Yves Smith takes on the media’s reporting on state pension woes:
“If you live in the world according to the mainstream media, the row between state executives and unions is all about (by implication) greedy unions trying to preserve their perquisites when budget “realities” demand that they suffer.
She points to New Jersey as an example of a more complicated reality about the state’s utter mismanagment of its pension funds, including just not paying into the fund for more than a decade, and she quotes a Forbes article from last year here about the state’s utter mismanagment of its pension funds:
Seeking to make up lost ground without putting up more money, the state’s leaders looked to the magic of the stock market. In 1997 New Jersey sold $2.75 billion of bonds paying 7.6% interest, putting the proceeds into the pension fund to be invested for higher returns.
At that time Whitman said the ironically named Pension Security Plan would save taxpayers about $45 billion. It hasn’t worked out that way. The fund has earned less than 6% annually since the bonds were issued.
They borrowed money at 8 percent to invest in the stock market? Are you kidding me?
— Kevin Drum explains to Matt Yglesias why the gains the very richest have made over the last three or four decades have come at the expense of regular folks.
First, take a look at middle class income stagnation. What caused that? Matt already pointed to one cause: monetary policy since the late 70s that’s kept inflation low at the cost of keeping labor markets persistently loose. To that, I’d add several other trends that have marked the past three decades: trade policies that accelerated the decline of U.S. manufacturing; domestic deregulation policies that squeezed workers; stagnation in the minimum wage; immigration policies that reduced wages at the low end; and a 30-year war against labor that devastated unions and reduced the bargaining power of the working class.
On the merits, you can argue for or against any of these individual policies. But there’s very little question that collectively they are (a) policies strongly promoted by business interests and the rich, and (b) they suppressed middle class wages…
Now, if these policies hadn’t been in place, middle class wages would likely have grown at about the same rate as the overall economy—just as they did in the postwar era. But they didn’t, and that meant that every year the money that would have gone to middle class wage increases instead went somewhere else. It was a vast and steadily growing pool of money, and the chart on the right gives you an idea of its size by 2005. It comes from Jacob Hacker and Paul Pierson, and it shows how much income would have gone to different groups if their income had grown at the same rate as the broad economy. The bottom 80% lost $743 billion by growing more slowly. The top 1% gained $673 billion by growing more quickly. That’s a pretty close match. And the upper middle class, in the 80th-99th percentile? They didn’t score the huge payoffs of the super rich, but they did fine, posting a net gain of $126 billion. In other words, the well off mostly don’t seem to have suffered at the hands of the super rich. Instead, the money gained by the top 1% seems to have come largely from the bottom 80%.
— Have we learned anything from this crisis?
ProPublica’s Jesse Eisinger points out in a New York Times column that the ratings agencies apparently haven’t. S&P is now lowering ratings on 1,200 so-called re-remics, which are the resecuritized toxic bonds Wall Street created in the wake of the crash.
The agencies rated billions of dollars worth of these bonds, mostly in the last two years. With shocking rapidity, even some of those triple A-rated bonds have defaulted. Of the more than $85 billion of re-remics issued since 2009, an estimated $30 billion may be under review by S.&P., according to Bloomberg News.
"Have we learned anything from this crisis?" Perhaps, yes: these are inevitable consequences of the moral hazard created by excessive govt intervention. More govt control=fewer personal choices=fewer escape routes for would-be victims. But never mind my fringe, cranky, radical rationale. After all, the national govt has your back, right? If you fail, or if you're defrauded, then surely you can count on the regulators to pick up the pieces and prosecute the wrongdoers, no? The Feds would NEVER systematically destroy your wealth, render you unemployable, lie to you, or cheat you out of a buck; would they? The same warfare state that commits aggressive war against people the world over, via drone-murder and military occupations and sanctions and embargoes and subsidies to dictatorships and the like, would NEVER do the same to you and me, socio-economically, here at home, right? The innocuous central planners would NEVER prop up their cronies and fashion a Ponzi-scheme economy and call it regulation, fairness, free market, and Common Good; would they? Of course not! Only private criminals, fascists, socialists, and the like would do such un-Amerrrkin things! Move along, folks! Your dear overlords have learned the lesson for you! We will "create jobs" and implement more regulations, more mandates, more controls, more limitations on greedy free association and private choices; thus, you will be freer from the chains of liberty! We shall call this the New New New New New Deal!
