Posts Tagged ‘recession’

What kind of person are you?

2011/10/27

Do you think of labor in a factory to be a resource, or an asset?  Do you believe that it should be ‘every man for himself!’ or do you believe in community being worth investing in?  A pure capitalist would view labor as a resource, to be exploited to the utmost.  A civic minded person believes that the community is valuable, and well worth investing in.  Pure capitalism is self-destructive, as we have witnessed, because all of the wealth ends up in the hands of a few, and the economy comes to a halt, because no one can buy anything.

Part of the reason that the government has grown so large is because the community has had to band together to deal with the consequences of our capitalist society, which aims to use people up and throw them away.  If employers took care of their employees as if they were an asset, an investment in training, experience, and knowledge accumulated over time on the job, than government would not be needed to redistribute the wealth through taxation.  Health care, retirement, housing, all would be affordable, and available to all.

Every one wants a bigger slice of the pie.  Even though the pie is not getting larger, and there are more people wanting a slice.  Taking some from somebody else to have more for yourself is called greed.  Greed has betrayed capitalism in the United States, pushed rational thinking aside, and driven us right over the edge.  Instead of investing in the future, to assure that the future is the one that we desire, we have been enticed to spend everything, and more, right now.  In return, our jobs have been outsourced overseas, our taxes are buying less and less services, and everything is horribly expensive.

Only huge, economy-wide growth, on a scale never seen before, can pull us out of an economic implosion.  Asset deflation is likely to set in, as prices drop, values decrease, and people have no money to spend.  Deflation scares the wealthy more than anything else, because it steals away their wealth even through locked vault doors.   To avoid another Great Depression, a new set of rules are needed.

Investment has got to be with the intent of value increasing over the long term, not in order to pay today’s bills.  Cash dividends to stock holders is the single most damaging policy of all modern business practices.  It robs the future to allow luxury for a time, and corrupts the process of management.  Stock should increase in value, and be split, to reward its owners, as the company becomes more and more valuable.  But that can’t happen when the profits are being funneled into cash to pay to stockholders.

 

We want to inquire about your greed.

2010/05/05

Congress can never be said to avoid taking action, because every crisis and major decision sees some form of commission, committee, or dog and pony show created do provide guidance.  The congress itself is too busy running for re-election to actually study the issues, so they delegate someone else to do it.  This tactic is especially popular when unpopular decisions are needed, because the legislator can always say that they just followed the recommendations of the body which was responsible for that action.  This is, of course, out and out denial of the congress members duty to take responsibility for their actions.

Responsibility is what the commission that sparked this diatribe is investigating;  who can get the credit for the American economy collapsing around the remainder of Wall Street.  Somewhere, there has got to be a person or persons whose decisions were instrumental in causing tho worst economic collapse since the Great Depression, or so the thinking goes, apparently.  The Financial Crisis Inquiry Commission is charged with establishing just what caused the best party the rich had enjoyed in centuries to come so suddenly to an end.

But, over and over again, executives state they were following sound business practices, and that it was unstoppable market forces which overwhelmed them.  They had no responsibility for all the bad things that happened.  We should not be surprised, because it would take some too dim of wit to survive on Wall Street to stand before a commission and say, “We were greedy, and got in over our heads.”  Which is what the whole crisis amounted to; greed distorting the judgment of everyone from home owners to heads of multinational banks.

How ‘sound’ is a business practice which is based on the market continuing an unprecedented surge, or the willingness of others to loan money?  It sounded great when the money was rolling, but people were so busy putting it in their pockets that they didn’t set any aside for an overcast day.  The smallest disturbance could threaten multi-billion dollar companies with extinction, it worked out, as dominoes fell one right after another, until the whole thing went right off a cliff.  How can you expect to see a cliff when you are driving 100 miles per hour?  The profit taking was so supercharged that no one even considered easing up on the gas a little.

Well, it was nice while it lasted, and some people made a lot of money, but most of us ended up with less.  Is it our money that those people got?

