Technocrat

Banks, Bailouts and Baloney

zogger
Tue Aug 05 14:21:00 -0700 2008
Jobs
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The baloney part is what governmental economic spokespeople and chronic economic bulls have been dishing out for a feast the past few years, labeling it prime rib when it wasn't. Now that it is apparent to all that they've been mislabeling the menu as to food identification, nutritional content and also portion sizes, let's listen to someone who has looked hard at it, identified what is laying on that plate, and has called it accurately since this meal has been served to everyone.

ed.z.: I was being polite when I termed it "baloney". There's a better word that fits that begins with b for the headline.. ...They have swapped U.S. Treasury bonds for toxic securities. It is privatizing the gains and profits, and socializing the losses, as usual. This is socialism for Wall Street and the rich. ed.z.2.: What he said, but I think it will be even worse than he imagines. We'll see, won't we?

Banks, Bailouts and Baloney
Uncle Entity
Tue Aug 05 18:32:15 -0700 2008
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Here's a list of companies that are receiving special protection from 'evil speculators' that were attempting to short-sell their stocks:

  • BNP Paribas Securities Corp.
  • Bank of America Corporation
  • Barclays PLC
  • Citigroup Inc.
  • Credit Suisse Group
  • Daiwa Securities Group Inc.
  • Deutsche Bank Group AG
  • Allianz SE
  • Goldman, Sachs Group Inc.
  • Royal Bank ADS
  • HSBC Holdings PLC ADS
  • J.P. Morgan Chase & Co.
  • Lehman Brothers Holdings Inc.
  • Merrill Lynch & Co., Inc.
  • Mizuho Financial Group, Inc.
  • Morgan Stanley
  • UBS AG
  • Freddie Mac
  • Fannie Mae

I believe it was last week that saw a rally in the stock prices of these institutions because of the people who had to cover their now illegal positions driving up the demand.

Source hidden behind an e-mail required gatekeeper.

Banks, Bailouts and Baloney
tqft
Tue Aug 05 19:11:42 -0700 2008
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http://cryptome.org/sec072308.htm

"[Federal Register: July 23, 2008 (Volume 73, Number 142)] 

                              [Notices]               
                              [Page 42837-42838]
                              From the Federal Register Online via GPO Access [wais.access.gpo.gov]
                              [DOCID:fr23jy08-78]

"

Banks, Bailouts and Baloney
proletariat
Tue Aug 05 19:22:21 -0700 2008
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They made naked shorting in these illegal which should be illegal anyways.

Banks, Bailouts and Baloney
Uncle Entity
Tue Aug 05 20:54:15 -0700 2008
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Why is that?

This is a two party contract between a person who believes that the stock price will fall and one that believes that it will stay stable or rise. The 'loser' pays the 'winner' the difference in price between the initial price and the future price.

One can buy a hedge against the number of rainy days in Podunk, Mo so why can't one buy a hedge against a stock?

The 'gamblers' in this case are really the ones who believe that the government will be able to prop up the banking system throughout this crisis because they are 'too big to fail'. Not to mention the moral hazard that is introduced through this policy where the banks know they won't be allowed to fail so engage in risky activities that would cause any non-anointed business to go bankrupt at the first sign of trouble.

Unless you are suggesting some variation on the puritanical view that gambling is only moral if done within the State sanctioned means.

But as the article I linked to points out (which is quite understandable for you to have not read due to the e-mail requirement) this law is only selectively enforced because the banks make massive profits by doing the very thing they need protection from right now and the fines they received in the past were something like 0.0001% of the money they earned.

As an aside, is anyone else having trouble with the spellchecker in Firefox 3.0, it worked fine before the major version bump?

Banks, Bailouts and Baloney
asdfg
Wed Aug 06 04:48:03 -0700 2008
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"Why is that?"

Because you can't place a "naked long" order.

Most investors (and almost all individual investors that I've ever seen post) believe it unfair that large brokers can bet against a company with no money down, but you cannot purchase shares in the same way.

Banks, Bailouts and Baloney
Uncle Entity
Wed Aug 06 05:34:54 -0700 2008
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You can buy and short on the margin as an individual investor. Can't leverage your investment quite as far as an investment bank or institutional investor but that has more to do with risks to your broker than anything else I would imagine since no government agency will step in to bail you out when things go the wrong way.

