It’s the holidays. Time for some color on the AB.
by divorced one like Bush
Honda has done some math,
Honda Motor Co. now expects 185 billion yen ($2.06 billion) in group net profit for the fiscal year ending March 31, 2009 — less than a third of the 600 billion yen it earned last fiscal year.
For every yen the dollar declines, Honda loses about 18 billion yen ($200 million) in operating profit. In trading Wednesday, the dollar fell as low as 88.15 yen.
And is making some changes based on the results:
Underlining the tough times ahead, Fukui refused to set a vehicles sales target for 2009 — an unusual move for Honda.
To take responsibility for the faltering results, Honda directors will take a 10 percent pay cut and further bonus reductions are likely, he said.
Earlier this month, Honda said it was pulling out of the glamorous but expensive Formula One racing to save costs and focus on its core car business. (Hey, it’s not NASCAR so who care? I do.)
Honda lowered its sales forecast for the fiscal year through March by 13 percent to 10.4 trillion yen ($116.9 billion).
The company also trimmed annual investment spending by 60 billion yen ($674 million) to about 650 billion yen ($7.3 billion) to cut costs during hard times, including scrapping plans to introduce the Acura luxury line in Japan by 2010. Plans to develop a successor to the NSX sportscar were also canceled.
Yes, there are layoffs:
Honda had already said it was cutting 760 temporary workers in Japan, or nearly 18 percent of its Japan temporary work force of 4,300. On Wednesday, Honda said another 450 temporary workers in Japan will be reduced through February.
That’s all they have to cut? No regulars getting the axe? Don’t they know it’s the workers fault?
Toyota has done some math too.
Toyota is also reducing production. In a key setback, Toyota said earlier this week that it’s delaying indefinitely the start of production at its plant in Blue Springs, Mississippi. The plant had been scheduled to begin in 2010…
Hey Cochran baby, how’s that work’n for ya in old Mississippi?
by: Divorced one like Bush
Ok, the auto CEO’s are all lined up. They get asked the populist setup question: Are you going to sell your jets? And they just sat there, as dumb looking as could be. They didn’t say a word. Not a word! To me, that proved they were the wrong people for the current job because either they did not know to answer or did not know what to answer with.
If the CEO’s not knowing to answer a basic setup question that should have been anticipated (read they should have gotten coached better if they did at all) is not enough to question their management ability (it also suggests the boards have not been asking any unexpected questions either over the term of their positions) well, consider the following:
Last year General Motors ranked as the fifth-largest company in the world, with sales of $207 billion and a loss of around $2 billion. Toyota, meanwhile, ranked in 2007 as the sixth-largest company in the world, with sales approaching $205 billion and a profit of $14 billion.
Those numbers changed dramatically in 2008, with GM falling from fifth to ninth with sales of $182 billion and a loss of nearly $39 billion, while Toyota moved up to fifth place with sales of $230 billion and a profit of $15 billion.
But, here is what really got me as I watched GM’s CFO, Ray Young (Mr. Young was instrumental in putting together GM’s long-term restructuring plan after Congress demanded that the Big Three present such plans…) on Washington Journal on 12/5/08
…and that’s the reason why we support the concept yesterday, of this oversight committee to supervise the restructuring of our industry.
I think from our perspective, we’re very open. There’s talk about having an automotive Czar designated by the government to look at the entire industry.
…the advantage of having this oversight committee and having an industry czar is the fact that they can look at the American automobile industry on a wholistic basis and determine how we can restructure the industry to be globally competitive.
In all this time of GM’s existence they have not been able to assess the market as a whole including globally to determine what was needed in order for them to be “globally competitive”? What the hell have they been looking at? Isn’t this suppose to be part of basic business management skill? Now they want government help to figure this out? Is this not asking for central market control light, as in China and Russia American style? I don’t know whether to laugh at them or cry for us.
Remind me, what freakin’ side of the fuel mileage standard argument were they on back in the 80’s and 90’s?
