I agree, however, that some social projects are unprofitable by nature, but nonetheless needed by society. This is where government needs to step in. But government can't replace the private sector. So where's the boundary?
Couldn't you also argue that Keynesianism has just morphed. Instead of channelling billions of investment directly through public sector spending... channel it instead through the financial sector which is more "efficient" at identifying, selecting and financing profitable projects?
It is neither about public sector spending. For instance, if governments wanted credit they could have lent directly rather than bailing out insolvent private banks.
See Krugman's A Dark Age of macroeconomics (wonkish)
The answer, I think, is that we're living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn't the fact that they were primitive -- the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed. And that's what seems to have happened to macroeconomics in much of the economics profession. The knowledge that S=I doesn't imply the Treasury view -- the general understanding that macroeconomics is more than supply and demand plus the quantity equation -- somehow got lost in much of the profession. I'm tempted to go on and say something about being overrun by barbarians in the grip of an obscurantist faith, but I guess I won't. Oh wait, I guess I just did.
And that's what seems to have happened to macroeconomics in much of the economics profession. The knowledge that S=I doesn't imply the Treasury view -- the general understanding that macroeconomics is more than supply and demand plus the quantity equation -- somehow got lost in much of the profession. I'm tempted to go on and say something about being overrun by barbarians in the grip of an obscurantist faith, but I guess I won't. Oh wait, I guess I just did.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Though in the US The NBER
uses a broader definition of a recession than do many economists. The traditional definition of a recession is two consecutive quarters of a shrinking gross domestic product (GDP).[3] In contrast, the NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[4]. Dates of recessions are determined by identifying the date of the most recent peak in GDP to the most recent trough in GDP. The duration of this negative trend in GDP is the length of the recession. Dates of economic expansion can be similarly determined.[5]
The problem with the conventional definition of recession is that policy is designed and evaluated on its GDP impact alone... The brainless should not be in banking. — Willem Buitler
Those billions go into creating economical activity. Whether or not that means job creation, it doesn't seem implicite at all. And that's no surprise: western society's social advances brought along huge motivation for business to try to cut workforce cost. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Those billions go into creating economical activity.
The smaller banks will - tragically - be allowed to fail.
If this were about sustaining credit activities, they would have separated the banks' activities into the good, the bad and the shoot-on-sight-illegal.
The shoot-on-site-illegal activities would have been rendered null and void by decree. The bad activities would have been dumped on the holding companies, which would then have gone bankrupt. That is not a problem; holding companies are just hedge funds writ big - they are not structurally important. The good activities would have been put into good banks, which would then be solvent.
That's how you do it if you want to solve the problem. It's been done before. It's reasonably cheap. And it always works. Failure on part of the regulators to do so amounts to wilful mendacity, in the same way that failing to break for a red light amounts to wilfully endangering nearby pedestrians.
What other game, to put it bluntly, is so boring to watch? (Bowling and golf come to mind, but the sound of crashing pins and the sight of the well-attired strolling on perfectly kept greens are at least inherently pleasurable activities.)
(From yesterday's OT) In the long run, we're all dead. John Maynard Keynes
They'll tell you that would have risked to plunge the Dow to oil-pocket levels.
I fail to see any problem with that, which cannot be solved by giving our railways, electrical grid, ports and other infrastructure an overhaul.
Except there is no money.
Last time I checked, people were not divesting themselves of US Treasuries. The US government has an excellent credit (for reasons that I personally fail to understand, but hey...).
Dow down means no more investor confidence, no more economic funding,
Private investors are irrelevant. The US has a gargantuan backlog of essential public spending that would need to be done anyway. Lack of private spending simply means that it can be started today, rather than slowly over the next ten or twenty years.
and with our happily-spending drown-in-debts countries, paying for such overhaul would pose the obvious problem of where they'll finally take the money from.
Monetise future tax revenues.
And for the case of the US and UK, repatriate wealth from tax frauds who hide money in flag of convenience countries.
All cross-border transactions in your currency are cleared by your central bank, and it is in the nature of a flag-of-convenience country that a substantial part of their assets are in foreign currencies, making them vulnerable to this kind of action.
Which is why the British people should start sharpening their pitchforks and oiling their torches.
In a democracy, the people can and should take the state away from the government when the government misbehaves.
Treasury and central bank "injections" (secured and unsecured lending and securities repos) contribute to GDP, or GNP, aggregate price level (revenues) --not unit level changes-- and a semblence of productivity gains (profit) which is a virtue unto itself. Thus a putz will argue, "More stimulus!," as if a YoY, QoQ, or MoM difference in GDP measures ("the gap") --irrespective of capital quality purchased-- signified total cost of human employment (wage compensation) across all industrial sectors which ostensibly constitute a national economy. As if stimulus beneficiaries necessarily prefer to spend all or most their newly acquired debt on human labor before any other capital investment (e.g. RE, P&E, software, liquidity, insurance, senators and MPs, securities, etc.) Diversity is the key to economic and political evolution.
For instance, if governments wanted credit they could have lent directly rather than bailing out insolvent private banks.
That's just like saying: instead of bailing out GM, the government could let them go bankrupt and start making automobiles itself. BS.
The government doesn't have the processes, information systems, networks or human resources (read knowledge) required to operate an efficient lending boutique.
How many public banks have we seen (namely in Eastern Europe) that ran on the basis of cronyism? That squandered millions if not billions of taxpayer's money. The financed government pet projects which had nothing... NOTHING to do with what society needed. You want a repeat of that?
Sure, there are plenty of inefficient state-owned companies too, but that's true for private companies as well, including in finance. For example all the (former) investment banks of the USA. Peak oil is not an energy crisis. It is a liquid fuel crisis.
The same is true of most Western European countries.
I invite you to take a look at the political fallout from the (ultimately successful) attempt to privatise Japan's Postal Savings system, which was hugely popular with the public.
Not all public banks go the way of Albania's banks in the early 1990's... and not all private banking systems are sound (see: Iceland, Ireland, USA in 2008, Sweden and Norway in the 1990's, Spain in the 1980's...). The brainless should not be in banking. — Willem Buitler
There is no reason at all to suppose that government isn't the best possible place to locate the clearing system (savings accounts, secured short term credits, etc.).
The rest can burn to the ground without crashing the real economy. And if the shortfall of private credit becomes a problem, then it can be made up through public investments in infrastructure.
You are using the current financial crisis as proof that the private financial system is counterproductive. Point taken. But what have you to say of Soviet financial (economic) crisis in the late 80s - and the lessons we should learnd from it?
Apart from the critique, which I can understand, I don't see any constructive, forward looking, positive proposals.
