One of Largest Financial Players devalued in a day - what is going on?

Discussion in 'IntroSpectrum' started by McGirth, Mar 17, 2008.

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  1. McGirth

    McGirth New Member

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    So Bear Stearns and Other corps that specialize in processing blood clots without nutrients and sending it throughout the body failing = organ failure. That is, firms in the financial sector who had bad securities without any actual value in them and sent through throughout the economy have gone bust.

    Hopefully, this will not cause the entire body to fail.
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  2. Radium

    Radium f k

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    then it would seem that the most effective free-market economy would be one that was based mostly around domestic physical production of goods as this is what appears most effective in the circulation of money through the hands of the corporations/people. The question is how have we strayed from that.

    is the economy fundamentally flawed from the ground up or is it only experiencing a common cold in the form of this flawed financing policy that you've outlined here.

    The latter would seem simple enough to fix as we would only need to remove these policies. With the economy being basically otherwise healthy if not for these policies, things would gradually return back to the natural flow of things. These seems to be what you were getting at. The problem doesn't cut too deep. The solution seems apparent.

    However, if things are flawed at a deeper level...

    I'm not too sure why but something in me has said that a departure from domestic physically produced goods is what is causing trouble. In some form or another, things will ultimately reduce to that when there are problems of any sort in the economy. That is, a departure from labor.

    What's in question is just what exactly is causing that departure from labor. Probably many things. But I fear, most of all, that it is simply the natural flow of things for this to ultimately happen. Labor is inefficient for corporations. They will naturally seek to eliminate labor as best they can to reduce expenditure. The inherent nature of capitalism forces this.

    Thus, the scale will eventually begin to lean so that the corporations make more money (are more prosperous) but cause strain as a whole to everything else (everyone else is less prosperous). This creates an imbalance which ultimately hurts everything as a whole INCLUDING the corporations themselves as they themselves are dependent on the prosperity of the people (people won't buy your product if they don't have money to buy it with)

    I fear that what we are ultimately fighting against (whether one is subscribing to your theories or mine) is the eventual departure from labor which I argue as being a critical phase in the growth of economies like this over time. Labor is being whittled away at, bit by bit.

    That policies such as the ones you've proposed are not just foolish errors that can be erased like pencil from paper, but are instead symptoms of a deeper issue entirely.

    but I dont know really.
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  3. Tequila Jong-il

    Tequila Jong-il SALAD TOSSER

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    several problems with this

    1. There hasn't been any major change in the definition of property rights as relates to credit markets. Creditors selling debts to each other is not new. What's new are the business practices of creditors.

    2. Nowhere did Adam Smith claim that his ideas on the efficiency of markets applied only to physical goods.

    I would attribute the current crisis to one market factor and several non-market factors.

    the market factor: In recent times there has been an increasing move towards the use of computer modelling in risk assessment. The result has been an increasing amount of leverage on the part of financial institutions due to the belief, now seemingly erroneous, that they were better able to assess risk than they were previously.

    the non-market factors:

    - the loose monetary policy of the early part of this decade in the US and elsewhere. The effect of artificially cheap money is create loans which otherwise wouldnt have been made. It is possible we would still have had these problems without the ridiculously low interest rates of the early 00's, but they would have been nowhere near this large

    - the hybrid public-private nature of some 'market' players, especially the GSE's and the rating agencies. Not only does this introduce moral hazard, a dislocation between potential reward and cost of failure, but the closeness to and/or dependence on government creates a strong incentive for economic decisions to be made upon political rather than economic criteria. This is, in part, where the next factor comes in.

    - the US governments drive to create affordable housing(read affordable credit). If the government really wanted to create more affordable housing they could simply remove many of the barriers to increased house construction that they themselves errect(land use restrictions ect). Unfortunately this would lower the prices of housing in general and since politicians always want it both ways (those without housing to buy and those already with houses to continue seeing the value of their homes rise) the only option is to increase credit through all the means at their disposal.
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  4. McGirth

    McGirth New Member

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    I think making domestic physical production of goods the center of the economy would create a whole new set of problems. Though I agree with you in principal that removing labour from the equation is at the root of much of the problem, I don’t agree with your assessment that shifting some of the labour overseas or into non-physical production is the problem.