#1 Posted by Dan A., CJR on Fri 7 Jan 2011 at 10:01 PM
What we have learned, or what we should have learned, is contained in this video 4 minutes 30 seconds in:
http://www.youtube.com/watch?v=qOP2V_np2c0
You cannot blame unions (though some people are trying to for the state budget holes, particularly in New Jersey), you cannot blame government (the government did not destroy the asset values of the population and throw the whole property system into doubt (And here's a nice Yves Smith video on that topic:
http://www.youtube.com/watch?feature=player_embedded&v=y2LSiP99QtA
).
The only people that are to blame are the people that capitalism, in its freest and most modern interpretation, thinks of as heros. These people are the risk takers who profit out of their ability to allocate capital where it is best needed, according to the dogma, and therefore oversight and restriction, which forms a barrier to their progress, forms a barrier to our progress as well within a capitalistic society.
Therefore we find it difficult within our system to hold these heros to account even when they act villainous. "What is villainous? Is selfishness not a virtue? Is greed not good? Without villainy, from where does profit, thus progress, spring?"
And so we can't blame these big meritorious banks for making a buck even though the bucks they made for themselves in the moment sank the world economy and the companies that employed them in the future. This is the flaw in Alan Greenspan's world view. If we expected students not to cheat on their doctor's exams because cheating produces badly qualified doctors and students should regard being a doctor as a responsibility and a public trust, then we were naive. People cheat when the reward of cheating vastly exceeds the risk of being caught. And when it starts with a few people cheating and getting richly rewarded, it grows into more people cheating and getting richly rewarded until it becomes systemic.
And when there's systemic cheating, then good honest students get eliminated from the system because they lack the metrics and rewards accorded to cheaters.
So there's two problems and they both spring from this simplistic hero worship within modern capitalism.
1. Capitalists do what they can to circumvent the limits placed on capital. ( for example MERS)
2. People find it hard to fault them for doing what they could, even when what they did destroyed the market and the capitalists likely knew it would.
1 manifests as systemic risk.
2 manifests as the systemic fraud that enables 1.
You're never going to solve the risk problem until you attack the fraud problem, and that will involve tearing down a lot of supposed heros. (Aren't we calling them job-creators these days?)
And I'm afraid, both media and political systems, aren't prepared to do that. Hell, they can't even release an official report with the term "Wall Street".
#2 Posted by Thimbles, CJR on Sun 9 Jan 2011 at 10:45 AM
A chat about Sperling and the Wall Street where everybody who's anybody, and that includes a whole lot of Rhodes scholars:
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/20/AR2009112003374.html
finds work:
http://blogs.hbr.org/fox/2011/01/gene-sperling-and-wall-street-giant-sucking-sound.html
"A parallel that springs to mind is the deleterious impact that Western aid and development agencies have often had in Africa, at least in the past when they favored big-dollar projects. The money the Western do-gooders had at their disposal was of a different order of magnitude from the sums generated by the local economy. So as soon as it began to be doled out, it skewed economic incentives and sucked talent and resources away from everything else — eventually leaving the locals addicted to aid and in many cases worse off.
For a decade or two now, the financial sector has been doing something similar to the rest of the economy, especially but not exclusively, in the U.S. and UK. The increasing rewards to work in finance were for a long time defended as evidence that the financial sector was creating more value than the rest of the economy. After the crisis of 2007 and 2008, though, that became a pretty tough argument to make. It seems more likely that the combination of massive risk-taking in the financial sector and government backstops and bailouts when those bets go bad has created a situation where financial sector pay is kept artificially high.
How artificially high? Finance scholars Thomas Philippon and Ariel Resheff have actually tried to calculate how much financial-sector workers are overpaid relative to those with similar skills in other professions. About 40%, they say. That's for the financial sector as a whole, not the fancier precincts of Wall Street. There the percentage would seem to be more along the lines of, say, 2,919% (the gap between Summers' pay at D.E. Shaw and what he made at the White House).
With that kind of pay differential, Wall Street inevitably begins to emit a giant sucking sound as it hoovers up smart, self-interested people. This is apparent at top business schools, in physics Ph.D programs — and in Washington, where smart out-of-office (or just burned-out) government officials who want to secure their family's financial future before either retiring or heading back into public service now flock to Wall Street jobs. Larry Summers did. Rahm Emanuel did too. John Snow did. Bill Daley did. Phil Gramm did. Harold Ford Jr. did. Peter Orszag is doing it. Heck, I'd probably do it if I were in their shoes. Gene Sperling, to be fair, didn't go so far as to become a banker. But on the whole, if you believe that people respond to economic incentives, you have to believe that Wall Street's artificially high pay scales have come to have a big impact on decisionmaking in Washington — and that this is an unhealthy development for our democracy and our economy."