July 21, 1992
THE CLINTON-GORE CAFE PROPOSALS:
LOSS OF JOBS, LOSS OF LIVES
CLINTON: “In my administration, we’ll…seek to raise the average
goal for automakers to 40 mpg by the year 2000, 45 mpg by the
And which industry took the positive concept of dynamic obsolescence (continuous improvement to promote sales, excluding the wastefulness issue, that’s a different post) and turned it into the negative of planned obsolescence(early demise of the item to promote accelerated sales)?
Maybe I’m reading this response by Mr. Young wrong, and it is not that they are admitting that they don’t know what they have been doing, that they don’t know how to assess the market local or otherwise, in a way that leads them to be sustainably competitive.
Maybe they are playing congress. Sort of a: Hey, sure we’ll agree to some government oversight (is that all we have to say to get the money?). But, if that is true, then they are being dishonest in their genuineness. They are acting as frauds which means we would be fools to give them the money without expecting some management personnel changes. We will have been played.
Personally I think it is both that they don’t know how to manage by virtue of the market profitability numbers presented above and by their very own CFO’s admission to wanting a communism economics inspired concept put in place for their market. Though Mr. Young mostly noted Japan’s automotive market approach, so I guess he wants more of a socialistic form of central market control. Imagine that, GM wants some form of socialism with a dash of communism. They even use the Russian term for a central planner. So, what say you of the republican persuasion?
by divorced one like Bush
Professor Krugman has been having problems with a person named Amity Shlaes. Well, actually he’s having a problem more with what she is professing. Amity is talking about The Great One’s relationship to today’s sickly economy and prescribing a plan of treatment. Doctor Krugman is noting the errors in Amity’s examination findings and her plan of treatment. All I can say is, Paul, you’re arguing with Sarah Palin here. Amity’s not even a nurse, never mind a doctor. Let me expound.
Here is an article of Amity’s from 12/20/01 suggesting what is need to fix the sickly economy then:
The result of this labour flexibility is that the US has been able to sustain productivity growth at the outset of recession, something of which virtually no other developed economy is capable. Because US laws make it relatively easy to dismiss workers, companies do not have to waste negotiating time or cash on buying workers out of contracts.
When recovery does come, they will have more cash to invest. Because Ford can lose workers, it can also afford to bid for market share by selling cars interest-free. What is more, there will also be cash in the till with which to rehire workers.
There are lessons in this picture for all three countries. For the US, the message is: do not do anything to disturb the dynamism of the labour force. This means that the well intentioned plan to expand benefits for the unemployed in “economic growth and security” legislation is wrong-headed. For while nationally subsidised unemployment schemes may not target specific companies, they do throw sand into the gears of dynamic economies.
For Germany, or Japan, the message is: freer labour policies are crucial to future growth.
It is an old truth but worth remembering: “hire and fire” also means “fire to hire”. The best insurance for growth is creating a culture where workers believe that spring will come and, with it, a new job.
Hire and fire also means “fire to hire”? “You gotta be cruel to be kind in the right measure, cruel to be kind it’s a very good sign…”
In Amity Shlaes bio it is reported:
…2003, she spent several months at the American Academy in Berlin as the JP Morgan Fellow for finance and economy.
Here is the J.P. Morgan Fellows program:
The J.P. Morgan Fellows Program was established in 1996 to promote diversity in graduate business schools and in the Investment Bank. The Program provides half-tuition scholarships for up to 10 first-year MBA students at five of the United States’ top graduate business schools.
Now, this is very interesting in that wikipedia notes:
Shlaes graduated from Jonathan Edwards College, Yale University magna cum laude with a bachelor’s degree in English in 1982 (with reference to Yale alumni directory)
Her bio does not mention this bit of education. It mentions nothing related to college at all! Nor does her bio at the Council on Foreign Relations
mention anything more than being an adjunct professor at NYU’s Stern School of Business. Yet, her career is full of editing jobs. So, is she teaching business? History?
