I have never understood why the idea of usury was never applied to credit card APR's, overdraft fees and my favourite, "pay-day" loans.
There had been a Banking Regulation in the United States, Reg Q, that limited the interest rate banks could pay on savings deposits. In a twisted logic this regulation was intended to stop loan-sharking. I will admit, I never understood the connection except in an inverse relationship.
Somehow, a limit on the interest that could be paid on deposits was intended to limit that which could be charged on loans. Of course in a regulated banking system a maximum spread between deposit and loan rates could be set. But how that would have any impact on an unregulated and illegal loan-sharking world is beyond me.
What appears to have happened is that the banks, especially over the last couple of years in response to revenue losses resulting from the financial crisis and the introduction of new regulations have started to move into the loan-sharking space.
Yes, this might strike many as somewhat of an exaggeration. The common image of the loan shark is someone who lends you $10,000 today and demands to be paid $20,000 in two weeks. And yes, there is usually the added incentive of the threat of violence in the event of non-payment.
Now look at payday loans which initially were licensed by "non-standard" lenders. In the name of free market capitalism these lenders were allowed to provide loans to those that didn't qualify for standard loans from banks. In a 2001 report comparing short-term "payday" loans it was found that the rates charged by legal non-standard lenders in California were often considerably higher than the interest rates charged by Chicago crime syndicates for the same loan.
Fast forward to the present. The Franks-Dodd Regulation has instituted limitations on first-year credit card fees and on late fees and restrictions on APR increases as well as the outright prohibition of overdraft fees without opt-in. It was found that some banks charged as much as $300 a day for the use of an overdraft facility on top of the interest charged.
The first response by many banks was to unilaterally raise their APR's, despite the fact that losses and their costs of funding-look to see what your bank deposits earn-have come down. As the banks come under more political and regulatory pressure the terms for APR's will presumably start to decrease on their standard products. The response of the banks has been to go down the credit curve in their search for more profitable areas to exploit.
Banks that claim they could never offer a sub prime credit card with a 30% APR have felt no qualms in moving into the lucrative unsecured loans market that is virtually indistinguishable from the payday loan market, except that they are marketed as "deposit advance loans". They are offered to customers with checking accounts, which is intended to demonstrate that they are not shady loan providers operating in a non-regulated area with shoddy documentation. Now they are above board in charging APR's of 200% and more.
They go further however. To avoid being accused of usury, they don't charge interest rates, but rather flat fees. These too, like the term "deposit advance" loans are another example of changing the name but not the activity. The effective annualized compound interest rate is easily in the triple-digit range.
The only positive in all of this is somewhat ironic. By moving into the "payday" space banks are gathering in people who had no access to bank credit. Despite the fact that the rates charged are exorbitant, they are not accompanied by insinuation or even overt threats of physical violence. It is interesting to see what was an illegal activity be brought into the mainstream, despite the predatory aspects of the activity.
It leaves me in this holiday season wondering what other illegal activities would benefit from being brought into a legal, regulated framework...
Seasons Greetings!
Thursday 23 December 2010
Wednesday 22 December 2010
Putting Some Bite into the European Union Eastern Partnership....
It might surprise a number of readers that in addition to concerns on the health of the Euro and the European Union (EU) there is an ongoing undercurrent of how the EU and Russia are interacting in the former East Bloc and Soviet republics.
Following WWII the Soviet Union essentially created a buffer zone consisting of former nations which were allowed to maintain an external semblance of independence such as Poland and those countries which were physically absorbed into the USSR such as the Baltics, Belarus, Moldavia, the Ukraine, Georgia and the various republics in the Caucasus.
Given the recent preoccupation with the Euro and the EU in general there has been a lot of talk with very little action on the "West's" part while Russia continues to re-establish its control in these countries.
Russia has taken advantage of its economic weight and the ambivalence surrounding the role of NATO to actively pursue pro-Russian policies in the former Soviet space. It has played both sides of the "good cop/bad cop" role in trying to influence the ongoing discussion as to the efficacy of NATO in its current format/membership as well as the burning question of allowing former Soviet Republics such as the Ukraine, Moldavia and Georgia to join or not.
Part of the European response has been the creation of the relatively toothless tiger known as the European Union Eastern Partnership (EUEP). Its major support has come from Poland-a nation that is very concerned with Russia's activities on its borders and dreams of former Polish glory and Sweden, a nation also reflecting on past grandeur, that last graced the European stage in the 18th century culminating in a string of wars against Russia, each one more disastrous than the last.
Now suddenly albeit subtly, Germany, which has its own share of East European history, has entered the fray flexing its muscles. Generally the Germans have been somewhat accommodating to the Russians working closer with them then many of the other members of the EU would like. But German interest in the region is potentially a significant boost to the EUEP.
Germany is a financial powerhouse and has been the conduit through which much of Russia's actions both economically-pipelines and energy transit agreements- as well as politically have been co-ordinated.
It was therefore somewhat surprising that Werner Hoyer, German Minister of State in the Foreign Ministry spent yesterday in Moldavia meeting with the Moldovan Minister of Foreign Affairs and European Integration Iurie Leanca.
Moldavia is in the throes of forming a ruling coalition following contentious parliamentary elections in November. The EUEP under Poland and Sweden have been pushing for a pro-EU party while Russia is working to install a pro-Russian government.
Now the Germans have apparently thrown their considerable weight into the pro-EU camp. This is significant as it pits Germany against Russia and will prove to be an interesting case in determining who has more power in influencing the affairs of those states in the border regions of Europe and Russia.
Following WWII the Soviet Union essentially created a buffer zone consisting of former nations which were allowed to maintain an external semblance of independence such as Poland and those countries which were physically absorbed into the USSR such as the Baltics, Belarus, Moldavia, the Ukraine, Georgia and the various republics in the Caucasus.
Given the recent preoccupation with the Euro and the EU in general there has been a lot of talk with very little action on the "West's" part while Russia continues to re-establish its control in these countries.
Russia has taken advantage of its economic weight and the ambivalence surrounding the role of NATO to actively pursue pro-Russian policies in the former Soviet space. It has played both sides of the "good cop/bad cop" role in trying to influence the ongoing discussion as to the efficacy of NATO in its current format/membership as well as the burning question of allowing former Soviet Republics such as the Ukraine, Moldavia and Georgia to join or not.
Part of the European response has been the creation of the relatively toothless tiger known as the European Union Eastern Partnership (EUEP). Its major support has come from Poland-a nation that is very concerned with Russia's activities on its borders and dreams of former Polish glory and Sweden, a nation also reflecting on past grandeur, that last graced the European stage in the 18th century culminating in a string of wars against Russia, each one more disastrous than the last.
Now suddenly albeit subtly, Germany, which has its own share of East European history, has entered the fray flexing its muscles. Generally the Germans have been somewhat accommodating to the Russians working closer with them then many of the other members of the EU would like. But German interest in the region is potentially a significant boost to the EUEP.
Germany is a financial powerhouse and has been the conduit through which much of Russia's actions both economically-pipelines and energy transit agreements- as well as politically have been co-ordinated.
It was therefore somewhat surprising that Werner Hoyer, German Minister of State in the Foreign Ministry spent yesterday in Moldavia meeting with the Moldovan Minister of Foreign Affairs and European Integration Iurie Leanca.
Moldavia is in the throes of forming a ruling coalition following contentious parliamentary elections in November. The EUEP under Poland and Sweden have been pushing for a pro-EU party while Russia is working to install a pro-Russian government.
Now the Germans have apparently thrown their considerable weight into the pro-EU camp. This is significant as it pits Germany against Russia and will prove to be an interesting case in determining who has more power in influencing the affairs of those states in the border regions of Europe and Russia.
Saturday 18 December 2010
It's All About the Narrative
It is interesting to see how terms from specific disciplines make their way into the vernacular of the media over time.
For me the first real example of this was on a return to the USA in the early 90's on a business trip and I noticed that what had previously been terminology reserved for the financial industry had been assumed by the news broadcasts and the newspapers. Walking down the street in New York the snippets of conversation from little old ladies to young fashionistas all seemed to be totally preoccupied with things financial.
Recently as the entire family got together for the holidays I found that the idea of the "narrative" was common across different academic courses as my son spoke of the narrative within political science and history, and my daughter discussed the role of the narrative in the medical context.
My wife too chimed in as in her recent Masters Degree in Design History she said after the first couple of weeks she was being driven to distraction by an apparent preoccupation with the idea of the narrative in the History of Design.
I for my part can't remember having been confronted with the concept in my various degrees from over 30 years ago, and certainly not within the context of a trading floor or even the boardrooms of various financial institutions.
And yet this weekend in both the International Herald Tribune and the London Sunday Times the term was used by two very different writers to describe totally different situations all in the same vein as regards the importance of understanding the narrative.
My interest is that I generally think of the narrative in terms of literature, and more specifically fiction, so although I now understand the use of the concept, it did seem somewhat removed from what is actually happening-in the first instance.
But the more I reflect upon it, the more useful it becomes.
I have just finished reading "The Best and the Brightest", and although the term was not used explicitly, I find myself using it to understand what the underlying (hi)story of the relevant participants and its significance, whether it was on an individual basis, within a political party or government office, or on a national level.
The next book on the agenda is "The Selling of the President". After the dog's breakfast of the Johnsonioan entry in the the Vietnam conflict with all its myriad narratives I look forward with some trepidation to see how Madison Avenue, whose sole purpose is to create narratives, propelled Richard M Nixon into the White House.
For me the first real example of this was on a return to the USA in the early 90's on a business trip and I noticed that what had previously been terminology reserved for the financial industry had been assumed by the news broadcasts and the newspapers. Walking down the street in New York the snippets of conversation from little old ladies to young fashionistas all seemed to be totally preoccupied with things financial.
Recently as the entire family got together for the holidays I found that the idea of the "narrative" was common across different academic courses as my son spoke of the narrative within political science and history, and my daughter discussed the role of the narrative in the medical context.
My wife too chimed in as in her recent Masters Degree in Design History she said after the first couple of weeks she was being driven to distraction by an apparent preoccupation with the idea of the narrative in the History of Design.
I for my part can't remember having been confronted with the concept in my various degrees from over 30 years ago, and certainly not within the context of a trading floor or even the boardrooms of various financial institutions.
And yet this weekend in both the International Herald Tribune and the London Sunday Times the term was used by two very different writers to describe totally different situations all in the same vein as regards the importance of understanding the narrative.
My interest is that I generally think of the narrative in terms of literature, and more specifically fiction, so although I now understand the use of the concept, it did seem somewhat removed from what is actually happening-in the first instance.
But the more I reflect upon it, the more useful it becomes.
I have just finished reading "The Best and the Brightest", and although the term was not used explicitly, I find myself using it to understand what the underlying (hi)story of the relevant participants and its significance, whether it was on an individual basis, within a political party or government office, or on a national level.
The next book on the agenda is "The Selling of the President". After the dog's breakfast of the Johnsonioan entry in the the Vietnam conflict with all its myriad narratives I look forward with some trepidation to see how Madison Avenue, whose sole purpose is to create narratives, propelled Richard M Nixon into the White House.
Friday 17 December 2010
Is It Politics Or Is Dr Steinmeir Correct?
Yesterday the leader of the Opposition in the German Parliment stood up and made a speech outlining the denouement of the Euro.
In his address he predicted that the European Central Bank (ECB) is on its way to becoming the "bad bank" for the Eurozone, taking more and more high-risk and overvalued assets stemming from the "eventual core countries" onto its books in order to salvage the Euro while debt restructuring would take place in the periphery zone countries.
Now I am a confirmed supporter of the Euro and the European Union. I believe the launch of the Euro was perhaps done a bit too early. I would have preferred to have seen the introduction of a unified tax, labor law and budget policy for the entire EU before the roll-out of the Euro, but the politics didn't allow for that.
It is ironic that if it were not for the financial crisis we wouldn't have the present Euro crisis. These crisis' however are forcing the issue on the Euro.
Dr Steinmeir is an opposition politician, specifically Chairman of the Social Democratic Party of Germany (SPD) and as such his rhetoric has recently been more populist than usual as he senses the opportunity to regain power in the next election.
This makes it difficult to differentiate between his political posturing, and perhaps a proper analysis of where we are.
But in this case I think he has touched on the keystone to the whole process. There will be a certain amount of debt restructuring. This was echoed at the EU Leaders' Summit in which they announced “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
Although this is being discussed as a compromise and being downplayed, the fact is that bondholders will take some pain in this. The question will be high up the capital structure the pain goes. There is little doubt that the holder of perpetual subordinated debt will get hurt. It remains to be seen if all subordinated debt and even if senior debt holders will be impacted.
The question of moral hazard would appear to be back in the limelight-which would be the beginning of a more rational allocation of loss which to date has been to the taxpayers.
In his address he predicted that the European Central Bank (ECB) is on its way to becoming the "bad bank" for the Eurozone, taking more and more high-risk and overvalued assets stemming from the "eventual core countries" onto its books in order to salvage the Euro while debt restructuring would take place in the periphery zone countries.
Now I am a confirmed supporter of the Euro and the European Union. I believe the launch of the Euro was perhaps done a bit too early. I would have preferred to have seen the introduction of a unified tax, labor law and budget policy for the entire EU before the roll-out of the Euro, but the politics didn't allow for that.
It is ironic that if it were not for the financial crisis we wouldn't have the present Euro crisis. These crisis' however are forcing the issue on the Euro.
Dr Steinmeir is an opposition politician, specifically Chairman of the Social Democratic Party of Germany (SPD) and as such his rhetoric has recently been more populist than usual as he senses the opportunity to regain power in the next election.
This makes it difficult to differentiate between his political posturing, and perhaps a proper analysis of where we are.
But in this case I think he has touched on the keystone to the whole process. There will be a certain amount of debt restructuring. This was echoed at the EU Leaders' Summit in which they announced “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
Although this is being discussed as a compromise and being downplayed, the fact is that bondholders will take some pain in this. The question will be high up the capital structure the pain goes. There is little doubt that the holder of perpetual subordinated debt will get hurt. It remains to be seen if all subordinated debt and even if senior debt holders will be impacted.
The question of moral hazard would appear to be back in the limelight-which would be the beginning of a more rational allocation of loss which to date has been to the taxpayers.
Wednesday 15 December 2010
Brief Note to "A Communist"
It was brought to my attention that the 8 demands in the "Communist" post were very poorly written and, given that I had not put them in quotation marks there was a question if I were perhaps forgetting proper grammar.
Rest assured, they were copied directly from the advisory letter I had read, and so the grammar within the 8 demands was not mine. I was remiss and should have put them in quotation marks.
Mea Culpa
Rest assured, they were copied directly from the advisory letter I had read, and so the grammar within the 8 demands was not mine. I was remiss and should have put them in quotation marks.
Mea Culpa
German Financial Hegemony in Europe
This weekend the European Union (EU)Leader's Summit will take place. News is emerging that Germany will push for a change to the Lisbon Treaty and create a permanent rescue fund for the euro zone rather than the European Financial Stability Facility (EFSF) which expires in 2013.
German success is not guaranteed-all 27 EU members have to approve it. It will the first step in the German plan to redesign the EU in a more rational fashion. Their goal is the creation of a structure which will allow member states whose currency is the euro may establish amongst themselves a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under said the mechanism will be made subject to strict conditions.
To succeed will require some compromise on the part of the Germans-they have already withdrawn their requirement that any states which fail to follow EU fiscal rules will be "automatically" subject to penalty fines and there will be others.
The real goal is evolve to a fiscal union which would also include synchronization of tax, labor law and budget policies-under German control.
It would appear that Germany's willingness to push the idea of a fiscal union despite the fact it would undoubtedly involve some level of fiscal transfers from Germany to the poorer states is predicated on the immediate creation of the permanent fund, which, like the EFSF would be an institution independent of the EU bureaucracy and actually therefore under German control.
I am not troubled by this. I have lived in Germany, and the UK. I have travelled extensively in Western Europe and more recently to former East Germany and Poland. "Germany works" is the best description I can think of.
Many people will see the spectre of Germany's past in this "power grab". I do not. Europe has evolved and will continue to so. It is a functioning democracy, which cannot necessarily be said for all of the EU's members, and certainly not Russia and many of the members of the CIS.
And, in comparison to the opinion of my courtly Baptist lawyer friend the honorable Spencer Bachus, you won't find any German politicians suggesting that the role of the Federal Government is to "serve the banks".
Strangely the German idea of a Social/Market Economy means they still think they are there to serve the people!
German success is not guaranteed-all 27 EU members have to approve it. It will the first step in the German plan to redesign the EU in a more rational fashion. Their goal is the creation of a structure which will allow member states whose currency is the euro may establish amongst themselves a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under said the mechanism will be made subject to strict conditions.
To succeed will require some compromise on the part of the Germans-they have already withdrawn their requirement that any states which fail to follow EU fiscal rules will be "automatically" subject to penalty fines and there will be others.
The real goal is evolve to a fiscal union which would also include synchronization of tax, labor law and budget policies-under German control.
It would appear that Germany's willingness to push the idea of a fiscal union despite the fact it would undoubtedly involve some level of fiscal transfers from Germany to the poorer states is predicated on the immediate creation of the permanent fund, which, like the EFSF would be an institution independent of the EU bureaucracy and actually therefore under German control.
