From the last two paragraphs it looks like another fiscal package is on the way?
Interesting how little damage to the real economy it takes to trigger a fiscal response – GDP last printed at 3.3% and the relatively modest job losses are not nearly enough to have triggered a fiscal response in the past from either party?
So it seems behind the rhetoric the Democrats in Congress are in fact reacting more to financial sector needs.
Probably because, like the Republicans, most of their constituents are also shareholders.
The move to broaden shareholdings has had profound political ramifications that has undercut the previous agendas of both parties.
A few months ago the far left in Congress was congratulating the Fed chairman for keeping inflation expectation well contained even as other prices were rising, after it was explained that this meant keeping wages in check.
Since when doe the ‘far left’ praise a Fed chairman for suppressing wages, especially when the cost of living is on the rise???
Having a nation of shareholders seems to have redirected overall public purpose?
The 30% corporate income tax means the government already ‘better than ownes’ 30% off all the US based equity- it’s the direct pipe, and easily increased or decreased by decree.
Equity held at this level has very different political effects than individual ownership of shares.
Yet there is no discussion of any of this, anywhere in the public debate.
Meanwhile, crude seems to be acting like the ‘Master’s inventory liquidation’ may have run its course and the Saudis are again moving prices back up as demand for their output remains firm and their excess capacity is too thin for comfort.
This drives down the USD, making our stocks ‘cheaper’ to foreigners, so look for more foreign takeovers, which will be spun as the US ‘needing’ foreign borrowers and being ‘rescued’ by them.
Reid: While Financial Markets Reel, Bush-McCain Republicans Call For More Of The Same
Washington, DCâ€â€ÂSenate Majority Leader Harry Reid made the following statement today on the floor of the U.S. Senate. Below are his remarks as prepared for delivery:
“On the morning of October 30, 1929, President Herbert Hoover awoke the day after the biggest one-day stock market crash in American history, surveyed the state of the U.S. economy and declared, ‘The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.’
“In the coming weeks and months, President Hoover remained in an economic bubble, unaware of the extreme suffering of ordinary Americans – even declaring that anyone who questioned the state of the economy was a ‘fool.’ For Herbert Hoover, ignorance was bliss. And it wasn’t until the American people replaced this out of touch Republican president with a Democrat, Franklin Roosevelt, that our nation’s economic recovery began.
“Yesterday, nearly 80 years after the Hoover Administration took America with blissful ignorance into depression, the Dow Jones Industrial Average dropped more than 500 points – the biggest one-day decline since trading opened after the attacks of 9/11. With one major investment bank headed for bankruptcy, another sold at a bargain-basement price, and one of the world’s largest insurance companies teetering, investors rushed to sell their shares.
“With our financial markets reeling, the American people are wondering whether they will lose their jobs, whether they will be able to pay their child’s next tuition bill, whether their pension and retirement savings will be safe.
“There is no reason to think we are headed into an economic depression. There is no reason to panic. Yet one Senator – John McCain – woke up yesterday morning, surveyed the state of the U.S. economy, summoned the ghost of his fellow Republican, Herbert Hoover, and declared, ‘The fundamentals of our economy are strong.’
“For whom are the fundamentals of our economy strong? Not for the 606,000 Americans who have lost their jobs this year alone. Not for the commuters and truckers who are sending more and more of their hard-earned dollars to pay for fuel. Not for all those struggling to make one pay check last until the next, with record hme heating prices looming in the coming winter months. Not for cities and towns that have been forced to cut back on police, schools and firefighters because their tax base is shrinking. And certainly not for the millions of families who have or may soon lose their homes, or for the tens of millions who are seeing their home equity plummet.
“No matter what George Bush, John McCain or the ghost of Herbert Hoover may think, this economy is not strong, and the American people deserve better.
“This is not a time for panic. But it is a time to look back on the past eight years of Bush-Hoover-McCain economics and figure out what brought us to this point so that we don’t repeat the same mistakes. And the tragic truth is that this disaster was avoidable. In its palpable disdain for all things relating to government, the Bush/Cheney Administration willfully neglected the government’s most important function: to safeguard the American people from harm.
“In their simplistic philosophy of ‘big business equals good, government equals bad,’ the Administration and the Republican Congress failed to conduct oversight and let the financial sector go wild. Without anyone regulating their actions, market excess destroyed the financial prudence that allowed a firm like Lehman Brothers to prosper for 158 years. Vast fortunes were made virtually over night, and now vast fortunes have been lost literally over night.
“The unfortunate irony is that the Bush Administration’s zeal to favor big business has now crippled it – and left the American people to pay the price. President Bush did nothing to stop this disaster, and now it’s clear he’ll leave the mess to the next president.