The real issue I have with all this is it's fine for the banks to enable this sort of activity when they make a couple billion dollars but get the regulators to step in when others want to do it to their stocks. Preferential treatment and all that. And just an overall anti-regulation bias that I have, let them absorb both their full profits and their full losses.

I kind of suspect the real reason behind this is that banks are trying to re-capitalize themselves through stock sales and the government doesn't want the prices to fall to make it any harder for them to get out of the rut and not some issue with the morality of naked shorting like people seem to think is the case.

Banks, Bailouts and Baloney
Uncle Entity
Wed Aug 06 05:39:17 -0700 2008
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Oh, and the other side of a naked short is a 'naked long'. If the stock doesn't fall I'm sure the counter-party doesn't just call it a day without getting paid the difference.

Banks, Bailouts and Baloney
proletariat
Tue Aug 05 19:50:39 -0700 2008
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Bernanke is a scholar of the Great Depression and I believe he is doing what needs to be done to keep us from getting into an even more severe recession. For a very interesting and fairly brief explanation of the causes of the Great Depression see: What Caused the Great Depression of the 1930's?

There were mistakes made that made the depression much more severe. The failure of so many banks was a big problem and the Fed tightening the money supply caused banks to fail, the Fed did not increase the money supply after the banks failed and there was a massive shrinking of the money supply, margin requirements led to the massive run-up in stock prices before the crash of '29, because tax revenue shrank after the depression bagan Hoover made a large increase taxes to balance the budget when people could least afford a tax increase. I'd edit this into a more coherent posting but I have to get to sleep. The link is really interesting and pertinent to what's happening today.

Banks, Bailouts and Baloney
Uncle Entity
Tue Aug 05 20:19:20 -0700 2008
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Your link to the monetarist propaganda got borked.

Quite true that Bernanke in his infinite wisdom has drank that cool-aid though.

Banks, Bailouts and Baloney
proletariat
Wed Aug 06 05:37:22 -0700 2008
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Thanks for the corrected link. 

Monetarism works for me because it is simple, logical and practical.  Do you have a better economic model?  I'm no expert in economics and willing to listen to opposing views.

Banks, Bailouts and Baloney
proletariat
Wed Aug 06 06:12:47 -0700 2008
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If Zimbabwe had monetarists running their economy it would be impossible to have that kind of inflation.  I'd like to get one of those 10 billion dollar bills.

Banks, Bailouts and Baloney
Petr Mareš
Thu Aug 07 17:03:21 -0700 2008
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I'd like to get one of those 10 billion dollar bills.

Have you tried eBay?

Banks, Bailouts and Baloney
Uncle Entity
Wed Aug 06 06:18:49 -0700 2008
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Pure 100% commodity backed money is the only way to go.

Seeing how the business cycles are caused by inflationary policies (as opposed to investor exuberance and whatever other fallacies they claim in your link) it would be a good thing to end both fiat money and legal counterfeiting by the banking cartel. Inflation also has a wealth redistribution tendency where all the holders of the currency are robbed by the issuers of new currency as they drive prices up through cashing in their fraudulent claims to goods and services.

Wealth can only be created by mixing labor with land and/or producer goods so the more money they create makes each unit of the currency less valuable in relation to the things it can buy. They claim this is for 'price stability' but industries such as computer hardware where technological improvements lower the price much faster then inflation can raise it proves that this is a false concept. Inflation also interferes with economic calculation especially in times of flux such as today where it is completely unclear exactly how much prices are rising from supply/demand or from inflation. Just need to look at fuel and food prices to see that at work.

Finally, and most importantly, taking the issuance of currency away from governments would force them to 'tax and spend' as the Dems like to say instead of having the ability to monetize debt to hide the true amount of money being spent by them. You want to see a fiscally responsible government all you need to do is take away their ability to tax the citizens by simply printing up new money.

There is no end to the reasons to justify doing away with an 'archaic' commodity backed currency but none of them are valid if you apply an economic theory that includes both capital and time instead of aggregates and fancy mathematical theories based on a static economy with all the problem areas (like capital and time) assumed away. It's funny that most people distrust politicians in general but blindly believe whatever their court economists say is true. It's also quite telling that the central bank is immune from all the partisan bickering that goes on in Washington because neither party wants to kill the goose that lays the fiat egg.

