Occupy Crooked Timber

So, are you going to levitate the Pentagon?

And I’m not entirely sure this is wise:

Why did you choose a fist as your symbol?

“So, what are you doing to improve the country?”

“Well, I’m going fisting in Freedom Plaza”

“Oh, right…..”

Let’s start with the basic links:
https://occupywallst.org/
http://www.adbusters.org/campaigns/occupywallstreet
http://www.livestream.com/globalrevolution

There is much here to ponder on the possibilities for political organization and protest today. The issue that has caught my attention the most: no initial policy plan.

There was for many days repeated confusion (feigned or real) from mainstream media, including left-leaning democratic party associated commentators, on the protests: but what is their agenda? they have no party line? They have no actionable policy plans! And so on. Two relevant replies was made by Gleen Greenwald and others:

“Given the costs and risks one incurs from participating in protests like this — to say nothing of the widespread mockery one receives – it’s natural that most of the participants will be young and not yet desperate to cling to institutional stability. It’s also natural that this cohort won’t be well-versed (or even interested) in the high arts of media messaging and leadership structures. Democratic Party precinct captains, MBA students in management theory and corporate communications, and campaign media strategists aren’t the ones who will fuel protests like this; it takes a mindset of passionate dissent and a willingness to remove oneself from the safe confines of institutional respectability. ”

and

“Personally, I think there’s substantial value even in those protests that lack “exit goals” and “messaging strategies” and the rest of the platitudes from Power Point presentations by mid-level functionaries at corporate conferences. Some injustices simply need anger and dissent expressed for its own sake, to make clear that there are citizens who are aware of it and do not accept it. ”

To get a protest with some endurance going you need to start with a wide basis of common anger and eyes on the basic problem. Then make the protest deliberatively democratic. Policies will start to emerge over time. Start it up, stick to it and don’t back down. Others will eventually join.

Now two weeks in there are indeed signs of momentum being gained. Unions are giving support and planning support rallies. There has been an uptick in mainstream media and international press reports. The protests are spreading to DC, Boston and elsewhere.

I have no idea what the protesters are actually protesting. Thus far their demonstration, to me, seems to be of the feasibility of sleeping outside in the Financial District during the very early fall.

So long as the effects on local business are positive, I’m in favor of them staying – though I’d think compensation to the owner of Zucotti Park is called for at this point.

If the presence of the protesters turns out to be harmful to the local economy, then they’ll have succeeded, imho, in turning themselves into a great metaphor for the current state of financial reform: muddied, without direction, and economically harmful.

I think the protestors are great. And of course, at the moment they should be promoting the diffuse sense that something is wrong, not a specific set of policies.

But I think the internet sphere can provide a backup, an equivalent of the cahiers de doleance of 1789.
Myself, I think the protestors should coalesce around the idea of defunding Wall Street.

That’s a two step program. One is the establishment of other savings vehicles – such as have been proposed by Teresa Ghiralducci – that would be state entities – much like Freddie and Fanny were before 1969 – in which workers can place money taxfree in accounts guaranteeing a three percent return per year. The second step, then, would be to withdraw government’s tacit support for IRAs, 401Ks, and all the programs that exist to sluice money from the wage class to the financial services sector.

It is easy to see that the wage class, at present, is in a bind. Its chief asset, the house, has plunged in value. And thus it has to cling to its other, financial asset. In fact, there is a five trillion dollar mutual funds market that is the face of the wage class’s collaboration with Wall Street. But in that collaboration, the class can’t win. It is like betting on your own shipwreck.

Defunding Wall Street would be the most concrete step one could take against neo-liberalism. What was the cause of the curious passivity of the populace in the face of the 16 trillion dollars in emergency loans that were facilitated by the Fed to the investor class in the 2008-2011 period? While most people don’t know the figure was so outrageous, still, everyone knows the wealthy were bailed out. But it wasn’t just the wealthy – who wanted to see their own stocks go down? Defunding Wall Street would drive a wedge between the investor class – who own the lion’s share of the stocks anyway – and the wage class. Back in 1980, according to Jim Mosquera, “Stock ownership comprised barely 12 percent of all household financial assets in 1982.” Lets get to that point again.

There are efforts being made to expand this http://www.occupytogether.org/ across the US. I’m headed to an organizational meeting today in Atlanta GA.

