The Capitalist Meltdown

I am very sorry to hear about your job loss. I may have to work for a few extra years, but at least I have a job. I think that there are many all over the world who will be losing their jobs.

My brother told me yesterday that even Iceland had one bank collapse. Apparently, they then nationalised it. I also heard that one bank a day was closing in Europe. I think we were or are perilously close to a "Great Depression" type experience.

It must now be clear that the suits from the "top tier schools" cannot be trusted. I think they run on networks and credentialism. The degree from the school is a ticket to fast track executive entry, because it provides them with the networks to perpetuate themselves. It doesn't, as it appears, provide them with analytical ability or ethics.

The graduates from these business schools have shown that the "top tier" prestige is based upon myth, rather than reality. They are in no position to criticise distance learning colleges. The irony is that nobody will swim down through these graduates' backgrounds to the schools, yet when the graduates have successes, the schools laud them as evidence of the school's worthiness and prestige. I guess the statement that success has a thousand fathers and failure is a fatherless child may be true.

 

Very true. What might be good for a few greedy CEO's is not necessarily good for the masses. But they create jobs they say. We must give them incentives and lessen regulations so they can flourish and spread the wealth. Spread the wealth? As in Reagonomics? Failed reasoning. Plain and simple. When you take decent paying jobs with benefits, then break them into part time jobs with no benefits, what happens? Things like the eradiction of one person running a household with only one income. Good? I suppose for corporations, but what happened to society in the long run?

So when they tell me to blindly accept free market principles, I just don't buy it. Ironically, we do not have a truly free market society anyway. How many corporations receive taxpayer incentives, then turn around and outsource jobs? Are all these tax incentives conducive of a true free market system, I would say no.

In summation, I would submit the study of business principles are good, but perhaps we should also study the long range societal effects these theoritical formulas have.


Just my two cents.

Abner

 

Don't blame me. I voted for Monica Moorhead in 2000 and John Kerry in 2004.

 

Fareed Zakharia's _The Post-American World_ does sound quite interesting, though I must confess that I've not read the book.

 

You are correct in your analysis. A tightening of credit (a decrease in the amount of money available to loan) will lead to higher interest rates, assuming that demand remains the same. Similarly, an increase in interest rates by the central banks will lead to fewer people being able to afford to borrow at the higher interest rates. Both will lead to an economic slowdoen, either due to there being less money in the economy or due due a decrease in the velocity of money (number of times a dollar bill travels around the economy in a year's time).

 

Um, nobody's forcing banks to issue subprime loans. Whether or not to do so is entirely up to each individual bank. Some happen to choose to do so, with two government-sponsored enterprises Fannie Mae and Freddie Mac agreeing to buy up the riskier loans.

 

Let's talk.

Hmm. Exactly how does allowing one firm to engage in both investment banking (floating of stock and bond issues) and commercial & retail banking ("regular banking," as you say) cause a subprime lending crisis? The collective greed of Wall Street caused the financial industry giants to collapse.

Social Security was very badly designed in the first place. First of all, they paid money to people who never invested a dime of their own money in Social Security and subsequently it has been the expectation that current contributors will pay the benefits of existing retirees, thus necessitating that one find a bunch of "greater suckers" to pay for each succeeding generation of retirees. Unfortunately, with the decline in family sizes and inceasing life expectancy, the whole scheme becomes unsupportable and collapses like a house of cards. Something that Roosevelt forgot to tell your grandparents. In the business world, if you use new investors' money to pay off old investors (which invariably leads to the inability to find enough "greater suckers"), you are running an illegal Ponzi scheme and you go to jail. Not so if you're the government.

Could you explain what inefficiencies are created by Medicare and HIPPA?

You're right about that one. Unfortunately, Social Security cannot simply be shut down until you define: (a) how the government plans to fund current retirees; (b) how to refund the contributions of those who pull out; (c) what will take its place; (d) what you plan to to with Medicare, Medicaid, disability, and other parts of Social Security that are not so easily privatized.

 

Interesting discussion...

Iceland is a special case! It's the only country in the world which already is in a "Great Depression". I just found an interesting article about it on the guardian website: http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch. Qoute: "Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out."

By the way, it's surprising and somewhat confusing how different the economies of different countries react to this crisis. Here in Germany, for instance, there is no effect on the jobmarket - until now, at least. In August the unemployment rate in Germany fall at the lowest level in 16 years! I think (and fear) this will change in the next months.

For me, the current mess is a textbook example of market failure, and, like in the case of vitually every other financial crisis in the last 200 years or so, the reason for this market failure was greed. But I think greedy CEO's aren't the only one to blame. What these CEO's did was also quite positive for the price of their companies shares - only in the short term, of course, but that's exactly the point! Today, to many (often but not always institutional) shareholders are much to focused on short term profits. I really think this must change! There is nothing wrong with short term profits, but the interest in short term profits without a certian degree of intresst in sustainability is a very good nutrient medium for greed. There are of course many shareholders with strong interest in financial sustainability, certainly the vast majority, but a small minority group among shareholders is in my opinion as much to blame for the current mess as these greedy CEO's since they acted greedy, too. Greed is infectious, sometimes!

mintaru.

 

Capitalism is not the problem.
Greed may be. The Capitalist system as we have in US more often proves to be a better system then others.

You see there is Wisdom, Knowledge and Understanding and there is also a human nature.