    (1)(A) It is pretty much undeniable that certain forms of intangible property are infinitely helpful to production, for instance, patents. Notice that patents are ultimately connected to labour (and ultimately the physical environment), they are the plans of HOW to labour to produce X product. They are like the DNA of the nutrients that make their way into the body. It’s also not clear that every form of property must be absolutely related to production of material goods. For instance, I don’t think property forms used to help make profitable the entertainment industry is a bad thing (i.e. Copyrights and TMs). In the body, these are basically inert agents. I don’t think making these forms of intangibles property (Copyrights, Patents, TMs) is at the root of the economic crisis.

    (B) Further, making some areas of the production of goods outside of the US does not weaken production or money within the global-economic-system (or even the US system), it simply increases the size of the body economic/politic. IF anything, adding additional organs/senses to the body makes it stronger, in so far as control over the body itself is not given up to these new organs. That is, the downturn in the economy itself is not caused by free market with other states, this is fine in so far as the US retains control over key areas of the economy (i.e. innovation and patent creation, and to some degree manufacturing). The fact that labour is occurring means all the more, means that nutrients are being added to the bloodstream of the economy.

    I actually think the downturn would be much worse if not for the introduction of global free market practices these past 50 years. Things would have gotten much worse earlier.

    (C) Further, I’m absolutely not rallying against financing either via legal mechanisms, and the buying or selling of Credit. Credit, financing, and usury is not at the root of the financial crisis. Credit and financing can play a supporting role in the production of goods in the economy. They can promote the development of new forms of technology (patents), and the development of existing forms to increase manufacturing and make things widely available (movable tangible property). Credit can be instrumental to progress. Think of credit as the equivalent to the brain telling the body to send more blood/nutrients to certain organs/areas of the body to help it remain healthier.

    (2) (A) What I think is harmful is casting the legal-bundles themselves, particular financing law-bundles, with money invested into them as ‘forms of property’, and as a consequence made subject to a free market logic. That is, the idea that we should just allow anything in financing to go forward, and let the market decide what works. This can be seen in mortgage lending, where these horrible loans were effectively left to the free market to decide if they were the correct policy. This is dangerous. Only NUTRIENTS and things directly connected (patents) in the body should be subject to the free market logic, not the veins of the body and certainly not the organs (corporations).

    (B) Often, the step of casting legal-bundles as property, then subjecting it to the free market is often missing. Sometimes it’s simply argued that legal bundles should be subject to the free market, and the casting as property step is missing. But, I think it’s implicit, operating the background of these sorts of policies and arguments, even where not explicit. I think thinking of it in terms of what is property and what is not property gives us a useful tool to determine what should and what should not be subject to a free market logic.

    (C)For instance, according to this analysis, the idea that corporations themselves (organs of the body) should be able to shop corporate forms in a free-market legal system is itself poisonous to the body. Currently, most corporations pick DELAWARE as opposed to other jurisdictions precisely because it is so management favoured and has little oversight, allowing for corruption to occur and for share holders to get screwed. (interestingly, Obama mentioned this in the last debate) The argument is that corporate law is like a market, and that we get the best corporate law by having a free market of corporate forms. People will naturally pick the best and most efficient form. Implicit here of course is the idea that corporate law itself is a form of property, and thus subject to a free market logic. By realizing that corporate law IS NOT property, using my framework of analysis espoused implicitly by Locke, Adam Smith, etc. it becomes clear that Corporate Law is not a form of property, and therefore applying a free market logic to it makes no sense. In fact, doing so would weaken the body.

    (D) By contrast, the free market logic interacts with (1) tangible property by increasing the types of goods we have available by promoting specialization. It interacts with (2) patents in a similar manor, promoting different forms of intellectual property that ultimately result in the production of new forms of actual goods. Free market in these areas is a good thing for the economy. Free market logic in (3) copyrights and TMs, leads to new forms of entertainment. This is ultimately unrelated to the current economic crisis, and is probably inert either way in terms of its effect on production as seen through the lense of the current argument.

