Author: VD

The reason for the recent rally:

The Dow is heading up, and it’s not because Senatorial opposition to the stimulus is weakening. It started with the news yesterday that the Administration is on the verge of getting one huge thing right and will announce a suspension of certain mark-to-market rules on Monday. This will instantly reduce the risk for financial firms with bad assets on their books from future paper losses that could adversely affect their regulatory solvency.

So, if the financial authorities agree to pretend that the assets held by financial firms are worth more today than anyone is actually willing to pay for them because at some point in the distant future they are expected to be worth more, then investors can pretend that equities across the board are worth more today as well. Taking this logic further, if we all agree to pretend that half the people who aren’t working are actually employed, then the market should absolutely skyrocket!

I’m feeling more confident already. The animal spirits are unleashed. Make way for the Great Bull of 2009!

UPDATE – I don’t know about you, but I am feeling downright stimulated: Amid stunning new job losses and yet another bank failure, key senators and the White House reached tentative agreement Friday night on an economic stimulus measure at the heart of President Barack Obama’s recovery plan. Two officials said the emerging agreement was for a bill with a $780 billion price tag, but there was no immediate confirmation.

The obvious economic consequences of this labor trend appear to escape this NYT writer:

With the recession on the brink of becoming the longest in the postwar era, a milestone may be at hand: Women are poised to surpass men on the nation’s payrolls, taking the majority for the first time in American history. The reason has less to do with gender equality than with where the ax is falling.

The proportion of women who are working has changed very little since the recession started. But a full 82 percent of the job losses have befallen men, who are heavily represented in distressed industries like manufacturing and construction. Women tend to be employed in areas like education and health care, which are less sensitive to economic ups and downs, and in jobs that allow more time for child care and other domestic work.

Here’s another interesting fact. Those disappearing male jobs in manufacturing and construction tend to produce wealth. Jobs in education and health care are less sensitive to economic ups and downs for the simple reason that they are de facto government jobs, which produce no wealth. If you get sick and I work very hard to get you back on your feet, nothing new has been produced. We’re just back at the status quo we were at before you fell ill. Health care is a great thing, but it is a net wealth consumer, not a wealth producer, as the budget of California should suffice to show. And the panoply of Womyn’s Studies and Art History majors, to say nothing of the high school graduates who can’t pass a simple history exam, demonstrate the worthlessness of most modern American education.

But the trend does suggest a plausible answer to the question that John Derbyshire once posed. What follows in the sequence Farm – Factory – Office? Hunter-gatherer! The economic model of women engaged in economically non-productive labor while men sit around and do nothing is not exactly a new one. I believe it’s quite popular in Africa, as a matter of fact.

The insanely greedy behavior of UK bankers demonstrates that capping executive compensation will keep companies off the government dole:

Banks dependent on taxpayer support are planning to rush out hundreds of millions of pounds in bonuses to senior bankers and traders before a threatened crackdown. As ministers prepared to curb excessive remuneration, it emerged that Barclays and Lloyds Banking Group were poised to follow Royal Bank of Scotland (RBS) by paying bonuses within weeks.

None of this is going to help bring about economic recovery, I’d just as soon see the banks allowed to fail and their overpaid executives sent to the People’s Republic of China where they could assemble children’s toys. They’d certainly do far less damage in the future that way.

Remember, the people who struck this deal are largely the same folks upon whom the salvation of 500 million jobs per month is depending:

A government watchdog group says the federal government overpaid for stocks and other assets from financial institutions under its $700 billion rescue program. The chairwoman of the Congressional Oversight Panel for the bailout funds told the Senate Banking committee Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion.

Well, at least we know where that 18.4 billion in bank bonuses came from.

This is an excellent post on political economy that is well worth reading, even if “corporatism” or “faux-financialism” might be more accurate terms for the collapsing system of “state capitalism” it describes.