I don't see any constructive, forward looking, positive proposals
FT.com | Willem Buiter's Maverecon | Why Weber is half right but completely wrongIt is clear that the logic behind this unwillingness of the authorities to let the banks go broke rests on a simple but fundamental confusion between the life of a particular legal entity and the well-being of its stake holders and the ability of an organisation to fulfil certain systemically important functions. Klemperer and Bulow have proposed a `stroke of the pen' method for restoring the financial capacity of an under-capitalised bank. Take the example of Commerzbank, Germany's second largest bank, which has been offered euro 18.2 billion in German state support. If Commerzbank needs additional capital and cannot get it in the market, and if Commerzbank is deemed systemically important, it could (and should) have been put into a special resolution regime for banks and split into a good bank (Gute Commerz) and a bad bank (Schlechte Commerz). Gute Commerz would have all the assets of the old Commerzbank - Alte Commerz -, but only the insured deposits on its liability side. All other liabilities (the unsecured, uninsured creditors) would be put into Schlechte Commerz. Schlechte Commerz would have the equity in Gute Commerz as its only asset. Gute Commerz would be highly capitalised, after what amounts to a massive mandatory debt-into-equity swap. The shareholders and unsecured creditors of Alte Commerz are no worse off than they would have been had Commerzbank/Alte Commerz been liquidated. This whole exercise could be done in about 15 minutes. Gute Commerz would continue to operate much as Alte Commerz did before, but with massively more capital. It may be necessary in some countries to establish in law the seniority of insured depositors over other unsecured creditors. Dr. Weber should focus his energies on getting such legislation passed in Germany, and indeed in the entire Euro Area and EU. It may even be necessary to single out certain claimants on the bank (e.g. some counterparties of Alte Commerz in the derivatives markets, such as the CDS markets) for retention as counterparties of the Gute Commerz rather than putting them into Slechte Commerz. Again, that would require legislation establishing the seniority rankings of different unsecured creditors and holders of contingent claims on banks. I am unconvinced by the argument that certain counterparties of the banks should be made senior to other unsecured creditors, but as long as a sufficient number of unsecured creditors of Alte Commerz are sent into Slechte Commerz, it does not affect the viability of the Bulow-Klemperer proposal.This is just like our own BruceMcF's Turning Bad Bank / Good Bank on its head (Update)OK, now, suppose we do it this way. Bank examiners do "stress testing", which is to say, a real world audit instead of the fantasy audits that we have been doing in order to avoid official recognition of the depths of the problem. And banks that are in too much financial peril to be allowed to continue operating as they have been doing ... are put into receivership. Now, the US government strips out the liabilities that we wish to protect ... the account liabilities ... and takes over the "good" assets. If that is a net plus, the government pays the original bank for the positive net assets. If that is a net minus, the government makes up the difference with the new Good Bank, and takes a compensating Senior claim in the old Bad Bank. Then the residual of the old Bad Bank is run through ordinary Chapter 11 proceedings ... in most cases the shareholders will be zeroed out, the bondholders will become shareholders, the new shareholders are quite likely to sack the old senior executive management, and the old Bad Bank will see what they can do to recover whatever value can be had in the trash that forms their asset base.So, that bit is actually obvious but it requires cutting some very self-important CEOs to size.
FT.com | Willem Buiter's Maverecon | Why Weber is half right but completely wrong
It is clear that the logic behind this unwillingness of the authorities to let the banks go broke rests on a simple but fundamental confusion between the life of a particular legal entity and the well-being of its stake holders and the ability of an organisation to fulfil certain systemically important functions. Klemperer and Bulow have proposed a `stroke of the pen' method for restoring the financial capacity of an under-capitalised bank. Take the example of Commerzbank, Germany's second largest bank, which has been offered euro 18.2 billion in German state support. If Commerzbank needs additional capital and cannot get it in the market, and if Commerzbank is deemed systemically important, it could (and should) have been put into a special resolution regime for banks and split into a good bank (Gute Commerz) and a bad bank (Schlechte Commerz). Gute Commerz would have all the assets of the old Commerzbank - Alte Commerz -, but only the insured deposits on its liability side. All other liabilities (the unsecured, uninsured creditors) would be put into Schlechte Commerz. Schlechte Commerz would have the equity in Gute Commerz as its only asset. Gute Commerz would be highly capitalised, after what amounts to a massive mandatory debt-into-equity swap. The shareholders and unsecured creditors of Alte Commerz are no worse off than they would have been had Commerzbank/Alte Commerz been liquidated. This whole exercise could be done in about 15 minutes. Gute Commerz would continue to operate much as Alte Commerz did before, but with massively more capital. It may be necessary in some countries to establish in law the seniority of insured depositors over other unsecured creditors. Dr. Weber should focus his energies on getting such legislation passed in Germany, and indeed in the entire Euro Area and EU. It may even be necessary to single out certain claimants on the bank (e.g. some counterparties of Alte Commerz in the derivatives markets, such as the CDS markets) for retention as counterparties of the Gute Commerz rather than putting them into Slechte Commerz. Again, that would require legislation establishing the seniority rankings of different unsecured creditors and holders of contingent claims on banks. I am unconvinced by the argument that certain counterparties of the banks should be made senior to other unsecured creditors, but as long as a sufficient number of unsecured creditors of Alte Commerz are sent into Slechte Commerz, it does not affect the viability of the Bulow-Klemperer proposal.
It is clear that the logic behind this unwillingness of the authorities to let the banks go broke rests on a simple but fundamental confusion between the life of a particular legal entity and the well-being of its stake holders and the ability of an organisation to fulfil certain systemically important functions. Klemperer and Bulow have proposed a `stroke of the pen' method for restoring the financial capacity of an under-capitalised bank. Take the example of Commerzbank, Germany's second largest bank, which has been offered euro 18.2 billion in German state support. If Commerzbank needs additional capital and cannot get it in the market, and if Commerzbank is deemed systemically important, it could (and should) have been put into a special resolution regime for banks and split into a good bank (Gute Commerz) and a bad bank (Schlechte Commerz). Gute Commerz would have all the assets of the old Commerzbank - Alte Commerz -, but only the insured deposits on its liability side. All other liabilities (the unsecured, uninsured creditors) would be put into Schlechte Commerz. Schlechte Commerz would have the equity in Gute Commerz as its only asset.
Gute Commerz would be highly capitalised, after what amounts to a massive mandatory debt-into-equity swap. The shareholders and unsecured creditors of Alte Commerz are no worse off than they would have been had Commerzbank/Alte Commerz been liquidated.
