Discussion:
The wonders of deregulation and a "free market system"; Retailing Chains Caught in a Wave of Bankruptcies
(too old to reply)
Thaddeus Stevens
2008-04-16 23:35:33 UTC
Permalink
Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across
the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid
bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many
are unlikely to be paid in full, spreading the economic pain.

Retailing Chains Caught in a Wave of Bankruptcies
By Michael Barbaro The New York Times Tuesday 15 April 2008

The consumer spending slump and tightening credit markets are unleashing a widening wave of
bankruptcies in American retailing, prompting thousands of store closings that are expected to
remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and
the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered
under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens 'n Things,
the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as
early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through
what could be a long economic downturn. Over the next year, Foot Locker said it would close 140
stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers.
Figures released on Monday showed that spending on food and gasoline is crowding out other
purchases, leaving people with less to spend on furniture, clothing and electronics.
Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily
on borrowed money to finance their purchases of merchandise and even to meet payrolls during
slow periods. Yet the nation's banks, struggling with the growing mortgage crisis, have started
to balk at extending new loans, effectively cutting up the retail industry's collective credit
cards.

"You have the makings of a wave of significant bankruptcies," said Al Koch, who helped
bring Kmart out of bankruptcy in 2003 as the company's interim chief financial officer and works
at a corporate turnaround firm called AlixPartners.

"For years, no deal was too ugly to finance," he said. "But now, nobody will throw money at
these companies."

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling
across the economy. The cash-short chains are leaving behind tens of millions of dollars in
unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising
agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The
furniture chain Levitz owed Sealy $1.4 million.

And it is not just large companies that are absorbing the losses. When Domain, the
furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation
and logistics company in Tempe, Ariz., about $30,000.

"We'll be lucky to see pennies on the dollar, if we see anything," said Ross Musil, the
chief financial officer of On Time Express. "It's a big loss."

Most of the ailing companies have filed for reorganization, not liquidation, under the
bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey
Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous
recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing
companies to restructure their businesses, offering them less leeway.

And the changes may force companies to pay suppliers before paying wages or honoring
obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the
bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books
on bankruptcy.

As a result, she said, "it's no longer reorganization or even liquidation for these
companies. In many cases, it's evaporation."

Several of the retailers that filed for Chapter 11 bankruptcy protection over the last
eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down —
closing stores, laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors: flawed business
strategies, a souring economy and banks' unwillingness to issue cheap loans.

Bombay, a chain with 360 stores, was considered a success in the furniture world, after its
sales surged from $393 million in 1999 to $596 million in 2003.

Then the chain decided to move most of its stores out of enclosed malls into open-air
shopping centers. It started a children's furniture business, called BombayKids. And it started
carrying bigger items, like beds and upholstered couches, with higher prices than its regular
furniture.

Consumers balked at the changes, hurting Bombay's sales and profits at the same time that
its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early
2007, the housing market began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more. "They did not want to
take the chance that we might not repay the loans," Elaine D. Crowley, the chief financial
officer, said in an interview.

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company
came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once
employed 3,608, now has 20 employees left. "It is very difficult and sad," Ms. Crowley said.

The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But
because shopping is based on weather patterns and fashion trends, retailers must pay for
merchandise that may sit, unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like wages and electricity
bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in
loans to help operate its 23 stores, using merchandise as collateral.

But by early 2008, as the housing market struggled, the chain's profits dropped, meaning
its collateral was losing value and the amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a reprieve. But with a
recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the
chain said it was "facing a liquidity crisis." (Fortunoff was later sold to the owner of Lord &
Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive
of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting
firm, said the credit tightness and consumer spending slowdown have only wiped out the "bottom
tier" companies in retailing.

"This recession dealt the final blow to these chains," he said. But several big-name chains
are looking vulnerable. Linens 'n Things, which is owned by Apollo Management, a private equity
firm, is considering a bankruptcy filing after years of poor performance and mounting debts,
though it has additional options, people involved in the discussions said Monday.

Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the
industry's troubles in the nation's malls.

J. C. Penney, Lowe's and Office Depot are scaling back or delaying expansion. Office Depot
had planned to open 150 stores this year; now it will open 75.

The International Council of Shopping Centers, a trade group, estimates there will be 5,770
store closings in 2008, up 25 percent from 2007, when there were 4,603.

Charming Shoppes, which owns the women's clothing retailers Lane Bryant and Fashion Bug, is
closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is
shutting a 153-store chain called Demo.

Those decisions were made months ago, when it was unclear how long the downturn in consumer
spending might last. If March was any indication, it is nowhere near over. Sales at stores open
at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping
council.

________________________________________________________________

A reasonably just and well-ordered democratic society might be possible, and . . . justice as
fairness should have a special place among the political conceptions in its political and social
world. . . [M]any are prepared to accept the conclusion that a just and well-ordered democratic
society is not possible, and even regard it as obvious. Isn't admitting it part of growing up,
part of the inevitable loss of innocence? But is this conclusion one we can so easily accept?
The answer we give to the question of whether a just democratic society is possible and
can be stable for the right reasons affects our background thoughts and attitudes about the
world as a whole. And it affects these thoughts and attitudes before we come to actual politics,
and limits or inspires how we take part in it. . .
If we take for granted as common knowledge that a just and well-ordered democratic society
is impossible, then the quality and tone of those attitudes will reflect that knowledge. A cause
of the fall of Wiemar's constitutional regime was that none of the traditional elites of Germany
supported its constitution or were willing to cooperate to make it work. They no longer
believed a decent liberal parliamentary regime was possible. Its time had past.

The regime fell first to a series of authoritarian cabinet governments from 1930 to 1932. When
these were increasingly weakened by their lack of popular support, President Hindenburg was
finally persuaded to turn to Hitler, who had such support and whom conservatives thought they
could control.
~ John Rawls "Political Liberalism" pg. lx

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
____________________________________________________________________________________
+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +

Finally, the campaigns of 1793 and 1794 set Clausewitz on the path of recognizing war as a
political phenomenon. Wars, as everyone knew, were fought for a purpose that was political, or
at least always had political consequences. Not as readily apparent was the implication that
followed. If war was meant to achieve a political purpose, everything that entered into war —
social and economic preparation, strategic planning, the conduct of operations, the use of
violence on all levels — should be determined by this purpose, or at least accord with it. Even
though soldiers had to acquire special expertise, and function in what in some respects was a
separate world, it would be a denial of reality to allow them to carry on their bloody work
undisturbed until an armistice brought their political employer back into the equation. Just as
war and its institutions reflected their social environment, so every aspect of fighting should
be suffused by its political impulse, whether this impulse was intense or moderate. The
appropriate relationship between politics and war occupied Clausewitz throughout his life, but
even his earliest manuscripts and letters show his awareness of their interaction.
The ease with which this link — always acknowledged in the abstract — can be forgotten in
specific cases, and Clausewitz’s insistence that it must never be overlooked, are illustrated by
his polite rejection toward the end of his life of a strategic problem set by the chief of the
Prussian General Staff, in which every military detail of the opposing sides was spelled out,
but no mention made of their political purpose. To a friend who had sent him the problem for
comment, Clausewitz replied that it was not possible to draft a sensible plan of operations
without indicating the political condition of the states involved, and their relationship to
each other: ‘War is not an independent phenomenon, but the continuation of politics by different
means. Consequently, the main lines of every major strategic plan are largely political in
nature, and their political character increases the more the plan applies to the entire campaign
and to the whole state. A war plan results directly from the political conditions of the two
warring states, as well as from their relations to third powers. A plan of campaign results from
the war plan, and frequently - if there is only one theater of operations - may even be
identical with it. But the political element even enters the separate components of a campaign;
rarely will it be without influence on such major episodes of warfare as a battle, etc.
According to this point of view, there can be no question of a purely military evaluation of a
great strategic issue, nor of a purely military scheme to solve it.’

Everyman’s Library, 1993 ISBN: 0679420436 On war /by Clausewitz, Carl von, 1780-1831.
Knopf, 1993. From the introduction by Peter Paret, Pg7
_____________________________________________________________________

The U-2 is a jet-powered reconnaissance aircraft specially designed to fly at high altitudes
(i.e., above 70,000 ft [21 km]). It was used during the late 1950s to overfly the Soviet Union,
China, the Middle East, and Cuba; flights over the Soviet Union, the primary mission for which
the plane was designed, ended in 1960 when a U-2 flown by CIA pilot Gary Powers was shot down
over the Soviet Union. This event was a major political embarrassment for the U.S.
http://www.espionageinfo.com/Te-Uk/U-2-Spy-Plane.html

Soviet Prime Minister Khrushchev's reaction to the overflights which were discovered
just before a summit conference in Paris with President Eisenhower: "It was as though the
Americans had deliberately tried to place a time bomb under the meeting" . . ."How could they
count on us to give them a helping hand if we allowed ourselves to be spat upon without so much
as a murmur of protest?" The only solution was to demand a formal public apology from Eisenhower
and a guarantee that no more overflights would take place . . .
But the apology Khrushchev was looking for would not come. Despite having trespassed on
the Soviet Union for the past four years with scores of flights by both U-2's and heavy bombers,
the old general still could not say the words, it was just not in him. . . A time bomb had
exploded, prematurely ending the summit conference. . .
Back in Washington, the mood was glum. The Senate Foreign Relations Committee was leaning
toward holding a closed door investigation into the U-2 incident . . . In public, Eisenhower
maintained a brave face. He "heartily approved" of the congressional probe and would 'of course
fully cooperate,' he quickly told anyone who asked. But in private he was very troubled. For
weeks he had tried to head off the investigation. His major concern was that his own personal
involvement in the overflights would surface, especially the May Day disaster. Equally, he was
very worried that details of the dangerous bomber overflights would leak out. The massed
overflight may in fact, have been one of the most dangerous actions ever approved by a president.
pg. 51-55 ~Body of Secrets; Anatomy of the Ultra Secret National Security Agency
James Bamford
-------
---------------------------
____________________________________________________________________

"Let me give you a word of the philosophy of reform. The whole history of the progress of human
liberty shows that all concessions yet made to her august claims, have been born of earnest
struggle. The conflict has been exciting, agitating, all-absorbing, and for the time being,
putting all other tumults to silence. It must do this or it does nothing. If there is no
struggle there is no progress. Those who profess to favor freedom and yet depreciate agitation,
are men who want crops without plowing up the ground, they want rain without thunder and
lightening. They want the ocean without the awful roar of its many waters."


