Tarmo Toikkanen's List: Talous

• Money is a social contract, especially fiat money, and abusing the trust inherent to making that money system work is the gravest of all possible errors. I am not exaggerating here.
• Thus Geithner reports to a board that is composed of people who are not only under his purview but would also benefit from any potential bailouts. The structure of the New York Fed’s board bears more than a passing resemblance to that of the New York Stock Exchange in the bad old days, when member firms, regulated by the N.Y.S.E., were heavily represented on its board.
• Public policy appears to be in the grip of a very powerful and self-interested cabal that seemingly has no concern for the future or the health of this country and does not even see the need to be cautious enough to mask its efforts.
• The fact that the bailout trajectory did not waver in the slightest while passing from the Bush to the Obama administration indicates that the bailout is not a function of who’s in political power, it is a function of something else, of some other power.

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• The tremors began in Beijing, where a essay from the governor of the People's Bank of China seemed to favor the creation of an IMF currency to replace the U.S. dollar as the world's reserve.
• In Europe, the rotating president of the European Union, outgoing Czech Prime Minister Mirek Topolanek, characterized America's plan to combat the widening global recession as the "road to hell."
• Washington is telling us that our problems result from a lack of consumer spending. Therefore, the solution is for government spending to pick up the slack. However, if Americans are too broke to spend, then how can our government spend for us? The only money they have is taken from us through taxation. To postpone immediate tax hikes (adding interest for good measure), Washington plans to borrow more from abroad. However, if our foreign creditors refuse to pony up, much of the money will simply be printed instead.
• To solve our problems we must first come to terms with their source. That is what the voices from abroad are telling us. We borrowed and spent ourselves to the brink of bankruptcy, and now we must save and produce ourselves back to prosperity.
• Of course, this simple solution is rejected by Keynesian economists who insist that we must keep spending. The "paradox of thrift," as they call it, holds that if we stop spending the recession will worsen. While this is true, it is hardly a paradox. As they say in the fitness game, "no pain, no gain." No one said this was going to be easy, but the only way to rebuild a viable economy is to let the phony one collapse. If we follow the Keynesians, the fault lines will continue to widen until our wealth, our lifestyle, our very ability to prosper is swallowed up. The calls from abroad will only get louder until we face this ugly truth.

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• When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books.

• What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.

   
• Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down
• "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.
• That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.
• No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.

  • And what's the global impact of the US "wasting" all these trillions? Will it help other countries to compete economically, or will US collapse and bring down everything else?
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• According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.
• Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.
• It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts

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• The command-and-control structure of the Soviet economy largely decoupled the necessities of daily life from any element of market psychology, associating them instead with physical flows of energy and physical access to resources. Thus situation, as I argue in my forthcoming book, Reinventing Collapse, allowed the Soviet population to inadvertently achieve a greater level of collapse-preparedness than is currently possible in the United States.

• Stages of Collapse

   

  Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

   

  Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

   

  Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

   

  Stage 4: Social collapse. Faith that "your people will take care of you" is lost. As local social institutions, be they charities, community leaders, or other groups that rush in to fill the power vacuum, run out of resources or fail through internal conflict.

   

  Stage 5: Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for "kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity" (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes "May you die today so that I die tomorrow" (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

• Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.
• “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.”
• He still didn’t fully understand how the apparatus worked, but he knew that Wall Street had built a doomsday machine.
• “That Wall Street has gone down because of this is justice,” he says. “They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience.”
• The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

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• Continued from "The End of the Financial World As We Know It"
• Had Mr. Paulson executed his initial plan, and bought Citigroup’s pile of troubled assets at market prices, there would have been a limit to our exposure, as the money would have counted against the $700 billion Mr. Paulson had been given to dispense. Instead, he in effect granted himself the power to dispense unlimited sums of money without Congressional oversight.

• If a failing firm is deemed “too big” for that honor, then it should be explicitly nationalized, both to limit its effect on other firms and to protect the guts of the system. Its shareholders should be wiped out, and its management replaced. Its valuable parts should be sold off as functioning businesses to the highest bidders — perhaps to some bank that was not swept up in the credit bubble. The rest should be liquidated, in calm markets. Do this and, for everyone except the firms that invented the mess, the pain will likely subside.
• Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing: 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”
• If we are going to spend trillions of dollars of taxpayer money, it makes more sense to focus less on the failed institutions at the top of the financial system and more on the individuals at the bottom. Instead of buying dodgy assets and guaranteeing deals that should never have been made in the first place, we should use our money to A) repair the social safety net, now badly rent in ways that cause perfectly rational people to be terrified; and B) transform the bailout of the banks into a rescue of homeowners.
• Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices
• End the official status of the rating agencies
• Regulate credit-default swaps
• Impose new capital requirements on banks
• Another good solution to the too-big-to-fail problem is to break up any institution that becomes too big to fail.
• Close the revolving door between the S.E.C. and Wall Street
• But keep the door open the other way
• The funny thing is, there’s nothing all that radical about most of these changes. A disinterested person would probably wonder why many of them had not been made long ago. A committee of people whose financial interests are somehow bound up with Wall Street is a different matter.

