Wall Street Protestors Have Met the Enemy and It Is They
By no means do I excuse the banks. Until 2005, I headed fixed-income research for Bank of America, and resigned for what the bank and I agreed to call “philosophical differences.” On leaving, I sold every share I owned. In July 2007, I warned the public (including Larry Kudlow’s national audience on CNBC) about a “trillion-dollar AAA asset bubble.”
The fact is that no-one likes a fast buck more than the American public. Wall Street was the enabler, but Main Street was the addict. Americans stopped saving as long as home prices rose; when home prices started to fall, they started saving again.
Household real estate assets vs personal savings rate
That is why the Wall Street protesters are foolish and petulant. American households levered a $6 trillion net inflow of foreign savings during the decade 1998 through 2007 into a bubble that benefited them far more than it did Wall Street. The impact of the bubble on the household balance sheet exceeds the growth in real-estate assets, moreover, because most small business expansion followed the housing bubble.
For fifteen years we rode a tsunami of foreign capital pouring into American markets. We didn’t save a penny. Why should we? Our home equity was our retirement account. Our smartest kids got MBAs and went to Wall Street derivatives desks. Engineering was for dummies. Home prices rose so fast that local governments swam with tax revenues and hired with abandon. Everybody went to the party. Now everybody has a hangover, especially the bankers. We thought we were geniuses because we won the lottery. Now we actually have to produce and export things, and we have to play catch-up. Our kids are competing with Asian kids who go to cram school and practice the violin in the afternoon. This isn’t going to be easy, and the sooner we decide to roll up our sleeves and get back to work instead of looking for bankers to blame, the better our chances of coming back.
What, you mean we can’t have an economy based on making and selling hamburgers, lattes, and pornography to each other?
And on “college” degrees in PoMo lit-crit, journalism, [whatever] “studies”,
Meanwhile, science majors (outside elite campuses) are learning stuff that would be 10th grade in Europe or Israel, and juniors what would be freshman material there. I know at least one engineering school where a substantial minority of students are struggling with college algebra.
These are the fruits of a self-indulgent feelgood society where college degrees are printed just like money, where manual labor is being looked down on, and where higher ed is itself a Ponzi scheme built on the fallacious leftie theory that everybody needs and can achieve a college degree — including those with below-average intellectual abilities.
Too many people go to college.
We have confused ‘education’ with ‘training’. MD’s, for example, are thought of as well educated, but that isn’t necessarily true. After the second year or so of undergraduate school they are almost exclusively learning to be mechanics. Observe, diagnose, treat, evaluate. (A variation of the OODA loop)
Engineers too, do accepted things in accepted ways. Most scientist as well (See Thomas Kuhn re: normal science.
Another example. After years of writing classes in high school and university, I noticed that I would never be a creative writer, yet I ended up spending most of my working day writing, not creatively, but communicatively. More Hemingway than Faulkner.
When, during my working days, I got a young engineer, or better still an associate degree from a technical school, my job was to oversee the actual work product, and teach them to write a decent report/ business letter.
So, consider me a radical, close down fancy schools and teach people real skills.
ta
That’s the next bubble to burst. This one isn’t dischargeable in bankruptcy court. The poor fools who racked up $100,000 in debt for a sociology degree are indentured servants.
Which I’m thinking is the real reason for the protests. Before long you’ll see Barry on TV talking about how the taxpayers, sorry, the rich, need to pay more taxes so we can’t be fair to these poor students.
That is one of the things that the protestors are shrieking about. They owe money to those eeeeevil bankers who let them borrow money for edumacation that they obviously spent very foolishly.
Big problem: some of those protestors have started blaming “the Jooooooos”. This will not end well for anyone.
I also have doubts about what is being taught at journalism schools. They do not teach syntax or spelling.
NBC’s David Gregory: “Is it strong enough of a Republican Party for its nominee to beat this president?”
The Washington Post recently wrote “please” when it meant “pleas.”
It goes deeper than that. The left has equated education with true knowledge and actual wisdom.
You do not get those from colleges.
As someone who teaches medical students, I disagree that they are being taught to be “mechanics.” Yes, there are mechanistic aspects to the teaching. They are taught to approach the problem in much the same way that one diagnoses any mechanical problem – run through a list of systems, make a short list of possibilities, perform and exam and tests, refine a diagnosis, select a treatment, follow that treatment and determine if it is successful — repeat as necessary.
However, the individual steps in that process require a lot of stored knowledge and ability to access, compare, evaluate and associate. These are skills that – yes – are shared by the most *skilled* mechanics, but in what other profession are the practitioners required to have extremely fine motor skills (surgery), the visual recognition skills of a photo reconnaissance analyst (diagnostic imaging), and detailed encyclopedic knowledge of physiology, biochemistry, pharmacology, anatomy – all coupled with the skills to get a patient to *describe* symptoms well enough to be able to diagnose it.
Sure, *pieces* of this skill can be taught to specialists and computers, but *integrating* the skills is what medical students are taught. More often than not, the doctors get the diagnosis *right* the first time, “Dr. House” notwithstanding. Students enter medical school with rudimentary textbook knowledge. BY the time they graduate 4 years later (not to mention residency and specialization) they are able to access and apply that knowledge and a *lot* more via analysis, deduction, memorization and perhaps most importantly – induction. The human brain is capable of amazing ability to integrate information and reach conclusions that seem illogical – until one actually pulls apart the data and skills and find that the human has reached a correct conclusion that a computer never would.
I would argue that college that teaches such skills to students is valuable. College that teaches research and analytic skills – or even courses that train students to be teachers and eventually train others – is valuable. However I agree that programs which do know more than rehash other people’s work are much less important than learning a skill such as carpentry and automechanics. Usually those programs end in “-studies.”
Whatever the deficiencies of our universities, the fact is that Americans with a B.A. or higher have an unemployment rate of 4.5% and a labor force participation rate of 77%, while those with less than a HS diploma have an unemployment rate of 14.3% and a labor force participation rate of just 47% — which is to say 60% of them are not working vs. around a quarter of college graduates. That’s a stunning comparison. To get a B.A., even with a C average from a mediocre school, means that you can read the new manual and learn to do a new job.
http://www.bls.gov/news.release/empsit.t04.htm
NCT,
I think you’re comparing our third-tier to Europe’s top tier. The first- and second-tier schools (MIT, Stanford, most of the big land-grant schools) are best in the world as far as engineering and science education, and their incoming students are first-rate as well. The third-tier schools, such as satellite campuses for the big state schools, do have a lower tier of student coming in. Many of these students would go to gymnasium or the equivalent in Europe, but the U.S. schools generally do a pretty good job of turning them into high-powered technicians, essentially. Some of them end up being really good engineers eventually.
It’s more than fair to debate whether those third-tier students should be “engineers” rather than “technicians”, but I don’t think it points to a deficiency relative to other countries.
Neil, you are still confusing education with training. I went to one of those top flight engineering schools. I was (am) a good engineer. My education stopped after second year. I spent last two years and grad school learning ‘how to’ and ‘this doesn’t work’ stuff.
MH,
Perhaps that’s YOUR problem? I’m sure it depends on your choice of major, but I got much more out of my last two years (and two years of grad school) than I ever got out of the first two years of weeding-out courses. So did everybody else I know.
But NCT was claiming that U.S. engineering education is faulty because the students at third-tier schools aren’t up to the standards of top-tier European schools. I had to call him on that.
This whole discussion seems to confuse “education” and acquiring knowlege. In my experience, unless you’re one of those mostly hapless liberal arts majors, liberal arts education ends with the core curriculum, about two years of school. That’s where all the courses aimed at acculturation end. After that it is trade school. It may be a very sophisticated trade that requires far ranging knowlege of a very complex trade; medicine, law, engineering, hard sciences, but the training of the student as citizen and standardbearer if the society ends for most at the end of the sophomore year if they’re one of those “good students” who “knows what s/he wants to be when s/he grows up.
In the last years of my career I hired a lot of young lawyers. They were quick witted, decent researchers, and could give good memo if you like simple declarative sentences with absolutely no literary value. They were historically and culturally almost illiterate. Literary allusion was lost on them. Biblical allusion, once a mainstay of legal writing, was foreign. They knew maybe a dozen Latin words and phrases that they couldn’t pronounce correctly but really liked to show off with. How many times I’ve wanted to kill after hearing about rez jew-dee-catah or stair ay dee sigh sis. And if you really wanted to see their eyes glaze over, have some Beethoven or Mozart on in your office.