The current state and the current banking sector require one another; neither can exist without the other. They are so reciprocally intertwined that each is an extension of the other…. It is therefore no surprise that the loudest advocates for the effective nationalization of the finance industry are to be found on Wall Street; at this point, failing financiers welcome any government actions that will socialize their risks. But such actions that socialize “losses while keeping the profits in private hands” are a hallmark of fascist and neofascist economies. They are just another manifestation of “Horwitz’s First Law of Political Economy”: “no one hates capitalism more than capitalists.”

The extent to which belief in this fraudulent form of “capitalism” spreads can be seen in the way that some “conservatives” can be seen on Fox and other networks complaining about the incipient executive compensation caps, as if there is anything at all free market about the government-created, government-regulated, government-funded entities that will be affected by the regulation.

The caps are a minor issue, of course. The much larger problem is the fact that the entire infrastructure built around central finance and debt-back money is inherently flawed and looking increasingly likely to collapse. History will show that it wasn’t ultimately any more sustainable than Soviet Communism, to name one failed political economy of similar duration.

Sometimes, the choice is literal:

A 10-year-old boy died after he was found hanging from a hook in a bathroom at his suburban Chicago school, and his mother said Wednesday that school officials haven’t given her an explanation for what they described as an accident. Aquan Lewis, a fifth-grader at Oakton Elementary, was found unresponsive and hanging from a hook in a bathroom at about 3 p.m. Tuesday. He was pronounced dead Wednesday morning at Children’s Memorial Hospital in Chicago.

The fact that the school and the police are playing coy suggests that the boy’s death, while unintentional, was probably caused by the actions of one or more of his fellow students.

The problem isn’t that the police occasionally make mistakes. The problem is that the police are insulated from every being held responsible for those mistakes no matter how egregious they are:

At the end of a New Year’s Eve traffic stop on Interstate 94 in St. Paul, State Patrol Sgt. Carrie Rindal rammed Salter’s 2001 Toyota Sienna van, causing $1,500 damage to his vehicle, and arrested him at gunpoint while his three children, ages 2, 3 and 6, sat in the van. His wife had to pick up the kids as he was taken to jail.

Rindal said Salter was attempting to flee. He said he was merely looking for a safe place to pull over. The Ramsey County attorney’s office declined to charge Salter after reviewing the evidence, including a video of the stop.

NWA was right. Police in the USA are little more than a gang armed with guns and badges, roaming the streets demanding “respect” from the public as they collect the protection money known as “fines”. Rindal should be immediately removed from the force for her poor judgment and incompetence as well as her demonstrated predilection for turning a routine traffic stop into a potentially lethal situation.

Lest you wonder why I am supremely confident that the USA is doomed:

“Every month that we do not have an economic recovery package, 500 million Americans lose their jobs.”
– Nancy Pelosi, Speaker of the House

Where, oh where, would we be if those brave advocates of women’s suffrage hadn’t unlocked the vast reservoirs of governing talent being kept on the sidelines thanks to the Patriarchy’s oppression of the fair sex? Macroeconomics is bogus enough, but even if you subscribe to one of the Keynesian, Neo-Keynesian, or Monetarist myths, you have to be at least a little dubious about the success of any model which relies on correct application by individuals so vastly ignorant of the relevant statistical factors.

Banking executives deserve a cap in the ass more than a cap on their compensation packages, but better the latter than the fascistic Bush approach of private black and public red:

The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan. Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends….

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms. “It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”

Obama is already shaping up to be a better president than George W. Bush, which is very faint praise indeed. It is beyond ludicrous to argue that it will be tough to staff companies for only $500k per year. Considering what a historically horrific job was done by the massively overpaid banking executives of the very recent past and present, there’s absolutely no empirical reason supporting the idea that massive compensation has any connection whatsoever to positive results.

And for those idiots who would claim that compensation caps are somehow anti-capitalistic, please note that since government regulates nearly every other aspect of the American financial system, there’s no logical reason it shouldn’t regulate executive pay as well. Many corporate executives have demanded socialism in the form of a government bailout, and so it’s satisfying to see that they’re getting it good and hard.

My only criticism is that the $500k cap is too high. There’s no reason not to knock those salaries back to $174,000, the current Congressional salary. After all, an executive at a bailed-out corp is little more than a government employee now.