News What are the potential impacts of public confidence on the economy's recovery?

[CAC1001]

Yes, and in the short term they want to increase their exports. But it would be naive of us to assume this is what will occur indefinitely. Besides money, what the Chinese have gotten from the US is technology and the know how of how to industrialize and grow their economy. But eventually, if the US can not provide something tangible to China (especially considering the US money is ultimately being fueled by loans from China) it will not be in the economic interest of the Chinese people to continue the current export pattern. Imagine we have an island. A man fishes, a man hunts, a man grows vegetables. I say, well, I am eating their vegetables, eating their fish, and eating their game, so I am giving them all something to do!

I think the U.S. will have plenty to offer China, considering how much we produce. No country can do everything.

 

[loseyourname]

You are asserting totalitarian systems are more efficient in this regard, based on the assertion that a dictator knows better what is 'effective' than does the populace engaged in the daily give and take of the market place.

No I'm not. I'm not saying anything at all about the allocation of private capital. Leave that to the markets. I'm just talking about the effectiveness of government stimulus spending. There's hardly any question that granting government funds to build an airport where there is high demand for airport travel is an optimally effective use of funds appropriated for building airports. In China, that's what would happen. In the U.S., funds would be split between the senators with the best connections at getting pork money funneled into their states whether or not there was any demand for what was being built.

 

[mheslep]

No I'm not. I'm not saying anything at all about the allocation of private capital. Leave that to the markets. I'm just talking about the effectiveness of government stimulus spending. There's hardly any question that granting government funds to build an airport where there is high demand for airport travel is an optimally effective use of funds appropriated for building airports. In China, that's what would happen.

That would happen in China based on what theory? Why wouldn't the airport be located on, say, the whim of the Prime Minister's nephew, with objectors to the nepotism thrown into prison on a similar whim and to hell what with what's most effective for the country?

 

[WhoWee]

I'm not sure this is a good sign.
http://articles.latimes.com/keyword/stock-market/recent/2

"BUSINESS
Wall Street's main focus will be on Fed, not corporate earnings
October 11, 2010 | By Reuters
Not even earnings reports from big names such as Google Inc. and General Electric Co. this week will be able to pull Wall Street's focus away from the possibility of more cheap cash flowing in from the Federal Reserve. Normally when the likes of JPMorgan Chase & Co. or Intel Corp. ? which are also reporting this week ? tell investors how much they earned in the previous quarter, the stock market hangs on every word. But after Friday's surprisingly anemic payrolls report, the increased likelihood the Fed will buy more assets like Treasury bonds to stimulate the economy has investors ignoring the usual benchmarks.
"

 

[Astronuc]

Partly as a result, some economists now predict that it could take years or even a decade for the American economy to regain the levels of employment and vigor achieved before the 2008 crisis. The growing political pressure for cuts in federal spending — along with plunging consumer confidence and companies that seem more intent on cutting costs and hoarding cash than investing in new growth — have led economists to talk of the United States’ entering a grim new era of austerity.

That is very close to what befell Japan two decades ago, . . .

U.S. Hears Echo of Japan’s Woes
http://www.nytimes.com/2010/10/30/world/asia/30japan.htm

The question is - cut what?

Then there's the Attack of the Zombie bonds - or Toxic Assets, Part II
http://marketplace.publicradio.org/display/web/2010/10/29/pm-zombie-bonds-attack/

So the economy grew at a roaring pace of 2% in the 3rd quarter, but I have to wonder how much the aggregate debt grew. 8%? 10%? or more?

http://www.nytimes.com/2010/10/30/business/economy/30econ.html
FYI - http://marketplace.publicradio.org/display/web/2010/10/29/pm-factors-behind-gdp-growth/

http://www.census.gov/indicator/www/ustrade.html
http://www.nytimes.com/2010/10/15/business/economy/15econ.html

http://www.federalbudget.com/

Federal Debt As Pct GDP
http://www.usgovernmentspending.com/federal_deficit_chart.html


On a cheery note for some -

The Wall Street Journal recently estimated that Wall Street bonuses in 2010 will total $144 billion, in a year that has been less than stellar for most banks.

http://opinionator.blogs.nytimes.com/2010/10/28/on-wall-street-all-reward-no-risk/

 

[WhoWee]

On a cheery note for some - http://opinionator.blogs.nytimes.com/2010/10/28/on-wall-street-all-reward-no-risk/

LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL

 

[Astronuc]

LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL

Reform? I just seems like business as usual.