I fear that the effort sticks to anti-establishment efforts and doesn’t keep in mind long term political organizing because it will alienate and isolate the protesters.

Thats why I don’t like directing all the focus at New York itself. I’ve been pushing the #OccupyWallStreetViaMainStreet idea.

Occupy Wall Street is about right now– in the moment. Its direct action, its symbolic. But I’ve seen one too many of my friends not in New York state “I wish I could fly out there” statements and I cringe. To truly Occupy Wall Street over the long term we have to do it via Main Street (Read: its going to take direct action AND long term organizing).

How do we #OccupyWallStreetViaMainStreet?
By helping organize and grow union memberships in our communities….
By running candidates for State House, State Senate, Congress….
I know that’s so reformist and so boring; but at 30 years old my mohawk is receding.

I grow old I grow old I shall wear my combat boots rolled….

While individual theories on where we should go from here are great, I don’t think we should complain about general incoherence and hope that everyone settles on one theory. I remember, around Wikileaks, writing a long piece about why I didn’t think it was going to work towards its stated aims, and then realizing that it didn’t matter if it didn’t work, or what their theory was — it was positive, non-violent action, and there’s nothing wrong with trying lots of things and knowing that if you get lucky, one of them will get amplified.

3 points:

1. Seriously, what happened to dsquared digest?

2. An “Occupy K Street” solidarity type protest has already sprung up in DC at McPherson Square, and CT types in DC should definitely come on down. I think the plan is to link up with October 6 guys, and hopefully also the labor-led rally at the Capitol on Wednesday. It would be awesome to see JohnQ down there.

3. I think there are a lot of misconceptions about the philosophy of the folks at these protests (though I’ve heard from people who came down from New York that the environment here is a little more ideologically open and relaxed). While the rallies were organized by and are still facilitated by anarchists, the huge majority of people showing up are much more moderate and willing to engage with existing political institutions. Now you hear a lot of probably unrealistic demands (restore Glass-Steagall, repeal corporate personhood, abolish student debt, smash capitalism and the state), but I think that speaks to the fact that the folks out there aren’t political operatives but simply folks of good conscience who are fed up with inequality. Right now, the protests are a platform for expressing grievances (and more specifically, I think the about 100 people on K yesterday were ready to establish consensus around wealth inequality, inequality of voice in the political process, and the stagnant economy, so don’t let people tell you they’re unfocused) not really a movement with concrete aims. I absolutely agree with a lot of the critiques of “anarcho-liberalism” floating around the web, but that describes the form of the protest more than the goals of most participants. I think that there’s definitely an opportunity to organize within these protests, but I think it would be an enormous mistake to roll an try to organize the protests themselves into something else. People who want to be building up the left have a responsibility to be talking to folks and seeing what can be done without stepping on the work of the people who have started these protests.

“That the protestors had absolutely no effect whatsoever on the war or how the war panned out?”

No. . . that the protesters were absolutely correct, and those that mocked them are now denying that they ever supported the war effort, and are trying to block out the first decade of the millennium altogether.

That the protestors had absolutely no effect whatsoever on the war or how the war panned out

No, that they were ridiculous and some of them were women and some of them might even have long hair, and that they thought the then President of the United States was Chimpy McBushitler, and that did I say some of them had long hair?

You could try googling some of your own remarks!

Later, of course, you discovered in your slimy little way that you’d been against it all along.

Feeling WB Yeatsy today!

” Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity….”

Here’s to hoping the best of these protesters come at their work with both “conviction” and “passionate intensity.” Then perhaps we’ll move out of our current malaise and back onto that “inexorable march” toward “a more perfect union” (as the president likes to say)…

After the pain and uncertainty wrought by the 2008 crash, “Surely some revelation is at hand…”

“I absolutely agree with a lot of the critiques of “anarcho-liberalism” floating around the web, but that describes the form of the protest more than the goals of most participants. ”

Critiques like this or this? Given that this critique and its accompanying label — a word that the people involved themselves don’t use, to my knowledge — generally involves calling them anti-intellectuals and half-wits, what do you absolutely agree with?

The protests are great. I hope they continue, and get bigger.

Good for the country — we’ve had far too little anger for too long — but bad for blog threads. Because disagreement is usually what makes these things run.

One thing, tho: I think the lack of concrete demands or positions is fine. There’s a division of labor. Some people need to come up with alternatives, and some people need to establish that the status quo is unacceptable.

