patrick.net

tatupu70 says

The bank bailouts sucked, but if you're going to argue against them, at least have some logic. How can it be moral hazard when bank owners lost 90% of their investment? You think that owners sat back and said--"yes, I'm OK with losing 99.9% of my money as long as I'll have the chance to take out loans for billions of dollars that I'll have to pay back and avoid going bankrupt?"

WTF are you talking about the bank owners. Banks are corporations. The owners are the stockholders. They should have lost 100% along with the bondholders.

bob2356 says

WTF are you talking about the bank owners. Banks are corporations. The owners are the stockholders. They should have lost 100% along with the bondholders.

You beat me to it. That is the correct answer to the tatman.

bob2356 says

WTF are you talking about the bank owners. Banks are corporations. The owners are the stockholders. They should have lost 100% along with the bondholders.

Thanks Bob--I'm well aware that the owners of a public corporation are the stockholders. And I'm also aware that the board of directors are supposed to represent the owners' interest in maximizing shareholder value. Part of that duty is setting up compensation structure so that the incentives for executives (and all employees, really) align with the overall goals of the corporation. So, if the executives compensation structure was set up to reward short term actions that hurt long term value of the corporation--it's NOT moral hazard, it's poor compensation structure.

darlag says

You beat me to it. That is the correct answer to the tatman

See my response above--I don't believe it is. Again--I'm not arguing that the bailouts were good or necessary. They just don't represent moral hazard.

tatupu70 says

I'm also aware that the board of directors are supposed to represent the owners' interest in maximizing shareholder value. Part of that duty is setting up compensation structure so that the incentives for executives (and all employees, really) align with the overall goals of the corporation. So, if the executives compensation structure was set up to reward short term actions that hurt long term value of the corporation--it's NOT moral hazard, it's poor compensation structure.

You have far too much faith in purity of purpose and far too little cynicism about the back scratching, inbred, old boys club that is the true state of boards of directors. If the directors were truly concerned about executive conpemsation they would let the shareholders vote on it. Instead they sit on each others compensation commitees and scratch each others back. Executive pay very rarely reflects the return to the investors. Look at all the ceo's making huge compensation for losing money.

bob2356 says

You have far too much faith in purity of purpose and far too little cynicism about the back scratching, inbred, old boys club that is the true state of boards of directors. If the directors were truly concerned about executive conpemsation they would let the shareholders vote on it. Instead they sit on each others compensation commitees and scratch each others back. Executive pay very rarely reflects the return to the investors. Look at all the ceo's making huge compensation for losing money.

Yep-but I think I lost my faith a long time ago. I just wish the outrage would be focused on the right problem. If folks like Mell and Indigenous really want to find cronyism--start at the boardroom. Individual stockholders (average Joes like me with 401Ks) are getting raped each and every day--and it sure as hell isn't the Fed doing it. It's the BODs lavishing enormous bonuses and stock options on each other in an incestuous fashion. Those are profits that should be going to the stockholders... If someone wants to fix cronyism-start there!

tatupu70 says

If folks like Mell and Indigenous really want to find cronyism--start at the boardroom. Individual stockholders (average Joes like me with 401Ks) are getting raped each and every day--and it sure as hell isn't the Fed doing it. It's the BODs lavishing enormous bonuses and stock options on each other in an incestuous fashion. Those are profits that should be going to the stockholders... If someone wants to fix cronyism-start there!

I don't know, I think that some of the cronyism leaks over into politics. The revolving door between government and corporations thing. People seem to forget the fed is really just a bunch of banks. The fed stock is all owned by banks and the banks elect the feds officers. I think there might be just a teeny bit of cronyism in that arrangement.

Then again maybe not, after all campaign contributions are merely corporate expressions of free speech without any influence at all on policy.