    So in sum, a property analysis leads to the conclusion that a free-market logic for (1) legal-corporate forms (organs), (2) investment legal-mechanisms (veins) will lead/has lead to negative consequences, and should thus be reformed.

    I think the good news in all this, according the lens of this analysis, is that the US/Global system is not so fundamentally flawed that it can’t be fixed and even improved in the long run.
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  5. McGirth

    McGirth New Member

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    Teq:
    read my reply to Sodium (last post), it addresses both points (i think we actually agree largely here alot in terms of prescription, I think i'm just trying to look for deeper causes. That is, my point points to the same thing as your non-market factors 1 & 3 if you follow the logic of the analysis, just in a different way).

    Your point about what Adam smith mentions explicitly. I don't think its really relevant, given that these legal forms did not exist back then. I thin the best we can do is look at examples he actually used/principals stated (and other foundational theorists), and then try to extrapolate from those whether free-market logic is applicable or not rather than proceed by loose-analogy. I think the idea of property is a useful idea to engage in this sort of analysis.

    On your new points, about (1) faulty risk assessment by large firms & (2) the hybrid nature of rating agencies.
    (1) I sincerely hope shifts to computer modelling is not the problem, because computers are used in all sorts of forecasting of risk from things like natural disasters, to disease spread, etc. I like to think we still have smart people in the world that don't put all their stock in deductions from computer models and follow them blindly. That is, in assuming that deductions of computer models are reality itself, as opposed to partially utimately not 100% accurate deductions. (that is, risk models are not perfect, they dont accurately reflect actual risk much of the time).

    I think the risk-assessment problem you point to is definately an aggrevating factor, rather than a root cause.


    (2) on rating agencies public-private nature, I think this is a problem. But I think what you said implies that they saw it comming, yet did nothing because they didint want marekts to react negatively. I'm not so sure about that, since i can't prove it, but it could be relevant. Tehre is certainly a prevailing logic right now that the value of property is determined not by actual prodution, but by what people BELEIVE something is worth. This again removes actual property from the equation and puts the value in pure speculation. This of course is dangerous, since it leads to governments that focus on getting people to believe the market is doing great when really its not, in the beleif that the idea that it is doing great actually produces value.
    I'm not denying that perception has a role in value; what I am advocating is that perception is only part and definately not all of the equation, nor is it a part we should focus economic policy around.
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  6. Tequila Jong-il

    Tequila Jong-il SALAD TOSSER

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    Just a scattering of points because I cant be bothered writing a proper post

    - Adam smith based his thinking on markets upon his views of three things: the role self interest played in decision making, the benefits of the division of labour(specialisation) and the benefits of free trade. In his view it didnt matter whether what was sold was a physical good or not. Even in smith's time a large proportion of what was bought and sold was non-physical. The most obvious example is labour. When you sell your labour you sell your time, expertise and efforts, the produce of which is often physical goods, but which is obviously not itself a physical good.

    - that said i'm not sure why you are so interested in what adam smith had to say on this. The wealth of nations is hundreds of years old and economics has changed radically since.

    -Interesting essay by nassim taleb herecovers some of my problems with statistical models as they are commonly used.

    - Im not familiar with anyone who claims that price is determined solely by perception. Standard economic price theory states that price is determined by the intersection of supply and demand. Basically a combination of subjective and objective factors.
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  7. BlackSoultan Ad Infinitum

    BlackSoultan Ad Infinitum aka Billy Shoreview

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    I knew I wasn't crazy. He makes shit up all the time! I've been trying to say this to him for YEARS, but I just couldn't figure out how to do it without calling him a fuckin' slackjawed idiot! I think that's been my problem, putting him horrifically on the defensive.

    That, and the fact that he holds himself out elsewhere (AEH) as an economy expert, and he clearly cannot do that anywhere you post. In a sense, that has shut him down, and stopped him from his common neo-con answers to everything instead of a legitimate answer.

    And on that note, thanks for your discussion of this topic, although it took entirely too long for people to get what "intangible" meant. Now that we are in the Obama-Bush-Policy era, what do you make of the current situation?
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  8. Mcg-

    Mcg- New Member

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    Ghet's posts/way of thinking have their own internal logic. That's not a bad thing, it just makes it hard to follow what he is getting at sometimes.

