Making capitalism work
Economics - - Posted on October, 13 at 3:03 pm by Ken L
Pundits are finally putting their finger on the real problem that’s caused all this financial uncertainty: lack of trust.
WASHINGTON, Oct. 12 (UPI) — Allowing Lehman Brothers to fail was a mistake that spilled to the U.S. money markets and snowballed, Art Cashin, UBS director of floor trading, said Sunday.
“I think in hindsight it’s pretty clear that it was a drastic error to let Lehman go under,” Cashin said on ABS’ “This Week with George Stephanopoulis.” The financial systems crisis quickly “went from Wall Street and the banks to Main Street and business and we could see more of that.”
…
“We’ve got a problem of trust — people trusting their money and financial institutions, financial institutions trusting each other, the whole economy trusting the government policy framework,” Summers said. “And anytime you’ve got a problem of trust, you’ve got to deal with it in a very aggressive way.”
Capitalism won’t work unless people who are winning in the glorious global marketplace have trust that they will go on winning. It’s simple really when you think about it. Sharemarkets only function properly if they keep going up forever. Same with real estate. Job markets need workers to believe they can never get laid off.
Any time it looks like someone will lose their winnings, the government has to step in and protect them. The government does this by going into debt, which is OK because it can be inherited by the next conservative administration who will spend their time in office bemoaning the financial ineptitude of their predecessors and then preening themselves over their economic management brilliance as they pay it off.
There you go - a political-economic template for a successful future. Just let me know when to pick up the Nobel.
Posted in Economics |
October 13th, 2008 at 4:32 pm
And there’s no point in talking about the reasons for the Lehman Brothers failure and the current fiasco… Because that would be playing the “blame game” and THAT’S not helpful.
October 13th, 2008 at 6:05 pm
Well we know the reasons - Americans made a bad choice when they elected FDR and the liberal media have prevented it being corrected. The important thing now is to work to restore trust. A humungous tax cut would be a good start.
October 13th, 2008 at 6:10 pm
Yes… handouts… socialism… bad
Now if people would just start SPENDING again everything would be fine.
October 13th, 2008 at 6:34 pm
It’s got me stonkered how everyone and his dog believed that it was suddenly normal for their house values to rise by 10-40% EVERY year - while I didn’t. Driven by nothing, floated on air, sunk by massive debt - the bubble burst. As it should.
And most of us thought it perfectly routine for our shares to rise and rise annually through the stratosphere along with obscene company profits as they multiplied in orchestrated symmetry. An unsustainable pipedream.
Banks and other rorting corporations usually declared multi-billion dollar profits but the swilling pigs of the casino/stock market often voted their shares down because even these gargantuan profits were just not enough. Many thought this was normal and fun. Part of the game. Some smart writers shrieked “it’s insanity!”
Whopping budget surpluses, overwhelming national debts, crippling credit card debt orgies - hey, let’s also fund two trillion-dollar wars simultaneously, we can afford it! In the last decade the world went barking mad, howling at the Moon, high as a kite on choking greed.
The Wall Street stock exchange and all the others are nothing but casinos, as the US Congress recently declared; but ‘brothels’ would also be very appropriate here. The share markets have always floated on nothing but hype and snake-oil spin deals and plain bullshit. Always ready to explode, now they have.
Ken is just waiting to receive his Nobel prize for his “future political-economic template” but perhaps it’s timely to remind him here that Alfred Nobel (1833-1896) was also the man who invented dynamite.
October 13th, 2008 at 7:06 pm
Fair call, Miss Demeanor
And isn’t it all the more astounding that is fame right so soon after the “dotcom” farce/scam?