This whole exercise could be done in about 15 minutes. Gute Commerz would continue to operate much as Alte Commerz did before, but with massively more capital. It may be necessary in some countries to establish in law the seniority of insured depositors over other unsecured creditors. Dr. Weber should focus his energies on getting such legislation passed in Germany, and indeed in the entire Euro Area and EU. It may even be necessary to single out certain claimants on the bank (e.g. some counterparties of Alte Commerz in the derivatives markets, such as the CDS markets) for retention as counterparties of the Gute Commerz rather than putting them into Slechte Commerz. Again, that would require legislation establishing the seniority rankings of different unsecured creditors and holders of contingent claims on banks. I am unconvinced by the argument that certain counterparties of the banks should be made senior to other unsecured creditors, but as long as a sufficient number of unsecured creditors of Alte Commerz are sent into Slechte Commerz, it does not affect the viability of the Bulow-Klemperer proposal.
OK, now, suppose we do it this way. Bank examiners do "stress testing", which is to say, a real world audit instead of the fantasy audits that we have been doing in order to avoid official recognition of the depths of the problem. And banks that are in too much financial peril to be allowed to continue operating as they have been doing ... are put into receivership. Now, the US government strips out the liabilities that we wish to protect ... the account liabilities ... and takes over the "good" assets. If that is a net plus, the government pays the original bank for the positive net assets. If that is a net minus, the government makes up the difference with the new Good Bank, and takes a compensating Senior claim in the old Bad Bank. Then the residual of the old Bad Bank is run through ordinary Chapter 11 proceedings ... in most cases the shareholders will be zeroed out, the bondholders will become shareholders, the new shareholders are quite likely to sack the old senior executive management, and the old Bad Bank will see what they can do to recover whatever value can be had in the trash that forms their asset base.
Now, the US government strips out the liabilities that we wish to protect ... the account liabilities ... and takes over the "good" assets. If that is a net plus, the government pays the original bank for the positive net assets. If that is a net minus, the government makes up the difference with the new Good Bank, and takes a compensating Senior claim in the old Bad Bank.
Then the residual of the old Bad Bank is run through ordinary Chapter 11 proceedings ... in most cases the shareholders will be zeroed out, the bondholders will become shareholders, the new shareholders are quite likely to sack the old senior executive management, and the old Bad Bank will see what they can do to recover whatever value can be had in the trash that forms their asset base.
advocating temporary receivership for insolvent banks instead of bailouts
And that is a much saner proposal than arguing that retail, commercial and investment banks should be and remain in the public sector.
Retail banking should, of course, remain in the public sector.
But of course. That's been established beyond all doubt.
There is no sound reason that your savings account and debit card are issued and managed by a private bank. It just adds hassle (because the bastards charge fees for using the "wrong" terminals) and doesn't really do anything for service.
You obviously don't know what you're talking about. Let me explain the service behind making a single ATM available in the middle of a town. Somebody has to: > select and buy the ATM - which costs about 40K€ > install the ATM into a hole in a building - which somebody has to carve out - costs another 10K€ to 15K€ > wire the thing: link it up to the bank's database via IP, link up the alarm systems > then... service the thing to make sure it's full of cash > manage maintenance, repair vandalism... What's that of not a service? Why on earth do you thing the state is better suited for this type of a job?
Yes, because it is essential infrastructure. The brainless should not be in banking. — Willem Buitler
Because the tasks you listed are a no-brainer. No innovation required. The brainless should not be in banking. — Willem Buitler
Because only the first two are completed by banks (many of them competing in this area). Payment terminals are manufactured and (often) distributed independently. Clearing & settlement is run by a number of competing networks (Amex, Visa & Master Card, ...) which are inter-operable. Card & chip manufacture is also standardised but run my competing companies.
Then, of course we have the world of e-payments, which is a whole new universe.
As you can see, a lot of innovation, a lot of competition. No justification whatsoever for the state to monopolise this market.
> The account management? > The cash distributors? > The payment terminals? > The clearing & settlement? > The card & chip manufacture?
Bullets one, two and four.
Manufacturing the terminals doesn't have to be done by the banks, but they should have in-house service staff who can take one of them apart and put it back together again, just to make sure that they don't get Diebolded. And the cards are just ordinary consumer electronics with hard-coded encryption.
What are you saying, that the bread we buy should be free of charge coz it's a no brainer to make?
How wrong you are. Latest innovation is two way IP exchanges of information between the ATMs and the banks central IT - allowing it to "push" contextual information to clients based on who the client is. Other innovations include new security mechanisms, cash depositing functions... etc.
Most central banks are quite good at security functions. And last time I checked, the ability to exchange encrypted data was not a new invention. Automated money counting deposit slots are not new inventions either. The only new thing about them is that they've gotten an access point on the outside of the building.
The logistics of bread production and banking are radically different.
No, and I'd appreciate it if you stopped putting words in my mouth to build straw men and asking rhetorical questions. You've been doing it all thread long. It's tiresome. The brainless should not be in banking. — Willem Buitler
There were two issues being discussed: > the gratuity of a service provided by a bank > the suitability of the state taking on a specific job
To my question: Why on earth do you thing the state is better suited for this type of a job? You answered: Because the tasks you listed are a no-brainer. No innovation required.
So... I was quick and wrong in implying that you were responding to the issue (gratuity) - when in fact it was the second (suitability of the state).
I do not think that your criteria (whether or not a task or a process is a no brainer) is applicable to making a decision as to whether the state or the private sector is best suited to complete a specific task. Really. There are other factors at play which are much more important.
Why on earth do you thing the state is better suited for this type of a job?
Because the state is demonstrably better than the private sector at running trains and power grids. The only place in the world where private trains have not been a disaster is Japan. Everywhere else - and I do mean everywhere else - it has been an abysmal failure. And trains and power grids have a number of similarities with what you describe.
The rail/electricity operator has to:
> select and buy the ATM
Select and buy the trains/transformers.
> install the ATM into a hole in a building - which somebody has to carve out
Build a train/transformer station - which someone has to construct, from the ground up and to very precise specifications.
> wire the thing: link it up to the bank's database via IP, link up the alarm systems
Schedule the trains, wire the signalling, install and test the circuit breakers that prevent trains from accidentally violating a stop signal,
Or, in the case of an electrical grid operator:
Wire the station into the grid, install circuit breakers and alert systems that allow real-time damage containment in the event of malfunction, create safe systems for real-time load balancing,
And then both of them have to
link up the entire grid to a central command and control station (preferably more than one, actually).
> then... service the thing to make sure it's full of cash
Actually run the trains (preferably on time)/service the transformer station to make sure its cooling systems work.
> manage maintenance, repair vandalism...
Maintain the trains/transformers, remove graffiti and replace bashed-in windows/restore connection when a tree falls down over a hanging wire, etc., etc.
As for the cash outlays you cite, they would barely even amount to a rounding error in the budget of a semi-serious railway.