"This struggle may be a moral one, or it may be a physical one, and it may be both moral and
physical, but it must be a struggle. Power concedes nothing without a demand. It never did and
it never will. Find out just what any people will quietly submit to and you have found out the
exact measure of injustice and wrong which will be imposed upon them, and these will continue
till they are resisted with either words or blows, or with both. The limits of tyrants are
prescribed by the endurance of those whom they oppress. In the light of these ideas, Negroes
will be hunted at the North, and held and flogged at the South so long as they submit to those
devilish outrages, and make no resistance, either moral or physical. Men may not get all they
pay for in this world; but they must certainly pay for all they get. If we ever get free from
the oppressions and wrongs heaped upon us, we must pay for their removal. We must do this by
labor, by suffering, by sacrifice, and if needs be, by our lives and the lives of others."
http://www.buildingequality.us/Quotes/Frederick_Douglass.htm
Frederick Douglass, 1857
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Bert Hyman
2008-04-16 23:50:08 UTC
Permalink
Since last fall, eight mostly midsize chains - as diverse as the
furniture store Levitz and the electronics seller Sharper Image - have
filed for bankruptcy protection as they staggered under mounting debt
and declining sales.
As diverse as Levitz and Sharper Image? That list isn't diverse at all.

The only surprise there is that they managed to stay in business as long
as they did.
--
Bert Hyman St. Paul, MN ***@iphouse.com
Democracy Highlander
2008-04-17 00:11:21 UTC
Permalink
Post by Bert Hyman
As diverse as Levitz and Sharper Image? That list isn't diverse at all.
The only surprise there is that they managed to stay in business as long
as they did.
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
Heck, I expected that at least now, the idiot conservatives learn that you
can not allow any private company to become too big to fail.
But they did not, they even allowed BS to be acquired. How stupid is that ?

It is required for the government to step up some limits of how much a
company can be, and force it to split in smaller companies forced to
compete among them. We need to set limits:

- No company can own more than 10% of the market he is in, because that is
harmful for customers. As soon as reach 10% split it in at least 3.

- No financial company can be worth over XX billions because then it may
be "to big to fail". As soon as it reach XX bln, split it in 5 competing
entities.

- No company can have over 50000 employee nationwide and no more than 2% of
the population of a particular town. If reach this, split it in 2 competing
entities.

- Enforce by trade agreements these rules on all the trade partners. If one
refuse to implement them, put an uncompetitive tax on all their imports.

Otherwise, many companies will merge then become to big to fail and then
they are acquired by a larger company which is obviously too big to
fail ....
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
z***@netscape.net
2008-04-17 01:39:47 UTC
Permalink
On Apr 16, 8:11 pm, Democracy Highlander
Post by Democracy Highlander
Post by Bert Hyman
As diverse as Levitz and Sharper Image? That list isn't diverse at all.
The only surprise there is that they managed to stay in business as long
as they did.
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
Heck, I expected that at least now, the idiot conservatives learn that you
can not allow any private company to become too big to fail.
But they did not, they even allowed BS to be acquired. How stupid is that ?
It is required for the government to step up some limits of how much a
company can be, and force it to split in smaller companies forced to
- No company can own more than 10% of the market he is in, because that is
harmful for customers. As soon as reach 10% split it in at least 3.
Well, that's so contrary to the idiot US Economy though.
Since up until 1980, they all lived the philosophy:
"GM knows what best for buisness,
Exxon knows what best for GM,
and Boeing knows what's best for Exxon".

"But the idiots didn't read the signs, that morons
who build who jets for morons that lose atomic weapons,
are still exceptional morons, no matter how you spell moron".
Post by Democracy Highlander
- No financial company can be worth over XX billions because then it may
be "to big to fail". As soon as it reach XX bln, split it in 5 competing
entities.
- No company can have over 50000 employee nationwide and no more than 2% of
the population of a particular town. If reach this, split it in 2 competing
entities.
- Enforce by trade agreements these rules on all the trade partners. If one
refuse to implement them, put an uncompetitive tax on all their imports.
Otherwise, many companies will merge then become to big to fail and then
they are acquired by a larger company which is obviously too big to
fail ....
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
Bert Hyman
2008-04-17 13:07:59 UTC
Permalink
Post by Democracy Highlander
Post by Bert Hyman
As diverse as Levitz and Sharper Image? That list isn't diverse at all.
The only surprise there is that they managed to stay in business as
long as they did.
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
--
Bert Hyman | St. Paul, MN | ***@iphouse.com
Democracy Highlander
2008-04-17 22:45:43 UTC
Permalink
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.

What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.

The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".

So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.

And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-17 23:33:24 UTC
Permalink
Post by Democracy Highlander
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.
What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.
The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".
Size isn't the issue. It's the position in the economy. Bear could have been
a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business. There are many businesses that need the
economies of scale of large size to survive. If you split up Boeing, you're
not going to have any jet planes == and any business big enough to
competitively build a jet plane is going to be much larger than Bear.

The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.

JG
Post by Democracy Highlander
And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
V***@tcq.net
2008-04-18 00:35:37 UTC
Permalink
Post by John Galt
Post by Democracy Highlander
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.
What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.
The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".
Size isn't the issue. It's the position in the economy. Bear could have been
a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business. There are many businesses that need the
economies of scale of large size to survive. If you split up Boeing, you're
not going to have any jet planes == and any business big enough to
competitively build a jet plane is going to be much larger than Bear.
The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.
JG
Post by Democracy Highlander
And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
you mean to big to fail, equals fat cat bailouts.
Democracy Highlander
2008-04-18 01:59:13 UTC
Permalink
Post by John Galt
Size isn't the issue. It's the position in the economy. Bear could have
been a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Size IS the issue. If BS have been a tenth of his size, then it could just
be let to die. The investors in BS would lose only 1 tenth of the money,
and that be an acceptable lost for a market operation. No need to bail out.
Post by John Galt
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business.
Not at all, this is just mythology. The biggest innovation come from smaller
businesses. The big guys just use their size to squash the competition,
then steal their idea. The big guys just create that infect corporate
culture that destroy the sanity of all our society.
Post by John Galt
There are many businesses that need the economies of scale of large size
to survive.
If and only if they had to compete with huge businesses. But if the rule
apply to everybody, then there is no survival problem. And as I said into a
precedent post, if a country refuse to apply the same rules over his
corporations, then the trade agreement fail and tariffs can and must be
employed to bring the balance to the market.

However, by not applying such a size cap, we allow the big company to squash
the small guy, undermining the competition on the market and destroying
innovation. Eventually becoming a monopoly like Microsoft. At that point,
they make the rules on the market so that nobody can compete with them
regardless of how innovative or productive they are.
Post by John Galt
If you split up Boeing, you're not going to have any jet planes == and any
business big enough to competitively build a jet plane is going to be much
larger than Bear.
Here are 2 points here:
1. Smaller independent companies can cooperate
2. You can have special purpose large corporations under a very very tight
democratic supervision and regulations.

1. The word cooperation is the key. When a large project is to be done,
tens or even hundreds of firms cooperate to make parts and one of them make
the final assembly. They split cost of the design, testing and validation.
Exactly as a retailer buy apples from a farmer, onion from another, clothes
from a factory and books from a publisher and sell them all into the same
supercenter, Boeing can do the same. It is not mandatory for every retailer
to own farms, factories and publishing houses.

2. Another alternative, will be that you can allow a small number of large
companies under the tight governmental control for some special purposes
here a decent sized company just can not handle it. You can achieve this
either by regulated utilities either by joint venture between the
government and private sector with the gov. in the driver seat for any
strategic decision.
Post by John Galt
The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.
Yes, regulation is good too. But if we want to let the market act, we need
to create the framework for the market to function into a fair manner. And
in order to function fair, you can not allow monopolies or oligopolies to
form.

Unfortunate, the economy of scale will unavoidable drive the market toward
mergers and consolidation and in the end will destroy the market itself.

As mater of fact, I always said that Free-Market it is it own Nemesis.
It just destroy itself because the consolidation game to take advantages of
the economy of scale will unavoidable drive the market toward a monopoly or
an oligopoly and at that moment there is no Free-Market anymore.
In order to maintain the market relatively free, gov. interventions to
maintain a large number of comparable players is required. And a cap as
described seems the easy way to do it.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-18 02:26:19 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
Size isn't the issue. It's the position in the economy. Bear could have
been a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Size IS the issue. If BS have been a tenth of his size, then it could just
be let to die.
You don't understand the problem. Educate yourself.