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• OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense.
• But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
• Over the last 20 years American financial institutions have taken on more and more risk, with the blessing of regulators, with hardly a word from the rating agencies, which, incidentally, are paid by the issuers of the bonds they rate.
• These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.
• The S.E.C. now promises modest new measures to contain the damage that the rating agencies can do — measures that fail to address the central problem: that the raters are paid by the issuers.
• Created to protect investors from financial predators, the commission has somehow evolved into a mechanism for protecting financial predators with political clout from investors. (The task it has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse.)
• Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.
• 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place.
• In the past year there have been at least seven different bailouts, and six different strategies. And none of them seem to have pleased anyone except a handful of financiers.
• In the middle of all this, Treasury Secretary Henry M. Paulson Jr. persuaded Congress that he needed $700 billion to buy distressed assets from banks — telling the senators and representatives that if they didn’t give him the money the stock market would collapse. Once handed the money, he abandoned his promised strategy, and instead of buying assets at market prices, began to overpay for preferred stocks in the banks themselves. Which is to say that he essentially began giving away billions of dollars to Citigroup, Morgan Stanley, Goldman Sachs and a few others unnaturally selected for survival. The stock market fell anyway.

• Continued at "How to Repair a Broken Financial World."

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• "We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home." — President George W. Bush, Oct. 15, 2002
• Eight years after arriving in Washington vowing to spread the dream of homeownership, Bush is leaving office, as he himself said recently, "faced with the prospect of a global meltdown" with roots in the housing sector he so ardently championed.

• But the story of how we got here is partly one of Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

   
• As early as 2006, top advisers to Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Bush was still calling it a "rough patch."
• "The Bush administration took a lot of pride that homeownership had reached historic highs," Snow said in an interview. "But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."

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• It’s time to try again to correct the educationally credentialed but innumerate experts (innumeracy is the mathematical equivalent of illiteracy) who say that growth is inevitable. They fail to recognize that after maturity, continued growth is either obesity or cancer.
• The arithmetic is clear. Steady growth produces impossibly large numbers in modest periods of time. SO GROWTH WILL STOP.
• We must remember that “Smart Growth” and “Dumb Growth” both destroy the environment, but “Smart Growth” destroys the environment with good taste. Frosty Woolridge quotes a writer who points out the stark truth, “Growth is not the answer; it’s the problem.”
• Predictably, this will produce more well-to-do people, more homeless people, more employed people, more unemployed people, higher average salaries, more people living below the poverty line, more traffic congestion, higher parking fees, more school crowding, more crime, more unhappy neighborhoods, more expensive government, more tax revenue, higher taxes, more fiscal problems for state and local governments, more tax limitation measures, more air and water pollution, higher utility costs, less reliable utility service, less democracy, more congestion pricing on busy city streets and crowded highways, more unmanageable costs of maintaining public infrastructures, higher food costs and more destruction of the environment.
• The arithmetic of population, resources and growth is inexorable. The consequences of the arithmetic can’t be avoided by believing that “Wishing will make it so.” (Walt Disney’s First Law)

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• Tuesday’s 75 basis point rate cut by the Federal Reserve is indeed historic. So far every rate cut over the past 16 months has done nothing to improve the real economy, and it has done very little to improve the forged (credit) economy either. So why is it all of a sudden that many in the media are claiming that this ‘is the one that will do it’? Well maybe because there is nothing left in Ben Bernanke’s arsenal, that’s why.

   
• Simply put… the excess credit growth must be allowed to deflate without intervention and prices must be allowed to adjust to the real economy (not the forged one). The desperate measures to keep credit growth going, at any cost, are to prevent you from seeing the economy without its mask.
• The US has now set the stage for a zero growth economy not unlike Japan’s ‘lost decade’… or worse. 

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• Bernanke is trying out a gigantic academic experiment to see if past excesses and malinvestments caused by interest rates set too low and money made too cheap can be fixed by setting interest rates even lower and money even cheaper.

•  I see this path as fraught with risks and I would have preferred that we wring out the bad debts as quickly as possible.    

   

   Instead we get this collection of policy failures guaranteed to either make this whole thing last a lot longer than it otherwise would, make it all worse by compounding past mistakes, or both.
• This Negative Interest Rate Policy, or NIRP, sets us apart from even the Japanese whom, to the best of my knowledge, never attempted this.
• The Fed is going to print money out of thin air as fast as they possibly can until we get back to a healthy level of "growth", whatever that means.
• Every single one of those statements signals the most aggressive monetary printing ever considered or undertaken by the US Federal reserve.

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•  Vääristä asenteista ja arvoista on kysymys esimerkiksi silloin, kun yrityksen johtajat ja työntekijät ottavat yrityksen lukuun tietoisesti riskejä, jotka lyhyellä aikavälillä ehkä hyödyttävät sekä yritystä että heitä itseään, mutta ajan oloon aiheuttavat tappioita, jotka jäävät yrityksen yksin kannettaviksi. 