Retail distribution networks are a good example. Society needs only one food distribution network from producers to consumers. Yet we've got many. Its because the balance between the required investment and the social benefits is in favour of the latter.
Now to our payments system. In addition to the issuers of cards (Visa, MasterCard, Amex, ...) who are marketing agents and provide variable levels of security checking, there are also national clearing and settlement agencies that manage the actual flows of funds between the banks who manage the accounts of the individuals and/or businesses making the transactions. Usually, these are oligopolies run by bank consortia.
The EU introduced legislation (latest piece in 2007) requiring the national infrastructures to morph into a pan European infrastructure in order to gain in efficiency and reduce costs for the end user. What's interesting about the legislation is that it calls for the creation of not ONE but a NUMBER of networks which will compete with one another. These are: STEP2, STET and TARGET2.
The EU didn't call for the nationalisation of these "utilities"... thank God. It just regulated the private sector where it felt this was necessary. And that's my point: regulation of industries deemed to be of "strategic social utility" is much more efficient and effective than having the government run them directly.
Society needs only one food distribution network from producers to consumers. Yet we've got many.
Actually, we have substantially two food distribution networks: Nestlé and Unilever (and they're both evil, but that's another story...). That's an exaggeration, of course, but not a very big one.
Now to our payments system. In addition to the issuers of cards (Visa, MasterCard, Amex, ...) who are marketing agents and provide variable levels of security checking,
... for a variety of funny fees and general scamminess. The credit card industry is not really a good example of a construct that serves the public.
In Denmark, we have one system, Dankort, which then interfaces with all these funny credit card companies. But the backbone is a single system. There is no reason - other than tradition - that this backbone couldn't be run by the state.
And in fact, there would have been substantial benefits of nationalising the Dankort: With the most dreary regularity, the banks attempt to impose onerous fees on usage that in no sane world merits those fees (mostly it's a matter of vendor lock-in, but they also make fat money on ForEx transactions over Dankort, with fees that cannot possibly be justified on the merits).
Again: It's one system. There is no technical reason to split it into four or five different operators, any more than there is any technical reason to split the power grid into four or five different operators.
there are also national clearing and settlement agencies that manage the actual flows of funds between the banks who manage the accounts of the individuals and/or businesses making the transactions. Usually, these are oligopolies run by bank consortia.
And these jobs are completely routine, standardised and heavily regulated. There is no reason that the central bank cannot perform them with equal efficiency. And the added benefit of it being easier to enforce compliance with tax authorities when you run all clearing through the central bank.
The EU also ruled that power grids must be broken into separate operators, "to enhance efficiency." And that railways must be privatised "to enhance efficiency." That was bullshit. Any time a politician says "competition" there is a better than even chance that he means "a handout to the locusts." Do you have any evidence that this is not the case here?
regulation of industries deemed to be of "strategic social utility" is much more efficient and effective than having the government run them directly.
Railways, power grids, postal service, education, health care, pensions, roads and bridges would beg to differ.
I agree with that. But I haven't seen a compelling case to nationalise the payment system.
is generally the case. Nor, even, that it is usually the case.
As for the clearing system in particular:
Case open and shut.
As Migeru would say: you're starting to look disingenuous.
That a speculative bubble in the real estate and derivatives markets can bring deposit-taking institutions to the brink of not lending to each other demonstrates conclusively that the current clearing system does not work: It cannot withstand sharp shocks without massive public subsidies.
Also, the bulk of the costs of maintaining a clearing system are independent of usage rates, so price/transaction is not a meaningful number to judge the price of a clearing system.
These banks are deposit-taking institutions. If they stop lending to each other, the clearing system ceases to work.
I'd add that it's the same in France, with the Groupement Carte Bleue (which was imposed on reluctant banks by the government) imposing a single set of rules for cards clearing and ATMs. In the long run, we're all dead. John Maynard Keynes
Same with GSM - thanks to heavy-handed regulation at the highest level (in this case Europe), Europe got a better standard, and imposed it across the world. With 3G, industry tried again to impose incompatible standards onto weaker regulators, and the result was incompatible standards and Europe losing its leadership. In the long run, we're all dead. John Maynard Keynes
So which is it??
Just like EDF clearly is an efficient company, as a State-owned one, Comité d'Entreprise & al.
We're fighting the dogma that says a State-owned entity is always worse. The past year should have proiven beyond a doubt that the private sector can create much worse holes for taxpayers, and yet we still hear the same propaganda about the waste and losses in the public sector.
BNPP shows that a bank can be well run in both the public and private sector, which suggests that ownership is not the deciing factor - and thus that publicly-owned banks right now may not be such a bad idea. In the long run, we're all dead. John Maynard Keynes
The banking system needs competition to remain agile.
That's what the public does well: Manage complex systems that have to work all the time, all over the country, in real time.
Companies going belly-up is a normal and entirely acceptable feature of a capitalist economy. A clearing system that cannot withstand a company going belly-up does not work, any more than a Swedish railway that ceases to run when it starts snowing.
The state is the ultimate solvent, neutral third party (you forgot that the third party in question has to be solvent too... that's the problem with AIG, not that they are not trusted to be neutral).
If the state is not a solvent, neutral third party, then you have bigger problems than the fate of your monetary system.
Let's not lose sight of these distinctions in the process of remote transactions. As with power generation, brokerage, and distribution, many different entities may and do own or operate parts of (i, ii) while a state may hold exclusive right enforce (ii).
Lehman's problem, AIG's problem isn't clearing system failure. It was margin calls by its creditors that neither company was able to resolve -- pay. If Lehman or AIG had sufficient funding, they would have wired the money. No one has reported that Lehman or AIG tried to pay their creditors and beneficiaries but could not because clearing system apparatus or clearing checks failed. Diversity is the key to economic and political evolution.
So trust in the counterparties matters as much as trust in the pipes. So why create a system where you need to worry about both, when you can a system where you only need to worry about the pipes? In the long run, we're all dead. John Maynard Keynes
I offered it, because it seemed to me, reading the convo, that vlad and Jake were at cross purposes about characteristics and structure of this particular "system" of verification.
Some specificity about clearing operations apart from clearing system clients' counterparty expectations, or trust, being disputed would help to illustrate, for me at any rate, under what conditions either vlad or Jake believe verification likely fails.
trust in the counterparties matters as much as trust in the pipes.
Oh, I agree. If a loan officer of one bank mistrusts the willingness or ability of another bank's loan officer to fulfill an obligation, failure to verify a trust is the foregone conclusion to the question, Does the formal clearing system function (as designed or intended)?
A margin call is, among financiers trading on earnest money a/k/a reserve req, the quintessential declaration of mistrust. That's why I mentioned it. Diversity is the key to economic and political evolution.
A margin call is, among financiers trading on earnest money a/k/a reserve req, the quintessential declaration of mistrust. That's why I mentioned it.
