Here we go again….Alan S. Blinder: When Greed Is Not Good

Posted by Jason | Posted in Economics | Posted on 12-01-2010

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Alan S. Blinder wrote another half witted op-ed about financial regulation and Wall Street’s return to “greed”. As all half witted intellectuals, he recognizes a symptom, but never questions the source. Here is a paragraph where he talks about Adam Smith.

When economists first heard Gekko’s now-famous dictum, “Greed is good,” they thought it a crude expression of Adam Smith’s “Invisible Hand”—which is one of history’s great ideas. But in Smith’s vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of what economists call “asymmetric information” (as when a deceitful seller unloads junk on an unsuspecting buyer), regulators to enforce the rules and keep participants honest, and—when relevant—protection of taxpayers against pilferage or malfeasance by others. When these conditions fail to hold, greed is not good.

via Alan S. Blinder: When Greed Is Not Good – WSJ.com.

Binder says “in Smith’s vision, greed is socially beneficial only when properly harnessed and channeled”, and I’m guessing he thinks the geniuses in Washington should be the ones to do the harnessing and channeling. Is Binder really this ignorant, or is he so trapped in his own reality that he can’t see past his old ideas? By giving Washington the power to “harness and channel” Wall Street, the economy or anything else, you create the source of corruption. Washington has become Wall Street. Look at who occupies the White House staff. This isn’t just Obama. This was Bush as well.

Greed is only harmful to society when the negative results of greed are forced on society instead of the source of the greed. In this case, Wall Street’s greed led to subprime mortgages, but instead of them being harmed by the negative results, they used government force to dish the negative results on the tax payers.

People aren’t typically greedy, despite all the negative comments by the like of Blinder. Something usually entices you into greed. Someone sees the chance of unearned profits, and they get…. well “greedy” for it. In this case, Wall Street got greedy because the Fed was printing “free” money. Who benefits from this money? Well, the banks are the ones who get the money first before it’s devalued. They get to loan it out and make their profit before the damage is done. In their ability to do this, because of the Fed, would they not be making unearned profits? It would be no different than a man giving you $1,000 and saying go ahead lend that out at whatever interest rate you can to make a profit. You pay the man back one percent interest and keep the rest. You really don’t have any risk there. Inflation is typically three to four percent. Hmm, just think how much you can make with no risk if you make even more of these loans. What if you loaned out $1 million? Now you can see where greed comes from.

If we didn’t have the Fed in bed with Wall Street bankers, we wouldn’t have had the easy money that created the last bubble in which Wall Street so enriched themselves. Then when the bubble burst did Wall Street have to take their punishment? Nope. Because of government force and collusion, they were able to force all of America to pay the bill.

What Blinder doesn’t understand is the problem isn’t an unregulated “invisible hand”. The problem is because of government the “invisible hand” now has a gun in it. When there is a gun, this is when “greed is not good”.

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Peter Schiff hands out an ass whoopin to David Epstein

Posted by Jason | Posted in Economics, Government, Video | Posted on 12-12-2009

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I can’t remember how I found this video, but if you have the time, it’s a much watch. You want to know why we are heading for disaster? It’s because the government is filled with David Epsteins, when we need more Peter Schiffs. Hopefully, Schiff will defeat Dodd next year, and we’ll at least have one. Add Rand Paul into the equation, and we are heading into the right direction.

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Hyperinflation – Even The Best Case Scenarios Look Bad

Posted by Jason | Posted in Economics, Government | Posted on 11-12-2009

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Bob Murphy has a article on The American Conservative basically outlining how he sees our currency being destroyed and possibly ushering in the Amero. While the entire article is pretty scary, the part about the current bank reserves really popped out at me.

Monetary Catastrophe

Since the start of the present financial crisis, the Federal Reserve has implemented extraordinary programs to rescue large institutions from the horrible investments they made during the bubble years. Because of these programs, the Fed’s balance sheet more than doubled from September 2008 to the end of the year, as Bernanke acquired more than a trillion dollars in new holdings in just a few months.

If Bernanke has been so aggressive in creating new money, why haven’t prices skyrocketed at the grocery store? The answer is that banks have chosen to let their reserves with the Fed grow well above the legal minimum. In other words, banks have the legal ability to make new loans to customers, but for various reasons they are choosing not to do so. This chart from the Federal Reserve shows these “excess reserves” in their historical context.