Furthermore, the content of a protest is always the protest itself. Whatever the signs say, the real message is that there is a collective political agency that isn’t reflected in the normal political process. People at these things recognize this instinctively, that protest is always about itself: That’s why the most popular chants are things like “Whose streets?/Our Streets!” and “This is what democracy looks like.” That’s also why the most powerful protests are ones by people who aren’t supposed to be visible or exist as political actors at all, like with the early civil rights and gay rights movements or undocumented immigrants today.

That’s why I think criticism that “they” should have coherent demands really misses the point. The sorts of political actors that can make demands, that can speak with a collective voice, aren’t given by nature. They develop historically through people’s concrete experience of collective action. When protests like this attract widespread support (and I know it’s not yet clear how much support there is), you could say it’s a precisely because the existing demand-forming machinery has broken down.

Sympathy for those hundreds of folks who were corralled onto that bridge by police and then got arrested for blocking up the bridge.

People at these things recognize this instinctively, that protest is always about itself

Completely true, but also, how is “THIS IS A PROBLEM. FIX IT YOU BASTARDS.” not a completely coherent demand?

It’s not like the ‘THIS’ in that sentence is horribly unclear. It’s unclear in the details. And it doesn’t need to be perfectly clear, to be coherent.

It’s not our job to satisfy them. It’s their job to satisfy us. They’re failing, so we’re protesting. Simple as that. We don’t need to clarify who ‘they’ are. (They know who they are perfectly well. We don’t.) Once they come to us with hat in one hand and a preliminary actionable proposal in the other, begging us to explain what all they can do to appease us, maybe we’ll talk among ourselves and hash out our wants and give them some more specific demands. And maybe we won’t. Maybe a lot of us will just say “NOPE. NOT GOOD ENOUGH” and continue stomping. That’s the elites’ problem, not ours!

Watson, you are kidding, aren’t you? There’s numerous funding sources for the government if it simply decides to operate in a bank like way – and the investments could be in almost anything, including mortgages for houses, bonds for infrastructure, etc.

I should add that I also think that the government has an excellent opportunity to do something that other countries routinely do – attach a banking modality to the Post Office, and through that modality, generate the same kind of loans that the gov so generously flooded the financial services markets with in 2008-2010. That is, the Fed should be directed to loan out some trillion or two or three in cheap loans to Main street. Wall Street, those rich moochers, was saved temporarily by doling out 16 trillion at 1 percent or below interest, and I think that it is time for the government to actually serve the people, not the high rollers. A much lower interest late could help people become solvent again, as they traded in expensive private loans for government loans. The interests could capitalize the 3 percent a year non-taxed savings accounts.

how is “THIS IS A PROBLEM. FIX IT YOU BASTARDS.” not a completely coherent demand?

Oh, you’re right, it is. And everything else you say at 25 is spot on too. Any kind of reform has to start with a mass of people who are angry enough with the way things are that they are willing to be disruptive even against their own immediate self-interest.

Watson Ladd: How many Chileans wish they had private ownership of their retirement funds right now?

Don’t Chileans have private ownership of their retirement funds. Given the recent performance of the Chilean pension system, and its high administration costs, its probably not the best example for your argument.

Offered without comment: Declaration of the Occupation of New York City.

I have been paying for everything in cash for years. In part because some of the counries I have lived in such as Kyrgyzstan and now Ghana are basically cash only economies. This has some drawbacks. You have to withdraw and carry large amounts of cash for payments on a fairly frequent basis. In a lot of areas of the US carrying several thousand dollars in cash from the bank to your house, a store, or to an airline agent is not safe. So a lot of people, particularly women, balk at the idea. They would prefer to pay the fees on checks or even the interest on credit cards rather than use cash for large purchases.

You can blow out a candle
But you can’t blow out a fire
Once the flames begin to catch
The wind will blow it higher
— “Biko,” Peter Gabriel

Help fan the rumor that the protests were started by a Crooked Timber commenter enraged by d^2’s recent post about anti-banker sentiment. He has always had good antennae.

That “official” release seemed alarmingly specific, until I noticed the “grievances are not all-inclusive” bit at the bottom. That should just be stated at the top of the document.

Not sure I get the “They have poisoned the food supply through negligence” part, but the rest made my heart happy. I infer from the document that the organizer folks are basically going around gathering people’s grievances and listing them in declaratory form (?), which is pretty cool (if true).