JG



The investors in BS would lose only 1 tenth of the money,
Post by Democracy Highlander
and that be an acceptable lost for a market operation. No need to bail out.
Post by John Galt
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business.
Not at all, this is just mythology. The biggest innovation come from smaller
businesses. The big guys just use their size to squash the competition,
then steal their idea. The big guys just create that infect corporate
culture that destroy the sanity of all our society.
Post by John Galt
There are many businesses that need the economies of scale of large size
to survive.
If and only if they had to compete with huge businesses. But if the rule
apply to everybody, then there is no survival problem. And as I said into a
precedent post, if a country refuse to apply the same rules over his
corporations, then the trade agreement fail and tariffs can and must be
employed to bring the balance to the market.
However, by not applying such a size cap, we allow the big company to squash
the small guy, undermining the competition on the market and destroying
innovation. Eventually becoming a monopoly like Microsoft. At that point,
they make the rules on the market so that nobody can compete with them
regardless of how innovative or productive they are.
Post by John Galt
If you split up Boeing, you're not going to have any jet planes == and any
business big enough to competitively build a jet plane is going to be much
larger than Bear.
1. Smaller independent companies can cooperate
2. You can have special purpose large corporations under a very very tight
democratic supervision and regulations.
1. The word cooperation is the key. When a large project is to be done,
tens or even hundreds of firms cooperate to make parts and one of them make
the final assembly. They split cost of the design, testing and validation.
Exactly as a retailer buy apples from a farmer, onion from another, clothes
from a factory and books from a publisher and sell them all into the same
supercenter, Boeing can do the same. It is not mandatory for every retailer
to own farms, factories and publishing houses.
2. Another alternative, will be that you can allow a small number of large
companies under the tight governmental control for some special purposes
here a decent sized company just can not handle it. You can achieve this
either by regulated utilities either by joint venture between the
government and private sector with the gov. in the driver seat for any
strategic decision.
Post by John Galt
The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.
Yes, regulation is good too. But if we want to let the market act, we need
to create the framework for the market to function into a fair manner. And
in order to function fair, you can not allow monopolies or oligopolies to
form.
Unfortunate, the economy of scale will unavoidable drive the market toward
mergers and consolidation and in the end will destroy the market itself.
As mater of fact, I always said that Free-Market it is it own Nemesis.
It just destroy itself because the consolidation game to take advantages of
the economy of scale will unavoidable drive the market toward a monopoly or
an oligopoly and at that moment there is no Free-Market anymore.
In order to maintain the market relatively free, gov. interventions to
maintain a large number of comparable players is required. And a cap as
described seems the easy way to do it.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
Democracy Highlander
2008-04-18 12:27:49 UTC
Permalink
Post by John Galt
Post by Democracy Highlander
Size IS the issue. If BS have been a tenth of his size, then it could
just be let to die.
You don't understand the problem. Educate yourself.
I can't wait to see your insightful analyze showing why it is better to
allow large crooked corporations to steal the money, cheat everybody around
in order to pickpocket huge profits for CEOs and a few rich robbery barons,
then be bailed out with taxpayer money.

Oh I see, it is the standard conservative economic thinking:
“Socialize the losses and privatize the profits.”
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-18 12:55:35 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
Post by Democracy Highlander
Size IS the issue. If BS have been a tenth of his size, then it could
just be let to die.
You don't understand the problem. Educate yourself.
I can't wait to see your insightful analyze showing why it is better to
allow large crooked corporations to steal the money, cheat everybody around
in order to pickpocket huge profits for CEOs and a few rich robbery barons,
then be bailed out with taxpayer money.
Straw man. I don't support dishonest business practices.

If you decide you want to have an honest discussion, do get back to me.

JG
Post by Democracy Highlander
"Socialize the losses and privatize the profits."
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
alexy
2008-04-18 16:45:26 UTC
Permalink
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
Democracy Highlander
2008-04-18 22:45:31 UTC
Permalink
Post by alexy
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
What about putting your exceptional analytical skills at work and explain
why it is better for the economy to have a bigger crash than a smaller
one ?
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
alexy
2008-04-19 03:51:22 UTC
Permalink
Post by Democracy Highlander
Post by alexy
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
What about putting your exceptional analytical skills at work and explain
why it is better for the economy to have a bigger crash than a smaller
one ?
The idea that a bigger crash is better than a smaller one is an absurd
notion. Where in the world did you come up with that one? Assuming
that the goal is to lessen the effect of company crashes on the
economy, it doesn't take "exceptional analytical skills" to figure out
that you should be looking at the risks each company poses for the
economy in more than just a simple-minded view of company size.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
Democracy Highlander
2008-04-19 12:58:32 UTC
Permalink
Post by alexy
The idea that a bigger crash is better than a smaller one is an absurd
notion. Where in the world did you come up with that one? Assuming
that the goal is to lessen the effect of company crashes on the
economy, it doesn't take "exceptional analytical skills" to figure out
that you should be looking at the risks each company poses for the
economy in more than just a simple-minded view of company size.
I also believed that it does not take "exceptional analytical skills" to
figure out that if you have a company with elevated risk factor (like an
investment company) it is better to be smaller than bigger.
Remember: "Do not put all your eggs into one basket" ?
Seems we forget such a small piece of wisdom while being flooded with tones
of trash corporate propaganda, like "Bigger is better".
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-19 13:48:24 UTC
Permalink
Post by Democracy Highlander
Post by alexy
The idea that a bigger crash is better than a smaller one is an absurd
notion. Where in the world did you come up with that one? Assuming
that the goal is to lessen the effect of company crashes on the
economy, it doesn't take "exceptional analytical skills" to figure out
that you should be looking at the risks each company poses for the
economy in more than just a simple-minded view of company size.
I also believed that it does not take "exceptional analytical skills" to
figure out that if you have a company with elevated risk factor (like an
investment company) it is better to be smaller than bigger.
Overkill. Go read up on why Goldman Sachs had almost no losses due to
subprime and JP Morgan very little, whilst Bear went down and Lehmann was
damn close to it. There's a reason why the Goldman CEOs are constantly
tapped by both parties to run things political. They're state of the art.

Oh, hell, I'll just tell you. The usual management structure on the Street
has the risk managers reporting into the deparment heads. Conflict of
interest. You had risk managers telling their bosses that their strategies
were risky, while their bosses were being paid handsome bonuses for pursing
those strategies. You can figure out who won that argument (at the time).

Goldman has a different structure. They have an entire risk management
department reporting into a C-level executive. BUT, even at Goldman, they
can't override the decisions of a department manager. However, (and here's
the genius part), the risk management department has their own trading
floor. So, while the mortage securities department at Goldman was doing what
all the other Street firms were doing (buying up subprime tranches like they
were going out of style) the guys in the risk department were shorting the
same securities. Genius. When the mortgage security department's stuff went
into the shitter, the risk management floor made so much money on their
shorts that they pretty much broke even.

The issue has nothing to do with size. It has to do with astute management,
and we probably don't disagree that if a company of such size so as to put
the economy at risk exists, some sound business principles ought to be
dictated to them, bailouts often being more expensive (and certainly more
disruptive) than the systemic cost of regulation.

However, in this case the best fix (meaning that it will never happen) would
be simply to roll back the 1967 law that permitted the securitization of
mortgages. Just take it off the table as an asset class. These are people's
homes, not speculative financial instruments.

JG
Post by Democracy Highlander
Remember: "Do not put all your eggs into one basket" ?
Seems we forget such a small piece of wisdom while being flooded with tones
of trash corporate propaganda, like "Bigger is better".
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
Democracy Highlander
2008-04-28 01:23:11 UTC
Permalink
Post by John Galt
Overkill. Go read up on why Goldman Sachs had almost no losses due to
subprime and JP Morgan very little, whilst Bear went down and Lehmann was
damn close to it. There's a reason why the Goldman CEOs are constantly
tapped by both parties to run things political. They're state of the art.
Not yet. It is only a mater of time before an incompetent CEO gets the sit
on GS or JP and it happen exactly what happen with BS.

Keep in mind, that building a successful business it take a lot of hardwork,
a collective effort from the top leaders to the small guy for a long period
of time. But to destroy it, it takes only a single greedy CEO a year or so.

The fact that some businesses were able to survive till now, it is no
guarantee that will do so after a change of leadership. Any business is
prone to failure and this is how the market work. However, if you allow
huge dinosaurs to rise you expose the rest of the economy to failure when
they fail.
Post by John Galt
Oh, hell, I'll just tell you. The usual management structure on the Street
has the risk managers reporting into the deparment heads. Conflict of
interest. You had risk managers telling their bosses that their strategies
were risky, while their bosses were being paid handsome bonuses for
pursing those strategies. You can figure out who won that argument (at the
time).
Yes, this seems a good place to regulate. I fully agree.
But are you naive enough to believe that this is the only cause of the
current mess ?

The causes are many, some of them we don't know. Therefore, an extra safety
device limiting the size is definitely not going to harm in any way when a
financial business collapse.
Post by John Galt
Goldman has a different structure. They have an entire risk management
...
Post by John Galt
The issue has nothing to do with size.
Think at the basics of the market economy.

Let assume that by a miracle GS is somehow idiot-prof and will never ever
make a bad investment, while all the rest does.
People will eye the safety of GS so GS size skyrocket and all the rest
collapse. In the end, you have a single player on that market: GS.

As of that moment, what will keep GS a decent company when there is no
competition to force GS to behave civilized and GS is not a "regulated
utility" like service to have the gov. demanding the behavior ?

Answer: NOTHING. You reached a monopoly situation, where GS will start
abusing their customers at the biggest level they can tolerate.
Even into a situation of a small number of large players, there will be ways
(even nonverbal, bridge like methods) for the small number of players to
communicate in order to set up an oligopoly.