The reason mistrust among banks makes the clearing system break down is because if I want to pay you, you have to accept my promise that my bank will pay your bank the amount we agree: my payment to you is cleared by our respective banks. When banks don't trust each other and you know it, you can't take my word for the fact that the transaction will clear.
Which is why both of us are better off having our current accounts at the same institution - QED on the "natural monopoly" nature of clearing.
There were two solutions to the banking panic of ca. 1930: to introduce deposit insurance or to nationalise the deposit-taking and payment clearing part of banking. The brainless should not be in banking. — Willem Buitler
Um, a margin call is normally a contractual obligation. Exercising an option to call a loan is a declaration of mistrust.
I don't understand the distinction offered between credit instruments. Pls elaborate.
The reason mistrust among banks makes the clearing system break down is because if I want to pay you, you have to accept my promise that my bank will pay your bank the amount we agree: my payment to you is cleared by our respective banks.
A non sequitur.
"My payment to you is cleared by our respective banks" Yes, the clearing system to which both banks subscribe allows both banks to verify the payment amount is available for transfer. Otherwise your bank will NOT ordinarily transfer funds to the payee. It cannot, for there are insufficient funds to transfer. (A bank may however extend credit to an account holder to honor presentment in the event the account is insufficiently funded.) The clearing operations function as designed and intended --whether or not "my promise" to the payee is true or false.
"My promise" is not the same (contractual) obligation as that of the bank to honor a draft on another bank's (deposit or credit) account. What stands to reason though, with respect to the so-called liquidity freeze of 2008Q4, is the frequency of overdrafts and fails (distrust), verified by testing the "clearing system," proved for bank officers the high probability (mistrust) their counterparties could not pay the full, known and unknown, amounts outstanding. So bankers suspended further demands for payment and demand for credit.
Until such time treasuries started distributing the dough to honor their "promises." Diversity is the key to economic and political evolution.
There is evidence of mistrust only when discretion is exercised. The brainless should not be in banking. — Willem Buitler
Let's examine a generic definition of the credit instrument provided by securities brokers to prospective buyers. Various terms of the agreement proferred --including but not limited to closing share price, buyer's reserve requirement (unobligated capital requirement), minimum margin requirement, and timely payment of service fees-- constitute a contract, an agreement, between them.
Buying on margin involves taking out a partial loan from one's broker in order to cover a larger investment than one's capital could directly cover. A margin call most often occurs when the amount of actual capital the investor has drops below a set percent of the total investment. A margin call may also be triggered if the broker changes their minimum margin requirement --- the absolute minimum percentage of the total investment that one must have in direct equity*.
Note that effective demand for payment (to seller, to broker, to reserve account) rests exclusively at the discretion of the creditor/broker. Uncertainty (mistrust) about valuations, the buyer's liquidity or portfolio exposure informs the creditor's decision to alter terms of margin agreements outstanding. Timing/schedule of such emendments however may or may not be stipulated in a contract. I don't know, but I would imagine such limitation is a marketing feature that differentiates brokerages' range of services as well as individual client risk profiles.
---- *I suppose, sales-speak for dividend bearing securities. <urp. ahh> See investopedia.com Diversity is the key to economic and political evolution.
Now, granted, the US$ isn't what it used to be. But you can still get a hell of a lot of man-years for that kind of money.
And that's just the money that they've paid via their taxes - nevermind the money they paid in interest, fees, 401(k)s that have gone up in a poof of smoke, and so on and so forth and etc.
privately operated clearing systems are more expensive than publicly operated clearing systems.
That's around the same size as the entire GDP of the entire USA for a year. If a crisis of this magnitude occurs in the private clearing system once a century (and on the record it appears to be more often than that), the American government could have a full percent of its population on retainer to service the clearing system, and it would still be cheaper than the bailout alone (nevermind the current operating costs).
Are you saying that the US federal government will need more than 1.5 million people more than the private sector to run the clearing system?
If the petrol distribution network ceases to function for a week, people will still be able to get to where they need to go, because their cars have on-board storage capacity.
If the clearing system entirely ceases to function for a week, people start burning stuff.
> safeguard the capital of corporate and retail banking in order to ensure that they can continue to function even in the event of capital market failure
In which sense is this not the same as safeguarding the clearing system?
clearing systems per se, which are just a byproduct of the banking business
The monetary authority could also offer every citizen an account with the central bank, which could be administered through existing commercial banks, savings banks or post offices.
We're conditioned to see a difference between road building and private lending. But where is that difference?
Or to put it another way - what value does private lending really add, when it reliably creates bubbles and crashes as much as it creates working capital?
You're talking about the actual metal in the coins and paper in the notes, right? Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
While you're thinking like a cult member money is created by the largesse of the central banks, who guarantee - something or other.
What that something is, no one knows. But it's obvious that without state support it would be valueless. Whatever it is.
Quoting Galbraith (my emphasis):
The modern large Western corporation and the modern apparatus of socialist planning are variant accommodations to the same need. It is open to every free-born man to dislike this accommodation. But he must direct his attack to the cause. He must not ask that jet aircraft, nuclear power plants or even the modern automobile in its modern volume be produced by firms that are subject to unfixed prices and unmanaged demand. He must ask, as just noted, that they not be produced.
More to the point, however, there will always be a state, and it will always "butt in," as you put it.
Because "the state" is really just a euphemism for "the dude in the immediate vicinity who has the biggest stick." And there will always be a dude with the biggest stick.
Exchange rates seem to be a measure of belief in the size of the stick.
Which shouldn't entirely be a surprise, I suppose.
Keynes
When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
after a national gas station strike : see, the cars don't work.
When you have a national gas station strike, the army steps in rather quickly, because it is (even with the grace period, as noted by Jake, of people's fuel tanks) a critical infrastructure. Same with payments systems.
That said, maybe you ARE underlining a critical weakness of the car transportation mode: it's a highly decentralised system depending on a highly centralised infrastructure with a very small number of choke points, a weakness that may be worth remembering. In the long run, we're all dead. John Maynard Keynes
The risk of cascading breakdowns is one of the crucial logistical similarities between the clearing system, the power grid and the train service. And risk of cascading breakdowns in a vital infrastructure gives you market failure. Every. Single. Time.
The point of nationalising the clearing system is not to prevent another speculative orgy. That is likely to be impossible. The point is to take away the ability of the criminals on Wall Street to take the entire monetary production economy hostage to their games of three-card monte.
Once the clearing system is nationalised, the rest of the banking sector can and should be allowed to burn to the ground when they fuck up on this kind of scale. That's what happens to every other company or sector in a capitalist economy.