It was a real problem with the lawyers in that they simply didn’t have enough of a cultural basis to make decisions about right and wrong, even guilt and innocence. They could be made into pretty good prosecution machines as it would never occur to them to question the government’s position; they just came up with an argument, admittedly sometimes a clever one, to support it. I earned a lot of enmity from some of them by listening to their case precis and saying, “you’re going to do what” Unfortunately, we’ve produced a couple of generations now in the professions who’d make pretty damned good SS Majors; they’d follow any order with ruthless precision without the slightest thought of whether it should be followed.
Yeah but my tenth grade American is way cooler! And tough shit Europe! Middle East? Africa etc …. Im headed to a strip club with a box of Krispy Kremes an Iphone with my paycheck from Walmart being my weaponry! Roll Tide, hose a protester, LONG LIVE CORPORATE AMERICA!
Hamburgers, lattes, and pornography: talk about three things you don’t want manufactured by hipsters.
This was a wonderful, clear-headed article. The animus toward “Wall Street” has a long history. See for instance http://clarespark.com/2010/09/11/is-wall-street-slaughtering-the-middle-class/.
Now they have the Unions involved. So much for their last shred of credibility. unions r worse than the corporation!
“Our kids are competing with Asian kids who go to cram school and practice the violin in the afternoon.”
One can probably add they do not go to college/university majoring in *Blank* Studies and other useless degrees.
“This isn’t going to be easy, and the sooner we decide to roll up our sleeves and get back to work instead of looking for bankers to blame, the better our chances of coming back.”
Considering all the 20 something whiners who put Obama into office on the 99% website complaining about how their useless degree seems to be only worth a $6 a hour job walking dogs and because they have a credential they are entitled to a nice lifestyle I say “sooner” is twenty years away at the minimum.
If you can get me a $6/hr dog walker, give me their number. Or rather don’t, because I wouldn’t trust my rat terrier with them. (I’d enroll her instead in a “blank” studies degree because she probably would learn as much as the human students. And would sue the U. for speciesist discrimination against canine Americans if they didn’t admit her
) $15 for half an hour is not unusual.
Seriously, some of these “demeaning” jobs can make pretty good money/hr if you have business acumen (which, alas, most of these kids don’t have).
We need a “We are the New Rochelle Train” website in honor of the commuter rail Obama hated taking to his only real world job. It is for the majority of us who realize that the world owes us nothing so we have to make right decisions or FAIL. I love history ever since I was a kid but I realize getting a degree in it was not going to look too great on my resume. So I majored in Economics, took lots of math courses, statistics and econometrics. I did enroll in a couple of history courses as a reward for my hard work. I have a nice job and able to support my family with the skills I worked hard to acquire. I still love history but I never expected that society owes me a living from it.
it was the culmination of two generations of housing policy which was intended to make the prices of houses go up by means of zoning, building codes, rent controls, and favorable taxation, and to make it tolerable to succeeding generations by allowing them to finance housing without savings or risk.
The 30 year fixed rate low or no down-payment mortgage is a risk bomb containing default risk, collateral risk, maturity risk, and interest rate risk. It would not have been possible without government sponsorship in the form of Fannie/Freddie/Ginnie.
The inability to keep the pyramid scheme going was inevitable.
So right. Further, who decided that home ownership was every Americans dream? Who decided that 50% (the pre Barney Frank average) was too low? Why? What facts? etc etc etc
Some social scientists did some research and found that home ownership was associated with desirable social traits. But it did not stop there. You had idiot politicians like Bush II and Barney decide that correlation was causation and if you got everybody into a home they would become nice well behaved middle class bourgeoise. One can add in Barney’s mind any discrepancy in home ownership was due to racism so that needed fixing and Bush II and Rove thought putting minorities into homes would turn them in Republican voters (remember all the talk about an “Ownership Society”). These politicians could not understand the reason home owners were good citizens was because these traits are what is necessary to become a homeowner in the first place. You can get someone out of the ghetto but not not the ghetto out of the person.
Y, and college graduates earned more than non-grads so hey, let’s make everyone a college grad and they’ll earn more money! But again, the degree was just the tangible manifestation of the qualities that made a person successful: working, studying, learning. The social engineers got that one bass-ackward also.
Social engineering is a modern cargo cult, equating the superficial externals of productiveness with the actuality of it. We’re on a ship of hyper-educated, ignorant fools.
MIchael K – This started a lot earlier than Bush. The mechanical pieces were put in play by none other than James Earl Carter, Jr., that misbegotten peanut farmer from Georgia. The pieces were the Community Reinvestment Act and the legalization of the subprime loan. Neither did any damage until a certain William Jefferson Clinton threatened the banks, that if they didn’t lend to poor people he would prevent any bank mergers from occurring. So, the banks caved. Assisting Mr. Clinton was a certain organization know as ACORN (oh yes, the one with which the current tenant of the WH was associated). They were threatening bankers with bodily harms if the bankers didn’t knuckle under and lend to the poor. Once the party got going, Americans, being good gamesters, gamed the system. At one time (though I still don’t know if it’s true) 20% of the houses in foreclosure were owned by people with multiple mortgages (hardly poor, but somehow qualifying for the CRA). Bush II’s fault in all this was not to follow his instincts and clamp down on Fannie and Freddie (in fact as private lending dried up in 2006 a memo went out from HHS to Fannie and Freddie to step into the break and make up the shortfall, which they did with the predictable result).
Mr. Goldman is quite correct. The only people who sufferred were the lenders. They lost their money. The people evicted from their homes were probably unqualified to be there in the first place. So, for a couple of years, they got to live much better surrounding then they otherwise would have in rental housing, and they proably got it for a lot less than it would have cost to rent a place to live for that time period.
As for those children complaining about corporations, they are suffering from arrested development, having spent too many years drinking the Kool-Aid of leftist education. It is called, Liberal Education, when it’s really, an education in contemporary liberalism (which is 180 degrees the opposite of true Liberalism).
“Once the party got going, Americans, being good gamesters, gamed the system.”
Absolutely right, Jack. Typical politicians, that did not heed the “Beware of unintended consequences” axiom. The game was played by poor, middle class and rich alike. Except, instead of buying houses to live in, the houses were bought as a short term investment and resold within one or two years at a profit, as real estate prices kept rising, thus the bubble was self sustaining. Without the bubble, there never would have been a financial “crises”. Even the Fed was an enabler of the bubble by keeping interest rates low and by relaxing some regulations affecting banking.
And both GWB (2002) and McCain (2006) tried submitting legislation to reform certain aspects of Fannie and Freddie but were fought tooth and nail by Barney Frank and the Black Caucus.
So lets talk about getting back to work! (I’m on my lunch break!)
Is the prescription to be making more of the stuff we buy internally? We should certainly start with energy!
Or should we be export-driven? Is a global free trade policy still to our advantage? If so, how do we deal with free riders like China? If China continues to be a self-priviledged player, how do mitigate their exchange rate manipulations? More Smoot-Hawley tariffs are not the answer alhough some protections are needed. china’s vocal reactions to the Senate proposal tells me they are scared.
Frankly, we could well buy fewer consumer items amade in China at higher prices. My house is full of junk anyway.
We do need to reduce internal drags. We over-regulate, certainly, and carry too many internal free riders. Immigration of illiterates is doing us little good.
How and where do we direct capital investments? Infrastructure improvements that increase productivity may be on the table but few the politicans suggest really are. New freeways are better than this “Smart Grid” hookum.
Our upcoming generation needed a good scare and I think they’re getting one. The facts of life ARE conservative but we’ve been able to protect our young ones from that valuable lesson.
The Democrats remind me of thoughtless people who once were rich but lost their fortune. Yet they still insist on the Beluga on thier toast and vacations in Switzerland even when the money is gone.
Trade restrictions are almost never an answer. (An exception might be an act of diplomacy as against Iran.) Whenever another country starts to manipulate its currency to produce an export surplus, it is essentially giving away goods and services for promises to pay, and promises to pay can be just that, promises. If the other country doesn’t behave, or gets hostile, they are the country at risk. As for the importing country, its production will re-orient itself away from the subsidized export of the exporting country to other goods and services where it has a comparative advantage. (Note, the advantage doesn’t have to be absolute, and it usually never is; it just has to be comparatively better.)
What we as a nation have to do is get rid some of the regulations that are killing our industrial base. (The best place to start is by shutting down the EPA and repealing some of the laws it used to put in place some of more scatterbrained regulations.) The air and the water don’t have to be pristine, just good enough so we don’t get sick. The problem with Environmentalists and other Green types is that they worship mother Gaia, and they insist on environmental standards that don’t make sense with the technology we have. The reason they are termed ‘Green’ is all the greenbacks it takes to meet their impossible standards and all the greenbacks lost in meeting them.
So China, by going years with an undervalued currency, has put itself at risk of Americans inflating the dollar. How trusting of them! They certainly are screaming bloody murder at the mention of US retaliation, implying that they realize the risks.