“Now our nation must decide who is better suited to end Bush-Hoover economics and return sanity and security to our economy. Senator McCain says the economy is not his strong suit, so he went searching for an economic advisor who could bolster his weakness. Who did he choose? Former Senator Phil Gramm. The same Phil Gramm who, as a Senator, was responsible for deregulation in the financial services industries that paved the way for much of this crisis to occur.
“A respected economist at the University of Texas, James K. Galbraith, said that Gramm was ‘the most aggressive advocate of every predatory and rapacious element that the financial sector has’ and that ‘he’s a sorcerer’s apprentice of instability and disaster in the financial system.’
“It was Phil Gramm who pushed legislation through a Republican Senate that allowed firms like Enron to avoid regulation and destroy the life savings of its employees, and it was Phil Gramm’s legislation that now allows Wall Street traders to bid up the price of oil, leaving us to pay the bill. Warren Buffet called the result of Gramm’s legislation ‘financial weapons of mass destruction.’ And now, the architect and leading cheerleader for every mistake and neglect that created the Bush/Cheney financial nightmare is whispering into the ear of John McCain – who says he doesn’t know much about the economy.
“Whether you call it Hoover economics, Bush economics, or McCain economics, it is not a recipe for change – it’s a recipe for more of the same.
“For all of the college students worried about finding a job, the working families who don’t know how they’ll pay the bills, and the fixed-income senior citizens trying to figure out how to pay for medicine, we must do better.
“We can’t afford another Republican president who will follow his party’s ghosts down the path of recession, depression and more suffering. We desperately need a president who understands that working people, not industry titans, are the backbone of our economy. We need a president who will cut taxes for working people and senior citizens; end the windfall profits of oil companies and put that money back into the pockets of those who are paying record prices at the pump; and put millions of Americans back to work by investing in jobs on Main Street, not Wall Street.
“In November, we can elect that President who will break from the past and invest in the future. Until then, the Senate should pass a second economic stimulus plan that funds infrastructure projects that will create jobs; prevents cuts in desperately-needed state services; and invests in renewable energy, expanded unemployment benefits for victims of the Bush-McCain economy, and helps working people and senior citizens afford the costs of energy.
“I expect the House of Representatives to pass a stimulus bill in the coming days. When it arrives in the Senate, I hope it will be embraced by Senators from both parties as a critical first step on the long road from economic ruin toward economic recovery.â€ÂÂ
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But isn’t another stimulus a good thing? As that raises the deficit? And won’t that help regular economy more than the financial sector?
I know that this is giving the Democrats more credit than they deserve, but maybe they want to use the excuse of the the turmoil among the financial industry to boost the real economy more.
“Having a nation of shareholders seems to have redirected overall public purpose?”
Yah, just like with AIG, management will rape the shareholders to enrich themselves and their crony friends.
I thought eisenhower said big gubbbment was there to help the little guy fight off big business power, but when they in bed together (literally like the recent oil execs) then who does the little guy got to protect him? The founding fathers said all the little guy got left then is his rifle and a bullet – but I am betting most of the little guys here too wimpy to do what the founding fathers say. Us military/industrial complex boyz sure like what weakling you all have become, can just stick it to you over and over and you keep taking it.
vipul- yes, it will add to demand and help the real economy. what i was trying to say is that they seemed to be motivated by the financial crisis. And, as you state, I could be wrong!
MC, so that means i have your vote in 2012?
Warren I already asked before and you didn’t answer – I am soon to be a virgin island resident – I will vote for you – but I thought virgin island people could not vote for president? I would like to have you choose ron paul as your VP – the debates between you 2 about hard money and soft money emminating from the white house would be better than any soap opera on TV – you would take nielsen rating levels to the stratosphere! As history proves – people will pay for entertainment long before they will pay for education and solutions. It would be a very entertaining 4 years for the nation.
Anywayz Senator Schumer today saying this hank paulson proposed RTC like plan is filled with so many holes that it won’t really help the situation – I guess blowing up indymac wasn’t enough for him *snicker* – ex-fed guy that ran the RTC (siedman i think) has said several times on CNBS and doomblerg that the S&L RTC trick won’t work today either – totally different problems – inelastic owners who don’t want to dump at any price – but boy are markets dumb to rally on rumors – why do we let dummies have access to capital where they can make really big problems with their ignorance? Keynes said the fetish of liquidity was the most evil of them all!
These inelastic sellers reminds me of a book I read in the 5th grade called THE PEARL –
http://www.google.com/search?hl=en&q=the+pearl+john+steinbeck&aq=1&oq=the+pearl+-
it was about these island people on the virgin islands who found this massive pearl in the ocean – they were poor living in a stick hut with their son and eating fish – but they were happy – well the bankers came to these guys and they were inelastic sellers so the CIA jackal hit man come in and killed the children and then mom and pop villager threw the pearl back into the sea – nobody won and there was much gnashing of teeth.