Like I said before, states are by far unable to guarantee, let alone replace the whole banking system. This is why I don't agree with US voices speaking against big state, for instance: state's power and influence is already quite small - except maybe the chinese case.
Unless, that is, you want to nationalize the whole economy. Because this is where your reasoning is heading to, in reality, right :) Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Preserving the electrical grid is of little help when the generators break down. Preserving the railroads is pointless when there are no trains in the first place.
Yes. That is why you don't unbundle the grids.
Like I said before, states are by far unable to guarantee, let alone replace the whole banking system.
They do not need to replace the whole banking system. GoldmanSachs does not need to be run by the government - it can be allowed to go into Chapter 7 like every other insolvent company which is not worth keeping as a going concern.
All the government has to guarantee is the clearing system. And that is perfectly well within its capabilities. It may have to confiscate the assets of a few hedge funds to do so, but hedge funds are expendable.
Precisely, so nationalizing the clearing system is not enough: we need to nationalize the banks also, really the whole banking systems. We cannot possibly satisfy to a few ATM, right :) That's why I said earlier that we'll be led to taking over all intermediaries. If G Sachs is allowed to fail, who will finance the economy then? The state, since it's the only big actor standing. If it needs to finance the whole economy, that means it'll have to take it over - or at least that's what it'll all amount to. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
If G Sachs is allowed to fail, who will finance the economy then?
In the short term, the state, via massive construction programmes to green the economy. Programmes that are long overdue and will have to be implemented anyway, eventually.
In the medium term, some of the several thousand local and regional banks will fill out the market for project finance. And some of the big banks will go into Chapter 11 instead of Chapter 7, which means that they will still be around, but under new (and hopefully improved) management.
Perhaps you haven't been paying attention, but the guaranteeing part is exactly what just happened in the US.
As for the rest - where's your evidence that states can't replace the banking system? States can certainly buy and run banks, and historically they've usually done this with greater success than the bankers have.
Your position seems to be based on nothing more solid than wishful thinking, repetition and ideology.
It's certainly not based on history or fact.
States can buy and run banks, better or worse. The example of Credit Lyonnais comes to mind here.
My position is that the state is not some all-powerful monster. I don't say it's not competent, although even that can be discussed, but that it isn't big enough. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
the state is not some all-powerful monster
You don't need investment banks for that, but you do need deposit accounts and debit cards. The brainless should not be in banking. — Willem Buitler
Bubbles and crashes are overhead. They're very, very expensive overhead.
Because even if the banks pay back every last cent they've 'borrowed' - which is about as likely to happen as Jupiter is to crash into the Andromeda galaxy - millions of people will still have lost jobs, homes, marriages and life opportunities, and will be permanently scarred in the aftermath.
Perhaps you think this is unimportant. That's certainly your right, but if so you're not going to find many people on ET who agree with you.
That's the bottom line here. The great free-enterprise rhetoric about freedom and opportunity and its inherent superiority to evil communism is a naked, screaming, childish lie. If you're one of the losers - and as wealth becomes ever more concentrated, more and more people discover that they're losers - you will not be better off. You will not be happier, you will not be more comfortable, you will not have more opportunity.
Banking is at the centre of this, because US-style banking either pushes for a rentier culture which concentrates wealth for the sake of it, or it grudgingly tolerates an investment culture which redistributes wealth for the sake of wider benefit.
And the evidence is clear - rentier culture doesn't work. It doesn't even work for rentiers. Real prosperity has only ever happened under strategic redistributive government investment and management programs. Anything else is a pantomime of horrors.
You're taking a philosophical point of view that Jake didn't, and that's perfectly your right and my pleasure to discuss it. Not only I don't take the absolutely-free markets vs communism as the only two possible alternatives, but I do think they are even somehow related. Unfortunately US style banking became the paragon of banking success, like everything else coming from the US, not the least management and marketing techniques. I'm not for forcing people into stuff though - I wouldn't tax rentiers to death for instance, but create incentive for them to not hoard, but to somehow return the money into the society. Or with things like globalisation, this is hardly possible. I don't even think rentiers are all that rich in the end (I'm still thinking of the poor Noirmoutier fishermen whose houses tripled in value and they dumbfound themselves due "rich" tax) or all that happy to be just rentiers. I mean I wouldn't demonize them quite so easily. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Claiming that price accurately reflects value leads you into the kind of dead end where your economic model fails to accommodate speculative bubbles and the value of goods that cannot be assigned a price by the existing institutions.
In the precise case of the fishermen, the problem lies with the French state's stubborn in taking into account realestate market prices as a criteria for wealth tax. I guess I don't need to tell you that this smells like a law against rentiers, made by -- do I need to tell you who?... Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Including real estate in a wealth tax is a perfectly sensible thing to do. Allowing real estate prices to bubble out of control is a perfectly idiotic thing to do.
Why would yuo have them rent their family house?
Because then they don't have to worry about fluctuations in real estate prices. And they don't get fictitious value increases that can be played up by politicians who are fond of printing money and handing it to rich fucks.
Altogether a better deal for the political economy as a whole. And usually also for the people principally involved.
And needless to say, renting makes you much more mobile, because you can terminate your occupancy without having to go through the hassle of selling the property.
And how do you propose to rein in the realestate bubble?
Progressive wealth taxes, prohibit casino mortgages, limit mortgages to 80 % of the taxed value of the house, provide adequate and affordable public housing. And that's just off the top of my head - I could probably think of a couple of other things if I took a little time to do it.
So, a system of incentives needs to be set up which aligns the interests of both the renter and the owner, so that it is in the interest of both of them to improve the property.
I know many people whose main motivation for wanting to own is "to be able to modify their home". The brainless should not be in banking. — Willem Buitler
Of course, that would also expose the owner to a number of structural risks. But people who can afford to buy to let are better placed to carry those risks than people who are renting from them.
F**k the political economy. Just keep out of My Land will ya! Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Or, more bluntly put, if not for the existence of a political economy, you would have to spend most of your time defending "your" land from intruders.
Democratical state guaranteeing the right to private ownership as a fundamental human right does not give it (the State) any prerogative (exceptional situations excepted) to dispose of My Goods.
There you go again with the ideology. The notion of fundamental human rights is an ideological position (one that I happen to share, but also one that the vast, vast majority of human society throughout the history of the species does not).
And I would remind you that for every sob story you can find about poor fishermen being forced to leave their ancestral home because the real estate bubble unjustly inflates their land taxes, there is a multitude of stories to be told about people who quite voluntarily sell their house during a bubble and cash in the inflated price. They have produced no value at all in that transaction - not a single meter of railroad has been built because the price of their house went up, not a single ball bearing has been cast because the price of their house went up, not a single windmill was assembled because the price of their house went up.
