Psychopolitik 2.0

These should come as no shock at all:

-The banks that got the most bailout money spent the most on lobbying to influence that “reform” bill.

-CEOs that cut the most jobs during the ongoing collapse, regardless of the profitability of the company, got paid the best.

-”Y’know what would’ve cushioned the economic crash?  Bailing out Lehman Brothers.” — says ex-CEO of Lehman Brothers.  How convenient…

I don’t claim to be an expert.  I just pay attention to this because it’s amusing, and as a whole says so much about how “our” economy has been structured.  So take what you will from the following:

-Yglesias: “There isn’t enough money!  The Fed needs to loosen up!  More dollars, more demand!”

-Sourcewatch, peer-reviewed by these guys: “Oh, they’ve been loose, it just went to high-finance…”

Truth be told, I kinda feel for Matt.  Blatant error (government can’t create demand out of thin air.  People want what they want, or they don’t) aside, I get why he would think this.  Much of the general public is sorely lacking in money, and he wishes that the Fed would just straight-up give them the cash.  Since they haven’t, he assumes they’re being stingy, when the reality is on the other side of that electrified-barbed-wire topped brick wall there’s a flood.  In fact, there’s been a flood for so long we generally don’t think about it anymore, all we knew was that there was a new “when I was your age…” story about shopping being written each week.  Prices are only slowing down because the rest of us have run into that wall at full speed.

As for what the non-financial sector has been doing with their money in the midst of this, here’s the answer from Barry Ritholz: Sittin’ on it.  But that started back when Thriller was the new shit.

So, the extensively government-backed financial sector, which long ago dropped any pretense to funding productive activities, still managed to screw up & threaten collapse.  The rest of the “private” sector benefits from the neutering of labor & sits around on a pile of cash, bitching about overcapacity.  Rather than a helicopter & printing press, may I recommend a battering ram?

Edit, 7/18/10: Contradiction Time!  Three days after suggesting the need for encouraging consumption via gov’t policy, Matt endorses a tax reform idea literally designed to discourage it…

Another scene in the ongoing reality play “Death of a Consumerist Economy“:

The credit scores of millions more Americans are sinking to new lows.  Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery. (emphasis mine)

This reliance on debt was deliberately designed, over several decades.  An at least partially rational economy, if it insists on leaning on consumption, realizes that people need the MONEY to actually fucking PAY for the crap.  Credit is NOT the same as money, as it merely defers & adds interest so you owe even more later, under the assumption that you will always have more money later.  As we can see, that assumption has FAILED.  All the talk about a “credit crunch” is misdirection, credit never should’ve been as important as it came to be in the first place. You know what people used to borrow for?  Big shit like a house or a car, stuff that no one in their right mind would carry around the money for even if they had it.  It was a burden that people sought to pay off as soon as possible.  Any other use of credit was commonly seen as a sucker move.

It still is.  We’re just being led into it at virtually gunpoint now.

If the modern market economy were a soccer game, the legal fictions known as corporations would be leading actual human beings 5-nil — because the refs let the corporations use their hands.  For example:

When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.  The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes.

Yet just try sticking a Dutch flag on your house & arguing to the cops that it voids U.S. drug law…

At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure, warning that it will lead to job losses and higher gasoline prices, as well as an increased dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process. (emphasis mine)

Oil gets subsidies out the wazoo.  An oil company & its cohorts, through negligence, causes the worst spill ever.  Still, even in this context, paying for the privileges they receive is beyond the pale.  However, note that they hint one of the results would be higher gas prices.  No one just absorbs higher taxes, they shift things around in response: we spend less on other stuff, they…well, they make other stuff cost more for us.  So, more accurately, no one absorbs higher taxes but us…

A common feature of artificially propped up industry is to claim their privilege serves a common good.  Agribusiness are masters at it, but oil is trying:

Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers. By helping producers weather market fluctuations and invest in technology, tax incentives are supporting an industry that the officials say provides 9.2 million jobs.

“It’s practically a win-win, folks!  We get super rich, you get gas that, while not cheap, isn’t as expensive as we WANT to make it!  Quit whining!”

The rest of the article provides more details of just how deep & stubborn these subsidies are, but the gist is obvious: in oil production, there is no free market.  That’s not the main thought I had when reading it though.  Instead, I thought about how despite such glaring intervention in favor of fossil fuel, “green energy” is automatically assumed to require its own special subsidies & breaks out the ass to make a serious dent.  Why?  To put it simply, because with no subsidies either way there’s no sucker, and there always has to be a sucker…

Remember M3?  It’s a measure of the money supply, one that in the case of the US hasn’t been published by the Federal Reserve since 2006.  Fortunately, the components of it can be, and has been, pieced back together by other parties.  So, what is this lost measurement saying now?:

The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said. (emphasis mine)

Interesting interpretation here.  Basically he’s saying that banks are hoarding money that should be out in the system circulating.  The rub here is that the reason for the higher ratios is a response to why the financial crisis started in the first place: large financial sector players made huge, ridiculous bets on debt & didn’t have the money to cover.  The process of how debt became a commodity is a story in and of itself (here’s a quick summary I floated over at Talking Points Memo), but let’s focus on this particular part.  M3, prior to being discontinued, was resembling an unfinished child’s drawing of Mt. Everest.