I wonder if anyone can name a governmental entity that both sides back 100%—other than some disagreement over how much the money supply should be inflated that is.

/rant

All Money is fiat

President4242
Thu Aug 07 06:06:17 -0700 2008
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Even commodity based money.

Don't believe me?  A recent comedy-fantasy book points out the fact, in satire form, quite well:  If you're on a desert island, which is more important to you, a sack of gold or a sack of potatos?

Put butter and sour cream on a potato, you'll have a dinner.  Put the same ingredients on a bar of gold, you have a mess.

Bury your gold, and dig it up one day, and you have nothing more than the gold you buried- but bury a potato in the proper way and a year later you'll have a 1000% return on your investment.

Perhaps we should really go on the potato standard?  Now THAT would be hyperinflationary!

All Money is fiat
Uncle Entity
Thu Aug 07 17:31:42 -0700 2008
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You do know what fiat means don't you?

But as money is a medium of exchange its usefulness in this task becomes seriously impaired if there is no one to exchange with or there is nothing to exchange for...say like on a desert island.

Brilliant observation there, Sparky.

All Money is fiat
President4242
Thu Aug 07 20:34:22 -0700 2008
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You do know what fiat means don't you?

Yes, it means in this case that the value of the money comes from belief- belief in government, belief in the market.

But as money is a medium of exchange its usefulness in this task becomes seriously impaired if there is no one to exchange with or there is nothing to exchange for...say like on a desert island.

Or for that matter, when one party ceases to have faith in the currency enough to be willing to exchange it for something that is ACTUALLY useful instead of just MYTHICALLY useful.

Until high tech, gold had no actual use other than to sit there and look pretty.

Even after high tech- I doubt there's even a single atom of gold in the keyboard you're typing on anymore- copper is far more useful in our present understanding, silicon even more so.

Why should I give you something of use to me in exchange for something that is worthless outside of human lies?

All Money is fiat
Uncle Entity
Thu Aug 07 21:15:05 -0700 2008
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Why should I give you something of use to me in exchange for something that is worthless outside of human lies?

Why should I care what you do? If don't see any value in indirect exchange then by all means sell your labor for a bag of potatos, I could care less.

Just because you are incapable of understanding what a fiat currency is doesn't mean that's what I'm advocating.

All Money is fiat
President4242
Fri Aug 08 06:31:23 -0700 2008
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Why should I care what you do?

That's been my question all along.

I suggest, perhaps, that Oregon, Washington County, or maybe even the entire United States should withdraw from the free market and create something that works a bit better for the 21st century, and you jump down my throat.

I suggest, perhaps, that maybe we should just form small clubs instead, buy some land to be able to ride out what is increasingly looking like a collapse of the financial industry, and you jump down my throat.

I suggest that individual communities have the right to regulate businesses that sell to their population, and use whatever means neccessary to protect that right, and you jump down my throat.

Why do you care so much?

If don't see any value in indirect exchange then by all means sell your labor for a bag of potatos, I could care less.

Except, of course, if everybody suddenly realized that indirect exchange was just a medium for government, corporations, and other con artists- and that the bag of potatos was worth a hell of a lot more- where would your precious free market be?

Just because you are incapable of understanding what a fiat currency is doesn't mean that's what I'm advocating.

What I'm saying is you have a good idea, you're just not taking it to its logical conclusion; that in the end, any proposed medium of indirect exchange requires a myth- faith in the marketplace or faith in a government or faith in the right of private property or faith in a religion (and usually some combination of those faiths, because brother, the mind is willing but the heart is weak), you've got to have faith to believe that an otherwise worthless token of indirect exchange.

A lot of faith.

It isn't "natural law".  It isn't universal by any means.  Cavemen have no more need of currency than frogs do.

It's an invention of modern civilization.  And as such, it's completely fungible- theories that appear to have worked in the 1930s don't work today, our marketplace that is being shaped by scandal today could be replaced overnight by a new invention tomorrow.

There are no facts in economics (I don't care what school you subscribe to) and the theories are shaped mainly by assumption and private bias.