Republicans just say “No”

2010/04/20

The new strategy of the Republican party is to just say “No”.  No to anything that represents progress, because the Democrats are in control.  The Republicans are willing to sacrifice the working of government in order to take back control of that government.  To what end to they seek control?  To stop any attempt at new regulation of the financial sector, to stop implementation of the first attempt at health care reform.  To allow unbridled access to America’s parks and national forests for resource extraction.  To insure that the rich get richer, and that middle class folks are set with an even greater burden.

Our economy is still suffering the effects of the worst financial meltdown since the Great Depression.  Evidence is mounting that this was not simply a bursting of a bubble, but an orchestrated, planned destruction of wealth, in order that wealth could be consolidated by a select few.  Most people lost money in the Great Recession, but some people made money.  Lots of money.  The government was forced to take unprecedented actions to keep the entire economy of the world from collapsing.  The Republican administration under George Bush took those steps, reluctantly, yes, but with no alternative which would not lead to complete economic meltdown.

Now, those same Republicans are trying to blame the Obama administration for what their president did.  They cry “No more bailouts,” yet what do they offer as a means of preventing the same situation from happening again?  Obstructionism, denial, and misrepresentation.  It was the Republicans who took this nation to war, violating the most basic of all rules, that against attacking someone who has not attacked you.  The Republican party has allowed flagrant violations of safety laws in the coal mining industry, sought ways to evade the Clean Water Act, and saddled our efforts to explore the Solar System with an unworkable program.

What kind of person will deny any effort to accomplish something merely to make themselves look good?  A Republican will.  Republicans see no problems with the health care system in the United States, even though the costs of providing health care to state workers is bankrupting the states, and growing numbers of Americans have no access to health care beyond the local Emergency Room.

The Republicans want you to believe that they are protecting the core values of the United States.  Nothing could be further from the truth.  What they seek is further license to steal, to degrade, and to swindle.  Democrats opposed Republican legislation because they disagreed with it.  Republicans oppose Democratic legislation because it is Democratic legislation, even if they agree with it.  They are willing to allow the financial sector to take another stab at destroying America, just so that the government that oversees that destruction will be Republican.

Making money

2010/03/10

Your credit card company charges you for a late payment.  Your bank charges you for an overdraft.  A payday loan company charges you for borrowing money.  These are all examples of wealth creation.  The money that you are charged does not exist until the charge is made, and then it becomes numbers in computers.

This is the kind of wealth creation that the financial services sector performs.  This is the kind of wealth that evaporates overnight.  It used to be that banks made money by lending money that had been deposited with them to people who were going to build a company up, or to governments that were going to build bridges and roads.  That is how America grew into a large and wealthy nation.

But the pace of growth wasn’t enough to satisfy some greedy people.  They wanted to get rich faster.  So new methods of making money were developed, like bank fees, credit card charges, and payday loans.  Using these new practices, wealth was created at much faster rates.  But is it real wealth, or just an illusion.  The bank claims that you have the money it is charging you for the overdraft.  The credit card company believes that you will come up with the money to cover the late payment fee.  The payday loan company is certain to get your next paycheck.

But this money doesn’t actually exist until you earn it.  By calling debt real money, we have grown our economy tremendously in the last few decades.  However, we have not earned that money yet.  By claiming that the money I am owed makes me worth more, I can convince someone else to loan me money.  And so the velocity of money increases.  But what real value has been created?  What has been built, or paid for?

Nothing.  And that is why we are in such a bind right now.  Most of what is being called wealth is merely numbers in computers.  There is no bridge, or road, or building, or house, or airplane, or anything else, to back up the numbers in the computers.  It is a house of cards, a shell game.  We can claim that we are wealthy even when everything that we earn for the next year is already spoken for.

Future money?

2010/02/24

We live in a country where it is legal to borrow something from somebody, then sell that thing to someone else, for less than it is worth.  Then, when the price for that thing has gone down even more, we buy it back, and return it to the owner.  Of course, it is worth much less now, but that is not our problem.  That is the process of short selling, a financial gimmick that lets people profit on other people’s misfortune.