So change your 401k into self directed and get out of equities if you really feel you are being raped. I did it years ago. I'm only a little ahead of where I would have been if I had just let everything ride in equities and bonds through the crash and rebound, but without the worries. You are not powerless, you just have to be creative.

bob2356 says

I don't know, I think that some of the cronyism leaks over into politics. The revolving door between government and corporations thing. People seem to forget the fed is really just a bunch of banks. The fed stock is all owned by banks and the banks elect the feds officers. I think there might be just a teeny bit of cronyism in that arrangement.

Perhaps. There is probably some regulatory capture type effects that can't be avoided. IMO, campaign finance, and corporate reform are much bigger problems.

bob2356 says

So change your 401k into self directed and get out of equities if you really feel you are being raped. I did it years ago. I'm only a little ahead of where I would have been if I had just let everything ride in equities and bonds through the crash and rebound, but without the worries. You are not powerless, you just have to be creative.

True-but even with the ass reaming, stocks still perform better over the long term than any other investment that the average Joe can find. Just curious--where did you invest that was lower risk (assuming lower risk since you weren't worried)

tatupu70 says

Yep-but I think I lost my faith a long time ago. I just wish the outrage would be focused on the right problem. If folks like Mell and Indigenous really want to find cronyism--start at the boardroom. Individual stockholders (average Joes like me with 401Ks) are getting raped each and every day--and it sure as hell isn't the Fed doing it. It's the BODs lavishing enormous bonuses and stock options on each other in an incestuous fashion. Those are profits that should be going to the stockholders... If someone wants to fix cronyism-start there!

The Fed is enabling them to play this game to infinity! The bankers are simply middle-men who don't care if the place burns to the ground because they will either be bailed out or find a new host to latch onto for their man-in-the-middle wealth extraction scheme. Sure quite a lot of BODs - not just in the financial industry - have become super comfortable with that climate, but they have not only the Fed but also the public as their enablers. I do not touch any bank or real estate stocks on the long side because I don't want to further enable them. And if I hold a sizable amount of shares of a corporation where the BOD stinks I have no problem engaging with others into shareholder activism and pressing for changes. But unless the public demands a stop to taxpayer bailouts, cheap credit, fractional leveraged lending, and a start of prosecutions of fraud, and instantly walks away from any consumerism with companies/sectors they deem fraudulent, until then you don't see the mass unemployment in the FIRE sector necessary for a paradigm shift. I scratch my head when people on here brag about their returns from real estate and/or banking investments but then turn on the next wage slave - who had the audacity to call for lower taxes - with insult and mockery and claim they are responsible for the tough financial climate of the middle-class. This hypocrisy will not stand ;)

Sactly, but mutts being mutts...

mell says

The Fed is enabling them to play this game to infinity!

wtf are you talking about? I'm not even talking about bankers-I'm talking about publicly run companies, in general. You are a one trick pony and because of your obsession are blind to the real problems in this country.

mell says

And if I hold a sizable amount of shares of a corporation where the BOD stinks I have no problem engaging with others into shareholder activism and pressing for changes.

lol--how did that work out for you?? Unless your name is Buffet or you run a huge mutual fund, I'm pretty sure you got exactly nowhere.

mell says

I scratch my head when people on here brag about their returns from real estate and/or banking investments but then turn on the next wage slave - who had the audacity to call for lower taxes - with insult and mockery and claim they are responsible for the tough financial climate of the middle-class. This hypocrisy will not stand ;)

Again it's because you don't understand the root cause of this country's problems.

tatupu70 says

True-but even with the ass reaming, stocks still perform better over the long term than any other investment that the average Joe can find. Just curious--where did you invest that was lower risk (assuming lower risk since you weren't worried)

I don't consider the US equities market lower risk than anything. It's a gamblers market in my mind. The days of buying stocks on solid fundamentals with a good dividend return are as dead as ma bell;s rotary phone. That being said I'm really looking at the Russian stock market hard. It's just been crushed beyond belief. There are companies with huge amounts of hard assets like oil and minerals that are now trading at a fraction of the value of the assets. It's just nuts. Apple is worth more than the entire Russian market.

