Readings: Foreign Investment

Investments in emerging markets have done better than investments in the U.S. in the 2000s. China and Japan have continued to buy U.S. debt, not because they are impressed with Silicon Valley's growth potential, but in order to cripple American manufacturing by keeping the dollar artificially high and the yuan and the yen artificially low. Their debt purchases are part of their strategic industrial policies on behalf of their own export-oriented manufacturers, not a vote of confidence in future American economic dynamism.

- Michael Lind in The Clintonites Were Wrong

Roots of Financial Disaster

This is from a post today by Andrew Leonard:

"Countrywide's example makes a mockery of the idea that government pressure to expand low-income and minority housing can be blamed for the housing boom and bust. Countrywide watered down its underwriting guidelines and gave mortgage loans to anyone who could sign a piece of paper for one reason, and one reason only -- to generate revenue...Growing market share kept Countrywide's stock price high. Wall Street's appetite for securitized mortgage products meant it could unload whatever bad loans it had made as fast as it could repackage them. Government mandates to increase homeownership hardly appear to be a significant factor in Countrywide's sage of greed and stupidity."

Readings: Market Fundamentalism

According to market fundamentalism, all social activities and human interactions should be looked at as transactional, contract-based relationships and valued in terms of a single common denominator, money.

-From The Crisis of Global Capitalism by George Soros

Globalization: Boom and Bust in Saipan

I had a couple of comments to add. First, Adam Yamaguchi's comment, "this reminds me of Detroit" was on point. I lived in Michigan for years and even before the housing crisis much of Detroit and other manufacturing towns had already been abandoned.

Second, do most Americans even know that Saipan is part of the American territories? Saipan is in fact the capitol of the Commonwealth of Northern Mariana Islands.

Third, gender doesn't seem to be addressed much in this video. The garment workers as you can see are largely female. The massive influx of female garment workers has completely thrown off the sex ratio of the island.

Forth, Saipan and its efforts to circumvent US trade laws were directly involved in the Jack Abramoff scandals. Remember that guy?

TARP Quotes

Here are two quotes concerning the federal bailouts from Rep. Alan Grayson (seen below with some sweet sweet facial hair) that I found to be worthy of further thought. These are from an interview in Salon.

"How can anybody be other than angry to see something like this happening. If they took that same money, $4,000 for every man woman and child in American, and they simply wrote checks to people that would end forclosures, it would stop the drop in the housing market, it would put a significant dent in our unemployment problem. Instead they take that money...they lend it to people who we don't know, they get back stuff we can't understand and we're the ones left holding the bag."

"What we're doing in reality is we're lending the banks billions upon billions upon billions of dollars in the hopes that they will lend it back to us. I say let's cut out the middle man."

Greyson's idea to "cut out the middle man" in the financial crisis is something that I've been pondering for awhile now. Banks and other financial institutions use money to make money. They give people and organizations money in form of loans and they collect a price for this service in the form of interest. Money is the product that they produce and sell. Does giving financial institutions money so that they can turn around and loan it at profit if they so choose make sense? Of course, representatives of the Fed (Federal Reserve) have been saying that they are actually loaning this money instead of merely donating it. But, this is little more than vague assurance since they refuse to disclose exactly what they're doing to anyone.

UPDATE!

Let me put this even more simply. There is a cycle of money that is easy to follow.

Phase 1: The government gives/lends money to the banks.
Phase 2: The banks lend that money to people and/or businesses that need money.
Phase 3: These people and businesses give money to the government in the form of taxes.

Now, given the above cycle, here are the points that I find interesting. Caveat: Some of the following rehashes what I say before this update.

First, I'm still unsure to what extent the government is giving vs. lend money in phase 1. Actually, I think that this distinction has been made intentional unclear by the Fed . What I'm quite sure of is that if the money is lent to the banks it will not be returned in full and certainly not with interest.

Second, while the money is coming from the government of the United States, the distribution of this money is controlled by the Fed which is best described as a quasi-governmental institution. The Fed has members appointed by the president and confirmed by the senate but also has members and significant input from it's member banks. Again, I'm no expert on how the Fed makes decisions but I'm pretty sure that it is a hybrid institution of both the government and the banking system. These are the people that are giving/lending money to the banks.

Third, and probably most important, the banks lend money at interest. I mentioned this point in the original post but I just want to highlight it again here. Collecting interest is like skimming money off of the cycle. Or we could think of the cycle as an engine that drives profit at the banks.

Fourth, the banks have more control over lending money than any other part of the cycle. As the post illustrates, Congress is having trouble even simply accounting for how their money is spent. When people and business give their tax money to the government, their control over its distribution is limited to their ability to elect the government and advocate for its policies.

Fifth, apparently, there aren't even assurances that the money given to banks and other financial institutions is being loaned out at all. If they aren't even loaning it, God knows what they are doing with it but it's a good bet that it's something more profitable than merely loaning it out at interest.

This is how I see the state of the TARP program and the cycle of money that it generates. If anyone disagrees with my extremely simple minded analysis, I would be happy to hear alternate viewpoints.

Good News Everyone

Good news if you're Lou Dobbs! Soon the US economy will be so bad that mexicans and other south of the border types won't be immigrating here for the jobs that don't exist. Hooray! Everyone wins!

Free Speech, Free Press, Free Market

I always say that I don't understand economics and now it seems that I'm in "good" company.

But, here's something that makes some sense. The free market encourages powerful corporate interests to collude with the government to consolidate power. Disaster capitalism as written about by Naomi Klien.

Why does she keep talking about the last 35 years? Here's a graph from Paul Krugman's new blog that shows how to pin point the changes in economic equality. The graph tracks by year the percentage of capital gains that the richest 10% of America enjoys. High marks in the graph represent unequal income distribution. After a long period of stability, the graph rises steeply at about 1982 or 35 years ago.

Can This Blog Get Any Boringer?

Economics is like intellectual kryptonite to me. I really don't understand much of it at all. So, I like it when a source at a least asks the same questions about what the hell is going on that I usually do. Here's a flash animation that did just that for me.

Quite often, my head bangs up against question 3 in the documentary. Isn't it logical that perpetually accelerating growth and sustainability are incompatible?