 

[turbo]

Reform? I just seems like business as usual.

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

 

[CAC1001]

On Obama's Wall Street reform, keep in mind that a lot of the regulations to the reform have not even been written yet. That is one of the complaints from Republicans. That the bill was passed, and when the regulations start getting written, it is going to bring in armies of lobbyists from the big financial institutions, who will want the regulations written to benefit them.

On Japan, one thing I remember reading is that Japan lacks the entrepreneurship America does, which could partially explain their stalled economy. In Japan, failure is very looked down upon. Japanese businessmen who have lost their job have been known to go out each morning and pretend to go off to work because they are so ashamed. Some also have been known to kill themselves with the really big screwups. It's the influence of that old Samurai culture or something. If American culture was like Japan, quite a few of our Wall Street guys might have committed suicide.

This averseness to risk has the effect of discouraging business startups in Japan. In America, by contrast, the image of the successful entrepreneur oftentimes is the guy who failed three or four times before finally succeeding. America is a lot more tolerant of risk. As such, I don't know if our economy will suffer the same fate as the Japanese.

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

Raising interest rates during a bad economy can wreak havoc on the economy though. Also Congress wouldn't like it, and I doubt the Obama administration would give it any support either because it could mess up the economy further right as the 2012 season is starting up.

 

[brainstorm]

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

Do you think it might also have the effect of making labor markets more competitive by securely anchoring people in debt so that they have to do anything their employers want to keep their jobs and take any job they can get, even if they don't want it?

edit: I should clarify that I meant by seducing people into taking on a lot of debt by offering relatively low payments.

 

[WhoWee]

Do you think it might also have the effect of making labor markets more competitive by securely anchoring people in debt so that they have to do anything their employers want to keep their jobs and take any job they can get, even if they don't want it?

edit: I should clarify that I meant by seducing people into taking on a lot of debt by offering relatively low payments.

I think FAR too many people are now comfortable taking Government subsidies.

 

[brainstorm]

I think FAR too many people are now comfortable taking Government subsidies.

Well, just wait until you see what they do when they come the realization that the subsidies are not only not free, but that they're not going to be any better off because the government was the financial intermediary and the money was "subsidies" instead of "loans." Sure, it stimulates spending to tell people money is a gift that they won't have to pay back.

But what do they think happens to the money after they spend it? It goes into people's pockets who are going to use it to get as much work out of them as they possibly can. This basically means that spending now sets you up for a subsequent period of economic exploitation, but as usual, many people only look at the present or the short-term and ignore the future and the long-term.

 

[mheslep]

U.S. Hears Echo of Japan’s Woes
http://www.nytimes.com/2010/10/30/world/asia/30japan.htm

]

Thanks for that one. This deserves a thread of its own.

Mr. Kato led a government advisory committee that concluded that the economy, which was then finally starting to rebound from the collapse of its 1980s land and stock bubbles, was healthy enough to raise the national consumption tax to 5 percent from 3 percent.

Aimed at reducing deficits, the tax increase instead quickly snuffed out the fragile recovery, pushing Japan to the brink of a financial meltdown and thrusting the nation deeper into the economic morass from which it has yet to emerge even today

Think Pelosi and Co will ever admit as follows?

“Our sins are large,” Mr. Kato, now president of Kaetsu University in Tokyo, said ruefully. “I hope the rest of the world can learn from this mistake.”