The Fed has a policy of inflation but has not been able to make it work very well. Perhaps other market and governmental forces are working to resist that inflation.
In the mean time, China has build up its economy enormously.
Most of these so-called students have more knowledge than their intelligence level. Brain farts and stupid anecdotes they have no clue as to what they say and carry signage they don’t even comprehend.
Some people like these idiots who complain about capitalism, yet use every form of product used by capitalist companies from their clothes to their cars and expensive shoes are so dumb they make rocks look intelligent.
And absent capitalism and corporations, they would be living a life that is short, mean, nasty and brutish, if they hadn’t died in infancy. Someone needs to give them Milton Friedman’s short but effective book: Capitalism and Freedom.
I keep thinking the more ink our idi@t media outlets give the protestors, the longer they’ll hang around, embarrassing themselves [not now, but eventually, once they mature.]
All those believing this was a “spontaneous” economic movement and did not receive direction and support from the WH, please raise your hands. Nurse Ratched insists you report to the ward room and resume taking your meds.
49erDweet…Yes! (re: the Wall Street protest nonsense being created by the WH) As evidenced by Nancy Pelosi’s declaration that these protests are spontaneous. ( Repeated several times…a sure clue.)
David,
May I suggest Matt Taibbi’s perspective on gains and losses:
Attorneys General Settlement: The Next Big Bank Bailout?
http://www.rollingstone.com/politics/blogs/taibblog/attorneys-general-settlement-the-next-big-bank-bailout-20111005
Taibbi has written a lot of good stuff about the bailouts (i.e. ripoffs of the taxpayers). Wall Street made a stupid bet on home loans, and the gov’t saved their butts. It was risk-free crony capitalism.
The Occupy Wall Street folks are also mad about increasing wealth inequality. Anyone over the age of forty should realize that plutocracy is the natural state of society. But our plutocrats are engaged in a looting frenzy not seen since the Gilded Age. Its like they’ve decided our society is not worth trying to save, so they are raking in as much cash as they can. The Occupy people believe their should be a social contract that allows the rich to be rich, but they should allow their fellow citizens to prosper also. Successful countries like Germany and Japan use this model.
Successful countries like Germany and Japan? With a fertility rate of around 1.3, the number of Germans will drop by 98% over the next two centuries. At present rates, there will be more Israelis than Germans under the age of 25 in the year 2100! Heck, we might have to rebuild the ancient communities in Speyer and Mainz, provided, of course, that we are allowed to dock our German-built, nuclear-armed Dolphin-class submarines in the Rhine. What can one say to the Germans?
Eine heitre Abschiedsstunde!
Süßen Schlaf im Leichentuch!
Brüder – einen sanften Spruch
Aus des Totenrichters Munde!
Well, Germany is successful now, despite the gloomy long term demographic outlook.
Bright spots include much of the former West Germany, which have a very high birthrate compared to the Laender of the former GDR. A welcome development is the influx of Jews from the former USSR and Israel. Israeli U-boats will be welcome at any time, I’m sure.
The current low birthrate is the partly the result of the trauma of WWII (I know Germany caused it) and Nazism, which caused severe psychological damage to three generations of Germans and their neighbors. It will take at least another generation to recover, for the national psyche to become “normal”.
Anyway, it is too early to write off Germany. The population was halved during the Thirty Years War, and recovered within a century. By the mid-1700s, overpopulation caused decades of outward migration.
The German healthcare system is payed for by our military, which pumps in billions annually into the German economy. If our military were to leave, some towns would go bankrupt and taxes would need to be raised. Their individual taxes are high, and standard of living is lower than in the US. Many students stay in college far longer than in the US because jobs are hard to get. All worker have a no layoff clause in their individual contracts with their employers, so employers are loath to hire someone they can never get rid of until death or retirement. They have much lower corporate tax rates than our businesses, as in most of the world, to expedite exports and enhance competition with other countries. Their government realizes the importance of their manufacturing base and legislates laws to promote exports. In some cases, such as automobiles, exports are subsidized by the government in the form of tax credits. This is all payed for by their tax payers. The reason Germany is willing to guarantee loans to some of the PIIGS countries is because as long as the Euro stays strong, German exports will be desirable. If the PIIGS ever go bankrupt, get away from the Euro and devalue their own currencies, German exports will be reduced because of price increases. Germany is in a little bit of trouble, and not as great as some say. Like any other country, it has good and bad. But to reiterate, the US military is subsidizing part of the German economy.
I discuss the 30 Years War at some length in my book, “How Civilizations Die.” It’s not the best comparison: the population dropped by perhaps 40% due mainly to famine and disease. Horrific as it was, there was no question that the Germans still wanted children. Europe today is more like post-Alexandrine Greece or late Rome, which stopped wanting children. No country has ever recovered from a fertility rate of 1.3. I wish only the best for Germany (and Italy, Spain, Poland, Russia, and so forth) and hope they do recover. There is no Schadenfreude here.
BTW, it seems strange to argue that 50,000 American soldiers in Germany — 1/16 of 1 percent of the people resident in Germany — fund the German healthcare system.
“BTW, it seems strange to argue that 50,000 American soldiers in Germany — 1/16 of 1 percent of the people resident in Germany — fund the German healthcare system.”
We have about 43 bases in Germany. Each requires upkeep, and hires many German nationals to perform many duties. In addition the >50K soldiers and their dependents spend lots of money in Germany at beerhalls, restaurants, hotels, prostitutes, shopping, recreation, etc. I paraphrased Mark Steyn, National Review commenter and author, regarding the German health care system. He facetiously said the US military is paying for German health care. In actuality, the American military is subsidizing part of the German economy, not specifically their health care system.
I think what Mr.Steyn meant is that the US defense effort allows Germany to underspend on defense and spend more on entitlements.
Sorry Jarmo, but I think your view is pretty outdated. Youth unemployment in Germany is below 10%; lower than in most Western countries.
Supporting manufacturing is something every government in the world does and has to do with China reinventing Colbertism. As informed as you seem, you should be also aware of the never-ending support of the US government to the automotive and defense industry. I really honour your pity for the truly cupped German taxpayer, but we are no exceptions in this.
And I guess, the American armed forces are glad to have the bases in Germany instead of bribing some dictators with increasing sums to set up military facilities. The US has some gains there, too.
No, Mr Goldman. Germany will be really badly affected by the demographic issues in some decades, but we got really better through the banking crisis than the US. Look how the national debt in both countries developed, despite all this EU bailouts Germany is shouldering.
Lets not forget, that some of the bailout funds for AIG ended up in German banks.
Mr. Goldman:
I think what jarmo is trying to say is our providing Europe’s defense umbrella frees Germany (and the rest of Europe) to finance a welfare state with money that they otherwise would need to spend on defense. Which, incidentally, if fine by me: Better one U.S. army than multiple European armies.
I enjoyed your post and would like to think that my email to you had something to do with it (so please don’t burst my bubble by saying that it didn’t!). But what I was really wondering is (and I think you might have made this point somewhere before) if the “Occupy Wherever” demonstrations springing up around the country might be just the most recent demonstration of the “nothing-to-lose” post-Gettysburg, post-Battle of the Bulge, “Arab Spring demonstrations” you’ve noted, where those on the losing side of history become increasingly irrational and extreme as they increasingly internalize their impending final defeat. I’m especially interested to know how much worse you think things will get. How do you foresee the left reacting if they lose the Senate and White House in 2012? What if they don’t just lose, but lose in a landslide? What happens when Obamacare and Dodd-Frank are repealed? What happens when they are forced to realize that America has utterly rejected their agenda and philosophy, that they have no chance of enacting, ever and that what they have enacted will one day be repealed?
Indeed.
It used to be the case that the economy would be destroyed and the taxpayers massively robbed every 10-12 years. Now it’s every 2-4 and public is running out of resources to rob.
There is a kleptocratic alliance between the Wall Street/corporate system and the political system, where the latter protect the former from the consequences of their speculations and fraud in return for political contributions. All the watchdogs tasked to protect the public from this are now “owned” by the watched.
This kleptocratic, crony capitalism alliance has been bringing the US down both domestically and internationally. There is too much speculation, government waste, particularly in foreign ineffectual overstretching and support of enemies to be sustainable. Rome, anybody?
The stratospheric levels of inequality reachable in such systems (particularly with lost young generations) are societally destructive and trigger unrest, a point I also kept raising in my blog. It usually starts with the lunatic left and right fringe that we see, but does not necessarily stop there.
Societies have limits and, given time, they all reach them. The US and EU are perilously close to them.
The PostWest
http://www.fallofknowledgeandreason.blogspot.com
David,
It is a sound analysis. I was impressed with it when you published it the first time. Given the analysis though, doesn’t it inevitably follow that over the near to medium term real inflation adjusted home values must return almost all of the ponzi gain? If not, why not?