To answer you question, I've gotten some rental units domestic and overseas, done some private financing, and have picked up some hoa liens. Since I don't look at appreciation as part of rental unit returns there is no risk in my mind and I get a solid 6-8% return professionally managed and never look at the price of the unit again. I've also done private financing to some people having trouble qualifying for commercial loans in the apartment complex business at 10%. Since the value of the apartment complexes (complexi?) exceeds the value of the loan it's pretty safe. Worst case scenario I'll be running apartments. I recently got into buying hoa liens in Vegas then renting the units out till the banks got their act together and foreclosed. That can take years. Since NV is a superpriority lien state I will get my money back when the bank foreclosure finally happens for up to 9 months of hoa fees and collect rent the whole time minus any fix up. This cozy arrangement has turned upside down now since the NV supreme court ruled in Nov that hoa foreclosures can extinguish all other lienholders including the primary. That shocked the shit out of me (and the banks who should have NOT stirred up that hornets nest, very bad move). HOA liens were selling 10-15 cents on the dollar (since the bank was going to get them back some day) are now selling at 90 cents on the dollar. I'll have to see if I can really get clear title to any of the properties or not. I would have preferred to just keep quietly collecting rent under the radar.

Remember all of this activity is in the IRA. With self directed you can purchase any valid financial instrument as long as it's third party (no you can't sell you house to the IRA and pay rent). Flip houses, private mortgages, overseas investments, whatever. There are no taxes, no tax forms to file, nothing. You just pay income tax at withdrawal. You are also free to screw up royally if you are not careful. Bonus points, when the government requires IRA's must invest a percentage in tbills (no I'm not paranoid, I really think it will happen at some point) you will outside the loop.

bob2356 says

That being said I'm really looking at the Russian stock market hard.

Index fund?

indigenous says

bob2356 says

That being said I'm really looking at the Russian stock market hard.

Index fund?

You can buy etf's (RBL,RSX, etc) or adr's (Gazrpom AOA, etc) directly on the us market. Otherwise you can use a US broker with access to RTS (Russian Trading System) or use a russian broker directly. FINAM is the largest russian broker. RTS has an english language version to let you research stocks. The world bank russian page has a good section on the economics inside russia. http://www.worldbank.org/en/country/russia

You planning to invest? I'm personally waiting to see where oil bottoms out at and then look at which companies over there survive.

Thanks Bob,

I have seen Steen Jacobsen say the same thing about Russia, he says wait until maybe the middle of next year IIRC.

Generally I think the stock market has to adjust and that would be the time to buy in the US. I agree on waiting for the bottom of oil, Darlag says 15-30 IIRC?

Have you looked at the HSPX?

Darlag, your analogy to Jaguar is specious. Policy makers are supposed to infuse into the economy more money. Yes, they are trying to do it by pushing private debt - because they choose to, not because they have to.

Yes, there is a limit on the amount of private debt they can push.

No, there is no limit on the money supply they can create.

The government can spend $10 trillions tomorrow, if they choose to. Do you think there won't be a lot of inflation in that case?

The deflation issue you keep talking about is not a problem that can't be solved. It's a fake problem that is carefully maintained in place, to keep the current system like it is.

The current system works VERY well for some people.

Heraclitusstudent says

The current system works VERY well for some people.

At the expense of the rest...

Heraclitusstudent says

Policy makers are supposed to infuse into the economy more money.

Heraclitusstudent says

The deflation issue you keep talking about is not a problem that can't be solved. It's a fake problem that is carefully maintained in place, to keep the current system like it is.

I disagree with both of these assertions. Credit expansion has never been an acceptable means of controlling the economy to Austrian Schoolers.

Two Ludwig von Mises quotes come to mind:

"What governments call international monetary cooperation is
concerted action for the sake of credit expansion."

"No one should expect that any logical argument or any experience
could ever shake the almost religious fervor of those who believe
in salvation through spending and credit expansion."

darlag says

Credit expansion has never been an acceptable means of controlling the economy to Austrian Schoolers.