October 13th, 2008 at 7:33 pm
I teach a course sometimes in the role of work in society. It’s interesting that over the last 10 years, when they discuss the role that work plays in their lives, younger students tend not to talk about careers and rewards for hard work and so on. They talk about work as a kind of cash-flow-generating background to the real business of their lives which is acquiring assets. Many have the unthinking belief that once you own something like a home unit or a share portfolio, your wealth will just keep on growing automatically. They believe wealth has nothing to do with hard work and everything to do with knowing how to win in the market (and their recipe for success is not a clever one, it relies on nothing more than negative gearing and the value of their assets increasing at a greater rate than their interest payments).
A period of sustained asset deflation, which is quite probable, will shake the fundamental mental model that a lot of people have of the way our society functions. The outcome is unpredictable.
October 13th, 2008 at 7:36 pm
Turncoat at Question Time asked what “the government was going to do about banks that made risky but high yielding investments?” How about takling them out the back and shooting them? It is beyond credulity that the same bastards who made fortunes are now whining that their actions have caused a lack of confidence - is that as in “TRICK”?
October 13th, 2008 at 7:38 pm
Does anyone know of any data about the propensity of younger Australians to start small businesses? You know, the kind that require 12 hours work a day 7 days a week and the more successful they get, the harder the owner works. The kind that have been such a vital part of our economic and social development for decades.
My suspicion is that most young Australians these days would not dream of going down that road but I’d love to know of any relevant studies or data.
October 13th, 2008 at 7:56 pm
“…risky but high yielding investments…”
Huh? As opposed a totally safe gamble???
October 13th, 2008 at 8:03 pm
#8 There would be some data held by the NFF (National Farmers Federation) on the average age of farmers now in Australia and it’s very high, which suggests that the younger people are not prepared to slog it out.
That may apply across the board.
October 13th, 2008 at 8:06 pm
Don’t laugh mars at #9, there are rural banks in the Philippines paying 25% per annum on term deposits. I regularly read questions from yanks along the lines of “Is there any risk?”
October 13th, 2008 at 8:36 pm
Ken, I think many of these lazy young people you refer to are dutifully copying the examples we gave them.
Like that TV ad where the little kid observes his parents drinking, smoking, fighting and being firkin idiots.
Our generation is the very last example our future citizens should emulate in any way, shape or form. We hold no rights to criticise those who we once ordered to “do what I say or else!”
October 13th, 2008 at 8:51 pm
That’s a pretty harsh generalisation. But, hey, everybody does it.
October 13th, 2008 at 9:08 pm
Amphibious says “How about taking them out the back and shooting them?”
This is precisely what happened in Romania in 1989 when Romanian president Nicolae Ceausescu and his wife Elena were found guilty of trashing their own country; including raping their banks dry. They were instantly frog-marched to the back of the courthouse and shot on the spot by a firing squad.
Oh how sad that it won’t happen today. A bank run by mafioso pirates can steal a few billion from us and we reward them with pathetic taxpayer-funded injections of OUR FRIGGING MONEY.
Bravo to those British protestors who flashed their signs to the TV yesterday, “Why Should WE pay for THEM?”
Indeed. Firing squads should not just be legalised, but made compulsory by law in many, many cases today.
The banking pirate who awarded himself a mere $US340 million for trashing the lives of thousands would be my first customer to be offered his last cigarette.