Thus, we have a bachelor’s in english (obviously academically capable) receiving a fellowship for MBA students at the top business schools being used for a trip of “several months” to an academy for promoting German/American bonding. Via Source Watch:
The Academy’s web site states that it “presents an English-language public program at the Hans Arnhold Center [each semester]. The program is designed to present the work of fellows both to colleagues and interested members of the public …
The Academy’s fellowship is only one semester and “occasionally” a full year.
To be fair, at her book page it does state that her first book, the subject of which was Germany came about from her “studying and working in Germany starting in the fall of 1982.” It just does not describe the studying and working. Her bio at the CFR states she worked for the WSJ/Europe from 1986 to 1990 as the Editorial Features Editor.
The question: Is a bachelor’s in English with a lot of editing work experience editing editorials enough to get an MBA related fellowship to an Academy that gives English speaking lectures which then qualifies you to be a respected commentator of worldly proportions regarding today’s economic crap all put into an historical perspective? Not really, but…
I’ll accept a self taught historian, a self taught economist, but just as I’m a self taught guitarist of 40 years, I’m considered an amateur as should she be. There is nothing in Amity’s bio that suggests that all the honoraries she has received, both in job and awards, are related to anything more than the fact that she is very good with English language. She was an English major, she writes and reviews writing for God’s sake. Though, even in all of that writing there is no list of authorship within peer reviewed journals. None. So, how accurate is it to state at her bio page of the CFR this:
Expertise: Germany; Russia; history; economics; U.S. tax policy; relative competitiveness.
Is this expertise bestowed by peers in these subjects or is it expertise based on editing authorship of these subjects?
Professor Krugman, that’s it.
Here is thus the problem for Professor Krugman and anyone that is trying to correct the errors of Amity’s ignorance of her subject matter: You are arguing with Sarah Palin, the republican version of the valley girl voicing in a republican valspeak.
It’s the republican “brand”.
If there are poster children for the republican Stepford Wives
machine these 2 women are it. They are manufactured women for a specific male need.
Don’t believe me that we are dealing with 2 of the same? Then listen to the following with your eyes closed and tell me you do not hear Sarah in Amity’s speech, mind you, with more polish as one would expect from an English major. You do have to get to the points in the programs to where she is feeling comfortable.
Like this presentation with Charlie Rose. Go to 6:15 and start listening. Let it roll to the end of her answer.
There is this one which is what keyed me to this thought for today. I was eating breakfast yesterday morning with Cspan on. Catch her as she talks about Krugman at 2:50, but dig her talk regarding Hoover at 6:50. Can you handle that laissez-faire pronunciation? Did you catch the “aught not”?
Finally, this July 27, 2007 lecture, Foundation for Economic Education: Manipulating America. She starts speaking after the intro at 2:40. Listen for about 2 minutes.
Now here is Sarah’s acceptance speech.
A line of connection in experienced disconnected thought: Southern economic growth, anti-union, free trade job loss, today’s economy
by divorced one like Bush
caution, a long read
I’ve been reading: Making Government Work by Ernest F. “Fritz” Hollings. Yes, that Hollings of Gramm and Rudman legislation fame. It is kind of rambling read, but I now understand why our congress of the democratic party side has been acting like moderate republicans and not liberal or progressive. I recommend it just as a bit of a fly on the wall experience, be it a southern conservative Democratic fly. He does not like unions. He does not like free trade as currently practiced.
And, as much as he hates unions, he can not see that his fight against GATT and NAFTA in support of the textile industry as jobs moved south and over seas is and was the large version of his attracting jobs from the north east because of the cheap, non-union labor. He understands the impetus of cheap labor found in Mexico and China for business as a problem of “free trade” for our country as currently practiced, but totally fails to see it in his anti-union position. He can see the “fight” between nations for capital in flows due to labor cost advantages and how that is harmful to higher developed nations, but Hollings never indicates an understanding that he helped create the game of pitting one area of people against another by bidding down labor when he promoted the south as a union free area. That is, he sold his state, and thus sold out the northeast and the north midwest auto/rust belt social progress by bidding a lower labor cost. He fails to see his south played and still plays the roll of China to the unionized areas of America.
