patrick.net

Business cycles:

I've been wondering whether the real reason for boom-and-bust cycles is how interest on debt is defined in our financial system, namely as an exponential function of time.

Basically, one needs a "reset" once in a while to avoid debt growing exponentially.

Notice how the function of the central bank is to suppress the interest rates on deposits when the bust occurs, so that the savers are screwed and the banks get extra profit margin to offset losses on bad loans (which are reset) more quickly.

Government actions cause new opportunities and spinoffs, which grow free markets.

History is full of examples where government involvement in the markets caused malinvestments. Through manipulation of interest rates, subsidies, entitlements, restrictions etc., government causes mis-allocation of resources. They believe they know better than the free market, but this is both naive thinking and has been shown to fail time and time again.

But let's look at the other side of your argument... why do you believe we need government direction in order to be innovative?

While it is true that government has had it's hands in many innovative endeavors, claiming that government was necessary or is good for innovation based on this is like claiming that Hilter was good for nuclear research.

Capitalism recognizes that all innovation is based on the individuals ability to think, choose and act free of coercion and strives to protect these freedoms. When government becomes involved, the freedom of choice is compromised and therefore so too is innovation. If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise. To think this is beneficial would be to assume that the culmination of judgments of market participants is inferior to that of a handful of bureaucrats... I think not and history gives multitude of examples that support this view.

>>If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise.

For example, accepting 0.25% interest in their savings account?

Banking is the ultimate "heads we win, tails you lose" business.

Banking is the ultimate “heads we win, tails you lose” business.

How do we join?

You could buy some Citibank today, it appears to be trading at -35% relative to yesterday.

But seriously: The fact that C dropped today is a good thing. It means that USG did not overpay as much in the share conversion as most had assumed they would.

We already live in a hybrid economy and it generally works pretty well. The springboard effect of the free market from visions and investments of the government are what has made this country stand out as the world leader.

Yours is not the only view, and it is not coercion for the government to create opportunities that wouldn't exist due to inherent limitations of private firms. I'm honestly not really interested in your POV on this since it is a tired and antiquated ideology, which misrepresents anything contrary to its rhetoric.

Malcolm, it does seem very rhetorical for Peter P to start a thread that asks "Should asset prices be managed?" I think we know how he feels about that already ;).

"How do we join?"

You could start a bank.
You could buy stock in a bank.
You could make a deposit in a bank, nice and safe.

Nice to live in a free society.

If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise.

The same can be said for the mob or any racket. :)

You could start a bank.
You could buy stock in a bank.
You could make a deposit in a bank, nice and safe.

Buying stocks does not work. It seems controll is infinitely more important than equity ownership. Anyone who own bank shares is getting hosed. Anyone who owns banks still owns the world.

The news just reported San Diego home sales up 100% over this time last year. This could be good news, at least the world isn't ending in San Diego. I'm still not buying here but the low interest rates with the low prices mean someone could buy a house with a conventional mortgage with a payment in the 1990's levels.

For example, accepting 0.25% interest in their savings account?

Of course, they could also coerce you to do somethings you wouldn't rationally want to do either. Such is the faith of these misguided efforts to control the market.

We may want both volume (sales) AND price confirmation. Are the sales in SD mostly conventional or REO?

No Peter, it is capitalism. If you own shares doesn't that mean you own the bank? There is no corruption, cronyism, or excesses in private companies. How can you suggest a disconnect?

Hmm....

The springboard effect of the free market from visions and investments of the government are what has made this country stand out as the world leader.

Sorry, I just don't buy that.

inherent limitations of private firms.

We're still waiting for examples.

not really interested in your POV

Well, there's a whole nation that's obviously fed up with your POV here today.

Peter P Says:
February 27th, 2009 at 9:48 am
"We may want both volume (sales) AND price confirmation. Are the sales in SD mostly conventional or REO?"