I am not troubled by this. I have lived in Germany, and the UK. I have travelled extensively in Western Europe and more recently to former East Germany and Poland. "Germany works" is the best description I can think of.
Many people will see the spectre of Germany's past in this "power grab". I do not. Europe has evolved and will continue to so. It is a functioning democracy, which cannot necessarily be said for all of the EU's members, and certainly not Russia and many of the members of the CIS.
And, in comparison to the opinion of my courtly Baptist lawyer friend the honorable Spencer Bachus, you won't find any German politicians suggesting that the role of the Federal Government is to "serve the banks".
Strangely the German idea of a Social/Market Economy means they still think they are there to serve the people!
Tuesday 14 December 2010
A Communist Under Every Stone-or Maybe That's Really a Fascist
I just received a copy of an investment advisory letter from a "libertarian" company. Forgetting the fact that it is alarmist/sensationalist bordering on the rabid it is also insidious.
In its zeal to rid us of (any?)government interference it ran through 8 demands from Marx's Communist Manifesto and 'translated' them into modern vernacular. They are:
1. Abolished property rights and applied all rents towards public purposes. [Modern corollary: Don't pay your property taxes, lose your house. So who really owns your house?]
2. Levied a heavy, progressive income tax to equalize wages. [Modern corollary: Combined federal and state marginal income and payroll taxes approach (or surpass) 50% in many U.S. states.]
3. Abolished all rights of inheritance. [Modern corollary: The estate tax.]
4. Confiscation of the property of all emigrants. [Modern corollary: The 2008 "Hero's Act" which forces people leaving the U.S. to pay the equivalent of their estate taxes on the global assets before they turn in their passports.]
5. Centralize access to credit in the hands of the State by means of a national bank and an exclusive monopoly. [Modern corollary: Fannie Mae and Freddie Mac, which make more than 90% of all of the mortgages in the U.S. and have dominated the market for mortgages for decades.]
6. Centralization of the means of communication and transport in the hands of the State. [Modern corollary: AT&T was a legal monopoly for decades. Amtrak is a ward of the states. The government owns all the roads. And the State controls all air traffic.]
7. Free education for all children in public schools. [Note the emphasis on public schools. Paying for education isn't enough. What counts is indoctrinating the kids in glorifying the State.]
8. A common agricultural policy to maximize the productivity of the land. [Modern corollary: Massive ethanol and agricultural subsidies.]
What was great, as well as totally scary was how he concluded that democracy was actually communism and this was the root evil inherent in our governments.
What I don't know is what the author of the report really thinks for the gist was actually that you should buy gold and silver and, because in their view shorting a stock is "no big deal at all – no different than buying a stock", you should short the largest home builder in America!
Now I know if you are trying to stampede people into investment decisions you have to first scare the bejesus out of them so it might be that the anti-democracy diatribe was merely posturing-they didn't offer an alternative-and maybe their readers don't reflect on the underlying message.
Except that is perhaps exactly what is wrong with America. It's always blame something/someone else. And in the pursuit of Mammon it is perfectly acceptable to saw on the limb you are sitting on. How else do you explain getting rid of democracy as a means of making money?
So in the end capitalism is a political movement...
In its zeal to rid us of (any?)government interference it ran through 8 demands from Marx's Communist Manifesto and 'translated' them into modern vernacular. They are:
1. Abolished property rights and applied all rents towards public purposes. [Modern corollary: Don't pay your property taxes, lose your house. So who really owns your house?]
2. Levied a heavy, progressive income tax to equalize wages. [Modern corollary: Combined federal and state marginal income and payroll taxes approach (or surpass) 50% in many U.S. states.]
3. Abolished all rights of inheritance. [Modern corollary: The estate tax.]
4. Confiscation of the property of all emigrants. [Modern corollary: The 2008 "Hero's Act" which forces people leaving the U.S. to pay the equivalent of their estate taxes on the global assets before they turn in their passports.]
5. Centralize access to credit in the hands of the State by means of a national bank and an exclusive monopoly. [Modern corollary: Fannie Mae and Freddie Mac, which make more than 90% of all of the mortgages in the U.S. and have dominated the market for mortgages for decades.]
6. Centralization of the means of communication and transport in the hands of the State. [Modern corollary: AT&T was a legal monopoly for decades. Amtrak is a ward of the states. The government owns all the roads. And the State controls all air traffic.]
7. Free education for all children in public schools. [Note the emphasis on public schools. Paying for education isn't enough. What counts is indoctrinating the kids in glorifying the State.]
8. A common agricultural policy to maximize the productivity of the land. [Modern corollary: Massive ethanol and agricultural subsidies.]
What was great, as well as totally scary was how he concluded that democracy was actually communism and this was the root evil inherent in our governments.
What I don't know is what the author of the report really thinks for the gist was actually that you should buy gold and silver and, because in their view shorting a stock is "no big deal at all – no different than buying a stock", you should short the largest home builder in America!
Now I know if you are trying to stampede people into investment decisions you have to first scare the bejesus out of them so it might be that the anti-democracy diatribe was merely posturing-they didn't offer an alternative-and maybe their readers don't reflect on the underlying message.
Except that is perhaps exactly what is wrong with America. It's always blame something/someone else. And in the pursuit of Mammon it is perfectly acceptable to saw on the limb you are sitting on. How else do you explain getting rid of democracy as a means of making money?
So in the end capitalism is a political movement...
Friday 10 December 2010
The Alchemy of Alpha
And let's not forget what kind of financial mumbo jumbo got us in to this financial mess in the first place. A while back there was an article on Bloomberg that "Magnetar Capital LLC, the $7 billion hedge-fund firm that profited in 2007 from wagers that subprime-housing debt would tumble, told investors it didn’t help banks create mortgage-linked investments "built to fail". The firm offered limited input on the selection of securities in the deals and made bets that would pay off if they soured, as part of a “market neutral" portfolio designed to profit no matter what happened according to a letter to clients from Evanston, Illinois-based Magnetar."
So the wizards at Magnetar have a market neutral portfolio that makes money regardless of what happens? I guess they can also turn lead into gold.
So the wizards at Magnetar have a market neutral portfolio that makes money regardless of what happens? I guess they can also turn lead into gold.
Thursday 9 December 2010
The Poverty of GOP Politics and that Wily Obama
The news that the White House caved in to the Republicans and was already explaining that this was a "good deal" was initially disconcerting. In the name of stimulating the economy the Republicans gave themselves a healthy paycheck in terms of current income and estate tax. Smelled distinctly like "what's good for me is good for the economy"!
It is being sold that the GOP held Obama "hostage" trading extending unemployment benefits for another 13 months and the cuts he wanted for middle-class families in exchange for maintaining the Bush-Tax Cuts to the wealthy and restoring low tax rates on large inheritances for the next two years.
Strangely that bastion of liberal thought the Wall Street Journal (WSJ) came out with an article highlighting the stimulus effect of this agreement. Essentially they suggest that the package could effectively add some $900 billion to the economy.
National Economic Council Director Lawrence Summers was quoted saying "This gave us a chance to do what most people thought wasn't going to be possible in this environment, which is to provide a real forward lift to the economy relatively quickly".
So after reflection I think it is a clever bit of politics by the Obama White House. If the economy picks up, as everyone is suggesting it will, this could carry Obama into a second term.
Some conservative Republicans apparently agree. Sens. Jim DeMint (R., S.C.) and Tom Coburn (R., Okla.) were dismayed that the tax package wouldn't require spending cuts to cover the cost of extending unemployment benefits. Of course it would never occur to the esteemed senators that not extending the tax cuts would have done the same thing- but their real fear is that despite not getting spending cuts there will be a beneficial effect to the economy, and that is not really in their interest.
But then again they aren't really interested in a rational discussion. It would seem that the Budget Deficit is only a problem to such ideologues if they have to pay for it.
It is being sold that the GOP held Obama "hostage" trading extending unemployment benefits for another 13 months and the cuts he wanted for middle-class families in exchange for maintaining the Bush-Tax Cuts to the wealthy and restoring low tax rates on large inheritances for the next two years.
Strangely that bastion of liberal thought the Wall Street Journal (WSJ) came out with an article highlighting the stimulus effect of this agreement. Essentially they suggest that the package could effectively add some $900 billion to the economy.
National Economic Council Director Lawrence Summers was quoted saying "This gave us a chance to do what most people thought wasn't going to be possible in this environment, which is to provide a real forward lift to the economy relatively quickly".
So after reflection I think it is a clever bit of politics by the Obama White House. If the economy picks up, as everyone is suggesting it will, this could carry Obama into a second term.
Some conservative Republicans apparently agree. Sens. Jim DeMint (R., S.C.) and Tom Coburn (R., Okla.) were dismayed that the tax package wouldn't require spending cuts to cover the cost of extending unemployment benefits. Of course it would never occur to the esteemed senators that not extending the tax cuts would have done the same thing- but their real fear is that despite not getting spending cuts there will be a beneficial effect to the economy, and that is not really in their interest.
But then again they aren't really interested in a rational discussion. It would seem that the Budget Deficit is only a problem to such ideologues if they have to pay for it.
An Aside on the Courtly Mr Bachus
A couple of days ago I highlighted the depths to which American politics have fallen with the prospect of Mr Bachus ascending the Chair of the House Financial Services Committee.
So it has come to past. And just what are his financial credentials you might be inclined to ponder? Bachus is one of the top fundraisers for the National Republican Congressional Committee, which is dedicated to electing Republicans to Congress. It would appear then that his financial acumen is in knowing rich people.
The other bullet in his pistol is that he bolstered support by vowing to enable his subcommittee chairmen to advance their agendas under his chairmanship, eliciting their backing and heading off other potential challengers for the committee gavel.
The result of this is that we now have a Chairman of the House Financial Services Committee who was elected because he is a good fundraiser and had told all his challengers that although he wants to be the Chairman, they get to grind their respective axes.
And just we do expect from this august body?
They want to stem the funding for the Consumer Financial Protection Bureau and overhaul its structure-i.e. cripple it.
They want to "immediately take a look page by page at the job-killing provisions in the Dodd-Frank Act because vigorous oversight is going to be essential to make sure they don't use regulation to advance their agenda, so we are going to have a sustained effort to using oversight to keep them in check." (The syntax is Mr Bachus'.) Sounds like we have a war between regulation and oversight although in GOP speak regulation is socialism, and oversight means keeping the socialists out!
Lastly they are going to privatise Fannie and Freddie. Funny the timing on this. I am sure the bad debts of the GSE's will remain in the public sphere, and a new and improved version of Fannie and Freddie will show up in private hands.
If this were a bad novel I might even find it humorous.
So it has come to past. And just what are his financial credentials you might be inclined to ponder? Bachus is one of the top fundraisers for the National Republican Congressional Committee, which is dedicated to electing Republicans to Congress. It would appear then that his financial acumen is in knowing rich people.
The other bullet in his pistol is that he bolstered support by vowing to enable his subcommittee chairmen to advance their agendas under his chairmanship, eliciting their backing and heading off other potential challengers for the committee gavel.
The result of this is that we now have a Chairman of the House Financial Services Committee who was elected because he is a good fundraiser and had told all his challengers that although he wants to be the Chairman, they get to grind their respective axes.
And just we do expect from this august body?
They want to stem the funding for the Consumer Financial Protection Bureau and overhaul its structure-i.e. cripple it.
They want to "immediately take a look page by page at the job-killing provisions in the Dodd-Frank Act because vigorous oversight is going to be essential to make sure they don't use regulation to advance their agenda, so we are going to have a sustained effort to using oversight to keep them in check." (The syntax is Mr Bachus'.) Sounds like we have a war between regulation and oversight although in GOP speak regulation is socialism, and oversight means keeping the socialists out!
Lastly they are going to privatise Fannie and Freddie. Funny the timing on this. I am sure the bad debts of the GSE's will remain in the public sphere, and a new and improved version of Fannie and Freddie will show up in private hands.
If this were a bad novel I might even find it humorous.
Tuesday 7 December 2010
When Poachers Become Gameskeepers. Part II
In Part II we move across Atlantic to the UK. As a main tenet of their respective party platforms the Conservatives under David Cameron played on their "hard on crime" credentials, and the Liberal Democrats on the importance of education for the nation and therefore were strongly against raising tuition at public universities.
Recently Ken Clarke, the Conservative Minister for Justice, was shown touring a prison as part of his penal reform policy. He essentially said that fewer criminals will go to prison because imprisonment has done nothing to stop re-offending rates and so is more likely to be a school for crime as opposed to a house of behavioural reform.
Ironically there is truth in what he said. "Warehousing" criminals at great expense and essentially doing nothing to rehabilitate them is in the vernacular of the Conservatives "not good value for money".
In opposition, the Conservatives drew up plans to build 5,000 new prison places and promised to meet a Labour pledge of 96,000 prison places by 2014. Now the Ministry of Justice is facing budget cuts of up to 33% over the next four years. Maybe the budget deficit is driving this new found enlightenment.
I actually think Mr Clarke is correct and I would much prefer to see community sentences. Conservative MPs and law-and-order campaigners will dismiss community sentences and other non-custodial sentences as a soft and ineffective response to crime. Maybe they want to reintroduce Chain Gangs? In any event they should focus on the second part of their crime manifesto, "hard on the sources of crime"!
My last crossover is the Liberal Democrats. In their election manifesto they were going to scrap university tuition fees during first degrees. A good portion of Liberal Democrat support comes from students. Nick Clegg caught their attention in the pre-election debates allowing him to position himself as a new voice with modern policies.
Now they are part of a government introducing a bill to significantly increase tuition fees. Vince Cable, the deputy leader of the Liberal Democrats and Minister for Business has gotten his knickers into a real twist. He first said he would vote for the bill, and then half-reversed himself into nomansland and suggested that like many Lib Dem MP's he too would abstain from voting.
The question of tuition for public universities is an important one and I am not suggesting it is a simple decision. There are many nuances to be considered as to how this fits into the overall social policy of a political party, but surely the education (policy) of a nation should not be used merely as a political slogan to gain election.
We shall see how they vote on this lynchpin of their election platform this coming Thursday.
Recently Ken Clarke, the Conservative Minister for Justice, was shown touring a prison as part of his penal reform policy. He essentially said that fewer criminals will go to prison because imprisonment has done nothing to stop re-offending rates and so is more likely to be a school for crime as opposed to a house of behavioural reform.
Ironically there is truth in what he said. "Warehousing" criminals at great expense and essentially doing nothing to rehabilitate them is in the vernacular of the Conservatives "not good value for money".
In opposition, the Conservatives drew up plans to build 5,000 new prison places and promised to meet a Labour pledge of 96,000 prison places by 2014. Now the Ministry of Justice is facing budget cuts of up to 33% over the next four years. Maybe the budget deficit is driving this new found enlightenment.
I actually think Mr Clarke is correct and I would much prefer to see community sentences. Conservative MPs and law-and-order campaigners will dismiss community sentences and other non-custodial sentences as a soft and ineffective response to crime. Maybe they want to reintroduce Chain Gangs? In any event they should focus on the second part of their crime manifesto, "hard on the sources of crime"!
My last crossover is the Liberal Democrats. In their election manifesto they were going to scrap university tuition fees during first degrees. A good portion of Liberal Democrat support comes from students. Nick Clegg caught their attention in the pre-election debates allowing him to position himself as a new voice with modern policies.
Now they are part of a government introducing a bill to significantly increase tuition fees. Vince Cable, the deputy leader of the Liberal Democrats and Minister for Business has gotten his knickers into a real twist. He first said he would vote for the bill, and then half-reversed himself into nomansland and suggested that like many Lib Dem MP's he too would abstain from voting.
The question of tuition for public universities is an important one and I am not suggesting it is a simple decision. There are many nuances to be considered as to how this fits into the overall social policy of a political party, but surely the education (policy) of a nation should not be used merely as a political slogan to gain election.
We shall see how they vote on this lynchpin of their election platform this coming Thursday.
When Poachers Become Gameskeepers. Part I
It is a very interesting phenomenon to watch how the former opposition parties act when they suddenly find that their electoral rhetoric has got them into power.
The first tidbit is the recent move by three prominent House Republicans to introduce a bill which would deny states and localities the ability to sell tax-exempt bonds unless they report their pension-fund liabilities to the Treasury Department.
Now I would be the first to say that the pension-fund liabilities of the states and localities are quite large and represent an over sized burden on their finances. This would be true even if they were allowed to continue accounting for their liabilities under current laws, and would become overwhelming if the laws were changed to reflect accounting in the private sector.
And these current laws? They allow plans to assume they can earn high investment returns without any risk. According to official reports in 2008 the states as a whole had an estimated $452 billion gap in their funding. If they had to report under private sector pension law which values liabilities according to likelihood of payment rather than expected return on pension assets this gap would increase to $3 trillion.
The federal government regulates corporate pension funds and we have a federal agency, the Pension Benefit Guaranty Corp, which is supposed to bail them out. Sounds like over-regulation and government interference to my "Tea-Party/Republican" ears.
In this bill Devin Nunes (R) of California, and the bill's co-sponsors, Paul Ryan(R) of Wisconsin, expected to chair the House Budget Committee, and Darrell Issa (R), likely chair of the Committee on Oversight and Government Reform want to have Federal Government interfere in states' finances!
