patrick.net

At least Australian government is letting the weaker hands fail, isn't that the free market you want :-)

I wouldn't call it failing left and right because the two that failed are not part of the big consortiums like Macquarie, which the Aussie government banks with. I have no sympathy for those who parked their money with the small guys, that is the risk they should be prepared to take.

At least Australian government is letting the weaker hands fail, isn’t that the free market you want

True. ;)

Speaking of cheap US oil reserves.....

www.usgs.gov/newsroom/article.asp?ID=1911

The US may be the Saudi Arabia of both food and oil.

DennisN

are you able to put that number of billions of barrels of oil in context? Do you know how much Saudi Arabia has for example? I read that part where it says the estimate is now 25 times what it was in 1995, and was reminded of one of the main arguments against "peak oil".

OO,

Four or five amens (and maybe an Ave Maria thrown in) for the "free market". I think I'm going to start quoting that pesky expression ALWAYS.

>>Europeans claim the American’s habit of eating corn-on-the-cob as proof that we are barbarians who eat animal feed.

I think this is quite far from being a general european sentiment. Not that it was meant in seriousness??

I have respect for all cuisines. I am even nice to vegetarians. ;)

are you able to put that number of billions of barrels of oil in context?
Mean estimate for technically recoverable oil is 3.65 billion barrels in the Bakken Formation. The United States uses around 20 million barrels per day, so this is around half a years supply. Hurray, we're saved! Peak oil has been put off by half a year in the US; my kids are jumping for joy -- well, I will admit, every little bit does help.

OO says: I only know one thing: I, and people in my financial position are not the biggest beneficiary of the current “free market” or whatever market you want to call it. So I want a change.

I think the present system is a pretty good one. I'm not baiting an argument, either. My grandparents were factory workers. In the space of two generations since then, we've become entirely white collar through education and hard work, pushing well past the median American income.

Who gives a shit what CEOs make? Really. It's a superficially interesting but ultimately irrelevant factoid like the distance to the moon measured in stacked pennies. My family's standard of living has increased tremendously in the last many years, and disproportionately to the opportunities in other countries via means that are widely available to everyone in America. Thanks to the opportunities provided by our culture, our welfare has increased tremendously even compared to our prior peers. In fact, the welfare of my family is influenced by CEO pay about the same as it's influenced by the price of wheat on Mars.

You can get as inflamed as you like about CEO pay, but it's a fact of doing business in a world of multibillion dollar companies. As obscene as their compensation might seem, it is a drop in the bucket of our vast economy. We non-CEOs should be concerned about fundamental issues like broad health insurance and high quality education. Dashing up to peer through the gilded gates is an exercise in pure jealous futility.

Be happy with what you have in an absolute sense. If you make it relative to the top 1%, then nobody is ever going to be happy (and maybe that's already happening in our New Gilded Age culture).

Brand,

If CEO compensation is just a drop in the bucket (and I do not think it is), then please arrange for a few drops being sent my way. I would not mind at all.

I'm squarely in agreement with OO on this one.

If CEO compensation is just a drop in the bucket (and I do not think it is), then please arrange for a few drops being sent my way. I would not mind at all.

Yeah, that few drops will be shared by thousands of minions like you. Enjoy! :)

If you think CEOs are too highly paid, perhaps you should try to become one. If you can't, perhaps they are not too highly paid after all.

Peter P,

Proves my point exactly. It is *not* just a "drop in the bucket" if everyone gets a fair share.

If I were you, I would be more worried about my peers getting more than myself.

I much rather have an advantage over my resource competitors. I don't care what happens "up there in the food chain."

The failure of your competitors is as good as your own success.

It is *not* just a “drop in the bucket” if everyone gets a fair share.

No, it is not "drop in the bucket" because everyone gets a tiny fraction of a drop in order for it to be "fair."

justme, perhaps you could clarify. To me, it seems that if a CEO over 1000 people gets a $1M bonus, then if that were divided among his people that would be $1000/person. Hardly an impressive number.

From a corporation's perspective, a CEO's compensation is a very small amount of revenue and profit (or should be, otherwise the Board should be summarily voted out). The primary value of a CEO is as a figurehead and example. From the hundreds or thousands of managers in a company, only a tiny few will become CEOs. But the mere existence of that pile of gold at the end of the rainbow inspires tremendous hard work from the middle echelons. Hence I would argue that the corporation's ROI is actually quite strong by providing a generous pay package to their CEO.