U.S. depository institutions have typically lent out their excess reserves in order to earn interest from their customers. Yet currently the banks are sitting on some $850 billion in excess reserves, because (a) the Fed began paying interest on reserves in October 2008, and (b) the economic outlook is so uncertain that financial institutions wish to remain extremely liquid.

The chart explains why Faber and others are warning about massive price inflation. If and when the banks begin lending out their excess reserves, they will have the legal ability to create up to $8.5 trillion in new money. To understand how significant that number is, consider that right now the monetary aggregate M1—which includes physical currency, traveler’s checks, checking accounts, and other very liquid assets—is a mere $1.7 trillion.

What does all this mean? Quite simply, it means that if Bernanke sits back and does nothing more, he has already injected enough reserves into the financial system to quintuple the money supply held by the public. Even if Bernanke does the politically difficult thing, jacking up interest rates and sucking out half of the excess reserves, there would still be enough slack in the system to triple the money supply.

via The American Conservative » Killing the Currency.

If the currency doubled over night and the goods and services of the country did not grow, prices would quickly double as well.  While this is a drastic example, it will not work much different if it happened over a longer period of time. It just wouldn’t be as obvious. The problem here as Bob points out is even if Bernanke manages to pull out half the reserves, you’d have the money supply possibly tripling in a short period of time. Obviously, our goods and services would not triple in a short period of time, so you would have inflation that no living American has ever experienced.

What happens in situations like that? Well, look at the Argentina.

It never ceases to amaze me the arrogance we have been programmed to believe. America is a great country, but it cannot defy history just because it’s America. I’ve heard countless pundits just over the past couple weeks pooh, pooh all the “crazy talk” about the economy by saying “We’re Americans. We’ll figure our way out of this.” Why do we believe being American has anything to do with our odds? If we do the same things that were done historically, we will get the same results. It’s as simple as that. This very arrogance is even manifest in the history of decline civilizations. Do you think Rome didn’t believe they were special and could keep going as they were? How about the Soviet Union? We spent all the money in the 80s to bankrupt the Soviet Union, because Reagan knew that was the best and easiest way to destroy it. Here we are 20 years later following the same path of destruction that led to the collapse of the Soviet Union. Are we that stupid and arrogant to think because we are Americans, it will be different?

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This is just too funny – Petition For Hyper-inflation

Posted by Jason | Posted in Economics, Video | Posted on 07-12-2009

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Found this on The Daily Paul. It provided much entertainment for me this evening.Even my 9 year old was laughing at how stupid these people are.

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More Bad Ideas From The Job Summit

Posted by Jason | Posted in Economics, Government | Posted on 05-12-2009

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In order to appear as if he’s doing something, Obama held the “Jobs Summit” at the White House. Here are some of the ideas that are supposed to help small business.

On Thursday, about 130 small-business owners, financial experts, union leaders, economists and CEOs from across the country convened at the White House to discuss their best ideas for stimulating job growth — and staving off another uptick in the unemployment rate, which climbed to 10.2% in October.

While many small-business owners and advocates welcome the attention being paid to boosting employment, there were plenty of skeptics in attendance. Some complained that sustained economic recovery — not new jobs bills — are needed to kick-start hiring. Others pointed out that job losses have already moderated in recent months, and called into question the necessity of any moves.

I wonder how quickly the guys who questioned the need for any government involvement were thrown out of the room. Maybe we’ll see them on TV today as the Job Summit Crashers.

Work-Share Tax Credit

A jobs-sharing initiative, which already exists in 17 states, has gained traction among several members of Congress. In August, Rep. Rosa L. DeLauro (D., Conn.) introduced the Keep Americans Working Act, which would allow employers to reduce their employees’ hours in order to hire new workers to pick up the slack. Although employees’ hours would be reduced, their pay would remain the same, as the government would pay the balance. Notably, Paul Krugman, economist and Nobel prize winner, also backed the work-share idea.

