News What is wrong with the US economy? Part 2

[mheslep]

...I would have thought that if people can't pay on a 30-yr mortgage, then set it to 40 year or whatever they can pay. ...

No! We want people to build more wealth, not bleed their futures dry with interest payments. The total interest paid on a $100k/30 yr/6% loan is ~$116k. The same loan over 40 years costs $164k in interest, i.e. it puts the lender $50k further out of pocket and probably still paying off a mortgage well into retirement. The thing to do if these mortgages must be renegotiated long term is to force a lower rate. That will give the mortgage backed securities a haircut, probably all of them since the blasted things are opaque.

 

[Astronuc]

Wall Street Bonuses May Go Way of Dodo Amid Bailouts
http://news.yahoo.com/s/bloomberg/20090130/pl_bloomberg/assovtyss6g8

Jan. 30 (Bloomberg) -- The Wall Street bonus, considered a sacred ritual, may become the industry’s biggest casualty as governments worldwide bail out financial institutions.

UBS AG was told to reduce bonuses after the Swiss government gave the country’s biggest bank a $59.2 billion lifeline. Bank of America Corp. is under pressure to scale back payouts after New York Attorney General Andrew Cuomo subpoenaed executives earlier this week for information on compensation and President Barack Obama said just yesterday that bonuses handed out by banks represent “the height of irresponsibility.”

The current system of “asymmetric compensation,” in which people are rewarded when they do well and aren’t required to return the rewards when they lose money, is detrimental to society and needs to change, said Nassim Taleb, a professor at New York University and author of “The Black Swan: The Impact of the Highly Improbable,” in an interview.

The worst economic crisis since the Great Depression, a $700 billion taxpayer bailout in the U.S. and the demise of three of the biggest securities firms -- Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. -- didn’t deter investment banks from offering year-end rewards to employees on top of their salaries.

Financial companies in New York City paid cash bonuses of $18.4 billion last year, the sixth-most in history, even as they posted record losses, according to data compiled by the office of state Comptroller Thomas DiNapoli. The payouts are split among everyone from managing directors to secretaries.

. . . .

That's good for NY State. Then on the other hand, the state was spending more based on the assumption the bonuses (and tax revenue) would be greater.

 

[Astronuc]

No! We want people to build more wealth, not bleed their futures dry with interest payments. The total interest paid on a $100k/30 yr/6% loan is ~$116k. The same loan over 40 years costs $164k in interest, i.e. it puts the lender $50k further out of pocket and probably still paying off a mortgage well into retirement. The thing to do if these mortgages must be renegotiated long term is to force a lower rate. That will give the mortgage backed securities a haircut, probably all of them since the blasted things are opaque.

Or people can just wait, and rent, until they can put down 10% or 20%, eh?

How about limits on maximum interest rates for mortgages and credit cards? Or people should just not borrow money.

Certainly the consumers want lower interest rates and to build wealth. But the people who loan the money want high rates of return so they can build even more wealth. It's the trickle up theory of money and capital. Those with the most money collect more money.


Update: Freddie Mac to rent foreclosed properties
http://news.yahoo.com/s/ap/20090130/ap_on_bi_ge/mortgage_giants_renters_3

Freddie Mac offering rents to foreclosed borrowers
http://news.yahoo.com/s/nm/20090130/us_nm/us_freddiemac_foreclosure_policy_1

No equity, but a place to live.

 

[Astronuc]

Stocks stumble as investors fear worsening economy
http://biz.yahoo.com/ap/090130/wall_street.html
Friday January 30, 6:41 pm ET
By Sara Lepro, AP
Stocks finish lower as investors fear worsening economy, worry 'bad bank' idea has hit snag

NEW YORK (AP) -- Wall Street ended its worst January ever by stumbling again over the banking system and the economy.

The major indexes all fell sharply for the second straight day, leaving the Dow Jones industrial average and Standard & Poor's 500 index with record percentage drops for January -- 8.84 percent and 8.57 percent, respectively. Some market watchers believe that's a bad omen for the rest of the year, as the market usually ends a year down after having fallen in January.