In order for a market to work, it is required a very large number of players
without very large size differences to make them "compete in different
leagues". The wave of consolidation and the creations of these
mega-businesses it is the biggest threat to the whole concept of market
economy itself.
Post by John Galt
It has to do with astute
management, and we probably don't disagree that if a company of such size
so as to put the economy at risk exists, some sound business principles
ought to be dictated to them, bailouts often being more expensive (and
certainly more disruptive) than the systemic cost of regulation.
Here you start to come home. Good.
Post by John Galt
However, in this case the best fix (meaning that it will never happen)
would be simply to roll back the 1967 law that permitted the
securitization of mortgages. Just take it off the table as an asset class.
These are people's homes, not speculative financial instruments.
I was talking not only about mortgages but about any kind of financial
institution.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
The Trucker
2008-04-28 01:55:56 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
However, in this case the best fix (meaning that it will never happen)
would be simply to roll back the 1967 law that permitted the
securitization of mortgages. Just take it off the table as an asset class.
These are people's homes, not speculative financial instruments.
I was talking not only about mortgages but about any kind of financial
institution.
Excuse the interruption and I mean no offense. I am more attuned to
economics than to finance and see the same problem in different terms.
Over the last few years I keep coming back to the notion that homes should
not be regarded as "fixed capital" but instead as durable goods. The
primary reason for this is that "_real_ capital" is the product of labor
not consumed but used in the pursuit of more production (like a hammer or
a rifle or a tractor or a factory). I am of the opinion that homes are
more akin to "durable goods" like washing machines, cars, and microwave
ovens. Mortgages should not be in the same class as stocks and bonds any
more than car loans are in the same class.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend
John Galt
2008-04-29 01:55:06 UTC
Permalink
Post by The Trucker
Post by Democracy Highlander
Post by John Galt
However, in this case the best fix (meaning that it will never happen)
would be simply to roll back the 1967 law that permitted the
securitization of mortgages. Just take it off the table as an asset class.
These are people's homes, not speculative financial instruments.
I was talking not only about mortgages but about any kind of financial
institution.
Excuse the interruption and I mean no offense. I am more attuned to
economics than to finance and see the same problem in different terms.
Over the last few years I keep coming back to the notion that homes should
not be regarded as "fixed capital" but instead as durable goods. The
primary reason for this is that "_real_ capital" is the product of labor
not consumed but used in the pursuit of more production (like a hammer or
a rifle or a tractor or a factory). I am of the opinion that homes are
more akin to "durable goods" like washing machines, cars, and microwave
ovens. Mortgages should not be in the same class as stocks and bonds any
more than car loans are in the same class.
Quite correct. There are ways that mortgages can remain a profitable
investment for their holders without exposing them in the fashion they were.

JG
Post by The Trucker
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend
John Galt
2008-04-29 01:53:32 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
Overkill. Go read up on why Goldman Sachs had almost no losses due to
subprime and JP Morgan very little, whilst Bear went down and Lehmann was
damn close to it. There's a reason why the Goldman CEOs are constantly
tapped by both parties to run things political. They're state of the art.
Not yet. It is only a mater of time before an incompetent CEO gets the sit
on GS or JP and it happen exactly what happen with BS.
Hypothetical. You could also argue that since eventually a plane will crash,
we ought to ground them all straightaway.
Post by Democracy Highlander
Keep in mind, that building a successful business it take a lot of hardwork,
a collective effort from the top leaders to the small guy for a long period
of time. But to destroy it, it takes only a single greedy CEO a year or so.
It could also be destroyed by a CEO deciding to give all the profits away to
the poor. Thus, we can conclude that your use of the term "greed" is simply
a confused euphenism for "profit motivation", without which no soceity has
ever been shown to prosper.

I would suggest to you that decent argumentation on this topic requires a
little more in the way of rational thought that just pulling out the "g"
word and assuming you've proven some sort of point.
Post by Democracy Highlander
The fact that some businesses were able to survive till now, it is no
guarantee that will do so after a change of leadership. Any business is
prone to failure and this is how the market work. However, if you allow
huge dinosaurs to rise you expose the rest of the economy to failure when
they fail.
And if I don't let the dinosaurs rise, we buy everything from somebody else.
Quite a pickle.
Post by Democracy Highlander
Post by John Galt
Oh, hell, I'll just tell you. The usual management structure on the Street
has the risk managers reporting into the deparment heads. Conflict of
interest. You had risk managers telling their bosses that their strategies
were risky, while their bosses were being paid handsome bonuses for
pursing those strategies. You can figure out who won that argument (at the
time).
Yes, this seems a good place to regulate. I fully agree.
But are you naive enough to believe that this is the only cause of the
current mess ?
What kind of question is that? The risk management provisions of the
companies are under discussion, not the subprime mortgage matter. The
discussion is how well each companies firefighters did during the fire.
Nobody's talked about who started the fire.
Post by Democracy Highlander
The causes are many, some of them we don't know. Therefore, an extra safety
device limiting the size is definitely not going to harm in any way when a
financial business collapse.
Post by John Galt
Goldman has a different structure. They have an entire risk management
...
Post by John Galt
The issue has nothing to do with size.
Think at the basics of the market economy.
Let assume that by a miracle GS is somehow idiot-prof and will never ever
make a bad investment, while all the rest does.
People will eye the safety of GS so GS size skyrocket and all the rest
collapse. In the end, you have a single player on that market: GS.
No. First, mistakes are not all-or-none. Mistakes in investing happen daily,
which is why all these companies spread practice asset allocation. In any
period of 10 years you care to pick, they make money during 8 or 9 of them.
Thus, we can also conclude that they are quite good at what they do the vast
majority of the time, and there is no sane reason to assume that their
ability to withstand recessions, Depressions, wars, and all the other things
that they have in their hundred-year histories. Secondly, if your scenario
does occur, the death of all the other firms would spawn a host of new
venture, smaller firms (and does, quite often) designed not to repeat the
sins of their predecessors. (Since financial services does not have any
manufacturing lines, inventory requirements, or other capital barriers to
market entry, this does happen and will happen frequently. After all, if JP
Morgan were to cease operations tomorrow, Jamie Dimon, being a relatively
young man, would certainly not decide to take his money and put his feet up
on some tropical island. He'd put some of his money at risk, attract
investors willing to back him, and before you know it you'd have another
budding young financial services firm with a new twist on the business so as
to be competitive with GS. That situation would happen frequently, with GS
the biggest elephant in the room, but a room still containing plenty of
marketeer to provide investment choice.
Post by Democracy Highlander
As of that moment, what will keep GS a decent company when there is no
competition to force GS to behave civilized and GS is not a "regulated
utility" like service to have the gov. demanding the behavior ?
Answer: NOTHING. You reached a monopoly situation, where GS will start
abusing their customers at the biggest level they can tolerate.
Even into a situation of a small number of large players, there will be ways
(even nonverbal, bridge like methods) for the small number of players to
communicate in order to set up an oligopoly.
In order for a market to work, it is required a very large number of players
without very large size differences to make them "compete in different
leagues". The wave of consolidation and the creations of these
mega-businesses it is the biggest threat to the whole concept of market
economy itself.
However, this is *not* the situation we will be faced with, it's simply your
caricature of it. Let's first correct your definition of a functioning
market: It only requires a number (not necessarily all that large) of
players without very large size differences, ASSUMING that the marketplace
sells commodity products. This is FAR from the case in financial services.
Some huge firms specialize in mutual funds, or bonds, of other areas of the
market, meaning that there will always be some players who are untouched (or
relatively so) by a cresting tsunami. PIMCO had nothing to do with any of
this subprime investments, it's a large, successful firm with brilliant
management, and if more than just one of the investment banking players gone
into receivership, might have been inclined to move into investment banking.
Post by Democracy Highlander
Post by John Galt
It has to do with astute
management, and we probably don't disagree that if a company of such size
so as to put the economy at risk exists, some sound business principles
ought to be dictated to them, bailouts often being more expensive (and
certainly more disruptive) than the systemic cost of regulation.
Here you start to come home. Good.
I highly doubt we will ever share the same "home." Regulation may be
necessary, but regulations have a price in terms of jobs, profits, and
competitiveness with overseas competitiors. Insuring that anything like
subprime ever happens again is a relatively simple matter of setting
leverage requirements outside of the consumer banking areas. The FS firms
required a banker of last resort because they were overlevered, in the case
of Bear, 30 borrowed dollars for every one of liquid capital. Congress needs
to empower the SEC to set the regulation in this area, and then through a
detailed study of the various firm's books, the SEC needs to set a leverage
limit at the point where Bear would have been reeling but probably solvent.
Post by Democracy Highlander
Post by John Galt
However, in this case the best fix (meaning that it will never happen)
would be simply to roll back the 1967 law that permitted the
securitization of mortgages. Just take it off the table as an asset class.
These are people's homes, not speculative financial instruments.
I was talking not only about mortgages but about any kind of financial
institution.
Never fix what isn't broken. An axiom of life.

JG
Post by Democracy Highlander
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
Democracy Highlander
2008-04-30 00:18:11 UTC
Permalink
Post by John Galt
Hypothetical. You could also argue that since eventually a plane will
crash, we ought to ground them all straightaway.
Nope. I argue it is stupid to make a huge plane, to put all the US
population in it and to put in charge a guy who claim to be a pilot but
have no credentials other than his nice crafted resume.
Post by John Galt
It could also be destroyed by a CEO deciding to give all the profits away
to the poor. Thus, we can conclude that your use of the term "greed" is
simply a confused euphenism for "profit motivation", without which no
soceity has ever been shown to prosper.
It can also be destroyed by a CEO giving all the profit to shareholders and
being left without resources when needed to survive a turn-back.
So, "profit motivation" can be as harmful as a charity donation or greed.

So nope, greed is greed. What the Enron CEO did was not even "profit
motivation", or at least not for the majority of shareholders.
Post by John Galt
I would suggest to you that decent argumentation on this topic requires a
little more in the way of rational thought that just pulling out the "g"
word and assuming you've proven some sort of point.
I would suggest you to start learning what greed and motivation really is.
Post by John Galt
Post by Democracy Highlander
The fact that some businesses were able to survive till now, it is no
guarantee that will do so after a change of leadership. Any business is
prone to failure and this is how the market work. However, if you allow
huge dinosaurs to rise you expose the rest of the economy to failure when
they fail.
And if I don't let the dinosaurs rise, we buy everything from somebody
else. Quite a pickle.
Now, I would suggest you to learn what market economy is and how does is
work. Like alexy, you need to learn the basics.

If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.

This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.

Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Post by John Galt
Never fix what isn't broken. An axiom of life.
It is broken, it just didn't blew up yet.
Usually, it is better to fix a broken device before explode and take with it
all the facility and countless casualties.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-30 01:40:58 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
Hypothetical. You could also argue that since eventually a plane will
crash, we ought to ground them all straightaway.
Nope. I argue it is stupid to make a huge plane, to put all the US
population in it and to put in charge a guy who claim to be a pilot but
have no credentials other than his nice crafted resume.
Doesn't matter. You're arguing that if something bad **might** happen, it
should be precluded from doing so. A hypothetical. I'd agree if there were
no negative repercussions from such prevention, but in virtually any case
you can describe, your "cure" is far worse on jobs and the economy than what
you see as the "disease."
Post by Democracy Highlander
Post by John Galt
It could also be destroyed by a CEO deciding to give all the profits away
to the poor. Thus, we can conclude that your use of the term "greed" is
simply a confused euphenism for "profit motivation", without which no
soceity has ever been shown to prosper.
It can also be destroyed by a CEO giving all the profit to shareholders and
being left without resources when needed to survive a turn-back.
So, "profit motivation" can be as harmful as a charity donation or greed.
So nope, greed is greed. What the Enron CEO did was not even "profit
motivation", or at least not for the majority of shareholders.
Excuse me, but you are deliberately obfuscating the situation, I assume
because you know you are on shaky ground. The Enron CEO broke the law. He is
therefore not in any way a good analogy for what has occurred at Bear, where
no laws have been broken or have been alleged to have been broken.

However, you may not be aware that there is no law against "greed", greed
being a vice that takes a priest or philosopher to define, but never a
lawyer or a judge. From an accounting and business management standpoint,
the question is what business practices are legal and prudent as businesses
move to maximize retained earnings. People will differ as to what business
practices therein are prudent, and it's there where reasonable people will
argue if a particular practice appears to be "greedy" or simply aggressive.

But, let's not pretend that there is some definition of the term that can
easily be applied to a situation AND to which all will agree.
Post by Democracy Highlander
Post by John Galt
I would suggest to you that decent argumentation on this topic requires a
little more in the way of rational thought that just pulling out the "g"
word and assuming you've proven some sort of point.
I would suggest you to start learning what greed and motivation really is.
Argumentum ad hominem. You really ARE on shaky ground. Discussions end when
the ad hominems start flying about. I haven't the time for people who can't
back up their positions without snark.

JG
Post by Democracy Highlander
Post by John Galt
Post by Democracy Highlander
The fact that some businesses were able to survive till now, it is no
guarantee that will do so after a change of leadership. Any business is
prone to failure and this is how the market work. However, if you allow
huge dinosaurs to rise you expose the rest of the economy to failure when
they fail.
And if I don't let the dinosaurs rise, we buy everything from somebody
else. Quite a pickle.
Now, I would suggest you to learn what market economy is and how does is
work. Like alexy, you need to learn the basics.
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Post by John Galt
Never fix what isn't broken. An axiom of life.
It is broken, it just didn't blew up yet.
Usually, it is better to fix a broken device before explode and take with it
all the facility and countless casualties.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
V***@tcq.net
2008-04-30 03:46:26 UTC
Permalink
On Apr 29, 8:40 pm, "John Galt" <***@bluebottle.com>
what galt means is that he is for fat cat bailouts. you know, to big
to fail. he was born in a low position in life, his parents barely had
a million dollars.
he advocates for the self made, self reliant, self responsible, born
with a silver spoon in their mouths, rugged individual, who pulls
themselves up by their own bootstraps with tax payer money.
so you need to understand D.H., is that there are no scenarios that
will upset his ideology. you simply cannot win.
B1ackwater
2008-04-30 21:40:44 UTC
Permalink
Seems neither socialism OR capitalism hold up for very long.
Each fails for different reasons - but the effects on the
people are the same.

Capitalism can recover faster ... but it's still a very
unstable sort of economic system, oscillating between wild
growth and crushing recession. Capitalism can be very good
for certain individuals, but modern nations need more
stability.

Socialism ... ugh ... a culture of hand-outs and micromanagement,
relatively equal misery for all ... and ultimately unsustainable.

The US *has* tried to modify laissez-faire capitalism to
produce a tamer, safer, composite system that minimizes
the lows yet doesn't overly restrain the highs. It's
sort-of worked, sort-of hasn't. While reasonable stability
has been achieved in the stock market, there was not
enough oversight of various other aspects of capitalism.
Banking and borrowing were seriously neglected - until
the inevitible happened.

Alone, the current mortgage/debt 'crisis' wouldn't have been
all THAT bad ... but yet another face of capitalism - commodity
speculation - drove energy prices through the roof at the same
time. It's not unfair to say that "business" - the military-
industrial complex in particular - ALSO added an ill-timed
burden in the form or the endless Iraq war. A triple-whammy ...

So, clearly, we need to add a dash more 'socialism' to our
capitalism. The weak points have become quite clear, so we
must address them now. There may be other weak points that
will manifest themselves in twenty years time - but we'll
just have to wait and see what they are.

Capitalism CAN take you further, faster, than any other economic
system short of outright olde-tyme military empire (which is
a fatally flawed system). We only want to put JUST ENOUGH
controls on capitalist institutions to achieve the needed
stability. Go too far and you bring in the things that
makes socialism so dismal and find yourself moving backwards.
alexy
2008-04-30 13:02:31 UTC
Permalink
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
V***@tcq.net
2008-04-30 13:59:51 UTC
Permalink
Post by alexy
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
wolves cannot design a better hen house.
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
then use the tools that were enacted in the late 1800's. but, they
have not been used for almost 30 years now. so, not so easy is it.
so we are stuck with fat cat, to big to fail. or leave it alone, till
they fail. then the libertarians are strangely quite when the feds
check book comes out.
Post by alexy
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
of course, the above statement is coming from someone who last august
called me and others nilly willys. when we warned you what was coming.
we will flip that around. you need to understand modern economics.
you are stuck in mellons trap in 1929. you simply are out of date.
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
alexy
2008-04-30 14:21:43 UTC
Permalink
Post by V***@tcq.net
Post by alexy
the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case).
<snip>
Post by V***@tcq.net
Post by alexy
I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
wolves cannot design a better hen house.
So who do you prefer? Do you really think Clinton or McCain would be
better? Or are you holding for the public to embrace someone like
Kucinich?
Post by V***@tcq.net
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
then use the tools that were enacted in the late 1800's. but, they
have not been used for almost 30 years now. so, not so easy is it.
so we are stuck with fat cat, to big to fail. or leave it alone, till
they fail. then the libertarians are strangely quite when the feds
check book comes out.
I know that reading for comprehension is not your strong suit, but
reread what I said above.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
V***@tcq.net
2008-05-01 21:25:48 UTC
Permalink
Post by alexy
Post by V***@tcq.net
Post by alexy
the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case).
<snip>
Post by V***@tcq.net
Post by alexy
I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
wolves cannot design a better hen house.
So who do you prefer? Do you really think Clinton or McCain would be
better?
\

no, they would be worthless, they are wolves.