This is comparable to borrowing somebody’s car, keeping for a while, and then returning it all scratched up.  And I have to wonder, does the person who owns the share know that it is being borrowed for the purpose of short selling it?  Or are the shares being ‘borrowed’ coming from a broker who is representing the owner?  I don’t think that I would lend something to someone with the knowledge that they were going to try to decrease the value of what I was lending them.

The American financial industry seems to have lost all semblance of morality, a reflection perhaps of the greed that it represents   Our materialistic society puts so much emphasis on wealth that people will go to any lengths to have it.  Wealth supersedes family, friends, community, physical health, spirituality, and self-respect.  How can you have self-respect when you know that you will do anything for money?

The malaise affecting the United States right now is the result not of loose regulation, but of the greed of Americans.  Because we are a materialistic society, we equate our self-worth with our wealth.  To have more is to be more worthy.  We do not attach worth to spiritual affairs; a person who is deeply spiritual, with many friends, who has no money, is considered a poor man, of little import.  Helping others, sharing what exceeds our needs of what we have, giving our time to another, these are considered signs of weakness in our culture.

The more we define ourselves by what we own, what we possess, the less likely we are to believe in ourselves when we lose those things.  No one can take away your spirit, your ability to give, your strength.  We surrender those things with our association of wealth with superiority, defining ourselves with qualities that come from outside of ourselves.  To believe in one’s self means to know that you are strong, that you have much to offer those around you, and that you have value by being who you are.  That is where true security comes from, and this is why wealth is false security.

Our beliefs have been manipulated by the greedy, so that we have turned away from the things that made our forbears strong.  We have sacrificed practically everything to promote the accumulation of wealth, while doing little to implement the creation of new wealth.  Short selling a stock does not create new wealth, it merely produces the illusion that wealth has changed hands.  But the value of the stock has declined, which means that wealth has disappeared.  Is this how we are going to make our money in the future?

Losses from profits

2010/02/23

How much profit should there be in a system?  How much money can we extract from something before it stops working?  We have seen what happens when too many people are trying to extract too much money from the system, and push prices to unsustainable levels.  But what about health care insurance?  Should substantial profit be allowed from providing access to health care?  Because that is what the insurance companies are doing, is controlling access to health care, while making a  profit.

And, in order to make a profit, they must first cover all of their costs, which include the people who process the claims, the bookkeepers, the managers, the janitors.  As the insurance industry has grown in size, the percentage of the proceeds from selling insurance going into overhead has probably increased, which means that rates must be increased in order to provide a steady level of profit.  These profits are necessary so that the companies can pay their shareholders dividends every quarter, as well as their own salaries.

Calls for larger dividends mean squeezing more profit out of the system, which usually starts with raising rates.  I would really love to know what the total cost of health care is minus the costs of insurance.  Just the amount that the doctors, the hospitals, the labs, the technicians charge in a year.  By comparing that to the total cost of health care for that year, we could perhaps gain some understanding of what the real cost of health care insurance is.  And, of that cost, how much is pure profit.

Personally, I find it difficult to believe that we can ever reform our health care system as long as the insurance industry is such a major player.  By incorporating their costs and profits into total health care costs, we see a steady increase in what we pay, even though the providers of the health care are not seeing a corresponding increase in their income.

Maintaining large profit margins has other negative effects, such as outsourcing jobs.  Why is this a negative?  Because the people who used to do the jobs that have been outsourced frequently lose the ability to buy the products that they used to make.  This reduces the market for the product, which lowers profits.  Yet, the justification for outsourcing the work was to increase profitability.  Not merely to maintain it, in most cases, but to increase it.

Repeatedly, I have seen American companies managed right into the ground, as profits have taken precedence over quality and service.  What have been thriving businesses going broke because the owners took too much of the income for themselves.  Companies which manipulated their books to appear more profitable than they really were, to keep their stock price up.  Corporations which have ignored sustainable practices in order to maximize profitability.

