Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Oh my, the alacrity!

by Jerome a Paris Tue May 19th, 2009 at 03:38:16 AM EST

UK looks towards sale of bank stakes

Britain has begun taking soundings with sovereign wealth funds and other investors about selling stakes in its part-nationalised banks as it seeks to tap into a revival of stock market confidence in the financial sector

(...)

ôA lot of people around the world think once you get through the losses the earnings power of these banks will be formidable,ö said one person familiar with the situation.

Nothing has changed. It's only the confidence of the stock market, not of the public, that banks need to regain. It's still all about earnings for shareholders, even after they have been showered with trillions of taxpayer money. It's all about government butting out.

We're back to "normal" and nobody has learnt a damn thing - if anything, people will hate the burden of taxes left by this crisis - and thus failing governments (for not preventing it, for rolling over when it happened, for spending "recklessly" to save us) - even more.


Display:
people will hate the burden of taxes left by this crisis

All depends on how the trillions were injected into the economy. Through government debt or through the creation of money (CB/Fed intervention). In the first case, we have a burden of taxes. In the second we have a burden of inflation. Each case brings its own set of pains to its own groups of people...

I personally think inflation is better than public debt. For one, it wipes away debt - which is already unsustainable.

by vladimir on Tue May 19th, 2009 at 03:46:28 AM EST
we had a debate here before as to whether inflation hit the poor more than the rich (my position) or the opposite. Maybe it's worth revisiting again...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:56:10 AM EST
[ Parent ]
But then you probably had a debate on every possible issue here :) Would you have a link pls, or a pointer on how to find it ? Thanks.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 06:05:43 AM EST
[ Parent ]
There is hardly going to be inflation in consumer prices. The money was created mostly as a mortgage debt and that creates deflation, not inflation.
by kjr63 on Tue May 19th, 2009 at 07:29:17 AM EST
[ Parent ]
European Tribune - Oh my, the alacrity!
We're back to "normal" and nobody has learnt a damn thing - if anything, people will hate the burden of taxes left by this crisis - and thus failing governments (for not preventing it, for rolling over when it happened, for spending "recklessly" to save us) - even more.

You don't think this is the end of it, do you?

To use your metaphor, we've only banged ourselves against the windscreen so far: the real wreck is still to come.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 19th, 2009 at 03:57:26 AM EST
the real wreck is still to come

And what if it's really behind us and capitalism proves its agility? How can you be so sure that a wreck is coming?

by vladimir on Tue May 19th, 2009 at 04:01:19 AM EST
[ Parent ]
Because the "green shoots" are just a slowing down of the crash of the real-economy indicators. The bottom is still months away and Keynesianism is still politically dead.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:05:47 AM EST
[ Parent ]
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?

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?

by vladimir on Tue May 19th, 2009 at 04:11:53 AM EST
[ Parent ]
vladimir:
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?
No, you couldn't, because all these billions are not going, directly or indirectly, towards creating jobs. Whether a policy is Keynesian is not measured by how profligate it is with public money.

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.

The barbarians came in the 1970s and are still in charge.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:23:38 AM EST
[ Parent ]
Remember also, after the 2001 recession there was Jobless Recovery, and this time the recession will be deeper, longer, and we haven't learned anything.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:30:58 AM EST
[ Parent ]
Don't call it a "jobless recovery." It's not a recovery unless median real income recovers. Call it a "growth recession." That term much better captures what's really going on.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 04:36:24 AM EST
[ Parent ]
The problem is that "recession" is conventionally defined as two consecutive quarters of negative GDP growth.

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]
So, with the NBER definition you _can have "growth recession".

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

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:46:20 AM EST
[ Parent ]
No, you couldn't, because all these billions are not going, directly or indirectly, towards creating jobs.

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)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 06:12:26 AM EST
[ Parent ]
ValentinD:
Those billions go into creating economical activity.
But they aren't, they are going to capitalizing undercapitalised banks.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 06:26:15 AM EST
[ Parent ]
They're going to capitalise some undercapitalised banks.

The smaller banks will - tragically - be allowed to fail.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 19th, 2009 at 08:03:21 AM EST
[ Parent ]
In order to sustain credit activity. They should be supervised about this. I also can't possibly understand how comes that the US government is not in the boards of all those banks yet.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 08:26:31 AM EST
[ Parent ]
Because the boards of all those banks are in the US government.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 19th, 2009 at 09:06:59 AM EST
[ Parent ]
No, in order to bail out their golf buddies.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 09:08:54 AM EST
[ Parent ]
A good exemple of this approach is shown, oddly enough, by AIG, whose insurance subsidiaries, who do a "normal", rather heavily regulated, business, are considered safe (and are now being sold off for real money to plug the holes at the holding level).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 09:41:39 AM EST
[ Parent ]

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

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 09:45:27 AM EST
[ Parent ]
They'll tell you that would have risked to plunge the Dow to oil-pocket levels.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 12:24:38 PM EST
[ Parent ]
So be it. The Dow is not a proper measure of economic health and we should take our collective eyes off it.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:53:20 PM EST
[ Parent ]
I'm not sure how yet, but I assure you I feel quite more revolutionary about all these indexes, given the problems they bring along.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:40:38 PM EST
[ Parent ]
"La politique de la France ne se fait pas à la Corbeille" (de Gaulle)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 01:13:50 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:26:06 PM EST
[ Parent ]
Except there is no money. Dow down means no more investor confidence, no more economic funding, 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.
This is debatable, but we'll talk about it again when the insistance of the Chinese to put their reserves in FMI withdrawal rights or whatever they're called will push the dollar to where the Turkish pound stands, and the US to default on foreign debt.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:43:56 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:19:35 PM EST
[ Parent ]
Sure. Zjust that. Most convenience countries are under US, UK, or China protection :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 04:56:02 AM EST
[ Parent ]
Whose protection they are under is irrelevant. You can repatriate the money simply by refusing to clear transactions in your currency for the financial system of said country, until and unless they cooperate with your tax authorities.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:12:38 AM EST
[ Parent ]
Jake, Britain will Never "refuse to clear transactions" with the Guernsey, Man island, Bermuda and so on. You surely can't believe that. London is the biggest one of them, and these procedures have all been invented by anglosaxons. Obama conveniently jabs against the Swiss, because that's one of the few tax haven not under US, UK or China protection. You think he'll do anything against Hong-Kong, or Singapore? Think again.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 05:22:34 AM EST
[ Parent ]
You are undoubtedly correct that the British government will never do such a thing.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:33:32 AM EST
[ Parent ]
For neo__s, including the putz, recapitalizing insolvent banks is economic activity. These opinion makers, policy makers, are concerned only with measuring resource and returns attributable to allocation of financial capital, anywhere, globally. I think you did not read the memo carefully: renting money is an efficient alternative real capital production and distribution so long as "the law" backs, or enforces, transaction value.

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.

by Cat on Wed May 20th, 2009 at 02:11:44 PM EST
[ Parent ]
Well, the solution is obvious.  We just set up a computer in the U.K. and a computer in the U.S.  Every even numbered day they transfer a trillion dollars from the U.S. to the U.K., and on odd numbered days from the U.K. to the U.S.  Soon we'll have GDP coming out of our ears.
by tjbuff (timhess@adelphia.net) on Tue May 19th, 2009 at 10:32:31 AM EST
[ Parent ]
Have you been watching Star Trek?

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Tue May 19th, 2009 at 07:56:21 PM EST
[ Parent ]
Migeru:
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?

by vladimir on Tue May 19th, 2009 at 10:17:13 AM EST
[ Parent ]
The world is full of efficient state-owned companies, in a multitude of different industries, including finance. How many do you want me to name?

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.

by Starvid on Tue May 19th, 2009 at 10:30:27 AM EST
[ Parent ]
On a scale of incompetence, I'm hard pressed to think any governmental entity could be worse than the big investment banks.  If for no other reason that it could only ruin that particular country, and not the entire world.
by tjbuff (timhess@adelphia.net) on Tue May 19th, 2009 at 10:34:23 AM EST
[ Parent ]
The entire world? Man, that's not enough. They've blown a $13 trillion whole in the very fabric of the universe.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 19th, 2009 at 10:45:21 AM EST
[ Parent ]
Man, I've always wondered where Tony Blair came from.  It's an alternate universe.
by tjbuff (timhess@adelphia.net) on Tue May 19th, 2009 at 11:06:15 AM EST
[ Parent ]
vladimir:
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?
Well, in Spain we had a Postal Bank (Caja Postal) which was privatised only to be acquired in short order by a private bank, leaving the government without a retail banking service 15 years later, when it would have been useful.

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

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 10:36:44 AM EST
[ Parent ]
Governments already successfully run export credit agencies. Not so very long ago, they also ran postal banks (until they were stupidly privatised). And they run other kinds of infrastructure.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 10:41:54 AM EST
[ Parent ]
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.

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.

by vladimir on Tue May 19th, 2009 at 12:13:52 PM EST
[ Parent ]
vladimir:
I don't see any constructive, forward looking, positive proposals
Well, I and others have been advocating temporary receivership for insolvent banks instead of bailouts. Stiglitz calls this "speedy bankruptcy" in Globalization and its Discontents and says it was the lesson learned from the 1997-8 currency crisis. Obviously the lesson learned doesn't apply to the Masters of the Universe even though the IMF now advocates it and prominent economists such as Krugman are arguing that what is being done will lead to another "Japanese Lost Decade". Bernanke tried to avoid said Japanese Lost Decade by dropping money from helicopters and he and the Treasury Secretaries he's worked with have been all too worried about protecting Wall Street CEOs to do what needed to be done. The Geithner plan even calls for the coffers of the FDIC to be raided to lend money to hedge funds instead of recapitalising the FDIC to be able to take the largest banks in the country into receivership.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:20:41 PM EST
[ Parent ]
See Here:

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.

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.


The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:23:42 PM EST
[ Parent ]
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.

by vladimir on Tue May 19th, 2009 at 12:25:32 PM EST
[ Parent ]
Not all of them -but ensuring that the State always has at least one retail, one commercial and one investment bank would be a great improvement.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Tue May 19th, 2009 at 12:32:08 PM EST
[ Parent ]
Retail banking should, of course, remain in the public sector. Savings accounts, shipping credits, ATMs and so on and so forth are all perfectly well-described infrastructure operations. 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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:36:48 PM EST
[ Parent ]
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?

by vladimir on Tue May 19th, 2009 at 03:45:48 PM EST
[ Parent ]
But of course. That's been established beyond all doubt.

Yes, because it is essential infrastructure.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:21:47 PM EST
[ Parent ]
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?

Because the tasks you listed are a no-brainer. No innovation required.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:22:36 PM EST
[ Parent ]
In addition, debit card networks are a natural monopoly as the optimal number of such networks in terms of returns to scale is one. To have two or more incompatible networks is suboptimal. And in those conditions, if the service cannot be done without (and cash cards and electronic payments cannot in this day and age), it should be a regulated monopoly. Whether it's run by a private or public ownership is irrelevant if the regulation is done right.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:26:40 PM EST
[ Parent ]
What part of the debit card value chain are you talking about?
> The account management?
> The cash distributors?
> The payment terminals?
> The clearing & settlement?
> The card & chip manufacture?

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.

by vladimir on Tue May 19th, 2009 at 04:41:16 PM EST
[ Parent ]
> 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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:30:43 PM EST
[ Parent ]
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.

What are you saying, that the bread we buy should be free of charge coz it's a no brainer to make?

by vladimir on Tue May 19th, 2009 at 04:34:56 PM EST
[ Parent ]
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.

What are you saying, that the bread we buy should be free of charge coz it's a no brainer to make?

The logistics of bread production and banking are radically different.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:20:51 PM EST
[ Parent ]
What are you saying, that the bread we buy should be free of charge coz it's a no brainer to make?

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

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 05:59:49 PM EST
[ Parent ]
I wasn't aware that I was doing that. I'll try and avoid it in the future.

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.

by vladimir on Wed May 20th, 2009 at 02:28:16 AM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:30:43 PM EST
[ Parent ]
I see you're very fond of trains, but the payments value chain is not comparable to the railroads, for the very simple reason that building more than one line (rail infrastructure) from point A to point B would require enormous resources and generate rather few benefits to society. Believe me, if it were cheaper, we could very well see competing grids.

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.

by vladimir on Wed May 20th, 2009 at 02:52:16 AM EST
[ Parent ]
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 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 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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:25:23 AM EST
[ Parent ]
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.

by vladimir on Wed May 20th, 2009 at 03:45:46 AM EST
[ Parent ]
Ah, but then it is not true that

regulation of industries deemed to be of "strategic social utility" is much more efficient and effective than having the government run them directly.

is generally the case. Nor, even, that it is usually the case.

As for the clearing system in particular:

Case open and shut.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 04:36:34 AM EST
[ Parent ]
What on earth are you talking about? Your figures show that banks are not confident lending to each other... NOT that a private clearing & settlement operation is more expensive to run than a publicly managed one - which would be expressed in €/transaction... which is somewhere in the €0,005 or less range for a national transaction and more for international ones.

As Migeru would say: you're starting to look disingenuous.

by vladimir on Wed May 20th, 2009 at 05:15:43 AM EST
[ Parent ]
These banks are deposit-taking institutions. If they stop lending to each other, the clearing system ceases to work.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:25:14 AM EST
[ Parent ]
JakeS:
These banks are deposit-taking institutions. If they stop lending to each other, the clearing system ceases to work.
See also here.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 06:26:44 AM EST
[ Parent ]

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.

