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Archive for Thursday, September 18, 2008

Economic woes

September 18, 2008

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To the editor:

As an economist who started out in physical science, I've always studied the economy in terms of physical production and consumption - what economists call the real sectors. I am constantly amazed by how much these straightforward activities can be messed up for long periods of time by opaque disorders in the financial sectors. But that's what happened in spades during the Great Depression of the 1930s and in the various Asian currency collapses of the 1990s.

Macroeconomists I trust say it now may be happening worldwide, in a rolling deflation of all financial assets and a drying up of investment financing. The real economy hasn't been hit very hard yet, but there is every reason to fear that much worse is yet to come, and that it will be prolonged. It all could have been prevented by regulating the financial excesses and corruption that led to the collapse - but that was blocked by "pro-market" deregulation ideologues in the Bush administration and in the Federal Reserve and in previous administrations. Yet things are so bad now that even the Bush administration is carrying out truly massive interventions.

Meanwhile, the real sectors are frittering away the 10-year window of opportunity we have to do something significant about global climate change.

And in the midst of all this economic and ecological danger, our country is arguing about a distracting vice presidential selection and seems on the verge of electing yet another Republican ideologue who supports economic deregulation and foot-dragging on climate change.

David Burress,
Lawrence

Comments

monkeyhawk 6 years, 3 months ago

More doom and gloom from one of the "enlightened"... I'm not sure if dude was addressing the economic meltdown or global warming, um, I mean global climate change. "For 20082009, the Farmers' Almanac is forecasting a "numbing" winter, with below-average temperatures for at least two-thirds of the country. Only the Far West and Southeast will see near-normal temperatures. Few, if any, locations will enjoy many above-normal temperature days this upcoming season."Maybe Mr. Burress would enjoy this read:http://www.ncpa.org/globalwarming/GlobalWarmingPrimer.pdfIf not, this sums it up:(An excerpt from the column of a microeconomist that I trust:)English philosopher Herbert Spencer said, "The ultimate result of shielding men from the effects of folly is to fill the world with fools." http://townhall.com/columnists/WalterEWilliams/2008/09/17/stubborn_ignorance

BigDog 6 years, 3 months ago

I am not saying that only one party is to blame in this debacle ..... I was only saying that those who believe Obama is going to fix the issue right away if elected President .... are fooling themselves.Where were those federal agencies that oversee the financial industry? Where were Congressional Committees that oversee the financial industry?It didn't take a genius to understand that when you loan people more money that they can afford to pay back .... you've got problems.

just_another_bozo_on_this_bus 6 years, 3 months ago

To blame this mess on "computers" is utterly simplistic, and doesn't help to understand why it's happening.For a better understanding of why this is happening, listen to this interview of Michael Greenberger.http://www.npr.org/templates/story/story.php?storyId=94686428

kansas778 6 years, 3 months ago

As an economist it is no surprise that Mr. Burress wishes there to be more government control over the economy. If there wasn't any, he would be out of a job. Businessmen only need economists because the intervention of the government skews the economy so that their normal methods of decision-making can't operate. For example, when interest rates are not allowed to fluctuate freely (price control), they can't rely on the rate (price) in their decision about whether it is a good time to increase capital expenditures or not. Thus they need an economist. I don't blame Mr. Burress for wanting to keep his job.

kansas778 6 years, 3 months ago

jafs, the problem is too much regulation and government control. People weren't making bad decisions and trying to buy things they couldn't afford. They were given bad information because of government price controls. When price controls mask the actual state of the economy, people can't make the correct decision.