Or are you holding for the public to embrace someone like
Post by alexy
Kucinich?
no matter what is done now by the wolves, will not stop the mess we
are in, maybe put it off for a while, or more likely, make it worse.
so i do not endorse the two above to do anything. what we need is
someone who understands the destructive force unproductive wealth is.
Post by alexy
Post by V***@tcq.net
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
then use the tools that were enacted in the late 1800's. but, they
have not been used for almost 30 years now. so, not so easy is it.
so we are stuck with fat cat, to big to fail. or leave it alone, till
they fail. then the libertarians are strangely quite when the feds
check book comes out.
I know that reading for comprehension is not your strong suit, but
reread what I said above.
every word you type, every sentence you construct is for a tricky
trap. so i may have missed what you said in another post. i responded
to the post where you dropped my name for one of your attempts at a
tricky trap.
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
alexy
2008-05-02 03:52:13 UTC
Permalink
Post by V***@tcq.net
Post by alexy
Post by V***@tcq.net
Post by alexy
the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case).
<snip>
Post by V***@tcq.net
Post by alexy
I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
wolves cannot design a better hen house.
So who do you prefer? Do you really think Clinton or McCain would be
better?
\
no, they would be worthless, they are wolves.
And when I commented that Obama might be the best choice, you
commented that "wolves cannot design a better hen house". So are you
including Obama in your definition of "wolves"?
Post by V***@tcq.net
Post by alexy
Post by V***@tcq.net
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
then use the tools that were enacted in the late 1800's. but, they
have not been used for almost 30 years now. so, not so easy is it.
so we are stuck with fat cat, to big to fail. or leave it alone, till
they fail. then the libertarians are strangely quite when the feds
check book comes out.
I know that reading for comprehension is not your strong suit, but
reread what I said above.
every word you type, every sentence you construct is for a tricky
trap. so i may have missed what you said in another post.
No, it's not really that tricky (although I am not surprised that you
find it tricky). I was talking about the message to which you replied,
and which you quoted in your reply. Nothing from a previous post.
Post by V***@tcq.net
i responded
to the post where you dropped my name for one of your attempts at a
tricky trap.
Apparently it worked. And it doesn't take much. You can't even read
the message to which you are replying, much less a well-laid trap.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
V***@tcq.net
2008-05-02 16:03:36 UTC
Permalink
Post by alexy
Post by V***@tcq.net
Post by alexy
Post by V***@tcq.net
Post by alexy
the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case).
<snip>
Post by V***@tcq.net
Post by alexy
I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
wolves cannot design a better hen house.
So who do you prefer? Do you really think Clinton or McCain would be
better?
\
no, they would be worthless, they are wolves.
And when I commented that Obama might be the best choice, you
commented that "wolves cannot design a better hen house". So are you
including Obama in your definition of "wolves"?
Post by V***@tcq.net
Post by alexy
Post by V***@tcq.net
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
then use the tools that were enacted in the late 1800's. but, they
have not been used for almost 30 years now. so, not so easy is it.
so we are stuck with fat cat, to big to fail. or leave it alone, till
they fail. then the libertarians are strangely quite when the feds
check book comes out.
I know that reading for comprehension is not your strong suit, but
reread what I said above.
every word you type, every sentence you construct is for a tricky
trap. so i may have missed what you said in another post.
No, it's not really that tricky (although I am not surprised that you
find it tricky). I was talking about the message to which you replied,
and which you quoted in your reply. Nothing from a previous post.
Post by V***@tcq.net
i responded
to the post where you dropped my name for one of your attempts at a
tricky trap.
Apparently it worked. And it doesn't take much. You can't even read
the message to which you are replying, much less a well-laid trap.
--
at least you admit it. we are making progress.
Post by alexy
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
alexy
2008-05-02 17:08:15 UTC
Permalink
Post by V***@tcq.net
Post by alexy
Apparently it worked. And it doesn't take much. You can't even read
the message to which you are replying, much less a well-laid trap.
--
at least you admit it. we are making progress.
Yes, I admit that you can't even read and comprehend the post to which
you are replying.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
V***@tcq.net
2008-05-03 03:43:41 UTC
Permalink
Post by alexy
Post by V***@tcq.net
Post by alexy
Apparently it worked. And it doesn't take much. You can't even read
the message to which you are replying, much less a well-laid trap.
--
at least you admit it. we are making progress.
Yes, I admit that you can't even read and comprehend the post to which
you are replying.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
you mean i am staying out of the tricky traps:)
The Trucker
2008-04-30 14:25:58 UTC
Permalink
Post by alexy
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
There is a point at which returns to scale are balanced against returns to
competition. That point is probably very difficult to define precisely.
Post by alexy
Post by Democracy Highlander
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
All very good points:) I am not sure who will enforce the laws, but I am
sure that a (P)resident that does not enforce the laws should be impeached
for failing the Constitution. We do not arrive at balance of power through
a weak kneed (nice guy) (P)resident but through a strong and assertive
Congress.
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
A progressive corporate income tax goes a long way in preventing monopoly
and trusts. If managed properly one need not delve into the minutia and
try to micro manage business with overcomplicated regulations. It becomes
financially stupid for companies to grow too large.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend
alexy
2008-04-30 15:06:09 UTC
Permalink
Post by The Trucker
Post by alexy
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
There is a point at which returns to scale are balanced against returns to
competition. That point is probably very difficult to define precisely.
Exactly. And it will be different by industry, and by segment within
industry, and even by company. That's why simplistic solutions will
not work.
Post by The Trucker
Post by alexy
Post by Democracy Highlander
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
All very good points:) I am not sure who will enforce the laws, but I am
sure that a (P)resident that does not enforce the laws should be impeached
for failing the Constitution.
I disagree with you here. It needs to be a pretty flagrant violation
of the constitution, otherwise it would become a political tool.
That's why neither of our impeached presidents were convicted. And
non-enforcement is almost always done in shades of grey, not in
flagrant disregard for Constitutional mandates. The right answer, IMHO
is to vote out the administration that does not enforce the spirit of
laws enacted.
Post by The Trucker
Post by alexy
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
A progressive corporate income tax goes a long way in preventing monopoly
and trusts. If managed properly one need not delve into the minutia and
try to micro manage business with overcomplicated regulations.
Interesting idea. It would certainly add complexity to the IRC, to
avoid the many creative ways companies might organize to circumvent
higher rates, but that might be a justifiable complication.
Post by The Trucker
It becomes
financially stupid for companies to grow too large.
More accurately, it would decrease (but not eliminate) the motivation
to grow, at least organically. It may make growth through acquisition
less attractive. The attractive thing about this idea is that it
provides some balance for the efficiency versus size argument--if an
acquisition can make the acquired company more efficient, the built-in
benchmark for that efficiency gain is the acquirer's marginal tax rate
versus the acquired company's average tax rate.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
John Galt
2008-04-30 16:40:03 UTC
Permalink
Post by alexy
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
Well, yea.

I'm sitting in a hotel in Bangalore writing this note. Whenever somebody
says "break up the big corporations" I look around India, and say "here's
our future."

Ug.

BTW, becuase there economy is under inflationary stress here, they're
lowering personal income taxation rates.

JG
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
V***@tcq.net
2008-05-01 21:28:48 UTC
Permalink
Post by John Galt
Post by alexy
Post by Democracy Highlander
If we do not let a dinosaur rise, we have to buy that stuff from 10 smaller
companies. There will be competition on the market, this have the power to
stimulate innovation and provide better products.
This is what the market economy is all about. Let a dinosaur rise unchecked
till become a monopoly, and it will destroy the market, making the market
economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits. The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case). But those laws will be complex,
and will need to be drafted by persons who understand how businesses
work, who can assess the tradeoffs of efficiency versus
competitiveness, etc. Actually, I'm not worried about that--I doubt
that any of the three remaining candidates will surround themselves
with simpletons. I'm more worried about who might have the will to
enforce current laws and support strengthening of the laws. Looks to
me like Obama right now, but we'll see.
Post by Democracy Highlander
Once you get this, you will figure out why we are better of spreading the
risk among a larger number of smaller players than betting all the eggs on
one large player.
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
Well, yea.
I'm sitting in a hotel in Bangalore writing this note. Whenever somebody
says "break up the big corporations" I look around India, and say "here's
our future."
yes, here is our future, we have spreading tent cities, spreading
ghettos, spreading slums, just like india. which once it embraced free
market economics, it can no longer feed itself.
Post by John Galt
Ug.
BTW, becuase there economy is under inflationary stress here, they're
lowering personal income taxation rates.
what a great move, lets pour gas straight onto the fire.
Post by John Galt
JG
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
Democracy Highlander
2008-05-01 01:17:51 UTC
Permalink
Post by alexy
Post by Democracy Highlander
This is what the market economy is all about. Let a dinosaur rise
unchecked till become a monopoly, and it will destroy the market, making
the market economy as bad if not worst than the Soviet Union's economy.
Actually, I agree with you here. But the solution is not incredibly
naive size limits.
Yes, a bit more analyze will not hurt. But the principles must be clear:
No unproductive size advantages must be tolerated. When the raw size power
it is used in negotiation to offset creativity and to create unfair
competitive advantage that is BAD and the company must be split.
Post by alexy
The answers are proper enforcement of the
anti-trust laws on the books (think how few enforcement actions we
have heard of lately) and strengthening those laws where needed (think
of the gov't failure in the MS case).
BINGO ! Something like this I was talking about, with the important note
that the gov. must not be idiot enough to wait for a company to gather 95%
of desktop market before thinking (or rather not thinking in the case of
Bush administration) to split the monopoly.
A company must be considered for splitting at the point where his sheer size
provide them with unfair competitive advantages.
Post by alexy
Using this "logic" will lead to the same thing as vid's desire to move
to companies small enough for him to understand--a return to an
agrarian economy.
Not bad at all as mater of fact. Just look at today's US economy.

The fraction marketing-business-sales-personals / productive-workforce it is
way way bigger than one. While at the corporate levels the sales and
business department can be more important than the production, at the
macroeconomic level they are just useless appendices of the society.

If the US population is for example capable to consume 10 tones of
aspirin/year what the business people do is to shift the attention of
consumers from one company to another. The gain in sales of company A will
come at the expense of B,C,D,....Z. Then the rest of the companies will
increase their ad budget (even by cutting the research and development
funds) to gain back the market from A. The consumers didn't gain anything
from all this marketing war, except more annoying commercials on their TV
shows. As mater of fact, by slashing the research funding in order to
increase the marketing budget, it may be that they just lost the
opportunity to discover that the aspirin have some positive effects on some
disease considered incurable. As I said, at macroeconomic level the
marketing-business-sales-personals are just useless appendices that consume
resources without providing any social benefits.

Now, let imagine that we switch back toward a small community based business
model. Yes, we may lose some of the productivity dropping the large
business model and focusing on small companies. But we already have all
this pool of useless but high payed appendices that can be re-educated to
do a useful job. Instead of wasting all that man power to invent new ways
to undress Paris Hilton in a car wash, we actually pay them to research
what other disease can be cured by the aspirin. And in process we also
slash in more than half the number the idiotic annoying commercial breaks.
Don't you believe the society will be better off ?

Once you realize that a system can react different than the simple sum of
all his components and look at the bigger picture, the perspective change
radically. The fact that marketing is useful for every company and the
economy it is composed of all the company, does not necessarily mean that
the marketing is at any good for the society at macroeconomic level. It is
actually harmful.

So, a community based local economies with fair and balanced (not
unregulated) trade among them can actually be much better than the current
pathetic idiotic and destructive globalized economy where all the effort it
is wasted in marketing and senseless competition at the expense of quality
of life and even sacrificing the individuals, the environment and local
culture for corporate greed. Despite that you call such a
society "agrarian" it can actually be a better and even more productive
type of economy.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-05-17 00:54:14 UTC
Permalink
Post by alexy
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
Heh.

Well, I'm glad I didn't attempt an actual refutation, then. It was so much
easier just to point out that he was putting words in my mouth.

Bear was 137th on the Fortune 5 last year. Can you imagine what kind of
America would be left if all larger companies were coercively split up by
government?
May as well just ask the Chinese to come in and run the place.

JG
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
Democracy Highlander
2008-04-19 03:05:21 UTC
Permalink
Post by John Galt
Bear was 137th on the Fortune 5 last year. Can you imagine what kind of
America would be left if all larger companies were coercively split up by
government?
A more balanced society, where creativity and innovation flourish.

The America you and your club envision, is one where of cronyism, nepotism
beat creativity, one where lies and wealth beat creativity, where money
secure that only people with lots of money have the right to make money.
Correct, if you remember about feudalism it is right.

The American envisioned by libertarian-neoconservative movement it is an
America of neo-feudalism. A country where a ruling financial elite is the
new aristocracy using the economic power to coerce all the rest to obey
them.
--
The world of the future will be fully democratic or will not be at all.