Unfortunately, there is not enough profit in the economy for everyone to quit working, which is what seems to be the goal these days.  Nobody is interested in doing a job that they can take pride in, they don’t want to even work.  Somehow, being useless, a drone, has become fashionable.  Working for a living is looked down upon, a sign of poor financial sense.  Well, if we keep on pursuing extravagant profits, no one will have to work, because there won’t be any jobs.

Building a better beast

2010/02/22

The United States economy is a sick puppy right now, reeling after over 1 trillion dollars evaporated.  The driving force of the economy in the past, consumer spending, has fallen drastically, as the middle class has been forced to live within its means.  Credit is almost impossible to get, and has become more expensive.  The declining value of homes has made the home equity loan a thing of the past.  Unemployment is scaring people into paying off credit cards, and building up savings.  Federal stimulus money has kept states from laying large numbers of employees, but the money is running out.

Maybe we ought to think about spending some of our money making the country more efficient.  This would reduce our dependence on foreign energy sources, as well as cutting the emissions of greenhouse gases.  Money would be freed up from energy costs, which could be used to increase spending.  Consider:  Many commercial buildings have no insulation.  That is right.  None.  The average home more than 20 years old is seriously lacking in insulation, and often leaks air copiously.

Putting people to work right now is difficult, because plans have to be drawn up and approved, bids taken, and contracts let.  But retrofitting homes and businesses could commence within weeks, if done properly.  Although President Obama talked about a program such as this a few months ago, little has been said regarding it recently.  Could it be that energy companies don’t want to see consumption reduced?  Could it be that Congress doesn’t like giving money to the average American, although they have provided plenty to the big banks and two of the car companies?

Perhaps we could couple improved efficiency with greater reliance on solar and wind power.  Low interest loans for solar panels and wind farms would probably increase the numbers in use considerably.  We are falling behind the rest of the world in the use of renewable energy, especially in the field of solar.  Building and installing solar panels would employ many people if we were to make a national push to utilize them.

Buses are a good way to save energy, and many parts of America have very few.  Building buses financed by federal loans to local transit operators would create employment in the parts of the country which have been hit so hard by the fall in auto sales.  People who ride buses save money which they can use to take their cars out for recreation, whereas people who drive to work often cannot afford Sunday drives.

There are ways to put people to work, right now, doing things that we would benefit from for years and years.  Some seem socialistic, but saving our society seems a worthy enterprise to me.  If we are going to keep borrowing money from China, at least we ought to do something worthwhile with it.

Let’s see some real financial regulation!

2010/02/02

President Obama’s push to reform the financial system is causing disquiet in many executive offices.  Yet he has not proposed any serious changes in the way that business will be done, instead merely expressing a desire to create a source of funds which would be used to bail out big banks that get in trouble, as well as seeking some form of protection from predatory lending for the average consumer.

No one has suggested taking steps to stop the underlying problem with the financial system, which is the selling of debt to investors.  What used to be standard practice was never regulated, because there was no need.  Banks traditionally carried the loans that they originated to maturity, even 20 year mortgages.  There was no law saying that they had to, it was just the business model.

Bet greed changed things around, and banks discovered that they were able to sell those loans to other banks, which then packaged vast numbers of those loans into single investment vehicles, the infamous ‘collateralized debt obligation.’  Add the ratings agencies willingness to give these vehicles AAA ratings, and a whole new realm opened up.  Gone are the days when the bank that wrote the mortgage was there to keep an eye on the borrower, or when a borrower could call the bank to talk about altering some aspect of their mortgage.

Mr. Obama also wants to stop the credit card companies from engaging in loan shark behavior, but his proposals do not address the penalties which banks can impose when a creditor is late with a payment, or goes over their credit limit.  Nor does his proposal prevent credit cards from being issued to people who are likely to get behind on their payments.  This has been a source of great revenue for credit card companies, at least on paper, because they can impose fees which, when combined, exceed the amount of the monthly payment whenever a creditor slips up.  These fees can add up very quickly, so that a person with a 500 dollar credit limit is suddenly 1200 dollars in the hole over a credit card.