Since society in aggregate did not get wealthier, any gain they have made by that transaction comes directly at the expense of someone else in society. How's that fair or just? How's it fair that the price I pay for bread and rent goes up, just because the real estate market is in a manic phase? How is it fair that my job disappears just because the real estate market is in a depressive phase?
Yes, the tools used to pop bubbles have side effects. Innocent people - like your hypothetical fishermen - will be hit by those side effects. But they are less than the predictable and unavoidable effects of not popping the bubble. So if you want to avoid wealth taxes, including taxes on real estate, you have to provide a viable alternative for popping bubbles. Preferably one that causes less collateral damage to innocent people.
If cabins are sold in bubble times, those sales can be taxed. This is a means to fight bubbles, btw, and in the mean time, build some railroads to nicely criss-cross those muddy lands.
Finally, I deeply dislike the idea of collateral damage, no matter how little, that should be tolerated, no matter the reason. This is called injustice and anyone affected should be justly compensated. It is you who was bragging to easily find bubble solutions, btw. I'm just telling you some of them are injust.
(note: the sob story is real, I saw the fisherman's daughter with my own eyes telling it) Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Which ideology was that, exactly?
It could be any of several, including but not limited to humanism, constitutionalism and the Enlightenment notion of "natural law." And, of course, a plethora of more or less wingnut versions of lazzes-faire liberalism.
They may temporarily converge with ideas of the modern right, classical liberalism or social democracy, but don't have as a source a particular ideology.
Ah, but you do. And I am actually getting a fairly detailed picture of it by now.
I don't know whether it has a name, but it draws rather heavily upon late Enlightenment notions of natural law, along with a helping of frankly unenlightened Compulsive Centrist Disorder. There's a couple of other things in there as well, but those are the two main points.
Finally, I deeply dislike the idea of collateral damage, no matter how little, that should be tolerated, no matter the reason.
Don't we all. But as it happens, bubbles have very grave collateral damage when they are not popped early.
It is you who was bragging to easily find bubble solutions, btw. I'm just telling you some of them are injust.
Why, yes, they are. If you choose to define justice as a binary attribute, then all policies to deal with bubbles are unjust - including the policy of not dealing with it. Once bubbles form, you have the choice between popping it now and popping it later. When it pops, it will impose some inconvenience, or even hardship, upon everyone it touches. Some of those people will be innocent, in the sense that they were not participating in inflating the bubble. That is beyond the realm of political choice. What you can choose is to pop the bubble sooner rather than later, thus minimising the collateral damage.
Even if, by some miracle which nobody can possibly foresee, the cost of the bailout turns out to be only 1.3 trillion dollars, the point would still stand: That money - averaged over the time until the next crash - would handsomely pay for running an entire public clearing system. With these kinds of numbers, an order of magnitude or two in either direction will not tip the balance.
Because the Fed doesn't know how much it has been lending, what's the betting the real numbers are far more generous?
13 trillion is nearly the entire US GDP. You really have to let that sink in for a while - the Fed has handed out a sum equivalent to the entire US GDP to Wall St investment banks, without proper accounting or oversight.
But no - state-run banking would still be more expensive and less efficient and productive.
Right.
The problem with the state is that it is sometimes taken to belong to the public servants, as they're often inclined to think, and that it is often taken to be a kind of an endless hole, from which public servants can puncture without end or shame.
or
The problem with the large corporations is that it is sometimes taken to belong to the management, as they're often inclined to think, and that it is often taken to be a kind of an endless hole, from which management can puncture without end or shame.
As to French taxes, you will have to explain to me why it is worse to pay 50% in taxes and have good roads, good healthcare, decent pensions guaranteed, etc... or pay 25% in taxes and be de facto forced to pay anotherr 25% to private providers to get healthcare, pensions, etc... of rather dubious quality (cf helathcare in the US in general, and pensions today).
In one case, you get value for money, in the other, hmmmm, not so obvious. But you spend the same, wherever you are. Let's stop pretending that healthcare spending or pensions is something optional that we're competent enough to design individually against all twists of life. They are fundamentally insurance, which works best when it is built on the largest, most risk-neutral (no adverse selection) pool, the whole population. And that can only be done by the State. In the long run, we're all dead. John Maynard Keynes
Please enlighten us as to the remainder of your syllogism.
However, reintroducing capital controls in the form of taxes on cross-border capital flows would go a long way towards making currency crises of the 1997-8 sort (and the current Icelandic and looming Eastern European crises, too).
Unfettered cross-border capital flows are a bad idea. Just look at the financial crises of the last 30 years, worldwide. The brainless should not be in banking. — Willem Buitler
would go a long way towards making currency crises of the 1997-8 sort less likely
Of course, the subsidy would only be paid out at such time as the actual physical goods arrive in the country. Pure paper transactions wouldn't get this kind of refund, or it would be too easy to scam.
It would be an end to the current version of the transnational company. But that is hardly any loss. Cheap (comparatively, anyway) phone calls around the world would still be here. Intercontinental bulk goods shipping would still be with us. The internet would still be with us. All the infrastructure, in short, which has driven globalisation would still be with us.
Equating globalisation with Mitsubishi and Microsoft is either the height of folly or the most mendacious deception.
Phonecalls and others alike are cheap especially because they pass by internet. Internet too should be much more strictly regulated. One cannot print anything one likes in a paper either.
So when I say finish with globalisation, I mean regulation, and a lot of it, not national firewalls of the chinese kind. Infrastructure will still be there and getting better, but it won't be free to use no matter how. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Please do share that little bit with the rest of us...
No need for a separate diary. The problem with the internet, as I see it, is double: one, the hosting havens, where no body can touch them paedophiles, casino runners, spammers, pirates, hackers, spies and so on. The other, issue is the sheer size of it, which makes even websites based in the US hard to catch. For the moment I would act against the first issue. Blocking all russian, chinese, or Vanuatu IPs, to begin with. Then, overhauling the internet's administration system, which is way behind the times. This would create the framework. True regulations could be put into place then, related to traffic load control, spamming and other illegal activities, declared as such by all actors. If no agreement is possible, at least between the big actors, then the national firewall will remain the backup, extreme solution. Just like you can't travel where you like without a passport and a visa, you can't broadcast without authorization, you shouldn't be allowed to run an online casino or a spamming center targetting, say, the French market, from your Tonga hosted website. The basic principle being that there is no genuine freedom that is totally unrestricted. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
The model you advocate would be a de facto legalisation of political censorship on the internet. Sorry, no points.
Advising on which broadcasts are suitable for children is a... less trivial issue. As long as it is only advisory, as long as it is reasonably transparent which organisation(s) are responsible for the labelling, and as long as the criteria they use are reasonably transparent, then I fail to see a problem. If I don't think that Janet Jackson's wardrobe malfunction is odious or harmful for children to view, then I am perfectly capable of ignoring a little sticker in the corner of the screen advising parental discretion (leaving quite to one side the fact that I find the Superbowl harmful viewing for anybody of any age...).