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 20th, 2009 at 05:23:15 AM EST
[ Parent ]
In France the old clearing & settlement system was the SIT - not Groupement CB, which clears through the SIT. The SEPA compliant system currently being implemented in France (and taking over from the SIT) is the STET.
by vladimir on Wed May 20th, 2009 at 05:33:53 AM EST
[ Parent ]
Thanks. You obviously know that activity better than me, but the point remains that the government forced banks to work with one system rather than having separate "competitive" systems - and as a result France had carte à puces many years before the "competitive" markets.

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

by Jerome a Paris (etg@eurotrib.com) on Thu May 21st, 2009 at 08:02:32 AM EST
[ Parent ]
Paribas wasn't doing badly while it was a State investment bank.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Tue May 19th, 2009 at 12:30:35 PM EST
[ Parent ]
From what I understand, BNP Paribas is doing rather well... even now. €1.6 billion profits for Q1 2009. That's truly excellent.
by vladimir on Tue May 19th, 2009 at 12:43:56 PM EST
[ Parent ]
So State or private ownership is not what matters, is it?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 01:15:46 PM EST
[ Parent ]
I thought that most on this thread were defending the thesis that the government would me more efficient than the private sector at running the banks. Remember state owned and operated Credit Lyonnais? How many billions did that cost the tax payer?

So which is it??

by vladimir on Tue May 19th, 2009 at 03:21:58 PM EST
[ Parent ]
No, we're saying it's not necessarily less efficient. Against CL in the early 90s, you have the whole French banking sector in the 30 years before.

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

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:33:19 PM EST
[ Parent ]
EDF and BNPP are fundamentally different in that one operates a monopoly distribution network of which society needs only one. It's just like roads. Society doesn't need two highways going from Paris to Lyon. We only need the A6.

The banking system needs competition to remain agile.

by vladimir on Tue May 19th, 2009 at 03:52:32 PM EST
[ Parent ]
The clearing system should not be "agile." It should work. All the time.

That's what the public does well: Manage complex systems that have to work all the time, all over the country, in real time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:32:17 PM EST
[ Parent ]
Well I have some news for you: the clearing system DOES work. 24/7. And it's run by the private sector... regulated by the government.
by vladimir on Wed May 20th, 2009 at 02:34:25 AM EST
[ Parent ]
No. The clearing system does not work. It came to within a hair's breath of breaking when Lehman went belly-up. If AIG is allowed to go belly-up, the clearing system will break.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:21:30 AM EST
[ Parent ]
That's just not true. The whole purpose of clearing and settlement systems is to guarantee delivery of cash versus contract. To do this, the clearing & settlement agent works as a deposit safe. It collects from Party A, collects from Party B - and once both are in the safe... handles the transaction. That way, there is no risk that Party A send cash to Party B without receiving contract from Party B. It's a question of timing and neutral 3rd party.
by vladimir on Wed May 20th, 2009 at 03:49:28 AM EST
[ Parent ]
That seems to be my case you're making, no?

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 04:11:02 AM EST
[ Parent ]
It's been a few years since I lived in Sweden, but the people in charge of my regional train were equally surprised every year ...


-----
sapere aude
by Number 6 on Wed May 20th, 2009 at 10:55:40 AM EST
[ Parent ]
James: The same procedure as last year, Miss Sophie?
Miss Sophie: The same procedure as every year, James!

Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 01:45:43 PM EST
[ Parent ]
A clearing system is (i) plant and equipment; and arguably (ii) rules and regulation for "clearing"  instruments presentment, i.e. verifying demand for payment with monies drawn from an deposit account or line of credit.

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.

by Cat on Wed May 20th, 2009 at 02:46:41 PM EST
[ Parent ]
hear hear !
by vladimir on Wed May 20th, 2009 at 03:24:39 PM EST
[ Parent ]
That people stopped making payments because they did not trust the institution on the receiving end rather than because the pipes were no longer working makes no difference: banks stopped making payments, or were about to do so.

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

by Jerome a Paris (etg@eurotrib.com) on Thu May 21st, 2009 at 08:04:55 AM EST
[ Parent ]
This description of a clearing system is disingenuous? I disagree, admitting only that I've provided no facts, historical or current, about clearing operations, transmission and regulatory controls of such exchange, within or between countries. May I not presume, that information --development from manual to electronic specification of presentment-- is somewhere online?

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.

by Cat on Thu May 21st, 2009 at 10:18:43 AM EST
[ Parent ]
MarketTrustee:
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.
Um, a margin call is normally a contractual obligation. Exercising an option to call a loan is a declaration of mistrust.

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

by Migeru (migeru at eurotrib dot com) on Thu May 21st, 2009 at 10:37:16 AM EST
[ Parent ]
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.

by Cat on Thu May 21st, 2009 at 11:34:48 AM EST
[ Parent ]
MarketTrustee:
I don't understand the distinction offered between credit instruments. Pls elaborate.
I thought whether you get a margin call or not is not discretionary. It has nothing to do with trust.

There is evidence of mistrust only when discretion is exercised.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Thu May 21st, 2009 at 11:41:33 AM EST
[ Parent ]
Let's examine the purpose of a contract, a legal instrument, in theory and in practice. A contract is always a formal statement of trust, and as drawn describes the extent of the parties' mistrust of future events --voluntary and involuntary-- which could, if one or more occur, impair or foreclose fulfillment of mutual obligations. A contract anticipates and defines executable relief from harm attributable to such events.

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.

by Cat on Thu May 21st, 2009 at 12:48:55 PM EST
[ Parent ]
At the same time... it DOES need to be agile, so that it doesn't consume more resources than it generates.
by vladimir on Wed May 20th, 2009 at 02:35:38 AM EST
[ Parent ]
On the record, privately operated clearing systems are more expensive than publicly operated clearing systems. And yes, in case you're wondering, that's because bailouts have to be counted as part of operating costs when you have a private clearing system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:38:30 AM EST
[ Parent ]
Disagree. Citation?
by vladimir on Wed May 20th, 2009 at 03:46:36 AM EST
[ Parent ]
The bailouts total US$ 13 trillion and counting.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 04:05:23 AM EST
[ Parent ]
Do you have a citation to back up your claim that:
privately operated clearing systems are more expensive than publicly operated clearing systems.
by vladimir on Wed May 20th, 2009 at 04:23:11 AM EST
[ Parent ]
Dude. 13 trillion dollars. And growing.

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?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:07:17 AM EST
[ Parent ]
Yes, there is a problem. But your logic is all fuzzy.
It's like saying, after a national gas station strike : see, the cars don't work.
by vladimir on Thu May 21st, 2009 at 02:10:45 AM EST
[ Parent ]
Car fuel is not a time-critical good.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 21st, 2009 at 03:19:51 AM EST
[ Parent ]
The problem is that the barrier separating the payment clearing system from the capital markets - erected in response to the crash of 1929 - was taken down in 1998.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Thu May 21st, 2009 at 03:43:02 AM EST
[ Parent ]
That barrier was erected for two reasons:
> eliminate all conflict of interest arising from investment banking and corporate banking activities
> 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
... the barriers had nothing to do with safeguarding clearing systems per se, which are just a byproduct of the banking business.
by vladimir on Thu May 21st, 2009 at 05:25:14 AM EST
[ Parent ]
> 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?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 21st, 2009 at 05:29:02 AM EST
[ Parent ]
vladimir:
clearing systems per se, which are just a byproduct of the banking business
The payment clearing system is the key infrastructure service provided by the banking system. If we all have current accounts it is precisely so our private payments will clear. This service doesn't need to be provided by the banking system, even less by a banking system closely linked with the capital markets. See, for instance Willem Buiter's Maverecon
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.
The commercial banks provide an administrative service in relation with payment clearing, which requires participants to have accounts. If private banks are not a safe place for those accounts and/or cannot provide those administrative services, the state will have to do it because it is infrastructure.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Thu May 21st, 2009 at 05:39:36 AM EST
[ Parent ]
I'd go further - investment and basic credit are also infrastructure, because nothing happens without them. And (theoretically) all money is government property and not private property.

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?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 05:51:28 AM EST
[ Parent ]
"all money is government property and not private property"

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)

by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:27:57 PM EST
[ Parent ]
No, I'm talking about the quasi-religious cultic fiction which hypnotises people into believing that mere belief and faith in it, and especially conformity to cult dictates and high status within the cult, can all be translated into tangible benefits.

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 09:17:40 PM EST
[ Parent ]
Without the state support, my building a brick fence for the neighbour would bring me a few hens and a pig in return, instead of euros. That's all. I assure you I could get along just fine without any state "guarantee" or support or whatever. I might even sell one or two hens to get some milk and the morning paper.  

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:21:07 PM EST
[ Parent ]
On the contrary, state (or whoever mint the coins) barging in on my barter world often did so in order to profit one way or the other (like by reducing the silver proportion) from my need to exchange my work's product for food or clothes.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:25:17 PM EST
[ Parent ]
Sure... As long as you don't mind not having running water, electricity, modern medicine, central heating, electronic computers, railways, cars or, in fact, any other complicated machine requiring the construction of other complicated machines to produce it.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:21:01 AM EST
[ Parent ]
The value of a fiat currency is backed by the power of the state to levy taxes on the economy. Fundamentally, the currency is backed by the need of you to cough up your taxes in that currency, or the dude with the big stick will come and take your stuff away from you.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:23:48 AM EST
[ Parent ]
Also - that big stick takes tribute from other states.

Exchange rates seem to be a measure of belief in the size of the stick.

Which shouldn't entirely be a surprise, I suppose.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 22nd, 2009 at 04:27:37 AM EST
[ Parent ]
Here's some wisdom on byproducts...

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.


The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Thu May 21st, 2009 at 07:01:47 AM EST
[ Parent ]

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

by Jerome a Paris (etg@eurotrib.com) on Thu May 21st, 2009 at 08:10:20 AM EST
[ Parent ]
But with the clearing system, it's even worse, because you get knock-on effects: If part of the clearing system collapses because it is fundamentally unsound, it can take even fundamentally sound(er) parts down with it. Whereas a strike in a gas distribution company that refuses to accept their employees' reasonable and legitimate demands does not mean that other gas companies will cease to function.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 21st, 2009 at 08:38:08 AM EST
[ Parent ]
When you speak of cascading breakdown in relation with clearing systems, I think (unless I misunderstood you) you're not talking about the current financial crisis. Right?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:24:23 PM EST
[ Parent ]
You're suggesting we haven't just had a financial breakdown?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 09:18:48 PM EST
[ Parent ]
No, I just don't see what clearing systems got to do with the cause of it.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:33:19 PM EST
[ Parent ]
They have as much to do with the cause of the crisis as the hostage has to do with a hostage crisis.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:00:48 AM EST
[ Parent ]
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.

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 08:39:45 AM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:19:29 AM EST
[ Parent ]
"That is why you don't unbundle the grids"

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:42:18 AM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 11:54:33 AM EST
[ Parent ]
ValentinD:
Like I said before, states are by far unable to guarantee, let alone replace the whole banking system.

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 22nd, 2009 at 09:22:02 AM EST
[ Parent ]
The TARP is far less than what it would be needed in order to guarantee the whole banking system.

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:51:20 AM EST
[ Parent ]
the state is not some all-powerful monster
The generally accepted word is "leviathan". ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat May 23rd, 2009 at 07:56:40 AM EST
[ Parent ]
lol forgive my language misuses. There was a time I was more rigorous. Now all I care about is that the idea comes through. Must be the age :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:37:48 PM EST
[ Parent ]
Leviathan, as in Leviathan. ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun May 24th, 2009 at 04:15:29 AM EST
[ Parent ]
What you fail to comprehend is that the clearing system is useless without the banks that use them.
by vladimir on Fri May 22nd, 2009 at 09:10:52 AM EST
[ Parent ]
The clearing system is what you use to pay your bills and receive your income.

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

by Migeru (migeru at eurotrib dot com) on Fri May 22nd, 2009 at 09:13:30 AM EST
[ Parent ]
If you're speaking about bailouts involved in the current financial crisis (which I hope you aren't), it is pointless to bring their cost in a discussion about private/public clearing systems; actually no one has the slightest idea about how it'll all (the crisis) end and how much it'll have costed.
This is your usual skewed arguments bombarding numbers and facts that seem to mean something into discussions of topics which they have nothing to do with.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:38:43 PM EST
[ Parent ]
Just because you're not able to follow the logic doesn't mean Jake hasn't made a valid point.

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 09:33:10 PM EST
[ Parent ]
If you're putting it like this, one can but agree with you. I suppose you didn't see my post where I asked for certain financiers, Greenspan first, to be beheaded. But if we're to speak about the cost of running public vs private clearing systems, and in that discussion you bring as argument that the crisis costs 13 trillion, I still say it's skewed argumenting.

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)

by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:52:52 PM EST
[ Parent ]
In a properly managed economy, the fishermen in your example would never have had that problem, because their house would not have tripled in price (not value: Price) over the course of a single decade. One of the ways to prevent it is applying proper wealth taxes.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 03:48:17 AM EST
[ Parent ]
The price is supposed to express the value of a good on the market, right. You can disagree with the processes leading to that evolution, maybe blame the fatcats for pushing prices up. But this issue is a bit more than just a question of social inequalities or tax policies.


Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 08:34:45 AM EST
[ Parent ]
Of course the price of a good does not reflect its value. The price partly reflects the value of the good, but to at least as great an extent, it reflects the structure of the market (pro tip: "The market" does not exist. A market can exist, but it is not neutral w.r.t. pricing. Changing the way the market is structured changes the price of goods).

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:24:42 AM EST
[ Parent ]
We're on the same wavelength :)
I did say price reflects value on the market.
Of course markets aren't neutral wrt pricing, I doubt they're even tending to be so.