I assume there will and must be a several year period of moderate to high inflation allowed or engineered by the fed to justify current notional home prices and keep most current mortgage issuers and paper holders even minimally solvent. The trick for the Fed here is to somehow engineer that while also keeping interest rates low. It is going to be difficult, but even if that occurs, the long term effect of the ponzi will have been to beggar both the banks and the middle class, with nobody having gained much at all.
Or, we could treat it as a cash flow problem.
I have agreed that my monthly mortgage payment is what I am willing to pay for the shelter I have chosen. All else is smoke and mirrors. There are only three events that make my home value of any interest; Property taxes, mortgage risk, and sell price. The only one that matters to me is sell price.
Property taxes can take a hike.
Mortgage risk evaluation should include more than loan to ‘value’ data, like how many payments have been made. This is an indication of ‘owners’ value, that is, regardless of market value, how much I have sunk into the property.
Valuation is part of the tax/ real estate/ lending scam that created the bubble.
Finally, there are only two reasons to purchase a home, to pay for it or to turn it and make money. The latter is a business risk and should be treated as such.
ta
For those who are interested: I discussed the fundamentals of the housing market here a couple of years ago:
http://www.firstthings.com/article/2009/05/demographics–depression-1243457089
One fact:
If I may be Captain Obvious, “bankers” is a dogwhistle. We’ve been here before.
It has been reported in other media outlets that it is Soros-funded organizations that are behind these demonstrations. Most of the demonstrators do not appear to be people who are capable of pulling operations like these together, so can we then call them “sorosturf”?
You’re using the share prices of the bank stocks. Wouldn’t market capitilizations be better measures of the “values” of the banks? Even if your analysis is from an investor standpoint (i.e., real estate and bank stocks held as investments), it does not take into account stock dividends (either money or shares) and stock splits.
My guess is that the market caps. to real estate value comparison would be a lot closer.
Market cap will track stock price pretty closely, in fact, but that’s not the point: if you’re a banker paid a given dollar amount in the form of stock, what you care about is the share price, not the market cap.
Oh the fun Pol Pot would have had with these morons.
“A homeowner who bought a US$100,000 home with a $5,000 down payment doubled his original stake every year as home prices rose 10% per annum.”
Wouldn’t this be a triple? It’s $10,000 made on a $5,000 investment, for $15,000 total.
Except that carry costs (interest and real estate taxes) were around 5%.
Yes, return on equity is net income, my bad.
David – Probably won’t have time tomorrow, but a G’mar Chatimah Tovah to you and yours, and an easy fast.
Jack, many thanks. Tzom kal.
Today, Rush Limbaugh said it was George Soros sponsoring the protests. Although he didn’t say who George Soros really is… He’s not a friend to dissidents, nor even a real person it seems.
Did you forget the sarc tag, or don’t you really know who georgie porgie is?
The OWS is a Soros/union thug/ACORN thug conspiracy to cause as much civil unrest to give Obama the opportunity to either confront a national emergency or try to cancel the 2012 elections.
The college kids are useful idiots. The will staff the front ranks while the union and ACORN thugs first, throw things and, then, shoot from the rear ranks. They’ll burn cars and smash windows and Obama will either blame the unrest on the Tea Party or use the unrest as a rationale to demand support for another stimulus.
These riots are all being orchestrated by Soros and the ultra-left. If you watch Perdue, Pelosi and the left wing media, you can see that the JournoList is alive and well and the anti-Americans have been ordered to push OWS.
There is a lot of frustration all over the world among young people. These young people are healthy, well fed, well educated, and ambitious and yet the past several years have convinced many of them that their opportunities and incomes are severely limited and destined to remain so.
True or not, that is how they see things and it has made them very angry, so much so that all they can do is scream and demand. Some believe that they have been cheated and lied to by the “system”, their parents, big business, Hollywoood, or whatever and they want to strike back, so just as the Twin Towers were a symbol to the 9/11 Arab terrorists, now Wall Street is the symbol of all that has messed up the lives and futures of these young people.
Thankfully most young Americans realize that their future is still in their hands and understand that eventually these bad times will pass.
Well fed yes, well educated obviously not!
This is the third or fourth time in my 62 years that the young have been angry. Others call it angst. Yawn.
This isn’t going to be easy, and the sooner we decide to roll up our sleeves and get back to work instead of looking for bankers to blame, the better our chances of coming back.
I guess were not coming back for a decade or two …
Its all caused by the left wing radical brainwashing they get a College . Virtually ALL of Academia are left wing moonbats and that is what they grind into their students on a daily basis so what do you expect the naive, immature little kiddies to think. The only way to stop this is to cleanse the Colleges of the COMMIE/ Green NAZI Professors and start again.
Mobs in the streets. A sea of idiots. Slackers. Malcontents. College student miscreants. ODumbo lovers one and all. Slobbering ODumbo lovers. The White House reaction to the human filth polluting city streets? Zero says they’re sending us a sign. A message. Well, maybe it’s time ODumbo is sent a message.
Bamabits, now hear this.
I’m sick of you. Fed up with your shenanigans.
You’ve looted the treasury; your bankrupt values have almost bankrupted the country.
You and vacation-headed Michelle and all your Marxist cronies have treated tax dollars like hard working Americans each have a money tree in our backyards. Instead now the White House is a money pit.
And as if backstabbing our nation’s financial health isn’t enough, Obama, you stuffed ObamaCare down our throats, effectively choking off any hope of efficiently instituting common sense healthcare reforms. Like excising pre-existing condition mouse print clauses in healthcare contracts; the kind that make people with pre-existing conditions candidates for the poor house.
Of course, Odumbo, the worst pre-existing condition is your own. You seem to have this internal infernal desire to take us, the U.S., in the wrong direction just as fast as you can.
Why have your poll numbers fallen like blind roofers? Basically, it’s because we’re catching onto you. Not only are you dealing from the bottom of the deck, but your desire to turn America into some leftist idea of a Euromocracy tells me you’re not playing with a full deck.
Americans who voted in good faith for you now realize how deep your dislike for American ideals goes. Drill down on your soul and I think we’d discover that it’s the color of hate. The hated of free people going about their business.
Obama,you despise the idea of a free people; of liberty, of self reliance. And you don’t seem to like rules. You ignore rules you don’t like. You make up rules as you need them; as you go along.
You seem to harbor a deep antipathy toward our Supreme Court. Same goes for our system of laws. Like I said, if you don’t like a law, you and Holder ignore it. Which isn’t something I made up. It’s something you proudly admitted six months ago. The issue was marriage legalities. You decided you weren’t big on man, woman marriage.
Moreover, just last week you joined Holder in disclaiming any timely knowledge of Operation Fast and Furious which as we all know got American government agents killed. You guys must have accumulated enough Frequent Liar Miles to circle the globe a thousand times to the millionth power. In three years, 4 trillion dollars down the drain and into the pockets of loyal Obama supporters, labor union flunkies, and who knows who or where else. Municipalities all over the country got hundreds of thousands of dollars. The money was real. The places don’t exist.
Well, today’s date is October 6.
So what do you have in store for us now? More drunk politician-like spending? And twelve or so months down the road when all the polls say you have no chance of being re-elected, will you have some kind of a scorched earth policy up your sleeve? Deplete our oil reserves maybe? Print a billion more pieces of paper that used to be worth a dollar? Obama, do you dream about Americans going to the store pushing wheel barrels of money because it’s been so devalued?
Frankly, I don’t think America appreciates what Odumbo is capable of. I think Christian Adams does. Just read his book. I think most people underestimate the corrupt ideology and outright corruption Obama is truly capable of. I think it’s accurate to say that the average hard working or out of work American has no idea of the diabolical schemes big ears truly is capable of carrying out.
Five days before Osama’s election he announced he was five days away from fundamentally transforming this nation. And Obama tried. But he hit a roadblock. The 2010 election.
It reminded me of the Christmas German drive to Antwerp that was blocked by Bastogne.
But Obama keeps hammering away at every decent institution this nation is built upon. Our right to bear arms. Free speech. If you remember, Obama’s attack on Rush Limbaugh was, well, downright unAmerican.
If it’s not free speech or Wall Street or the super rich, it’s Fox News. But I suspect what Obama really hates are the people who line Main Streets all across the country on July 4th. Obama, American in name only.
Bama, you’re a fraud. A corrupt, lily-livered leftist who we’re stuck with for 13 or so more months. Our own little mole in the White House.
After ObamaGang figures out they can’t’ steal enough votes to steal the 2012 election, most of them will likely steal away to some foreign land. At least, that’s my sense. Obama’ll be a billion or so richer. And the U.S. will have been robbed blind four years running.
