Desiderata

Ireland, or, What Not to do With Your Economy – Ireland adopted a fairly strong version of the supply side/trickle down approach to their national economy. The cornerstone to this approach is to gut taxes. A common accompaniment is lax regulation, especially in the financial sector. Two results were achieved. First, lots and lots of foreign multinationals showed up to take advantage of the low tax rates. They hired lots of well educated locals and were a major contributor to the “Celtic Tiger”. Second, the banks went on a rampage and pretty much did whatever they wanted. One thing they apparently wanted to do was to loan way too much money to real estate developers.

Wait, three things happened. The third being that the economy hit a wall, even harder than everyone else, and the country is on the verge of bankruptcy. And here’s a great quote from one of the multinational companies that showed up: “HP is very clear,” Lionel Alexander, head of Hewlett-Packard’s Irish operations, told Bloomberg Television. “If the tax rate increased, we would be relooking at our investment in Ireland.” The standard business press mantra when faced with quotes like this is that HP has an obligation to its shareholders. True. And if Ireland is the cheap whore, rider her. But I wonder if Lionel Alexander said something like, “we don’t give a fuck about Ireland or the Irish people, but if we can locate a facility this close to Europe AND pay almost no taxes (12.5% v. approx. 28% in other parts of Europe), we’re in. No, he didn’t

The point: Every time you hear someone talking about how we have to keep lowering taxes here, ask them how it worked in Ireland. This is also relevant to the Bush tax cuts.

$100 Million Here, $100 Million There…It Starts to Add Up – Goldman Sachs trader Fabrice Tourre is facing additional charges in an ongoing battle with the SEC over Goldman misleading investors in products related to subprime mortgages. For its part, Goldman settled for $550 Million. Put another way, Goldman settle for $550,000,000! You don’t do that if you’re innocent. I know it’s a big organization. I know they don’t want bad press. I know they make a lot of money. But you don’t willingly part with more than HALF A BILLION DOLLARS unless you thought you might be compelled to part with more.

The point: Goldman was ripping off everyone they could during the height of the real estate bubble. They may not have broken too many laws, but they were fucking everyone they could. They were lying to anyone they had to. They were doing anything at all to make obscene amounts of money. They are NOT just sophisticated players in a major international marketplace. They are parasites.

Corporate Profits – Logged in at $1.66 trillion. Yes, trillion. That’s on an annualized basis. Unemployment hovers just below 10%. Suck it.

The point: I thought Obama was killing business (I’m not a fan of the current Chief Magistrate for what it’s worth). I thought the economy was teetering on the brink of the abyss. I thought the huge government debt was sucking the life out of the economy. No, the economy, as measured by profits, is soaring. Don’t believe any macroeconomic argument you hear from a politician on the left OR the right.

Ben Bernanke is a Drug Dealer – This is the takeaway from an utterly moronic column written by Shaun Rein at Forbes. See, Shaun had a friend (“Johnny” was his name…surprise, surprise) who was a junkie. When his parents ran out of love, all they could give him was money. But Johnny was an addict, so THAT DIDN’T HELP. Similarly, Bernanke “giving money” to US businesses won’t help (yes, Shaun’s boiled QE down to that). Why won’t it help? Here’s why: “Low interest rates and an increased money supply are worthless tools if companies don’t think there are ways to make money.” Maybe Shaun didn’t see that US businesses just clocked in with record profits.

The point: this really doesn’t have anything to do with business. The point is that when a column purporting to be serious is so poorly conceived and so stupidly written, you should just ignore whatever it’s saying. If someone else provides a reasonable basis to disagree with QE, give them a listen. But if it’s this clown, don’t bother.

You CANNOT be Serious

Not too long ago the US Government (that’s you and me, dear reader) paid billions of dollars to the vampires at Goldman Sachs to ensure that they would be made whole on some exotic financial instruments they were involved in. Seems like the company guaranteeing the value of those instruments (AIG) was going belly up, and wouldn’t be able to completely fulfill their obligations. That meant that Goldman, Citi and others would – GASP – lose money on their investments.

But for some reason, the US Government, Bush was still in power at the time, but Clinton or Obama would’ve done the same, PAID FULL PRICE for these toxic assets. We had to make sure that the contracts which were in place were honored to the letter.

But now, as the Great Liquidation (a nifty little term coined by the Trustafarians at Fortress Investment Group) gets underway, hedge funds are buying impaired assets from banks for pennies on the dollar. One of the biggest classes of financial assets that are being bought are Collateralized Debt Obligations (CDOs) the nasty things that we bailed Goldman out of for FULL VALUE when everyone in the world knew they were worthless.

A couple of points to take from this:

1. Banks sell assets for far less than their book value all the time. It’s a common practice. It’s called getting a hair cut. The Fed didn’t give Goldman and the rest of the gang a hair cut because former Goldman execs ran and run the Fed. Simple conflict of interest. Not a conspiracy.

2. At the time, Goldman and others put up fancy arguments for why they should be paid in full. Never believe that kind of crap. For all the complexity of any given financial instrument or any particular deal, financial markets are wonderfully simple in this respect: the golden rule is in force. The party with the gold makes the rules. Never, EVER, believe a fancy justification. It is always a lie.

3. Wallow in the over arching hypocrisy of Wall Street. They storm around telling everyone that it’s a hard world, and you have to take your losses, but when they are faced with losses, they get made whole. They deserve scorn and contempt.