Now, according to recent measures, M3 is coming back down — despite trillions in stimulation, between the TARP bailout, the stimulus, and the direct injections of money by the Fed.  The type of people that made the aforementioned ridiculous bets are, for the most part, humming along as if nothing happened.  Meanwhile, unemployment is huge and wages still haven’t caught up with even previous inflation.  If money goes into the economy at the point of the big banks, capital ratios are going up, and the resources of most of the public are flat or worse, well, where do you think the money is going?

Clearly what has been done thus far isn’t working.  Yet…onward!

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

In theory, deficit spending stimulates the economy by filling in gaps where the private sector normally would be, until conditions otherwise blow over.  But in practice, I’m not seeing a difference between this and the deservedly maligned “trickle-down” economics, to be honest.

In the footnotes of a speech U.S. Federal Reserve Bank Chairman Ben Bernanke would have given to the House Financial Services Committee on Feb. 10, lies a unique and startling disclosure.Hosted on the Federal Reserve’s own servers, the written testimony of the bank’s chairman explains in plain text what expanding the Fed’s powers will do.

“The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system,” footnote number nine, at the bottom of the page, explains without additional qualification.

MTV believes in it, having acknowledged that the “M” now stands for Mediocre instead of Music.  Obama, on the other hand, does not…:

President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein, noting that some athletes take home more pay.

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

WTF…really?  Comparing politically connected megabankers to pro athletes, that’s all you have?  Is this a joke?  Last time I checked, the gambling debts of athletes weren’t backstopped by the rest of the public at gunpoint, otherwise that incident Gilbert Arenas let his Desert Eagle soar over would’ve worked out much differently.

It’s not the money, Barry.  It’s how they get it.  If the banksters ran their companies in a reasonable manner & didn’t take silly system-crushing risks then their pay wouldn’t have even shown up in the news.  But they didn’t.  They took the government up on the implied cushion & took a one-way trip to Moral Hazardistan.  That these companies even still exist is an insult.

“That is part of the free-market system”…ridiculous.

Obama sought to combat perceptions that his administration is anti-business and trumpeted the influence corporate leaders have had on his economic policies. He plans to reiterate that message when he speaks to the Business Roundtable, which represents the heads of many of the biggest U.S. companies, on Feb. 24 in Washington.

Funny.  He puts someone in at Treasury that recommended AIG try to cover their tracks, retains Bernanke (a friggin’ Bush appointee) at the Fed, and to this day defends the bailouts, now going as far as to say big bonuses at the banks that were kept alive with our money are no big deal.  Yet despite all this, he is (& still will be no matter what) painted as the 2nd coming of Che Guevara.

Simple question: how much does someone have to vigorously defend state-capitalism at all costs before it is finally admitted that they’re a capitalist?

When you build up a monster & let it loose, the probability of a trail of destruction following it rapidly approaches one.

This one has been busy for awhile, even going as far as to cook the books for an entire friggin’ COUNTRY:

“Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

Such transactions are part of normal government refinancing. Europe’s governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks. (emphasis mine)

A nominally “private” company bailing out a government, and with funny money at that.  So THAT’s where they got the idea…

Props.

When there is a void, fill it.

For example, here’s one, complete with helpful illustration:

In general, much of the U.S. population does not trust the large institutions that currently hold power over the system they live within.  Naturally I’d argue they never should’ve trusted them in the first place, but the million dollar question is how to replace them with something that CAN be trusted.

BTW: whether the limitation of the top two responses to yourself & blood relatives was intentional or not makes a suggestion about a possible void-filler that would actually be worse than the status quo.  Try to guess what it is.

The first entry in the “that’s what we’ve been trying to tell you all along!” department of the year comes via WaPo:

The past decade was [...], according to a wide range of data, a lost decade for American workers. A decade that began in a moment of triumphalism — there was a current of thought among economists in 1999 that recessions were a thing of the past — has included two of them — bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 — and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.[emphasis mine]

When the point of your position is to ignore these types of things, they end up shocks after the fact.  For the rest of us, the endless bouts of “WTF, my check is gone already?!?” kept us away from that luxury.

The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.

But beyond these dramatic ups and downs lies an even more sobering reality: long-term economic stagnation. The trillions of dollars that poured into housing investment and consumer spending in the first part of the decade distorted economic activity. [...]

The housing bubble both caused, and was enabled by, a boom in indebtedness. Total household debt rose 117 percent from 1999 to its peak in early 2008, according to Federal Reserve data, as Americans borrowed to buy ever more expensive homes and to support consumption more generally.

Income went stagnant, prices kept going.  The politically endorsed response to this was treating debt as if it were savings, hence the resulting malinvestment.  Learning from our errors sounds like a simple resolution to make for the new year, but will we actually approach it?