I’ve got to hand it to Obama. He hit this nation like a runaway freight train. Now mobs are massing in the streets. The last ditch strategy: Using the main stream media to scream to America that the young mindless mobs are fighting for them against the evil Republicans.
But rich Republicans aren’t blocking the mobs from the American dream. They’re blocking Obama from turning this country into totalitarian mush.
In the final days of the Obama administration, he’ll give pardons out like they’re going out of style.
Even on the news tonight as I listened to one of Obama’s latest speech, I thought I heard his voice get louder and louder; like Hitler used to do. I thought I started hearing a bunker mentality creeping into a creepy big eared President’s screech. “It’s those evil Republicans in Congress who won’t vote for my jobless bill.” Which is an argument as substantial as thin air. Obama can pump more hot air out than you’ll feel at noon in Death Valley.
Obama, you know it and we know it. Your days are numbered. The Hope and Change was smoke and mirrors. You’ve been named a President, but what you’ve really accomplished is in setting a precedent.
Never ever vote for a man who promises to be transparent, but makes a habit of transparently lying to our faces.
A) Your not funny
B) You sound thoroughly indoctrinated and cannot complete a thought
C) Who are you talking to, the protesters, the audiance or Obama it is really confusing
D) You are totally on the wrong side of history, it is moving forward without you and you got passed by, so you cling to your partisan not very well researched books and talking points. You call the President of the country a nazi and unAmerican. You harbor resentment that he’s black. You pretend you aren’t like the unwashed masses who got screwed by the failing economy yet you most likely did.
Bottom line is this country never was what you thought it was and it will never be what you hope it will be. The world is becoming more progressive and complex every day and your thoughts and little books aren’t going to change that, so deal with it.
In English we write, “You’re not funny.”
Here’s a completed thought: learn to write English properly, or you won’t find a job.
As a matter of usage, we do not write “partisan not very well researched books.” The construction appears Teutonic, and if you didn’t score well on TOEFL, you might consider tutoring.
As a matter of fact, I never called the President a “nazi” (in English, we capitalize “Nazi”. I do not think he’s a Nazi. I suspect that he is a sociopath. All Nazis are sociopaths, but all sociopaths are not Nazis.
I do not “harbor resentment that he’s black” (poor usage also). I would be entirely comfortable with Herman Cain as president.
David, you forgot to point out the misspelling of “audiance” [sic].
Yup. That’s one of the reasons I didn’t become an academic. I didn’t want to teach English Composition at 8th-grade level to college students.
Am replying to David’s reply to you with respect to the 8th grade comment.
Maybe back in 1895 it would have been more productive and satisfying.
Ahhh…. 1895. It takes me back…
projection alert!!!
Ms. Peepers, Good on ya.
Mr. Goldman, your understanding of economics far exceeds mine, but I have seen all along that the blame for the economic mess we are in lies squarely on our own shoulders.
I remember before the crash, prices on real estate were insanely high, the cell phone ring tone market was measured in billions, girls-gone-wild videos were advertised on tv constantly, the ‘hoods’ were full of $3000 spinner rims ( on $1000 cars), and it seemed like everyone was getting tattoos. In fact, I distinctly remember ranting about tv ads, that, other than the occasional car ad, they were all about self indulgent, no-value products.
We had become a nation of adolescents; shallow and self indulgent with seemingly no thought for the future. Everyone wanted to get rich fast without working.
Disaster was inevitable.
What to do after the free booze has run out effectively putting an ending to the decades long skating party…scream and rant at the unfairness of their parents for not working harder! They may have a point!
Whats striking is a protestor going on live camera saying he is $90,000 in debt and on the street.I was on the street once.I went to work and lived on the street for two weeks in the middle of winter.Needless to say i got an apartment with my first paycheck.
I have sympathy for them.But employment comes first.Since 2008 my income has gone up not down.My spending is up not down.I also however see my taxes going up not down.Get a job even if its one you dont like.If your innovative enough , like Mr Jobs was, then you have a bright future.Try to get by living off the backs of others for a free ride, your in for a shock.At least on North America you are in for a shock.
To Wall Street Occupists: Grow up, Get a life, Get out of the way.
So easy, so simple, so beyond their ability to understand.
Excellent. Concise. Scholarship without weeds.
Thank you, Mr. Goldman!
True, the banks didn’t do well, tho we should have let them die (in an orderly way) instead of TARP-ing them and then corrupting the rest of the economy to help them recapitalize.
But, the BANKERS did very well, indeed. Except for one hiccup around 2008, the bonuses have just kept flowing and while some secretaries and clerks lost their jobs one doesn’t see much evidence of the people who actually drove the banks over the cliff suffering any significant consequences.
The bankers did well, did they? It depends. They got most of their pay in stock, and as the stock price collapsed, their pay vaporized. I know plenty of people who put in twenty years at Bear Stearns, Citibank or Lehman Brothers, got fired in 2008 when stock prices were at nothing, and ended up unemployed in their fifties with big debts. When Bear went bankrupt, real estate agents were handing our their business cards in the lobby, because they knew that a lot of the bankers would have to sell their houses. Some got unconscionably rich using corrupt methods, others ended up broke. Brian Moynihan, the CEO of Bank of America, has a net worth of less than $5 million at the present stock price. That’s not bad, but it translates into perhaps $150,000 a year in income at present corporate bond yields. I’m not asking for sympathy for the bankers–far from it. They were ridiculously overpaid for providing the leverage everyone wanted. But the fact is that homeowners made a lot more on the real estate bubble than the bankers did. Those are the numbers.
I’m to the right of Rush Limbaugh, and I’m not happy with Wall Street. The CEO of Bear Stearns…I’d like to ask him a few questions….
1. Did you know this had to end in tears?
2. If not, why was someone so stupid as to hire you?
3. If so, why did you go along with what you KNEW was wrong, even if temporarily profitable?
It is reasonable to demand a higher level of morality from our leaders. The fact that they generally display a lower level of morality than the common man does nothing to change the demand for LEADERSHIP.
So, even if your statement is correct that he got hosed comparatively to the first half of the housing wave, I still don’t care. I demand more from the Great.
And what about the second half, how did they fare? And what about the righteous who bought small despite inducements to do otherwise?
Its clear enough to me that Wall Street and Washington were in a conspiracy against the American People.
And as to the Occupy Wall Street people, let’s all play ‘punch a hippie’, but even more so, let’s track down the puppeteers and crush them.
As always ‘an active government favors the rich’.
I doubt Jimmy Cayne would reply to you, but as a former managing director at Bear (1993-96), I was in touch with a lot of senior people there, including my old colleague Ralph Cioffi, who ran the hedge fund that blew up in June 2007. Ralph was tried and acquitted over that hedge fund disaster. If you recall, that started the crisis. The Bear partners had a lot of their own money in the fund and, no, they didn’t think it would end in tears, or they wouldn’t have ponied up their own money. The loss rate on mortgages had been well under 1% for all of recorded history, and the pros couldn’t imagine the kind of losses that ensued. Yes, people can be that dumb. Most entrepreneurs become rich because they learn to do one fairly specialized thing better than anyone else. They can be moronic about things out of their area of competence.
Well, if a banker exercised his options and cashed out in 2006-7, even early 2008, he probably did very well, if he held on for the ride down he lost.
But in any case I was not arguing your main thesis, it was more an observation. It was never but a drop in the bucket compared to the size of teh burst bubble. At this point there’s no blood to get out of that turnip, beyond the fact that even if some of what the banks did was morally questionable there is virtually no real evidence of illegality.
Otherwise I think I completely agree with you–we all need to grow up and figure out what the world needs and how we can make it and sell it to them. It has been common wisdom that having the world’s reserve currency was a great advantage, but we couldn’t have dug ourselves so deep a hole had there been the discipline of having to earn hard currency rather than print it.
You’re right about cashing out in 2005.
off topic, but I loved ‘How Civilizations Die’ but Amazon keeps stroking me about when/if they can deliver ‘It’s Not the End of the World.’ Is it still scheduled?
An easy fast for you and yours.
Thanks for the walk down memory lane…
We should never forget that the government was the enabler, demanding a house for all, even when they could not afford it. Never mind, we will just give them teaser rates, and if they bilge, then the bank gets the appreciated house back and can sell it again…my God how the money rolls in…
There simply was not enough allocatable income to pay for the final housing base. With no skin in the game people walked and now there is a huge overhang in the market. The same thing happened with fiber optics which gave us great internet.
With the increase in transactions, there was simply no way to apply quality control both on the borrowers or originators, so in fact the assets did not exist. In any such situation, controls go by the boards.
Very few people looked to the actually size of the housing market to realize that there were limits and that has happened many others, say in energy.
Lastly we have the moral hazard: you are rewarded for putting business on the books, but personally have no downside risk: Taleb is very good here.