It doesn't matter whether you agree with what they are doing or not.
For that matter, I never even said that I personally agree with it.

But if your purpose was to show they can't do it, you failed.

Again, forget "credit expansion". This is just the mean to an end: money supply, that they evidently can achieve, by other ways if necessary, regardless of what you are saying.

Heraclitusstudent says

But if your purpose was to show they can't do it, you failed.

Again, forget "credit expansion". This is just the mean to an end: money supply, that they evidently can achieve, by other ways if necessary, regardless of what you are saying.

Your assumption is that "they" have been successful, so far, in maintaining economic stability through credit expansion/money printing or whatever you would prefer to call it.

I make no such concession. If a car is roaring toward me at 60 mph and I assert I can stop the car with my bare hands, I can not say "so far I have been successful" when it is still 10 feet in front of me. Once contact is made and I either stop it or get run down, then a judgement can be rendered.

As of now, the car is still bearing down on those that "claim" they can stop it. We will see.

But, as regards credit expansion, I am reminded of yet another Mises quote:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Obviously, the choice of the powers that be is to continue expanding rather than abandon the effort.

I'll put my money on Mises.

darlag says

whatever you would prefer to call it.

Counterfeiting

To the rest I also think that one can become to negative, IOW just because something is inevitable does not mean it is imminent.

With the like of the Fed on the watch they will put as far in the future as possible.

Only thing is that this is going to happen at the same time around the world.

darlag says

I disagree with both of these assertions. Credit expansion has never been an acceptable means of controlling the economy to Austrian Schoolers.

There is a third policy lever available, besides the two of public debt and private debt expansion.

And that's "helicopter money" to the masses, the Weimar and Zimbabwe-style distributions of a scale that debase.

Thus far the US and Japan haven't pulled this lever. But they could if they chose to.

Austrianism is just a scaffold of argument erected in defense of great wealth so what they "believe" is neither here nor there. Who gives a shit.

I'll put my money on Mises.

Sucker born every minute, unless you're a millionaire, then golf claps all around.

darlag says

But, as regards credit expansion, I am reminded of yet another Mises quote:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Obviously, the choice of the powers that be is to continue expanding rather than abandon the effort.

I'll put my money on Mises.

Yep. This should be self-evident as it is simple math which just is.

Bellingham Bill says

There is a third policy lever available, besides the two of public debt and private debt expansion.

There are no levers available, only men behind the curtain. You cannot print yourself to prosperity. I am astonished that you continue to make claims that ZIRP/neg. rates will hurt the rich while bashing Austrianism as a tool for the rich when all the evidence clearly points to the contrary. And by the time a currency has been trashed full-weimar/zimbabwe/venezuela style you can bet that it is the rich (incl. the politicans) who have brought all their assets into safe havens far outside of the reach of the government and even farther outside of the denomination of the failing fiat - while the masses suffer.

Bellingham Bill says

And that's "helicopter money" to the masses, the Weimar and Zimbabwe-style distributions of a scale that debase.

Bill, Wiemar and Zimbabwe are not good examples of helicopter money. Both of those examples are inflationary crisis, not deflationary.

Helicopter money was a term coined by Milton Friedman to conjure a picture of central banks giving money directly to the public in times of "deflationary" stress. It was Friedman who first suggested that a monetary authority can escape or minimize the effects of poor monetary liquidity by bypassing financial intermediaries (banks) and giving money directly to consumers or businesses. He called it “helicopter money,” creating the image of a central banker dropping money directly onto businesses and consumers in times of economic stress. Bernanke, in a famous 2002 speech, (in which he also claimed deflation couldn’t happen in America) referred positively to Friedman’s concept as a viable one for fighting deflation. That speech is where he got the nickname “Helicopter Ben”.