The credit card company counts that 1200 dollars as real money, which increases their net worth, irregardless of the ability of the creditor to pay.  This can lead a person to file bankruptcy over credit card debt, which hinders their ability to rent an apartment, get a job, or even to travel, while the credit card company is faced with charging off substantial amounts of money it had been treating as already in its pocket.  Instead of increasing consumption, the credit card company has hurt the prospects of consumption growing.

The business leaders of this nation have got to stop trying to increase consumption by handing out easy credit, and banks have got to stop trying to grow their profits by selling debt over and over again.  Investors need to be putting their money into ventures which will create real, concrete growth, not numbers in accounts which can disappear overnight.

The estimated value of debt

2010/01/29

This financial crisis we have just started dealing with is not a surprise, nor was it unexpected.  And it isn’t over.  We are dealing with the consequences of our actions, the paybacks for the greed we all have been guilty of.  Sure, we believed that our homes were appreciating at astronomical rates, and why, of course we took our banker at face value when he said that it would wise to take out a home equity loan.  We wanted to have that money to play with.  We wanted to buy a nicer car to commute to work with, that boat that was on sale, or put in a pool.  Could we afford to do these things without borrowing money?  Not no.  Hell no.  We shoveled debt onto our heads like we were digging foxholes under fire.

What has all this economic activity created, all the money that we spent bought?  And how could so much of it just evaporate overnight?  People think about credit, but what about debt?  How many people think about the fact that most of the wealth that has been created in the last 20 years or so has been nothing more than numbers in computers, based upon the value of debt.  The more people owe you, the richer that you are.  People invest in debt, banks sell it, and nobody seems to want to pay it off.  What a wonderful concept; buy today what you cannot pay for until tomorrow, if you are lucky.

Did anyone figure in the effect of laying off millions of the highest paid consumers on the planet?  Is it really growth when you take jobs away from one group of people and give them to a different group?  Or is that just financial manipulation, to create wealth by cutting costs.  What happens when the cost that you cut is the buyer of your product?

Real wealth does not evaporate, it does not diminish in value, it is durable, and serves all the people.  Real wealth is roads, bridges, fiber optic cables, transmission lines.  How much real wealth has been created in the United States in the last 20 years?  And it is not creating new wealth to repair old roads, it is investing in what you already have.  So, we built a lot of buildings, but were they needed, or were they funding for a developer?

On every level, Americans have chosen to ignore the future, to resist real change, to accept that they were no better than anybody else.  Other people could ride trains and busses, we were going to drive.    So what if our new building doesn’t have any insulation.?  It is cheaper that way.  And the whole time, we have been insisting that everything is worth more.  Not because of any discernable reason, but just because we said so.

We have invested in trying to be wealthy enough to not have to work, not in making our futures better.  Now, we are paying for sitting on our butts.  We don’t create anything of value anymore, and we can’t even govern ourselves without borrowing money to do it.  Instead of spending money to develop the technologies needed to make a future possible, we have invested in moving production from America to some overseas country.  But we have not invested in giving Americans anything to do.  Normally, economic growth means that the leading countries improve their technology, and move from building one kind of product to one which is more complex, advanced, or somehow beyond the abilities of other producers.  Displacement happens as new industries replace old ones, and people have to learn new skills.

We veered off from advancing our technology, because it would have required a long-term investment, tying up our money for decades.  And we wanted to keep our technology to ourselves, so that no one else could use it against us.  In the 1960’s, during the administration of Richard Nixon, it was decided that the United States would not invest substantial resources into outer space.  The Apollo program would be cut, and no other manned exploration would be funded.  The military was going to handle space exploration, and only for the purpose of defense.