Me thinks this piece is a tad self serving. Wall Street and the banks with government help and encouragement brought us to where we are. The financial services sector is vital but it has grown way beyond a rational size for a productive economy. There is lots of blame to spread around but Wall Street was only too happy to profit from the excesses in the last two decades. They were supposed to be the experts on financial services, but were criminally negligent in their duties.
Crony capitalism ain’t capitalism or a path to progress. I really appreciated the analysis by Jeffrey Snider: Occupy Wall Street Has Little Right Except For the Target by way of RealClearMarkets.
http://www.realclearmarkets.com/articles/2011/10/07/occupy_wall_street_has_little_right_except_for_the_target_99295.html
The dimbulbs protesting down on Wall Street don’t have a clue about a real solution but they are not quite as misguided in the object of their anger as this piece implies They really need to occupy Washington and stop the madness there to allow Wall Street to be restored to its proper function.
That was an excellent article.
The thing most conservatives don’t understand is Wall Street isn’t remotely capitalist and hasn’t been for some time. When the Fed provides your capital and you’re allowed to lever up 20-30 fold on that capital, you’re gambling with other peoples money with a risk-free backstop.
As a random side note, another thing a lot of posters here forget is that the banks didn’t actually pay back their loans. Through TARP, the Federal Reserve bought all those MBS’s ($1.2 trillion of them) and they’re sitting off balance sheet on the Fed’s books. If those were included the debt would be $1.2 trillion higher to be paid by ordinary Americans and this excludes the inflation that has been paid by everyone to recapitalize those banks through money printing.
You don’t know enough about finance to fail a course, let alone pass one. It’s pointless for the Fed to buy MBS, but what’s the default rate on the Fed’s portfolio? The answer is, negligible. That means US issued Treasury bonds and bought MBS and got paid some extra yield–a wash trade, pointless, but hardly dangerous. If the banks have such a great risk-free business, why are their stock prices scraping the floor?
I am sure all the middle class people feel much richer now than before the crash. Yeah right, this is another article with the purpose to put people in their place and brainwash them to believe that the out of control financial sector did not in fact crash our economy. All we get on PJ media is anecdotal evidence to support flimsy arguments, if this is truly the case why aren’t all of our best independant economists saying the same thing? The answer is that the rich made out pretty clean during the crash while the middle and lower class took all of the pain. Now we ask the financial industry to help get the economy back going and they laugh at the everyman. They are not me they are not you, quit making excuses for them and understand that they could care less about your condition, they only care about themselves.
Notreally,
The financial sector forced everyone to buy more house than they needed and use their home equity like an ATM rather than save. That’s right: the subliminal flashes in all the old Bank of America ads from 2003-2007 brainwashed everyone. We bankers are engaged in a grand conspiracy, and our goal is….to make you paranoid! And we’ve succeeded!
Poor misunderstood and under-appreciated Wall Street. Now the term Wall Street is handy but it includes a huge number of players.
But overall the financial services industry has grown to be a much larger part of the economy than it historically has been. The lubricants in your car are vitally important, but they represent a very small part of the total value.
Wall Street – the financial services companies and individuals are supposed to be the experts, but they happily went insane and helped their clients to do likewise. Now we are all suffering, but on a recent trip to New York, I was stuck by the apparent “business as usual” in the city. My brother’s suffering does not inspire or hearten me, but the suffering has at least appeared to be very one-sided. I am convinced, and this article and your responses reinforce to me, that the jig is up. Wall Street does not equal capitalism in our time and the latter is the only thing that will allow our progress out of this mess.
When Wall Street has lost my sympathies, a dyed-in-the-wool capitalist and businessman, they are screwed. But like the politicians, the MSM, academia et al – our “enlightened” ruling class – they are too thick or stubborn to realize or admit it. If you’re not for freedom and everything that comes with it, you are against it. At one time I believed that Wall Street was on our side. I now believe Wall Street and its present occupiers are no friends of freedom and no friends of mine. The revolution is rolling on – get out of the way.
How many people in Option ARMs do you think really understood how much their house cost on a per month basis?
There were plenty of people who thought that the Tooth Fairy had given them a magically low ARM rate. And there were a lot more people who expected to refi or flip before the reset.
That’s a strawman if I’ve ever seen one.
Mortgage debt is a very small percentage of the actual problem with the global financial system (or even the United States financial system). Did bad U.S. governmental policy through Fannie Mae/Freddie Mac simultaneously cause housing bubbles in Spain, Ireland, Greece, China, and the entire world?
No.
This is a classic credit bubble, and the leveraged expansion of credit/debt that occurred during this bubble absolutely dwarfs the value of mortgage backed securities. Central banks around the world started printing money like crazy when the Fed Reduced rates in 2003-2004. You can see how that impacted loans *globally* here.
Note that the reset schedules of subprimes are 3 years and option-ARM, alt-A are 5 years. The overlap of these two when backtracking to the Fed interest rate cut is perfect. Once again, this occurred globally, not just in the United States. Commercial real estate has an average of 7 year recasts, and they would be written down if there was not so much liquidity postponing the day of reckoning from Wall Street.
A great and informative piece. Unfortunately Mr. Goldman the participants in the ‘Occupy Wall Street’ crowd will read it and collectively say “Huhhh”.
These are not the brightest lights in the tanning bed and as compared to the protesters of the 60s and 70s not terribly interesting.
THE SHUTDOWN AMERICA MOVEMENT AND THE BIG 99% LIE
Now that the bloodless revolution is failing to save America from capitalist greed and inequality the persuasion of force is on the march. They know what is good for you, what’s right for you, what’s best for you, what’ll work for you whether you know it or not, like it or not, want it or not….
Click my name to continue reading this piece.
Most of you sound like you believe the OWS group is a legitimate movement, created/driven by honest yet naive people. They are only the “bought” group; someone is buying them pizzas, maybe, a little weed, and paying a very small cash stipend. After they do all the work and the group is established and adopted by the captive media, new leaders will emerge.
They will be harder, much more militant and with much more specific demands. They will be supported by union muscle and thugs.
Remember the black movement in Detroit years ago. There were violent black riots and the city leaders called on the “leaders of the black community” to help restore peace. They were given a say in leadership and never had to prove if the had really helped to calm things down. Some of those same race pimps are with us today.
After the OWS turns violent, Bloomie and Holder will call on the “leaders” to help bring calm. A couple of calls to the unions will bring calm and the OWS leaders will claim their seats at the table.
The ultra-left has failed working in the system and sees absolute defeat next year. OWS is an attempt to seize power/control outside the system.
The folks that you see and chuckle at are pure useful idiots. We’ll soon see the fist of their real owners.
Keep telling yourself that this is nothing more than pizza and grass fueled. The substance of the protests are bogus and dangerous, but the existence of the anger at Wall Street and the large financial services industry is real and justified. And that anger should be directed even more at Washington, which is in bed with many special interest groups, including the crony capitalists.
Other interests can and will try to co-opt this indignation and I would be shocked if this is not the case now. But we cannot and must not ignore the anger that is there, just as we could not ignore the racial tensions in the 60′s. They were genuine and pointed to real problems that had to be addressed, and much work remains.
This is not the time for knee-jerk cynicism – it never is – it never generates good explanations and solutions. We need to take a good look at all the agents responsible for our current situation and begin to address our problems and build on our strengths. Wall Street and financial services will be a part of that positive process, but not “business-as-usual”.
Except a greater part of the “racial tensions” in the 1960′s (and the 1950′s) was manufactured by the Left, in most all cases by the same people that are behind OWS, or their ideological descendants and epigones. The Democrats pulled fast one with the so-called “civil rights” movement in the 1960′s, and we still live with it today. It is a typical Marxist direct action tactic: Pick an area that few can disagree with and under its mantle dismantle the democratic process, the rule of law and the social order. Causing racial tension in America was one of the clear, stated objectives of the direct action teams of the KGB and associated organization, and American communists had marching orders to promote this since the 1920′s.
And this destabilizing tactic still bedevils us–just have a look at who is in the WH. They have in fact been so successful that you, yourself have internalized their agi- prop and mistake it for historical fact. We really have to ask just who and what was behind the riots of the sixties. Perhaps one day we will. The correct answer might be a rather uncomfortable one: it was not really “racial tension” behind it but rather Communist front groups operating in coordination with their coreligionists in the Democrat Party.
The political economy history if the Boomer’s era is one of the ascendancy of the Hard Left by means of their “March through the institutions”. The Keystone to this ascendancy was the so-called “Civil Rights” movement. It was (and is) as big of a scam as is today’s “global warming” hustle.
This is a stupid apples to orange comparison. You’re grasping at straws to blame the little guy. Pathetic. And all you roobs who are fooled by this kind of junk analysis. I bet you all drool when you listen to Bill Whittle, huh.
