Financial Carnage Continues

[altivo]

So the central banks decided to cut interest rates. Hunky dory. This is just another stupid move in a long line of stupid moves, of course. By the time that cut filters through to where it actually affects rates charged for consumer or business loans, it will mean that in the US, you can make money by BORROWING. I've been saying that the incessant rate-cutting by Greenspan and now Bernanke and cronies was inevitably heading in that direction. Now it's unquestionably true that the cost of borrowing money will be less than the annual inflation rate in the US. So when you pay back a one year loan, even with the interest, you will be paying with a total dollar amount that has less purchasing power than the dollars you borrowed had when you borrowed them.

This is what people may have thought they were doing when they took out those jumbo home loans during the last decade, only they were expecting the value of the property to increase rather than the value of the dollar to drop. That didn't work out very well, and neither will this.

Our government has been saying that consumers are overextended and need to cut back on borrowing. Yet when borrowing stops, they think they need to stimulate it to start again. Yes, I know, it's business borrowing they think they need to stimulate, but the same rules apply there. Ben Franklin was right: "A borrower nor a lender be." But when the best you can earn on savings is less than the inflation rate, why would anyone save money?

And what did the rate cut get us? Even when coordinated by central banks all over the globe? England, Germany, Hong Kong, and France saw a 5% drop in their markets today anyway. Japan dropped almost 10%. Russia dropped as much as 15% in early trading and regulators there closed the markets, stopping all trading to prevent further declines. Today's Dow in the US is at about the lowest it has been in 5 years, down 35% from a year ago, down 10% just in the last week or so, and down 2% today, though it was down almost 3% at a couple of points during the day's trading.

Obama's proposed answers may be wishful thinking (probably are, by my understanding) but McCain's proposals are just stuff that has been tried repeatedly in the past and never succeeded. No real help from that direction. Experts interviewed on Chicago radio today predicted 8% unemployment nationally by the end of the year. Currently unemployment stands at about 6.8%, higher or lower in some states. Major retail chains, including discounters like Walmart and Costco, are complaining that their sales are down. I predict a very bleak holiday season for retail. Here in the northern Illinois area, retailers say they are hiring 25% fewer part time employees for the holidays, so they have already planned for a downturn.

Tighten your belts. The rollercoaster hasn't even hit the top of the hill yet and it will be all downhill from there. We need a major shake-up. If your congresscritter voted for that stupid 700 billion "bailout" I suggest you vote against him/her, no matter who will win if you do that. The whole lot of these turkeys need to be kicked out. If the replacements are no better, we should kick them out two years from now, and repeat until they get the message. Forget the squabbling about abortion, gay marriage, or gun control. A return to the great depression of the 1930s will make those seem like irrelevant, meaningless issues.

An interesting and related point here: county sheriffs in some Illinois counties have announced that they have stopped acting on eviction/repossession orders for home mortgage defaults. I'm not sure what all the implications of that are, but it's certainly a sign that things have slid much too far down already.

Comments

[avon-deer.livejournal.com]

A friend of mine made a very good point today; and the more I think about the more I realise that it sums up quite succinctly exactly what I have been feeling.

The power elite are faced with the possibility of jhuge banking corporations collapsing if they are not bailed out. They are terrified not so much of that collapse itself, but rather that power vacuum that would follow. They are worried that following such a huge collapse ordinary people will suddenly discover that they don't actually really need banks in order to survive.

Maybe this is what they are REALLY afraid of, and why the bailout was so vitally important to the power elite.

[bariki.livejournal.com]

OK, that's probably taking things a bit far but.. oh, I never thought I'd agree with you on something political or even vaguely socio-economical.. I can see your point.

Banks serve a purpose. Strip away all the guff of modern finance: they protect spare cash by offering a safe place to store it, and pay you for the privilege of guarding it by paying interest in return for letting them lend your money to other people. They lend money to businesses so that they can get off the ground. These businesses create jobs. Those jobs let people earn money, so that they can feed their families, start their own businesses and buy homes.

Do we need banks? No. Do we need broadband internet access, or immunization against disease? No. But they can be amazingly useful things.

[avon-deer.livejournal.com]

Credit unions and building societies can do the job just as well as international banking corporations. The big difference that those at the top dislike being that the customer/investor controls those; not the ruling classes. I am firmly of the opinion that most of everything that happens is done with the sole intention of keeping the rich at the top, and everyone else near as dammit slaves(1). Where possible the ruling class endeavour to keep that situation going for as long as they can. I can't say I fully buy into this "new world order" conspiracy theory. At the same time, I would not be a bit surprised to discover in ten years time that I was wrong, and the conspiracy nuts were right.

For me, the whole thing went wrong where money stopped working for us, and we started working for it.

Who knows; if the richest 5% behaved a little more responsibly with the power they have at their fingers then maybe I'd be more inclined to overlook their excesses. But in my opinion their excess is not the solution to the problem. Their excess and the way it is encouraged IS the problem. If the solution to that problem is having them work for us rather than some Sheik or Sultan, then so be it.