 

[OmCheeto]

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash.

I feel the same way. But I don't know how the Feds can keep the money away from the speculators, without keeping it away from us.

So I joined a local tax activist group yesterday.

The leader of the group supports http://www.govtrack.us/congress/bill.xpd?bill=h111-4191&tab=summary".

Amends the Internal Revenue Code to impose an excise tax on certain securities transactions, including transactions in stocks, futures, swaps, credit default swaps, and options. etc. etc. etc.

I think it's a partial solution to what you are referring to.

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

What do you think? Can 100 partial solutions solve the whole problem?

 

[CRGreathouse]

Can 100 partial solutions solve the whole problem?

I'm more inclined to think that the 100 would interact in unforeseen ways, making them at least as likely to cause great harm as to solve the problem.

 

[edward]

I feel the same way. But I don't know how the Feds can keep the money away from the speculators, without keeping it away from us.

So I joined a local tax activist group yesterday.

The leader of the group supports http://www.govtrack.us/congress/bill.xpd?bill=h111-4191&tab=summary".


I think it's a partial solution to what you are referring to.

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

What do you think? Can 100 partial solutions solve the whole problem?

Technology has definitely jumped ahead of regulation. Most of the top investment bank executives don't understand the new technology, except that it makes money.

This is worth 48 minutes of your time if you haven't seen it. It was actually produced by Dutch PBS.

QUANTS; THE ALCHEMISTS OF WALL STREET

http://www.republicmedia.tv/?p=1750


EDIT: Don't be discouraged by the over simplification at first. It really gets involved in a few minutes.

 

[Astronuc]

Interesting comment about "taking risk with money should be compensated, but taking risk with other peoples' money should not be compensated".

"Banking has lost touch with its purpose. It's become dangerous"

Increase in rate of financial crises since 1990. It sounds like someone needs to develop a stability analysis for financial systems.

The quant software is tool - it can be used for good, or it can be misused.

 

[OmCheeto]

I'm more inclined to think that the 100 would interact in unforeseen ways, making them at least as likely to cause great harm as to solve the problem.

That is about the most defeatist thing I've ever read.

I would agree that trying to fix things that are not broken will almost always result in the things being broken. But not fixing something that is broken, well, try that the next time the brake line in your car springs a leak.

[insert cute CRASH! metaphor here]

 

[turbo]

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

High-frequency electronic traders create instability and leverage it into profit with trades that might last only a second or less. I think that taxing such trades would be a good idea. High-frequency trades are not made based on perceptions of the value (current or future) of the commodities being invested in - just the price. It's enough to make one long for the short-sighted quarterly-profit-based trading models, which I detest.

I watched my fomer employer (a large paper company) slide from being a value-based enterprise that built market share and assets gradually and steadily, to being obsessed with short-term profit goals and short-term advantages over its competitors. That is stupid in the extreme. When you have a company that relies on its land holdings, and long-term management of the timber resources, you don't turn it over to bean-counters who know nothing about the business. The transformation began about 30 years ago and was complete soon after. I'm glad I never took "advantage" of the employee stock-ownership option.

Want to ruin your company? Turn it over to dilettants and reward them with cheap stock options, bonuses, or preferred stock whenever the company makes quarterly profit goals or experiences increases in stock prices. That's a game they will quickly turn to their advantage, to the detriment of the company and the holders of common shares.

 

[CRGreathouse]

That is about the most defeatist thing I've ever read.

Heh.

I advocate extreme, sweeping change. This would no doubt come with its fair share of problems which would need to be worked out. I don't think it's particularly defeatist to say that a 'death by a thousand cuts' series of changes would be every bit as risky.

 

[CRGreathouse]

Want to ruin your company? Turn it over to dilettants and reward them with cheap stock options, bonuses, or preferred stock whenever the company makes quarterly profit goals or experiences increases in stock prices. That's a game they will quickly turn to their advantage, to the detriment of the company and the holders of common shares.