Richard Heckler 6 years, 3 months ago

Republicans got their ton of special interest money in 2000 and 2004 elections. McCain looks like a loser so they have switched sides yet still throwing plenty at republicans. Wall Street has consistently been a huge contributor to their cohorts in crime known as repubs.===================================Absolutely OBAMAAbsolutely OBAMA 2008 YES!World Preference Is Obamahttp://www.usnews.com/articles/news/campaign-2008/2008/09/10/poll-finds-worlds-preference-is-clear-obama-for-president.htmlMeet the Candidatehttp://www.barackobama.com/learn/meet_barack.phphttp://www.barackobama.com/about/Positions on Issueshttp://www.barackobama.com/issues/Go see Obama for 2008 YES!http://my.barackobama.com/page/event/search_simpleLies Vs Truthhttp://my.barackobama.com/page/content/fightthesmearshomeUnion Made T shirts YES!http://store.barackobama.com/OBAMA 20 years experience - TRUEhttp://www.politifact.com/truth-o-meter/article/2008/mar/07/obamas-20-years-experience/

JohnBrown 6 years, 3 months ago

Looks like the right wing is having a coming home to Jesus moment, but still, without taking responsibility for the mess their policies created.The only way McCain can keep running for office is to completely disavow his entire senate career of having been anti-regulation.Greed? Yes, greed exists in us all; we all all have self-interests. Blaming this debacle on "greedy borrowers" without also looking at "greedy lenders" is silly.Greedy lenders, using newly invented financial instruments, can be regulated; greedy borrowing can't. All conservatives, including Reagan and McCain, have opposed regulating greedy lenders.Well, here we are. OWN THIS, conservatives. It's your creation; you got exactly what you asked for. OWN IT, then apologize to this great country for what you have done.

kansas778 6 years, 3 months ago

Look sheep, government intervention is what caused this problem. It is ridiculous to think that more intervention will help.

BigDog 6 years, 3 months ago

Anonymous userDaytrader23 (Anonymous) says:Obama was pushing for some type of regulation/ oversight / transparency in the mortgage related securities back in 2006 one year before the sub prime mess even started. McCain fiercely opposed it saying absolutely NO to any type of regulation. NOW McCain supports regulation saying he is going to clean up wall st. One year "after" the sub prime mess. (just another good ol boy flip flopper)So again it shows you that judgment trumps experiance.P.S McCain still believes the economy is fundamentally sound. Which it is not. Americans (not just the government) have been living far too long on credit they cannot afford. The bill collector is knocking::------------------------------------------------------------------DaytraderMcCain proposed oversight legislation in 2005 .... but the Democratic leadership blocked discussion and debate.Why would Obama want to regulate these organizations that he has taken over so much money from? And that is over a less than 4 year Senate career?Since 1989, Lehman Brothers's employees and political action committee have given $9.2 million to federal candidates, parties and political action committees, with 54 percent of that going to Democrats. In the current Congress, 271 lawmakers have collected nearly $3 million since 1989, with 72 percent going to Democrats. Democratic presidential candidates and senators Hillary Clinton and Barack Obama top the list of all-time recipients for the company, collecting $410,000 and $395,600 respectively. Sen. Charles Schumer, D-N.Y., a member of both the Senate Banking, Housing and Urban Affairs Committee and the Senate Finance Committee, hauled in $181,450, while Sen. Chris Dodd, chair of the Senate banking committee, has collected $165,800. The top recipient of PAC money from Lehman Brothers has been Rep. Mike Castle (R-Del.), a member of the House Financial Services Committee, which has jurisdiction over banking and the securities industry. Castle has collected $38,500 from Lehman's PAC since 1993.This election cycle, Lehman employees have given about $1.3 million to presidential candidates. Only fellow financial giants Goldman Sachs, Citigroup and Morgan Stanley have given more to the presidential hopefuls this election cycle. Lehman employees have made their firm one of the top contributors to both Obama ($370,500) and John McCain ($117,500) this election cycle. The company is also on track to spend more than $800,000 on federal lobbying this year. http://www.opensecrets.org/news/2008/09/brothers-grim-is-lehman-next.html

gccs14r 6 years, 3 months ago

"What will be far more effective is reduced taxation, regulation and litigation."Yes, because that has been so effective so far in limiting skyrocketing debt and an implosion of the financial sector. Oh, wait....