Democracy Highlander

P.S.:
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
John Galt
2008-04-19 11:39:03 UTC
Permalink
Post by Democracy Highlander
Post by John Galt
Bear was 137th on the Fortune 5 last year. Can you imagine what kind of
America would be left if all larger companies were coercively split up by
government?
A more balanced society, where creativity and innovation flourish.
You'd have rural India. I've lived there. Don't want it for America.

But, feel free to bring it up for a vote.

JG
Post by Democracy Highlander
The America you and your club envision, is one where of cronyism, nepotism
beat creativity, one where lies and wealth beat creativity, where money
secure that only people with lots of money have the right to make money.
Correct, if you remember about feudalism it is right.
The American envisioned by libertarian-neoconservative movement it is an
America of neo-feudalism. A country where a ruling financial elite is the
new aristocracy using the economic power to coerce all the rest to obey
them.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.
alexy
2008-04-19 03:57:07 UTC
Permalink
Post by John Galt
Post by alexy
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
Heh.
Well, I'm glad I didn't attempt an actual refutation, then. It was so much
easier just to point out that he was putting words in my mouth.
Bear was 137th on the Fortune 5 last year. Can you imagine what kind of
America would be left if all larger companies were coercively split up by
government?
May as well just ask the Chinese to come in and run the place.
JG
Actually, if you look at DH's post and ignore the nonsense
"solutions", he does raise some legitimate concerns.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
John Galt
2008-04-19 11:41:20 UTC
Permalink
Post by alexy
Post by John Galt
Post by alexy
Post by John Galt
If you decide you want to have an honest discussion, do get back to me.
I think you are off-target in questioning the honesty involved here. I
don't think that "Democracy Highlander" was responding dishonestly.
Unfortunately, I think his analytical skills and knowledge of business
and finance are commensurate with his language skills. Your point
about impact of a company not being solely related to size, while
clearly stated, was WAY too complicated.
Heh.
Well, I'm glad I didn't attempt an actual refutation, then. It was so much
easier just to point out that he was putting words in my mouth.
Bear was 137th on the Fortune 5 last year. Can you imagine what kind of
America would be left if all larger companies were coercively split up by
government?
May as well just ask the Chinese to come in and run the place.
JG
Actually, if you look at DH's post and ignore the nonsense
"solutions", he does raise some legitimate concerns.
There's nothing wrong with governance and accountability. However, you don't
have to take a sledgehammer to large corporations to get there.

JG
Post by alexy
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
z***@netscape.net
2008-04-19 12:08:28 UTC
Permalink
Post by John Galt
Post by Democracy Highlander
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.
What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.
The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".
Size isn't the issue. It's the position in the economy. Bear could have been
a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business. There are many businesses that need the
economies of scale of large size to survive.
But, that's also what the Wall Street idiots said about AT&T.
Which is why Artificial Intelligence, Microcomputers, fiber optics,
and satellites were invented for the AT&T idiots.
And that's also what they said about construction companies.
Which is why robots were invented for the moron construction
companies.
And that's also what they said about all the moron navy legacy
companies,
Which is why helicopters were invented for the navy morons.



 If you split up Boeing, you're
Post by John Galt
not going to have any jet planes == and any business big enough to
competitively build a jet plane is going to be much larger than Bear.
The solution to the Bear problem is easily solved by regulating leverage.
Simple.  You don't have to throw out the baby with the bathwater.
JG
Post by Democracy Highlander
And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.- Hide quoted text -
- Show quoted text -- Hide quoted text -
- Show quoted text -
John Galt
2008-04-19 12:43:33 UTC
Permalink
Post by John Galt
Post by Democracy Highlander
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.
What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.
The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".
Size isn't the issue. It's the position in the economy. Bear could have been
a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business. There are many businesses that need the
economies of scale of large size to survive.
But, that's also what the Wall Street idiots said about AT&T.

[JG] That's simply not correct. ATT faced no foreign competition. The
argument against breaking up ATT was a standardization argument, and
standardization arguments are often legitimate, although in this case the
standardization argument was weak while the impact on creativity brought
about by the monopoly was huge.

But let's not digress. The point is that for many goods and services, you
need large investment. If you can show how Joe Sixpack can go out, buy a
boxful of parts, and build either a 777, a Tahoe, or a laptop computer in
his garage, and then sell any of the above for less money than Airbus,
Toyota, or Lenovo can, I'll grant the point.

JG



Which is why Artificial Intelligence, Microcomputers, fiber optics,
and satellites were invented for the AT&T idiots.
And that's also what they said about construction companies.
Which is why robots were invented for the moron construction
companies.
And that's also what they said about all the moron navy legacy
companies,
Which is why helicopters were invented for the navy morons.



If you split up Boeing, you're
Post by John Galt
not going to have any jet planes == and any business big enough to
competitively build a jet plane is going to be much larger than Bear.
The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.
JG
Post by Democracy Highlander
And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.- Hide quoted text -
- Show quoted text -- Hide quoted text -
- Show quoted text -
z***@netscape.net
2008-04-19 13:46:43 UTC
Permalink
Post by John Galt
Post by Democracy Highlander
Post by Bert Hyman
Post by Democracy Highlander
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
I didn't say that.
What I said is that if some huge company fail due to bad management, the
negative impact on the economy may be so big that it can harm the whole
system. This is what was said about Bear Stern. It is too big to be allowed
to fail because it failure will crush all the investment sub-system.
The real solution is not to bail them out after it fail (as happen with BS),
but to take proactive measures. To prevent any company to reach a size where
it is "too big to be allowed to fail".
Size isn't the issue. It's the position in the economy. Bear could have been
a tenth of its size, but if the tenth was the tenth invovled in these
subprime investments, the system was put at the same risk.
Post by Democracy Highlander
So, we need to change the corporate laws and set up limits of how big a
private company can be. Once that size is reached: It have to be split
immediately. No exceptions.
Well, then forget american business. There are many businesses that need the
economies of scale of large size to survive.
  But, that's also what the Wall Street idiots said about AT&T.
[JG] That's simply not correct. ATT faced no foreign competition. The
argument against breaking up ATT was a standardization argument, and
standardization arguments are often legitimate, although in this case the
standardization argument was weak while the impact on creativity brought
about by the monopoly was huge.
But let's not digress. The point is that for many goods and services, you
need large investment. If you can show how Joe Sixpack can go out, buy a
boxful of parts, and build either a 777, a Tahoe, or a laptop computer in
his garage, and then sell any of the above for less money than Airbus,
Toyota, or Lenovo can, I'll grant the point.
Nobody's disgressing. Since the Boeing toons only specialiize in
hiring
Joe Starbucks Wanks. Which is why cruise missiles where
even invented for the Tax-A-Thon Wankers.
JG
  Which is why Artificial Intelligence, Microcomputers, fiber optics,
  and satellites were invented for the AT&T idiots.
  And that's also what they said about construction companies.
  Which is why robots were invented for the moron construction
companies.
  And that's also what they said about all the moron navy legacy
companies,
  Which is why helicopters were invented for the navy morons.
  If you split up Boeing, you're
Post by John Galt
not going to have any jet planes == and any business big enough to
competitively build a jet plane is going to be much larger than Bear.
The solution to the Bear problem is easily solved by regulating leverage.
Simple. You don't have to throw out the baby with the bathwater.
JG
Post by Democracy Highlander
And that maximum allowable size must be smaller than the minimum size that
can create a serious impact over an economy if it fail.
--
The world of the future will be fully democratic or will not be at all.
Democracy Highlander
When I say "democratic", I use the word democratic coming from democracy not
from Democratic party. I am not connected in any way with Democratic party
and if they fail to do as promised and cut corporate corruption I have no
problem to turn on them and blog against them too.- Hide quoted text -
- Show quoted text -- Hide quoted text -
- Show quoted text -- Hide quoted text -
- Show quoted text -- Hide quoted text -
- Show quoted text -
V***@tcq.net
2008-04-17 23:30:53 UTC
Permalink
Post by Bert Hyman
Post by Democracy Highlander
Post by Bert Hyman
As diverse as Levitz and Sharper Image? That list isn't diverse at all.
The only surprise there is that they managed to stay in business as
long as they did.
Actually there is no big problem to have companies fail.
The big problem is when a company like Bear Stern fail.
BS (was a perfect abbreviation) was "too big to fail".
There's no enterprise so big that it can't be brought down by bad
management.
--
unless you have connections with wall street, as in 1930, and today,
conservative/libertarians will always bail out unproductive wealth
over the producers.
the producers are the workers, and the companies like levitz.
unproductive wealth has now dominated our country, just like in the
1920's.
they are the fatcats getting bailed out as we speak, whilst everyone
else gets thrown to the wolves.
Rich Hutnik
2008-04-18 16:43:22 UTC
Permalink
Post by V***@tcq.net
unless you have connections with wall street, as in 1930, and today,
conservative/libertarians will always bail out unproductive wealth
over the producers.
the producers are the workers, and the companies like levitz.
unproductive wealth has now dominated our country, just like in the
1920's.
they are the fatcats getting bailed out as we speak, whilst everyone
else gets thrown to the wolves.
Excuse me. By that lumping with a slash, you state libertarians
always bail out unproductive wealth? Excuse me, exactly where is that
in any form of reality? For one thing libertarians seldom have enough
power to bail out anyone, because unproductive wealth hates
libertarian ideas of the marketplace, and their cry to not have the
government protect them. The real Robber Barons end up calling for
government protection, and bailout when things go badly. They want
the government to pay the training costs for their workers, and also
spin that their industry is in need. They will try to get any law
passed that will favor them, and any subsidy they can get their hands
on. They also state that they need more tax breaks, in order to get
the economy going. They will talk about the threat to the American
worker also, in order to get this to. And then, once they get
everything, layoff workers.

