Another Perspective on Gutting Social Security and Medicare

Dean Baker provides a lot of great insights. His perspective always seems to be that of the normal person. Most people in this country will rely, in whole or in part, on Social Security for their retirement and on Medicare for their health care at some point in their life.

In this article, Baker takes on some pillars of the liberal media establishment which are parroting current demands to slash these programs.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/substituting-money-for-competence

Desiderata

Wikileaks: Coming to a Bank Near You – Over on the Premise page, we make it clear that we don’t believe in conspiracies; except the ones designed to stick up liquor stores. So, it will be interesting to see what comes out of the next set of Wikileaks which are apparently going to target a major US bank. One comment from Julian Assange, Wikileaks’ founder, is that the documents will illustrate the unethical policies and lack of regulation that are common at US banks. We look forward to the release of internal documents that support our contention that the sort of bad behavior we talk about here is in fact going on, and is actually the POLICY of some (read “all”) major financial institutions.

Insider Trading – A quick update here from an utter shill name of Halah Touryalai at Forbes. This a breathtaking example of bad writing, muddled thinking and just plain stupidity. Halah’s hard nosed take on all of this? When you play a rigged game, you’ve got to expect this kind of stuff AND she’d be shocked if anyone was put in jail (it’s not clear but I think she’d be shocked as in outraged, not shocked as in surprised). Hey Halah, the stated premise of EVERY company that sells stocks to the public is that it ISN’T a rigged game. And of course, in case you forgot, it shouldn’t be. You’re not hard bitten and cynical, your a moron and a shill for the big boys. BUT, keep in mind, that is the way many, many people who write about Wall Street view the matter.

Your Job is Gone…Forever – You may have seen last week that US businesses posted record profits (and you thought we were in a recession!). One way they’re doing this is by asking workers to find every way possible to save money (great) and to do so with existing technology so the company doesn’t have to buy new or upgrade (hmmmm). What this translates to in many cases is that there really will be persistent unemployment even when the economy does start to rebound. Too bad your 401(k) was decimated in the recent crash or you’d be cashing in on the rising stock prices.

Just a Thought – I keep hearing talk about how our economy is going to crash and go the way of Greece and Ireland because we have such a consumer focused economy and don’t have adequate exports. Here’s a thought: to start to turn that around, let’s devalue our currency (just like China does) and encourage manufacturing and exporting. Any takers? Sure, all the people who would get jobs would love it. And, since pretty much every country in the world manages its currency rate to some extent, it wouldn’t be anything new. But any thoughts along these lines will ALWAYS be railed at as protectionist. Anyone with a good answer as to why this would be so bad, let us know. Mind you, we only want real answers. Any answer that is based upon the sanctity of free trade, the need for global trade etc. will be put in the spam folder.

Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.

The Free Market – Do We Have One?

Issue: One thing you can count on is universal devotion to the “free market.” Every media outlet and every politician says first and foremost that they believe in the free market; that we have to do [insert any policy here] to support and/or maintain the free market; if we don’t support [insert any policy here] then the free market will suffer and dire consequences will follow.

The “free market” is used by liberals and conservatives to support everything they do and to bash the other side. But what if the free market didn’t really exist? What if every columnist and politician writing about the free market knew for a fact that it didn’t really exist and just used the notion of the absolute importance of a free market to support whatever idea they were trotting out on a given day? That would certainly take some of the fear out of calling them out when they say that their policies are essential to preserving and supporting the free market, wouldn’t it?

Let’s take a quick look at some current topics that most often get tarred with the Free Market brush and decode them.

Free Trade – The US supports free trade, and only does business with countries that play by the same rules, right? Wrong. If you wanted to import sugar into the US from another country, you’d have to pay a tariff on certain types and certain amounts of sugar. Why? Because we limit the amount of sugar that can be imported in order to support the domestic sugar industry. Because of this, sugar prices periodically go through the roof. Then the tariff is lowered and foreign sugar comes in, lowering the price of sugar.

What if a US auto maker wanted to export cars to, say, Korea? Good luck. While sales of KIA and Hyundai go through the roof, Ford Motors reports that for every 52 Korean cars sold in the US, 1 (yes, ONE) American car is sold in Korea. With the US taxpayer owning big chunks of GM and Chrysler, it would be nice if traffic went both ways on this street, wouldn’t it?

Stock Markets – The ultimate example of the free market, right? Wrong again. Let’s say you wanted to buy or sell a certain stock. Shouldn’t you be able to do that in a market where information is equally available to all participants? You should but high speed traders (owned by the usual suspects: GoldmanSachs, Barclays etc.) don’t just trade faster, because they trade only through computers, they actually get information before others do.

So you bypass stocks and decide to buy commercial paper. The financial rating given to that paper was put together by an impartial analyst, right? Wrong. Moodys, one of the largest rating agencies in the world is owned in large part by Warren Buffet, one of the largest owners of stocks and other commercial paper in the world. Just a minor conflict of interest.