Since that time, the United States has spent more on cosmetics every year than has been spent on developing space manufacturing, mining, and processing.  Typical budgets for manned space exploration have amounted to a few brief missions every year, and nothing else.  The US would not have built a space station except because of pressure from its allies to contribute to one.

It is almost like we are committing suicide by starvation.  We give away all of our food, and do nothing to find more.  The world is fighting over a pie, each person wanting a bigger slice, and more people wanting slices all the time.  We need true growth, growth that results in wealth that will not evaporate.  The Earth is being used up, corrupted in our quest for wealth, while everything that we could possibly need exists somewhere in our Solar System.

Americans should be building space ships, working on space stations, or the Moon, doing work that produces tremendous value, so that they could bring home enough money to buy cars from Japan without having to borrow the money from China.  General Motors would be the worlds leading producer of launch vehicles, and Ford would be making deep space probes.  But we chose to be wealthy instead.

Scott P. Holman

2009/01/29

The view from debtor’s prison.

2010/01/18

Debt.  Credit.  Lenders and losers.  Somehow, the world economy has morphed from saving to buy to borrowing to buy.  Lending has been so lucrative that banks have made credit a normal way of doing business.  It wasn’t that long ago that state and local governments only borrowed money by selling bonds, companies sold stock to raise money, and individuals only borrowed from friends.  The one exception was the mortgage used to buy a home.

Partly as a result of banks desire to be able to loan out their money faster, we have seen the world economy severely damaged by excess credit.  Banks which wrote mortgages used to hold those loans themselves, having to wait until they were paid off before the money could be loaned out again.  Then, someone had the brilliant idea of having the banks sell the mortgages to another investor, so that the bank could then turn around and lend the money out again.

Back in the 1960’s, many consumers had used up their savings, and they began to stop spending on unnecessary things.  In order to keep consumption up, a new financial instrument was created:  the credit card.  At first only available to those with the ability to pay off the balance each month, credit cards gradually found their way into the wallets of nearly every American.  Paying off the balance each month was no longer necessary, and often discouraged, as the lenders made more money on revolving balances.

Corporations climbed on board the credit train when they found selling stock inadequate to provide short term liquidity, such as making payroll.  They even began lending money to each other for short periods of time, creating what is known as commercial paper.  State governments saw this, and decided that borrowing to cover expenses while waiting for tax receipts to come in was a sound practice.

In less than 50 years, borrowing had changed from a dirty word to the accepted way of life.  Credit was widely available, to almost anyone, for a fee.  Saving became old fashioned, and consumption was getting higher all the time.  Bankers even encouraged people to borrow against the equity that they had built up in their home, so that the bankers could make even more money.  Its citizens too broke to lend it money, the federal government turned to other nations to borrow the money used to pay for weapons, wars, and welfare.

Now, we are waiting for consumer spending to resume to dig the economy out of the hole we are in.  The government is borrowing nearly as much money as the country makes each year, trying to keep the wheels turning.  Home owners are walking away from mortgages which are for much more than the homes are worth.  Bankruptcies and bank failures are happening faster and faster.  But everyone wants to believe that things will get back to the way that they were.

No where do you hear respected economists and academics calling for the tightening of credit, or for learning to live without it.  Credit has become so fundamental to our economy that people can’t imagine a world without it.  We had better start, because credit is not going to be easy to get for a long time.  How can a bank loan out money when it doesn’t know how much it has?  Many banks are carrying packages of mortgages which, if put on the market today, are worth about 25 cents on the dollar.  Writing off the value of those collateralized debt obligations, as they are known, would wipe out the bank, so they are holding on to them.  In the mean time, the solvency of the bank is questionable.

As the tidal wave of foreclosures engulfs us, those packages of mortgages are going to lose even more value, making credit even tighter.  The federal government has to borrow money to pay the holders of Treasury bills and notes when those instruments come due, which means that it is insolvent, surviving on the good will of China.  Many of the states are facing running out of money, and not being able to borrow more.

Welcome to Debtor’s Prison.