patrick.net

The reality of “free” markets is fossy jaw, Enron and the housing bubble. All examples of unregulated capitalism at work.

There are always distortions in any system, Free Market or otherwise. People need to understand that investments entail risks. No regulatory framework can protect everyone.

You do this via high wages and low taxes for everyone, not just the richest 1%.

The richest 1% are not wage earners. We need a system that encourages enterprising behavior.

The country (among others) is run by the banks. We all work for the banks. Inflation is a way for banks to ensure that we give the banks our money, one way or another.

Think about it this way: Knowing that inflation will eat into their money, everyone will choose to "invest" their money. Pretty soon, everything becomes an investment, not just businesses: houses, NASCAR dinner plates etc. All those things go up in value and people start speculating in them.

To invest in those things, people will get into debt and pay banks interest.

The richest 1% are not wage earners. We need a system that encourages enterprising behavior.

The richest 1% starts at around $250k/year. Many of these people are indeed wage earners. Maybe the wealthiest 1% of those would not be considered wager earners, but heck even Warren Buffet has a salary!

Anyways, our current system discourages enterprise and encourages fraud. When its easier to make money committing mortgage fraud than building a small business, you end up with speculative bubbles and an inevitable crash/correction.

Peter P is often right.

The richest 1% starts at around $250k/year.

Huh?

one of the things Peter fails to realize is that if you have a large segment of very poor people, they become a huge expense to the state.

My point is that with an efficient economy, poverty will be greatly mitigated. The welfare state is the perfect device to sustain poverty.

Peter P is often right.

Unfortunately, I am also wrong too often. :)

But thanks!

kewp, not sure if you’re new here, but Peter is quite famous for his shortsighted and highly skewed perspectives on economics. As far as I can tell his ideas do not live outside of this list, or even outside his own posts. I wouldnt spend too much time addressing it. At this point I consider Peter to be a joke.

I get it. I just enjoy pointing out the most obvious flaws now and then.

Yeah, I am sure argumentum ad hominem does reinforce your positions. Thanks TOB!

The richest 1% starts at around $250k/year.

Huh?

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Idiot says: Calling inflation a government scheme to enable the IRS to collect, is like calling a growing english dictionary an employment scheme for English professors.

I'm not following the logic of the blog posting: You save money, the gov't knows where the money is, therefore the gov't can take your money. Is that right? I"m confused because the gov't knows where all of our money is tied up, whether it's in stocks or a bank account.

If you owe money to the IRS, it will get it by any means necessary. I suppose the IRS would rather easily remove it from a bank account than by other means requiring more effort, but it will get it or make your life hell. I didn't think that was anything new to most people.

No regulatory framework can protect everyone

No Peter P but we can try can't we? How about a regulatory framework which assures as close to perfect competition as possible?

Or to put it another way: there's is no guarantee or pre-determination that things necessarily evolve towards the ideal. We seem to need regulation (albeit light) if only to assure we approximate the ideal free market as much as possible.

No Peter P but we can try can’t we? How about a regulatory framework which assures as close to perfect competition as possible?

It is difficult because competition itself incentivizes anti-competitive behaviors. This system is literally chaotic in the mathematical sense.

The best we can do is to have a system that enforces private contracts.

Or to put it another way: there’s is no guarantee or pre-determination that things necessarily evolve towards the ideal. We seem to need regulation (albeit light) if only to assure we approximate the ideal free market as much as possible.

This I agree.

We seem to need regulation (albeit light) if only to assure we approximate the ideal free market as much as possible.

Buy the man a cigar!

If you sell me a crate of rotten apples, its only a true free-market transaction if I *know* that the apples are rotten! The whole system breaks down otherwise. And as investors all over the world will soon find out, lots of those AAA-rated mortgage securities are pretty wormy.

The ideal free market will always be a myth, as no transaction can ever involve perfect knowledge of all participants.

Back to the OP, the goal of inflation is/has been the same its always been. Bail out Wall Street at the expense of Main Street and those that are foolish enough to hold long-term U.S. debt.

There is no incentive to save during periods of high inflation, as it makes much more sense to spend what you have now while you still have purchasing power. Or dump your dollars for something thats going to retain its value in the long term, like precious metals or oil/commodity futures.

I will admit that having a savings makes it easier for the IRS to get what they feel you owe them, but I think thats just a happy coincidence for them.

Peter P Says:

> The richest 1% are not wage earners. We need a system
> that encourages enterprising behavior.

Then kewp Says:

> The richest 1% starts at around $250k/year.

There is a big difference between “wealth” and “income”. I agree with Peter P. that most of the very rich/wealthy are not wage earners. I know quite a few people in SF with “income over” $250K but who have less than $100K in “wealth” and have a long way to go before anyone will call them “rich”…

Idiot, you are being particularly idiotic here.

