Banks Fail All The Time

Nobel Prize Winner Joeseph Stiglitz argues for letting the banks go through an organized bankruptcy. He raises some interesting issues such as a big issue in valuation of minority interests is who has control. The Government has pumped billions into the banks and we have zero control. He argues for a plan similar to that used by Sweden when they took control (nationalized) thier banks during a crises.

The whole issue of bank failure comes down to our views on what is right and wrong. Most people don't realize that they only hear about our bifurcated legal system. first we have courts of justice. These get played out in cop and court dramas on tv sets around the world -- L.A. Law, Law & Order, Homicide, the Wire, and so on.

Never do we see a show about the legal system that runs on reverse polish notation (RPN) like the backwards HP calculators. I am talking about the courts of equity that are nearly as old as justice courts. Traditionally, they were run by the church. With due separtation, these courts are now run by the government. Equity of the debtor and creditors is ostensibly the goal. The biggest justification for this is that Kings of Europe learned that the peasants would get restless when they or thier friends were forced out on the streets with their families. So forgiveness, not justice, reigned and became codified.

Of course, many hold to the burn-in-hell notion of payback and in practice leave forgiveness out of the temporal realm.

A Marxist View From the Bottom

Capitalism Hits the Fan: A Marxian View from UVC-TV 19 on Vimeo.

Tired of the talking heads on TV, try this guy. Rick Wolf is an economics professor at UMass Amherst, where he analyzes economic events through a Marxist perspective. You don't have to change you mind, but you should open it. It doesn't hurt.

Here is a preview:

Most US economists are professors in colleges and universities. Their academic positions enable research and teaching that is supposed to be independent of corporate interests. They could, at least hypothetically, provide the critical insights into economic problems needed for their solution. Economists might help to propose, evaluate, and debate the wide range of possible solutions -- from those that minimally change the status quo to those that entail fundamental social change. However, history shows that most professional economists have been subservient to corporate interests rather than constructive critics. They celebrated capitalism, ignored or dismissed alternative economic systems, and only argued over how best to manage the huge social costs of capitalism's recurring instability. The economists' shameful corporate subservience has been the nation's loss.

The US professional economic establishment -- its members call themselves "mainstream" -- never leads. It always follows. Before the Great Depression, mainstream economists dutifully embraced what they called "neoclassical economics." This economic "science" showed, they said, that what profited business benefited the whole society. In this mainstream perspective, private enterprise and markets worked best for everyone when left free of government regulation or interference. Big business led and publicly promoted this celebration of capitalism. Colleges and universities sought financial contributions from businesses, their owners, and their leaders. They needed enrollments from these people's children (few others could afford the costs of higher education). Academic administrations neither wanted nor supported professors who criticized private business interests or otherwise displeased them (for example, by challenging mainstream economic science).

BTW, this is not an endorsement of his theories, but they are like sex - it only hurts if you do it wrong or are trying.

You Ain't Seen Nothing Yet

The following charts are from the St Louis Federal Reserve Bank. The analysis is from East Coast Economics. For now, these guys get to stay on the island and they have immunity for the next round because they know how to say "Oh Shit" in public.

This chart depicts total borrowing from the Federal Reserve Bank up through 2007.



This is the same chart extended through 2008, with the scale adjusted to fit the data...


For an better description click here. I am afraid there is no way out except forward. Terrence McKenna was right about the great leap forward.

On January 6, 1954, Meishu-sama wrote:

The most important step to take toward making this a full reality is to discard all Shojo attitudes and become totally Daijo in spirit. In other words, there should appear a movement which includes religion, science, government, economy, art and every other area of material life, yet transcends them all. It should be led by a spiritual giant who is endowed with superhuman power and wisdom, one who can lead everyone toward that goal.

We sure seem to need a superhero. Besides Rush Limbaugh, does anyone else wish for failure?

Bounded Rationality

Today, I voted the first economist off the island. Mark Zandi of Economy.com, owned by Moody's (as if they are one to judge the health of the economy).

In an NPR interview on today's weekend edition, Mark Zandi said several fascinating things. All of them were logical, easy to follow, but still digestible contorted linguistics, intellectually palatable for the managing class to feel serious about.

Here is what he said, in essence:

1) Obama's $850 billion bailout is not big enough.
2) It is too focused on construction and job building and infrastructure.
3) The congressional research service says that stimulation through jobs takes too long to work its way up to solve the financial problems.
4) Tax reduction works faster, unless people choose to save.
5) If we don't save the financial system first, we are going to lose millions and millions of jobs.

So we can't give people jobs, because they will lose jobs if the financial system isn't fixed. I thought the market was broken and no one knew exactly where the break was, so we have to dig the whole thing up and replace it. But in the meantime we are supposed to be patient. They are asking the masses to allow a temporary suspension of "the rules" of how freedom works, so they can patch the economic side of freedom that is taking on water.

We know from world war II and Rosie the Riveter that the free will never again accept oppression imposed by others. The women didn't go home, they went to work. This genie is not going back in the bottle. Let's accept that fact. If the market is broken, the best job is a job.

This is where economics gets tricky. Yes, an economist can say with statistical rationality that a job will produce seven wazzu thousand dollars per thousand spent, spread out over 13.2 years. Really!!? Absolutely, they have PhDs. I went to graduate school with these guys. They are not that accurate. They are not that good. It is outside their confidence interval.

Two examples: Nobel Laureate Gary Becker was once asked by a graduate student what economists really "know". His response was that we are pretty sure that demand curves slope downward. A second comes from Lars Hansen, in dealing with general equilibrium models under uncertainty, would get excited over models with R-squareds of 30% (because other trends were being teased out of very complex data). But, none the less, this as good as economics gets -- at least in the majors.

What don't they see? Well, someone has a job, their life has meaning. Economists can't measure that. they can only measure prices and all that other feel-good gain goes to the masters. They can't measure how a society evolves and a community pulls together rather than pulling apart. It is not in the dataset they start with so it can't be in the outcome. Every magician knows that.

They can't measure the disappointment a father feels when he looks his kids the eyes and tells them he has failed them. It is called a cramdown. Ask a bankruptcy expert how it works. The benefit goes somewhere, or at least a fraction of it.

So let's fix the financial system first. What about this. Which came first, finance or society? Even I know debt swaps, collateralized debt obligations, and mortgaged back alt-A subprime securities came about since the place we have to get back to on an infrastructure basis. So to me, that means jobs first. But take the financial system to that same place. We may have to nationalize, or even globalize. But right now we need democratic communities, not oppressed communities.

The other thing is that with people working, a new economy can emerge. It is in the air. People working with hope invent alternative communication networks and social structures. If everyone is in pain, wallowing in fear about next month or tomorrow, those links don't form. All the time is spent crying instead of laughing even sometimes. That is power. That is what they don't want. I am concerned that some economists "Don't Get It".

BTW, bounded rationality is the concept that the data shows behavior in a certain way that is consistent with "rational" actions over the small events being measured. The "bounded" part just means that the data follows certain mathematical rules -- rules that if were violated would cause the predictibility of the models to fall thorugh the floor. In otherwords, it is like having a map of Route 66, and making decisions about speed limits in Hawaii. Locally, the map and info works but you are on your own if you try to extrapolate. So lets take $3 trillion and do what Mark Zandi of Moodys says is right? Show us the models and give us the data! FOI!