    The fact that he has no academic background, meaning that his ideas don't fit easily into this or that field, makes him even harder to follow at times. This is what happens when you study bits and pieces here and there, instead of one discipline in detail.

    its like there are grids of knowledge through which people understand things and communicate ideas, ghet is off any grid, so often its hard to understand what he's saying though if you do follow, it is worth it because he sometimes makes extremely insightful observations, which I am happy to have read over the years. I don't know many people like that, so when i find one i listen to what they have to say.

    but yah, i also agree that sometimes he doesn't know what he's talking about (just like anyone else) and seems to just string together big words in an effort to maintain authority, instead of just admitting he has no clue. Basically, sometimes the gems are surrounded by crap. By contrast, i tend to not speak/write when i'm clueless on a topic and just read/listen, which probably makes me appear alot smarter than i actually am. I think, from the times i've gotten into with you, you tend to get into personal attacks. just different defensive mechanisms i guess.

    ---

    on the current situation, i don't think anything has changed, i don't believe in the idea that a new president can come in and save the day. the flaws are systemic.

    Its interesting though re-reading this thread AFTER the market went to shit completely and looking at the different ideas in this thread, and comparing to what analysis said AFTER the meltdown. (note: the posts in here were pre-oct economic meltdown)

    I still hold to my assessment that the flaw is systemic, which at its core flows from the mistake in how neo-liberals and neo-conservatives have misread/thought/applied free market logic.

    i do think they got enough right, that while sick, the system will survive.
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  9. Mcg-

    Mcg- New Member

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    one thing is for sure. Virtually the entire professional class's investments have been decimated. Hell you can just see it walking downtown by the spending that is not going on, retirement funds have dropped by 50%-75% for many 50 and 60 somethings in the 2-10mil range in savings.

    i would be pissed if i had spent all my life working my ass of as a doctor, banker, lawyer and winding up with almost nothing to show for it.

    I think there may be a shift in hip hop as a result, there will be a lot less parents willing to buy their kids cars, etc... because they no longer have the money. without the money there is no market, so its arguable if the pop culture can be sustained. who wants to hear about blowing wads of cash when you you have no cash to blow?

    its pretty much how like 9/11 caused a culture shift; iraq war backlash caused a shift; and how facebook/social networking tech caused another culture shift, a new one is just getting started. I think it could be the end to the perpetual childhood of those in their 20s at the moment (kids of professionals).


    An entire class of people, the lower-upper class (top 2-10% of income) has just moved down to middle class in the last few months. There will be consequences.
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  10. Radium

    Radium f k

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    mcgirth i was saw a cartoon documentary about this on google video I forget the name I think Money as debt was the name

    It said what you were saying but It seemed you the way tried in using simplified explanations ("intangibles" and everything that extended from that as an explanatory basis still a nebulous use of words)

    you dumbed it down to the point of watery.

    Basically, this cartoon highlighted how banks started out as increasing their own money through usery...x...x...money eventually comes to represent nothing and somehow it represents debt but i zoned out at this point. for a cartoon it was relentless.

    It makes sense though...

    my only question was how to reboot the system. one suggestion brought up by the cartoon for example was to return to gold as currency....this is of course being entirely silly. It seemed unable to present any plausible alternative.

    What do you think/suggest as a proper alternative

    ghet=war

    all reality is war. war for survival, war for existence. beings warring with other beings for their own personal gain. nothing else.

    a crsytal look into ghet's own personality

    ....but he is right. but only halfway right.
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  11. Dex Luiz

    Dex Luiz Guest

    Nislanif

    Please reduce your signature to 8 lines.
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  12. Mcg-

    Mcg- New Member

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    lol my brother showed me that vid.

    i don't see how rooting our money in one thing that has entirely subjective value (gold) would be any better than another (currency).
    I agree though that lending out at 50/1 debt/equity rates for banks is a recipe for disaster. Legislation should address this, as well as stuff already mentioned.

    also this is real life, there is no rebooting, just fixing as you go along. The ship of civilization has be fixed by those onboard as it continues to sail through time. Same with you life, you can't reboot it.
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