Prankster

it's been known to happen

However this is not one of those cases as I was commenting on the original post on this thread, not on what kewp said.

There is a big difference between “wealth” and “income”. I agree with Peter P. that most of the very rich/wealthy are not wage earners. I know quite a few people in SF with “income over” $250K but who have less than $100K in “wealth” and have a long way to go before anyone will call them “rich”…

I don't have the stats to back it up, but I'll bet that the majority of the "one percent club" are earning a salary of some sort. There is a big range of income in that top 1%, many of orders of magnitude greater than that of the other 99%.

If you define very rich/wealthy as those that are not wage earners, yeah ok you win. Not sure what the point is, though.

kewp Says:

> Peter so wisely stated, do the first part (”cutting taxes”) and then
> the second part (”raising wages”) will happen as a part of the free
> labor market at work.

There are a lot of wealthy Americans that would love to start or expand a business, but it is not worth it if the taxes are high and a huge number of regulations cut profits even more. We have close to an unregulated market for each person’s pay since under 20% of the population is in a union and there is just a small percentage of the working population getting paid minimum wage (even smaller when you back out the tipped employees that “really” don’t make minimum wage).

> Of course, you have to believe in free markets to know this will
> work. The utopian free-market is a collective delusion of the
> under-educated Ayn Rand crowd.

I have never met an under-educated person that reads Ayn Rand (listens to rap music yes, read The Virtue of Selfishness no) and in my unscientific sample of the (over-educated) people I went to undergrad and grad school with the those that read (and discussed) Ayn Rand books are some of the most successful 20 years later. I have also never met a small business owner that thinks the minimum wage is a good idea even though most pay more than the minimum wage. I don’t see any problem of hiring a kid as a painters helper for less than the minimum wage to see how things work out and once he learns to paint he can easily get $20/hour as a painter (I just shopped around for a guy to paint some apartment fences and the cheapest painter with some experience that I could find was $30/hour).

> The reality of “free” markets is fossy jaw, Enron and the
> housing bubble. All examples of unregulated capitalism at work.

We have never had “unregulated” capitalism in America and with millions of regulations that have covered the real estate industry and publicly traded companies during the bubble and the Enron collapse you can hardly blame the problems on “pure uregulated capitalism”…

I don’t have the stats to back it up, but I’ll bet that the majority of the “one percent club” are earning a salary of some sort.

I have an interest-paying bank account, but I am not a fixed-income earner.

BTW, Enron investors should take blame for buying the wrong investment.

The price of extraordinary return is the chance of ruin.

There are a lot of wealthy Americans that would love to start or expand a business, but it is not worth it if the taxes are high and a huge number of regulations cut profits even more.

From 2000-2006 it hasn't been worth starting a small business because you could make more money flipping real estate properties. You didn't even have to fix them up.

From 2006-present it doesn't make much sense to start a small business either, as we are heading into a massive recession and its easier to make money shorting the banks, builders and consumer services.

We have never had “unregulated” capitalism in America and with millions of regulations that have covered the real estate industry and publicly traded companies during the bubble and the Enron collapse you can hardly blame the problems on “pure uregulated capitalism”…

You should read a history book. Or look up Upton Sinclair.

And I can so blame the problems of unregulated capitalism on unregulated capitalism. The prime mover of the housing bubble was the private-sector securitized debt market that stamped junk bonds with a 'AAA' rating. The Fed was only partially responsible.

I'll add that as per usual, the private sector is crying for a handout from the tax payers while the invisible hand of the free market is choking them to death.

P.S. Ayn Rand was a fruitcake. Anyone out of high school that still reads her drivel is a fruitcake-by-proxy.

The prime mover of the housing bubble was the private-sector securitized debt market that stamped junk bonds with a ‘AAA’ rating.

Then we should blame regulations for creating that false sense of security. If people understood the concept of caveat emptor, history would have unfolded differently.

Enron is a fraud, not a bad investment. There's a distinct difference between fraudulent financial reporting and uncontrollable factors went bad in a business.

One really doesn't need to read Ayn Rand to pursue individualism or self-interest. I have never met any human being who is incapable of looking after his own interest, even at the cost of others, that is called survival instinct. The hard part of gluing a society together is to convince people to give up a bit of their own interest so that we don't live in a world of running over each other.

RE: Enron

True, this is why the fraudsters were prosecuted. However, it did not change the fact that investors had suffered a catastrophic loss. That sounds like a bad investment to me.

The hard part of gluing a society together is to convince people to give up a bit of their own interest so that we don’t live in a world of running over each other.

Or, we can have a society in which self-interests are regulated by market forces.

Then we should blame regulations for creating that false sense of security. If people understood the concept of caveat emptor, history would have unfolded differently.

The bond graders and insurers are a product of the free market, not government regulations.