. . . .

Eleven months to go.

 

[jal]

If you thought that your ideas to fix the economic problems were not being considered or your solutions not being considered, then read the following from Reuters.
http://blogs.reuters.com/great-debate/2009/01/27/turning-the-tables-can-you-help-davos-leaders/
Turning the tables: Can you help Davos leaders?
======
Here is the web site:
http://www.weforum.org/en/events/AnnualMeeting2009/index.htm
Annual Meeting 2009
Davos-Klosters, Switzerland, 28 January - 1 February
"Shaping the Post-Crisis World"
=======
Obama is furious at Wall Street executives giving themselves billions of dollars in bonus.
The delegates at the Davos meeting feel the same way.

There is no law against giving yourself millions of dollars.
There is no way Obama can stop it. He cannot take away the TARP money and have the banks go bankrupt.

A new world order would make it against the laws for anyone to make more money than the man who has the most responsibility. No one can demonstrate that they have more responsibility than the president of the USA. Therefore, bonus etc. should be lower than that of the president of the USA.

A reporter asked the question to the White House Press secretary. duhduhduh
Cnn has also opened up a discussion on "fair pay/compensation" being no more than the president.
jal

 

[Astronuc]

January 31, 2009
Steep Slide in Economy as Unsold Goods Pile Up
http://www.nytimes.com/2009/01/31/business/economy/31econ.html
By LOUIS UCHITELLE

The economy shrank at an accelerating pace late last year, the government reported on Friday, adding to the urgency of a stimulus package capable of bringing the country back from a recession that appears to be deepening.

The actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter. But that was because consumption collapsed so quickly that goods piled up in inventory, unsold but counted as part of the nation’s output.

“The drop in spending was so fast, so rapid, that production could not be cut fast enough,” said Nigel Gault, chief domestic economist at IHS Global Insight. “That is happening now, and the contraction in the current quarter, as a result, will probably exceed 5 percent.”

. . . .

The current quarter should reflect the reduction in production.

 

[russ_watters]

No! We want people to build more wealth, not bleed their futures dry with interest payments. The total interest paid on a $100k/30 yr/6% loan is ~$116k. The same loan over 40 years costs $164k in interest, i.e. it puts the lender $50k further out of pocket and probably still paying off a mortgage well into retirement.

One important caveat, though: virtually everyone makes more money as they get older, so buying a house on terms like that may be intended as a temporary thing for, say, 5 years, until a person is making enough money to afford a higher payment, at which point they refinance. One of my coworkers is 40 and after something like 7 years in his 30 year mortgage, just recently refinanced with a 20 year mortgage.

 

[Proton Soup]

believe it or not, people used to buy much smaller houses. and the prices of autos were not doubled with a bunch of gizmos that have nothing to do with propulsion.

 

[turbo]

believe it or not, people used to buy much smaller houses. and the prices of autos were not doubled with a bunch of gizmos that have nothing to do with propulsion.

My wife and I used to own a large house - more room than we needed, on a cul-de-sac in a nice neighborhood. The town started jacking up our property taxes, so we looked for a much smaller house in a town with reasonable tax rates, and unloaded the big house while the real-estate market was still pretty hot. We bought that big place simply because it was available at a VERY reasonable price, and I was working shift-work, so my wife was home alone at night a lot. I felt much better about her being alone in a very quiet neighborhood with neighbors we knew all around us. Our little log cabin is on a single floor, with no steps to climb, and it's easy to heat with reasonable taxes. All good things as we get older.

 

[OmCheeto]

There is no law against giving yourself millions of dollars.

There might be on Monday.

http://www.deccanherald.com/DeccanH...foreign20090131115733.asp?section=updatenews"
Deccan Herald
Saturday, January 31, 2009

Senator Claire McCaskill from Missouri yesterday introduced the legislation in the Senate in a bid to cap the top executives' salary at USD 400,000, which is also the pay package of the US President.