SettingTheRecordStraight 6 years, 3 months ago

Global economic woes will increase dramatically if we follow Mr. Burress' foolish advice to fight a losing, multi-tillion war against climate change (or global warming - the environmentalist left keeps changing their peferred terms). What will be far more effective is reduced taxation, regulation and litigation.

devobrun 6 years, 3 months ago

Hey Bozo.....If an explanation based on the concept of sophistication facilitated by computer models is too simplistic......what about regulation and the Bushes? Those reasons seem simplistic to me.---------------------------------------------"A financial derivative contract is a financial instrument that is linked to another specific financial instrument or indicator or commodity and through which specific financial risks (such as interest rate risk, foreign exchange risk, equity and commodity price risks, credit risk, etc.) can, in their own right, be traded in financial markets."Statistics Department IMFErroneous valuation of such instruments has led to the downfall of the capital industry. More regulation is like the FAA or NTSB hiring more investigators to determine why the overly-sophisticated airplane crashed. Fix the friggin' plane. Your problem isn't the Bushes, or the right-wing or deregulation.The problem is that no one knows what the he?? is goin' on. We walked into a game of poker and now we're playin' 8 card High-low Omaha with deuces wild. Insanity. Wow, wait until we find out about all the other Emperors who aren't wearing clothes either.

kansas778 6 years, 3 months ago

The mortgage lending "crisis" has been caused by price controls. Normally, when a commodity is highly sought after (in this case, capital) the price rises with the demand (here, the interest rate). Higher interest rates affect the decisions of people in deciding to take out a mortgage or not, and when interest rates are high, people will save their money instead because the return is better. When the government controls interest rates this self-regulating process can no longer function, and you end up with problems like what we have today. Too many people that should have been saving their money instead made a decision to get a mortgage based on faulty information because of government price controls.

Daytrader23 6 years, 3 months ago

Obama was pushing for some type of regulation/ oversight / transparency in the mortgage related securities back in 2006 one year before the sub prime mess even started. McCain fiercely opposed it saying absolutely NO to any type of regulation. NOW McCain supports regulation saying he is going to clean up wall st. One year "after" the sub prime mess. (just another good ol boy flip flopper)So again it shows you that judgment trumps experiance. P.S McCain still believes the economy is fundamentally sound. Which it is not. Americans (not just the government) have been living far too long on credit they cannot afford. The bill collector is knocking.............

devobrun 6 years, 3 months ago

Wall street, investment banking, world monetary manipulation, global warming, politics,and many more have replaced reality with computer models.These endeavors use of increasing sophistication and reliance on computers to try to keep track of things has lead to science, economics, investment and operational strategies that no one really understands.Reality has become a computer game, Mr. Burress. Just like all games, the rules can be manipulated by people who like to hide in dark rooms. Mortgage crisis? Don't loan money to people who can't pay the loan off.Global warming? B.S. We don't even know how to define the temperature of the globe. Ignore CO2 as a cause of climate change and deal with the energy issue like engineers.Crisis in monetary instruments and derivatives? Eliminate sophisticated instruments and derivatives that no one really understands.Simplify. Don't make regulation more sophisticated, make everything less so. Sophistication in science is a sure sign that you don't know what you're talking about yet. Sophistication is what you get before the great breakthrough that explains things in much simpler terms. Have you ever heard of the aether? Near its end, the description of it was highly sophisticated......then Maxwell came along and showed that the aether was a "created reality".The emperor has no clothes, folks. He is bare and the populace is ignoring the truth that sophistication enabled by computer programs is not a replacement for reality.Don't loan money to people who cannot pay it back! No matter how many times the loan is hidden in some "monetary instrument". Wanna vote for a political candidate? You can't. You are voting for a thing that has been created by sophisticated political scientists. These marketers of meat hide the candidate behind media manipulations. Admit it folks, don't you feel jerked around by this whole political process?Well, its happening in every aspect of your life. Science, money, politics. Computer models abound. Sophisticate models, too. Manipulating science, candidates messages, investments........and it ain't real.