Kinda like my miami condo friends who say if they don’t get the price they want – they will take a match to that sucker and get their AIG insurance payout!! BWAHAHA LOL!!
the effective tax rate is 18% or so on U.S. businesses. This is still a huge portion of U.S. business ownership.
mc- you can’t vote for president if you are a resident here
not running with Ron Paul- his economics are totally confused- he’s part of the problem, not part of the answer.
yes, an rtc type plan only works when govt already owns all the institutions of consequence.
they are probably going to come up with a proposal for the govt to somehow add capital, maybe something like Japan did where the gov bought preferred stock of its member banks.
Thanks Warren, I still wish you were on a plane to washington so you could help reorganize the silly memes all these gubbment planners currently have.
I remember reading about japan offerin 100 year multi generational loans – the grandfather, father, son and grandson all had to sign the note – long term planning. In my granpappys day (1930s) he said most loans were only 5 to 7 years to buy a house, thank goodness for 100 year loans, how did people in the early days manage with just 5 or 7 year loans? I can’t wait for 1000 year loans or longer – how long do you think is the ideal loan term Warren?
not long ago the town would get together for a house raising and build homes one at a time for each other.
lots of ways to skin the cat
success is measured by the useful output of the community.
the fewer the people tied up in financial sector, the more who can get the ‘real’ things done.
changing the loan terms changes the distribution of output between houses and other things. so, not to duck your question, before incentives are put in place i’d suggest discussion them and their ramifications to see if it infact meets public purpose.
Yah my amish friends still build houses that way, you know when their kids become teens they are allowed to go out into “the devil’s playground” IE the real world for a year or 2 and see how the rest of the world lives and see if they want to live that way or the amish way. Many of these amish kids are exposed to drugs (like you want to legalize) for the first time and become crack and meth heads. It is becoming a bad problem in lancaster.
“the fewer the people tied up in financial sector, the more who can get the ‘real’ things done.”
My trader friends are really mad about this stoppage of short selling, saying that it will foster illiquidity, but I know many monetarists – especially keynes said liquidity was the biggest devil to slay – so now that all these traders won’t be in markets making them liquid and trading what will they do? They are too lazy or stoopid to help build houses or find cancer cures. I think now is a good time for you Warren to start doing a jerry maguire and with your own actions back your words – never trade EVER again. What is good for you is good for me and every other human being. Lead by example, not by words.
“ramifications to see if it infact meets public purpose.”
See that is why I always have problems, like that guy socrates I guess, I usually don’t like what the big ole “public” wants to do. You want to legalize drugs, I don’t. I want to legalize hookers, but I don’t see anyone else jumping on the bandwagon – one happy unified world is just never gonna be, too many people with different backgrounds, customes, beliefs and wants and it seems to be getting more fractured.
Warren its kinda like being a virgin island resident and not being able to vote for president – you just don’t really care because you don’t really make a difference.
Warren further on public discourse, Brad Delong points out how little the “public” or their gubbment representatives have in deciding stuff – just a few hank paulsons at the top are doing all the heavy work (unsupervised) and then reporting their actions in a couple briefs to a few people whose eyes probably glaze over. Didn’t the founding fathers say something about absolute power and corruption?
http://delong.typepad.com/sdj/2008/09/this-is-how-thi.html
(snip)
one of the odd facts about this crisis is that the elected branches of government have been completely cut out of the response. George W. Bush and Dick Cheney have not, as far as anyone can tell, been steering the ship. According to The Wall Street Journal, Bush was briefed on the rescue after it was in play. And even then, he was only “briefed.” There’s been no effort on the part of the White House to even advance the idea that Bush is an engaged participant who’s actively signing off on these actions, possibly because suggesting his involvement in a crisis of this complexity would cause the stock market to run and hide in a corner.
Congress, too, has been cut totally out of the loop. The AIG bailout — in fact, all of the bailouts — have been conceived entirely without their involvement. Indeed, the Federal Reserve and the Treasury Department have been acting, over the course of this crisis, as if they are the sum total of the government. And that may be the correct approach: Neither the president nor the legislative branch possess the expertise or speed to be involved in the real-time crisis management that Bernanke and Paulson are trying to manage. They could, presumably, reverse decisions after the fact or change the contours of the law, but for now, the ship is being steered by the Chairman of the Federal Reserve, the Treasury Secretary, and an informal working group of Wall Street CEOs and banking powerhouses. And the government, as we normally think of it, has basically accepted their temporary authority. You’ve heard of martial law? We’re currently in a state of market law.