That goes for my theory that a slave has a better life than a factory worker (given a relatively rational boss who is trying to make a profit, a huge assumption, because a healthy slave is a saleable asset vs an unhealthy slave who isn't, and a healthy employee paid a living wage is a liability in comparison to a minimum wage worker) as well as David Ricardo's Comparitive Advantage Theory of International Trade.


It's all just made up theory- so why not keep working at it until we find a system that works for EVERYBODY and not just SOME?

All Money is fiat
Uncle Entity
Fri Aug 08 11:56:01 -0700 2008
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You said it yourself, I could care less what you and other willing individuals do but when you start talking about forcing your system on others (through hunter/killer robots enforcing your will) I have problems.

You just want to replace one flawed system with another that has no chance of working and in the process kill off a large number of the population who are acceptable losses under your plan.

Like I've said ad nauseum, any system based on coercion and violence is not only immoral but is counter-productive to its stated goals of freeing humanity from slavery and oppression.

All Money is fiat
President4242
Sat Aug 09 22:00:04 -0700 2008
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You said it yourself, I could care less what you and other willing individuals do but when you start talking about forcing your system on others (through hunter/killer robots enforcing your will) I have problems.

Well, that comes under the heading of don't bug us and we won't bug you.  After all, H/K robots would need a defined range to operate in (like say, a rectangle next to a border), and as long as you don't enter that range, the H/K robot won't come after you.

But if you insist on forcing upon willing individuals business models that harm their community, well, it occurs to me that you get what you pay for.

You just want to replace one flawed system with another that has no chance of working and in the process kill off a large number of the population who are acceptable losses under your plan.

As if *any* economic system has any chance of working long term and not killing off a large portion of the population.  Or have you already forgotten the lessons of Union Carbide in India?

Like I've said ad nauseum, any system based on coercion and violence is not only immoral but is counter-productive to its stated goals of freeing humanity from slavery and oppression.

And like I've said ad nauseum- ALL economic systems are based on coercion and violence, especially those that claim to be trying to protect personal property against the freedom of the average citizen.

You have a choice- you can either have personal property, with the coercion and violence that protecting that right requires, OR you can have limited government, limited coercion and violence, by accepting certain real estate as being a no-man's land that nobody can enter without risking their life.

Nature USED to do that 2nd method for us.

Now we must use technology to enforce it.

Banks, Bailouts and Baloney
proletariat
Thu Aug 07 06:57:14 -0700 2008
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The issue of currency basis doesn't answer the issues in the link.  How the economy and currency is managed is critical and the mistakes made in the Great Depression definately made things much worse.  We don't have a commodity based currency now and probably won't ever so the issue now is how the Fed operates and I believe they are doing what needs to be done.

Banks, Bailouts and Baloney
Uncle Entity
Thu Aug 07 15:35:29 -0700 2008
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The Fed allowing their banking cartel to inflate beyond the underlying gold assets they possessed was the cause of the issues in the link.

The only reason we haven't seen deflation since then is because they have no real limit on their inflation so can devalue the dollar at will to prop up the banking system during hard times. Also since inflation is a continuous process these days as opposed to when they had things like gold flowing out of the country as imports became cheaper there are minimal falls in the credit destroyed during the busts—with today being a notable exception with the whole system tottering over the edge and the Fed caught between hyper-inflation on one hand and the collapse of their banking cartel on the other.

We are in truly uncharted waters these days.

Banks, Bailouts and Baloney
Alcibiades
Thu Aug 07 04:51:32 -0700 2008
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Worth looking at the Austrian explanation (Rothbard etc).  The argument is that the Fed did increase money supply, but no-one wanted to borrow or lend - the New Deal in its early stages acted to prevent the liquidation of bad debt.  Kept prices up, kept wages up, promoted unions and thus labor immobility.  So it prevented redeployment of bad investment into something productive.  This is what turned the crash into a depression.   After 1936 or so the New Deal changed and started to enforce anti trust measures, rather than promoting cartels, and that then facilitated asset movement and redeployment, because companies could no longer rigidly maintain their previous strategies.  Rothbard's book is available online someplace, and its a very interesting read. 

The issue is, whether its about the money supply, or about credit/debt.  Or about which comes first.

 

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