Germany and Austria have... obvious historical reasons, shall we say, for enforcing a ban on certain volumes and certain parties, and I'm inclined to go easy on that. But the time will come (has come?) when that ban needs to be re-evaluated. The threat of a Nazi coup in Germany is about similar to the risk of a revival of the Soviet Union, so one might rightfully ask why these parties are outlawed.
Try to express this opinion in France and you'll have an opportunity to see if your entire Eurotrib blogging history will save you from being labeled a Lepenist.
"There are certain parts of the fascist program - advocating genocide, committing overt discrimination, using or advocating violence as a political tool, military coup d'etats, etc. - that are and should be illegal"
The same holds for publications or broadcasts which would try the same. The same must hold for the internet. The size of the network is too much even for national authorities. Just like radio or TV, internet providers should have their number reduced and be strictly controlled as to the content passing by, because even an obligation to keep browsing history is not enough. In the end it is a technical issue. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
The same holds for publications or broadcasts which would try the same. The same must hold for the internet.
No, it should not, because the internet is not a broadcast medium. It is a peer-to-peer medium, not unlike the shady corner in your local biergarten. What you are proposing is roughly equivalent to demanding that every pub installs cameras, microphones and other devices that keep record of their patrons' movements and utterances.
Because, y'know, they might be selling drugs. Or planning a Nazi coupt d'etat.
Surely, if biergartens had been monitored in the Weimar Republic, the Nazi party could have been broken up before it seized power. Doesn't that justify permanent surveillance of all biergartens? No? Why not?
Just like radio or TV, internet providers should have their number reduced and be strictly controlled as to the content passing by, because even an obligation to keep browsing history is not enough.
You do realise that by reducing the number of ISPs and subjecting them to content filtering, you will make it much, much easier for existing media monopolies to crack down on independent reporting, right?
You are substantially describing a world in which the internet becomes an advanced version of cable TV. While that's great news for Murdoch, Bush, Sarko, Corruptioni and the rest of the fascist-lites we have running around in the broadcast media, I fail to see how it would be of any value to society as a whole.
There is clearly a difference between a postal service, a postal retail bank and a corporate bank and/or an investment bank. I don't know any examples of a successful corporate or investment bank run by the state.
AFAICT, nobody here is suggesting that the state run investment banks outright. Just strip out the entire retail element, and let the rest stand or fall on its merits.
There is more than enough vital infrastructure investment over the next decade to keep the entire workforce busy, even if the entire investment banking sector collapses in a poof of smoke.
You are using the current financial crisis as proof that the private financial system is counterproductive.
Not quite. I'm arguing that you need to have airtight compartmentalisation between the payment clearing and retail system on one side and the investment banking system on the other. And that the investment banking system should be allowed to burn to the ground when it fucks up on this kind of scale.
But what have you to say of Soviet financial (economic) crisis in the late 80s - and the lessons we should learnd from it?
That subsidising a Mil-Ind and surveillance complex to the tune of a double-digit percentage of your GDP is a Really Stupid Idea.
That one-party political systems have a built-in problem with cronyism.
And that using cronyism as the basis for political appointments is an Even Stupider Idea.
Then I have some suggested reading for you.
However, the existence of proposals that take stock of the near future should not be construed as a license to refuse to take stock of the recent past. There are still people who need to be shown the business end of a pitchfork.
I don't know any examples of a successful corporate or investment bank run by the state.
I don't know any examples of 'succesful' corporate or investment banks which aren't heavily subsidised by the state - with generous tax breaks and lax tax enforcement and deregulation, and most recently with generous hand-outs.
It didn't happen in the UK with Northern Rock - no matter that that's how the plan was presented - and it's hardly going to happen in the US.
Are you denying that money has gone?
And as for Geithner... well, if he tells you that the sky is blue, you should look out of your window before agreeing.
So at best, the cost goes down by an order of magnitude. And that's not nearly enough for you to have a case.
TARP is the only one of the multitude of bank handout programs that had any modicum of oversight. If you think that the banks have behaved any better with the money that the Fed printed them outside Congressional oversight, then I have a bridge I want to sell you.
Although the real issue is particularly with finance schools and the whole culture of this industry rather than banks themselves. The problem is those people's mentality, rather than the "banking system". There was an article by Krugman speaking about making banking boring. Related to this, maybe there are too many unused bright and adventurous minds out there that need to be occupied with something. Before they were making wars out of nothing, or becoming pirates. Now they put up bubbles. So again, oh well. The enemy is ourselves, in the end. Maybe mankind is doomed to autodestroy at some point, one way or another. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
Frankly I didn't think it would amount to 70 billion.
70 bn is just the bonuses. Dividends and payouts from mergers are another 130 bn or so. Or rather, it was when that article was written. It cannot be smaller today, but it can certainly be greater.
Although the real issue is particularly with finance schools and the whole culture of this industry rather than banks themselves. The problem is those people's mentality, rather than the "banking system".
Greedy fucks who are willing to gamble with other people's money will always be there. Appealing to some improvement in the general moral code of the industry has never actually worked. So any system that cannot put greedy fucks who gamble with other people's money in a straitjacket and show them the door is systemically broken and has to be changed.
http://www.nytimes.com/2009/04/10/opinion/10krugman.html
there were times when things were -- manageable. The tide turned in the 90s (as in many other domains) when the complex derivatives and the IT took off. And then like I said, the society cannot consider itself without blame. That kind of culture is now pervasive in the society, libertarianism, a sort of alpha-male individualism and disinterest for the others, this rat race for material possessions, a certain cynicism, short-termism, lack of education (no, that does not mean I would be some old school conservative), and in general what we call "nivellement par le bas" in all places. Well here it is, we harvest what we sew. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
But it is not enough. Never has been, never will be.
They could also be forced to live in a poor neighbourhood, doing some garbage collecting jobs. Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
You can call those tax breaks subsidy, you can also call them investment :)
Of course you can. And by that logic, the state can also decree that it will raise a shipyard and start building ship, which it will then hand out for free to its merchant marine.
But I thought you were the one who were opposed to the government deciding what the private sector should do?
As to the generous handouts, those were loans to be payed back with interest, right.
That is possible, in the sense that there is a non-zero probability that that will happen.
In that sense, it is also possible that all the oxygen molecules in the room in which you are currently sitting, will spontaneously gather in one corner of the room, thus choking you to death. That, as well, has a non-zero probability.
Physicists have an expression for the kind of probabilities we're talking about here: We call them "thermodynamically low."
Instead of channelling billions of investment directly through public sector spending...