   

•  Opportunistinen riskinotto rikastutti viime vuosina monet johtajat upporikkaiksi ja kuplan lopulta puhjettua köyhdytti heidän päämiehensä eli työnantajayritykset ja niiden omistajat jopa konkurssiin asti. 

   

• "The banking system, the way we have it, is a monstrous giant built on feet of clay. And if that topples, we're gone."

• Maailmantalouden myllerryksiltä ei ole säästynyt edes vakaa ja vauras naapurimaamme Ruotsi. Pikemminkin Ruotsin talouden alamäki on ollut jyrkempää kuin Pohjanlahden tällä puolen.

• Uusliberalismilla tarkoitan pyrkimystä minimoida julkisen vallan rooli talous- ja yhteiskunnallisessa elämässä niin globaalisti kuin valtioissakin.
• Kriisin pitäisi olla mahdottomuus myös, jos uusliberaalien oletukset markkinoiden kyvystä itsesäätelyyn pitäisivät paikkansa.
• Liikanen väläytteli lääkkeeksi palkkamalttia, joka on keskeinen väline uusliberaalissa tulojen uusjaossa – suora tulonsiirto keskiluokalta rikkaille.
• Inflaation hillintä on ajanut suomalaisessa politiikassa pitkään ansiokehityksen ohi ja tuonut samalla panoksensa kotitalouksien velkaantumiseen. Ihmiset ottavat ja saavat edelleen liian väljästi esimerkiksi kulutusluottoja.
• Finanssikriisi kertoo uusliberaalin mallin epäonnistumisesta. Keskeisin piirre kriisissä on, että taloudellinen riski on ulkoistettu rahoitusmarkkinoilta kotitalouksiin, joiden velkaantumiseen talouskasvu on perustunut Yhdysvalloissa ja suppeammin myös Suomessa.
• Vaikka uusliberaali malli on osoittautunut epäonnistuneeksi, uusliberaalit pyrkivät hyödyntämään jopa mallinsa kriisin siten, että julkisen vallan rooli kapenee yhteiskunnassa. Liikasen esiintulo on oire tästä, vaikkei hänellä muodollisesti juuri valtaa olekaan.
• pankkiirien pelastusoperaatioon ei kannata tuhlata veronmaksajien rahaa, vaan valtion tulisi panna rahaa suoraan asuntolainoihin, jotta ihmiset voisivat pitää kotinsa turbulenssista huolimatta.
• On selvää, ettei nykyinen rahoitusjärjestelmä ole enää pitkään aikaan palvellut reaalitalouden tarpeita, vaan pikemminkin reaalitalous on palvellut finanssisektorin voitontavoittelua.

•  Tärkeintä on, ettemme lähde hoitamaan finanssikriisin oireita samoilla keinoilla, joilla kriisi on Yhdysvaltoihin synnytetty, toisin sanoen luottaen markkinoiden itsesäätelyn kaikkivoipuuteen. Näin Suomen uusliberaali eliitti pyrkii toimimaan.  

   

   Kansalaisten velvollisuus on pysyä valveilla, kyseenalaistaa ja vaatia aktiivista, globaalia talouspolitiikkaa.

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• BKT-ajattelusta johtuen emme huomaa kuinka kansantuotteen kasvattamisesta vientituloilla aiheutuu suurempaa haittaa kuin hyötyä. Esimerkkinä hän käyttää Kiinan ympäristön tuhoutumista länsimaiden kulutustavaroiden tuottamiseksi. Kasvu ei enään paranna hyvinvointia vaan heikentää sitä.
• Nobelin talouspalkinnon saanut Robert Solow pitää kapitalistista nolla-kasvuyhteiskuntaa mahdollisena, “mikäli länsimaalaiset alkavat tulevien vuosikymmenien aikana ajatella, että kasvusta on enemmän haittaa kuin hyötyä ja sen vuoksi tavoittelevat onnellisuutta toisin kuin nykyään.”

• Mikäli haluamme välttää täyden katastrofin, meidän tulee hyvin nopeasti keksiä järjestelmä jolla jaamme tuon luonnon vuotuisen uudistuskyvyn keskenämme. Ellemme keksi menetelmää niin se löytyy itsestään todennäköisesti sillä keinolla jolla valtiot nykyisinkin sopivat riitatilanteet.

   
• Miljardin euron kysymys: kuinka väistämättömästä muutoksesta tehdään mahdollisimman kivuton? Hyväksyisivätkö ihmiset perustarpeiden ylittävän kulutuksen rajoittamisen. Leikkaus ei välttämättä olisi niin kivulias kuin kuvitellaan. Lämmittäminen ja energiantuotanto tulisi ajatella uusiksi samoin liikkuminen ja ruokavalio. Työaikoja kannattaisi lyhentää liian palkan ja kuluttamisen välttämiseksi. Lisääntyneellä vapaa-ajalla voisi kasvattaa onnellisuutta itseään kehittämällä ja läheisten kanssa oleskelemalla. Niin ja Hulluja Päiviä ei järjestettäisi, mutta sehän olisi vain helpotus.

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