#3 Posted by Thimbles, CJR on Mon 10 Jan 2011 at 12:36 AM
"The only people that are to blame are the people that capitalism, in its freest and most modern interpretation, thinks of as heros."
Oh, you mean the so-called free-market "capitalism" that has long been destroyed by Marxist, corporatist, and generally interventionist designs such as central banking, income taxation, counterfeit money, subsidies and bailouts to preferred industry, a regulatory regime, price-fixing, interest rate fixing, economic and financial "czars," protectionist and mercantilist trade policies, etc.?
"These [heros] are the risk takers who profit out of their ability to allocate capital where it is best needed, according to the dogma, and therefore oversight and restriction, which forms a barrier to their progress, forms a barrier to our progress as well within a capitalistic society."
So basically, you are envious of a person's above-average ability to provide for himself, his family, and his community, and therefore he must be punished by the State? Seriously though. That is the basis of the theory espoused by David Harvey (your own "hero"?), as seen in the YouTube link you provided above. (See Harvey's intellectually dishonest "theory" getting easily demolished, yet again, here.) Your anti-capitalist argument come down to this: Wealth accumulation is inherently evil.
BTW: The Feds' anti-risk policies only encourage the malinvestment and misallocation; whereas, in a free market, such activities would be discouraged by the risk of dire consequences.
Your arguments against capitalism are based on false assumptions about capitalism, risk, and so on. Not long ago I held beliefs very similar to yours. But then I woke up and began reading the consistently principled scholars who do not apologize for govts, central banks, or any other monopoly of power.
#4 Posted by Dan A., CJR on Mon 10 Jan 2011 at 12:45 AM
"Oh, you mean the so-called free-market "capitalism" that has long been ...."
No, I mean the free market capitalism that is professed by free market economists who work at free market
circle jerkorganizations like the Competitive Enterprise Institute.Think tanks which are in operation because there's a market for thought that makes heros out of pampered ass wall street bankers, energy executives, and other so-called captains of industry.
It's a small market, but the customers have very deep pockets.
(There's a market for bad fiction that does the same http://www.ourfuture.org/blog-entry/rand-rescue
I'm not interested in bad thinkers or bad fiction)
"So basically, you are envious of a person's above-average ability to provide for himself, his family, and his community, and therefore he must be punished by the State?"
No, I'm disgusted with conscienceless pricks who ascend through their ability to be dishonest and greedy and descend everything around them. I believe in builders, not these consumers who leave nothing but ashes and fat bank accounts behind them.
"That is the basis of the theory espoused by David Harvey (your own "hero"?), as seen in the YouTube link you provided above. (See Harvey's intellectually dishonest "theory" getting easily demolished, yet again, here.) "
No not my hero, just a guy who made a good point. (And no, the little weasel from the Competitive Enterprise Institute did not demolish his argument. The little weasel from the Competitive Enterprise Institute, with his BA in Miscommunications is worthless listening, but if he made you feel better good for you)
"Your anti-capitalist argument come down to this: Wealth accumulation is inherently evil."
No. That is not what I said and if that is what you got, from me or the video posted, then you are not listening very carefully.
"BTW: The Feds' anti-risk policies only encourage the malinvestment and misallocation; whereas, in a free market, such activities would be discouraged by the risk of dire consequences."
The Fed's anti risk policies prevented my bank deposits from going into risky, bank breaking, investments, but that was before the free marketers jumped in and deregulated the banks and changed our banking culture from a building culture into a casino culture.
"Your arguments against capitalism are based on false assumptions about capitalism, risk, and so on. "
Keep telling yourself that if you like and others can decide for themselves who is right.
But I still don't get what your solution is to a lawless system when you've demonized the concept of law.
The market can only decide based on the present, incomplete, information of customers and yes customers may discipline a company after it has caused a catastrophe, but the market cannot prevent one.
You have no solution to fraud.
#5 Posted by Thimbles, CJR on Mon 10 Jan 2011 at 04:59 AM
I got great news here World of Tanks Multi Hack 2011
#6 Posted by King Rascon, CJR on Tue 13 Dec 2011 at 11:46 AM