I mention this as an introduction to a person mentioned in the book who gave testimony in front of his senate committee hearings on GATT and NAFTA 11/15/94: Sir James Goldsmith. I present him and this bit of history as a compliment to Stormy’s postings on trade and the related postings regarding ours and the worlds current economic condition. Senator Hollings listened, but he did not hear.
Sir Goldsmith you can imagine, is no small potatoes. Nor is his background of the character one would expect as to be not so much in favor of GATT and NAFTA. Consider:
Anglo-French billionare financier
The Goldschmidts (family name changed to Goldsmith), like their neighbors and relatives the Rothschilds, had been prosperous merchant bankers in Frankfurt since the 16th century.
He was a greenmail corporate raider and asset stripper. (Including US timber companies.)
In 1990, Goldsmith also began a lower-profile, but also profitable, global “private equity style” investment operation. By 1994 executives working in his employ in Hong Kong had built a substantial position in the intermediation of global strategic raw-material flows.
Goldsmith… believed Britain had been victim of a socialist conspiracy and that communists had infiltrated the Labour party and the media.
So, what are you thinking? Money and more money, of the world market…total conservative. Certainly eccentric, if not a little paranoid regarding the communist bogyman. Except, he wrote a book in 1993: The Trap.
From the intro:
We have convinced ourselves that there exists only one valid economic and social model: our own. By attempting to impose it universally, we have exported to almost every corner of the world our diseases: crime, drugs, alcoholism, family breakdown, civil disorder in urban slums, accelerated abuse of the environment and all the other problems that we experience daily.”
But, this is the money quote:
“The economy is a tool to serve us. It is not a demi-god to be served by society.”
So, with no further ado, I present the Ross Perot of Europe in the epic battle of free trade, Sir James Goldsmith: (the audio of the transcript is at the same site)
I believe in free markets, I believe in free enterprise and I believe the purpose of the economy is not just to improve indices but to improve the state of the nation–yours, mine. So I’m not an anti-free-market man nor an anti-free-enterprise man; quite the contrary.
[regarding a prior witness] What you’ve heard today is the view from big business, of which I was part. And I believe the view from society in general is totally different.
Let’s pause right here and let that statement sink in. Society has a different view of the effects of “free trade” as practiced.
That’s nothing to do with productivity, Mr. Chairman; that’s moving to get the cheap labour forty times cheaper. And please don’t think this is unskilled jobs; these are skilled jobs; these are high-tech jobs going there. Of course there are also the unskilled jobs, but the skilled ones are going to highly skilled people and they are moving offshore; and if you think that’s productivity, then I think you would be wrong.
Well, surely the measure of competitiveness is the balance of trade. And as you, Senator, pointed out, if you have the second worst balance of trade in history, 150 billion dollars, that’s not being competitive in world markets.
In his [prior witness] testimony he talks about 500 billion dollars to be invested in China. And then what does he say? He says what America needs–and no doubt this is true about Europe as well–is an increased rate of savings. What for? To invest in China?…we can’t increase our rates of savings just to invest them elsewhere and where we bleed to death in terms of capital and we bleed to death in terms of jobs.
And this is the big point, Mr. Chairman. What we are witnessing is the divorce of the interests of the major corporations and the interests of society as a whole.
Ok, time out. I just want to make a plug for my coined bit of nomenclature: United Corporations of Global. It’s an entirely new nation that has no grounding to any boundaries of the continents and thus no patriotism to any nation. Let’s all chant: UCG, UCG, UCG, UCG…
Sir James Goldsmith goes on in his opening to present some figures showing the decline to society’s non-GDP measures since free trade has come on the scene. So we’ll skip to the closer quote:
Now I’m not here as a bleeding heart liberal; I’m a hard-headed realist and it is my view that if we try and make profits and at the same time destroy our nations, no one will benefit from it–even those who make the profits. (can you say “2008”?)