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:33:22 AM EST
[ Parent ]
No, the problem lies with 1) people owning real estate instead of renting, and 2) the French state not driving a stake through the heart of a real estate bubble.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:41:32 AM EST
[ Parent ]
It was those fishermen's family house, worth nearly nothing two decades ago. Why would yuo have them rent their family house? And how do you propose to rein in the realestate bubble ?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:44:25 AM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 12:04:52 PM EST
[ Parent ]
There is one problem with renting as normally configured, and it is that the interests of the renter and owner are not aligned with respect to maintenance of the property. In fact, the incentives are such that both parties believe spending money on improving the property is giving it away to the other party.

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

by Migeru (migeru at eurotrib dot com) on Fri May 22nd, 2009 at 12:13:02 PM EST
[ Parent ]
That is in some part because the law as currently configured fucks the renter and favours the owner. If rental contracts were binding as long as you kept paying rent, and as long as you were capable of leaving the property in a state no worse than you came to it, and rents could not be raised faster than inflation, then many of those perverse incentive structures would go away.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 12:27:09 PM EST
[ Parent ]
"Altogether a better deal for the political economy as a whole"

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 02:35:41 PM EST
[ Parent ]
"Your" land? You speak as if ownership were a physical property of an object - like temperature or mass. It is not. It is a guarantee granted by the body politic that it will enforce certain privileges applied to certain people.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 02:53:40 AM EST
[ Parent ]
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.
So no, I demand the right to build my fisherman's family house and pass it on to my fisherman of a son without having to fear the sudden obsession of world financiers for muddy lands, or officerat politicians of passing some idiotic law against "rentiers" or "the rich". I'm afraid you'll have to solve your realestate bubble while leaving Me alone on My pond.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:43:51 PM EST
[ Parent ]
Oh and in case you didn't notice, all I "possess" is this little piece of land, the cabin that I call "family house", and the funeral place in the nearby cemetery, where I will go when it will be too late for me to claim any "possession".

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:48:47 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:18:24 PM EST
[ Parent ]
Which ideology was that, exactly ?
I told others before and I repeat it here just for you: you're wasting your time trying to show that my non-ideological positions would be hypocritical, or would hide something. 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. If it shatters any lifetime convictions that you might have, that's none of my problems. There is much more on earth than black, green, and white (formerly red).

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)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 04:50:52 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 06:45:12 PM EST
[ Parent ]
It may not turn out, in the end, to be 13 trillion. It may turn out to be only 5 trillion, or it may turn out to be 50 trillion. From the record so far, the latter seems more likely than the former, but that's neither here nor there.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:17:03 AM EST
[ Parent ]
And at 13 or 50 trillion it would pay for running an entire economy.

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 22nd, 2009 at 04:32:23 AM EST
[ Parent ]
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. That's the only problem, in what concerns me. France Televisions can make very good, high quality programs, but when you read the books come out this year and in 2008 about how they deal with spending, you realize my two points above are the rule. The cause being that the notion of TaxPayer's F*InG Money is unknown in France.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 04:08:04 PM EST
[ Parent ]

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.


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 04:30:33 PM EST
[ Parent ]
Both :) I don't see much good in multinationals btw - or their management. And I speak of public servants in the broad sense - politicians included, not just the employees. And I could add all those corporative interests feeding on public blood. Like I said, the French don't know nor value the notion of "Taxpayer's Money", they pay their 50% taxes (cf. my last paycheck) without the conscience that it is still their money and they should overlook its spending and fire (or hang, if you want my personal opinion) those caught hand in the pot.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 05:05:24 PM EST
[ Parent ]
have similar problems, whether public or private, true. But they still grow, so they must have some advantages (if only for their management...)

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 20th, 2009 at 02:09:31 AM EST
[ Parent ]
I'll tell you why it is worse. It's not "worse" actually. Here's how it goes. When you see on your paycheck your employer's note, "this month you cost us 6000 euro" (example) and what remains after income tax is less than 2500 euro, you start to grumble. At least I do, you might be a more, how do they call this, "solidary" soul.
Difference of character.
But when you read a book where they tell you about this or that sports events, where France Televisions sent 4 reporters, from France2, France3, France3 région, sometimes France5, and at least 4 photographers; (and this is but one example, I could find many, not only from the public TV, whose shows, I repeat, are often excellent),
I assure you grumbling becomes anger.
That's all. We can speak about French roads too and their privatisation (which I don't approve), about certain empty hospitals, about the time researchers spend in chronical "réunionitis" and so on; but then you might be tempted to say that I repeat UMP propaganda :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 04:49:49 AM EST
[ Parent ]
So don't tax wages. Tax capital. The economics are only marginally different (taxing capital removes some of the perverse incentives in the current system), but you remove the illusion that the state is taking away "your" money, that you "earned."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:21:03 AM EST
[ Parent ]
Fine by me, as long as you strictly regulate and control cross border transactions. And while we're at it, finish with this globalisation mantra once and for all.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 05:25:07 AM EST
[ Parent ]
Your conclusion does not follow trivially from your premise.

Please enlighten us as to the remainder of your syllogism.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:29:32 AM EST
[ Parent ]
You would have to tax cross-border capital flows in order to prevent people from taking their capital abroad to avoid the domestic tax on capital.

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

by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 06:25:16 AM EST
[ Parent ]
Migeru:
would go a long way towards making currency crises of the 1997-8 sort less likely


The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 06:53:00 AM EST
[ Parent ]
You could even subsidise imports to the tune of the entire exit tax amount, to render it trade-neutral.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 07:05:39 AM EST
[ Parent ]
How come it doesn't ? And we're just beginning to get a glimpse of the wrongs of the globalisation. Unless the world becomes a sort of EU, that is (which is uthopical, given the complexity and the level of bureaucracy that would imply).

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:31:57 PM EST
[ Parent ]
Because regulating cross-border capital flows would not be an end to globalisation.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 03:44:26 AM EST
[ Parent ]
No, not an end, but a first step in that direction.

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:25:32 AM EST
[ Parent ]
How would you like to regulate the internet?

Please do share that little bit with the rest of us...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:42:13 AM EST
[ Parent ]
By taking out the equivalent of the tax havens.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:45:16 AM EST
[ Parent ]
Please be a little bit more concrete. Preferably in a separate diary, because this comment thread is getting long enough as it is.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 11:50:17 AM EST
[ Parent ]
As always. It's the chemistry between the two of us at work again, see. The only two good entities in the world, bro :))

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 02:52:07 PM EST
[ Parent ]
Every single time filters have been put in place, they have been used to persecute legitimate political activity. Every single time.

The model you advocate would be a de facto legalisation of political censorship on the internet. Sorry, no points.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:35:02 AM EST
[ Parent ]
Would you call censorship the different commissions in place in all countries supervising the advertising industry or the TV broadcast suitability for children ?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:34:20 PM EST
[ Parent ]
Advertisement is not free speech. It is paid-for speech. As such, the logic of free speech does not apply.

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...).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:17:16 PM EST
[ Parent ]
How about publishing Mein Kampf, or some other books in the same vein. I guess they should be allowed (in Europe; I suspect that poses no problem in the States), for fear of someone complaining of trespassing the freedom of speech ?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:52:18 PM EST
[ Parent ]
Yes, they should. It is not against the law to be a fascist, nor should it be. 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. But believing that the state and the major industrial cartels should rule the country in a military dictatorship centred on a Strong Leader is not in and of itself criminal. Unless, of course, you have fairly concrete plans to implement said military dictatorship. Because coup d'etats are illegal.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:00:02 PM EST
[ Parent ]
"It is not against the law to be a fascist, nor should it be"

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)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 04:33:54 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 06:53:50 PM EST
[ Parent ]
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.

Apart from the critique, which I can understand, I don't see any constructive, forward looking, positive proposals.

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:18:58 PM EST
[ Parent ]
ValentinD:
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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 05:57:07 AM EST
[ Parent ]
You can call those tax breaks subsidy, you can also call them investment :)
As to the generous handouts, those were loans to be payed back with interest, right. The banks will end up paying good money and the people's savings will be -- well, saved. If that's not a win/win for the state, and a lose/lose for the privateers (which I agree they fully deserve), I don't know what it.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:44:03 PM EST
[ Parent ]
How are barely solvent banks going to pay back trillions?

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 09:36:12 PM EST
[ Parent ]
First those derivative chains and packages have to be unwinded and unpacked. At this time no one knows how big the damage really is.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:55:03 PM EST
[ Parent ]
The banks who have 'borrowed' trillions didn't seem to find that a limitation.

Are you denying that money has gone?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 22nd, 2009 at 04:25:03 AM EST
[ Parent ]
Sigh. I'm not "denying" anything, I'm simply saying that the cost is not known yet, and someone (Geithner?) already commented that the actual needs are much lower, as complex derivatives are being unwound. You did notice the big banks rushing to pay back those loans - which are far from 13 trillions, anyway.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 08:28:26 AM EST
[ Parent ]
The actual needs will have to be "much lower" by at the very least two full orders of magnitude for the logic to possibly tilt in your direction.

And as for Geithner... well, if he tells you that the sky is blue, you should look out of your window before agreeing.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:36:51 AM EST
[ Parent ]
At least ten percent of the TARP money has already been paid out in bonuses to the CEOs, CFOs and other fatcats. That money is gone, into the pockets of a couple of dozen American oligarchs. It is unlikely that this figure is substantially lower for any of the other measures.

So at best, the cost goes down by an order of magnitude. And that's not nearly enough for you to have a case.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:34:37 AM EST
[ Parent ]
I feel like asking you for a source for this information. 10% of the TARP is already far from 10% of 13 trillions, btw.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 08:29:27 AM EST
[ Parent ]
Why, of course (via).

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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:51:28 AM EST
[ Parent ]
Frankly I didn't think it would amount to 70 billion. Appalling. Like I said before, it is unbelievable that the government is not in the boards of those banks, and that congressional oversight is barely visible. I do agree with Jerome's original claim that they (financiers) have learnt nothing at all.
Oh well.
When you read the Guardian story about people that continue to consider millions in bonuses as perfectly normal, you feel like saying that maybe banks should be nationalized after all.

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)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 03:00:30 PM EST
[ Parent ]
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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:48:46 AM EST
[ Parent ]
Greedy exist ever since there are jobs related to managing other people's money. But as Krugman points out here

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)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:23:47 PM EST
[ Parent ]
I fail to see how any of that is an argument for leaving the clearing system in the hands of the private financial sector.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:16:44 PM EST
[ Parent ]
That was not my fight, actually :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 04:55:49 PM EST
[ Parent ]
More to the point of immediate action, indeed the straitjacket is necessary. Ways could always be found to put them gamblers in prison without possibility of parole. The lack of action from governments in punishing the culpables is absolutely mind-boggling.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:31:03 PM EST
[ Parent ]
Running particularly offencive specimens out of town on a rail would undoubtedly have a salutary effect on the general standard of commercial morality.

But it is not enough. Never has been, never will be.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:02:07 PM EST
[ Parent ]
There was a cute video on TV with a group of traders asking for forgiveness from the public.

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)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 04:54:41 PM EST
[ Parent ]
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."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:31:41 AM EST
[ Parent ]
vladimir:
Instead of channelling billions of investment directly through public sector spending...
You call what has happened "billions of investment"?

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:49:24 AM EST
[ Parent ]
we still haven't solved the fundamental issue that there was too much debt in the system (ie we were living, collectively, above our means) - government debt is not going to solve the problem, just move it somewhere else.

And there still is the tiny fact that we were living above our means because of a trend towards anti-redistributive policies (ie what value was created was captured by a minority, and the majority got instead the right to borrow), and these policies, if anything, have been exacerbated by the bailouts, who are shuffling even larger sums of money in the same direction as before.

The problem has gotten bigger.

And, oh, we'll have a few years less of plentiful oil by the time we get back around to thinking about that issue around the corner...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 04:12:59 AM EST
[ Parent ]
these policies, if anything, have been exacerbated by the bailouts, who are shuffling even larger sums of money in the same direction as before

You're repeating French Left's claim that the government  would have actually bailed out the bad financiers. You must know the answer to that: it's the financial system that's been bailed out, and people's savings (which are huge in Europe) with it.
You could also be answered that the large sums of money are largely virtual and quite underused, that they will produce interest and so on and so forth.
Yet another reply might be that those sums went into the consolidation of banks' economic capital, rather than to fuel non-redistributive policies.


Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 06:19:11 AM EST
[ Parent ]
ValentinD:
You must know the answer to that: it's the financial system that's been bailed out, and people's savings (which are huge in Europe) with it.
People's deposits including ordinary savings were already covered by deposit guarantee schemes (FDIC in the US, Fondo de Garantía de Depósitos in Spain, and so on). What huge personal savings outside that protection are you talking about? Investments in financial markets?

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 06:23:51 AM EST
[ Parent ]
Covered at a rate of about 10% ? There is cover and cover, just like there are crisis and crisis.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 08:12:26 AM EST
[ Parent ]
No. Not covered at a rate. Covered up to a set amount. Typically somewhere in the neighbourhood of 100 thousand €.

Anybody with more than a hundred thousand € in his savings account can afford to take a haircut.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 08:49:19 AM EST
[ Parent ]
In Europe, covered up to €80.000 per bank per person. In the US its $100K.

Anybody with more than a hundred thousand € in his savings account can afford to take a haircut.

What a load of nonsense. Why not make that anybody with more than €1000 can afford to take a haircut & appeal to the billions of people on this planet who don't have enough food, running water or toilets?

by vladimir on Tue May 19th, 2009 at 10:11:40 AM EST
[ Parent ]
Anyone who has more than €80.000 can... put the money in X number of banks, and get X times €80.000 guaranteed.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 19th, 2009 at 10:32:03 AM EST
[ Parent ]
vladimir:
What a load of nonsense.
Kettle, meet pot.