The Robber Baron is the leech who sucks in tax dollars deluding
politicians with some potential "economic activity". These
individuals are not Libertarian, even if they happen to sound like
they are. They are leeches.

- Rich
V***@tcq.net
2008-04-18 21:11:52 UTC
Permalink
Post by Rich Hutnik
Post by V***@tcq.net
unless you have connections with wall street, as in 1930, and today,
conservative/libertarians will always bail out unproductive wealth
over the producers.
the producers are the workers, and the companies like levitz.
unproductive wealth has now dominated our country, just like in the
1920's.
they are the fatcats getting bailed out as we speak, whilst everyone
else gets thrown to the wolves.
Excuse me. By that lumping with a slash, you state libertarians
always bail out unproductive wealth? Excuse me, exactly where is that
in any form of reality? For one thing libertarians seldom have enough
power to bail out anyone, because unproductive wealth hates
libertarian ideas of the marketplace, and their cry to not have the
government protect them. The real Robber Barons end up calling for
government protection, and bailout when things go badly. They want
the government to pay the training costs for their workers, and also
spin that their industry is in need. They will try to get any law
passed that will favor them, and any subsidy they can get their hands
on. They also state that they need more tax breaks, in order to get
the economy going. They will talk about the threat to the American
worker also, in order to get this to. And then, once they get
everything, layoff workers.
The Robber Baron is the leech who sucks in tax dollars deluding
politicians with some potential "economic activity". These
individuals are not Libertarian, even if they happen to sound like
they are. They are leeches.
- Rich
greenspan was a card carrying member of the ayn rand nut case cult,
bernenke is his follower.
if it walks like a duck, and talks like a duck, its a duck.
libertarianism is the hand maiden to fascism, libertarianism is the
decay that leads to fascism.
libertarian philosophy of leave it alone is responsible for todays
economic debacle. fascism is the response of the libertarian to their
own incompetence.

http://www.foreignpolicy.com/story/cms.php?story_id=4278

Greenspan’s Follies

By Stephen S. Roach
Page 1 of 2

Posted April 2008

There’s just one problem with Alan Greenspan’s attempts to defend his
record on the financial crisis: The former Fed chairman is guilty as
charged.


NICOLAS ASFOURI/AFP/Getty Images
Overshadowed: Greenspan will most likely be remembered as the man most
responsible for the worst financial crisis since the Great Depression.

For prescient warnings about today’s predicament, see “Think Again:
Alan Greenspan,” also by Stephen S. Roach, from the January/February
2005 issue of Foreign Policy.
A
lan Greenspan’s fingerprints are all over what is fast becoming the
worst financial calamity since the Great Depression. Sensitive to
mounting criticism that his stewardship of the Federal Reserve led to
today’s wrenching crisis, the former Fed chairman has launched a
massive public relations campaign to set the record “straight.”
Greenspan does make an inarguable point in stating his case for the
defense—that it is critical to get the lessons of this crisis right. I
couldn't agree more.
But methinks the man doth protest too much. Unfortunately, Mr.
Greenspan has been blinded by a dangerous combination of politics and
ideology in his own search for those very lessons. It was much the
same during the 18 ½ years he spent at the helm of the Fed, guided by
the belief that the U.S. public wants rapid, albeit noninflationary,
economic growth. A politically compliant central banker, he has stated
in his best-selling memoirs that he believes the independence of the
Federal Reserve is not set in stone—implying that there is always huge
pressure to keep the growth machine humming. A market libertarian, he
has long argued that regulatory intrusion slows the economy. Presto—
the rest is history—and an increasingly painful one at that.
Greenspan’s blend of politics and ideology led to bad economics and a
succession of policy blunders whose severity is only now becoming
clear.
Greenspan’s handling of the housing bubble is the smoking gun. The
Greenspan mantra is that markets know best—that central bankers should
not attempt to override the verdict of millions of market participants
by declaring that an asset bubble has formed. After all, there are the
costs to economic growth to consider if monetary policy is used to
deflate such bubbles. And why should any modern economy have to incur
those costs? After all, goes the script, the authorities always have
the wherewithal to clean up any post-bubble mess. Maybe not. This
time, the mess is almost beyond the realm of comprehension—most likely
a good deal larger than any growth that might have been foregone had
the U.S. housing bubble been handled more judiciously.

Yet the problem has never really been the bubble in the narrow sense
of the word. One of the weakest links in the Greenspan defense is his
fixation on whether a serious bubble was forming in America’s housing
market. Never mind his earlier arguments that housing markets were
local, not national, and that it was highly unlikely that home prices
could ever fall nationwide. Whoops. Never mind also his equally
irrelevant point that there were lots of housing bubbles in the world
at the same time, and that America’s property market excesses didn't
look so bad by comparison. Everyone’s doing it, so it’s not the Fed’s
fault. Right?
Wrong. The trouble with America’s housing bubble was never its
comparison with Ireland. The core of the problem lies in the
distortions that asset bubbles created on the real side of the U.S.
economy. Courtesy of the most rapid rates of sustained U.S. house
price appreciation in the modern post-World War II era, along with
innovative financing techniques that allowed American homeowners to
extract equity with ease from their humble abodes, the new age of the
asset-dependent consumer was born. Net equity extraction from
residential property—ironically, derived from a statistical framework
developed by Alan Greenspan, himself—surged from 3 to nearly 9 percent
of disposable personal income in the first half of the current decade.
And so it went. Increasingly supported by the confluence of both
property and credit bubbles, U.S. consumers spent well beyond their
means. Personal consumption climbed to an unheard-of 72 percent of
real GDP in 2007—a record for the United States and, for that matter,
for any leading economy in modern history. At the same time, household
debt soared to a record 134 percent of disposable personal income.
America certainly achieved the rapid growth that Greenspan felt the
body politic wanted. But it was growth based increasingly on fumes.
Unfortunately, the distortions of a bubble-infected U.S. economy
didn't stop there. Consumers who saw their homes as a new piggy bank
or ATM machine felt little pressure to save the old-fashioned way—out
of their paychecks. Saving rates plunged to zero for the first time
since the Great Depression. An increasingly asset-dependent U.S.
economy then had to borrow surplus saving from places like China in
order to keep growing—and run massive current account and trade
deficits in order to attract the foreign capital. Greenspan and his
disciple Ben Bernanke saw this situation exactly backwards. America,
they insisted, was simply doing the rest of the world a huge favor by
absorbing its surplus saving. Serious dollar risks were characterized
as a problem for a distant day. Suddenly, that day doesn't seem so
distant.




What Greenspan missed repeatedly over the years—and still misses today—
are the corrosive impacts this bubble had in fostering the imbalances
and excesses of an asset-dependent U.S. economy. Unprecedented
consumer leverage is only part of the problem. So, too, is the failure
of an aging U.S. population to save precisely when it needs to prepare
for retirement. Global imbalances are also an outgrowth of this era of
excess—underscored by America’s massive external deficit and, by the
way, the protectionist fires it stokes. Alas, these fault lines were
made all the deeper by the Fed’s regulatory laxity in an era of
unprecedented financial innovation—a laxity made all the more
dangerous by the cheap borrowing costs of a Fed-induced credit bubble.
This dangerous combination undoubtedly played a key role in fueling
voracious investor demand for opaque and increasingly toxic financial
products.
It didn't have to be this way. Just saying no to asset bubbles was
always an option. A variety of anti-bubble tools—the bully pulpit of
jawboning, more disciplined regulatory oversight, and, ultimately, a
tighter monetary policy—could have prevented disaster. Yes, economic
growth would probably have been slower, but that shortfall likely
pales in comparison to the post-bubble carnage now before us. Too bad
Greenspan couldn’t bring himself to follow the sage advice of one of
his predecessors at the Fed and “take away the punch bowl just when
the party was getting good.”
Of course, squabbling over Alan Greenspan’s place in history is not
going to get us out of this crisis. But vigorous debate about the past
is absolutely essential if we are to avoid such a quagmire in the
future. As always, the search for scapegoats is on. Rating agencies,
regulators, Wall Street, loan sharks, property speculators, and
subprime homeowners will all pay a steep price. Some, of course,
already have. In the end, I suspect the Federal Reserve will also pay
a steep price, losing some autonomy when Congress adds financial
stability to the Fed’s mandated charge of maintaining full employment
and price stability. As well it should. The central bank’s stewardship
of the U.S. economy is far too important to be left to politics and
ideology.
Over the years, a few of us warned this was all unsustainable. The
longer it went on, the more discredited we became. There is some
satisfaction in knowing that the time-honored laws of economics have
not been repealed—that the “new paradigm” rationales that typically
get invoked at the end of bubbles have again been repudiated. But
there is no satisfaction in peering into the abyss. The legacy of Alan
Greenspan will be forever tarnished by this dangerous and painful
reality check.


Stephen S. Roach is chairman of Morgan Stanley Asia.
s***@yahoo.com
2008-04-17 23:05:00 UTC
Permalink
Perhaps it's better that they go under now -- because, when the whole
shooting match goes under (and it will soon!!), looting will be so
extreme that it'll take out the rest.

Mike
PeterBP
2008-05-14 19:56:32 UTC
Permalink
Post by Thaddeus Stevens
Because retailers rely on a broad network of suppliers, their bankruptcies are
rippling across
Post by Thaddeus Stevens
the economy. The cash-short chains are leaving behind tens of millions of doll
ars in unpaid
Post by Thaddeus Stevens
bills to shipping companies, furniture manufacturers, mall owners and advertis
ing agencies. Many
Post by Thaddeus Stevens
are unlikely to be paid in full, spreading the economic pain.
snip

Very good. Now identify the reason for these bankruptcies. They do not
occur at all times thorughout the history of mankind, do they?
--
regards , Peter B. P. http://macplanet.dk
Washington D.C.: District of Criminals

"I dont drink anymore... of course, i don't drink any less, either!
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