In a time when the Republican/TeaPartiers are clamouring for less interference from Washington and demanding independence and the "right to fail" these three scions of the Republican structure appear to have no difficulty trampling over states' rights which I am sure was part of their election platform!
For the record, I am not a strong supporter of states' rights. We fought a Civil War over them and although many Americans like to think they are sacrosanct to their ideal of local control I believe it creates a patchwork of laws and regulations which promotes competition within the US rather than providing for a unified front in the national interest. I also believe that the current accounting standards are ridiculous for the public pension funds, and questionable for the private funds.
But that is an aside.
The first tidbit is the recent move by three prominent House Republicans to introduce a bill which would deny states and localities the ability to sell tax-exempt bonds unless they report their pension-fund liabilities to the Treasury Department.
Now I would be the first to say that the pension-fund liabilities of the states and localities are quite large and represent an over sized burden on their finances. This would be true even if they were allowed to continue accounting for their liabilities under current laws, and would become overwhelming if the laws were changed to reflect accounting in the private sector.
And these current laws? They allow plans to assume they can earn high investment returns without any risk. According to official reports in 2008 the states as a whole had an estimated $452 billion gap in their funding. If they had to report under private sector pension law which values liabilities according to likelihood of payment rather than expected return on pension assets this gap would increase to $3 trillion.
The federal government regulates corporate pension funds and we have a federal agency, the Pension Benefit Guaranty Corp, which is supposed to bail them out. Sounds like over-regulation and government interference to my "Tea-Party/Republican" ears.
In this bill Devin Nunes (R) of California, and the bill's co-sponsors, Paul Ryan(R) of Wisconsin, expected to chair the House Budget Committee, and Darrell Issa (R), likely chair of the Committee on Oversight and Government Reform want to have Federal Government interfere in states' finances!
In a time when the Republican/TeaPartiers are clamouring for less interference from Washington and demanding independence and the "right to fail" these three scions of the Republican structure appear to have no difficulty trampling over states' rights which I am sure was part of their election platform!
For the record, I am not a strong supporter of states' rights. We fought a Civil War over them and although many Americans like to think they are sacrosanct to their ideal of local control I believe it creates a patchwork of laws and regulations which promotes competition within the US rather than providing for a unified front in the national interest. I also believe that the current accounting standards are ridiculous for the public pension funds, and questionable for the private funds.
But that is an aside.
Monday 6 December 2010
The Big Easy
The Fed has been attacked from almost every quarter following their announcement of QEII. The biggest complaint appears to be how much inflation they are building into the system. This might be true, at some point down the road. But the question today is much more one of trying to keep the ship afloat.
Let me give an example. Over the past few weeks the Swedish Central Bank (Riksbank) has withdrawn about SEK300 billion (~US$45 billion)of "crisis" loans from the market. Short term interest rates and mortgages shot up instantly in response. Sweden is actually one of the more healthy nations in Europe. If the ECB were to close the "back door" to countries such as Ireland, Portugal, Spain and Greece-imagine the chaos.
Greece, Portugal and Ireland (their combined GDP account for just over half that of Spain’s) took 61% of all loans provided by the ECB last month, up from 51% the previous month!
OK. I know QE and the Central Bank Repo Facility aren't exactly the same thing, but they are certainly close enough to be mentioned in the same breath. The Fed is trying to maintain liquidity and manage interest rates to keep them low.
Yes the market has backed up in protest of the announcement of QEII. Small wonder. Every acolyte to Milton Friedman or the Austrian School was screaming that the Fed's intervention was ideologically wrong. They are all focused on a narrowly defined monetary base and believe markets should determine equilibrium interest rates. Just who is this market? Whose interest are they protecting? Have you ever met an investor who put (any) national interest ahead of their desire for profit?
They rant and rave about the price instability inherent in the Fed's policy crossing inflationary bridges of the future while forgetting the problems of today. Yes, they are all worried that when inflation starts the Fed will be unable to contain it. Yes they point out that the Fed is too worried on deflation as they accused it in 2003, and yes they are quick to point out that as late as 2006 the Fed was still relatively unconcerned that a housing bubble was forming. And lastly, for good measure, they also like to slap the Fed for overreacting to the fears of oil-based inflation in mid-2008.
Well you can't have it both ways unless of course the underlying message is that these Monetarists are just ranting against the Fed because Prof. Bernanke isn't one of 'theirs'. Bernanke is actually concerned about the economy today; about unemployment; and about the state of the housing market. He keeps mentioning that he is doing what he can to try and keep the ship afloat, while asking for help from the fiscal side.
As if the ridiculous state of affairs currenly obtaining in Washington is demonstrating any sense of urgency or even understanding. The recent mid-term elections set the stage for a Congress that will do little to address the growing deficit, crumbling infrastructure, widening rich-poor divide or the need to come to grips with 21st century industries before we become a third world nation.
Yes, QEII is part of the Big Easy. As is QE in the UK, and the ECB's "Back Door". And if we didn't have all the Fed Bailouts, the UK Bailouts, and the EU bailouts, despite all the ideological noise, we would have had the Great Depression.
Bernanke might be the lesser of two evils-he isn't a saint-but he is at least keeping the engine going while the erstwhile captains screw around.
Let me give an example. Over the past few weeks the Swedish Central Bank (Riksbank) has withdrawn about SEK300 billion (~US$45 billion)of "crisis" loans from the market. Short term interest rates and mortgages shot up instantly in response. Sweden is actually one of the more healthy nations in Europe. If the ECB were to close the "back door" to countries such as Ireland, Portugal, Spain and Greece-imagine the chaos.
Greece, Portugal and Ireland (their combined GDP account for just over half that of Spain’s) took 61% of all loans provided by the ECB last month, up from 51% the previous month!
OK. I know QE and the Central Bank Repo Facility aren't exactly the same thing, but they are certainly close enough to be mentioned in the same breath. The Fed is trying to maintain liquidity and manage interest rates to keep them low.
Yes the market has backed up in protest of the announcement of QEII. Small wonder. Every acolyte to Milton Friedman or the Austrian School was screaming that the Fed's intervention was ideologically wrong. They are all focused on a narrowly defined monetary base and believe markets should determine equilibrium interest rates. Just who is this market? Whose interest are they protecting? Have you ever met an investor who put (any) national interest ahead of their desire for profit?
They rant and rave about the price instability inherent in the Fed's policy crossing inflationary bridges of the future while forgetting the problems of today. Yes, they are all worried that when inflation starts the Fed will be unable to contain it. Yes they point out that the Fed is too worried on deflation as they accused it in 2003, and yes they are quick to point out that as late as 2006 the Fed was still relatively unconcerned that a housing bubble was forming. And lastly, for good measure, they also like to slap the Fed for overreacting to the fears of oil-based inflation in mid-2008.
Well you can't have it both ways unless of course the underlying message is that these Monetarists are just ranting against the Fed because Prof. Bernanke isn't one of 'theirs'. Bernanke is actually concerned about the economy today; about unemployment; and about the state of the housing market. He keeps mentioning that he is doing what he can to try and keep the ship afloat, while asking for help from the fiscal side.
As if the ridiculous state of affairs currenly obtaining in Washington is demonstrating any sense of urgency or even understanding. The recent mid-term elections set the stage for a Congress that will do little to address the growing deficit, crumbling infrastructure, widening rich-poor divide or the need to come to grips with 21st century industries before we become a third world nation.
Yes, QEII is part of the Big Easy. As is QE in the UK, and the ECB's "Back Door". And if we didn't have all the Fed Bailouts, the UK Bailouts, and the EU bailouts, despite all the ideological noise, we would have had the Great Depression.
Bernanke might be the lesser of two evils-he isn't a saint-but he is at least keeping the engine going while the erstwhile captains screw around.
Friday 3 December 2010
Thank You Tom Friedman- Really
For anyone who hasn't seen Mr Friedman's Op-Ed in Tuesday's NY Times* please take the time to download and read it. I often disagree with Mr Friedman as I have discussed before, but in this case he has written a clever article which succinctly highlights what's wrong with America.
Really.
* http://www.nytimes.com/2010/12/01/opinion/01friedman.html?emc=eta1
Really.
* http://www.nytimes.com/2010/12/01/opinion/01friedman.html?emc=eta1
Thursday 2 December 2010
If It Were Only So Easy Mr Gross
I just read Bill Gross's Investment Outlook, December 2010. He painted a very clear picture of what we should do to "level the playing field", and unfortunately, what we are doing.
It was an interesting piece in which he explained that the problem is that the global economy is suffering from a lack of aggregate demand. Basically the developed countries can't produce products cheaply enough for them to be made domestically. As those jobs are exported there is an increase in domestic unemployment in manufacturing, which when combined with an "unproductive" service industry essentially results in a severe reduction of global demand on the part of the developed world.
This is exacerbated by the industrial policies of the developing world which tend to focus on export to debt-laden developed nations rather than promoting domestic consumption.
So no demand from the developed world makes the global economy creak.
There is nothing new there. Mr Gross's solution is for the developed world-or more specifically the US-to start making things instead of paper (service industries and debt). Ok. But this will require a massive decrease in wages if US production is to compete with the developing world. Mr Gross suggests that Chinese labor works for 10%less then its American counterparts.
I don't know where he gets his figures. 10% doesn't sound insurmountable. But even if it is the correct number then to function properly it would have to be borne by the workforce and management, which might impact profits and even result in a decline in GDP, but an increase in employment.
It would mean deflation. It would mean a decrease in tax revenues if taxes hold steady, and would probably require a decrease in social spending if we were to start to address our national debt burden. It would mean substantive reforms would have to be initiated, for the benefit of the nation, at the cost of sacrifice and hard work.
It would mean a major change in the way Americans live, and I would welcome it. So did Bill Gross, with one major difference. He seemed to think the problem with America is healthcare. Funny how his true colors come out while he is enjoining us all to work harder for less money...
It was an interesting piece in which he explained that the problem is that the global economy is suffering from a lack of aggregate demand. Basically the developed countries can't produce products cheaply enough for them to be made domestically. As those jobs are exported there is an increase in domestic unemployment in manufacturing, which when combined with an "unproductive" service industry essentially results in a severe reduction of global demand on the part of the developed world.
This is exacerbated by the industrial policies of the developing world which tend to focus on export to debt-laden developed nations rather than promoting domestic consumption.
So no demand from the developed world makes the global economy creak.
There is nothing new there. Mr Gross's solution is for the developed world-or more specifically the US-to start making things instead of paper (service industries and debt). Ok. But this will require a massive decrease in wages if US production is to compete with the developing world. Mr Gross suggests that Chinese labor works for 10%less then its American counterparts.
I don't know where he gets his figures. 10% doesn't sound insurmountable. But even if it is the correct number then to function properly it would have to be borne by the workforce and management, which might impact profits and even result in a decline in GDP, but an increase in employment.
It would mean deflation. It would mean a decrease in tax revenues if taxes hold steady, and would probably require a decrease in social spending if we were to start to address our national debt burden. It would mean substantive reforms would have to be initiated, for the benefit of the nation, at the cost of sacrifice and hard work.
It would mean a major change in the way Americans live, and I would welcome it. So did Bill Gross, with one major difference. He seemed to think the problem with America is healthcare. Funny how his true colors come out while he is enjoining us all to work harder for less money...
Wednesday 1 December 2010
Heaven Help "US" from Bachus and Co.
I have been pretty focused on the gyrations of the European Sovereign Markets and the forecasters of doom by the assembled masses of anti-Europeans and anti-Euro pundits that I took my eye off the ball for moment in the US.
So to catch up I read some articles and interviews with Mr Spencer Bachus and his equally eloquent sidekick Mr Randy Neugebauer.
Wow!
In an article in American Banker Mr Neugebauer, the House Financial Service's Committee Vice-Chairman stated he wants to focus on regulatory oversight. He was quoted as saying " We just passed this huge new piece of legislation, and now all these agencies and regulators that are impacted are going to be writing rules to implement that, and I'm very concerned."
That's good to know. Mr Neugebauer was first a banker, and then became a real estate developer. His claim to fame is that he understands how a mortgage loan works from the lender's side, and the borrower's. This makes him particularly sympathetic to arguments that Dodd-Frank is overly burdensome.
It is interesting that Mr Neugebauer talks continually about the consumer, and yet in all his discussions the consumer is the developer and/or small businessman, not the end-buyer. His professional constituency are the small bankers and businessmen whose major complaint is the way the consumer bureau is handled, funded and managed as it will "probably raise the cost of capital for the borrowers (i.e. the developers) and reduce the profitability of the financial institutions (i.e. the small bankers).
Neugebauer would like to revisit the creation of the Consumer Financial Protection Agency by "eliminating it,restricting its funding or separating it from the Federal Reserve Board".
That's some visit.
His other pet peeve is Fannie and Freddie. He wants to terminate them and foster the development of a fully private mortgage market. This despite being named along with Mr Bachus as the "guardians" of Fannie and Freddie by none other then the Wall Street Journal!
The editorial focused on the fact that in 2007 Neugebauer coauthored an amendment that limited the GSE regulator restricting Fannie and Freddie's control over their own portfolios specifically with regards to purchasing and managing risky mortgages.
So it would appear that he wants to get rid of them, after stuffing them with toxic waste.
His ability to contradict himself would be funny, if he weren't an important member of the Financial Services Committee. First he argued that he has always preferred a focus on capital rather than overly prescriptive regulations for regulators. Then he says "not that they didn't need strong regulations — I felt like they needed a stronger regulator."
Well which is it Mr Neugebauer?
And then we have Mr Bachus. The "courtly Baptist lawyer" contended that the final bill “won’t address a lot of the root causes” of the financial meltdown, including the structures of Fannie Mae and Freddie Mac. So now it's not the bankers, the shoddy mortgage originators or the creation of NINJA and self-certified mortgages that caused the financial crisis, but rather Fannie and Freddie!
Bachus goes on to say that the bill delves deeply into “day-to-day operational matters,” which he called part of the past two years’ “command-and-control environment up here, where the government begins to intrude in things that are traditionally left up to the corporation.”
Well Mr Bachus, whereas I appreciate your concern that the government might not have all the answers-we did have eight years of GW-it is eminently clear to me that the decisions that were traditionally left up to the corporations have been totally discredited.
Heaven help us once Bachus and Neugebauer get started.
So to catch up I read some articles and interviews with Mr Spencer Bachus and his equally eloquent sidekick Mr Randy Neugebauer.
Wow!
In an article in American Banker Mr Neugebauer, the House Financial Service's Committee Vice-Chairman stated he wants to focus on regulatory oversight. He was quoted as saying " We just passed this huge new piece of legislation, and now all these agencies and regulators that are impacted are going to be writing rules to implement that, and I'm very concerned."
That's good to know. Mr Neugebauer was first a banker, and then became a real estate developer. His claim to fame is that he understands how a mortgage loan works from the lender's side, and the borrower's. This makes him particularly sympathetic to arguments that Dodd-Frank is overly burdensome.
It is interesting that Mr Neugebauer talks continually about the consumer, and yet in all his discussions the consumer is the developer and/or small businessman, not the end-buyer. His professional constituency are the small bankers and businessmen whose major complaint is the way the consumer bureau is handled, funded and managed as it will "probably raise the cost of capital for the borrowers (i.e. the developers) and reduce the profitability of the financial institutions (i.e. the small bankers).
Neugebauer would like to revisit the creation of the Consumer Financial Protection Agency by "eliminating it,restricting its funding or separating it from the Federal Reserve Board".
That's some visit.
His other pet peeve is Fannie and Freddie. He wants to terminate them and foster the development of a fully private mortgage market. This despite being named along with Mr Bachus as the "guardians" of Fannie and Freddie by none other then the Wall Street Journal!
The editorial focused on the fact that in 2007 Neugebauer coauthored an amendment that limited the GSE regulator restricting Fannie and Freddie's control over their own portfolios specifically with regards to purchasing and managing risky mortgages.
So it would appear that he wants to get rid of them, after stuffing them with toxic waste.
His ability to contradict himself would be funny, if he weren't an important member of the Financial Services Committee. First he argued that he has always preferred a focus on capital rather than overly prescriptive regulations for regulators. Then he says "not that they didn't need strong regulations — I felt like they needed a stronger regulator."
Well which is it Mr Neugebauer?
And then we have Mr Bachus. The "courtly Baptist lawyer" contended that the final bill “won’t address a lot of the root causes” of the financial meltdown, including the structures of Fannie Mae and Freddie Mac. So now it's not the bankers, the shoddy mortgage originators or the creation of NINJA and self-certified mortgages that caused the financial crisis, but rather Fannie and Freddie!
Bachus goes on to say that the bill delves deeply into “day-to-day operational matters,” which he called part of the past two years’ “command-and-control environment up here, where the government begins to intrude in things that are traditionally left up to the corporation.”
Well Mr Bachus, whereas I appreciate your concern that the government might not have all the answers-we did have eight years of GW-it is eminently clear to me that the decisions that were traditionally left up to the corporations have been totally discredited.
Heaven help us once Bachus and Neugebauer get started.
Monday 29 November 2010
WikiLeaks
The publication of information by the WikiLeaks organisation leaves me of two minds. On the one hand I completely understand the value of Freedom of the Press and the role investigative journalism plays in our modern society. On the other hand I question their self-proclaimed role to publish apparently whatever comes into their hands.