But when the time came that the Fed’s helicopters were actually deployed, the Federal Reserve and the U.S. Treasury, instead of “bypassing the financial intermediaries,” gave the money directly to the banks and financial institutions leading to accusations of bailing out their friends instead of the consumers. It was all a trick and a ruse, of course, under the guise of saving the financial system. The Fed understood full well that, by law, financial institutions can not simply give money to distressed businesses and consumers. Banks have a fiduciary responsibility to their stakeholders to require borrowers to be of worthy credit. Consequently, the vast majority of companies and individuals who actually needed the financial support from Friedman’s helicopters, never received it because the banks and financial institutions could not legally give it to them and thus were lawfully protected to hoard the low interest rate capital for themselves as we saw them do in 2008 and 2009 and continue to do today… certainly not what Friedman had in mind.

Bernanke's 2002 speech: http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

darlag says

our assumption is that "they" have been successful, so far, in maintaining economic stability through credit expansion/money printing or whatever you would prefer to call it.

I make no such concession. If a car is roaring toward me at 60 mph and I assert I can stop the car with my bare hands, I can not say "so far I have been successful" when it is still 10 feet in front of me.

No. You're the one who made a statement: that they can't grow the money supply as much as they choose to.

All I'm saying is that you failed to prove it.

You failed to prove that it's impossible to print 10 trillions tomorrow, and an other 10 trillions the day after that, etc....

I'm not saying they should. I'm not even saying it will save the current system.

All I'm saying is YOU FAILED TO SHOW IT'S NOT POSSIBLE.

darlag says

But, as regards credit expansion, I am reminded of yet another Mises quote:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion.

You are confusing too many things:
- first credit expansion and money supply expansion are not the same thing. You CAN add money in the economy without lending it.
- second what is a "boom brought about by credit expansion"? If you have normal growth, and wages grow with credit, so that debts as a percent of revenues don't grow, then it follows such a "boom" can go on forever, and so can the credit expansion that goes with it (at least it is not limited by credit).

darlag says

But when the time came that the Fed’s helicopters were actually deployed, the Federal Reserve and the U.S. Treasury, instead of “bypassing the financial intermediaries,” gave the money directly to the banks and financial institutions leading to accusations of bailing out their friends instead of the consumers.

These guys are smart enough that they DID NOT give money directly to banks. What they did was much more subtle.

They gave the money to the government, which spent it, giving it to people and businesses who are not banks. At least this is the story.

Inflating assets was the key to save the banks balance sheets.

darlag says

Wiemar and Zimbabwe are not good examples of helicopter money

yes they are. The monetary authorities in these cases were literally printing money and handing it out to the general public.

In the Weimar case to replace lost wages due to labor stoppage campaigns and associated dislocations with reparations with France.

With Zimbabwe to pay government workers, soldiers etc. to keep their corrupt economy from imploding.

Ie:

"He called it “helicopter money,” creating the image of a central banker dropping money directly onto businesses and consumers in times of economic stress"

from your own quote.

Heraclitusstudent says

Inflating assets was the key to save the banks balance sheets.

red is corporate and household debt

blue is GDP

the gap is the debt overhang

$5 or $6T worth of extra overhang in 2007, compared to 1990s debt ratios

Bellingham Bill says

the gap is the debt overhang

$5 or $6T worth of extra overhang in 2007, compared to 1990s debt ratios

That there is a gap is obvious. That is leverage. Note on the graph we went through a period of rapid shrinking of this gap. Nothing impossible there. And this happened without deflation.

If the point is that, sooner or later, deleveraging will happen, I fully agree with this.

If the point is that this implies deflation and authorities have no choice in the matter, then I disagree.

Deleveraging is a matter of real economy. It can be forced by inflation, and happen while the economy is growing, at least nominally growing.

Heraclitusstudent says

- first credit expansion and money supply expansion are not the same thing.