Richard Heckler 6 years, 3 months ago

How will the rest of the U.S. economy be affected if the republicans social security privatization plan is enacted?Put simply, moving to a system of private accounts would not only put retirement income at risk--it would likely put the entire economy at risk.The current Social Security system generates powerful, economy-stimulating multiplier effects. This was part of its original intent. In the early 1930s, the vast majority of the elderly were poor. While they were working, they could not afford to both save for retirement and put food on the table, and most had no employer pension. When Social Security began, elders spent every penny of that income. In turn, each dollar they spent was spent again by the people and businesses from whom they had bought things. In much the same way, every dollar that goes out in pensions today creates about 2.5 times as much total income. If the move to private accounts reduces elders' spending levels, as almost all analysts predict, that reduction in spending will have an even larger impact on slowing economic growth.The current Social Security system also reduces the income disparity between the rich and the poor. Private accounts would increase inequality--and increased inequality hinders economic growth. For example, a 1994 World Bank study of 25 countries demonstrated that as income inequality rises, productivity growth is reduced. Market economies can fall apart completely if the level of inequality becomes too extreme. The rapid increase in income inequality that occurred in the 1920s was one of the causes of the Great Depression.http://www.dollarsandsense.org/archives/2005/0505orr.html

loaded_cannon 6 years, 3 months ago

So who is advising Obama on Housing policy these days?Former CEO of Fannie Mae, Franklin Raines, who was fired in 2004 by its board in an accounting scandal, but collected disputed bonuses of $52 million!!!!!!!Funny how you haven't heard much about that from the obama mania media.

Richard Heckler 6 years, 3 months ago

About $700 billion in investments vanished.CRIME: Who has history with financial institutions going south such as the savings and loan scandal? Republicans!Neil, George Jr., George Sr., and Jeb BushThe Savings and Loan industry had been experiencing major problems through the late 60s and 70s due to rising inflation and rising interest rates. Because of this there was a move in the 1970s to replace the role of S&L institutions with banks.In the early 1980s, under Reagan, regulatory changes took place that gave the S&L industry new powers and for the first time in history measures were taken to increase the profitability of S&Ls at the expense of promoting home ownership.A history of the S&L situation can be found here: http://www.fdic.gov/bank/historical/s&l/What is important to note about the S&L scandal is that it was the largest theft in the history of the world and US tax payers are who was robbed.The problems occurred in the Savings and Loan industry as they relate to theft because the industry was deregulated under the Reagan/Bush administration and restrictions were eased on the industry so much that abuse and misuse of funds became easy, rampant, and went unchecked. Additional facts on the Savings and Loan Scandal can be found here:http://www.inthe80s.com/sandl.shtmlThere are several ways in which the Bush family plays into the Savings and Loan scandal, which involves not only many members of the Bush family but also many other politicians that are still in office and still part of the Bush Jr. administration today. Jeb Bush, George Bush Sr., and his son Neil Bush have all been implicated in the Savings and Loan Scandal, which cost American tax payers over $1.4 TRILLION dollars (note that this is about one quarter of our national debt).Between 1981 and 1989, when George Bush finally announced that there was a Savings and Loan Crisis to the world, the Reagan/Bush administration worked to cover up the Savings and Loan problems This information was kept from the media until after Bush had won the 1988 elections.http://rationalrevolution0.tripod.com/war/bush_family_and_the_s.htmMcCain-the-most-reprehensible-of-the-keating-fivehttp://www.phoenixnewtimes.com/1989-11-29/news/mccain-the-most-reprehensible-of-the-keating-five/1

jafs 6 years, 3 months ago

I think the bigger causes are greed and lack of oversight/regulation/enforcement.There was also a clear element of fraud involved, especially in the marketing of risky securities as highly rated.The greed was not limited to one sector, but involved borrowers, lenders, appraisers, and investors.If lenders had been unable to make loans without proper documentation, that might have helped.If appraisers had been unable to make appraisals to suit lenders rather than true market value appraisals, that might have helped.If large financial institutions had been unable to fraudulently market their securities, that might have helped.And, of course, if people hadn't tried to buy houses they couldn't afford, that might have helped as well.

igby 6 years, 3 months ago

If you follow the "chicken tracks", your bound too be slaughtered waiting around inside the chicken coop.!Step outside the box and ride the downward slope with day options, "puts". No need for a saddle when the running horses are all "bear backed". All dressed up and no place to go?Risk in gold will hold to the calls side.Watch the full moon and the new moon for moving downwards. The first day of business after each will prove good results. Puts to the grains, commons and bond markets. Calling to the metals and the oil will call as well.If your bored drink wine!Lol.