A Democratic lawmaker has introduced a legislation in the US Senate proposing to limit to USD 400,000 the salary of top bosses of any company that accepts federal bailout money, a day after President Barack Obama blasted Wall Street firms for their "shameful" act to dole out USD 18 billion in bonuses to CEOs.

If I recall correctly, there is a law in India that says no one can make more than the president there. Someone should do the math on how much the Forbes 400 would be worth collectively if this law had passed 20 years ago.

But what a silly idea.

 

[russ_watters]

believe it or not, people used to buy much smaller houses. and the prices of autos were not doubled with a bunch of gizmos that have nothing to do with propulsion.

Yes, I know. I have a better TV than my parents ever had too. Progress is great!

 

[mheslep]

There might be on Monday.
If I recall correctly, there is a law in India that says no one can make more than the president there. Someone should do the math on how much the Forbes 400 would be worth collectively if this law had passed 20 years ago.

But what a silly idea.

Well the proposal is not for everybody, just for "any company that accepts federal bailout money."

Edit: Many executives might actually jump at that presidential salary cap if it also came with the associated benefits, a four year lease on a private 747 jet (2), bullet proof limo (2), fleet of helicopters, world class security detail and communications, mansion on ~10 acres in the middle of DC with a residential staff of ~100, office staff of another ~100, 100s of acres for Camp David, etc. In other words, the value of the President's compensation is at least several $100m/yr, probably over $1B/yr.

 

[OmCheeto]

Well the proposal is not for everybody, just for "any company that accepts federal bailout money."

I thought they all were?

 

[turbo]

I would like to see some sort of salary caps for executives that are based on the average wages at their company. Something like "CEO's cannot be paid more than X times the compensation of the average compensation paid to all workers." It would also be a good idea to forbid the granting of stock options to executives - that promotes short-term thinking, stock manipulation through inflated or deflated earnings reports, and insider-trading. None of that activity actually produces wealth for our country - it's pretty much organized crime.

 

[mgb_phys]

Yes, I know. I have a better TV than my parents ever had too. Progress is great!

But in real dollars your 4" plasma cost the same as their 1970-20" color, which cost the same as their first 1950 B+W.
Whereas in cars the real dollar price keeps going up and is justified with bigger engines, DVD players and cup holders. Why can't I buy the equivalent of a 2CV, original mini or VW beetle.

 

[mheslep]

I would like to see some sort of salary caps for executives that are based on the average wages at their company. Something like "CEO's cannot be paid more than X times the compensation of the average compensation paid to all workers." It would also be a good idea to forbid the granting of stock options to executives - that promotes short-term thinking, stock manipulation through inflated or deflated earnings reports, and insider-trading. None of that activity actually produces wealth for our country - it's pretty much organized crime.

I've asked this before: why just CEOs? Why not big tort lawyers, professional athletes, movie stars? Why the continual call to arms only against business leaders? That is the people, at least some of them, that actually build things?

 

[mheslep]

I thought they all were?

From your link:
"...A Democratic lawmaker has introduced a legislation in the US Senate proposing to limit to USD 400,000 the salary of top bosses of any company that accepts federal bailout money,"

 

[turbo]

I've asked this before: why just CEOs? Why not big tort lawyers, professional athletes, movie stars? Why the continual call to arms only against business leaders? That is the people, at least some of them, that actually build things?

Because they are employers, not employees. If Carl Icahn can land a big movie deal or pitch for the Yankees, let him pull in a big contract as an employee. If he wants to make a ton of money every year, let him take his company(s) private and make his own rules. Publicly-traded companies should be subject to rules and regulations, for the good of our country, and salary-caps, elimination of stock-options, would be a fair way to accomplish this. If the big boys like Warren Buffet, T Boone Pickens, etc, want to go private, they should be able to make their own rules regarding compensation. If they want to keep their companies in the stock market, there should be limits on their compensation. Companies that are traded publicly should be treated as a public resource that cannot be raided and looted by excessive compensation, golden parachutes, insider trading, and short-term stock-price manipulation. We have had enough of this unfettered socialist "pretend" capitalism in which profit is privatized and risk is socialized.