They must be looking to Europe’s job market for this idea. Europe has instituted ideas like this in the past and made it illegal to have anyone work over a certain number of hours. This is supposed to spread the hours out among more workers. It’s a stupid idea. It does not take into account all the cost involved. For example, if I have a guy who has been working for several years, he knows how to do his job. I know what his productivity is. If I cut his hours back and hire a new person, that person needs trained, doesn’t know the job, and is less efficient. My company’s productivity will have declined. Not only that, I have to deal with a new person. I know my current employee and his work habits. I know if he’s late, takes days off, has family issues, etc. I have no clue what kind of person I may be bringing in that has to be able to produce as much as my current employee. I also have to deal with another person’s benefits, health-care, etc. Will this person cost me more in health care when government passes health care legislation? Will he drive up my unemployment, because I’m more likely to have to lay him off if the economy declines again? These are all concerns that this does not address.

What it does do is steal money from tax payers and give it to businesses so one person doesn’t have to work a normal work week. This is just crazy. You take money from people who work full-time to give it to another person who you are taking hours from in order to hire someone who is unproductive. Do they realize wealth is based on what is produced, not jobs.

Jobs Tax Credit

By contrast, jobs tax credits are largely welcomed by small-business advocates and economists. One plan from the Economic Policy Institute, a Washington-based research organization focused on labor issues, calls for the government to provide refundable tax credits of 10% to 15% against payroll taxes for each new hire over two years.

Isn’t social security and medicare already bankrupt? How does it help long term to take money away from them? I’m all for getting rid of them both, but that isn’t going to happen. Instead, this just leads to more government debt. Also, 15% of a new hire’s payroll tax is not that much incentive. You typically aren’t going to pay a new hire much money, and the company’s share of payroll taxes is 7.5% of their salary. How much incentive is 15% of 7.5% of their salary going to provide? I maybe reading this wrong, but that is how I read this proposal.

If I have this write, here is what it would look like. You hire a new employee and pay him $30,000 a year. You pay $2250 a year in payroll taxes on him. You get a tax credit back in the amount of 15% of his payroll tax, which is $337.50. Wow, let’s start hiring. Even if they are looking at the entire payroll tax, which is around 15%, it still doesn’t provide much incentive. The new hire seems pretty risky in today’s environment, and a few hundred dollars sure isn’t going to change that equation.

‘Cash for Caulkers’

Former President Bill Clinton and others have suggested a cash-for-clunkers style initiative that would task construction workers and contractors with weatherizing homes. By employing unspent stimulus funds, Clinton’s plan, popularly known as “cash for caulkers,” involves weatherizing houses and apartments, as well as commercial and industrial buildings. Depending on how many property owners take up the initiative, the plan could not only provide jobs to the hard-hit construction sector, it would limit carbon emissions and reduce owners’ energy costs.

Does this sounds like money down the drain or what? I can just imagine the scamming that is going to take place by a group of people, that while many are the salt of the earth, many others are about as shady as you can get. Believe me. I’ve worked construction for my dad when I was in high school and when I got laid off in the tech bubble. This is going to lead to scamming old people, the government, and all of society in general. Then again, maybe I’ll start a fake caulking business and make some extra income.

Public Works Projects

Similarly, a range of economists and nonprofits support instituting some form of directed public jobs works programs. Similar to Depression-era New Deal jobs programs, the government could create jobs in targeted places that have high unemployment. The focus would be on rebuilding infrastructure for roads, clean-up or school repair, says Mark A. Price, a labor economist at the Keystone Research Center, a think tank in Harrisburg, Pa.

Can we just admit that the people who want public works all the time are communists. Let’s not act like it’s anything else. There has already been so much wasted money on road projects. They are tearing up and rebuilding roads that don’t even need it. All this does is destroy the wealth of our country by taking money that would otherwise be going into wealth creation and putting it into things that do not increase our wealth. If we have a road before this begins and a road after this begins, but we spent billions, we are not wealthier. While proponents will claim it creates jobs that will lead to personal consumption, they are overlooking that it is taking that money from other consumers. It’s not even a wash, because the government project isn’t as efficient and productive. Government projects never create wealth, unless you are one of the cronies who gets the project and line your pockets with tax payer money.

Payroll Tax Holiday

Leading up to the first stimulus package, small-business advocacy organizations such as the National Federation for Independent Business supported a six-month payroll tax holiday.

I’m all for tax cuts, but I’m getting tired of tax cuts without spending cuts. Also, are you going to hire people for a six-month payroll tax holiday? If you do, there is a chance again, as stated above, that you are going to have to lay the new hires off shortly in the future, leading to increased unemployment insurance. Also, if I’m a small business, I’m going to take savings on payroll taxes to increase my profits. If my clients aren’t demanding more of my goods or services, I’m not going to hire more employees. Also, what is a payroll tax holiday going to do when you have this health care monstrosity hanging over your head?