The next batch of documents to be released allegedly comes from messages written by officials in the US State Department. The server from which the leaks apparently come is the US Government's Secret Internet Protocol Router Network(SIPRNet), used to distribute not particularly sensitive information. It was created after 9/11 in order to facilitate the distribution of information amongst the various government departments in the hope that more information was better information.
It is surprising to me that anyone would have put anything even remotely likely to come back and bite someone in the arse, but then it is even more surprising to me that the same US Army soldier, Pfc. Bradley Manning is supposedly responsible for this leak, as he seems to be the guy responsible for two other recent leaks.
I don't know where he currently is, and why he is allowed access to the Internet, but then again it might just be another example of that most famous of oxymorons, Military Intelligence.
But back to the information and the question of publication. I don't understand how the right to privacy and the freedom of the press interact with one another.
If I write a memo intended to provide color on a person or situation to other members of my "community"-in this case the US State Department-I would assume that they are not for general consumption. Apparently I would be wrong in that assumption, and so I would stop putting anything on such a network.
Perhaps personal opinions don't belong there anyway-although even "facts" become personal as they inevitably contain a modicum of subjectivity, and so nothing could be put on what is essentially a public network-if leaks are allowed.
In this most recent download there are purportedly some potentially embarrassing comments on some foreign leaders, maybe some behind the scenes contacts, and maybe that the US does not always negotiate in good faith.
It might come as a surprise to people that diplomatic staff is human and will have personal opinions or will sometimes not be transparent in their interactions. It's called geopolitics and as such there are certainly aspects that require the complete context to be understood, and there will be cases that are opaque.
It might also come as a surprise to people how mundane and petty diplomacy can be.
In any event, I am worried that the line between public interest and prurient interest is becoming muddled, and that wikileaks should reflect on what is investigative journalism, and what is sensationalism.
The next batch of documents to be released allegedly comes from messages written by officials in the US State Department. The server from which the leaks apparently come is the US Government's Secret Internet Protocol Router Network(SIPRNet), used to distribute not particularly sensitive information. It was created after 9/11 in order to facilitate the distribution of information amongst the various government departments in the hope that more information was better information.
It is surprising to me that anyone would have put anything even remotely likely to come back and bite someone in the arse, but then it is even more surprising to me that the same US Army soldier, Pfc. Bradley Manning is supposedly responsible for this leak, as he seems to be the guy responsible for two other recent leaks.
I don't know where he currently is, and why he is allowed access to the Internet, but then again it might just be another example of that most famous of oxymorons, Military Intelligence.
But back to the information and the question of publication. I don't understand how the right to privacy and the freedom of the press interact with one another.
If I write a memo intended to provide color on a person or situation to other members of my "community"-in this case the US State Department-I would assume that they are not for general consumption. Apparently I would be wrong in that assumption, and so I would stop putting anything on such a network.
Perhaps personal opinions don't belong there anyway-although even "facts" become personal as they inevitably contain a modicum of subjectivity, and so nothing could be put on what is essentially a public network-if leaks are allowed.
In this most recent download there are purportedly some potentially embarrassing comments on some foreign leaders, maybe some behind the scenes contacts, and maybe that the US does not always negotiate in good faith.
It might come as a surprise to people that diplomatic staff is human and will have personal opinions or will sometimes not be transparent in their interactions. It's called geopolitics and as such there are certainly aspects that require the complete context to be understood, and there will be cases that are opaque.
It might also come as a surprise to people how mundane and petty diplomacy can be.
In any event, I am worried that the line between public interest and prurient interest is becoming muddled, and that wikileaks should reflect on what is investigative journalism, and what is sensationalism.
Wednesday 24 November 2010
You Did Buy That Cow....
Given the response first of the Greek and now the Irish populace to the European Union (EU)Bailout it is obvious that national group has a monopoly on hypocrisy or selective memory despite the Republican/Tea Party attempt to make that claim.
Anyone who thought that the European Union was intended to be anything less than an economic and therefore political federation shouldn't have joined in the first place, neither the EU nor the Euro.
The British have tried to be part of Europe yet doing the best to remaining outside it. They chose not to join the Euro out of a mixture of outright nationalism and a nationalist tinged economic view consistent with their Anglo-Saxon island mentality. Essentially they took the free-trade aspects of the EU on board, but didn't want to relinquish control over a myriad of British concerns including the value of Sterling and the level of interest rates.
So now the British are harping on about how Ireland's problems are due to the Euro, and aren't they lucky not to be a part of it.
Oh really.
British banks are the second largest lenders to Ireland after the Germans. The Royal Bank of Scotland (RBS)is almost 90% Irish. Lloyds is over 60% Irish. Need I remind you that Her Majesty's Treasury owns 84% of RBS amd over 40% of Lloyds. Even Barclays, despite not having State ownership has 16% of its net assets in Ireland.
And as for the proposition that it is all because of the Euro. Funny that. The USA, Iceland and the UK aren't part of the Euro, and their banks all required massive support. No, I think the spin in Britain is to appeal to EU/Euro skeptics and hope to slither by the fact that the UK is massively involved in the Irish situation.
But back to the Irish. For almost a decade they were the Celtic Tiger. Somehow they were allowed to have seriously low corporate tax rates to attract inward investment-from their fellow EU members-and at the same time profited from the low interest rate environment provided by the Euro.
They didn't rant and rave against their government and against foreign 'imperialism' when it was all go. They benefited from the boom in real estate, in employment and in the general new found wealth of the nation.
Now that it's all gone wrong-it's someone else's fault, starting with their own government which 'sold them to foreigners', and then of course the foreigners themselves.
No, it wasn't the others. We all bought that cow. Everyone piled into the global credit bubble. Low interest rates, regardless of from whom, the provision of cheap credit, all combined to create the frothed milk latte society.
And now everyone is whinging because surprise, surprise, the milk wasn't free.
Anyone who thought that the European Union was intended to be anything less than an economic and therefore political federation shouldn't have joined in the first place, neither the EU nor the Euro.
The British have tried to be part of Europe yet doing the best to remaining outside it. They chose not to join the Euro out of a mixture of outright nationalism and a nationalist tinged economic view consistent with their Anglo-Saxon island mentality. Essentially they took the free-trade aspects of the EU on board, but didn't want to relinquish control over a myriad of British concerns including the value of Sterling and the level of interest rates.
So now the British are harping on about how Ireland's problems are due to the Euro, and aren't they lucky not to be a part of it.
Oh really.
British banks are the second largest lenders to Ireland after the Germans. The Royal Bank of Scotland (RBS)is almost 90% Irish. Lloyds is over 60% Irish. Need I remind you that Her Majesty's Treasury owns 84% of RBS amd over 40% of Lloyds. Even Barclays, despite not having State ownership has 16% of its net assets in Ireland.
And as for the proposition that it is all because of the Euro. Funny that. The USA, Iceland and the UK aren't part of the Euro, and their banks all required massive support. No, I think the spin in Britain is to appeal to EU/Euro skeptics and hope to slither by the fact that the UK is massively involved in the Irish situation.
But back to the Irish. For almost a decade they were the Celtic Tiger. Somehow they were allowed to have seriously low corporate tax rates to attract inward investment-from their fellow EU members-and at the same time profited from the low interest rate environment provided by the Euro.
They didn't rant and rave against their government and against foreign 'imperialism' when it was all go. They benefited from the boom in real estate, in employment and in the general new found wealth of the nation.
Now that it's all gone wrong-it's someone else's fault, starting with their own government which 'sold them to foreigners', and then of course the foreigners themselves.
No, it wasn't the others. We all bought that cow. Everyone piled into the global credit bubble. Low interest rates, regardless of from whom, the provision of cheap credit, all combined to create the frothed milk latte society.
And now everyone is whinging because surprise, surprise, the milk wasn't free.
Tuesday 23 November 2010
The Tea Party:American Culture at the Breaking Point
Although I believe that the Fed is correct to have another round of Quantitative Easing (QE), it is unfortunate that they chose to highlight what is essentially a "coupon pass" and is standard monetary policy by the Fed and give it a new name.
QEII will only benefit the banks-as it should for the moment. Despite the fact that their earnings currently lead many to believe that the banking system is fine, the truth is that they are actually under extreme duress. Without a healthy banking system there will be no progress on the unemployment front, and that is what the Fed has in its sights, even if they are having to attack it indirectly.
The Fed has two mandates: To effectively promote stability of the currency and to maximise employment.
There are many who would argue that the second mandate, granted by the 95th Congress in 1977 is an example of "big government". I would not only disagree with them, but would wholeheartedly attack them for that is the catechism of the Republican Party and their idiot cousins the Tea Party.
Big Government means regulation and oversight to combat the excesses of the profit motive of extreme capitalism. The dismemberment of Regulation and the demonising of the Social Contract inherent in the "Great Society" has been the heartbeat of the right-wing ideologues begun by Reagan and personified by GW and Cheney. What is amazing is how the Republican party has been successful in brainwashing large swathes of the American population through their media arm (FoxNews)to essentially vote against themselves.
This has been one of the great political feats of the last quarter of a century with a brief respite of Clinton and now Obama.
But the march goes on, this time picked up by the Tea Party who are hypocritical and ignorant in the extreme. They rant and rave, fueled by a religiously driven hate and anger to anyone or anything perceived not to be on their side. Perceived, for their perception is reality, regardless of the facts.
They rail against the government, while maximising their Medicare usage. They rail against the government while receiving extended unemployment benefits and Social Security payments. They forget what happened yesterday twisting historical facts to fit with a belief system predicated on blatant lies and revisionism. They would destroy America to achieve their warped utopia. That is the problem. They base everything on their belief system, and you can't argue with the fervent.
QEII will only benefit the banks-as it should for the moment. Despite the fact that their earnings currently lead many to believe that the banking system is fine, the truth is that they are actually under extreme duress. Without a healthy banking system there will be no progress on the unemployment front, and that is what the Fed has in its sights, even if they are having to attack it indirectly.
The Fed has two mandates: To effectively promote stability of the currency and to maximise employment.
There are many who would argue that the second mandate, granted by the 95th Congress in 1977 is an example of "big government". I would not only disagree with them, but would wholeheartedly attack them for that is the catechism of the Republican Party and their idiot cousins the Tea Party.
Big Government means regulation and oversight to combat the excesses of the profit motive of extreme capitalism. The dismemberment of Regulation and the demonising of the Social Contract inherent in the "Great Society" has been the heartbeat of the right-wing ideologues begun by Reagan and personified by GW and Cheney. What is amazing is how the Republican party has been successful in brainwashing large swathes of the American population through their media arm (FoxNews)to essentially vote against themselves.
This has been one of the great political feats of the last quarter of a century with a brief respite of Clinton and now Obama.
But the march goes on, this time picked up by the Tea Party who are hypocritical and ignorant in the extreme. They rant and rave, fueled by a religiously driven hate and anger to anyone or anything perceived not to be on their side. Perceived, for their perception is reality, regardless of the facts.
They rail against the government, while maximising their Medicare usage. They rail against the government while receiving extended unemployment benefits and Social Security payments. They forget what happened yesterday twisting historical facts to fit with a belief system predicated on blatant lies and revisionism. They would destroy America to achieve their warped utopia. That is the problem. They base everything on their belief system, and you can't argue with the fervent.
Monday 22 November 2010
Salus Publica Suprema Lex
There was a recent post by Mr Krugman castigating China, Germany and the Republican Party which was perhaps the strangest group of bedfellows one could imagine.
The thrust of the blog was that the three were trying to bully the Federal Reserve into calling off its efforts to create jobs through the means of Quantative Easing II.
Okay, let us reflect for a moment on the nature of man. There are those who think that the only way forward is to co-operate and at the extremes are willing to sacrifice oneself for the good of the community. And there are those who think the way forward is to have the community work for them and at the extreme are willing to sacrifice the community for their own good.
China is strange in that it is nominally a communist country and yet is aggressively using capitalist means to ensure that the Chinese Communist leadership stays in power. One of their key triggers to remaining in power is to try and provide for full employment. To achieve this goal they have even go so far as to send Chinese workers to work in Chinese firms abroad. They claim this is because the local workforce, wherever they are, is not skilled enough. What they are actually doing is exporting excess workers.
So let's reflect for a moment on China. They have pegged their currency to the US dollar at a rate favorable to their exports. They pay their domestic workforce relatively poorly which exacerbates the problem of their trade surpluses, and they use some of their surplus to finance foreign direct investment and export their own workforce.
This is a very interesting take on the idea that the welfare of the people is the ultimate law. It leaves one wondering who the people are, and in the case of China leaves one questioning just who is benefiting.
Then we turn to Germany. They too run large trade surpluses. But their currency is relatively strong, and their workforce is reasonably well paid. They actually run a form of market socialism, although since reunification and the cost of incorporating East Germany they have come to realise that their social system is becoming overly burdensome and so they have instituted some austerity measures.
No one is accusing the European Central Bank (ECB) or the Germans for that matter of manipulating (intentionally weakening) the Euro to further export growth.
And no one has accused the Germans of paying their workforce substandard wages.
The Germans do get accused of producing quality, precision goods; of being efficient; of being relatively thrifty; and of benefiting from the Euro in that other European nations can no longer devalue their currencies to compete with the Germans. And of course, the German State does get accused of being more concerned with the welfare of German citizens than they do of Americans.
I think it is wrong of Mr Krugman to put the Germans and the Chinese in the same pot. The Chinese elite is concerned with the Chinese elite. Everything they do is to stay in power. Admittedly to do so they need to try and keep the masses content. But this is an authoritarian government and it is incorrect to throw them together with the Germans just because they run trade surpluses.
I do however think Mr Krugman is on the money to bunch China and the Republican leadership. They are both authoritarian. And they are both only concerned with their own personal situation.
Republican self-interest is such that whatever Obama does, they will attack, unless they think it will fail. This approach extends to the Fed. If the Fed helps the economy under an Obama presidency, this will damage Republican chances. So, despite the fact that the US$ fell over 30% under Bush, and that inflation was at 5%, the Republican leadership kept quiet as long as the economy was churning. They were in power, and anything that would help keep them there was OK.
Once Obama got into power, the story changed. Suddenly it was the deficit, stimulus spending or bank bailouts. Now it's currency debasement and inflation. It doesn't matter what it is. If they think something is good for Obama, they will combat it. It's not even ideological, unless greed and power count as an ideology.
Come to think of it they do- I think it's called fascism.
The thrust of the blog was that the three were trying to bully the Federal Reserve into calling off its efforts to create jobs through the means of Quantative Easing II.
Okay, let us reflect for a moment on the nature of man. There are those who think that the only way forward is to co-operate and at the extremes are willing to sacrifice oneself for the good of the community. And there are those who think the way forward is to have the community work for them and at the extreme are willing to sacrifice the community for their own good.
China is strange in that it is nominally a communist country and yet is aggressively using capitalist means to ensure that the Chinese Communist leadership stays in power. One of their key triggers to remaining in power is to try and provide for full employment. To achieve this goal they have even go so far as to send Chinese workers to work in Chinese firms abroad. They claim this is because the local workforce, wherever they are, is not skilled enough. What they are actually doing is exporting excess workers.
So let's reflect for a moment on China. They have pegged their currency to the US dollar at a rate favorable to their exports. They pay their domestic workforce relatively poorly which exacerbates the problem of their trade surpluses, and they use some of their surplus to finance foreign direct investment and export their own workforce.
This is a very interesting take on the idea that the welfare of the people is the ultimate law. It leaves one wondering who the people are, and in the case of China leaves one questioning just who is benefiting.
Then we turn to Germany. They too run large trade surpluses. But their currency is relatively strong, and their workforce is reasonably well paid. They actually run a form of market socialism, although since reunification and the cost of incorporating East Germany they have come to realise that their social system is becoming overly burdensome and so they have instituted some austerity measures.
No one is accusing the European Central Bank (ECB) or the Germans for that matter of manipulating (intentionally weakening) the Euro to further export growth.
And no one has accused the Germans of paying their workforce substandard wages.
The Germans do get accused of producing quality, precision goods; of being efficient; of being relatively thrifty; and of benefiting from the Euro in that other European nations can no longer devalue their currencies to compete with the Germans. And of course, the German State does get accused of being more concerned with the welfare of German citizens than they do of Americans.
I think it is wrong of Mr Krugman to put the Germans and the Chinese in the same pot. The Chinese elite is concerned with the Chinese elite. Everything they do is to stay in power. Admittedly to do so they need to try and keep the masses content. But this is an authoritarian government and it is incorrect to throw them together with the Germans just because they run trade surpluses.
I do however think Mr Krugman is on the money to bunch China and the Republican leadership. They are both authoritarian. And they are both only concerned with their own personal situation.
Republican self-interest is such that whatever Obama does, they will attack, unless they think it will fail. This approach extends to the Fed. If the Fed helps the economy under an Obama presidency, this will damage Republican chances. So, despite the fact that the US$ fell over 30% under Bush, and that inflation was at 5%, the Republican leadership kept quiet as long as the economy was churning. They were in power, and anything that would help keep them there was OK.