The wonderful thing about government of the people, for the people, and by the people, is that the people get what they ask for and what they deserve. The bankers deserve all the ill that has come to them, and I’ve been saying to for years. But portraying the “little guy” as a martyr is silly.
When I heard Bush I, in his 1992 State of the Union address, warn the “little guy” not to go after the “big guy” — writing here from memory — I intuitively concluded that Bush would not get a second term. Indeed, I sent Newt a letter urging another candidate — I recommended Jack Kemp — on reading a Times editorial declaring Bush a formidable candidate. I intuitively concluded, in that connection, that NYT was not much interested in a formidable candidate as GOP standard-bearer.
Here, my sense is that your snipe at “little guys” would elicit a guffaw of a
approval from “Henry F. Potter,” banker who was the meanest man in Bedford Falls, per Frank Capra.
Preston Sturges was writing about a world in which poor people, many first or second generation immigrants, had no access to credit. The Reagan revolution transformed all of that with interstate banking, mortgage securitization, junk bonds and so forth. Potter was bought out by B of A or Wells Fargo years ago and shut down, and the little folk of Bedford Falls could sell their mortgages to Chinese investors at very low rates. The little guy had access to capital in the US post 1980 in a big way. And the result is that households still are net winners in the real estate bubble!
Apparently the legalization of usury did not keep several banks from going under.
This has not kept the remaining big guys from worshipping at the altar of “Henry F. Potter,” the banker of “It’s a Wonderful Life” who regarded ordinary people as “rabble.” What Madison, in Federalist No. 57, called the “ambitious sacrifice of the many, to the aggrandizement of the few” — a mindset still with us — eveentually, I believe, turns a blooming economic landscape into vast desert.
The Occupy Wall Street demonstration has suggested, to me, the following slogans:
For the administration: Long live crony capitalism
For conservatives: Long live corporate greed
For Wall Street: Long live corporate greed and crony capitalism
For Main Street: Stamp out corporate greed and crony capitalism
Now, where is the OWS demonstrator to hold high a placard with this on it:
“I am George Bailey.”
Groan, mea culpa, apologies — that should be “This has not prevented the big guys from worshipping at the altar of “Henry F. Potter….”
That’s not surprising, for households could buy a house with 5% or 10% down…
I understood that some of those loans were at 105% and nothing down. Obama’s favorite crowd of agitators (currently backing the street demonstrations) insisted on those loans and Clinton gave teeth to the whiny Carter’s Community Reinvestment Act.
But never underestimate the irrelevancy of the truth. Reflexively rojecting the blame outward, instead of inward, there is always a villain with the Left, someone else responsible for an individual’s condition. It is ironic that a college dropout who started in his own garage and stayed intensely focused on a personal vision has died in the middle of the current brouhaha.
This irresponsible president, relying desperately for another term on class warfare and identity politics, lends credence to the current street demonstrations in his remarks yesterday as indicative of “fundamental flaws in the way our financial system works” (paraphrased)
You can anticipate the only argument Obama has left, that Congress’ failure to endorse pouring another half trillion down the drain will be the reason why our economy will still be miserable in November 2012.
The occupiers have the wrong targets in their sights. They should be going after whoever convinced them that a BFA in Sculpture was as good a career ticket as a BS in Structural Engineering.
The underlying problem: in the name of unregulated global capitalism and “maximizing shareholder value”, we shipped all of our factories to China. China can now manufacture anything anybody in the world needs, more cheaply than anyone else. Accordingly, America’s (and the world’s) economy has collapsed. Since we no longer make our own things, and no longer keep our money within our own country, we exist only by buying things from China, and paying for it with money which we borrow from China. Eventually, we will return to protectionism, but probably not before there is a world economic crash.
in the name of unregulated global capitalism
Hardly – This was free trade regulation.
Those companies that left could have been kept in the US if consumers were willing to pay for the higher costs of manufacture here. They were not, as witness the success of Walmart. Consumers have saved billions of dollars by buying Chinese manufactured goods at Walmart. So, try to convince the millions who have purchased those goods why they should have to pay 20%, 30% or 50% more in order to keep those companies here. Legislating for protectionism agains a free market is like adding a tax burden on many Americans to benefit a few. And it’s inflationary. Protectionism never works because there is always retaliation.
These are not the brightest lights in the tanning bed and as compared to the protesters of the 60s and 70s not terribly interesting.
I had to walk through many of those protesters’ speeches in Sproul plaza on my way to class.
The vibe from Mario Savio, Jerry Rubin, Angela Davis et. al was egomania.
I agree, though, it was a higher form of egomania than the current crop of ill-educated morons.
This website has changed
A few days ago, it had a long list of all the usual suspects at the beginning, including SEIU. I’d guess that was too obvious, too revealing.
As we speak, Barry’s favorite support crowd, public unions, are jumping into the fray, big time.
Frances Fox Piven and Van Jones are estatic that their beloved “chaos in the streets” is taking shape. Finally !
If such kinds of destroyers of America are thrilled, there’s nothing good to say about any of this, wall street, main street, whatever.
Except that the ignoramuses sitting in are pawns.
I’ve read, listened and watched but as the great spirit is my witness I don’t have a fucking clue as to what these protestors want.
It seems to be just to appear together and paint signs, faces and anything else and chant.
I see where the Mayor of LA has crossed over to the side of the protestors How’s that gonna work Bubba?
I do not agree that the (young) protesters perpetrated or even benefited from this catastrophe. We, the baby-boom generation, are the perpetrators, and we have left trillions of debt for our offspring along with an economy that is teetering on the edge. Our parents were the “greatest generation.” What will we be known as?
The generation represented by those on the streets will wake up to this eventually, and their reaction will be reflected in future votes on old-age entitlement programs. Note this well.
“The generation represented by those on the streets will wake up to this eventually, and their reaction will be reflected in future votes on old-age entitlement programs. Note this well.”
“Ask not,” I said, and meant it.
“Yes sir,” you said.
Did you?
Hi David,
During this period we were mass consumers. Now we are saving and our consumption is down as is Europe’s, I would be curious to know your thoughts about China. According to the PBOC, consumption dropped to 33.8% of GDP in 2010. What is maintaining their GDP growth and is it sustainable?
Kind regards,
It’s good for China to save less. 34% still is extremely high. China should, and will, import more. That should help us.
Thanks for the quick response. I attended a lecture last night at Columbia SIPA. The guest lecturer was Michael Pettis, who is teaching at Peking University and is with the Carnegie Endowment for International Peace. His points were that, from a monetary policy perspective, China is in a similar situation Japan and other developing countries were in, i.e. GDP growth came about at the expense of depositors. For example, artificially low Renminbi was a tax on average household (higher costs for imported goods), low interest rates on deposits, etc., He felt that the banking crisis was cleaned up (although still exists) again, on the backs of depositors.
As far as consumption as a % of GDP, he made the point that developing countries hover in the 50′s. But China dropped to 46% and is now 33%, which is bad. Households are not consuming. So, growth continues to be fueled by loans to SOE’s and massive infrastructure projects. The problem with the later, is that with cost of capital so low, there was no way to ensure a ‘real’ positive NPV. Therefore, they are investing in projects that are destroying wealth
One interesting point he made was that China recognizes this problem and it is being discussed all over. Indeed, his views, which sound pessimistic, are considered optimistic by Chinese standards. The problem, he stated, is a political one. To help fuel consumption, you could do 3 things: Raise interest rates, raise currency, or raise wages.
Raising interest rates hurts the SOE’s and local provinces (infrastructure projects), who are very powerful, politically. So, not going to happen. Raising currency hurts major exporters, again many of the SOE’s. Again, not going to happen. Raising salaries mainly hurts the SME’s (small to medium size enterprises).
This is what they have done. Although SME’s, who are not politically powerful, everyone recognizes them as the most efficient producers. So, everyone is apprehensive. Also, even though wages increased by 1.5%, inflation is much higher.
Enjoy hearing your thoughts.
BTW – I have been traveling to China since 1986. Both of my children are as fluent in Mandarin as they are in English, and play Classical instruments. I hear you.
Sounds a bit to macro-ish to me. There’s enormous amounts of venture money, formal and informal, available. I simply don’t believe that government loans to SOE’s are what’s fueling growth, and it’s certainly not what I hear from my own contacts. Why raise interest rates? Tends to increase savings. The currency and wages gradually are rising in any case. What’s interesting is how much new income is being generated in the hinterland.
I don’t know when Amazon will deliver “Not the End of the World” but will look into it.
Occupy WS participants may reflect the failings of the US educational system.
Yet, they are on the fast track of learning about the basic needs of food, water and sanitation facilities . . . all of which are readily available in the free market of a capitalist system (which they seem to currently reject).