(snip)
i had an exchange with de long a few years back that still might be on his website
he argued with my causation that ‘loans create deposits’
wouldn’t hire him to make coffee until he at least gets his monetary operations right
they don’t teach that at Harvard, apperently, as none of their grads and professors seems to have a clue.
“they don’t teach that at Harvard, apperently, as none of their grads and professors seems to have a clue.”
LOL! I agree with that, with the current crisis, it has been empirical evidence how worthless a harvard MBA is – as icahn said. Now what are all those silly colleges and their professors gonna tell the public who turned out all these clowns?
In 2004 the SEC made an exemption for 5 banks to change capital ratios from 12 to 1 to 40 to 1 leverage to come in line with europe and that Basel stuff, can you guess the 5 banks?
http://securities.stanford.edu/news-archive/2004/20040428_Headline08_Drawbaugh.htm
April 28, 2004
EXCERPT: U.S. market regulators on Wednesday approved new rules that would let some major Wall Street brokerages reduce the amount of money they set aside as net capital, in some cases by as much as 30 percent. In a move in line with bank regulatory changes in Europe, the U.S. Securities and Exchange Commission voted unanimously in an open meeting to approve two optional sets of rules. Under one of them, five big U.S. brokerages are expected to apply soon to be designated as “consolidated supervised entities,” or CSEs. Each application for CSE status will have to be reviewed by the SEC, likely several months from now. Goldman Sachs , Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns have expressed keen interest in CSE status, SEC Market Regulation Director Annette Nazareth told reporters after the meeting. “They are all very well-capitalized firms,” Nazareth said. In line with new capital adequacy standards coming into force soon under Europe’s Basel accords, brokerages granted CSE status would be able to use in-house, risk-measuring computer models to figure how much net capital they need to set aside. Under Basel standards, some institutions could soon be cutting their net capital by as much as 50 percent. But the SEC’s new CSE rule added a $5-billion floor to the Basel model, reducing the likely level of reductions to 20 to 30 percent. The SEC approved a second set of net-capital rules, also voluntary, that would designate an institution as a “supervised investment bank holding company.” But Nazareth said there has been little industry interest expressed in it. SEC Commissioner Paul Atkins said monitoring the sophisticated models used by the brokerages under the CSE rules — and stepping in where net capital falls too low — “is going to present a real management challenge” for the SEC. Since the new CSE rules will apply to the largest brokerages without bank affiliates, SEC Commissioner Harvey Goldschmid said, “If anything goes wrong, it’s going to be an awfully big mess.”
“they don’t teach that at Harvard, apperently, as none of their grads and professors seems to have a clue.”
LOL! I agree with that, with the current crisis, it has been empirical evidence how worthless a harvard MBA is – as icahn said. Now what are all those silly colleges and their professors gonna tell the public who turned out all these clowns?
In 2004 the SEC made an exemption for 5 banks to change capital ratios from 12 to 1 to 40 to 1 leverage to come in line with europe and that Basel stuff, can you guess the 5 banks?
securities.stanford.edu/news-archive/2004/20040428_Headline08_Drawbaugh.htm
April 28, 2004
EXCERPT: U.S. market regulators on Wednesday approved new rules that would let some major Wall Street brokerages reduce the amount of money they set aside as net capital, in some cases by as much as 30 percent. In a move in line with bank regulatory changes in Europe, the U.S. Securities and Exchange Commission voted unanimously in an open meeting to approve two optional sets of rules. Under one of them, five big U.S. brokerages are expected to apply soon to be designated as “consolidated supervised entities,” or CSEs. Each application for CSE status will have to be reviewed by the SEC, likely several months from now. Goldman Sachs , Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns have expressed keen interest in CSE status, SEC Market Regulation Director Annette Nazareth told reporters after the meeting. “They are all very well-capitalized firms,” Nazareth said. In line with new capital adequacy standards coming into force soon under Europe’s Basel accords, brokerages granted CSE status would be able to use in-house, risk-measuring computer models to figure how much net capital they need to set aside. Under Basel standards, some institutions could soon be cutting their net capital by as much as 50 percent. But the SEC’s new CSE rule added a $5-billion floor to the Basel model, reducing the likely level of reductions to 20 to 30 percent. The SEC approved a second set of net-capital rules, also voluntary, that would designate an institution as a “supervised investment bank holding company.” But Nazareth said there has been little industry interest expressed in it. SEC Commissioner Paul Atkins said monitoring the sophisticated models used by the brokerages under the CSE rules — and stepping in where net capital falls too low — “is going to present a real management challenge” for the SEC. Since the new CSE rules will apply to the largest brokerages without bank affiliates, SEC Commissioner Harvey Goldschmid said, “If anything goes wrong, it’s going to be an awfully big mess.”