igby 6 years, 3 months ago

Solved problem?Reduce GNP less excess perishables.Increase NNP by reducing imports. Set i-8.00 %, freeze actions and null all real estate contracts by forcing compliance with new freeze regulations. Bond yields cannot be projected more than 30 years. What is the worst?Depression or forced government control of rates and yields. The free market is failing without a safety net.Suspend NAFTA?Non of the above will make the world in general a better place, however, saving America from depression will take hard and unprecedented measures.

kansas778 6 years, 3 months ago

Why would "rightwingers" be heads of those companies? They benefit the most from government intervention and inflation. Regulation is an effective barrier to new competition. They are against their own companies being regulated, but not others'. When the government prints more money, they get to touch it first, before its inflationary effect can take hold. In other words, while it still has maximum value. Don't confuse George Bush and John McCain with conservatives. Many of their policies are socialist in every way. The current problems are not from deregulation, but from price controls. You can't half-deregulate the economy and expect good results. Just look at the partial deregulation of the electric utilities in California and the problems that were caused by the continuing price controls.

igby 6 years, 3 months ago

Forgot too tell you.Set i=0,There's no proven way to calculate/project bond yields when i=0.In theory their too infinity, but in reality they are being pinched.

Brent Garner 6 years, 3 months ago

So what does everyone want? Some omniscient regulator type who can mystically foresee any and all malfeasance that might be perpetrated? Let me know when you find such a person. While I agree that this problem originates in the financial sector I would argue that it may go one step further down. This whole mess starts with mortgages made to people who should never had mortgages. In other words, greedy people who wanted houses they could not afford were serviced by greedy non-bank type mortgage lenders--see Countrywide, et al--who many times issued mortgages without even proof of income. These lenders did not care because they had found a way to bundle those worthless high risk mortgages and sell them as a "security" to greedy individuals wanting an above average interest rate. Consequently, massive amounts of these worthless pieces of paper found their way into hedge funds, investment banks, and, in some cases, into bank portfolios as institutions took steps to maximize profit and market share in what appeared to be a "hot" security. Now the crows, not chickens, have come home to roost. I contend that no regulator could have forseen what was going to happen. Just as the police cannot predict who will be a criminal, no regulator can predict who will engage in creative ways to do un-ethical, immoral, but legal things. So, now to offend the anti-religion crowd, 1 Timothy 6:10 (from the King James Bible):"For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."And, lest there be any doubt, this kind of greed is not unique to one political party or another. It seems to be rampant in all political entities because we have people filling them and running them who have abandoned morals and ethics wholesale!

supertrampofkansas 6 years, 3 months ago

"Crisis in monetary instruments and derivatives? Eliminate sophisticated instruments and derivatives that no one really understands." - DevobrunI'm just a caveman engineer. I fell on some ice and later got thawed out by some of your "sophisticated" scientists. Your world frightens and confuses me! Sometimes the honking horns of your traffic make me want to get out of my BMW.. and run off into the hills, or wherever.. Sometimes when I get a message on my fax machine, I wonder: "Did little demons get inside and type it?" I don't know! My primitive mind can't grasp these concepts. Auugghhhh I am just a simple caveman engineer!Sorry about the parody Devobrun but your rant against the "sophistication" and modeling reminded me of the SNL skit. It must be your mantra to apply that philosophy of yours to anything and everything. Maybe you do know a thing or two about engineering but your assessment on financial matters is such a gross oversimplification and certainly void of reality. Do you really think that we having these problems simply because of bad loans to certain individuals? There is nothing complicated about this Devo and anyone else who cares to analyze the situation. I say Brent's biblical verse is more representative of what is happening economically. It is all about greed. I encourage everyone to look at the Federal Reserve Corporation and understand who it is that actually controls this group. The only real solution to solve our financial problems is to put pressure on the Government to repeal the Federal Reserve Act of 1913 and to demand that Congress again be allowed to create and control the money of the nation, issuing interest and debt-free "United States Notes" as the legal currency.

gccs14r 6 years, 3 months ago

XD40 threatened: "We're not running and, if there is a depression in 2010, we're better armed than you are."Don't count on it.

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