Agree with oao here. I like David’s basic insight about demographics/spiritual decline being at the root of our present economic crisis, but I’m afraid he’s only correct about the 90% of bankers losing at the lower to mid-level. The other top 10% did damn well and did so with help from the American taxpayer.
And as for Americans still ending up ahead on their homes thanks to the rest of the world’s willingness to save for us, I agree with the other commenters that those ‘gains’ are being steadily wiped out while Fed-flation is eating into the seed corn of those middle class people who still have jobs. Regardless of whether the Left and especially the Soros-funded Left is attempting to co-opt the folks Occupying Wall Street or is giving them pizza and weed money, the reality is kleptocratic crony Too Big to Fail corporatism is killing capitalism, and in any case it remains doubtful whether classical capitalism can survive in a geriatric society ala Greece and Italy twenty years down the road. Peak debt thus precedes peak aging.
David has correctly pointed out that there is little incentive for banks to lend to anyone but the Fortune 500 that’s multi-national, when they can get paid 1% for doing laundering Fed-printed Treasuries. But that’s why we dare not speak of the third-ranked GOP presidential contender who has rapidly been eating into Rick Perry’s tea party base, hence the sudden desperate promotion of one Herman Cain. I’m referring of course to Ron Paul.
As for David’s claim that money is being generated into the hinterland, I think that’s just some of the cash that used to slosh around Moscow, Dubai and Riyadh from oil coming back to North Dakota and south Texas thanks to oil. And this Administration will do its damnedest to keep money from flowing to its ‘political enemies’ in the traditional ‘dirty industries’ in any case.
As the German birthrate appeares often in discussions on this blog: Due to errors in the statistical calculation, the birthrate of Germany is 1.6 per female.
http://www.mpg.de/4411213/1_6_Children_per_Woman?filter_order=LT&research_topic=KG
I correct: Due to statistical errors, Germany’s TFR is 1.6 and not 1.3.
Wall Street, the Numbnuts Not the Movie
Egged on by a knowing wink from the president of the United States, other Democrat politicians, wealthy Hollywood celebs, and SEIU labor union goons, the children and grandchildren of sixties’ anarchists and probably not a few of those grizzled, old lefties themselves and the philosophical heirs of earlier radicals have discovered a new cause to occupy their time: trashing the capitalist system that has made America the richest, most powerful, nation on the planet.
There’s no point in staging massive demonstrations against the wars in Afghanistan, Iraq, and Libya since George W. Bush is long gone and those unending conflicts are now their mentor’s wars so, what to do, where to go? Why, the epicenter of American capitalism, Wall Street, the place where over half of Americans invest for their future, of course!
The new hypocritical, insurrectionist crazies of the twenty first century have taken on the roles of the old twentieth century hypocritical, violent, insurrectionist crazies and titled their movement “Occupy Wall Street” as if titling their protest gives it some focus, a focus their forebears could boast of even if it involved defeatism, nihilism, and revolution.
To be sure, the Occupy Wall Street crowd and their fellow protestors in various other American cities share those same defeatist, nihilistic, revolutionary sentiments. However, unlike their predecessors who craved defeat and retreat in Viet Nam–and got their wish–who strove to reduce the American Dream to nothingness–and came close–whose deepest desire was the overthrow of our government–which failed–the Wall Street occupiers have no clear goals, no overriding doctrines, no logic or common sense to guide them.
They’re just generally malcontented with what they feel are societal inequities and angry over what they call “corporate greed” as they live in filth in Zuccotti Park with one of their slovenly number photographed defecating on an NYPD patrol car.
Consider that their cost-free encampment at Zuccotti is situated on private land owned by Brookfield Office properties; Brookfield is a multi-billion dollar commercial real estate corporation with offices worldwide which prides itself on its capitalistic successes.
Consider the anarchic and senseless and signs the Occupy Wall Streeters display; placards declaring, “Occupy Everything,” “Yo I Fucking Hate Cops,” “I Am Here Because of the Monsters on Wall Street” are just a few examples.
Consider the giddy chants of topless young white women . . .
(Read more at http://www.genelalor.com/blog1/?p=5678.)
Sorry Berlet, perhaps I’m getting too exhuberant here, but I suspect even David will realize soon something more is going on here than a bunch of clueless college kids with liberal arts degrees who were too lazy to do engineering like those diligent Asians. David clearly has never visited the Microsoft campus on a Thursday afternoon and realized that thanks to the H-1B visa it’s almost as if non-Asians, and mostly non-South Asians, needn’t bother to work for Microsoft.
I’ve been to Microsoft often, advising them on investment of their cash balances. Remember, I ran quant research groups on Wall St., so I know something about H-1B visas. As for a 30 Years’ War: I fully expect one in the Middle East, but nowhere else.
“This was the most democratic scam in history, and if you got in on the first half of it, you’re still better off. The big losers were not homeowners, but the bankers.”
Yep. We bought our first home in 1994 in Southern Calif. for $475K. We turned around and sold that house in 2003 for $900K. And it was mostly other people’s money (loans) that paid for our 100% gain. Ah, the real estate boom: no other investment in the world like it!
And I don’t see anyone demonstrating against you.
Just spent the night with the protestors last night! I always wanted to camp in a city park!
Sorry David but u r way wrong on this. The protestors were NOT the ones who made money during the boom. They r way too timid to take chances with god forbid their own money. These r the timid pussies who were able to be employed by the largesse of the economy that was fueled by the credit binge. They dont have a risk taking entrepreneurial bone in their body. I know u have railed against stock brokers and mortgage bankers and salesmen etc. But at least give them some credit. These r people who on the first day of the month go to work and start from ZERO and hustle their butts to make a good living. Dont blame them for being diligent overachievers. Not everyone can be a rocket scientists.
On a personal note, I have an engineering degree from Columbia University. After working in technology for 6 years I decided to take the chance and throw my education out the window and take the job as a bond broker. A job that doesnt even require a high school diploma. Dont blame me though. I tripled my salary in 2 years. I then plowed that money into real estate which allows me to not work very much now. Dont blame me for my actions though. I took RISKS! Something these demodtrators and all other left wing pussies cant even fathom! I am looking out for myself. Blame the system that rewards guys u wouldnt buy a newspaper from with 6 figure salaries! So please dont lump me and other risk taker/entrepeneurs into the same category as those useless pussies!
Happy Sukkot!
I like your handle: nachash. Suitable.
The system that operates that way is unavoidably coming crashing down, whether anybody blames it or not. And so does the society which incentivizes people to satisfy their desire of not working very much. That usually can happen only at the expense of those who do.
Incidentally, there are productive risks and nonproductive risks. It’s the former ones that take real guts, are constructive and called investment. The others are just speculation, which takes a certain type of personality.
I agree that a system should not incentivize that, and when it does it’ll fall.
No-name Firm Takes Goldman’s Crown
http://www.rollingstone.com/politics/blogs/taibblog/no-name-firm-takes-goldmans-crown-what-gives-20111011
The more of these, the steeper the decline.
The PostWest
http://www.fallofknowledgeandreason.blogspot.com
David,
This sort of goes against your “bankers lost” argument.
Why the Rich Are Getting Richer
http://www.foreignaffairs.com/articles/67046/robert-c-lieberman/why-the-rich-are-getting-richer?page=show
re: H1Bs. And then there’s this apocryphal story about Jesse Jackson’s 2005 Santa Clara visit to put his “rainbow arm” on Intel.
The HR lady took him to the cafeteria in the RNB and said (so they say) “See these pasty-faced guys? Well, they all work for those dark-skinned folks. And every year we have fewer and fewer of these palefaces.” Jackson fumed for a while and then said “Ok, but there aren’t enough women.” To which she replied. “You’d be surprised how many able young Chinese women we’re seeing in our engineering internships. We’re hopeful that those numbers will be improving.” Jackson left in a huff.
Unsaid is second and third generation American students are increasingly less competitive with foreign and first generation student immigrants. Our best high-school’s upper quintile are uniformly a year behind in STEM skills when they enter college, and the need for remediation most often diverts them to disciplines that reward intellect but don’t require competitive math or science skills like business, accounting, finance, and especially law. The U.S. has managed to burden itself with a self-perpetuating legal caste unseen in any other country. And these bright and able people could have been job creators – not below-the-line burden save for “Education” being too important to be left to the market.
America is increasingly illiterate and for decades has been largely innumerate (consider every “sky-is-falling” crisis where the populace can’t separate anxiety from fear for lack of understanding exponentials). A pity. As seen not only on the Microsoft campus, but in the fact that immigration quotas have denied them local access to the top 1% of talent worldwide, so when these companies couldn’t move the people they needed to their offices, they moved their offices to the people.