Currency – If the relative value of a country’s currency goes up, then the cost of its exports goes up, and they become harder to sell. So it’s essential that the world’s currencies trade on markets which allow them to fluctuate with market conditions, right? Yes, that’s right, but it’s not true. China, the country with which we have the largest trade deficit by far, keeps its currency artificially below the dollar, thus making its imports more competitive in the US than our exports would be in China.

And you could poll a couple dozen US economists who think the current policies of the Federal Reserve are designed to unfairly manipulate the value of the dollar.

These are just a few fish in the barrel.

What’s the point of this, and what does it mean to you?

The main point is that the markets are NOT anywhere near free. Every country rigs parts of the market for their own purposes, and every market has built in biases that outsiders don’t know or can’t compete with. So when someone bases their argument on the requirement of free markets, remember, the markets aren’t free.

More importantly, if you work in the agricultural industry or the auto industry or an industry that is being hurt by imports from China, you should know that the lack of a free market is having an impact on your industry.

Why wouldn’t we limit the import of Korean cars? Maybe Korea will take us down in a trade war. Maybe that will be the spark that starts a global trade war. Maybe it will, but I doubt it. And in the meantime, we all hope that GM keeps making money or the US taxpayer will lose a ton of money on the investment it made in GM.

Before We Go Any Further…Why Does This Matter?

On the “Premise” page we lay out the reason and goal of the blog. Those are to decode the biased offerings of the business press and to provide ordinary people with a context from which to understand and discuss matters of business, finance and economics. This begs the question: what is the purpose of business in the first place?

Whatever your line of work is, you’re doing it to keep a roof over your head and feed yourself and your family. Along the way you want to accumulate the means to live a decent life and to retire under reasonable circumstances. Hopefully, you’re involved in an occupation you enjoy and find meaningful. You want to be treated fairly along the way so that you can keep what you work. You “play by the rules” and want to be be sure that the people in power are playing by the same rules.

As far as economic policy goes, you probably don’t care too much about it as long as it is fair and supports the interests of the country as a whole, and the industry you are a part of.

And THAT final bit is why understanding what is written in the business press is so important. In fact, it is just as important as understanding the other major issues facing our country today. Exactly what is meant by “free trade”, for example, and whether economic policies designed to support it will help or hurt your personal situation is extremely important. Whether the financial industry was allowed to function in ways that were self serving and beneficial only to a very small class of people who control it, can have devastating impacts on your everyday life. Anyone who lost a significant part of the value of their 401(k) or house in the past two years knows this.

Only by understanding economic policy, and how it effects business, can you intelligently be involved in discussions that will effect your everyday life. By not understanding economic policy, and by trusting the “wisdom of the market” and the people who control it, we all just got screwed royally.

This matters because we shouldn’t stand by and watch it happen again.

William Kristol is Opposed so Quantitative Easing Must be OK

We are not political. However, when a political hack like William Kristol takes a position on economic policy, it’s got to be wrong. An open letter in today’s WSJ by “economists” takes issue with the Fed’s recent approach to monetary policy of buying up Treasuries (this is what is called “quantitative easing”) saying that it will debase the currency and drive up inflation. I put economists in quotes because although they were billed as the authors of the letter, it was signed by gasbags like Kristol as well.

Since the goal of this site is to translate this sort of nonsense into something understandable, let’s start with a couple of easy observations.

First, there are economists on both sides of the argument. There is NO agreed upon position by economists as to the efficacy of this approach.

Second, there are Fed economists on both sides of the argument. While this is closely related to the first point, it is worth noting that in this case, the Fed isn’t a monolith. In fact, there are right-leaning economists at the Fed who support the policy.

Third, one impact of this policy that nearly everyone agrees on is that the dollar will be devalued. What that means for ordinary working people is that our exports will be less expensive overseas, and we should be able to sell more of them. That should translate into more jobs.

Fourth, there is no indication that this will lead to rampant inflation. The economy is very weak at the moment; a situation which will act as a damper on inflationary pressures.

Bottom line: Many US economists adhere to a mantra of keeping inflation down at all costs and at all times. This is not a universally shared outlook. There is no reason to think that the second round of quantitative easing will lead instantly to rampant inflation. None.

Oh, and for what it’s worth, the dollar rose today, as investors put their money in this safe haven currency as problems continued in the Euro Zone. I guess the people who wrote this letter were disappointed in that.

Today’s Edition of Free Market Nonsense

Let’s take today to focus on bullshit related to the FREE MARKET.

First, remember that the business press takes it as a matter of faith that there is a free market and that it is the best and strongest force in the world. Both ideas are total bullshit, which makes the nonsense you read in the business press that much more interesting.

Take One: Obama and Korea. We tried to get the Koreans to agree to some sort of arrangement relating to importing US autos into Korea. Naturally Korea, an exporting nation, politely told us to fuck off, and they’re happy to continue protecting their domestic auto market. So much for the freedom to import into the Korean market.

Take Two: The Japanese continue to massively subsidize their rice farmers. Hmmm, rice production is part of their national heritage and they don’t want to open it up to imports and see the market decimated. Shocking.