How many months of median income in the Eurozone is €100,000, and how many is €1,000?

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 10:39:25 AM EST
[ Parent ]
100K = 4 x annual median income
1K = 25 x annual median income
So what's your point? That Robin Hood did good?
by vladimir on Tue May 19th, 2009 at 12:04:48 PM EST
[ Parent ]
vladimir:
1K = 25 x annual median income
In the Eurozone! We're talking about what a more than adequate ("if you have more you can take a haircut") bank deposit insurance limit is.

€1000 deposit insurance doesn't insure enough savings to pay rent for a month.

€100,000 deposit insurance insures enough savings to live for 4 years.

You do the math.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:07:59 PM EST
[ Parent ]
€100,000 deposit insurance insures enough savings to live for 4 years.

Not if you're sustaining a family of 3. Besides. So what if it insures the savings to live for more than one two or three years. 95% of the people who own these deposits WORKED for them honestly, paid their taxes honestly and have no less a right to protect their savings than do those with 20K or less.

by vladimir on Tue May 19th, 2009 at 12:21:15 PM EST
[ Parent ]
If you have more than €100,000 in savings you should know about risk diversification and not putting all your money in a single bank. After all, putting money in a bank is lending to that bank, and means taking a risk on that bank - always has been. In fact, why should there be any guarantee, in a perfect market universe, other than to acknowledge that not everybody is familiar with financial risk - but people with more than a significant sum cannot have that excuse.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 01:28:29 PM EST
[ Parent ]
Jake's comment above was that people with savings of over 100K should take a haircut... in other words not receive a guarantee for their assets coz' they're too wealthy.
by vladimir on Tue May 19th, 2009 at 03:20:04 PM EST
[ Parent ]
well, I agree. They put money (ie lent money) to a company (the bank) that went bankrupt. Why should they be guaranteed??

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:21:12 PM EST
[ Parent ]
So where do you want them to put their money? Under their mattress? If they put their money into junk bonds (or other risky assets) then your argument is fine. But we're talking about a simple deposit account here. If that's not guaranteed, you might as well hoard gold in your house's safe. Talk about progress.
by vladimir on Wed May 20th, 2009 at 02:31:21 AM EST
[ Parent ]
German sovereign debt.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:24:32 AM EST
[ Parent ]
vladimir:
But we're talking about a simple deposit account here.

Does anyone keep more than £100k in a simple deposit account?

The higher the guaranteed deposit limit, the more the government has a responsibility to manage and regulate the banking sector.

You can't have a free-wheeling market without oversight and expect government support to be unlimited.

Well - apparently in fact you can. But you shouldn't be able to.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 06:02:14 AM EST
[ Parent ]
So what? That does not grant them an automatic right to have their savings protected by the taxpayer.

If you deposit 5000 € in a bank, it's not an investment. It's liquidity.

If you deposit 500000 € in a bank, it's an investment, and caveat emptor applies, just like it would if you placed it in Congolese sovereign debt. Whether you earned the money is neither here nor there.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:34:01 PM EST
[ Parent ]
Having their savings protected is in order to avoid that people put their assets to economic use - instead of putting them under their mattress.
by vladimir on Tue May 19th, 2009 at 03:16:58 PM EST
[ Parent ]
As BruceMcF is fond of pointing out, it doesn't work that way. The money you lend to the bank has only the most cursory relationship to the money that the bank invests in the productive economy.

Besides, if there is a shortage of private money, the sovereign can always make up the difference by building railroads.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 04:36:01 PM EST
[ Parent ]
How many railroads do you want to build???
by vladimir on Wed May 20th, 2009 at 02:32:34 AM EST
[ Parent ]
You can start by replacing every highway with a railway. Highways can't do anything that rail can't do better.

If you still have unemployed people after you've bootstrapped that construction project, put some windmills next to the rails to power them.

If you still have unemployed people after that (you won't, but let's imagine), then lay down light rail in every city, put rails into every factory of a decent size, down to the loading bay of every harbour, next to every grain silo - in fact, everywhere bulk quantities of goods or people are to be moved overland.

There is no shortage of projects.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 02:59:35 AM EST
[ Parent ]
Highways can't do anything that rail can't do better.

They sure as hell can. They can get me from Pataouschnok to Timbuktoo. Rail can only get me from City A to City B... and within the city. I have some better ideas: why doesn't the Central Investment Authority decide to develop clean car technology? Or light powered bicycle technology? Or efficient solar power panels for houses? Or new heat insulation technology? Or...

You should really revise your obsession with central planning. Society has already experimented with 5 year plans to produce 50 million pairs of shoes. The market does it better (in MOST cases).

by vladimir on Wed May 20th, 2009 at 03:12:41 AM EST
[ Parent ]
They sure as hell can. They can get me from Pataouschnok to Timbuktoo.

Yes it can. You board the train at Pataouschnok Hbhf and debark the train at Timbuktoo Hbhf.

If you can't do that, then your rail grid isn't sufficiently fine-meshed. That is no different from not being able to take your car from Pataouschnok to Timbuktoo because there is no road from the highway to the town.

Of course, if you assume that there will always be a (paved) road net (who pays for that?) that covers any place you could possibly want to go, then rail will seem inferior by comparison. Just as road will seem inferior by comparison if you assume that there is a railway to everywhere you might need to go, but the only roads that have been paved are the highways.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:38:30 AM EST
[ Parent ]
You do understand that the approach you are proposing can also bankrupt a society. To illustrate a point, imagine a country run by a person who's very fond of trains. He believes that rail is great because it: creates jobs and reduces pollution. He decides to implement a 5 year plan to construct millions of km of high speed rail lines, suburban rail lines and metro lines. To do this, he absorbs the 10% of the population that's currently unemployed, paying them wages to build and then run the rail network.

The 10% of the population in the rail-force is now producing rail services and consuming other services provided by society. It's a trade within a community, which is made possible by money.

Now let's take the extreme case: nobody in this fictional society uses rail because they prefer their bicycles. Result: our dear leader has a serious financial problem. He can finance the rail-force (10% of the population) with a deficit or by printing money. If he prints money, he creates inflation. If he borrows, he burdens future generations.

Now let's take a realistic case: the situation in France today is such that the SNCF/RATP runs huge annual deficits. Its a socially (read state) subsidised operation. And that might be fine... but only to a certain extent. You need balance, otherwise your society goes bust producing goods and services that society doesn't want or need.

Besides unsustainable spending on the military complex, THIS model was at the epicentre of Soviet economic failure.

by vladimir on Wed May 20th, 2009 at 04:42:51 AM EST
[ Parent ]
Now let's take the extreme case: nobody in this fictional society uses rail because they prefer their bicycles. Result: our dear leader has a serious financial problem. He can finance the rail-force (10% of the population) with a deficit or by printing money. If he prints money, he creates inflation. If he borrows, he burdens future generations.

He would have to finance those 10 % anyway, if they were unemployed: He had to pay them a decent unemployment benefit.

The problem with your scenario - were it actually to occur - would be more along the lines of all the steel wasted.

Now, if the state employs an overwhelming fraction of society in this way, you might get issues. But 1) even in Scandinavian Socialist Republics, you don't have a government payroll (much) exceeding 50 % of the population, and 2) if you have > 50 % structural unemployment, then you have bigger problems than the solvency of your sovereign.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:24:57 AM EST
[ Parent ]
"Now let's take a realistic case: the situation in France today is such that the SNCF/RATP runs huge annual deficits. Its a socially (read state) subsidised operation. "

Not as mch as the roads.
Not taxing the roads externalities is a HUGE subsidy. On top of the infrastructure spending, of course.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed May 20th, 2009 at 05:25:51 AM EST
[ Parent ]
Putting a figure on road externalities is an artist's affair.
by vladimir on Wed May 20th, 2009 at 05:47:24 AM EST
[ Parent ]
did building all the roads bankrupt society? It was a political choice to switch from rail to road in the second half of the 20th century, which we're paying for in, among other things, plenty of warfare in the Middle East, global climate change and lots of terrorist-related fear-mongering.

Focusing the infrastructure building to rail only, and letting the private sector build new roads on its own, would be smart, don't you think?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed May 20th, 2009 at 05:31:55 AM EST
[ Parent ]
did building all the roads bankrupt society?

It certainly exacerbates air pollution problems.

But, no, I don't think it bankrupts society... nor do I think that it's the cause of the wars we're witnessing in the Middle East. They are more a result of the military-industrial complex in the USA lobbying for war - any war, to justify continued spending on their gadgets. Access to oil was just marketing. All oil producing countries have to sell their produce anyway. Look at Venezuela, or Russia. They're supplying us with energy & they're not occupied (yet).

Focusing the infrastructure building to rail only, and letting the private sector build new roads on its own, would be smart, don't you think?

Our society would be so much poorer if we didn't have a modern road network. Just imagine France without the A1, the A6 or the A10. You can also argue that what we need now is massive investment in finding clean automobile technology. I'm not against rail networks per se, but why do you think investing billions into rail a better solution than investing billions into clean energy R&D?

by vladimir on Wed May 20th, 2009 at 05:58:59 AM EST
[ Parent ]
Rail works today. "Clean cars" are perpetually "just around the corner."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 06:04:28 AM EST
[ Parent ]
Keynes:
Thus we are so sensible, have schooled ourselves to so close a semblant of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.


The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 06:21:23 AM EST
[ Parent ]
So what's the alternative paradigm?
by vladimir on Wed May 20th, 2009 at 06:31:06 AM EST
[ Parent ]
You could follow the link for an extended quote from Keynes' The General Theory.

From the 1970's we have seen an updated version of the paradigm that reigned before Keynes wrote his tract. Monetarist macroeconomics has failed just as spectacularly as pre-Keynesian economics did.

The question is whether it suffices to relearn Keynesianism or a totally new paradigm is necessary. I don't know the answer. At the risk of repeating myself I'll quote Krugman:

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.

Just yesterday, he wrote
I guess the point is that you can be a bad writer and a great economist. And I really am gravitating toward a Keynes-Fisher-Minsky view of macro, although of the three I'd much rather read Keynes.
"A Keynes-Fisher-Minsky view of macro" would involve, I guess: a focus on aggregate demand (with the attendant countercyclical fiscal policy), an understanding of debt deflation (requiring tighter control of credit at the policy level), and of the fact that bubbles are a systemic feature of unregulated markets (requiring regulation of capital flows). Oh, and throw out Monetarism.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 06:50:49 AM EST
[ Parent ]
In a hundred words or less?

If you want a version that sticks fairly close to the current orthodoxy, you can read Making Globalisation Work, by Stiglitz.

Then there's Keynes, Galbraith (both of them) and a couple of other guys.

On the political side, you have Die Linke and those labour unions who haven't sold out.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 06:52:39 AM EST
[ Parent ]
How many railroads do you want to build???

Quote of the thread. ;)

Still, there will always be railroad projects needing money. I've always wanted to see the TGV line Paris-Berlin-Warsaw-Minsk-Moscow, would be a nice 10 hour trip... ;)

Should cost something like €300 billion. Not very much really, not compared to the money spent on propping up banks.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed May 20th, 2009 at 03:09:01 AM EST
[ Parent ]
Because nobody needs to have more than a hundred or so thousand € in an ordinary bank account.

We're not talking about your net worth here, nevermind the sum total of your assets. We're talking about your ordinary bank account. Nobody who can't afford to take a haircut has a hundred thousand in their bank account.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 10:42:10 AM EST
[ Parent ]
Bogus. There are no reserves to reimburse those "set" amounts. It all depends if there is or not a run on banks. Which means, covering is only useful in peaceful times, when by definition there is no crisis.

Or otherwise said, their sole purpose is to lure the naive voter into thinking his deposit is covered. ANd I mean the poor ones.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 12:30:07 PM EST
[ Parent ]
You saw how quickly governments reassured the public that their deposits were covered when the crisis came. The fact is, they are still covered when there is a crisis. Though the coverage may cause inflation, that's better than a run on a bank with no coverage.

What the governments also did (as in Ireland) was to cover creditors' exposure while talking about protecting depositors (who were already protected). That was disingenuous.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:55:54 PM EST
[ Parent ]
Also, the only bank run since the crisis began in 2007 was that on Northern Rock, which was triggered because the UK had very limited deposit insurance, and led to the UK instituting 100% deposit insurance on GBP 50,000.

Deposit insurance (which was invented as a result of the 1930's wave of bank failures) is not "bogus" if its presence ensures it doesn't need to be used. And the current crisis has demonstrated it does work.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 01:06:30 PM EST
[ Parent ]
lol you know, when Sarkozy (who I supported) was so strongly claiming that every cent will be guaranteed, everybody knew he couldn't even "guarantee" a dime: the numbers had been published that the guarantee fund only covers about 2% or so of the total guaranteed. But I didn't go withdraw all my money, and neither did others. And I assure you it wasn't because the 2% "existed", but because of the high likelihood that in such event, we won't get to profit from the guarantee fund.

The world stood, not from confidence, but from cynicism.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:29:00 PM EST
[ Parent ]
Retail deposits are only a small portion of bank liabilities.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:35:23 PM EST
[ Parent ]
And this is supposed to warm my pillow tonight ?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:37:15 PM EST
[ Parent ]
it's easier to guarantee retail deposits, as is the case in France, than all liabilities, as was done in Ireland.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:40:51 PM EST
[ Parent ]
Obviously. Ireland's claim was bogus, propaganda, demagogy, which is why everybody else got mad on them. But when barely 25000 accounts can be guaranteed by the French guarantee fund (information from media in october 2008, I've no link right now), this means the fund can rescue the retail deposits of not even ONE BIG BANK. So well.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:52:25 PM EST
[ Parent ]
Still, there has been a bank run in the UK because only about 2000 GBP was guaranteed at 100% with a lower percentage thereafter, whereas there have been no bank runs in Ireland (where everyone knows the government cannot possibly make good on the stated guarantee of all liabilities) or France. Or in Iceland, for that matter!