Once Obama got into power, the story changed. Suddenly it was the deficit, stimulus spending or bank bailouts. Now it's currency debasement and inflation. It doesn't matter what it is. If they think something is good for Obama, they will combat it. It's not even ideological, unless greed and power count as an ideology.
Come to think of it they do- I think it's called fascism.
Thursday 18 November 2010
Why we need Regulation.
So today the Irish are finally admitting that they are in trouble and do need help from the European Union(EU) and the International Monetary Fund(IMF). Except that the problem is not really Ireland, but rather its banks.
Yes the EU and the Euro removed the flexibility and control on interest rates and currency value, but they didn't hold a gun to the bank's heads and force them to lend like crazy into a self-created real estate bubble which has now, as do all Ponzi schemes, gone sour.
Think of it. The two main Irish banks, Anglo Irish and Allied Irish have already received something like 30 billion Euros of Irish taxpayer money-and are still teetering. That's not surprising. According to the Bank for International Settlements (BIS) total lending of non-Irish banks to Irish banks is around $170 billion, or put another way that's the total borrowing by Irish banks from those banks.
Why did these banks lend to the Irish? Well the Irish banks were cheap, Irish government bonds were cheap (and as it turns out basically an investment in Irish banks) and the non-Irish banks were greedy. Again no gun was involved.
How greedy? And how irrational? British banks provided $42bn, German banks provided $46bn, US banks $25bn and French banks $21bn. And the British banks involved? 89.5% of the net assets of the Royal Bank of Scotland are held in Irish debt. 60.2% of Lloyd's Bank. But my favourite. 92.3% of Denmark's Danske Bank.
How is it that major banks are allowed to accumulate this kind of concentration risk?
And who are we really bailing out? Is it the Irish banks-or the British, American, French and German banks? At what point do we see a restructuring, and can it hit the people making the loans first (aka bankers), then the banks, then the senior bondholders and then and only then, the taxpayers please.
Yes the EU and the Euro removed the flexibility and control on interest rates and currency value, but they didn't hold a gun to the bank's heads and force them to lend like crazy into a self-created real estate bubble which has now, as do all Ponzi schemes, gone sour.
Think of it. The two main Irish banks, Anglo Irish and Allied Irish have already received something like 30 billion Euros of Irish taxpayer money-and are still teetering. That's not surprising. According to the Bank for International Settlements (BIS) total lending of non-Irish banks to Irish banks is around $170 billion, or put another way that's the total borrowing by Irish banks from those banks.
Why did these banks lend to the Irish? Well the Irish banks were cheap, Irish government bonds were cheap (and as it turns out basically an investment in Irish banks) and the non-Irish banks were greedy. Again no gun was involved.
How greedy? And how irrational? British banks provided $42bn, German banks provided $46bn, US banks $25bn and French banks $21bn. And the British banks involved? 89.5% of the net assets of the Royal Bank of Scotland are held in Irish debt. 60.2% of Lloyd's Bank. But my favourite. 92.3% of Denmark's Danske Bank.
How is it that major banks are allowed to accumulate this kind of concentration risk?
And who are we really bailing out? Is it the Irish banks-or the British, American, French and German banks? At what point do we see a restructuring, and can it hit the people making the loans first (aka bankers), then the banks, then the senior bondholders and then and only then, the taxpayers please.
Friday 12 November 2010
The G-20. Prelude to a Protectionist War?
Last night I watched the news report on the G-20 Summit in Seoul. I was somewhat shocked by President Obama's suggestion that the big export nations, China and Germany, should impose (voluntary) limits on their exports and purchase more American goods as a way of helping correct the current imbalances in the global balance of payments .
My news source was the main German public station ARD and their focus was on the German response which was a very definite No from Frau Merkel.
I was not surprised by the her response. The Germans didn't play the financial game to the same extent as the Anglo-Saxons (except as the dumb purchasers of toxic structures). Deutsche Bank moved its global investment banking headquarters to London where the regulatory environment, both culturally and legally was much less onerous. In the UK and the US the financial sector as a percent of GNP rose to over 25% effectively crowding out other industries. In conjunction with a conservative approach to the financial industry domestically Germany also resolved to keep its manufacturing base in tact by offering precision engineering at the top end of the market.
Both the US and the UK allowed their manufacturing bases to be eroded following the misguided belief that developed nations could afford to outsource "menial" labour and maintain their high-tech superiority. I say misguided because this new form of mercantilism assumed the under-developed world remain so, just as it presumed that the developed world would continue to dominate the global economy.
The results of this fallacy is in plain view in the rust belt of New York State, Pennsylvania, Ohio, Indiana, Illinois, Michigan continuing on through even to the new high-tech industries including the new comstoke lode of environmentalism. The same desolate landscape is on show in the depressed north of the UK.
So when Mr Obama suggested that the Germans (and the Chinese) should slow down their export machine and that they should import American goods he was admitting (American) policy failure on a number of fronts.
The creation of the modern Consumer Society of America was not predicated on luxury goods but rather two cars in the garage and a chicken in every pot. It was a mass market consumer society where the price point was the trigger-the lower the better.
It was also a society brought up on the notion of the land of plenty and opportunity for all-a cultural concept ingrained in the American psyche for almost 300 years resulting in a service economy seeking instant gratification, on credit.
Times change, markets move.
With the fall of the Soviet Union the US became the only superpower in town. It is strange. We planned for the coming war and how we would win it. We don't appear to have planned for the peace that would follow, and certainly didn't appear to plan for the case where the peace would be achieved without a military war.
So we became an overconfident nation, dependent on a financial sector which in many instances resembled a Ponzi scheme that eventually crashed and burned and had to be bailed out at great expense to the public. On top of an almost nonexistant manufacturing sector which had seen jobs of almost every stripe march out the door to lower-cost producers there was a collapse of confidence sending service sector unemployment soaring so that we now have total unemployment hovering around 10%. But rather than having a rational discussion on the political and economic future of the US we have a domestic political nightmare in which President Obama is cast as a Socialist, one step away from the dreaded communists, and Sarah Palin and the Tea Party are riding into town on the ghost of Joe McCarthy.
Under those circumstances it is somehow fitting that Obama is having to deal with Germany and China. Our victory over Germany set the stage for America's rise to Superpower status and the shift from the arsenal of democracy to the cradle of consumerism. And Mao's victory in China-viewed as America's "loss" at the time- set the stage for the original Joe McCarthy's rise to prominence.
After two terms of "forward leaning" Republican leadership we elected Obama the Communicator. So when President Obama offers economic co-operation as the key to global peace and prosperity-even if that co-operation requires sacrifice by others, it is in keeping with this role looking to negotiate rather then threaten.
But there is a threat. China has subsidised its industries and managed its currency destroying external competition in an attemt to maintain employment social ease at home. Yes there had been understandings between the US and China in terms of the Americans buying Chinese goods and the Chinese buying US Debt. But that was not an agreement made by Obama, and more importantly, the credit crisis has changed the rules.
I think President Obama was genuine in his offer if somewhat naive. I think the next step will be protective tariffs.
I understand it. But I don't like it.
My news source was the main German public station ARD and their focus was on the German response which was a very definite No from Frau Merkel.
I was not surprised by the her response. The Germans didn't play the financial game to the same extent as the Anglo-Saxons (except as the dumb purchasers of toxic structures). Deutsche Bank moved its global investment banking headquarters to London where the regulatory environment, both culturally and legally was much less onerous. In the UK and the US the financial sector as a percent of GNP rose to over 25% effectively crowding out other industries. In conjunction with a conservative approach to the financial industry domestically Germany also resolved to keep its manufacturing base in tact by offering precision engineering at the top end of the market.
Both the US and the UK allowed their manufacturing bases to be eroded following the misguided belief that developed nations could afford to outsource "menial" labour and maintain their high-tech superiority. I say misguided because this new form of mercantilism assumed the under-developed world remain so, just as it presumed that the developed world would continue to dominate the global economy.
The results of this fallacy is in plain view in the rust belt of New York State, Pennsylvania, Ohio, Indiana, Illinois, Michigan continuing on through even to the new high-tech industries including the new comstoke lode of environmentalism. The same desolate landscape is on show in the depressed north of the UK.
So when Mr Obama suggested that the Germans (and the Chinese) should slow down their export machine and that they should import American goods he was admitting (American) policy failure on a number of fronts.
The creation of the modern Consumer Society of America was not predicated on luxury goods but rather two cars in the garage and a chicken in every pot. It was a mass market consumer society where the price point was the trigger-the lower the better.
It was also a society brought up on the notion of the land of plenty and opportunity for all-a cultural concept ingrained in the American psyche for almost 300 years resulting in a service economy seeking instant gratification, on credit.
Times change, markets move.
With the fall of the Soviet Union the US became the only superpower in town. It is strange. We planned for the coming war and how we would win it. We don't appear to have planned for the peace that would follow, and certainly didn't appear to plan for the case where the peace would be achieved without a military war.
So we became an overconfident nation, dependent on a financial sector which in many instances resembled a Ponzi scheme that eventually crashed and burned and had to be bailed out at great expense to the public. On top of an almost nonexistant manufacturing sector which had seen jobs of almost every stripe march out the door to lower-cost producers there was a collapse of confidence sending service sector unemployment soaring so that we now have total unemployment hovering around 10%. But rather than having a rational discussion on the political and economic future of the US we have a domestic political nightmare in which President Obama is cast as a Socialist, one step away from the dreaded communists, and Sarah Palin and the Tea Party are riding into town on the ghost of Joe McCarthy.
Under those circumstances it is somehow fitting that Obama is having to deal with Germany and China. Our victory over Germany set the stage for America's rise to Superpower status and the shift from the arsenal of democracy to the cradle of consumerism. And Mao's victory in China-viewed as America's "loss" at the time- set the stage for the original Joe McCarthy's rise to prominence.
After two terms of "forward leaning" Republican leadership we elected Obama the Communicator. So when President Obama offers economic co-operation as the key to global peace and prosperity-even if that co-operation requires sacrifice by others, it is in keeping with this role looking to negotiate rather then threaten.
But there is a threat. China has subsidised its industries and managed its currency destroying external competition in an attemt to maintain employment social ease at home. Yes there had been understandings between the US and China in terms of the Americans buying Chinese goods and the Chinese buying US Debt. But that was not an agreement made by Obama, and more importantly, the credit crisis has changed the rules.
I think President Obama was genuine in his offer if somewhat naive. I think the next step will be protective tariffs.
I understand it. But I don't like it.
Thursday 11 November 2010
The Five Wise Men
The government-appointed panel of independent economic advisers nicknamed the 'Five Wise Men' otherwise known as The German Council of Economic Experts proclaimed their expectations for 2010 and 2011.
Their predictions included consistent economic growth, lower unemployment and reduced budget deficits. They spoke of a stable if relatively flat path of growth. They also spoke strongly of the dangers inherent in their forecast.
Specifically they warned the government, and actually all politicians not to revert to populist economic policies geared to win votes but render the the running of the country unmanageable.
They advised against any "rash cuts in taxes" by the government, or "excessive increases in wages" by the trade unions. The tax cut comment was clearly aiming at the junior partners in the Merkel government the FDP, whose basic campaign platform was tax cuts. The FDP is suffering in the polls and so are pushing hard to introduce cuts sooner rather than later. The comment on wages was aimed at the opposition who recently appear to be pursuing blantantly populist policies almost regardless of the consequences.
One can only hope that the government and the opposition recognises that it is explicitly in the "good times" that one should save in order to smooth out the hard times. It is interesting when the only thing a party has to offer is by pandering to the rich with tax cuts, or to push for higher wages and increased spending as a means of getting elected.
The government is currently adhering to the advice clearly stating that their priority is to reduce the budget rather than to cut taxes, and that full employment was a major goal for her government.
It's not that hard. The economy is booming in Germany. Tax revenues are higher than expected. Unemployment is falling. This is the time to fix things, so that when things take a turn for the worse, which they will, the nation is in a position to weather it.
Their predictions included consistent economic growth, lower unemployment and reduced budget deficits. They spoke of a stable if relatively flat path of growth. They also spoke strongly of the dangers inherent in their forecast.
Specifically they warned the government, and actually all politicians not to revert to populist economic policies geared to win votes but render the the running of the country unmanageable.
They advised against any "rash cuts in taxes" by the government, or "excessive increases in wages" by the trade unions. The tax cut comment was clearly aiming at the junior partners in the Merkel government the FDP, whose basic campaign platform was tax cuts. The FDP is suffering in the polls and so are pushing hard to introduce cuts sooner rather than later. The comment on wages was aimed at the opposition who recently appear to be pursuing blantantly populist policies almost regardless of the consequences.
One can only hope that the government and the opposition recognises that it is explicitly in the "good times" that one should save in order to smooth out the hard times. It is interesting when the only thing a party has to offer is by pandering to the rich with tax cuts, or to push for higher wages and increased spending as a means of getting elected.
The government is currently adhering to the advice clearly stating that their priority is to reduce the budget rather than to cut taxes, and that full employment was a major goal for her government.
It's not that hard. The economy is booming in Germany. Tax revenues are higher than expected. Unemployment is falling. This is the time to fix things, so that when things take a turn for the worse, which they will, the nation is in a position to weather it.
Monday 8 November 2010
Revising Keynes
I just read an article promoting the idea that perhaps Keynes was misunderstood. Maybe he wasn't anti-capitalist, and maybe he didn't think budget deficits were desirable. It even went so far to suggest that he believed in free markets, but realised that they often created failures that would need state intervention.
Given that many Americans feel that Obamacare is the beginning of the thin edge of the socialist wedge into the US compounded by the exaggerated impact of Keynes' association with Roosevelt's New Deal-again viewed by many as a "Socialist Plot"- it is not difficult to understand how his General Theory has been distorted by Milton Friedman's free-marketeers from the University of Chicago.
Free market hysteria and the pursuit of hyper capitalism has created an economic single mindedness which, when promulgated by people lacking a strong conviction of what is right or wrong, has resulted in blind alleys of ideology driven economic policies destroying any attempt at a rational dialogue by claiming they stand for god and country and castigating everyone else as liberal or socialist, and certainly "un-American".
Of course free markets are desirable-as are most utopian ideas. The problem arises when the private sector bases its focus on models requiring surreal conditions for their ideas to work. Theirs is not a general view, it is a personal, individual view.
Call me old-fashioned, but I always thought that Keynes' view of the economy and the private sector was similar to Clemenceau's comment "that war was too important to be left to the military".
That is the cornerstone of his argument. In the face of a liquidity trap such as we have now, where a lack of confidence on the part of the private sector stops investment and increases unemployment only the state can step in and generate employment and thereby demand which will stimulate the economy.
But this is an easy target for a group that preys on the uneducated and gullible masses. They highlight the fact that his idea are presented as a General Theory, not fact, thereby transsubstantiating Keynes' ideas into into the evil faith of big government, the doorway to socialism.
It's amazing that the whole argument about supply and demand always seems to forget that without employment, and thereby wages, all the supply in the world will just rot on the shelves.
Given that many Americans feel that Obamacare is the beginning of the thin edge of the socialist wedge into the US compounded by the exaggerated impact of Keynes' association with Roosevelt's New Deal-again viewed by many as a "Socialist Plot"- it is not difficult to understand how his General Theory has been distorted by Milton Friedman's free-marketeers from the University of Chicago.
Free market hysteria and the pursuit of hyper capitalism has created an economic single mindedness which, when promulgated by people lacking a strong conviction of what is right or wrong, has resulted in blind alleys of ideology driven economic policies destroying any attempt at a rational dialogue by claiming they stand for god and country and castigating everyone else as liberal or socialist, and certainly "un-American".
Of course free markets are desirable-as are most utopian ideas. The problem arises when the private sector bases its focus on models requiring surreal conditions for their ideas to work. Theirs is not a general view, it is a personal, individual view.
Call me old-fashioned, but I always thought that Keynes' view of the economy and the private sector was similar to Clemenceau's comment "that war was too important to be left to the military".
That is the cornerstone of his argument. In the face of a liquidity trap such as we have now, where a lack of confidence on the part of the private sector stops investment and increases unemployment only the state can step in and generate employment and thereby demand which will stimulate the economy.
But this is an easy target for a group that preys on the uneducated and gullible masses. They highlight the fact that his idea are presented as a General Theory, not fact, thereby transsubstantiating Keynes' ideas into into the evil faith of big government, the doorway to socialism.
It's amazing that the whole argument about supply and demand always seems to forget that without employment, and thereby wages, all the supply in the world will just rot on the shelves.
Friday 5 November 2010
John Boehner and the Tea Party
So John Boehner has chosen the the most obvious of newspapers for a Republican backed by the usual coterie of Big Business, Big Insurance, Big Oil and Big Banking-the WSJ- to flash his Tea Party credentials.
Given that he has been a member of Congress since 1991 his little preamble is sweet, but so is saccharin. His initial interest in politics came from seeing "firsthand how government throws obstacles in the way of job-creation and stifles our prosperity".
That's why he approved $9.8 trillion dollars in President Bush's budgets.
Now he's got religion, or at least has woken up and smelled the tea.
He outlines his "to do" list as Speaker of the House. Top of the list, pork. So he will remove all earmarks. So did Sarah Palin, while she shovelled it in so it will be interesting to see how he fares.