This brings up a good point about the importance of choosing compensation strategies wisely. Pure stock option compensation seems good on the face (from the perspective of 30 years ago) in that it would force executives to focus on growth rather than simply holding on to power. Of course it does encourage that, but the wrong way: now a 50/50 chance of a large gain and ruination seems like a good strategy, since the downside is capped but the upside is not.

I'd like to see a thread on this topic. Holmstrom's (1982) theorem puts real limits on how well any compensation strategy can work, but there's enough room to find a workable method, perhaps. I'd love to see an analysis of how companies are handling the problem and what new problems this may lead to over time.

 

[turbo]

I'd like to see a thread on this topic. Holmstrom's (1982) theorem puts real limits on how well any compensation strategy can work, but there's enough room to find a workable method, perhaps. I'd love to see an analysis of how companies are handling the problem and what new problems this may lead to over time.

Perhaps you can formulate one and get it going. I watched my employer's business be destroyed by Wall-Street types who had no vision of things 50, 25, or even 5 years down the road. Their strategy was to get rich and move on, leaving workers and whole regions in financial straits.

The jerks were great black-mailers, too. They offered to "invest" in a new finishing line for an older paper mill a couple of towns over, if only the town would rebate their property taxes (a nice deal they called TIF). Tax-Increment-Financing sounded OK to many property-owners in the town because they thought it might save jobs, and the townspeople voted it in, over the objections of many of us in the company, including union members. Finishing equipment (calenders, sheeters, etc) are bolt-in "investments" and as soon as the mill's production got marginal, the company unplugged all that equipment, unbolted it, and shipped it out on flat-cars to be used elsewhere. Just like we said they would. The town's taxpayers paid a lot for that equipment and got nothing back for it.

I still have a vested retirement pension with that company - if it only survives long enough to pay out. During the Reagan years, pensions that were deemed to be "overfunded" were raided ruthlessly, so I doubt there will be anything above the bare minimum to pay benefits.

 

[Gokul43201]

LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL

Strawman? The Financial Reform Bill (which was passed only a few months ago, and hasn't enacted anything significant as yet) was aimed at putting in safeguards for improving long term financial stability and providing stronger oversight, and to my knowledge, did not purport to do anything with bonuses. In fact, I can't imagine you'd have been pleased with a bill that did try to regulate bonuses - I probably wouldn't.

 

[WhoWee]

Strawman? The Financial Reform Bill (which was passed only a few months ago, and hasn't enacted anything significant as yet) was aimed at putting in safeguards for improving long term financial stability and providing stronger oversight, and to my knowledge, did not purport to do anything with bonuses. In fact, I can't imagine you'd have been pleased with a bill that did try to regulate bonuses - I probably wouldn't.

I think Obama would disagree.
http://content.usatoday.com/communi...wall-street-regs-are-key-pillar-of-recovery/1

Have you heard any of his speeches this week?

 

[Gokul43201]

I think Obama would disagree.
http://content.usatoday.com/communi...wall-street-regs-are-key-pillar-of-recovery/1

Scanned through it very quickly and didn't see any mention of Wall Street bonuses. Did I miss something?

Have you heard any of his speeches this week?

Nope, except for a radio ad he recorded (for the DNC, I think).

 

[OmCheeto]

Heh.

I advocate extreme, sweeping change. This would no doubt come with its fair share of problems which would need to be worked out. I don't think it's particularly defeatist to say that a 'death by a thousand cuts' series of changes would be every bit as risky.

I also advocate extreme, sweeping change. But I'm old enough to know that such things only come about through violent revolution, or, in our collective pipe dreams*.

*A pipe dream is a fantastic hope or plan that is generally regarded as being nearly impossible to achieve, originating in the 19th century as an allusion to the dreams experienced by smokers of opium pipes.

Seriously. I did not know the origin of that phrase until just now.