So, I rest my case. Deposit insurance prevents runs on banks' retail deposits.

What we have had is a series of "bank runs' on the capital markets side of banking institutions. Which is why Glass-Steagall was such a great idea and why it took about 10 years since it was repealed for a new Great Crash complete with its own Bank Panic and Long, Deep Recession.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 02:26:55 AM EST
[ Parent ]
Actually, there was a run on a Spanish Caja. But it was so slow and quiet nobody noticed until the bank was taken over by the regulator. Unlike Northern Rock.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Wed May 20th, 2009 at 03:52:15 AM EST
[ Parent ]
Of course the government can guarantee all reatail deposits, even if only a very small sum has been "put away" (whatever that means in practice, it's just ones and zeroes in a computer anyway).

The government can print as much money as it wants to cover the deposits. Sure, that will create inflation, but the government only promised to guarantee the deposits, not the value of the currency.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed May 20th, 2009 at 03:19:38 AM EST
[ Parent ]
"Sure, that will create inflation, but the government only promised to guarantee the deposits, not the value of the currency"

We have a name for this in France, which I won't repeat here. I'm going to leave that honour to Jerome :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 04:54:33 AM EST
[ Parent ]
Yeah, well, those figures WERE trotted out.
I distinctly remember that they assumed that EVERY account would have at least 70 k€ in it.

How many people do you know with over 70 k€ in their standard account?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed May 20th, 2009 at 04:51:48 AM EST
[ Parent ]
That depends...

If you have a moderately sized demand deposit account, then yes. Because it means that you can get your money back if the bank goes belly-up.

If you hold bonds in the bank, then no, because it means that the government can save the depositors' shirts without having to bail you out too. Which means that if the government takes its responsibility to the citizens seriously, you won't see a single taxpayer-financed eurocent.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 04:39:57 PM EST
[ Parent ]
That guarantee is backed by the power of the state to tax, just the same as the central bank notes.

There is no "reserve" to reimburse your 10 € notes either. That does not make them phony money.

Of course, if you have a sovereign default, then that's a different story...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:38:02 PM EST
[ Parent ]
lol and lol again. YOu do realize how close sovereign default were, and still are. You can't possibly be saying that they're almost unthinkable. You would remind me of those 95% of bankers and economists gathered in Davos in early 2007 or so and sweeping away any possibility of a crisis. So yeah. You may say that it should all be backed in gold. At the end of the day, virtual remains virtual, confidence included, and that doesn't feed my family.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:32:45 PM EST
[ Parent ]
Governments CAN print money to pay debt. Of course, it leads to quasi-default in the form of inflation, but it is possible, and has been regularly done.

And it is still the most likely outcome for the US / the $ in the medium term.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 03:39:46 PM EST
[ Parent ]
Clearly. But see my post about the Chinese above somewhere.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:54:10 PM EST
[ Parent ]
I'm not saying that sovereign default is unthinkable for peripheral economies like the UK, or banana republics like the US. But the core European and South Asian economies (Germany, France, China, India) will not be forced to default on their sovereign debt.

Regardless, however, the point was not whether a sovereign default was likely or not.

It was that a sovereign default is hard to say anything general about, because it can take so many forms: Default on guarantees (as Ireland will be forced to), default on foreign debt (as Russia and Argentina did some years ago), default on the state's obligations towards its employees (as the French state attempted with its pension reform theft plan), default on the state's obligations towards its citizens (as the Bush regime attempted with its pension reform theft plan).

Only in the rarest of cases (Zimbabwe comes to mind) does a sovereign default encompass all these. So predicting that a sovereign default will happen is usually easier than predicting precisely where it will happen.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:12:59 PM EST
[ Parent ]
why should taxpayers protect savings invested in stockmarkets or bonds? Caveat emptor no longer applies? And the same goes for pensions: governments can provide basic public pensions, but why should they be responsible for private ones? Freedom of choice of where to invest and bailouts seem incompatible or inconsistent...

As to banks "economic capital", again, why not let them go bankrupt? if not, why shouldn't we regulate them so that such crashes cannot happen?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 06:29:30 AM EST
[ Parent ]
Jerome a Paris:
And the same goes for pensions: governments can provide basic public pensions, but why should they be responsible for private ones?
Because they have actively encouraged people to take private pensions to supplement or outright replace public pensions which they believe are facing an insolvency crisis because pseudoeconomists in the pay of the financial disservices industry say so.

There is no way public pensions can go bust before private pensions, because the government cannot go bust before the private pension fund managers.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 07:07:54 AM EST
[ Parent ]
That doesn't mean bailing out the financial companies. They could give the holders of the private pensions the option of switching them to public ones. Not an ideal solution, but surely better than bailing out the whole industry.
by gk (gk (gk quattro due due sette @gmail.com)) on Tue May 19th, 2009 at 07:15:15 AM EST
[ Parent ]
There is no reason that private pensions should be bailed out. Simply increase the flat-rate public pension. Then the rich will take a bigger haircut than the poor on the private pension schemes, and everybody gets the same compensation; that's a net transfer from rich to poor.

I fail to see the problem.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 08:48:45 AM EST
[ Parent ]
Hello Kibbutz!
Why work?
by vladimir on Tue May 19th, 2009 at 12:07:02 PM EST
[ Parent ]
Why work, indeed?

And why bother typing an actual argument when you can fall back on cheap talking points...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 12:17:05 PM EST
[ Parent ]
It ain't a cheap talking point. It's a two word synthesis of what would happen if your proposals were to become government policy.
by vladimir on Tue May 19th, 2009 at 12:27:00 PM EST
[ Parent ]

As an aside, most Kibbutzes conspicuously failed to implode economically...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:46:01 PM EST
[ Parent ]
Right. That's why they're used as the predominant social model in many developed countries.
by vladimir on Tue May 19th, 2009 at 03:09:56 PM EST
[ Parent ]
What are used? Kibbutzes? Or public pension plans, which was the topic originally under discussion?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:21:41 PM EST
[ Parent ]
Kibbutzim, you will be astonished to learn, are workers, not parasites and they work hard.
by cambridgemac on Tue May 19th, 2009 at 11:52:33 PM EST
[ Parent ]
That's because they're relatively small communities - allowing the parasite to be exposed quickly and brought back to the community's norm. In larger communities, the same operational values allow (indeed encourage) the development of parasitic behaviour.
by vladimir on Wed May 20th, 2009 at 04:14:49 AM EST
[ Parent ]
Then how do you explain that the Scandinavian Socialist Republic of Sweden has one of the highest labour force participation rates in the world?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:34:55 AM EST
[ Parent ]
Because lots of women have "real" jobs instead of staying home with the kids, someting which insn't considered as participating in the labour market in lots of countries.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed May 20th, 2009 at 06:11:43 AM EST
[ Parent ]
"There is no reason that private pensions should be bailed out."

Because private pensions are still -- ahem, pensions ? People's life savings, and not just some investment. They should be regulated about the risk they are allowed to take, but that's a different issue.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 12:38:44 PM EST
[ Parent ]
That's already the case. A pension fund (at least in France) can't take a seat at the local casino. The rules are about: 80% government bonds, 15% corporate bonds (usually AAA) & 5% riskier holdings.
by vladimir on Tue May 19th, 2009 at 12:47:11 PM EST
[ Parent ]
Except that these rules are systemically counterproductive and make the pension funds predictable targets for more nimble players.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 12:52:09 PM EST
[ Parent ]
Are you saying that people are too stupid to use the freedom you so bravely fight for - and that they should be saved for their stupidity?

Why should my taxes go to bailout people that do not want their taxes to go towards public pensions and would rather have a private system they control and "own"?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 01:38:13 PM EST
[ Parent ]
I'm saying that pension funds, private or public, are still pension funds, not just some investment. In practice this means that the private pension market is strictly regulated and has real credibility to the customer that he may count on for his retirement.
I have little idea how this is regulated, Vladimir above spoke about France and others may know more about other western private pension fund regulations.
But in this logic, it seems to me that this market should be bailed out in a situation of crisis and if it is proven that no exceptional or illegal risk has been taken by administrators.

As a rule, I don't think it is very democratical to put the problem like you do, in a dichotomy private/public. I happen to have strong opinions against the way some of the public money is spent by the state or the city of Paris, some of those opinions are motivated by a sense of justice, others by a sense of morals, others by personal faith, and I would like to be able to opt out of some of the taxes when it puts me in a principially impossible position. A bit like those pacifists refusing to go to Vietnam. But I can still expect the state to bail out a market that it is supposed to guarantee by regulating it well. Just like those anti-Vietnam pacifists didn't lose their right of being defended by the US army.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:22:48 PM EST
[ Parent ]
That's a nice analogy, but try finishing it: the pacifists are defended because the role of the US army is to defend all Americans equally, without regard to political leanings or choices etc. But the defense is one size fits all. For example, citizens get rescued from warzones, but their houses and significant assets are not rescued.

If you transpose this to the case of private pensions, then your analogy only justifies a partial bailout by the government commensurate with the amounts spent on the public pension scheme ("one size fits all"), not a full guarantee of the full private pension savings. And that could be accomplished most easily by offering a basic state pension to those who lost their private pension.

--
$E(X_t|F_s) = X_s,\quad t > s$

by martingale on Tue May 19th, 2009 at 09:35:01 PM EST
[ Parent ]
Also, the US military isn't defending the American public. It's defending the American oligarchs' private interests abroad. The American public has no enemy that is capable of causing them material harm.

Or rather, it has no foreign enemy with that capability.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:46:03 AM EST
[ Parent ]
Yet another piece of ideology from Jake the Revolutionary! :)

(I was of course speaking about the army's role in principle)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:53:50 PM EST
[ Parent ]
Apparently you're also talking about the role of the banks in principle. :)
by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 21st, 2009 at 09:39:12 PM EST
[ Parent ]
One doesn't need to be a supporter of the banks to be at least slightly exceeded when he says the army is there to defend the oligarchs. We might discuss the case of Iraq and Haliburton of course, but not in the context of our discussion.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:42:44 PM EST
[ Parent ]
In which fictional alternative universe is it ideological to point out that there is no power on the planet that is capable of causing material harm to the American public in any fashion that the American military can protect them from?

And in which fictional alternative universe is it ideological to point out that the American military has, at the very least since the last world war, been used in no small part to safeguard the interests of large American corporations from governments who wanted to exercise their sovereignty over the natural resources that those corporations were exploiting?

Both are a matter of public record.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:40:31 AM EST
[ Parent ]
The ideological part is in saying that the army would be subservient to the fatcat oligarchy. I suppose the whole state apparatus is, then. I imagine we don't even need a state then - but rather, as you put it earlier, the people needs to take it into its own hands. I'd like you to elaborate on this. Popular commitees? A national salvation front?

Or! since we're talking fiction, why stick to the present day. Imagine for a second that Japan delayed their Pearl Harbour strike - just enough so that Hitler occupy Britain and silenced USSR. Do I need to draw you a picture as to what would have been the next target ?

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:01:00 AM EST
[ Parent ]
The ideological part is in saying that the army would be subservient to the fatcat oligarchy.

That is not an ideological statement. It is a straightforward observation of fact. Chile, Panama, Viet Nam, Iraq, Lebanon, Somalia, Nicaragua, Colombia and the Philippines are all countries that posed a grave threat to the cash flow of certain well-connected American oligarchs, and no threat at all to the security and prosperity of the American people.

I'd like you to elaborate on this. Popular commitees? A national salvation front?

Trade unions. General strikes. Sabotage against union-busting companies. The French Syndicalists wrote the book on popular uprisings in the 19th century. Worked out well enough for France.

Or! since we're talking fiction, why stick to the present day.

Uhm, because the military-industrial complex did not exist until around the Eisenhower presidency.

Imagine for a second that Japan delayed their Pearl Harbour strike - just enough so that Hitler occupy Britain and silenced USSR. Do I need to draw you a picture as to what would have been the next target?

Congratulations. You just played the Hitler card.

Seriously, though, the USSR reamed Germany a new asshole without much help from the US. By the time the Americans got seriously into the European theatre, the war was all over bar the shouting.

And even if Germany could somehow have pacified all of Russia, it did not have the logistic capacity to mount a serious invasion of the US. And it would not have had that capacity for at least a decade, if not more.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 12:09:53 PM EST
[ Parent ]
I for one cannot call the war against communism "subservience to the fatcats". Lebanon has always been like that. We can agree on Iraq of course. Colombia ? Somalia ?
Anyway it seems to me as a wide wide stretch to call those cases "serving the oligarchy", except probably Iraq. And even more wide a stretch to draw the conclusion you did. On the contrary, Europe and their ridiculous military budgets should be warned, after the last time they've been, well, bailed out by the US boys.

As to Germany, there were stories circulating about intercontinental missiles and even nuclear bombs. But maybe you haven't heard them. Of course USSR and the US built their own nuclear facilities on their own, without any help, like the great nations that they are.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 03:10:22 PM EST
[ Parent ]
Which war against Communism?

Chile? Allende was a developmentalist - that's a kind of social democrat - with no significant ties to any socialist state. Panama? Noriga was a conservative ex-CIA spy. Niceragua? The Sandinistas were also developmentalists.