I am far more offended by CEOs taking home any bonus in a year where their investors got hammered or their workforce was heavily slashed. A corporation exists as a money-making enterprise (from the capitalist perspective) and as an employer (from the social perspective). If it fails in either or both of those responsibilities, then its leaders deserve no gestures of gratitude from the people generating the revenue or footing the bill.

Brand,

>>But the mere existence of that pile of gold at the end of the rainbow inspires tremendous hard work from the middle echelons.

It does not inspire as much "hard work" as it inspires tremendous amounts of unproductive jockey-ing with the goal of giving the appearance that one is the most qualified for the next step up the ladder.

I would argue that high CEO pay just as often (if not always) is more unproductive because it values appearance over substantial contribution. All the "competition" among the middle management and lower echelons comes at a tremendous cost to the company.

Tell me the logic of why these CEOs are entitled to $50M, 200M golden parachute when they were FIRED? Has anyone heard of any average Joe employee getting a fat paycheck for being fired for screwing up?

How about those CEOs who are paid $100M+ even if the stock price was trashed? Why is everyone in the company tied to performance except for these "star" CEOs? For example, Fiorina, shouldn't she be sued for the enterprise value that she destroyed? Why did she get to parachute out with $40M after such a grand f*ck up?

Doctors are sued for malpractice. Where is CEO's responsibility when they screw up? I am all for paying CEO a billion if we stockholders can sue their ass and confiscate all their personal and family wealth if they were proven to have screwed up during their tenure any time in the lifetime of the company.

High pay comes with stringent obligations. CEOs have high pay, where is the obligation part going?

EBGuy
thanks for the data re:oil

The pile of gold at the end of the rainbow should be rewarded to entrepreneurs who built and sticked with their company like Bill Gates or Steve Jobs.

How about this. For anyone who is taking a CEO job, he is required to buy his company stock with all the money he has (and there is a minimum threshold). And he cannot cash out until 5 years AFTER he left the company.

Then you can pay a CEO as high as you wish, let the free market decide.

Brand,

Fortune had an issue last year covering companies with CEO pay accounting for over 1% of the company's revenue. Not profit, revenue. Half of these companies were actually making a loss or barely making a profit.

If a CEO is making money while their shareholders are losing money, then the board of directors has not aligned rewards with the desired behaviors. Since dangling the appropriate carrots is a key function of a board of directors, those directors ought to be sacked immediately.

However, not everyone on this forum has expressed outrage from a shareholder perspective. Many are complaining from an employee perspective. And from that point of view, I maintain that we should be more concerned with our own absolute satisfaction in life. To make our personal happiness relative to others' possessions is a sure path to emotional ruin. That is especially true with regards to such extreme examples as CEOs.

CEO pay in and itself is not the issue. It not being tied to performance is the real problem.

Honestly, even I can be a CEO of a company, ruin it and get fired. What's so special about that to deserve a multi million dollar payout while getting kicked out ?

The average Joe shareholder in this matter is as powerful as a voter in China. Hence I wonder if the only way to make any money is by trading and not by investing.

Hence I wonder if the only way to make any money is by trading and not by investing.

Trading is probably not the only way... but I think it is definitely one of the ways.

For most people, it is probably easier to lose money trading than investing. Remember, in trading, <10% of the people are making 90+% of the money.

The US is not the "Saudi Arabia" of food, our domestic food industry will not resemble anything like today in 20 years. Our breadbasket will be a desert with water shortage's and a 1.5 degree temp increase.

And technology changes the game, like growing meat in vats just about anywhere, aquaculture, and all manner of other "dirty" tech.

http://www.wired.com/science/discoveries/news/2008/04/invitro_meat

Brand

Passing judgment on our "system" must be measured in metrics other than your families standard of living or past upward mobility.

One important point, past performance does not equal future performance. Very relative as we head full throttle into a new dark age. No, I'm not kidding. Dark age coming.

And the expense of your "standard" of living and education has been supported on the brutal torture, rape, pillaging, and other maltreatment of populations all over the third world. So maybe you might be happy in your current "state", but you have blood on your hands. Ignorance of the relationships that make this occur does not make it any less real or true.

Or maybe measuring metric of environmental health? Rape and poisoning there. Failing grade by all measures and on every count.