Returning to the beginning of this post regarding Senator Hollings lack of connection to his own approach to saving the south, I present this comment made during Sir Goldsmiths testimony:
…These thinkers were telling us–in fact I was at [Renaissance] with President Clinton when Michael [Porter] from Harvard was there and he was still lecturing on the comparative advantage, David [Richardo], and I just looked and said, yeah, the comparative advantage, that’s why BMW’s come to South Carolina. We have never made an automobile in our history. I mean, come on, it’s the wage advantage; 30 dollars in Munich, 15 dollars in Spartanburg;
And that, ladies and gentleman, is the display of the disconnect of our thinkers in Washington concerning all issues. The disconnect is the segmentation of thought regarding the mechanisms of relationships when forming a position on an issue. Senator Hollings just laid right out there his selfish thought process. Now, I don’t mean this in a derogatory way. Read his book, you will see he always held in desire what is best for the people. Unfortunately, the set called “the people” changes with the focus of the argument. The mechanics of the issue is never seen as being the same at a scale unrelated to the scale of the current set of “the people”. His desire to help his south (small set of “the people”) made him unable to recognize in his approach to improving the economy of the south, the same mechanical principles he was arguing to prevent in the hearings regarding GATT and NAFTA. That is the selfishness unrealized by him. He is anti-union still today.
Returning to Sir Goldsmith’s testimony, these are relative to today:
The reason why this time there’s been a recovery in indices and GNP despite very substantial pressure, downward pressure, on interest rates and facilitating credit through the banking system is because salaries, earnings, have either gone down or risen very little relative to the period of recovery. And that is the whole philosophy, is we can keep inflation down by keeping wages down; and we have forgotten the purpose of the economy, which is to enrich, to create a stable society, and to include the population, the vast number of people in active life; and instead we believe that if we can reduce salaries we can keep inflation down. That’s the wrong way around; we just forgotten what the economy is about, what its purpose is. (Can you say last 8 years? Really, though it has been the last 28 years regarding interest rate decline, wage decline, inflation moderation with rising GDP.)
The alternatives are not just closing the market, becoming protectionist; the alternatives are not saying we are now going into protection and we’re going to isolate ourselves from the world, each one of them. The alternative is to have regional trading blocs which have similar economies so we’re not trying to make our labour forces compete with people whose labour costs 2 percent of theirs and thereby destroying them–but–and reducing their salaries and eliminating their jobs–but having negotiated bilateral agreements between trading blocs so that each region, each nation, imports those products that it needs, not those products that destroy its jobs.
Senator, when I was young I was taught, as we all were, that if we managed to create extraordinary material prosperity we would solve our problems. And we were brought up in the belief that there was an inevitability of progress: progress of wealth, progress of stability, progress of civilization. Well during the last fifty years, since I’ve been more or less an adult, we’ve had the greatest period of economic prosperity, economic growth in history. We have succeeded beyond our wildest dreams…And what has happened? Have we solved our problems? Are our towns more stable? Are our families more stable? Is there less crime, less people in prisons? Less people in–are there more people in permanent and noble employment? What have we done? We have profoundly destabilized our communities. We have done everything that was wrong in social terms; we’ve deracinated, we’ve uprooted people from the countrysides, we’ve shoved them into towns, we haven’t given them jobs; we’ve created ghettoes and underclasses; we’ve increased crime and drug addiction and family break-down–all this in a period of maximum prosperity. Why? Because we were only interested in economic indices. We forgot that the purpose of the economy is not just to improve the index; it is to improve prosperity along with social stability and social contentment. And GATT is typical of the economic instrument, whose purpose is to increase corporate profits; whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.
Read that last part again: …whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.
I think Sir Goldsmith was thinking in linear terms as to the increasing negative effects of the form of free trade being set up. I don’t think he imagined the deregulation that would give a false sense of reinforcement to the “free trade” weakening of the foundation. That business was able to shore up the crumbling base via debt against the social decline, just means, as we are now experiencing, that the crumbling of the pyramid will be of a greater energy. That is assuming we can not shore up the breaking of the foundation such that it is a controlled falling of the pyramid. Though, if we are lucky (fingers crossed, salt over shoulder) we may just engineer a solid repair of the base before it all falls down.