I'm sure a lot of it is REO, and although it is interesting it is irrelevant to the more important point that things are starting to move again. I was happy to hear the news because it might indicate the economy (at least here) is back into a gear, what gear that is? Who knows.

Right, as we all ought to know by now, only Gubberment can be self-serving, corrupt and incompetent. Why? Because Rush LImbaugh says so.

The same can be said for the mob or any racket.

A very appropriate analogy!

RE: inherent limitations of private firms

Don't forget the inherent limitations of humanity. And don't even think that humanity can oversome its own limitations.

If God could adopt a relatively laissez-faire approach (He even allowed Holocaust to occur), we must think hard before adopting any overzealous policy.

I’m sure a lot of it is REO, and although it is interesting it is irrelevant to the more important point that things are starting to move again.

I firmly believe that any the right price (could be $0 or lower sometimes), anything moves. This is why an auction-based price-discovery system is superior and it should be considered even for non-REO sales.

Justme, if Rush Limbaugh can afford a G550, he deserves some respect. Similarly, I also like Oprah. She has a GLEX.

(G550 = private jet)

No he doesn't deserve much respect. He just needs the G550 to feel like he's a big shot.

"Sorry, I just don’t buy that."
And I shoudl care why?

"inherent limitations of private firms.
We’re still waiting for examples."
Not sure who we is but OK, you sucked me in and I can't resist but I'm not going to continue a debate because you don't have anything other than tired Peter P (who I actually think is OK) type pure free market theory rhetoric.

Private industry doesn’t have the time or resources to conduct fundamental research (Lyons-Johnson, 1998). Companies on their own will correctly not take into account the full social benefits of fundamental research.
From a societal view, the free market has an inherent flaw in that there is no incentive for firms to place any value on the spillover benefits from R&D, since they cannot recognize all of the returns from those spillovers. There is credible theory that says firms invest less than the socially optimum level, and that an infusion from the government can rectify this market failure. On average a firm will recoup a 20-30% return on investment in R&D, however society will recoup a 50% or more return on the investment. This happens as others build upon the innovation and take it in directions the original innovator could not have imagined. Without some intervention certain projects that would yield a positive net result are not undertaken (Stiglitz & Wallstein, 1999).
The United States will soon find itself falling behind in technology development, standards of living, and overall quality of life unless different entities work together. Traditional views of markets, and government roles are being blurred by the new global marketplace, and now seem outdated (Larkin,1994).
Public private partnerships have existed in the United States since its beginning. One could make the point that the discovery of the new world in itself was a partnership since Columbus’s voyage was funded by the Spanish government. The Constitution of the United States affirms the role of the government in promoting commerce through different vehicles. The founding fathers of this country recognized the role of the government in promoting private sector innovations by the patent system established by one of two clauses in Article 1 Section 8 of the United States’ Constitution which are commonly cited as the basis for the use of government to promote our free market system.
1. Congress is to make laws to provide for the general welfare of the United States..
2. To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;
Additional laws
This tradition is upheld by some of the more recent laws cited in the literature:
The Stevenson-Wydler Technology Innovation Act of 1980 expanded the authority of the Department of Commerce to promote a policy of supporting technology transfer and the use of government scientific and technology resources (Stiglitx & Wallsten, 1999).
The Small Business Innovation Development Act of 1982 (SBIR) required government agencies in charge of R&D to set aside a percentage for grants (Stiglitx & Wallsten, 1999).
The National Cooperative Research Act of 1984 loosened antitrust research on private collaborations (Stiglitx & Wallsten, 1999).
The 1986 Technology Transfer Act made it easier for government researchers to work with entrepreneurs. This law allowed government agencies to enter into R&D agreements with the private sector (Lyons-Johnson, 1998).
An executive order in 1996 by President Clinton encouraged the development and use of technology through the transfer to the private sector, which he believed was best at developing new technologies and bringing them to market (Stiglitx & Wallsten, 1999).
It wasn’t through legislation that the potential for partnerships was established. In fact most federally sponsored R&D was not undertaken with the goal of yielding commercial applications. It was just through observation that many leaders realized that the government was unexpectedly leading the development of things like jet engines, semiconductors, microelectronics, computers, advanced energy, environmental technologies, biotechnology, and pharmaceuticals (Stiglitz & Wallsten, 1999).