Healthcare? Dismal failure.

Quality of life? Dismal failure.

Food quality? Our food is full of all manner of vile pus chemicals antibiotic and other things deadly poisonous to life.

Culture? I'll reserve judgment.

Upward mobility? Times are a changin.

Racism, discrimination, equal opportunity? Our prisons are full of minorities due to socio economic status and lack of opportunity.

Technological advancement? Sure, at an accelerating pace that is breathtaking. However, this train has no conductor and is potentially heading towards endpoints that none should desire.

A gilded age has just ended, what comes next might not be recognizable.

Life after capitalism.

Participatory economics.

http://www.zmag.org/content/showarticle.cfm?ItemID=6417

Analysts predicting Wall Street will be laying off 35% of staff in near term. That's a big fat scary frightening number.

Direct effects aside, that is really not going to do much for confidence.

Credit Michael Albert 2004 Italy

Capitalism is theft.

We see the results in sky, water, and soil, mitigated only by social movements that force wiser behavior.

I am sure I will be pilloried for posing this, but did anyone else see this article in the NYT Magazine explaining why house prices in the urban cores have been maintaining their value, while they have been plummeting in the suburbs?

http://preview.tinyurl.com/4o7h93

Now, of course, the boom is over. For the first time since the government began keeping records in 1950, the price of a typical house in the United States fell last year. It seems perfectly reasonable to imagine that the bust will hit especially hard in the cities that boomed the most. Telecommuting really is easier than ever today, for one thing. And many stretched middle-class families would seem to have good reason to leave expensive cities, which would bring prices there down. Yet the gap between the most expensive cities and almost everywhere else is now wider than it has been in decades, if not longer. This seems to be one of those anomalies — like dot-com companies with soaring stock prices and no profits — that shouldn’t be able to survive a bursting bubble.

But that’s not exactly how the bust is playing out so far. Prices are indeed falling in San Francisco and New York. But they’re falling fastest in another category of once booming areas, like Las Vegas, Phoenix, Sacramento and South Florida. These were the places that seemed to be on the leading edge of a flight to affordability. Refugees from big coastal cities came to these areas, in part because they were more affordable. Once real estate in the most expensive cities no longer seemed to be a can’t-miss investment, you might have thought more people would flee, bringing prices down sharply. That would further shrink the gap between a place like San Francisco and one like Sacramento. Instead, the gap is growing again.

This is what I have been arguing for years, that America is experiencing a reversal of the Great Suburban Flight of the 70s and that as more and more upper middle class professionals discover the joys of the simpler, trimmed down, commute-free life, the value of housing near jobs will continue to outpace the value of McMansions in the suburbs. I know my neighborhood continues to gentrify, with crime going down, the parks and libraries all getting spiffied up and the chronically underperforming SFUSD even improving.

Maybe the Bay Area really is special.

NAV, what exactly did that have to do with CEO pay?

If that author can put facts and research behind his otherwise empty rhetoric, then I will believe that future generations of my family won't have it better than now. And while past performance isn't a guarantee of future results, it turns out that past performance is actually a pretty good predictor of future results.

I'd put my money on the next Ice Age before I bet on the next Dark Age.

I’d put my money on the next Ice Age before I bet on the next Dark Age.

I’d put my money on the next Ice Age before I bet on "global warming." :)

Capitalism is the evolved form of natural order. It is not only sustainable, it is the most civilized mode of existence humanity can possibly adopt.

CEO pay is of interest to shareholders, who are probably never able to organize as effectively as management.

Therefore, the very wide distribution of common stock in this society is a boondoggle. Common stock investing used to be a vehicle for building wealth, but now it builds wealth mainly for stockbrokers, investment advisers, mutual fund managers, CNBC talking heads, etc etc. Now that stock ownership is widely dispersed, managements of the publicly held companies can do anything they please.

Dilution can be defined in many ways. My employer's common stock is 80% held by 259 institutional entities (market cap of ~$1B). The distribution is not even, either; there are a few big chunks in the hands of a few big players. Most of our stockholders are probably mutual funds, so it would be relatively easy to mount a proxy fight. If our CEO was asleep at the wheel, he would likely be sacked in short order.

Jimbo :

Maybe the Bay Area really is special.

Depends on what you call Bay Area. San Jose is not too far from Sunnyvale. But the severity of the bust is magnitudes different. Are you saying Sunnyvale is in Bay Area but San Jose is not ?