They only place government regulations come into play is that some pension funds are limited to investing only in supposedly prime securities. So, in effect, fraud in the private sector is going to screw over the public sector.

I'm not sure what you mean by referring to the credit collapse as 'history', as its just getting started. And boy howdy, are global investors going to be beware of U.S. securitized debt product for at least the next hundred years or so.

If market forces are allowed to play out without interference (as I think they should) you can look forward to every large bank in America going under, real estate prices going back to '89 levels (not inflation adjusted) and unemployment hitting 20%.

Will there be an AIG bailout?

And boy howdy, are global investors going to be beware of U.S. securitized debt product for at least the next hundred years or so.

Can you elaborate on this? I'm curious why only big banks have shown losses so far. I remember during the run up "experts" saying that foreigners were buying the mortgages but I never understood who they were. I'm still looking for the mechanism by which banks aren't the big losers here. I thought the whole game was to transfer the risk but so far it seems to be sitting tight, so if you can explain how it has been dispersed to global investors I would appreciate it.

Bap, it is fine. Don't worry. It is healthy to have debates.

I thought the whole game was to transfer the risk but so far it seems to be sitting tight, so if you can explain how it has been dispersed to global investors I would appreciate it.
The Chicago public radio show "This American Life" usually does cool human interest pieces. Every so often, it seems like Ira Glass has a Bill Moyer's style meltdown and takes on a topic he feels the MSM has not addressed properly. He's done it with the Iraq war, Katrina, and Guantamo. His most recent masterpiece, a collaboration with NPR news, takes on the subprime crisis (mpeg audio alert). Although the content may be familiar to all of us, sit back and take a breath as we go through the looking glass and get transported into a world where an average Joe was making $75k (?) a month selling junk to Wall Street.

Off topic.

Anybody read this article?

Brentwood the poster child for housing bust.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/11/MNGE1095FT.DTL

Prices are down 40-50% from peak. How much further decline is possible?

I have friends who are first time buyers ready to pull the trigger. I am advising them to wait, and not buy in Brentwood.

Thoughts?

Can you elaborate on this? I’m curious why only big banks have shown losses so far. I remember during the run up “experts” saying that foreigners were buying the mortgages but I never understood who they were. I’m still looking for the mechanism by which banks aren’t the big losers here.

Because they were basically playing a game of global 'hot potato'.

The idea was to only hold the loan for a short while, before securitizing it and selling to investors. These were not just foreigners, domestic hedge and pension funds were also big customers. As well as investment banks.

You may have heard of one of these in fact, Bear Stearns ring a bell?

Anyways, check out this presentation, I think it describes the situation very well:

http://activerain.com/blogsview/382150/Subprime-Explained

Prices are down 40-50% from peak. How much further decline is possible?

100% decline is possible. It's already happening in Cleveland, Florida and Detroit, where abandoned properties are being bulldozed.

I would definitely wait. As long as possible.

Even if you can buy a house for 10k in Brentwood, think of who your neighbors would be!

Nobody is *entitled* to have wealth.

Wow, so you are supporting 100% taxation of inherited wealth? Don't you think that is a little extreme? 90% I can see, but 100% is going too far.

Those who inherit wealth are not intrinsically entitled to it - but perhaps those who wish to give it are entitled to determine where or to whom it should go.

I have friends who are first time buyers ready to pull the trigger. I am advising them to wait, and not buy in Brentwood.

Thoughts?

I think what I have always thought, which is if you can find a home you like, in a neighborhood you can afford and you expect that you will be able to live there for a while, you might as well buy. A while in this case means at least five years, preferably ten. You should probably rent first, just to make sure the weather and commute are what you imagined them to be.

If you are trying to wring every last dollar out of your investment, you should probably wait until prices start to go back up to buy. If this downturn follows others, it will be more of an "L-shaped" recovery than a V shaped one. I actually think that we are close to the bottom, but my opinion is in the minority here.

Wow, so you are supporting 100% taxation of inherited wealth?

Huh?

I think what I have always thought, which is if you can find a home you like, in a neighborhood you can afford and you expect that you will be able to live there for a while, you might as well buy.

I agree.

The most important benefit of a buyer's market is the availability of choices.

Kewp,

right on.

Kewp,

this whole new vocal meme of being against "regulation" as being the cause of bank and wall street malfeasance is very clever. Karl Rove would be proud (maybe he *is* proud). Same goes for the whole thing of equating regulationsand bailouts. Very clever. Will confuse the heck out of many simple-minded voters.

(I just re-read what I wrote and It didn't quite say what I meant. Try again)

Kewp,

this whole new and very vocal meme of being against “regulation”, with "regulation" being the cause of bank and wall street malfeasance, is very clever. Karl Rove would be proud (maybe he *is* proud).

Same goes for the whole thing of equating regulation and bailouts. Very clever. Will confuse the heck out of many simple-minded voters in certain blue states.