Viet Nam? Puh-leese. Viet Nam was not a threat to the security and prosperity of the American people. And the best evidence of that fact is that the Americans lost the war. And not one American lost his life due to Vietnamese aggression upon American interests after the end of the war. A number of wealthy Americans lost not inconsiderable sums of money. But that's neither here nor there.

Lebanon had a more or less functioning democracy until Israel invaded it in 1975, with American support. To say that it "has always been like that" shows a profound ignorance of the history of the Near East.

In Columbia, the government is sponsoring death squads who run around shooting union members and raping nuns. The US supports that government with money, weapons and diplomatic cover (and trains and arms a number of the death squads).

The civil war in Somalia is being sponsored by American-supported Ethiopian forces. It is unclear what legitimate American interests are being safeguarded here: The provisional government that the Americans support has never even attempted to curtail piracy off Africa's Horn. The Islamic Courts, whom the US is fighting against, have with some measure of success intervened against the pirates. What other threats Somalia poses to American safety and prosperity, I do not know. Oh, the Islamic Courts pose a threat to BP's control of certain oil fields and pipelines... But that's oligarch interests.

And the Philippines were an American colony from 1898 to 1946. That's before "communism" became the American excuse for imperial expansion.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:30:12 AM EST
[ Parent ]
"Developmentalist", is that what they're called now, 'ey :) Allende was a recognized Marxist, and the sandinistas were anything but angels of the 3rd world development. Vietnam was the backyard of communist China. Columbia was and is supported by the US less for the nun-raping commandos and more for the fight against drug barrons and marxist guerrillas. There seems to be something revolutionary about marxists, or in any case, a nasty tendency to consider that the world is fundamentally wrong. Maybe you noticed it as well :)

Somalia was about fight against islamists, just like Ethiopia. As to Lebanon, it is you who obviously ignore what even children know from school manuals: Lebanon was amongst the countries who invaded Israel in 1948, in order to destroy it. Lebanon was in civil war from many causes, certainly less because of Israel and more because of the arab fundamentalists obsession with making war on Israel. Calling this an example of US army acting to protect the oligarch is absolutely stupefying.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 01:07:50 PM EST
[ Parent ]
Allende was a recognized Marxist,

Not by Allende. Nor, for that matter, by the Soviets. One would think that they had a certain amount of expertise in such matters...

and the sandinistas were anything but angels of the 3rd world development.

You do not have to be an angel to not be a communist... And you do not have to not be a communist in order to not have any material ties with the Soviet Union.

Oh, and when compared to what came before and after, yes they were.

Vietnam was the backyard of communist China.

Um... so what? The US lost. Domino effect failed to materialise. Vietnamese and Chinese legions failed to descend on San Fransisco to enslave the American population and deny them democracy and apple pie.

Columbia was and is supported by the US less for the nun-raping commandos and more for the fight against drug barrons and marxist guerrillas.

Dude. The paramilitaries are drug barons (so are the guerrillias, but that's an aside).

Somalia was about fight against islamists, just like Ethiopia.

Bull shit.

No Islamists on the planet have the capacity to do material harm to the well being of the American citizens. And if you trot out "terrism" then you need to be whacked over the head with a Big Foam Cluebat. More people die from traffic accidents and from preventable diseases in the US every year than from terrorism (and looking back over the last 50 or so years, more Americans have died from Christian terrorism than Islamic terrorism, but that's an aside).

As to Lebanon, it is you who obviously ignore what even children know from school manuals: Lebanon was amongst the countries who invaded Israel in 1948, in order to destroy it.

Dude. The invasion was in 1975. That's like invading Japan in 1969 for the attack on Perl Harbor. If you accept that kind of logic, damn near every country on the planet has casus belli on damn near every other country on the planet.

Lebanon was in civil war from many causes, certainly less because of Israel and more because of the arab fundamentalists obsession with making war on Israel.

Dude. Israel invaded Lebanon. Not the other way around. Punkt. Aus. Schluss.

Now, Israel may or may not have had casus belli - there is a case to be made that they had - but the US sure as hell did not.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:16:10 PM EST
[ Parent ]
"The Lebanon invaded Israel in 1948 and after 1970 was a major jumping-off point for Palestinian guerrilla infiltration and airline hijacking."

http://books.google.fr/books?id=C8XBic7F07sC&pg=PA1009&lpg=PA1009&dq=%22lebanon+invaded+ israel%22+1948&source=bl&ots=rsY2A4FORj&sig=yyhN5EuEsF-FTnwAnERKkDSHfXo&hl=fr&ei =3WMYSu-lJoiH_QbUkP38DA&sa=X&oi=book_result&ct=result&resnum=8

(Andrew Linklater http://en.wikipedia.org/wiki/Andrew_Linklater)

"More people die from traffic accidents and from preventable diseases in the US every year than from terrorism"  (JakeS)

This phrase says all it had to be said, I guess.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:04:48 PM EST
[ Parent ]
Seriously, though, the USSR reamed Germany a new asshole without much help from the US.
While the Sovs spent half a century of denying or at least playing it down, it's a fact that they would have had pretty immense problems in the counterattack on Germany without the huge amounts of US supplies, including IIRC 100.000 Stud Baker trucks, crucial for keeping up the pace of operations as the Soviet supply lines stretched out in 1944 and 1945.

Contrafactual specualtion is always fun, and the Germans could certainly have won in the East if just some small details had changed, especially in 1941. For example if the rains had been smaller, thw winter milder, or if they'd had tracked supply vehicles.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat May 23rd, 2009 at 08:08:49 AM EST
[ Parent ]
Help in 1944 is all well and fine, but the war was all over bar the shouting by then. The Wehrmacht had substantially ceased to exist as a fighting force, and the German capacity to rebuild it is decidedly questionable.

'41 is a different story. Still, Russia is a big place, and there were plenty of divisions in Siberia.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 08:59:30 AM EST
[ Parent ]
While the outcome in the East was probably inevitable after Kursk, the Wehrmacht was still a fighting force as late as April 1945. It's really quite astounding how long the troops hung in there, especially considering the total lack of resistance activities after the capitualtion.

And speaking of the armaments, the greatest German production of armaments was during 1944, partly because of Speer's organizational genius and partly because it took years and years until Germany adopted the total mobilization of society for war, as the Allies and Soviets had been doing from the beginning.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat May 23rd, 2009 at 09:15:11 AM EST
[ Parent ]
I'd also add that the US sent aid began arriving as early as 1941, before Pearl Harbour even IIRC.

After Pearl Harbour the US hulls stopped  using the star banner and instead started flying the hammer and sickle to avoid attacks from the Japanese, whick is kinda LOL.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat May 23rd, 2009 at 09:23:41 AM EST
[ Parent ]
That may be a solution, indeed.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 08:51:58 PM EST
[ Parent ]
But in this logic, it seems to me that this market should be bailed out

The pensioners should be bailed out.

This is done by ensuring that there are universal public pensions that will sustain a decent material standard of living at a decent age of retirement.

The private investment trusts collectively known as "pension funds" are not needed for this, and therefore should not be bailed out.

But of course, what you're really objecting to is the fact that public pensions are an equal disbursement to every citizen, whereas private pension schemes reflect and amplify the inequalities of life before retirement. So letting the private pensions burn to the ground and replacing them with public pensions would redistribute wealth from rich to poor. That is a feature, not a bug.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 03:42:40 AM EST
[ Parent ]
I'm not sure whether pension funds are exactly "private investment funds". I precisely talked about a strictly regulated market, parallel to the public system, and regulated so that to ensure people have a pension when they retire.
Such a market, or those funds, or their clients, if you like, I think, should be bailed out, because the state as a regulator is a guardian of that market.

Now the way of bailing out can be discussed.

As to the public pensions being about equality and private schemes about amplifying inequalities, this is one more piece of ideology. Public pensions also are function of the contribution, more or less. And inequalities are not necessarily bad or injust. Like for instance, one blogger who would be really good at unwinding the complicate threads of a disingenuous blogger's ideologically inspired arguments would likely be worth a (even if just slightly, to make the point) better pension than someone who's just giving up out of sheer brain overheating :)


Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Thu May 21st, 2009 at 09:02:00 PM EST
[ Parent ]
I precisely talked about a strictly regulated market, parallel to the public system, and regulated so that to ensure people have a pension when they retire.

And I pointed out that there is no good reason to have such a market: If it is sufficiently regulated to be morally entitled to bailouts, then it is in all reasonably estimation sufficiently regulated that competition does not add more value than it removes through the need for multiple separate entities (all of which cost overhead). So, roll the entire thing into a public system.

Public pensions also are function of the contribution, more or less.

That depends on how you design them.

And inequalities are not necessarily bad or injust. Like for instance, one blogger who would be really good at unwinding the complicate threads of a disingenuous blogger's ideologically inspired arguments would likely be worth a (even if just slightly, to make the point) better pension than someone who's just giving up out of sheer brain overheating

That is a statement of ideology. I subscribe to a different ideology from yours. Since you have often stated an unwillingness to engage in discussion of the principles and logic of your ideology, it would appear that we have reached an impasse and will have to agree to disagree.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 04:48:14 AM EST
[ Parent ]
"That is a statement of ideology."

No, that's an attempt to humour. Call it lame if you please, but not ideological. And even if my "penchants" may be obvious :) I always try to argue from an ideologically free point - or else you'll have to show where exactly that is not the case. For the moment I note that you see strict regulation as amounting to public monopoly. So by this logic, things should be, either fully freemarket, in the neolib sense, or 100% state monopoly. Interesting. I imagine the former are to be mercilessly fought, and the latter the ideal mankind should aspire to. Hmm.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 08:53:30 AM EST
[ Parent ]
I always try to argue from an ideologically free point - or else you'll have to show where exactly that is not the case.

It is a statement of ideology to say that the pension system should be used to reward and punish people for their past behaviour. It is part of a logical structure around a narrative that the purpose of public transfers should be used to create incentives for people. Ergo, an ideology. A rather small and limited ideology, but an ideology never the less.

It is equally possible to craft a narrative that the purpose of public transfers is to ensure that every member of society is able to sustain a reasonable material standard of living. In that ideology, using pensions to reward and punish past behaviour is either immoral or ineffective, because you cannot ethically push any member of society below a certain respectable livelihood.

One of these positions can be no less ideological than the other. Both have a unifying narrative and provide guidelines and logical structure to approach public policy. So if one is ideological, then the other is as well.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 10:08:33 AM EST
[ Parent ]
You're getting all wrong. The pension system should fairly compensate people for their lifetime of hard work. You're speaking from a nanny-state position, I'm speaking from a fair reward one, where income don't just fall from the sky, but must be a fair consequence of added value.

But I won't object to the creation of a minimum guaranteed for pensions like is the case for salaries. Note that I say minimum, or decent, and not reasonable, or respectable, which are much more prone to interpretation.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 10:51:57 AM EST
[ Parent ]
That is a statement about an ideology.
by Colman (colman at eurotrib.com) on Fri May 22nd, 2009 at 10:52:59 AM EST
[ Parent ]
I prefer to call it rational and pragmatic :)
Proposing things that are actually doable.
I'm all for support of the vulnerable btw.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 10:59:34 AM EST
[ Parent ]
Calling something "nanny-state" is not proposing a workable system. It's pigeonholing an ideological position. As is pretending that a defined contribution scheme is a "fair reward" system (for which value of "fair?").

It is tiresome to keep hearing you pretend that the system of values you subscribe to is simply pragmatic common sense, whereas all other systems of values are evil ideologies.

And as an aside, decent and livable state pensions are perfectly doable. It worked fine for Scandinavia for the better part of a century.

Then selfish fuckers like Sarko and Bliar came along and smashed it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 11:59:18 AM EST
[ Parent ]
JakeS:
It is tiresome to keep hearing you pretend that the system of values you subscribe to is simply pragmatic common sense, whereas all other systems of values are evil ideologies.
See Common Sense Conservative.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Fri May 22nd, 2009 at 12:08:59 PM EST
[ Parent ]
You are much too kind.

Greetings from Idiot America:

The rise of Idiot America is essentially a war on expertise.

[...]

In the place of expertise, we have elevated the Gut, and the Gut is a moron, as anyone who has ever tossed a golf club, punched a wall, or kicked an errant lawn mower knows. We occasionally dress up the Gut by calling it "common sense." The president's former advisor on medical ethics regularly refers to the "yuck factor." The Gut is common. It is democratic. It is the roiling repository of dark and ancient fears. Worst of all, the Gut is faith-based.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 12:21:08 PM EST
[ Parent ]
I tend to agree with this quotation. I don't think I usually bring common sense as argument in a discussion though :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 03:23:56 PM EST
[ Parent ]
But you do. Every time you fail or refuse to justify an ideological assumption of yours. Such as the notion that defined-contribution pension plans constitute "fair reward" - or that pensions should be used to dispense rewards in the first place.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:02:35 AM EST
[ Parent ]
So you call someone promoting rationality as "Gut" inspired ? Those masters of the Enlightenment probably turned in their grave. I begin to understand why you can't make your points come through, even after 300 posts (and for the third time around).
:)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:20:53 PM EST
[ Parent ]
You should try reading some of those Enlightenment philosophers you're so fond of.

They were quite up-front about their agenda being to construct a school of philosophy based on natural law. The term "ideology" was not in use at the time, but that's substantially what they were doing: Attempting to construct an ideology from first principles.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 06:56:12 PM EST
[ Parent ]
Maybe , but what I was talking about is the concept of rationality.
Reason as a part of Argumenting.
I never said "fair" or "pragmatic" would be a matter of common sense. I said that income must be a fair consequence of added value. This is logical and constitutes an argument.
I called it pragmatic as opposed to giving "respectable" pensions to anyone, no matter their work history, because  the cost for the society seems to me to be huge.
All this is argumented and rational. Libeling this as "gut" stuff, twisting my sentence on "fair" and throwing in an insult for the fun of it, is completely absurd, quite uncivil and makes me wonder why I'm wasting time with it.