 

[Proton Soup]

Yes, I know. I have a better TV than my parents ever had too. Progress is great!

that's really not the point. people are buying much more than they need. more than they can really afford. with smaller families to boot. it's not at all about progress. more often than not, it's about trying to maintain an image of prosperity, or putting on airs as people would once say.

also, for those of you that are environmentally-sensitive, it's a huge step backwards. it takes a lot of energy and resources to go on like this.

 

[mheslep]

Because they are employers, not employees. If Carl Icahn can land a big movie deal or pitch for the Yankees, let him pull in a big contract as an employee. If he wants to make a ton of money every year, let him take his company(s) private and make his own rules. Publicly-traded companies should be subject to rules and regulations, for the good of our country, and salary-caps, elimination of stock-options, would be a fair way to accomplish this. If the big boys like Warren Buffet, T Boone Pickens, etc, want to go private, they should be able to make their own rules regarding compensation. If they want to keep their companies in the stock market, there should be limits on their compensation.

Ok, that's an additional detail from the earlier post: you're restricting the cap to just publicly traded firms. Of course every big movie star, every big lawyer is an employer. They all have staff which may or may not be well paid.

Companies that are traded publicly should be treated as a public resource ...

Whoa. A public resource? Like water and parks? I start a company and play by the rules. It does well and a I then decide to sell some shares publicly, then the company becomes public resource by declaration? By that logic, any non shareholder, is then entitled to come take a part of it? Pitch a tent in the office?

 

[mheslep]

...also, for those of you that are environmentally-sensitive, it's a huge step backwards. it takes a lot of energy and resources to go on like this.

It doesn't necessarily require the current amount of energy and resources to enjoy this (Russ's wide screen TV ) lifestyle. The new energy Sec. Chu suggests it is possible for the entire world, population topping out at 10 billion people, to enjoy a western lifestyle - just not using the current energy technology.:

 

[turbo]

Whoa. A public resource? Like water and parks? If I start a company and play by the rules. It does well and a I then decide to sell some shares publicly, then the company becomes public resource by declaration? By that logic, any non shareholder, is then entitled to come take a part of it? Pitch a tent in the office?

The rules are poorly-defined and the SEC has done very little to rein in abuse. Remember Enron? Remember how dishonest bookkeeping, collusion with "auditors", and insider trading stripped wealth from employees, shareholders, and the US taxpayer? We need a higher standard of honesty, ethics, and responsibility in business. These people are benefiting from structures set up not only by private concerns, but by the US government, including the Fed, which tightly controls access to currency to ensure that these entities have favorable business climates in which to operate. A lot of taxpayer dollars goes to efforts to support big businesses at the expense of the middle-class. My wife and I have scrimped and saved for all our lives so that we could have a secure (not lavish) lifestyle in our retirement, and the Fed has depressed interest rates (in favor of businesses and banks) to the point that we can earn little or nothing on our savings. The flow of wealth to the wealthy continues undiminished, and it is high time that some balance is restored.

 

[Proton Soup]

It doesn't necessarily require the current amount of energy and resources to enjoy this (Russ's wide screen TV ) lifestyle. The new energy Sec. Chu suggests it is possible for the entire world, population topping out at 10 billion people, to enjoy a western lifestyle - just not using the current energy technology.:

lol, if only it weren't for that pesky little energy problem.

 

[mheslep]

... My wife and I have scrimped and saved for all our lives so that we could have a secure (not lavish) lifestyle in our retirement, and the Fed has depressed interest rates (in favor of businesses and banks) to the point that we can earn little or nothing on our savings.

What rate do you need? Inflation is nil. GE bond 9-10% yield to maturity. AAA paper.