 

[loseyourname]

The only legislation passed that limited bonuses was the original Bush stimulus that stipulated TARP recipients couldn't pay excessive bonuses to their executives. I think total compensation was capped at $500,000 until they repaid the funds.

I'm not sure how that actually worked since TARP funds almost universally ended up being used to purchase preferred stock rather than actual troubled assets, though. I guess they were subject to the stipulations until they repurchased the government-owned shares.

 

[turbo]

The only legislation passed that limited bonuses was the original Bush stimulus that stipulated TARP recipients couldn't pay excessive bonuses to their executives. I think total compensation was capped at $500,000 until they repaid the funds.

I'm not sure how that actually worked since TARP funds almost universally ended up being used to purchase preferred stock rather than actual troubled assets, though. I guess they were subject to the stipulations until they repurchased the government-owned shares.

Unfortunately, the money appears to have been used to buy back the companies' own stocks in many cases, locking in nice gains in value at the taxpayers' expense. When you have driven your company into the ditch, and can buy back your devalued stock at taxpayer expense, how can you lose? Geithner, Bernanke, and their ilk should be purged from our government, at the very least.

 

[WhoWee]

President Obama didn't address bonuses in his sweeping reform of Wall Street?

On January 29, 2009, this was in the news:
"At a meeting with Treasury Secretary Timothy Geithner this afternoon, Mr. Obama was harshly critical of the bonuses.

When "they are asking for taxpayers to help sustain them, and when taxpayers find themselves in the difficult position that if they don't provide help, that the entire system could come down on top of our heads, that is the height of responsibility," the president said. "It is shameful."

"And part of what we're going to need is for the folks on Wall Street, who are asking for help, to show some restraint, and show some disciple, and show some sense of responsibility," he continued. "The American people understand that we've got a big hole that we've got to dig ourselves out of, but they don't like the idea that people are digging a bigger hole even as they're bing asked to fill it up."

The president promised further conversations with Wall Street "to underscore that they have to start acting in a more responsible fashion if we are to together get this economy rolling again."

"There will be time for them to make profits, and there will be time for them to get bonuses," Mr. Obama said. "Now's not that time. And that's a message I intend to send directly to them." "www.cbsnews.com/8301-503544_162-4762719-503544.htmlwww.nytimes.com/2009/01/30/business/30obama.html[/URL]
[url]www.washingtonpost.com/wp-dyn/content/article/2010/01/14/AR2010011404621.html[/url]
[PLAIN]www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090129_707519.htm[/URL]
[PLAIN]www.huffingtonpost.com/2009/01/29/obama-18b-in-wall-street_n_162305.html[/URL]
[url]www.washingtonpost.com/wp-dyn/content/article/2009/10/18/AR2009101802542.html[/url]
[url]www.reuters.com/article/idUSTRE60A4CP20100111[/url]
msnbc.msn.com/id/28916936

I have to agree with Obama - it is shameful.

 

[WhoWee]

On the other hand, the Wall Street guys do try to help - when they can.

"Obama Top Fundraiser on Wall Street
Big Banks' Employees Gave Senator $479,000 in 1st Quarter

By Kristin Jensen and Christine Harper
Bloomberg News
Wednesday, April 18, 2007

Democratic presidential candidate Barack Obama ran ahead of New York Sen. Hillary Rodham Clinton (D) and former New York mayor Rudolph W. Giuliani (R) on their home turf in the first quarter, raising cash from the biggest investment banks on Wall Street.

The Illinois senator raised $479,209 from employees at the banks in the quarter, according to Federal Election Commission filings. Giuliani collected $473,442, and Clinton got $447,625. The figures are based on employers listed by the donors; in some cases, names are incomplete or missing."

www.washingtonpost.com/wp-dyn/content/article/2007/04/17/AR2007041701688.html
uk.reuters.com/article/idUKNOA53525520080605
www.washingtonexaminer.com/opinion/Obama-should-return-Wall-Street_s-money-91850159.html[/URL]

Business as usual?