All the PH.D and fancy MBA increased their Knowledge as far as Wisdom well this is a God given. And in today's modern universities one may find some of it in a fiew scarce places. Understanding requires both.

The way of the world is that noting runs without glitch for ever. There are cycles in life. It takes Wisdom is to recognize them work and live through them.

So I praise the freedom and free system we have in USA. This system had
its downs in the late 20,s and 30's, corrections applied and the system came out thanks to God and the hard working people as a strong and more successful then many other.

Yes Capitalist system didn't collapsed it took a hit not as bad as in 1928, 33 etc. This is the nature of the things, cycles etc.
Some talked about communism collapsed in Soviet Union and at time it seemed like that but today it is live and Putin with his followers far from collapsed system.

Be smart, and seek Wisdom.
Corruption can and exists in all the systems.
I'm sad when people lose their jobs and know how hard it can get.
Once in my life following the economic slow down and layoffs after Sept 11 attack, I had to move thousand miles away in order to be able to provide
for my family.
Beginning of Wisdom is reverence of the Lord.
God bless America.

 

Well, I just watched one of the major television newsmagazine shows (I forget whether it was 60 Minutes or one of its competitors). I have a few serious questions about the whole mess. Why are the financial wizards turning to astrophysicists to design mathematical formulae that allegedly "eliminate" risk in business situations (as if astrophysicts, or any kind of physicists, know a damn thing about business ... you can never eliminate risk in business, you can only reduce it or insure against it)? And why are businesses calling in lawyers to rename "credit insurance" as "credit default swaps" (as if lawyers know a damn thing about business ... other than the small handful of lawyers who also have MBA degrees)? Of course, the real answer to question two is that by renaming "credit insurance" as "credit default swaps," you escape insurance regulations and do not have to set aside any reserve requirements to cover any of the defaults that are eventually going to be swapped to you (whereas, with credit insurance, you would have to set aside reserve requirements for the losses that you are insuring). If somebody with common sense had been there to remind people: like Momma alwaya said, if it sounds just too good to be true, well, it probably is. But this is what you get when you have a groupthink mentality on the part of a bunch of arrogant assholes who think they're naturally superior to everyone else.

 

Here is the Australian Prime Minister's view on the meltdown.

http://au.news.yahoo.com/a/-/latest/5068421/rudd-holds-firm-on-global-credit-crisis/

Retirement funds are in trouble and the Aussie dollar has fallen to 68 cents against the greenback. This is good for anybody doing distance learning with a US University. Fortunately, I have finished my degree with Excelsior.

It will be interesting to see what G20 says about regulation. What are the US candidates saying about the G20 meeting?

 

If the AUD has a relative value of USD0.68, how can this be good for those studying via distance, presumably living in Australia in your case, at a university in the US of A? Each USD would cost you AUD1.32 (approximately) so a US degree would be more expensive now. Or did you mean the USD has fallen in value to the AUD and USD1.00 = AUD0.68?

 

If the Aussie dollar has fallen to 68 cents on the American dollar, doesn't that mean that my American dollars are worth more Aussie dollars and so now would be an advantageous time for Americans to pick up Aussie degrees?

 

Yep. It was at 68 cents a few hours ago. The currency pair fluctuated 70-71 cents to the US dollar at the time of this posting ( 9:39am eastern time ). I would do technical analysis and observe the charts ( AUS/USD Weekly ) to take advantage of the disequilibrium in purchasing power parity.

 

You are absolutely right. It should have read"not good". Perhaps it should have read "bloodly dreadful"

 

I feel your pain. The Canadian Dollar has fallen in value against the US Dollar. They were close to at par only a short time ago.

Damn you Wall Street! Okay, now I feel a little better.

 

Canada and Australia seem to have a lot in common. Run into a few Canadians down here and every second Australian is going to Canada. One reason may be because the dollar is comparable. We had almost parity with the US until this event. Good for US students wanting to deal with Australian Universities, not so the rest of us. I am heading towards a Doctorate in Malaysia where the quality is still good and the Aud goes further.

I may even go with a topic from this meltdown with an analysis of its impact on crime. The "grey hairs gang" stalking of Wall Street Traders might be a good contemporary topic.

 

Close to par? Heck, I thought the Canadian dollar was doing better than the American dollar!

 

The Australian Stock Exchange bounced by five percent yesterday and the aussie dollar went up to 67 cents US. It means great value for US students if they want to do an Australian Degree. Not much good for me, but great for others in the US.

The Australian Government have promised to protect all bank savings for the next three years so the banks are solid. Job losses will happen and credit is very tight. Pension funds not so great, but at least perhaps a bottom.

 

The US Dow jumped up about 11% on Monday. (Didn't help those who were shorting the plunging market.) These gyrations are pretty unsettling when the whole market moves 1/10 of its total value in a single day. That's not right. It actually shifted a hundred Dow points in as little as 60 seconds. I guess that big institutional orders were hitting a very thin market. My guess is that while we might be putting in a bottom, it isn't going to be up-up-up from here. We are going to be retesting last week's lows again. It's apt to be a violent, volatile, choppy but ultimately sideways trader's-market for several years to come.

I'm kind of heartened by the Europeans. (Surprises me to say that.) Fear must have focused their minds, because the British and the Euro-zone countries got together and immediately made some decisive coordinated moves that at first glance look pretty intelligent. Sarkozy has been very visible throughout, maybe he's revealing himself as a good natural leader in a crisis.