 

[mheslep]

lol, if only it weren't for that pesky little energy problem.

http://www.lbl.gov/Publications/Director/assets/docs/AAAS_Keynote_B.pdf
Slide 20-21

 

[turbo]

What rate do you need? Inflation is nil. GE bond 9-10% yield to maturity. AAA paper.

Inflation is nil? Do you ever need/use health care? Do you eat food? Do you have to pay property taxes? All the unavoidable costs are going up and some of them are going up at impressive rates. It is possible to buy a car, clothing, etc, at reasonable prices in this economy, but unavoidable expenses out-strip any possible interest rates one can realize in any liquid investments.

 

[russ_watters]

But in real dollars your 4" plasma cost the same as their 1970-20" color, which cost the same as their first 1950 B+W.

I assume you meant 42" plasma...but yes. Electronics are deflationary due to technology advancing.

Whereas in cars the real dollar price keeps going up and is justified with bigger engines, DVD players and cup holders. Why can't I buy the equivalent of a 2CV, original mini or VW beetle.

I think that "justification" is a pretty good one. My mother paid $2,000 for her 1968 Camaro, which, according to an inflation calculator is about $12,000 now. Her Camaro didn't have A/C, power anything, airbags, much of a stereo, computerized engine control, etc., etc., etc. These things cost money and I suspect when you add them up, they'll account for the difference in cost between then and now (starting at $22,000).

 

[mheslep]

Inflation is nil? Do you ever need/use health care? Do you eat food? Do you have to pay property taxes? All the unavoidable costs are going up and some of them are going up at impressive rates. It is possible to buy a car, clothing, etc, at reasonable prices in this economy, but unavoidable expenses out-strip any possible interest rates one can realize in any liquid investments.

I'm sorry if you have some new and extraordinary expenses. I'm referring of course to the last 4-5 months. Of the items mentioned here, only health care is going up significantly. Obviously property taxes have dropped - for everyone (on average) in the United States. The price of gas has collapsed. The CPI for food in 2009 is 3 to 4%. This is not to say that some commissar in Maine could have decided to raise property taxe rates in a recession.

 

[russ_watters]

Because they are employers, not employees. If Carl Icahn can land a big movie deal or pitch for the Yankees, let him pull in a big contract as an employee. If he wants to make a ton of money every year, let him take his company(s) private and make his own rules. Publicly-traded companies should be subject to rules and regulations, for the good of our country, and salary-caps, elimination of stock-options, would be a fair way to accomplish this.

That's a "should", but not a "why". Why? is running a company not worth (for example) $10,000,000 a year? A ceo most certainly has more responsibility (more ability to help or hurt a lot of people) than CC Sabathia. So it makes a lot of sense to me that they should be compensated highly. How highly? Well that depends, but in the recent hubbub, I haven't seen much in the way of specifics, so it is hard to really judge if there was excess.

 

[russ_watters]

people are buying much more than they need.

Quite right - and my parents didn't need their old b/w tv any more than I need my plasma. But they wanted it, and I wanted my plasma. So I got it!

more than they can really afford.

Well that can be a problem - but if people can afford their "stuff", there is no good reason why they shouldn't have it.

...it's not at all about progress. more often than not, it's about trying to maintain an image of prosperity, or putting on airs as people would once say.

You really think people are that shallow that they buy stuff like a plasma for the image (well...pun intended). No, people mostly by "stuff" because they like "stuff". But heck, even if they did buy it because they wanted to make their friends jealous, so what? It's a free country!

...also, for those of you that are environmentally-sensitive, it's a huge step backwards. it takes a lot of energy and resources to go on like this.

What are you suggesting, that we de-industrialize? We have all the energy we need for the forseeable future, so I see no reason why that should be an issue.

lol, if only it weren't for that pesky little energy problem.

There is no energy problem - or, rather I should say, false environmentalism has created the image of an energy problem that doesn't really exist. But I assure you: we're not going to run out of energy in the next few hundred years. This BS pseudo-environmentalism will run it's course when energy starts getting expensive because of it or if global warming actually happens. Then the world will switch to nuclear power and we'll be set energywise for centuries.