He will let Americans have 3 days to read all bills before they are brought to a vote. One of those great offers with little real value. By the time a bill has been published, if you actually take the time to read it, you will be too late to do anything about it-even if you wanted to. Otherwise there are numerous website that publish bills if you really want to find pork.
Then there will be no more "comprehensive" bills, and no more bills written behind closed doors. Comprehensive bills are "those with thousands of pages of legislative text that make it easy to hide spending projects and job-killing policies". I guess it's easy when all you write on the bill is "No". Otherwise, I should hope that bills are comprehensive-i.e. complete!
But my favourite is the call to insist that every bill include a cause citing where in the Constitution Congress is given the power to pass it. I am truly interested to see what bills have been passed that the Republicans think were outside of Congress's Constitutional remit.
I have to assume it that the never ending debate over State's rights versus Federal Rights is at the top of it, and everything else follows from there.
We need to combat the misplaced use of the "Don't Tread on Me" motto with "United we stand, Divided we Fall".
But that would require a rational debate in the US which has to be an oxymoron for the Tea Party.
Given that he has been a member of Congress since 1991 his little preamble is sweet, but so is saccharin. His initial interest in politics came from seeing "firsthand how government throws obstacles in the way of job-creation and stifles our prosperity".
That's why he approved $9.8 trillion dollars in President Bush's budgets.
Now he's got religion, or at least has woken up and smelled the tea.
He outlines his "to do" list as Speaker of the House. Top of the list, pork. So he will remove all earmarks. So did Sarah Palin, while she shovelled it in so it will be interesting to see how he fares.
He will let Americans have 3 days to read all bills before they are brought to a vote. One of those great offers with little real value. By the time a bill has been published, if you actually take the time to read it, you will be too late to do anything about it-even if you wanted to. Otherwise there are numerous website that publish bills if you really want to find pork.
Then there will be no more "comprehensive" bills, and no more bills written behind closed doors. Comprehensive bills are "those with thousands of pages of legislative text that make it easy to hide spending projects and job-killing policies". I guess it's easy when all you write on the bill is "No". Otherwise, I should hope that bills are comprehensive-i.e. complete!
But my favourite is the call to insist that every bill include a cause citing where in the Constitution Congress is given the power to pass it. I am truly interested to see what bills have been passed that the Republicans think were outside of Congress's Constitutional remit.
I have to assume it that the never ending debate over State's rights versus Federal Rights is at the top of it, and everything else follows from there.
We need to combat the misplaced use of the "Don't Tread on Me" motto with "United we stand, Divided we Fall".
But that would require a rational debate in the US which has to be an oxymoron for the Tea Party.
Thursday 4 November 2010
The Return of the Entente Cordial?
For centuries there has been a competition between the Great Powers of Europe to try and be the dominant continental force.
Despite being an island nation, England was an active player during the periods when large swathes of France belonged to the English crown. But generally England played the role of the spoiler, weighing in when it appeared that one of the continentals was becoming strong enough to exercise hegemony.
That is not to say that it was only the English who meddled. The French were quite happy to get involved whenever they could at the expense of the others, even if it meant snapping at the borders of colonial interests. The Prussians weren't beyond requesting interference when it was in their interest, and the Russians were always loitering with intent, caught between fearing or wanting to join the "West".
But recently Prussia, or more politically correct Germany has been flexing its economic muscles in the aftermath of the financial crisis which has many geopolitical observers suggesting that the Germans are either entering a new stage in their development-or reverting to type.
The new generation of Germans, albeit fully aware of the deeds of their parents, or more often now their grandparents, are no longer so willing to carry the burden of collective guilt, especially with the tendency to view the two World Wars as the 20th century version of the 30 Years War.
Last week Britain and France signed a military agreement sharing nuclear simulation technology, aircraft carriers, and the formation of a joint Rapid-Response Brigade. France is also making overtures to the Russians, to counter the cosying up between the Germans and the Russians.
The recently signed Franco-British deal is being explained in the media as a result of the need for austerity in the UK and in France and there is certainly that aspect to it.
It is in the interest of both parties to push the "fiscal" explanation, for the alternative is to admit that France is a junior partner in the Franco-German marriage and that there are concerns that Germany is becoming the de-facto ruler of Europe.
It's amazing how two World Wars, the Marshall Plan and the creation of the European Union has done so little to quell the fires of European nationalism.
Despite being an island nation, England was an active player during the periods when large swathes of France belonged to the English crown. But generally England played the role of the spoiler, weighing in when it appeared that one of the continentals was becoming strong enough to exercise hegemony.
That is not to say that it was only the English who meddled. The French were quite happy to get involved whenever they could at the expense of the others, even if it meant snapping at the borders of colonial interests. The Prussians weren't beyond requesting interference when it was in their interest, and the Russians were always loitering with intent, caught between fearing or wanting to join the "West".
But recently Prussia, or more politically correct Germany has been flexing its economic muscles in the aftermath of the financial crisis which has many geopolitical observers suggesting that the Germans are either entering a new stage in their development-or reverting to type.
The new generation of Germans, albeit fully aware of the deeds of their parents, or more often now their grandparents, are no longer so willing to carry the burden of collective guilt, especially with the tendency to view the two World Wars as the 20th century version of the 30 Years War.
Last week Britain and France signed a military agreement sharing nuclear simulation technology, aircraft carriers, and the formation of a joint Rapid-Response Brigade. France is also making overtures to the Russians, to counter the cosying up between the Germans and the Russians.
The recently signed Franco-British deal is being explained in the media as a result of the need for austerity in the UK and in France and there is certainly that aspect to it.
It is in the interest of both parties to push the "fiscal" explanation, for the alternative is to admit that France is a junior partner in the Franco-German marriage and that there are concerns that Germany is becoming the de-facto ruler of Europe.
It's amazing how two World Wars, the Marshall Plan and the creation of the European Union has done so little to quell the fires of European nationalism.
Wednesday 3 November 2010
Learning the Hard Way
I was originally a supporter of Hillary Clinton-with reservations-and had always thought that a Clinton/Obama ticket was the correct path.
It wasn't that I didn't like Obama-I voted for him- but I was troubled by the thought that being a great speaker driven by a vision of America that coincided in the main with my own was perhaps not enough. Bluntly put, my concern with Obama was that he was too much a humanist thinker, and not enough of a realist.
Anyone with a conscience couldn't help, for example, to appreciate Jean-Jacques Rousseau's "Plan for Perpetual Peace" in which he essentially promotes the creation of a federal republic as a means of ensuring peace-in the Europe of his time.
But even Rousseau recognized the weakness in his essay highlighting the contradictions between the "humanity of maxims and the violence of the wars, a gentle religion and bloody intolerance, a 'politics so wise in books and so harsh in practice'".
Equally, anyone reading Hans Morgenthau's "Principles of Political Realism", especially if they are willing to accept the concept that political realism requires "a sharp distinction between the desirable and the possible" and is therefore only concerned with the rational, objective and unemotional can't help but appreciate the clarity of thought he presents, even if one has misgivings about the 'end justifies the means" nature of his ideas.
Mr Obama is currently caught between the two, which I describe as the battleground between utopian idealism, and the sleazy realities of power politics.
I believe the first two years of his Administration, despite the incredible progress he achieved with the enactment of the American Recovery and Reinvestment Act of 2009 ARRA- which staved off a Depression, health reform, and the Dodd-Frank financial reform law—were haunted by the belief of the electorate that thought he was going to lead the nation to the "promised land"-while forgetting even Moses took 40 years in the desert to get there.
No, these mid-term elections have been a punishing lesson on the fickleness of the electorate, on the ignorance of the electorate, and of the realities of government. I think that Mr Obama will realise that he has to move from the pulpit to the presidency-assuming a great deal of Mr Morgenthau's realism, and get re-elected in 2012.
It wasn't that I didn't like Obama-I voted for him- but I was troubled by the thought that being a great speaker driven by a vision of America that coincided in the main with my own was perhaps not enough. Bluntly put, my concern with Obama was that he was too much a humanist thinker, and not enough of a realist.
Anyone with a conscience couldn't help, for example, to appreciate Jean-Jacques Rousseau's "Plan for Perpetual Peace" in which he essentially promotes the creation of a federal republic as a means of ensuring peace-in the Europe of his time.
But even Rousseau recognized the weakness in his essay highlighting the contradictions between the "humanity of maxims and the violence of the wars, a gentle religion and bloody intolerance, a 'politics so wise in books and so harsh in practice'".
Equally, anyone reading Hans Morgenthau's "Principles of Political Realism", especially if they are willing to accept the concept that political realism requires "a sharp distinction between the desirable and the possible" and is therefore only concerned with the rational, objective and unemotional can't help but appreciate the clarity of thought he presents, even if one has misgivings about the 'end justifies the means" nature of his ideas.
Mr Obama is currently caught between the two, which I describe as the battleground between utopian idealism, and the sleazy realities of power politics.
I believe the first two years of his Administration, despite the incredible progress he achieved with the enactment of the American Recovery and Reinvestment Act of 2009 ARRA- which staved off a Depression, health reform, and the Dodd-Frank financial reform law—were haunted by the belief of the electorate that thought he was going to lead the nation to the "promised land"-while forgetting even Moses took 40 years in the desert to get there.
No, these mid-term elections have been a punishing lesson on the fickleness of the electorate, on the ignorance of the electorate, and of the realities of government. I think that Mr Obama will realise that he has to move from the pulpit to the presidency-assuming a great deal of Mr Morgenthau's realism, and get re-elected in 2012.
Friday 29 October 2010
Of Chevy's and Mercedes
I wrote last week on Bank of America's CEO Brian Moynihan and his statement lambasting whining investors who bought a Chevy Vega and then complained that it wasn't a Mercedes.
Having already discussed how that statement fit in to the MBO fiasco I wanted to use it to address a different but disturbing angle.
Chevrolet is a division of the General Motors Corporation, producing a range of vehicles from the mighty Corvette to the lowly Vega. Mercedes also produces a wide range of vehicles.
In comparing a Chevrolet Vega to a Mercedes Mr Moynihan was mixing apples and oranges, on many levels.
The low end of the Mercedes range is the A-Class. It is still a Mercedes, and commands the relevant pricing, to the extent that it would have been sufficient to compare a Vega with an A-Class. But no. Mr Moynihan, with one fell swoop, highlighted the demise of American manufacturing, the stature of German manufacturing, and perhaps the decline of America.
I recently watched "A Requiem for Detroit". It was incomprehensible to me that a city such as Detroit could have fallen into such ruin and despair.
This summer I traveled to the former East Germany and to that part of Poland which had been German before the War. This was a region which had been through the terrors of total war. Stettin, or Szezcin, Poland, as it is known now was a major rail and harbour city and was bombed accordingly. You can still see shrapnel scars on some buildings, but even there buildings have been rebuilt, or demolished.
In former East Germany the renovation and restoration since 1989 of cities which had been flattened during the war requires museums to illustrate the degree of the desolation wrought. This rebuilding was financed by what was West Germany and the "Solidarity Tax" which was a 1% surcharge on income tax initiated in 1989, and extended just recently.
We have not had a traditional war on American soil since the Civil War. But if you look at cities like Detroit,Michigan, or like Gary,Indiana, you would think we have. And you would be right. America has been wracked by the divisions of rich and poor. Our segregationist history has helped shape this as a Race War, but it is really a Poverty War.
There was the hope that perhaps the election of President Obama was the beginning of the end of this war. The Tea Party, misled by people like Sarah Palin are determined to ensure that this war intensifies.
It is an axiom of statesmanship, which the successful founders of tyranny have understood and acted upon, that great changes can best be brought about under old forms. The call for a return to an imaginary past by the Tea Party, predicated on the lies and distortions of organisations such as Fox News to push a scared public into the arms of America's fascists is the both sinister and dangerous as it follows on this adage-gaining power through the democratic process.
The only way to combat this is to get out and vote to defeat them!
Having already discussed how that statement fit in to the MBO fiasco I wanted to use it to address a different but disturbing angle.
Chevrolet is a division of the General Motors Corporation, producing a range of vehicles from the mighty Corvette to the lowly Vega. Mercedes also produces a wide range of vehicles.
In comparing a Chevrolet Vega to a Mercedes Mr Moynihan was mixing apples and oranges, on many levels.
The low end of the Mercedes range is the A-Class. It is still a Mercedes, and commands the relevant pricing, to the extent that it would have been sufficient to compare a Vega with an A-Class. But no. Mr Moynihan, with one fell swoop, highlighted the demise of American manufacturing, the stature of German manufacturing, and perhaps the decline of America.
I recently watched "A Requiem for Detroit". It was incomprehensible to me that a city such as Detroit could have fallen into such ruin and despair.
This summer I traveled to the former East Germany and to that part of Poland which had been German before the War. This was a region which had been through the terrors of total war. Stettin, or Szezcin, Poland, as it is known now was a major rail and harbour city and was bombed accordingly. You can still see shrapnel scars on some buildings, but even there buildings have been rebuilt, or demolished.
In former East Germany the renovation and restoration since 1989 of cities which had been flattened during the war requires museums to illustrate the degree of the desolation wrought. This rebuilding was financed by what was West Germany and the "Solidarity Tax" which was a 1% surcharge on income tax initiated in 1989, and extended just recently.
We have not had a traditional war on American soil since the Civil War. But if you look at cities like Detroit,Michigan, or like Gary,Indiana, you would think we have. And you would be right. America has been wracked by the divisions of rich and poor. Our segregationist history has helped shape this as a Race War, but it is really a Poverty War.
There was the hope that perhaps the election of President Obama was the beginning of the end of this war. The Tea Party, misled by people like Sarah Palin are determined to ensure that this war intensifies.
It is an axiom of statesmanship, which the successful founders of tyranny have understood and acted upon, that great changes can best be brought about under old forms. The call for a return to an imaginary past by the Tea Party, predicated on the lies and distortions of organisations such as Fox News to push a scared public into the arms of America's fascists is the both sinister and dangerous as it follows on this adage-gaining power through the democratic process.
The only way to combat this is to get out and vote to defeat them!
Buyer Beware?
Always on the lookout for the next accident the mortgage documentation fiasco looks to be the newest baby for the ambulance chasing law firms smelling blood, or at least some rotten flesh. But don't think the lawyers or their prey, the holders of Mortgage Backed Securities (MBO's)are concerned about the homeowners who might or might not be dispossessed.
These investors in the securities the mortgages backed- the holders of MBO's- are only worried about the plummeting value of the securities they purchased, and are looking for ways to recoup their losses. The law firms are suggesting that faulty documentation might be a way to force the banks to buy them back.
Now I am not a defendant of the big banks. It is clear that they have no one's interest in mind but their own and will go to great lengths to achieve their golden calf. Unfortunately for the lawyers and the holders of MBO's, the letter of the law, not the spirit, is what counts.
This distinction is where I believe the the problem began. The pursuit of profit, selling misleading products protected by finely worded contracts which assign legal responsibility to anyone but the bank. The products they describe were designed to appeal to the investor's greed to such an extent that they would overpower fear, and rationality. How else can you explain the success of structured products which claimed to take low rated assets and turn them in to AAA rated assets?
The MBO market was on the less sophisticated end of the this game. And on the basis of Bank of America CEO Brian Moynihan's recent statement intended to criticise investors, some of the sellers were of the same ilk. In an attempt to dismiss legal challenges Mr Moynihan virtually self-indicted himself as he claimed that investor complaints essentially amounted to "I bought a Chevy Vega, but I want it to be a Mercedes".
Precisely. The bankers took a Chevy Vega, buffed it up and presented it as being as good as a Mercedes. Check their documentation. They never sold it as a Mercedes. They might have mumbled when they admitted it was a buffed up Chevy Vega, but if an investor were stupid enough to pay Mercedes prices for a Chevy Vega, who was really at fault?
It is perhaps telling that in the Q&A sessions at the various presentations by lawyers to MBO investors the focus is not on the merits of a legal challenge-but on the likelihood and costs of winning. Of course investors rarely let pride get in the way of money-driving up to the courthouse in their Chevy Vegas, with a crooked Mercedes Stern on the hood.
These investors in the securities the mortgages backed- the holders of MBO's- are only worried about the plummeting value of the securities they purchased, and are looking for ways to recoup their losses. The law firms are suggesting that faulty documentation might be a way to force the banks to buy them back.
Now I am not a defendant of the big banks. It is clear that they have no one's interest in mind but their own and will go to great lengths to achieve their golden calf. Unfortunately for the lawyers and the holders of MBO's, the letter of the law, not the spirit, is what counts.
This distinction is where I believe the the problem began. The pursuit of profit, selling misleading products protected by finely worded contracts which assign legal responsibility to anyone but the bank. The products they describe were designed to appeal to the investor's greed to such an extent that they would overpower fear, and rationality. How else can you explain the success of structured products which claimed to take low rated assets and turn them in to AAA rated assets?
The MBO market was on the less sophisticated end of the this game. And on the basis of Bank of America CEO Brian Moynihan's recent statement intended to criticise investors, some of the sellers were of the same ilk. In an attempt to dismiss legal challenges Mr Moynihan virtually self-indicted himself as he claimed that investor complaints essentially amounted to "I bought a Chevy Vega, but I want it to be a Mercedes".