(1)Albeit actual slavery replaced with a collar of a different kind.

EDIT: Sorry about all the edits. It's late, and my brain is working slowly.

[bariki.livejournal.com]

Call it a bank, call it a building society - the functions I described have their virtues. What we call the institution that provides them is nothing but semantics. The actions that those institutions take, however, is very much the issue.

"Money is a terrible master but an excellent servant." Thank you, Mr Barnum.

Are we all slaves with white collars? Maybe.. depends on how you look at it. Most people are never, ever going to wield any power beyond the ability to choose their dinner, or what colour their next car will be. The vast bulk of the populous will always be emasculated: whether that's by a pharaoh, a lord, or a banker.

[bariki.livejournal.com]

Too late - I replied to the 2nd draft. :P

[altivo.livejournal.com]

You describe the classic Keynesian theory, but in fact what we see here is not that at all. What we really see happening is:

1. John Doe deposits his paltry savings in giant bank, because all the small neighborhood banks have been gobbled up by said giant bank and he has little choice. Yes, he thinks the money is safe there. In fact, he probably has no idea that the bank will turn around and lend it to someone else, but if he does know that, he assumes the bank will be careful to whom it makes that loan and make sure it gets his money back. Many other John Does do the same.

2. Said bank, eager to make the largest profits possible, makes unwise investments with that money. Very unwise ones. It does so because it knows (or at least assumes) that it can sell the liabilities off as if they were "assets". For several years it gets away with that. Note that this is NOT lending money out to businesses that will create jobs. It's trading bad debts as if they were junk bonds.

3. Purchaser of said assets, also assuming that market forces will make it bushels of bucks off them, mostly piddles around and spends those profits on boardroom perks, golden parachutes, etc. This happens even when the profits haven't actually been realized, but they are expected anyway. Note that again, the money is NOT actually going to create any jobs, unless you count the menial ones that serve those boardroom ignoramuses: chauffeurs, hotel maids, waiters in expensive restaurants, barkeepers...

4. The lending bubble bursts. Asset accumulator bank finds itself with lots of bad loans on the books, and in serious financial trouble. Some boardroom idiots bail out, using their golden parachutes. Others stick it out but start yelling for the government to "save them". They call in the favors owed them by politicians, who start to engineer a bailout, though perhaps not fast enough to save all of them.

5. The government steps in, allowing the rest of the boardroom idiots to bail out and keep their golden parachutes. The government takes on the bad debts, and uses tax money belonging to the John Does to pay the costs, or it prints phony money to cover it, calling it "adding liquidity" but what it really is would be worthless inflation. Who foots the bill? John Doe. Who reaps the benefits? The boardroom idiots. Are jobs created? No. Are jobs lost? Yes. Are the guilty punished? No, they are in fact rewarded. Is anything done to prevent a repeat? No.

This is why Keynesian economics does not work. Payments to the top of the capitalist pyramid stay there. They don't "trickle down."

[bariki.livejournal.com]

Aww, and you were doing so well. ^)^

Keynes had no concept of securitisation - it didn't exist when he was alive. The underlying theory is sound: it is rather the current implementation of it that is flawed. The flow of events that I described are possible.. nay.. were implemented.. in the not too distant past. Britain's profligate building societies made billions out of that model, until greed clouded their judgement.

Yes, the system has failed here. Dare I say it, better regulation would have helped avert this monumental disaster. It is also a disgrace that people like you and I are footing the bill. Things should change after this - will they: probably not. Why not? No one in power wants to hear this argument.

So, what's the remaining choice? What can a people do that are oppressed.. be it politically, militarily, or socially? Revolt. As I said, humans seem to have a failing when it comes to learning history's lessons. We might just get away with it.

[altivo.livejournal.com]

I didn't mean to imply that Keynes knew about selling junk debts as if they were "securities." Only that his idea that feeding the wealthy will ultimately feed the poor was valid. It isn't. It works in an economy that is relatively flat, but fails with a vengeance when the layers build up too deeply.

[bariki.livejournal.com]

Well, it is valid, but that depends upon implementation, as I said. I the system is skewed to favour the rich, then the theory breaks down - it needs to be balanced. Currently, it would appear that the theory has failed epically on both sides of the Atlantic.

Keynesian economics scales quite nicely. One just needs to scale oversight along with it. ^)^

[altivo.livejournal.com]

The trouble is that all the proponents of Keynesian theories I've ever encountered are utterly opposed to oversight and regulation.

[bariki.livejournal.com]

Hmm, that does seem strange. Most economists should realise that *some* regulation and oversight is desirable to combat market failure - as happens with the provision of merit goods (health care, for example), and to prevent monopolistic manipulation of prices. Standards enforcement is another issue not often tackled by the market - think of China's recent melanine-tainted milk scandal.

Regulation has a place in a free market economy - it just shouldn't /be/ the market.