October 13th, 2008 at 9:55 pm
Just remember when using any form of generality many factors maybe involved,and it isn’t as clear cut as they dont want to work.On farm for example ,we have regular droughts,newspapers like the Land show relatively young farmers totally distraught and walking off.The last number of years,including this one seem to be indicating a tough time. Asset re-evaluation,may or may not be a good thing,but it is pretty easy feeling dumb,but free… living in rural areas. A accountancy firm,perhaps ,now being investigated,KPMG, suggested that only 1% of all farm land was profitable regularly.This is dismaying,for if it is scientifically derived,the effort to sustain the other 99% is where the suicide sets in! Reasonably pleasant jobs for everyone I say,so being on the farm is a prize.Our Internet speed isn’t always that good,and seasons will pass you by,I am an old man now,and still a underworked bludger.Seeing the male population is copping plenty of unemployed hours,it simply isnt entirely true the young are not hard working,if people in their 50s in retail outlets as in the Howard years were being forced into lower wages,how can anyone say anything at all about being hard or soft? Look at the numbers going overseas ,and New Zealanders landing here.Governments keep screwing the buying power of people,they dont seem to do much to encourage any form of behavour,accept noticing them on the payroll.And cigarettes and booze are as ever prevalent amongst the young as are the newly found converted to religion vultures in other age groups.Maybe,the young dont listen to reasonable opinion,because of the way it has always been! Plenty of opinion,plenty of advice given,even though you didn’t ask for or even knew it was necessary,and then if, I, the young, are not educated and qualified enough who are these people who sound like they are composing songs in a toilet in the middle of an Australian summer to the sound of flies!? I have the bowl blues so bad,my advice to you is not mad,as constipated as I seem,I know as an older man you need to be lead into your dream!?
October 13th, 2008 at 10:42 pm
I’ve just read Ken’s original post again… and I reckon I’ve found the first GOLD-PLATED WINNER from this upheaval. The advertising industry!. It’s a sure thing!
Governments and big business have two choices if they want to grab the punter’s “trust” again.
They can try honesty, transparency, frank disclosure, fundamental change and hard work
OR
They can go with some minor tinkering and a massive PR campaign.
I’d bet my balls on which way THAT coin is going to fall!
October 14th, 2008 at 9:07 am
The two old/unfit boxers have been in the ring for a few rounds. Both are bruised and bleeding badly.
The fight promoter pauses the fight and passes the hat around the audience. The promoter buys bandages and drugs for the old, injured pugilists. Once the men have been quickly bandaged and doped up, the promoter declares the event is back on track.
The bell rings, the crowd cheers… and the tired, dazed men (one only staying upright with the help of a burly stadium bouncer) are pushed out into the middle of the ring.
The “event” continues.
Change the rules and you change the game.
October 14th, 2008 at 1:41 pm
Have to agreee with Miss Demeanor sorry Ken. The biggest beneficiaries of this debt bubble have been all the Baby Boomers selling off their family home for a ridiculous profit and down sizing or using the equity in it to gear up and become property tycoons with a bit of help from the negative gearing laws dumping the tax burden onto the younger generations. The same young people who now have to take on more debt than any other generation to even get a toehold on the property ladder. It’s fun saving for a deposit on a house when house prices are going up faster than you can save.
I finished uni in 1992 and just caught the end of the last recession. Anyone coming behind me has never experienced a downturn or seen assets fall in value. What they have seen is their parents become ‘wealthy’ from increasing house prices and taking on debt.
If you want to take aim at lack of work ethic look no further than the finance industry. A bunch of parasites gambling and skiming the cream off real production and real labour. They add nothing, divert some of the best minds from actually adding value and have caused this financial mess tearing up the world’s economies.
October 14th, 2008 at 1:52 pm
My observations were just that; I intended no ethical or prescriptive implications. I didn’t describe them, and don’t regard them as, ‘lazy young people’.
October 14th, 2008 at 4:47 pm
Closed shop? So be it. Take care, Ken.
October 14th, 2008 at 7:06 pm
I was planning to become rich from becoming a Celebrity but that was going nowhere then I was introduced belatedly to the concept of Derivatives! Oh why didn’t I think of that one.
Oooh look, buy this derivative.
“What is it?”
It’s dog shit wrapped up in newspaper.
“How much?”
One Million.
“I’ll take it! What a deal!”
“I got these mystery parcels wrapped in green paper and tied with a bow going for 1.2M, anyone?”
October 14th, 2008 at 7:46 pm
LangMack - last time I looked at the data (almost ten years ago) the average age of owner farmers was 58. I’d bet it’s a lot higher now for two main reasons (a)the massive capital cost/interest rates of buying in and (b)farmers’ sons (sic!) has seen the hard graft and gone for a LibArts degree and an inner city bijou home.