Precisely. The bankers took a Chevy Vega, buffed it up and presented it as being as good as a Mercedes. Check their documentation. They never sold it as a Mercedes. They might have mumbled when they admitted it was a buffed up Chevy Vega, but if an investor were stupid enough to pay Mercedes prices for a Chevy Vega, who was really at fault?
It is perhaps telling that in the Q&A sessions at the various presentations by lawyers to MBO investors the focus is not on the merits of a legal challenge-but on the likelihood and costs of winning. Of course investors rarely let pride get in the way of money-driving up to the courthouse in their Chevy Vegas, with a crooked Mercedes Stern on the hood.
Thursday 28 October 2010
The Blather of Lord Heseltine
In keeping with good government practice the Coalition government will abolish the Regional Development Agencies (RDA) and replace it with the new and improved Regional Growth Fund (RGF). The government has decided to drag out old the old warhorse Lord Heseltine to chair the panel responsible for distributing the RGF funds.
In an interview on his new role he started off by saying he didn't understand all the fuss surrounding the loss of 500,000 jobs in the Public Sector. These are, according to Lord Hes, the same jobs that would be lost through attrition and/or retirement. This might be true. If so however, either announcing cutting them is a farce, or he just happened to forget that the difference is that those 500,000 won't be replaced.
Skirting that issue he jumped into "The private sector will provide" refrain, coupled with the retort that relying on taxpayer's money in order to support the regions is "yesterday's language". Oh really. The RGF will provide a fund-out of either thin air, or more likely taxpayer's money-and then "make the best judgements available" in order to distribute it to the private sector?!
When asked how this supposed reliance on the private sector to drive the economy forward squared with his previous title of "Mr Intervention"-a title he gained for famously saying when in government in the 80's that he would intervene before breakfast, before lunch and after dinner if it meant supporting British industry-he gave the most political of answers-"All my political career, and actually before it, we have seen the transfer of wealth, decision making and power from the provinces to London".
Not quite the answer I was looking for, but then again, it is very difficult to combine intelligent thought with ideological blather. Just ask Mr Osborne-a man who has never worked a day in his life-smirk his way through the nonsense that these cuts were ever anything more than an unsubstantiated gamble predicated on a shallow understanding of Milton Friedman's and dislike of John Maynard Keynes.
In an interview on his new role he started off by saying he didn't understand all the fuss surrounding the loss of 500,000 jobs in the Public Sector. These are, according to Lord Hes, the same jobs that would be lost through attrition and/or retirement. This might be true. If so however, either announcing cutting them is a farce, or he just happened to forget that the difference is that those 500,000 won't be replaced.
Skirting that issue he jumped into "The private sector will provide" refrain, coupled with the retort that relying on taxpayer's money in order to support the regions is "yesterday's language". Oh really. The RGF will provide a fund-out of either thin air, or more likely taxpayer's money-and then "make the best judgements available" in order to distribute it to the private sector?!
When asked how this supposed reliance on the private sector to drive the economy forward squared with his previous title of "Mr Intervention"-a title he gained for famously saying when in government in the 80's that he would intervene before breakfast, before lunch and after dinner if it meant supporting British industry-he gave the most political of answers-"All my political career, and actually before it, we have seen the transfer of wealth, decision making and power from the provinces to London".
Not quite the answer I was looking for, but then again, it is very difficult to combine intelligent thought with ideological blather. Just ask Mr Osborne-a man who has never worked a day in his life-smirk his way through the nonsense that these cuts were ever anything more than an unsubstantiated gamble predicated on a shallow understanding of Milton Friedman's and dislike of John Maynard Keynes.
Tuesday 26 October 2010
If I Were Chancellor of the Exchequer...
I was avoiding answering this question as I thought it would involve an inordinate amount of research to put together a comprehensive, and hopefully irrefutable answer. I have a tendency to be a bit too literal and so in this instance I was standing much in my own way.
For upon reflection I concluded that it was actually a very basic question amounting to either cutting the budget and thereby introducing a new austerity to Britain, or or to employ deficit spending by the government as a means of stimulating the economy until such time that economic growth achieved the critical mass to continue to grow without government intervention.
To answer the question I will split the world of economics into Monetarists and Keynesian's. Of course there are other variations, but if we concern ourselves with questions of monetary versus fiscal policy solutions to economic questions it will facilitate my answer.
To narrow the discussion down to this level requires answering some fundamental questions pertaining to the role of government, and theories of economics.
At a minimum I would maintain that governments are there primarily for four basic reasons: 1.)To protect the state from outside aggression; 2.)to ensure civil peace/obedience i.e. police and a legal framework; and 3.) to provide public services such as transportation, infrastructure, etc.
This is where the notion of political economics comes into play. The basic purposes of government as I have defined them have to be paid for. This means taxation, the fourth purpose. Any money taken in the form of taxes means that the private sector has less. Hence the question of fiscal policy and how taxation, the most basic form of government intervention effects the economy.
But there is still one more question or perhaps purpose to be queried. Is the government also responsible to introduce fiscal policies to promote employment, and if so, what is the fiscal policy/employment/inflation relationship?
The Keynesian's in the room would maintain that a mixed economy, predominantly private sector, but with a large role for government and the public sector is the correct route and that the introduction of massive spending cuts is the wrong choice.
The Monetarists would counter this maintaining that government interference in economics, especially in the creation of a massive budget deficit is anti-business and that the "crowding-out" effect of government debt supply would counteract any positive effects of government spending.
They-the Monetarists would have to explain how they wanted to get us out of the current "liquidity-trap" in which the Central Banks provide cheap funds to the banks who don't lend it on thus counteracting any positive effects of monetarist policy.
They would find this extremely difficult.
The private sector doesn't invest because there is either no current demand, or they don't foresee (rising) demand in the future. Of course they don't invest. There is no confidence, and cutting government spending by 25% to balance the budget, primarily at the expense of the public sector is a huge gamble. There has to be a distinction between benefits and the Public Sector.
As Chancellor I would introduce a massive overhaul of the benefits sector. Only those who truly can't work would continue to receive benefits. Everyone else would be made to fulfil some sort of work, even if it were just community service. I would also make cuts to the wealthy. Free Bus Passes, child benefit and other benefits such as winter fuel payments would have cut offs at income levels above £90,000. Strange but true I believe that marriage is a benefit to society, regardless of sexual preferences, and so households would be viewed, not individual working adults, despite the difficulties of means testing.
The Public Sector can be trimmed-it can always be trimmed, but only in conjunction with a viable growth program which will stimulate the private sector. I would establish a National Endowment to fund research and development in energy-all energy, including nuclear-with the stated goal to develop and manufacture in the UK. I would focus on infrastructure projects and would not sell off public assets such as the rights to run the Channel Tunnel.
Simply stated, all of the purposes of government as I have defined them require a functioning economy, and by that I mean a full-employment economy. It might mean that some parts of it are less profitable, that some parts could be more efficient. But it does not mean that the cheapest route is the best. It is not. I would go so far as to say that the pursuit of the cheapest is the problem, not the solution
For upon reflection I concluded that it was actually a very basic question amounting to either cutting the budget and thereby introducing a new austerity to Britain, or or to employ deficit spending by the government as a means of stimulating the economy until such time that economic growth achieved the critical mass to continue to grow without government intervention.
To answer the question I will split the world of economics into Monetarists and Keynesian's. Of course there are other variations, but if we concern ourselves with questions of monetary versus fiscal policy solutions to economic questions it will facilitate my answer.
To narrow the discussion down to this level requires answering some fundamental questions pertaining to the role of government, and theories of economics.
At a minimum I would maintain that governments are there primarily for four basic reasons: 1.)To protect the state from outside aggression; 2.)to ensure civil peace/obedience i.e. police and a legal framework; and 3.) to provide public services such as transportation, infrastructure, etc.
This is where the notion of political economics comes into play. The basic purposes of government as I have defined them have to be paid for. This means taxation, the fourth purpose. Any money taken in the form of taxes means that the private sector has less. Hence the question of fiscal policy and how taxation, the most basic form of government intervention effects the economy.
But there is still one more question or perhaps purpose to be queried. Is the government also responsible to introduce fiscal policies to promote employment, and if so, what is the fiscal policy/employment/inflation relationship?
The Keynesian's in the room would maintain that a mixed economy, predominantly private sector, but with a large role for government and the public sector is the correct route and that the introduction of massive spending cuts is the wrong choice.
The Monetarists would counter this maintaining that government interference in economics, especially in the creation of a massive budget deficit is anti-business and that the "crowding-out" effect of government debt supply would counteract any positive effects of government spending.
They-the Monetarists would have to explain how they wanted to get us out of the current "liquidity-trap" in which the Central Banks provide cheap funds to the banks who don't lend it on thus counteracting any positive effects of monetarist policy.
They would find this extremely difficult.
The private sector doesn't invest because there is either no current demand, or they don't foresee (rising) demand in the future. Of course they don't invest. There is no confidence, and cutting government spending by 25% to balance the budget, primarily at the expense of the public sector is a huge gamble. There has to be a distinction between benefits and the Public Sector.
As Chancellor I would introduce a massive overhaul of the benefits sector. Only those who truly can't work would continue to receive benefits. Everyone else would be made to fulfil some sort of work, even if it were just community service. I would also make cuts to the wealthy. Free Bus Passes, child benefit and other benefits such as winter fuel payments would have cut offs at income levels above £90,000. Strange but true I believe that marriage is a benefit to society, regardless of sexual preferences, and so households would be viewed, not individual working adults, despite the difficulties of means testing.
The Public Sector can be trimmed-it can always be trimmed, but only in conjunction with a viable growth program which will stimulate the private sector. I would establish a National Endowment to fund research and development in energy-all energy, including nuclear-with the stated goal to develop and manufacture in the UK. I would focus on infrastructure projects and would not sell off public assets such as the rights to run the Channel Tunnel.
Simply stated, all of the purposes of government as I have defined them require a functioning economy, and by that I mean a full-employment economy. It might mean that some parts of it are less profitable, that some parts could be more efficient. But it does not mean that the cheapest route is the best. It is not. I would go so far as to say that the pursuit of the cheapest is the problem, not the solution
Friday 22 October 2010
So Much for the Vaunted Private Sector
There is an interesting battle going on regarding the foreclosure mess in the U.S. and the role of the Reston, Virginia based company Mortgage Electronic Registration Systems (MERS).
It is a wonderful example of efficiency in the private sector.
Traditionally the mortgage business in the U.S. was predicated on a clear understanding of who held title to a specific property. If a lender on a mortgage wanted to sell the lien they were required to fill in new forms and pay filing fees each time a loan changed hands.
This was a cumbersome process which had a benefit that the documentation to title would be scrutinized by the purchaser in their normal due-diligence procedures. It took time, and time is money in the world of high-finance. So the giants of the Mortgage industry including Fannie Mae, Freddie Mac, GMAC and the Mortgage Bankers Association got together and created MERS in 1995 to facilitate the trading of mortgages at speed, bypassing local property laws.
Efficiency. The use of electronic systems to track mortgages as they were traded between firms in the creation of Mortgage Backed Securities (MBS) at lightning speed. As long as everything was going up there were no problems.
Now prices are declining, and the cracks begin to appear. MERS was created to smooth the securitisation process, and to allow lenders to avoid paying registration fees. Cost savings. What is not clear in this cost-saving efficency machine is if MERS is an agent or a principal.
This is a very important distinction. Apparently you can't be both, and yet being only one could be a real problem. An agent can't list itself as a principal. MERS states cleary that it is an agent-it was created as such. And yet it lists itself as a mortgagee. An agent doesn't hold title so in it's role as an agent it doesn't actually own the loan. Acting as an agent and as a principal could be contravening a precedent which states that you cannot separate the loan from the mortgage, and to do so makes the mortgage null and void. Null and void.
And in this case, although the borrower still owes the money, the mortgage can no longer be enforced-the house cannot be foreclosed on, and, my favorite, the house could be sold without paying off the mortgage as the borrow retains title!
Of course the lender can sue the borrower, and will. But most of the homeowners in question are financially distressed, and as the old saying goes, you can't reach into a naked man's pocket...
And the efficiency goes further. As MERS began submitting affidavits in foreclosures signed by "vice presidents" of the firm it turned out that the vice presidents had never seen the files as the affidavits stated they had. Even better, MERS allowed financial institutions that are its members to name anyone a vice president so none of these people actually worked for MERS.
And you wonder why our financial system needed to be bailed out by TARP.
It is a wonderful example of efficiency in the private sector.
Traditionally the mortgage business in the U.S. was predicated on a clear understanding of who held title to a specific property. If a lender on a mortgage wanted to sell the lien they were required to fill in new forms and pay filing fees each time a loan changed hands.
This was a cumbersome process which had a benefit that the documentation to title would be scrutinized by the purchaser in their normal due-diligence procedures. It took time, and time is money in the world of high-finance. So the giants of the Mortgage industry including Fannie Mae, Freddie Mac, GMAC and the Mortgage Bankers Association got together and created MERS in 1995 to facilitate the trading of mortgages at speed, bypassing local property laws.
Efficiency. The use of electronic systems to track mortgages as they were traded between firms in the creation of Mortgage Backed Securities (MBS) at lightning speed. As long as everything was going up there were no problems.
Now prices are declining, and the cracks begin to appear. MERS was created to smooth the securitisation process, and to allow lenders to avoid paying registration fees. Cost savings. What is not clear in this cost-saving efficency machine is if MERS is an agent or a principal.
This is a very important distinction. Apparently you can't be both, and yet being only one could be a real problem. An agent can't list itself as a principal. MERS states cleary that it is an agent-it was created as such. And yet it lists itself as a mortgagee. An agent doesn't hold title so in it's role as an agent it doesn't actually own the loan. Acting as an agent and as a principal could be contravening a precedent which states that you cannot separate the loan from the mortgage, and to do so makes the mortgage null and void. Null and void.
And in this case, although the borrower still owes the money, the mortgage can no longer be enforced-the house cannot be foreclosed on, and, my favorite, the house could be sold without paying off the mortgage as the borrow retains title!
Of course the lender can sue the borrower, and will. But most of the homeowners in question are financially distressed, and as the old saying goes, you can't reach into a naked man's pocket...
And the efficiency goes further. As MERS began submitting affidavits in foreclosures signed by "vice presidents" of the firm it turned out that the vice presidents had never seen the files as the affidavits stated they had. Even better, MERS allowed financial institutions that are its members to name anyone a vice president so none of these people actually worked for MERS.
And you wonder why our financial system needed to be bailed out by TARP.
Thursday 21 October 2010
Is the Public Sector the Golden Goose?
I saw today that the Province of Alberta is considering tinkering with the National Health Care System by introducing "for profits" providers into the mix.
The biggest complaint by Albertans is the length of the waiting lists for major operations for conditions which aren't life threatening such as knee replacements.
Quite how introducing profit-based providers into the public health system is going to improve this problem is beyond me. The usual laissez-faire chant is "efficiency, efficiency, efficiency". It is true that wastage exists in the public sector. It is also true that wastage takes place in the private sector.
What generally happens is when things are going well the amount of careless spending increases. Contracts or subscriptions aren't cancelled although the services provided are no longer needed. Suppliers are not reviewed to insure they are still delivering value for money. It all adds up and what seemed like a pittance in times of plenty suddenly becomes outrageous when times are tough.
So we get the $400 hammer or the £10 pencil in the public sector, as if they didn't occur in the private sector. The belief in the invisible hand of the market to ensure that such "inefficiencies" don't happen in the private sector is garbage. Of course they do. They just don't come under the same scrutiny as the public sector, and it is strange how the invisible hand of the market is easily transformed into the visible hand of the manager. .
In the U.K. the billionaire Sir Philip Green is contracted by the Conservative/LibDem government to write a report on the amount of wastage in the public sector. And then we are supposed to be surprised by his findings highlighting waste at every corner.
My favourite is the attack on the cost of telecommunications. IT is one of the most expensive items in any budget. The providers are essentially an oligopoly. They employ one of the most simple tricks in the book. They offer their hardware below cost, but only in conjunction with long term service contracts. Changing contracts is incredibly expensive. Mr Green can easily show where he could get a cheaper provider. But does he factor in the cost of breaking contracts? Of replacing old hardware?
It is really a question of management, or more specifically of that incredibly rare commodity, good management. This is a problem in both the public and the private sector. Stringent attention to cost control is a prerequisite regardless of the state of the economy and whether the institution in question is in the for-profit or non-profit sector.
It would be a step in the right direction to force private sector companies to declare that part of their business which comes from the public sector, and the profit margins they generate. The private sector company selling a $5 hammer for $400 is not an innocent bystander in this.
The biggest complaint by Albertans is the length of the waiting lists for major operations for conditions which aren't life threatening such as knee replacements.
Quite how introducing profit-based providers into the public health system is going to improve this problem is beyond me. The usual laissez-faire chant is "efficiency, efficiency, efficiency". It is true that wastage exists in the public sector. It is also true that wastage takes place in the private sector.
What generally happens is when things are going well the amount of careless spending increases. Contracts or subscriptions aren't cancelled although the services provided are no longer needed. Suppliers are not reviewed to insure they are still delivering value for money. It all adds up and what seemed like a pittance in times of plenty suddenly becomes outrageous when times are tough.