[altivo.livejournal.com]

Too logical. Frankly, I don't believe that the people who occupy boardrooms and breathe that rarified atmosphere are capable of that kind of reasoning. To them, the average person is just chaff. Cannon fodder. A "consumer" to be ripped off as much as possible. Certainly never a threat, because after all they are much too important and wealthy to be threatened.

I keep quoting Marie Antoinette for a reason. What happened to her sums up just what is going on here.

[bariki.livejournal.com]

"Let 'em eat cake" eh?

History has a habit of repeating itself. It seems that we never learn.

[altivo.livejournal.com]

Some of us learned just by reading it. Unfortunately, those of us who read are not usually listened to. We are regarded as "intellectual snobs" and vilified, ignored, or mocked.

Those guys in the board rooms are the ones I went to college with. When I was at the library studying, they were out getting drunk. When I was writing term papers, they were buying ready made ones, filing off the serial numbers, and submitting them as their own.

I have made an honest living all my life. I am not wealthy by any stretch of the imagination, but I have no debts. I have worked and paid my way. I've never defaulted on a debt or loan, never cheated, never stolen anything. Who is getting stuck with the bill for these fat cat clowns? I am.

I feel entitled to call them by any filthy epithet I choose. So far I've been pretty restrained, but I think lynching and public evisceration is too kind for them. They deserve worse. They knew all along that what they were doing was wrong. They just figured they could get away with it, and the politicians and economists are doing their best to make that happen. As for the rest of us, well, we can eat cake. If the filthy rats left any crumbs, that is.

[bariki.livejournal.com]

I'm reminded of an expression: nice guys finish last.

Perhaps I'm mistaken, but didn't I ask this before: what do we do about it? Instead of moaning.. which seems to be a popular pasttime as of late.. what action can we take to prevent such an expensive calamity from happening again?

"Oh, it's too hard" and "no one listens" are not valid answers. If you don't like something, you have to make your own stand. Sure, like-minded souls will help, but someone's gotta take that first step. Dr King took such a step in America's recent history, and changed the face of the country. A similarly brave man might be needed, but for a vastly different challenge - not racism of skin, but of money.

[altivo.livejournal.com]

We start by voting out the politicians who are collaborating with the crooks. Americans have such an opportunity arriving at the perfect time, right when voters' memories should be fresh and the calamity lies before them. I am doing my best to point this out, as you may have noticed.

Do I expect it to work? Probably not. I don't have billions of dollars to buy time on television and advertise the point in cleverly designed snarky sound bites with cutesy pictures. My opponents do have those resources, and they use them very well indeed.

Your question is like asking "What do we do about global warming?" The answer is, "Everything we can." But getting most people even to believe that it matters... Look about you...

[bariki.livejournal.com]

But.. global warming's a myth: TV told me so. This nice man from the Republican party said that if I voted for him, global warming would vanish and I'd pay less tax. Oh, and I'd get to stone gays too.

Back to reality. Gordon Brown is, to me, an affront to popular democracy. An unelected leader, he has spent countless billions of taxpayer's money "chasing the dragon". The fact that he's a fat, Scottish twit doesn't help matters.

We share the same problems. True, you and I do NOT have identical views of the world, but I'm beginning to think that the substance is the same, even if our preferred implementation might be slightly different.

*looks about him* I see a nation in decline. I see people my age that have been on benefits since I was first in Japan. I see a health care system that chooses whether I receive a life-saving drug or not based on my post code. I see bright, young women choosing pregnancy over work because it rewards them better. Worst of all, I see millions of my countrymen blithely accepting one bad leadership decision after another, because they feel that they're no better off with any politician in charge, so why even bother?

I said jokingly that I'd make one hell of a student activist. If it weren't for my murky private life, I'd make one hell of a reformist politician.. but that will never happen, either.

Well Said!

[thedeere.livejournal.com]

You've restored my faith in humanity, Altivo! For a while there I was starting to feel like the only one who had a pair of "the sunglasses". I love that movie. Though I wouldn't want to battle somebody for a half hour to force 'em to wear the glasses, heh heh!

Credit-slavery's a hideous thing and far too common in the world today. Interesting that both Obama and McCain were shoving this "bailout" down our throats, eh? Good thing there's an alternative, too bad you're forced to write them in. 'Course it was rather a pain installing Linux too, but well worth it.

Re: Well Said!

[altivo.livejournal.com]

I think the metaphor is backwards. It's more like battling to get them to take off the rose colored glasses so they can see reality as it is. This has been going on ever since Reagan was president. Every time there was a problem, the nice old man would show up on television and reassure everyone that it was OK, it was being taken care of, and they could just go back to sleep. People loved it, accepted it, and no matter what idiotic things were happening, just walked around like zombies saying "It's OK, everything is just fine."

[cabcat.livejournal.com]

I'm just waiting for it hit rock bottom before I try to nab a home, house prices have been overinflated for awhile.

[altivo.livejournal.com]

Yep. Housing prices are at the bottom of this whole thing, particularly in the US and UK, and from what you say, it infected Australia as well. Even with this correction, a bunch of pirates are being allowed to get away with huge amounts of literally stolen money.