Can we broaden the discussion now?
by: Divorced one like Bush
Crooks and Liar’s posted this video, but their presentation seems more from a position of how correct Peter Shiff was. I think what is more important, and a better lesson to learn is how much crap was being presented by Fox as real, reliable, truthful information that “you can use”. Listen to the other “panelists”.
If we do not learn to understand “crap” reporting, if we do not learn to understand story telling for selfish purpose, if we do not learn to understand that propagandizing is not solely a political tool, but more importantly an economic tool, we will not solve our’s and the worlds current economic condition.
What this video is, is the unvailing of one of the real life experiences of the Truman show we have been living in since Reagan, only this interpretation of the story used the constructed world of finance on the stage known as the economy.
by: Divorced one like Bush
As we watch the “team” Obama is putting together and the discussions regarding how reflective of progressive ideas they are vs same old, same old, I thought I would add to the hunt for Obama’s true identity. These are comments from his policy positions regarding development of our living environment and the economic relationship. I was keyed to these via a notice I receive from the Smart Growth movement.
Build More Livable and Sustainable Communities: Over the longer term, we know that the amount of fuel we will use is directly related to our land use decisions and development patterns, much of which have been organized around the principle of cheap gasoline. Barack Obama believes that we must move beyond our simple fixation of investing so many of our transportation dollars in serving drivers and that we must make more investments that make it easier for us to walk, bicycle and access transportation alternatives.
Level Employer Incentives for Driving and Public Transit: The federal tax code rewards driving to work by allowing employers to provide parking benefits of $205 per month tax free to their employees. The tax code provides employers with commuting benefits for transit, carpooling or vanpooling capped at $105 per month. This gives drivers a nearly 2:1 advantage over transit users. Obama will reform the tax code to make benefits for driving and public transit or ridesharing equal.
The top 100 metro areas generate two-thirds of our jobs, nearly 80% of patents, and handle 75% of all seaport tonnage. In fact, 42 of our metro areas now rank among the world’s 100 largest economies. “To seize the possibility of this moment, we need to promote strong cities as the backbone of regional growth. And yet, Washington remains trapped in an earlier era, wedded to an outdated ‘urban’ agenda that focuses exclusively on the problems in our cities, and ignores our growing metro areas. Strong cities are the building blocks of strong regions, and strong regions are essential for a strong America….that is the new metropolitan reality and we need a new strategy that reflects it . . .
Obama furthers his argument that type of transportation is important in the overall picture of our living arrangements which relates to the overall quality of our economy.
Responding to Transportation for America’s petition:
We need our next president to lead an initiative to invest in public transit, high-speed trains, places to bike and walk, and green innovation. We need a president with a plan that can put millions to work in jobs that can’t be outsourced, bring down the costs of travel, and create a sustainable infrastructure that will keep America on the cutting edge.
And I think you’ve identified an important part of the answer as well. Our economy is slowing down, we need to stimulate it. Jobs are disappearing; we need to create new ones. At the same time, our infrastructure is crumbling and we need to rebuild it.
I had already proposed creating a National Infrastructure Reinvestment Bank, funded with $60 billion over 10 years, to expand and enhance, not replace, existing federal transportation investments.
I will invest $150 billion over the next decade in renewable sources of energy to create five million new, green jobs – jobs that pay well and can’t be outsourced; jobs building solar panels and wind turbines and fuel- efficient cars;…
I support Amtrak funding and the development of high-speed freight and passenger rail networks across the country.
As you know, all of these measures will have significant environmental and metropolitan planning advantages and help diversify our nation’s transportation infrastructure. Everyone benefits if we canleave our cars, walk, bicycle and access other transportation alternatives. I agree that we can stop wasteful spending and save Americans money, and as president, I will re- evaluate the transportation funding process to ensure that smart growth considerations are taken into account.
So, he talked the lingo of progressive minded people. Do these statements suggest that the ideology behind his pragmatism is progressive?