Talk about getting more people to contribute on ET. If it is to fall prey to someone hijacking threads, twisting words, and insulting people for having being called an ideologist, I fail to see the fun in it.


Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Sun May 24th, 2009 at 02:34:09 PM EST
[ Parent ]
I never said "fair" or "pragmatic" would be a matter of common sense. I said that income must be a fair consequence of added value. This is logical and constitutes an argument.

But income is not, as the political economy is currently configured, a fair consequence of added value. So you are making an assumption contrary to fact.

I called it pragmatic as opposed to giving "respectable" pensions to anyone, no matter their work history, because  the cost for the society seems to me to be huge. [My emphasis]

And that's where the gut comes into the picture. You could have researched this point. You could have found actual facts and figures. Those figures would have shown you that paying out even very respectable pensions does not impose an unbearably huge cost to society.

Instead, you allowed your gedankeneksperiment to contradict the results of a widely accepted real experiment. That could be called a lot of things, but "enlightened" isn't one of them.

Respectable public pensions do not cause fiscal crises. There are no military threats to the safety and prosperity of the people of Europe and North America. The cost of running a private clearing system - when you include the inevitable ransom money - far exceeds any reasonable estimate of the cost of running a public clearing system.

All of these are quite factual matters of public record. No amount of "pragmatism" or "rationality" can change this: You are entitled to your own opinion, not to your own facts.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 24th, 2009 at 05:25:31 PM EST
[ Parent ]
What I call nanny state is rewarding someone undeservedly. No doubt you'll ask me how much is "deserved" and who decides that. You can of course relativize anything, and I can see that for certain circles nothing ever is "fair" enough, so by this logic you can raise the stakes to infinity and it'll never be enough, and victims will always have to be found in order to justify the existence of those political lines. So we'll finally have to agree to disagree, I guess.

I don't subscribe to any particular system of values, and I didn't say your "ideology" is evil. What interests, motivates me is truth, fairness and justice. I believe there exist fair inequalities and unfair ones, like I said before. I often spoke against the libertarian ideology behind neoliberalism (it is wrong done to the classical liberalism to call it that way, though). I also warned that the same principles are applied in many other places with the same narrowmindedness and lack of reason. So I would really appreciate it if you didn't stick wrong labels on my forehead just because I did stick some true ones on yours :)

As to Scandinavia, many things work in 4 million people countries that don't in Germany or France. These two countries are actually a better study case than most might think.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 03:22:44 PM EST
[ Parent ]
What I call nanny state is rewarding someone undeservedly. No doubt you'll ask me how much is "deserved" and who decides that.

Precisely.

You can of course relativize anything,

Relativise? That is not a matter of relativising. It is a straightforward political question. Hayek thought that "fair" meant that the state did not interfere in anything at all, except to protect property rights. Roosevelt thought it "fair" to ensure that nobody suffers starvation, at least.

You keep saying "fair" as if "fairness" were a physical property of a system. It is not - it is an ideological construct that you have to justify.

I don't subscribe to any particular system of values,

Ah, but you do. You use the term "fair," which is a statement of value. And you use it with tolerable consistency. So obviously, you do subscribe to a system of values. That you refuse to examine that system consciously is neither here nor there.

and I didn't say your "ideology" is evil. What interests, motivates me is truth, fairness and justice.

And with the exception of certain kinds of truth - mostly, but not exclusively, originating in the natural sciences - all three are subject to political and ideological debate.

As to Scandinavia, many things work in 4 million people countries that don't in Germany or France. These two countries are actually a better study case than most might think.

That would be 25 million people, if you include Finland.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:42:56 AM EST
[ Parent ]
Well the signification of "deserved" could be determined by negotiation - peaceful negotiation, not necessarily from enemy positions, but like between parties with different interests.

Concerning the word "fair", as well as other key words used by "pundits" to "predict" people's political reactions and interests. This is part of a bigger debate that would well deserve a diary in itself: the issue of the political correctness. If there is something I profoundly dislike, that must be it. When I speak of fair, I resent the word being given ideological value, and me along with it, be that in the direction of Hayek, or in that of Roosevelt. When I speak of "liberal", I mean classical liberalism, and I resent the way that term is understood in both France and the US today (the fact that the two variations are exactly opposite is quite nice proof that I am right on this :) ).
When I speak of utilitarian, I don't necessarily mean the political current. In general I tend to be interested and stick to the dictionary "value" of a word, and I assure you that is not all due to being someone for whom all languages around are foreign languages.
I find it hard to accept that you did not detect the sense the word "fair" bore in my posts, and if analysing all the possible political ramifications might be confusing, you can see it as "function of the contribution".
The best solution for pensions could be made up by a safety (and I mean safety) cushion provided by the state, the same for all, even those who from various reasons didn't work enough - or at all; a bigger part determined by every one's mandatory personal contribution to the pension system; an optional part made up by contribution to strictly regulated (as in non speculative, highly secure) private pension systems.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 12:50:38 PM EST
[ Parent ]
Well the signification of "deserved" could be determined by negotiation - peaceful negotiation, not necessarily from enemy positions, but like between parties with different interests.

That is all well and fine, but a moment ago you were simply asserting a certain definition of "deserve," when you said that flat-rate pensions are "nanny-statist" because they are giving somebody rewards that he does not "deserve."

You explicitly refused to enter into a discussion - a negotiation, if you will - of what the term "deserve" means in this context, calling such a discussion "relativising."

When I speak of fair, I resent the word being given ideological value,

In other words, your sense of fairness is derived from the Gut. That's one way of doing it, but it's not a very convincing one.

When I speak of "liberal", I mean classical liberalism, and I resent the way that term is understood in both France and the US today

Noted.

I find it hard to accept that you did not detect the sense the word "fair" bore in my posts, and if analysing all the possible political ramifications might be confusing, you can see it as "function of the contribution".

Contribution in what units? Currently, contribution is defined in units of money. But since remuneration is hardly proportional to contribution - by whichever reasonable metric you can apply, be it value added or sweat, blood and tears expended - the monetary "contribution" is meaningless, except as an indicator of who is politically favoured in society.

The best solution for pensions could be made up by a safety (and I mean safety) cushion provided by the state, the same for all, even those who from various reasons didn't work enough - or at all; a bigger part determined by every one's mandatory personal contribution to the pension system; an optional part made up by contribution to strictly regulated (as in non speculative, highly secure) private pension systems.

Why should a worker at a steel mill who spends seven hours a day, five days a week, forty-seven weeks a year, for forty years making steel get less payout in pension than a stock broker who sits in an air-conditioned office and issues call loans to speculators? The latter is paid much more than the former, despite producing a service of rather disputable value, with rather less physical exertion.

How is that fair?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:36:03 PM EST
[ Parent ]
Feel free to protest the size of the remuneration with respect to the actual added value, and discuss the general adequation of the notion of salary with respect to human life and happiness. Not being such a philosopher myself, I'm sticking with what I have: fair, in what regards pensions, is proportional with the contributions, and you didn't make a case for the contrary. You could even argue why a university professor, or a physics researcher is better payed than a steel worker; you can make all the class war you like, which you'll undoubtedly do even when there will be no more workers left. But you do have your definition of fair.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:14:53 PM EST
[ Parent ]
fair, in what regards pensions, is proportional with the contributions, and you didn't make a case for the contrary.

Oh, but I did: The contribution is measured in a most unfair way. It is like saying that the "fair" criterion for who wins the marathon is "who is first across the finish" - when one dude just ran once around the nearest block, and the other dude ran the whole route.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 07:05:40 PM EST
[ Parent ]
Not at all, that was not a discussion on the relevance of incomes with respect to the added value. In any case, I explained the use of that word and you not agreeing with that explanation doesn't change the fact that exists and is logical in the context.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sun May 24th, 2009 at 02:28:25 PM EST
[ Parent ]
I'm not sure we should take Scandinavia as a whole, you have there four countries, ressembling in certain cultural, social and economical aspects, and differing in others. I'm not sure there is much similarity between Norway and Finland. Let alone that one can hardly apply nordic solutions to southern people. Peoples are not made up of robots, people are different, cultures are different and should be respected as such, and the political systems and solutions issued from those cultures along with them.


Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 12:55:05 PM EST
[ Parent ]
But that is not what I said. I said that it proves that universal flat-rate pensions at a respectable rate does not of necessity break your economy.

Now, if you want to argue that it would break the French economy, due to some peculiarity in the French system (or culture) that creates conflicts not present in Scandinavian countries, then I'll leave you to hash that out with Jerome and Cyrille, because I don't know enough about France to pass (informed) comment.

But that is not the case you were making.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 03:41:25 PM EST
[ Parent ]
And I said that the cases in discussion are too little to count. This shows at the least that I'm not totally opposed to the idea, although one might wonder as to the incentive people would have to work and provide for their own subsistence and the society as a whole. On the other hand I don't feel like abandoning the principle of the proportional pension - either that, or the optional private one in the conditions I mentioned before. There can be people that can deserve a bigger pension than the state level and I don't feel like denying them the right.
Finally there's the question of impossibly big pensions - or salaries, or bonuses. Can a human person be in a position to need five-million a year pension ? Is it ok to tax that at 90% ?  I couldn't say, right now.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:41:30 PM EST
[ Parent ]
Unfortunately my last question isn't even posed as long as there are such things as tax havens and no actual political will to suppress them, even as this fuels suspicions of connivence of politicians and financiers.
They will provoke people into revolting at some point, and justifiedly so.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:45:22 PM EST
[ Parent ]
one might wonder as to the incentive people would have to work and provide for their own subsistence and the society as a whole.

One might, indeed.

Until, that is, one remembers that in order to cash in on a pension, people have to actually survive to retirement age.

There can be people that can deserve a bigger pension than the state level and I don't feel like denying them the right.

If people wish to save more for their retirement, nothing prevents them from buying German sovereign debt (what they should not be entitled to is a fifty percent tax break for doing so, but that's another story...).

If they buy anything more risky than that, however, they should not come crying for a handout when it blows up in their face.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 23rd, 2009 at 07:03:14 PM EST
[ Parent ]
I prefer to call it rational and pragmatic :)

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

-John Maynard Keynes.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat May 23rd, 2009 at 08:11:34 AM EST
[ Parent ]
Why would you consider "rational and pragmatic" as exempt, maybe opposed to intellectual influence?  Or to put it another way: do you consider intellectuals exempt of rationality, by any chance ? Now that would actually be quite interesting, and I would think long before contradicting you :)

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Sat May 23rd, 2009 at 05:17:38 PM EST
[ Parent ]
No I'm just saying what Keynes says: many people who believe themselves to be nonideological pragmaticist are actually ideologists, they just don't notice it. I, for example, used to be like that. Maybe I still am?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun May 24th, 2009 at 04:13:54 AM EST
[ Parent ]
ValentinD:
I'm not sure whether pension funds are exactly "private investment funds".
But they are.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Fri May 22nd, 2009 at 05:02:52 AM EST
[ Parent ]
In the strict sense, yes. But if you check out the ERISA statutes in the US, or even what Vladimir said earlier about pension fund investment restrictions, you'll realize that that definition alone is way too broad in what concerns private pensions.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Fri May 22nd, 2009 at 09:15:40 AM EST
[ Parent ]
Look. It's really, really simple:

Bailing out the pension funds includes bailouts for the money managers who fucked up.

Increasing the public pensions for everybody bails out the pensioners whose funds those money managers pissed away.

Private pension funds are a stupid idea anyway. They create a number of very large market players who are subject to virtually no oversight, they channel money into equities, which causes inflation, and they are big, fat targets for scammers.

Oh, and they add unnecessary overhead.

Just pay out a fixed amount per month to every retiree. Much lower administrative overhead, no inflationary effects on the stock markets, perfect transparency and no need to bail out pension funds that have been scammed. If you personally want to set aside more money for your old age, then that's your lookout, and you should not expect to get bailed out when the hedge fund you put it in blows up.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 22nd, 2009 at 09:33:57 AM EST
[ Parent ]
Pensions are a public job. If you need a private pension plan, then the government isn't doing its job. The solution to defaulting private pension plans is to make sure that the government does its job, not to bail out the pension funds.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 01:49:52 PM EST
[ Parent ]
Not only those, but all savings. Bankruptcies risk starting a run on banks, first from investors, then from the general public, with dire consequences for everybody, bankers and workers, rich or poor. They did allow Lehman go bankrupt right. They didn't dare repeat that feat with AIG. But bailouts this size should definitely bring the state into the capital and far stricter regulations and even pursuing those in charge. I for one argued that Greenspan & the likes should be drawn, quartered, beheaded and burnt in the Times Square, his ashes thrown over the ocean from the Statue of Liberty. A lawsuit would be too little for this kind of fault.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 08:21:29 AM EST
[ Parent ]
ValentinD:
They did allow Lehman go bankrupt right.
A broker-dealer, not a bank. The other Broker-dealer at risk was Merrill-Lynch and they convinced a regular bank, Bank of America, to gobble it up which resulted in heavy indigestion.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 09:09:36 AM EST
[ Parent ]
Bankruptcies risk starting a run on banks, first from investors,

That is not a problem. The investors only hold securities in the secondary markets. The stock can go all the way to zero without impairing the function of the company proper.

then from the general public,

Their deposits were and are guaranteed.

They did allow Lehman go bankrupt right.