Justme, I suggest that you go to a private jet trade show (EBACE 2009 is coming up, in beautiful Geneva) and sit inside a few jets. That is the greatest motivation one can possibly get.

BTW, a Gulfstream is nice but it is still quite small with a few people trying to move around inside. A egotistical person will settle for no less than a 747 or an A380.

I'll take two.

At the Reagan Library I went inside his AF1 jet. Now that's the way to fly.

Right, as we all ought to know by now, only Gubberment can be self-serving, corrupt and incompetent.

A corrupt and/or incompetent free market entity will not last long (absent government intervention such as with BAC or C).

Will a government that is self-serving, corrupt and incompetent last long? History would indicate no, but whatever the outcome, government corruption and incompetence have far worse consequences as is shown with the current crisis.

At the Reagan Library I went inside his AF1 jet. Now that’s the way to fly.

Yes, I have been inside. I love the Reagan Library!

Malcolm, the industry has made a lot of advances since then. Many corporations and individuals own the Boeing Business Jet, which was developed from a 737 airliner. Inside, you will find a bedroom and even a shower!

It flies further than the old 707-based AF1 too.

http://www.boeing.com/commercial/bbj/

Boeing will also outfit a 747, 777, or 787 as a private jet.

BTW, I would recommend a visit to anyone who just wants to visit the 80s. It is a beautiful place where you can pay your respects to a great leader and walk the grounds or have a meal with an awesome view. It is a fun full day which costs next to nothing.

Well, whatever the motivation is for a business jet, it sure did not motivate any big bank CEO sufficiently to make the right decisions on behalf of even their own shareholders.

Yeah, but they are really cool. I used to work near Palomar airport and seeing those big shiny Gulfstreams coast in made me smile.

>>A corrupt and/or incompetent free market entity will not last long (absent government intervention such as with BAC or C).

Well, I suppose you would have to get rid of the FDIC, and then let the depositors take the loss. I don't see much satisfaction and correction stemming from that.

Still, Vikram the bandit Pandit and Ken kenny boy Lewis would only lose their jobs, but keep their riches.

Does your imagined version of the free market have clawback provisions for ill-gotten gains?

At some point, every Queen or King had to own a Faberge gold egg and have colonies in order to feel important. Right now business jets is what turns everyone on. There's nothing new here. Personally, I 'd like to have my own nuclear reactor (only kidding).

Personally, I ‘d like to have my own nuclear reactor

Light water only, right?

It is a beautiful place where you can pay your respects to a great leader and walk the grounds or have a meal with an awesome view.

I absolutely agree. Well, I had to fly into John Wayne though.

I used to work near Palomar airport and seeing those big shiny Gulfstreams coast in made me smile.

Aren't they the cutest things. :)

Private jets symbolize freedom the same way automobiles did. Also, they are a essential business tool for large companies. I do not understand the outcry against them. Companies should be able to keep their jets to receive TARP. You cannot tie people's hands and expect them to improve.

Right now business jets is what turns everyone on.

Well, also megayachts. Nowadays, 300-ft yachts (larger than some smaller cruise ships) are considered small.

Now, the trend is that people will build both a yacht and a support ship for the helicopter (and all the toys) so that the downwash from the blades will not ruin the fine teak decks of the mothership.

Actually, I'd like to have my own nuclear submarine. I'd go out in the Atlantic and play underwater footsie with the Brits and the French, just for the thrill of it. Yeah, that's the ticket.

Not sure about nuclear but you may be interested in this:

http://www.ussubs.com/submarines/phoenix_1000.php3

It is over 200-ft long and not much more expensive than a new BBJ.