If the change we wanted was not to be bull shitted anymore, and the one I’m listening to is talking “change” using lingo, presenting policy plans of what I want, was I wrong to think they were talking no more bull shit? Are those talking like Glen Greenwald correct in that people should not be surprised with Obama’s appointments? Maybe, but then based on the above Obama words, that would mean we (you and I) just plain have to approach our relationship with governing as suspect until proven otherwise. Unfortunately, that means we will always be a day late and a dollar short having never known at the time of the decision if we made the correct one because you can not go by what is said.
Hey, I posted about Goolsbee and even asked if bringing in Jason Furman was a concession to the Clinton/blue dogs, did it mean the DLC kept control of the money issues. Does this mean that the non blog savy voter can not rely on what Obama said? Do you understand what the answer of “yes” means? Are those informing us that we should have known better, also saying that knowing the talk of “change” by Mc Cain et al was bull shit were not real in our understanding of what Obama was saying?
Come-on already! This is like blamming people for the down economy because of their consuming in an economy that is 75% consumption. We’re progressives, for christ sake… We Trust.
Do you know what happens to a person when they can never get a straight, no hidden agenda answer from one they count on? They go nuts.
By: Divorced one like Bush
I was wondering why Mr. Spitzer had not been heard from? Was his personal indiscretion so great that his knowledge and expertise would not trump such?
He has an opinion at the Washington Post yesterday.
The new president’s team must soon get to the root causes of the mistakes that have brought us to the economic precipice. Yes, we have all derided the explosion of leverage, the failure to regulate derivatives, the flood of subprime lending that was bound to default and the excesses of CEO compensation. But these are all mere manifestations of three deeper structural problems that require greater attention: misconceptions about what a “free market” really is, a continuing breakdown in corporate governance and an antiquated and incoherent federal financial regulatory framework.
One of the great advantages U.S. capital markets have enjoyed over the decades has been the view — held worldwide — that there was an underlying integrity to the representations market participants made, because the regulatory framework in which they were made was believed to provide genuine oversight. But as we all know, the laws requiring such integrity are meaningless without a government dedicated to enforcing them.
We do not need additional fragmented areas of federal regulation to handle hedge funds, sovereign wealth funds or derivatives. We need a unified approach that addresses the underlying issues: what kinds of leverage we wish to tolerate, how to measure risk, how much disclosure various trading products should provide.
Three overarching priorities should guide government actions in the new structure. First, we need better control of systemic risk.
Second, investors must be protected with adequate, accurate information. Firms must offer transparency both to individual investors and to government regulators.
[third]…we will have to step back from the current environment in which government has become a guarantor of all major risk. The so-called moral hazard will serve to devalue risk in the market, and this too will have a debilitating long-term effect on capital flows. Only if private actors have to bear the real risks they incur will the market function properly. We are now perilously close to nationalizing risk.
This is a very important issue that should be discussed at all econ blogs. It has far reaching ramifications and frankly, I want to know why we did not hear more about the closing of the National Money Hole from president elect Obama. Nor was there one word coming from the Republican Governors Association meeting.
I think the last commentator is correct: If you love America, you throw money in its hole.
mmckinl mentioned the new AIG deal.
Naked Capitalism has a post by Yves Smith regarding the new and improved AIG plan titled: The looting continues (Bannana republic watch). It reviews a WSJ article and notes that AIG is getting a rate cut (5.5 point reduction) with more money for a longer term (5 years instead of 2, is this to protect the money class through this first term liberal hippie commune period?) and we are buying junk at $0.50 on the dollar thus potentially setting up a windfall for those who already bought crap for less. The author’s position is also that WSJ is doing their usual water toting for the money from money class.
In the end the author quotes a 1994 article by Nobel prize winner George Akerlof and Paul Romer : Looting: The economic underworld of bankruptcy for profit.
Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
I would ask: Is AIG the linchpin to assuring the financialization of our economy is extended well beyond Bush’s and prior neo-liberal economic policy hawks (DLC, Blue Dogs, Clinton) legacy?