It's not that entire Bay Area is special. Certain pockets are. And ignoring the pockets where truly rich leaves, even pockets where code monkeys buy are behaving differently.

Cupertino and Sunnyvale are next to each other, and Cupertino has held up even better than Sunnyvale. The knowledge of the bust is pretty common. Then why ? The schools play a big part which leads people to feel it's less risky to buy in these pockets. And it becomes a self-reinforcing myth. Till it isn't.

Remember this. This bust has happened in what should be the ideal conditions for a stable RE market. Low rates and decent job market in the Valley. All because now the banks have the audacity to demand 20% down payment.

Nothing really has happened to cause a bust in good pockets. Let's see how special is Bay Area when the rates go back to late 90s scale and even a minor job recession happens.

Jimbo

I believe you are conflating different issues. The article you mention says nothing about suburbs vs hard-core urban areas. In fact the writer ends by including himself in the 'problem' even though he IS moving to the suburbs. What he was actually talking about was the value of star cities (SF, NY etc) Vs non-star cities (LV, Phoenix etc). Many expand this argument to apply to start "regions", like the Bay Area.

As far as whether or not these star areas can hold proportionally more of their value than the non-star cities can, see what StuckInBA (11:37) said in his last two paragraphs
.

SF is not quite a star because prices are coming down already. I heard that Seattle is still strong. Vancouver, BC is still *VERY* strong.

The Bay Area has the best climate for those who can afford only one place to live. Other than that, it has little to offer. (True, it is like the Nirvana for us worker bees.)

For those who are willing to consider having a second home, there are many winning combinations. (e.g. British Columbia - Hawaii, Mediterranean - Florida, etc).

The Internet will make urban living obsolete over time. With e-commerce and telecommuting, who wants to live in an over-crowded city? If work is not an issue, I will absolutely move somewhere else.

SF may be a pretty city but cities are inherently ugly.

City means people. People means problems.

And it becomes a self-reinforcing myth. Till it isn’t.

I think you are falling into a very common logical error, which is to assume that your correct analysis on the causes of the housing bubble (a self-reinforcing monetary cycle), also apply to the value of a good education.

Good neighborhoods, near good jobs, with good schools are actually *increasing* in utility as the economy unwinds. As well all realized quite early on, the run-up in home prices from 2005-7 made no economic sense, because the utility value of homes did not increase. This was reinforced by looking at comparable rents.

But the value of a good education increases in an economic downturn, particularly if it is the start of a multi-decade trend, as so many here are expecting. Who is going to maintain their job in the midst of massive layoffs? Who has the chance to hold their ground, perhaps even prosper, as the automation of our economy continues? Those with the advantages of education, location and social networks, which is exactly what the Time's article was talking about.

I haven't followed San Jose housing at all, but I have followed Berkeley's, and those neighborhoods which are low crime and near BART have held up very well. The same is true even more so in San Francisco. In a recession, being in a safe neighborhood with low crime *increases* in utility value, because other neighborhoods become worse. I expect most of the outer suburbs to become slums in the next decade.

Don't neglect the economic effects either. If you think $4/gallon gasoline has had a powerful effect on people's preferences, you ain't seen nothing yet.

City means people. People means problems.

Yes, we all know that you are a misanthrope Peter, but most people aren't. In fact, studies have shown that the most important determinant to a person's self-reported level of happiness is the quality of their social networks. Not their wealth, not their job satisfaction, not even their health trumps social networks.

I know that the author of the NYT essay says she is moving to "the suburbs" but if the cost of a townhouse there is $600k, she is not going very far out. She must mean Bethesda or Alexandria at those prices. At some point, the difference between "urban" and "suburban" is kind of blurry. Is Oakland urban or suburban? How about Mt. View? Berkeley?

Anyplace with more jobs than residents is pretty urban in my viewpoint, but anyplace within a very short (20 min or less) commute to a job center, particularly one that can be achieved via transit, will probably do just fine, no matter what you want to call it.

Cities with a collapsing job base, like Detroit, probably have no hope.

especially for NVR

Since you're always so optimistic ;-), I thought you might enjoy this: a Harvard Law Prof speaking at a Berkeley lecture predicts/describes the end of the world as we know it (if you're middle class)

http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html

be warned that it lasts 45+ min