Sure they are. Why do you think the Fed opted to stop reporting M3, the combined value of credit and money? To determine the monetary valuation of an economy, both must be combined in the aggregate. When the Fed began to pour credit into housing market in 2003 you can see a huge spike in M3 which they had to eventually stop reporting in 2006 because it was going to get so out of control. As this chart indicates, M3 eventually exceeded 18% a year before the bubble eventually, predictably burst.

How can you guys simply ignore this stuff. It's so obvious to see for those that look.

?hl=1

darlag says

Heraclitusstudent says

- first credit expansion and money supply expansion are not the same thing.

Sure they are. Why do you think the Fed opted to stop reporting M3, the combined value of credit and money? To determine the monetary valuation of an economy, both must be combined in the aggregate. When the Fed began to pour credit into housing market in 2003 you can see a huge spike in M3

You start by "Sure they are" and then proceed to talk of something else. There are several measures of money supply, and which one you use, and how it evolves, is irrelevant to the point I made.

How much is M3 now? $20 trillions? Do you think they couldn't print and distribute $20 trillions tomorrow if they chose to? If not then prove it.

Bellingham Bill says

yes they are. The monetary authorities in these cases were literally printing money and handing it out to the general public.

This is not helicopter money... geeez. That is inflating the currency supply in an effort to debase it. In a deflationary crisis, which is what Friedman was addressing, you don't inflate the money supply to address a liquidity issue. You can hand out cash, offer tax credits, jubilee loans, etc., anything to reduce the amount of debt (credit) in the system. But you don't debase your currency. That would be completely counter-productive to the aim of the process.

Heraclitusstudent says

You start by "Sure they are" and then proceed to talk of something else. There are several measures of money supply, and which one you use, and how it evolves, is irrelevant to the point I made.

M1, M2 and M3 - that's all there is. But the Fed won't report M3 anymore, they're too embarrassed. And don't say I forgot MZM - that's just a joke.

Here, maybe this will help you...

http://www.globaldeflationnews.com/inflation-vs-deflation-part-2why-years-of-federal-deficit-spending-has-doomed-a-once-great-nation-and-much-of-the-rest-of-the-world/

The M3 is around 72 trillion?

Heraclitusstudent says

Do you think they couldn't print and distribute $20 trillions tomorrow if they chose to? If not then prove it.

It's not a matter of can or can't -- they won't. It would destroy the credibility of the most sovereign of the sovereign currencies - economic suicide. That's a ridiculous assertion/assumption.

On a lighter note - Happy New Year!
I'm off to party the new year into existence.

darlag says

It's not matter of can or can't

Ah... now changing the thesis from can't to won't.

Happy new year!

darlag says

This is not helicopter money... geeez. That is inflating the currency supply in an effort to debase it. In a deflationary crisis, which is what Friedman was addressing, you don't inflate the money supply to address a liquidity issue. You can hand out cash, offer tax credits, jubilee loans, etc., anything to reduce the amount of debt (credit) in the system. But you don't debase your currency. That would be completely counter-productive to the aim of the process.

Why would it be counter productive? Provided the new money is not lent but given to people who spend it. Spent by the government. It means business. It means people get a pay check. It means people pay off their debts. Inflation means the existing debt stock is deflated without any disruption. It is absolutely a productive way to overwhelm a debt problem.

And it absolutely shows deflation is not the risk here.

The main risk is to end-up with a poor real economy, like Zimbabwe did, because the spending decisions will stink.

Heraclitusstudent says

pent by the government. It means business. It means people get a pay check.

no no money given to the government disappears into a bonfire, never to be seen again

Bellingham Bill says

Heraclitusstudent says

pent by the government. It means business. It means people get a pay check.

no no money given to the government disappears into a bonfire, never to be seen again

http://www.washingtonpost.com/world/luxurious-presidential-house-draws-mexican-press-scrutiny/2014/11/09/33bba1ee-65fd-11e4-ab86-46000e1d0035_story.html

It may not "disappear" but some do benefit disproportionately...

dublin hillz says

It may not "disappear" but some do benefit disproportionately...

Not the least of which are public employees.