Capitalizing Community Banks

President Obama has already dispatched calls for giving small companies looking to expand — and, thus, create jobs — greater access to capital by way of community banks. Making it easier for community banks with less than $1 billion in assets to access funds from the Troubled Asset Relief Program, or TARP, would give small businesses a greater chance of landing loans, says Obama.

via Small Business: The White House Works It – WSJ.com.

TARP should be called To Anyone Requesting Program. It was passed against the will of the public for a specific purpose, and then the government decided on its own that it will do whatever it pleases with it. One of the best things they could do is announce the end of TARP. That would signal that they believe the crisis is coming to an end. Of course they won’t because they love the power that they can exercise with all the TARP money. Look at the power they have exercised over banks, automotive, etc. Last thing I would want is my community bank being at the end of the government’s leash. We’ve already seen how they change the terms of the agreement after the fact.

While all of these would probably produce some jobs, they ignore the negative consequences of each one. They ignore the jobs that will be harmed now and in the long term. They also ignore the economic consequences for the future with more government debt. Worst of all they presume that the government can fix the economy, create wealth, and is needed for economic growth. This is disasterous for the long term psyche of our country. Ronald Reagan had it right when he said, “Government is not the solution to our problem; government is the problem.” Apparently, this has been forgotten.

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FHA Looking To Increase Requirements For Insured Loans

Posted by Jason | Posted in Government | Posted on 02-12-2009

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While I don’t think tax payers should be subsidizing other people’s home purchases, this is what happens when the government’s games catch up with them. They are trying to prop up the housing market from the mess they created, but at the same time they are looking at contradictory policies that will harm the housing market.

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, plans to ask Congress on Wednesday to raise the cap on the annual insurance premium that the FHA can charge borrowers. In testimony before a congressional panel, he will also outline steps the agency is considering to set minimum credit scores, to require home buyers to put more money down, and to make lenders more accountable for loans that the agency insures.

Those measures are designed to begin rebuilding the agency’s depleted capital reserves. An independent audit last month said that the estimated value of those reserves had dropped to $3.6 billion, or about 0.5% of the $685 billion in loans the FHA has insured.

But any sharp crackdown could limit the pool of potential home buyers. Many rely on FHA-backed home loans.

“We have to replenish the reserves and we have to be prepared for a market outcome that may not be as favorable” as one that was forecast by the auditor, said David Stevens, the FHA’s commissioner, in an interview Monday. The audit estimated that the agency wouldn’t need any funds from the U.S. Treasury next year.

Raising insurance premiums could help avert the need for a taxpayer bailout of the agency, but the move would raise borrowing costs for home buyers. The FHA charges an upfront insurance premium of 1.75% of the loan amount. Borrowers pay additional annual premiums of either 0.5% or 0.55%.

The FHA will also limit the amount of money that sellers can provide for closing costs on home sales to 3% of the home price, from the current level of 6%. The agency is also finalizing plans to set a minimum credit score for borrowers, possibly by requiring those making small down payments to have higher credit scores.

via FHA Considers Ways to Boost Its Reserves – WSJ.com.

Many people are calling for a second decline in housing. It’s not hard to figure out why. FHA is looking to make it harder to get an FHA insured loan. Also, come April of next year, the tax rebate will expire and those who were going to buy will have already done so. There will be a decline at that point in buyers. The government should have just stayed out of the housing decline in the first place. The decline would have been quicker, and it would have stabilized leaving a bottom to build on. Instead, it is doing as it always does. It’s delaying the bottoming and leading to a new decline shortly in the future. So, it won’t prevent the eventual bottoming, and it leaves us with massive debt as a reminder of their failed policies.

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Obama’s Trickle Up Economics Is Working

Posted by Jason | Posted in Economics, Government | Posted on 30-11-2009

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Thanks to Obama’s economic policies and bail outs, you no longer have to be concerned about Wall Street execs not being able to afford their lavish lifestyle.

