right time while playing the hand you are dealt in the capitalism game. You don’t want to starve to death while waiting for the revolution with the exception of a few martyrs. I find this a brutal thing to say, yet smarter minds than mine have not found an effective long lasting cure for capitalism. Capitalism is like a swiftly mutating virus. As soon as you find a treatment, it changes into something else.

Man U and Sunderland are tied coming up to half time. Whatever, there’s plenty of good games left to follow today in which my whip out cash hangs in the balance. My anxiety and stress is not nearly as high as when following the market or selling a house.