The problem with that was that they failed to separate the important stuff from the shitpile. The important stuff (the overnight commercial paper, mainly) should have been preserved at the cost of wiping out every other creditor, if necessary. That's the whole point of doing a Good Bank/Bad Bank exercise: You get to decide which creditors are wiped out, so you can concentrate the losses in places where losses don't matter.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 09:10:40 AM EST
[ Parent ]
The issue is about confidence. And that's a contagious issue.

Deposits were are and will never be guaranteed - see my post above.

Sometimes you can't just do the separation. Not even the people in question cant. Welcome to the Derivatives world.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)

by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 12:35:40 PM EST
[ Parent ]
Of course you can do the separation.

Sometimes, the decision as to whether a particular instrument is one or the other will be a judgement call. But that does not mean that you cannot separate the two, any more than the existence of shades of grey mean that you cannot tell white from black.

It is indeed a matter of confidence. And the only people whose confidence matter are the ones operating the clearing system. That's why you want to protect the short-term secured commercial paper market.

But fuck the Dow, and fuck Wall Street. They are not system-critical.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 02:07:42 PM EST
[ Parent ]
You still didn't get it or refuse to accept it. You remind me of those bankers :) Jake, Wall St. IS The System.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Tue May 19th, 2009 at 03:36:06 PM EST
[ Parent ]
Bull. Shit.

Wall Street does not produce steel, it does not produce ball bearings, it does not build ships, it does not grow food, it does not manufacture chemicals, it does not mine copper, it does not smelt lead, and so on and so forth and etcetera.

Ergo, Wall Street is not the system that needs to be saved.

Now, Wall Street may hold hostage some part of the strategic infrastructure that we need in order to save the system. The solution to that problem is to shoot Wall Street in the back of the head, take the strategic infrastructure from its cold, dead hands and then dump it in a shallow grave.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 05:41:19 PM EST
[ Parent ]
Since "on s'en passe" of Wall St., why not give up banks altogether. Or currencies, for that matter :) Alright, I'm being provocatory. But it's not that simple to avoid intermediaries, in general. I would just ban computers from this business.

Free at last! Free at last! Thank God Almighty, we are free at last! (Martin Luther King)
by ValentinD (walentijn arobase free spot franša) on Wed May 20th, 2009 at 04:58:44 AM EST
[ Parent ]
Huh? Methinks you're confusing me with ChrisCook. I never said that we should abolish credit intermediaries. I just said that the part of the system that has to work all the time, every time, has to be public. Because otherwise, private gangsters can and will hold the public ransom every few years.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 20th, 2009 at 05:28:17 AM EST
[ Parent ]
I never said we should abolish them either, Jake, merely that they are unnecessary in a Peer to Peer economy, and I would now add that they are well on the way to abolishing themselves.

And btw it's not a case of either Public = State or Private = Corporation. It's quite possible to bring both within a partnership framework. Glasgow now has four genuinely municipal partnerships with private sector partners.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed May 20th, 2009 at 07:21:08 PM EST
[ Parent ]
Firstly the sheer scale of the credit bubble (and I know this includes CDS).

Secondly the pending second wave of property defaults in the US is sweeping down and there are two trends: there is the Option ARM reset etc trend; and the unemployment trend which means that when people are put out of work any mortgage, no matter how "prime" it used to be, is unrepayable.

Thirdly, corporate earnings are falling off a cliff

Fourthly, Commercial Property is being hit as commercial tenants go bust because their earnings have fallen off a cliff...

Finally, Private Equity is in deep shit so even more commercial property will be unlet and there will be a wave of unemployment.....

Fears private equity 'will be next bubble to burst' without regulation | Business | guardian.co.uk

The private equity industry poses a "looming disaster" to the economy as firms struggle to refinance billions of dollars of loans taken out during a buyout boom earlier in the decade, a transatlantic coalition of unions warned today.

Britain's Unite union joined forces with the US Services Employees International union (SEIU) to kick off a campaign for greater transparency and tighter regulation over the finances of powerful, low-profile private equity firms.

The unions warned of "crippling defaults around the world" as more than $500bn (£346bn) of private equity debt needs to be renegotiated by 2010. They cited a prediction by Alchemy Partners' boss Jon Moulton that up to 30% of mid-market buyouts could end in default.

"The next bubble to burst will be private equity," said Jack Dromey, deputy general secretary of Unite. "There's no question but that we have a looming disaster in our economy."

So this deficit-based system is IMHO catastrophically and irretrievably fucked.

Humpty Dumpty cannot be put back together again.

But I'm optimistic because I reckon there's another way of doing it emerging....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 19th, 2009 at 04:38:49 AM EST
[ Parent ]
but it's still depressing that smashing the windscreen is not quite enough for people to get it

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 04:09:16 AM EST
[ Parent ]
They can't tell a windscreen from an airbag...

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:27:43 AM EST
[ Parent ]
Are they masochists, or is the pain not high enough? Or are they still distracted by shiny colors (well, of the brown kind).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 04:38:01 AM EST
[ Parent ]
Or maybe the driver has an airbag but the passengers don't, and the driver can't tell yet?

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:43:11 AM EST
[ Parent ]
The problem is not the driver not getting it (we know the driver gets it in every possible meaning of this word) - but the passengers not complaining.

Are they too numb to do anything, maybe?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 04:47:40 AM EST
[ Parent ]
They can complain after the crash, not during it.

The brainless should not be in banking. — Willem Buitler
by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 04:50:13 AM EST
[ Parent ]
People are complaining - there's no lack of complaining happening. What's missing is any democratic mechanism to turn the complaining into policy.

I doubt you're going to find many voters who want to 'support' the big banks now anywhere on the political spectrum.

But since real pols - Obama and Brown included - are a wholly owned PR team for the money markets, it's not the voters they're listening to.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 19th, 2009 at 04:57:28 AM EST
[ Parent ]
I guess the voters get a chance to complain in the upcoming EU elections...

ThatBritGuy:

What's missing is any democratic mechanism to turn the complaining into policy.
To paraphrase Amartya Sen, that way lies famine.
But since real pols - Obama and Brown included - are a wholly owned PR team for the money markets, it's not the voters they're listening to.
Here in Spain we have former PM Aznar advocating neoliberal shock therapy, the main opposition PP and the governor of the Bank of Spain asking for cheaper layoffs to help the employment situation (!), ZP insinuating he will bail out the cajas, and removing the fiscal incentive on mortgages after 2011 in order to prop up the housing market now while the centre-right parties scream bloody murder on "the interests of the middle class".

Meantime, unemployment is "slowing down" but above 17% and on target for 20%, 1 million households have no employed members, 1 million people receive no unemployment benefits, and PP and PSOE are projected to still sweep the EU elections because there is no coherent alternative economic model (and if it were proposed it would be ignored as unserious).

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Tue May 19th, 2009 at 05:06:14 AM EST
[ Parent ]
Sounds a bit like Portugal.

Here the PSD (sits with the liberals on the EP) and PS (twin to PSOE, although currently seems more "third way"), are considered the Parties with a "vocation of power"(sigh).
And then, the small CDS (ideologically seem be a depository of democratic christians and other Aznar types)is always seen as a party of "serious people" that even the PS would allied to if needed for a majority government.

Immediately to the left of the PS there is the growing BE (the Left Block) who seem poised to represent a larger and larger slice of the population but they are not serious people, as they advocate unserious stuff like gay marriage, rights for immigrants, strong keynesian economics, and other things that are deemed irresponsible by the "serious people".

And then there is the PCP. Who stands there like Stalin never went away. There is something to be admired in their stubbornness, and they have a real base in the unions and working class, but they make it very hard to work with, it seems.

Portugal will have 3 elections: The European, the "Autarchics (Sp?)" (town level elections), and the Legislative, from where a parlament and goverment is formed.
The PS will try to get a new absolute majority, and the PSD will try to challenge it, but the most likely scenario at this is a non-absolute majority for the PS, the rival PSD in second, and the BE gaining room in the parliament and becoming a solid 3rd force.

The BE has already stated that they were available to join the PS in government but not with Socrates.
There is also a chance for a joint PSD-PS government in the name of stability.
This stability should be interpreted as "not challenge the powers that be", not really that the resulting bag of cats will do anything but fighting over the Jobs for the Boys and what contractor get the big pseudokeynesian investments.

Oh well...

by Torres on Tue May 19th, 2009 at 06:23:43 AM EST
[ Parent ]
"update on the political landscape" - could even be included in the European Elections series!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 19th, 2009 at 09:42:51 AM EST
[ Parent ]
Some of us would say that the Left Block BE is somewhere between Arlette Laguiller and Olivier Besancenot. In fact Olivier Besancenot was a recent invite of the BE.

The BE, while having some really good people (Rui Tavares and Daniel Oliveira come to mind) is more or less a bunch of trotsquists and stalinists dressed up with some social-democratic slogans. But below that cover they are far-left. In fact their behavior when near power is extremelly sectarian. They broke from their own independent governor in Lisbon by absolutely small reasons. They behave like the owners of the truth and in a coalition would only accept that everything would be done their way (the type of behaviour one would expect from people who believe they are the full owners of truth and reason).

I also don't agree with the classification of CDS as a christian democratic party in the European Sense. They are more like very near-fascistic. The likes of Angela Merkel and JP Balkenende are way to the left of CDS.

In terms of "overton", portuguese politics is more or less like this:
CDS EPP (5%) - really UKIP BNP
PSD EPP also (30-40%) - Tories
PS PES (35-45%) - Right of New labour (though with a good "old labour" group inside)
PCP GUE/NGL (5-10%) - Stalinist as described
BE GUE/NGE (5-10) - Coalition of left urbanites, lead by Trotskyists (old PSR - Socialist Revolitionary Party - Affiliated with the 4th international) and Stalinists (old UDP - Popular Democratic Union - fans of Albania)

There is also a Libertas party (MMS - Movement for Merit and Society), new one, lots of money, lots of outdoors, but seems to be pooling around rounding error numbers.

The truth is, there is no social democractic or christian democratic party around (in the sense of the german SPD or CDU). But, overton wise, I would say that SPD and CDU would be left of the local PS (PES).

The only lefty thing of Portugal is the pension system and NHS. Gini is a disgrace (worse in western europe), welfare very low, minimum wage barely affords a room in Lisbon (450E a month), power distribution is a disgrace, community involvement unheard off.

While in Spain they seem to talk about the people that make only 1000Euros, here it is common to talk about the 500Euro salaries. If you make rates of GDP/capita and minimum wage, it is appalling. Especially consideing that GDP per capita is already low. The country is poor (for western european standards) and has the worst distribution of wealth. Politics (overton) represents that very well.

by t-------------- on Tue May 19th, 2009 at 11:18:46 AM EST
[ Parent ]
I'm clearly not as proficient as you in European politics so i trust your characterization in relation with our political parties counterparts.

Actually I have that problem with the BE. There seem to be several figures that while not as prominent media wise, have some weight inside and still push for those trotskist

I base my relatively good impression on them mostly from the interventions of those you mention, (D.O. and Tavares) but also from João Rodrigues the economist at ladroesdebicicletas.blogspot.com or Pedro Sales, their press guy also present in DO's Blog Arrastao.net.

But these are relatively young elements, and may not yet carry the internal weight that would turn the party to a coherent and sensible leftwing party.

Anyway, i believe they will be the ones to scare the PS from the left, this year.

by Torres on Tue May 19th, 2009 at 11:46:27 AM EST
[ Parent ]
I put my belief more on MIC (a movement connected with a "old labour" guy who is a member of PS). You might say it has traces of some conservativism and has little chance of anything. I would agree. Unfortunately it is the only option I see that is social-democratic and somewhat functioning.

EU Profiler is an European vote adviser. While for Portugal I got a recomendation of voting BE (I will vote PS), on the European level I was deemed closer to the Dutch PvdA (PES). This I think is a good example of "overton" issues (closer to a marxist party in one country, closer to a social-democratic one in another).

by t-------------- on Tue May 19th, 2009 at 11:56:28 AM EST
[ Parent ]
Thanks, i got a recommendation to vote MEP (i'm not even sure who they are), and was found closer to the Swizz Socialists.
by Torres on Tue May 19th, 2009 at 12:13:34 PM EST
[ Parent ]
Just a correction, Libertas Portugal is MPT. They really have no money.

There are 2 new parties, with what seems to be lots of money: MMS and MES (lots of outdoors). I don't know that much about them, but the ammount of money, the aesthetics, the general message doesn't raise cousy feelings at all. MMS seems really, really bad.

Anyway, all of the above are pooling at rounding error levels.

by t-------------- on Tue May 19th, 2009 at 12:30:04 PM EST
[ Parent ]
ThatBritGuy:
I doubt you're going to find many voters who want to 'support' the big banks now anywhere on the political spectrum.

there's a winning platform for sure, 'more bailouts while the rest of you starve!'.

let them eat economic obfuscatory jargon, and nibble on green shoots of grass...

we witness the greatest mass shift in financial education in history, where every landless saharan peasant knows what the IMF is, and every pubescent european knows what 'quantitative easing' (sounds like a laxative) and 'mark to market' means.

everyone gets to become a guru...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 19th, 2009 at 08:14:01 AM EST
[ Parent ]
"It is difficult to get a man to understand something if his livelihood depends upon his not understanding it."

- Upton Sinclair

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 19th, 2009 at 04:38:46 AM EST
[ Parent ]
That's because when you've been cushioned by trillions, it's your chauffeur who's worrying about the windscreen.

And your personal airbag is more than comfortable enough - thanks for asking.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 19th, 2009 at 04:46:50 AM EST
[ Parent ]
you might say 'one man's bubble is another man's cushion'!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue May 19th, 2009 at 08:08:57 AM EST
[ Parent ]


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