Conspicuous consumption is making a comeback on Wall Street. But no one wants to admit they’re doing it. As traders and investment bankers near the finish line of what looks like a boom year for pay, some are spending money like the financial crisis never happened. From $15,000-a-week Caribbean getaways to art auctions to $200,000 platinum wristwatches that automatically adjust for leap years, signs of the good life are returning. “What we’re seeing in the last four to eight weeks is a fairly substantial uptick” in demand for extravagant purchases as Wall Street employees grow more confident that the market’s

via Wall Street Starts Spending Again – WSJ.com.

I have been so concerned. This is going to be a great Christmas for Goldman Sachs, Citigroup, etc. Don’t you see how Trickle Up Economics works? Obama takes money from the middle class, gives it to Wall Street, GM, etc. Then when they spend money on trips, jewelry, etc, we get some of it back as employees working for the companies from who they buy. I know you didn’t get as much back, but that’s where the Trickle Up comes in.

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Lending Declines as Bank Jitters Persist – WSJ.com

Posted by Jason | Posted in Economics, Government | Posted on 25-11-2009

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A recovery still is looking unlikely. I’m sure glad we spent $800 billion on TARP, you know bailing out Wall Street to bail out Main Street.

By DAMIAN PALETTA

U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.

Total loan balances fell by $210.4 billion, or 3%, in the third quarter, the biggest decline since data collection began in 1984, according to a report released Tuesday by the Federal Deposit Insurance Corp.

via Lending Declines as Bank Jitters Persist – WSJ.com.

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Uncle Sam’s Crowding Out Of Private Lending

Posted by Jason | Posted in Economics, Government | Posted on 24-11-2009

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For anyone who thinks we’ll be pulling out of this recession anytime soon, you may want to think again. Even if we do pull out, it will more than likely be temporary. Unfortunately, the government is crowding out private investment by killing financing to the privates sector. George Melloan, author of “The Great Money Binge: Spending Our Way to Socialism” writes in the Wall Street Journal.

For anyone who wondered if last winter’s federal seizure of the financial services industry would have adverse economic consequences, an answer is now available. The credit market has been tilted to favor a single borrower with a huge appetite for money, Washington. Private borrowers, particularly small businesses, have been sent to the end of the queue.

The Federal Reserve, which supervises some 7,000 banks, has been telling bankers that they must cut risk. The most spectacular step in that effort was the Fed announcement last month that it will evaluate the salaries of bank officers on how carefully they manage risk.

By official definition, Treasury securities are risk-free, so how better to manage risk than to pad your bank’s portfolio with Treasury securities, which is what bankers are doing. Under the new management from Washington, bankers who take a flyer on a venture that might some day become an Apple, Microsoft or Google will risk not only their depositors’ money but a possible pay cut. Banking has been captured by the nanny state, which means that its potential for contributing to economic growth and job creation has been sharply curtailed, even as its potential contribution to government growth has been expanded.

The federally dictated risk-aversion was underway even before the Fed began monitoring banker paychecks. According to the Fed’s September flow of funds report, commercial banks were net buyers of Treasury securities to the tune of $25 billion on an annualized basis in the second quarter. They were net buyers of federal agency paper—think Fannie Mae and Freddie Mac—at an annualized rate of a whopping $185 billion, contributing mightily to federal efforts to keep these miscreants afloat. Meanwhile, private lending, which once was the mainstay of banking, was shrinking at a $392 billion annual rate.

Washington hasn’t been able to milk the taxpayers sufficiently to finance its massive deficit. The Chinese are getting skittish as well. So tapping bank deposits is yet another avenue to a big pot of cash. As for the bankers, they’ve been awarded an easy life. Thanks to the Fed’s zero interest-rate policy, they can make a decent profit on “safe” Treasury and agency securities yielding 3% or more. The too-big-to-fail banks like Citi and Bank of America can draw on their big shareholder, the U.S. Treasury, if their capital needs further supplements. Bankers don’t have to worry about making risk judgments because they’ve been ordered to not take risks. So maybe the Fed is justified in cutting their salaries, since whatever banking skills they had—meaning the ability to assess risk—are no longer needed or wanted. An office boy could buy government bonds.

via George Melloan: Government Deficits and Private Growth – WSJ.com.

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Société Générale tells clients how to prepare for ‘global collapse’ – Telegraph

Posted by Jason | Posted in Economics, Government | Posted on 22-11-2009

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This sure doesn’t sound good, and I’m sure the heath care bill only makes the chances of collapse more likely.

In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.

via Société Générale tells clients how to prepare for ‘global collapse’ – Telegraph.

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