So we get the $400 hammer or the £10 pencil in the public sector, as if they didn't occur in the private sector. The belief in the invisible hand of the market to ensure that such "inefficiencies" don't happen in the private sector is garbage. Of course they do. They just don't come under the same scrutiny as the public sector, and it is strange how the invisible hand of the market is easily transformed into the visible hand of the manager. .
In the U.K. the billionaire Sir Philip Green is contracted by the Conservative/LibDem government to write a report on the amount of wastage in the public sector. And then we are supposed to be surprised by his findings highlighting waste at every corner.
My favourite is the attack on the cost of telecommunications. IT is one of the most expensive items in any budget. The providers are essentially an oligopoly. They employ one of the most simple tricks in the book. They offer their hardware below cost, but only in conjunction with long term service contracts. Changing contracts is incredibly expensive. Mr Green can easily show where he could get a cheaper provider. But does he factor in the cost of breaking contracts? Of replacing old hardware?
It is really a question of management, or more specifically of that incredibly rare commodity, good management. This is a problem in both the public and the private sector. Stringent attention to cost control is a prerequisite regardless of the state of the economy and whether the institution in question is in the for-profit or non-profit sector.
It would be a step in the right direction to force private sector companies to declare that part of their business which comes from the public sector, and the profit margins they generate. The private sector company selling a $5 hammer for $400 is not an innocent bystander in this.
Wednesday 20 October 2010
Who's Driving this Bus?
We recently had a long discussion about capitalism and socialism. The youthful representative presented the idea that they both wanted the same thing-to provide for the people- with two major differences. Socialism ends up not providing, and capitalism ends up only providing for the few.
It made me think of a conversation I had with a Chinese investment banker who had originally worked for the Central Bank of the People's Republic and then came to work for a French bank.
As we strolled down Tiananmen Square, shadowed by state security agents who followed us everywhere despite the fact that it was 2007, I asked him what he thought Mao would think of modern China in its new capitalist version. He paused for a moment and then said, "Mao would have been surprised by the methodology, but in the end modern China was achieving what Mao had striven for."
I looked around me as I stood in line to file past Mao's preserved corpse; to the west the parliamentary building, to the east the Chinese National Museum, and to the north the Forbidden City. Old China and Modern China. Walk in any direction and you will come to the first ring road, then the second, the third...they are up to the 9th. Each one appears to replicate what was inside the previous ring, until you reach the countryside.
It is bleak. Essentially a desert, although man-made. The air is terribly polluted. The water supplies are rapidly being depleted. And there is a massive gap between the rich and poor.
So capitalism as an economic approach is bringing China into the 21st century, where socialism/communism didn't. The constant is totalitarianism as a political system.
To be fair the political elite in China is very concerned about the plight of the masses-they have to be. Social stability is a prerequisite for them to remain in power.
Theoretically the political elite in a democracy is put in place by the masses who presume their politicians will then institute programs for the benefit of those who voted for them.
Except once they get elected and start to implement policies the electorate recently has decided to voice their displeasure.
Its interesting how the totalitarians are worried about social unrest, while the western democracies response to the financial crisis seems to be inviting it.
It made me think of a conversation I had with a Chinese investment banker who had originally worked for the Central Bank of the People's Republic and then came to work for a French bank.
As we strolled down Tiananmen Square, shadowed by state security agents who followed us everywhere despite the fact that it was 2007, I asked him what he thought Mao would think of modern China in its new capitalist version. He paused for a moment and then said, "Mao would have been surprised by the methodology, but in the end modern China was achieving what Mao had striven for."
I looked around me as I stood in line to file past Mao's preserved corpse; to the west the parliamentary building, to the east the Chinese National Museum, and to the north the Forbidden City. Old China and Modern China. Walk in any direction and you will come to the first ring road, then the second, the third...they are up to the 9th. Each one appears to replicate what was inside the previous ring, until you reach the countryside.
It is bleak. Essentially a desert, although man-made. The air is terribly polluted. The water supplies are rapidly being depleted. And there is a massive gap between the rich and poor.
So capitalism as an economic approach is bringing China into the 21st century, where socialism/communism didn't. The constant is totalitarianism as a political system.
To be fair the political elite in China is very concerned about the plight of the masses-they have to be. Social stability is a prerequisite for them to remain in power.
Theoretically the political elite in a democracy is put in place by the masses who presume their politicians will then institute programs for the benefit of those who voted for them.
Except once they get elected and start to implement policies the electorate recently has decided to voice their displeasure.
Its interesting how the totalitarians are worried about social unrest, while the western democracies response to the financial crisis seems to be inviting it.
Tuesday 19 October 2010
Integration, Assimilation, and Racism,
I just came back from a weekend in Belgium which even before any major influx of immigrants was a country struggling with the challenges of a multicultural society. The vagaries of European history managed to create a country in Northern Europe which crossed linguistic and cultural boundaries.
It was amazing how French the Walloons were, and how Dutch the Flemish were. The cause cannot be strictly on religious grounds as they are nominally all Catholics due to the fact that they were under either Spanish, Austrian or French rule for almost 300 years.
It can only partially be due to language. Regardless of where you live, the education system in both regions teaches the "local" language in primary school, then the "other" Belgian language followed by the offer of a third language-usually English- in High School.
There are obviously tensions in Belgium, and there are extremists on both sides of the language divide, but generally everyone is able to communicate with one another.
In Belgium's case the initial problems appear to be much more of an economic nature. Initially the French south was much stronger, and now the Flemish north is the more powerful. Over time this might shift again, but it is essentially an intra-Belgian/European spat.
Belgium also has a growing immigrant community, initially from its former Central African colonies, and now also increasingly from North Africa and the Middle-East. Riding on the train we happened to sit next to a woman who overhearing us speaking addressed us in English to give us directions.
She was Nigerian. She spoke Flemish, but preferred English although she had been there for 14 years. She had a Belgium passport. As she explained it, if you are "proper" i.e. worked and were a model citizen getting a passport after 3 years was not that onerous. What was difficult she continued, despite getting the passport, was the color of her skin.
Now I don't know what religion she was-Nigeria is basically 50-50 Christian/Islam- so I can't be certain that religion wasn't one of the barriers she had to overcome. But in her own words, the real problem was that she wasn't white.
I reflected on this. Across Europe there are many discussions about multicultural societies and their effect on the "domestic" culture. The discussion seems to center on language and religion, and of course the economic impact.
I would suggest that in the first instance the official embrace of multiculturalism has hampered the realisation that new immigrants must learn the language of their "host" country. Without that there is no chance of integration.
The second hurdle is the ease by which Islam is cited as a barrier to entering "society" and an explanation as to why some immigrants don't want to be integrated. I believe that when we speak of integration we actually mean assimilation, and I think that over time, in conjunction with language, that the practice of religion can be assimilated.
That leaves Race, the aspect no one wants to address and the one thing you can't change-except through miscegenation- as the real problem to integration/assimilation.
It was amazing how French the Walloons were, and how Dutch the Flemish were. The cause cannot be strictly on religious grounds as they are nominally all Catholics due to the fact that they were under either Spanish, Austrian or French rule for almost 300 years.
It can only partially be due to language. Regardless of where you live, the education system in both regions teaches the "local" language in primary school, then the "other" Belgian language followed by the offer of a third language-usually English- in High School.
There are obviously tensions in Belgium, and there are extremists on both sides of the language divide, but generally everyone is able to communicate with one another.
In Belgium's case the initial problems appear to be much more of an economic nature. Initially the French south was much stronger, and now the Flemish north is the more powerful. Over time this might shift again, but it is essentially an intra-Belgian/European spat.
Belgium also has a growing immigrant community, initially from its former Central African colonies, and now also increasingly from North Africa and the Middle-East. Riding on the train we happened to sit next to a woman who overhearing us speaking addressed us in English to give us directions.
She was Nigerian. She spoke Flemish, but preferred English although she had been there for 14 years. She had a Belgium passport. As she explained it, if you are "proper" i.e. worked and were a model citizen getting a passport after 3 years was not that onerous. What was difficult she continued, despite getting the passport, was the color of her skin.
Now I don't know what religion she was-Nigeria is basically 50-50 Christian/Islam- so I can't be certain that religion wasn't one of the barriers she had to overcome. But in her own words, the real problem was that she wasn't white.
I reflected on this. Across Europe there are many discussions about multicultural societies and their effect on the "domestic" culture. The discussion seems to center on language and religion, and of course the economic impact.
I would suggest that in the first instance the official embrace of multiculturalism has hampered the realisation that new immigrants must learn the language of their "host" country. Without that there is no chance of integration.
The second hurdle is the ease by which Islam is cited as a barrier to entering "society" and an explanation as to why some immigrants don't want to be integrated. I believe that when we speak of integration we actually mean assimilation, and I think that over time, in conjunction with language, that the practice of religion can be assimilated.
That leaves Race, the aspect no one wants to address and the one thing you can't change-except through miscegenation- as the real problem to integration/assimilation.
Tuesday 12 October 2010
The Defective Society?
In pondering the causes for poverty in our advanced, wealthy societies I have been reading Henry George's "Progress and Poverty".
Granted, it was written in 1879 and has therefore been superseded by history in some aspects, there are still some basic points he makes the gist of which is that the cause of want and poverty is social and not natural.
Mr George's basic premise was to refute the tenets of Malthus whose population theory he held essentially excused the presence of the poor and needy to the natural (Godly)order of things. His argument was that Malthus allowed laissez-faire capitalists to ignore both the have-nots and the attempts of the socialists/Marxists to provide an alternative political economic view of the world.
He maintained that the earth could actually provide for all humanity, and certainly that we in the advanced nations could at a minimum ensure no one in our society need go without the basic necessities of life. The fact that we don't is because our political economic systems don't cater to this sector of society-hence it is as a result of human intervention.
But recently I have been involved in a discussion which questions this basic assumption. What if there is a group in society which is naturally predisposed to need-either actively or passively. Is there a group that is content to be classified as "needy", and is happy to be provided for?
What I am asking is not if there are people through no action of their own who are incapable of working. Incapacity does exist. It might be physical; it might be mental. It is real and in a moral society I believe we have a responsibility to help those who can't help themselves.
The question I am asking is a more basic one. Is it in the natural order of things that there will always exist a section of the population that requires assistance, and if so how do we define them, and what percentage of the whole do they represent?
There is an ancillary question however. In addition to those that don't have the same access to education, to opportunity, is there perhaps a group that doesn't have the ambition to change its circumstances?
I am aware that this is dangerous ground- but I also believe the subject has to be addressed. Does there exist a group in society that is content to receive public assistance without entering into the basic social contract. It is a free lunch, notwithstanding the fact that the amounts being disbursed to any one individual might appear to be insufficient.
Unfortunately the discussion often centers around the amount distributed focusing on the fact that it is barely sufficient, if that, to provide for the most basic living requirements. And, so the argument goes, how can a wealthy society not provide more to its disadvantaged members.
Another argument is that the cost of discerning between those that cannot fend for themselves and those that are content not to is so expensive such that it is cheaper and somehow more efficient to subsidise all of them.
I disagree.
Regardless of the problems with the inequities in compensation and taxation that occur in our society we have to ensure that everyone who can work, does. Yes it might mean a large public sector. Yes it will mean that the costs to determine who can and who can't work will have to be paid; it also means that the costs associated with determining who receives social benefits, looking at the poorest, and the wealthiest, will have to be born.
It is not a question of either social spending or not. It is not a question of Socialism or Laissez-Faire Capitalism.
It is a realisation that spending has to be controlled- and so does Capitalism.
Generally it is said that war is much too serious to be entrusted to the military. I would say society is much to important to be entrusted to economists.
Granted, it was written in 1879 and has therefore been superseded by history in some aspects, there are still some basic points he makes the gist of which is that the cause of want and poverty is social and not natural.
Mr George's basic premise was to refute the tenets of Malthus whose population theory he held essentially excused the presence of the poor and needy to the natural (Godly)order of things. His argument was that Malthus allowed laissez-faire capitalists to ignore both the have-nots and the attempts of the socialists/Marxists to provide an alternative political economic view of the world.
He maintained that the earth could actually provide for all humanity, and certainly that we in the advanced nations could at a minimum ensure no one in our society need go without the basic necessities of life. The fact that we don't is because our political economic systems don't cater to this sector of society-hence it is as a result of human intervention.
But recently I have been involved in a discussion which questions this basic assumption. What if there is a group in society which is naturally predisposed to need-either actively or passively. Is there a group that is content to be classified as "needy", and is happy to be provided for?
What I am asking is not if there are people through no action of their own who are incapable of working. Incapacity does exist. It might be physical; it might be mental. It is real and in a moral society I believe we have a responsibility to help those who can't help themselves.
The question I am asking is a more basic one. Is it in the natural order of things that there will always exist a section of the population that requires assistance, and if so how do we define them, and what percentage of the whole do they represent?
There is an ancillary question however. In addition to those that don't have the same access to education, to opportunity, is there perhaps a group that doesn't have the ambition to change its circumstances?
I am aware that this is dangerous ground- but I also believe the subject has to be addressed. Does there exist a group in society that is content to receive public assistance without entering into the basic social contract. It is a free lunch, notwithstanding the fact that the amounts being disbursed to any one individual might appear to be insufficient.
Unfortunately the discussion often centers around the amount distributed focusing on the fact that it is barely sufficient, if that, to provide for the most basic living requirements. And, so the argument goes, how can a wealthy society not provide more to its disadvantaged members.
Another argument is that the cost of discerning between those that cannot fend for themselves and those that are content not to is so expensive such that it is cheaper and somehow more efficient to subsidise all of them.
I disagree.
Regardless of the problems with the inequities in compensation and taxation that occur in our society we have to ensure that everyone who can work, does. Yes it might mean a large public sector. Yes it will mean that the costs to determine who can and who can't work will have to be paid; it also means that the costs associated with determining who receives social benefits, looking at the poorest, and the wealthiest, will have to be born.
It is not a question of either social spending or not. It is not a question of Socialism or Laissez-Faire Capitalism.
It is a realisation that spending has to be controlled- and so does Capitalism.
Generally it is said that war is much too serious to be entrusted to the military. I would say society is much to important to be entrusted to economists.
Monday 11 October 2010
Quick Follow-up to "Russia"
The short list of candidates for the Moscow mayoralty was publicly unveiled yesterday by Russian President Dmitiri Medvedev. The current chief of staff for Russian Prime Minister Vladimir Putin, a Mr Sergei Sobyanin, tops the list.
Sounds like the Kremlin continues to rule everything in Russia.
Sounds like the Kremlin continues to rule everything in Russia.
If I were King of the Forest....
I was recently asked to give an opinion on the economic impact of the austerity plans being introduced in the UK. Bluntly put, did I think that the result would be to push the UK back in to recession, or would the overall effect be positive for the economy.
My initial response was to start to answer from a political point of view. Unfortunately I had to quickly admit that the truth is that no one really knows what the effect of the austerity plan in the UK, or the stimulus plan in the U.S. will be.
That made me reflect for a moment. Each side of the discussion can show what the effects have been in the past of both austerity, as well as stimulus programs. There are historical precedents of where both have worked, and where neither has worked.
It is perhaps not as strange as that might sound. The initial studies of economics were actually called political economics. I am not sure when the term political was dropped. I have to assume it was to extricate the study of economics from the realm of politics, which is essentially a cross between social theory and some aspect of philosophy and moral thought.
Generally speaking, science is supposed to be free of moral and philosophical considerations. It is more difficult to maintain that distinction if the science intended is attached to politics. Hence the transition from 'political' economics to the 'science' of economics.
A clever move. It frees economists from any moral or ethical guilt. It provides a "best case" approach to a life where "all things being equal.....".
Even if for a moment in time all things were equal, they do not stay that way. Austerity plans and Stimulus spending will effect the economical and therefore the social health of a society.
And so I paused in my response, and rephrased the question. "What would I do if I were Chancellor of the Exchequer? That is a very different proposition which I shall endeavour to answer over the next couple of days. Not to write the full budget for the UK, but to think in terms of political economics.
My initial response was to start to answer from a political point of view. Unfortunately I had to quickly admit that the truth is that no one really knows what the effect of the austerity plan in the UK, or the stimulus plan in the U.S. will be.
That made me reflect for a moment. Each side of the discussion can show what the effects have been in the past of both austerity, as well as stimulus programs. There are historical precedents of where both have worked, and where neither has worked.
It is perhaps not as strange as that might sound. The initial studies of economics were actually called political economics. I am not sure when the term political was dropped. I have to assume it was to extricate the study of economics from the realm of politics, which is essentially a cross between social theory and some aspect of philosophy and moral thought.
Generally speaking, science is supposed to be free of moral and philosophical considerations. It is more difficult to maintain that distinction if the science intended is attached to politics. Hence the transition from 'political' economics to the 'science' of economics.
A clever move. It frees economists from any moral or ethical guilt. It provides a "best case" approach to a life where "all things being equal.....".
Even if for a moment in time all things were equal, they do not stay that way. Austerity plans and Stimulus spending will effect the economical and therefore the social health of a society.
And so I paused in my response, and rephrased the question. "What would I do if I were Chancellor of the Exchequer? That is a very different proposition which I shall endeavour to answer over the next couple of days. Not to write the full budget for the UK, but to think in terms of political economics.
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