Take Three: Germany says the US is engaged in currency manipulation by engaging in quantitative easing. An exporting power, Germany will describe ANYTHING the US does to boost exports as either protectionism or currency manipulation. So much for one of our leading economic “partners.”

Take Four: Just a reminder…the US and the EU were both found guilty of subsidizing Boeing and Airbus, respectively. Shockingly, each political entity thought it was a good idea to spend some money to protect a high value-added manufacturing segment that generates thousands of jobs. The good news according to Boeing: Airbus was MORE protected.

The next time someone says there is such a thing as global free trade, smack them. There isn’t. And there never will be.

Republicans Disagree With the “Free Market”

Turn on the radio and you’ll hear one thing in common from the Republican talk shows: Quantitative Easing is wrong, will lead to rampant inflation and is obviously bad for the economy.

Wait, there are two things you’ll hear from every Republican talk show. The second one is that the free market, embodied by the stock market, is always right. It is the perfect reflection of rational choices made by people’s wallets and so has to be right. That’s nonsense, but that’s what you’ll hear.

What to do about the big runup in the stock market since the Fed’s $600 Billion purchase of treasury bills (the purchase of treasury bills by the Fed is one example of Quantitative Easing)? The stock market has gone up more than 10% since the Fed’s move, and the move up was widely seen as related to the repurchase, which was larger than expected.

How could the stock market respond positively to something that is so fundamentally and obviously bad for the economy? Good question. Maybe someone on talk radio will look at this problematic fact.

Allan Sloan and Foreclosures

Sloan has an article in today’s (10/26) Washington Post about the BIG trouble with the foreclosure crisis. But before he tells us the biggest threat, he tells us what it’s not: communists, community activists or left-wing academics. By saying they’re not the BIGGEST threat, this gasbag makes it clear that in his mind they are a threat.

In other words, when big business creates horrendous problems for nearly ever person in the country, the threat is from commies and liberals. It’s a great head fake. Remember, though, the problems we are dealing with were created by a decades long near total lack of systemic oversight. Let me be even clearer: holding people accountable for their mistakes and making changes to prevent them from recurring DOES NOT make you a commie or a liberal, much as one of the high priests of the business press would want you to think.

Anyway, Sloan goes on to say that the real disaster in this mess is that people will become even more cynical about big business once big government bails out the big banks. If a normal person makes a mistake when dealing with a bank, he has to pay up. When a big bank fucks up, it goes to the government and gets off the hook, and still gets to put the screws to you.

He’s right, of course, that this is exactly what’s going to happen. He’s also right that the banks will go to the Obama administration and/or Congress and get off. (More on that later.) And he’s also right that if any normal person doesn’t sign his closing documents right, he gets the shaft.

The two major problems with this nonsense article are:

1. Big banks are going to let themselves off the hook. The government is going to do nothing, and in so doing, the government is going to let them off the hook. The commie, liberal Obama administration is going to actively facilitate the ass rape of the common mortgage holder.

2. If what he describes really is a problem, and it is, then what do we do about it? In Hungary recently when a massive pollution spill wreaked havoc on the Danube and surrounding areas, the CEO of the company did time. Yes, TIME. As Sloan correctly states, the CEOs of big banks are going to do a show trial before a Congress they’ve bought and paid for and get off scott-free.

So Allan, how about jail time for these people? And not just the robo-signers. How about Jamie Dimon and Ken Burns doing some time? They’re not violent, so a low security facility would be fine.

My guess: Allan thinks that’s going too far.

How about regulating banks so this can’t happen again?

My guess: Allan thinks that’s going too far.

What you need to remember is simple: To call for tight regulation of lending is not a commie plot, it’s a good idea.

Banks and Foreclosures

This is the first of what will undoubtedly be several posts on this topic.

If you’ve ever been to a closing for a home loan, you know that every single document is scrutinized, signed and verified to be accurate. As it should be. And if you’ve ever been to a closing where a document was out of order, you almost certainly didn’t consummate the loan.

The idea that a bank would take it on faith that the documents you supplied to them were ok is absurd. No bank would take your word on how much you make without a W-2 form, or agree that you would own the property free and clear without a title search. And they shouldn’t.

So the idea that any bank anywhere should be allowed to foreclose on a property without a complete and accurate set of documents is equally absurd. If the banks can’t process a particular foreclosure due to bad documents – or if the banking industry takes losses because of a systemic lack of proper documentation – that is too bad for the bank and/or the banking industry.

In her ridiculous article in the Atlantic (http://tinyurl.com/33gzjth), Megan McCardle says that since the end result would be the same, just let the banks ignore the requirements of proper documentation and run roughshod over homeowners. The industry won’t be able to sell all the homes that come out of foreclosure, she says. No one’s buying homes if you haven’t noticed. The title insurance industry will break down, she says. This is a multi-billion dollar segment of the insurance industry that runs single digit loss ratios year after year. It won’t go away, trust me.

Here’s an even more preposterous quote from the NYTimes:

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

So why not be obligated to repay it in full immediately? Where do you draw the line on this kind of thinking? I’ll tell you. Right at the closing table. No documents, no foreclosure. Period.