Maybe this is brilliant and I’m just too old to get it, but good grief, that “official release” is dreadful — bombast about “community” plus a list of miscellaneous corporate crimes. (Gotta love the asterisked “*These grievances are not all-inclusive.”) Who talks like that? There’s this humorless combination of high seriousness and utter vagueness.

Can someone make the case for this more clearly?

Lemuel Pitkin @24: “That’s why I think criticism that “they” should have coherent demands really misses the point. The sorts of political actors that can make demands, that can speak with a collective voice, aren’t given by nature. They develop historically through people’s concrete experience of collective action.” Yes, Yes, Yes. Exactly, Exactly, Exactly.

Agree with it or not, they are working on a specific list of demands. This seems pretty specific, so perhaps the diffuse criticism of their clarity and coherence can give way to discussion of the merit of these demands and the conditions which have precipitated them.

Can someone make the case for this more clearly?

Eh. It’s allegedly in the ‘style’ of the Declaration of Independence, which, contrary to American conventional wisdom, is not a terribly stylish document… and not well-suited to their grievances, in no small part because the ‘they’ that’s spoken of changes drastically from sentence to sentence (and the whole thing falls to pieces stylistically after the list of grievances precisely because the intentions diverge from those of the DoI at that point, but thankfully that’s only five or six sentences).

That’s not much of a case for it, but whatever. It’s not brilliant, just serviceable — and mildly heartwarming to those of us that have wanted this sort of thing to become a noticeable presence for years-and-years. At least they didn’t harp on about the bourgeoisie, amIright?

Damn, why is it market types who have to point out how to scare people who work in markets? Encourage their customers to leave if you want the change their behaviour!

Don’t let the fact that Tim Worstall pisses you off blind you to the good sense in this. What you can do, or persuade others to do, depends very much on local circumstances. For example, living in Ireland as I do, I can protest about the fact that the Irish banks have used their incompetence as a weapon to loot the state, by moving my account to a foreign bank which won’t be able to do that.

Wherever you are there, must be something you can do locally to hit the bastards where it hurts. Think about it.

bianca steele@45: “…it depresses me to hear twenty-one year olds say something I thought was common knowledge thirty years ago, and add that it’s their generation’s responsibility to struggle to bring this new fact, which their elders had no awareness of, to public view, in the face of all these obstacles (which in most cases they proceed to enumerate, elaborate, and reemphasize).”
We have to remind ourselves that every generation wastes a certain amount of time and energy re-inventing the wheel. Remember the Old Left and the New Left in the 60’s? Or the SLC and SNCC vs. black power groups (mostly younger)? Not perfect analogies, but. And re-inventing the wheel isn’t entirely a waste, if modes of thinking and organizing more in tune with the times gain traction. I’m prepared to be disappointed by Occupy Wall Street, but I’m also hopeful, in part because I see it as just one of many signs around us that real challenges to the plutocratic status quo may be afoot.

Colin Danby @51 “There are some good proposals in there, John,and a fascinating thread below. What would the next step be, after announcing them?”

That is a good question that deserves more thought than I have put in it. More than anything, I wanted to help bring more substantive issues to the fore (justification, motives, targets, proposed solutions and their problems, etc.).

That said, off of the top of my head, it seems that continued and extended peaceful protests are a good way to keep a spotlight on the issues, but longer-term efforts need to be made. This calls for a multi-pronged approach: garnering the sympathy of more Americans (the We Are the 99% website seems a good example); building coalitions with existing, sympathetic groups; collective voting efforts with ballots as well as wallets; and continued conversation to clarify and crystallize the common vision for goals and solutions, just to name a few.

What next steps make sense to you?

Kevin Donoghue 10.02.11 at 10:31 am

” I don’t think it’s off-topic to ask what happened to d-squareddigest?”

Google ‘truthonthemarket’ at Brad DeLong’s blog, and Samefacts.com

Short story – a Chicago denizen talked garbarge, which was critiqued on several blogs,
and ended up leaving his original blog. I wouldn’t be surprised if Daniel takes a vacation from blogging for a whilte (I hope so, and that he goes somewhere where he can regain sanity).

I don’t quite see why it is necessary to judge an emergent class consciousness on its lack of a coherent, point by point political message. This is not politics as usual -its class struggle.

We’ve grown so conditioned by political parties that we’ve come to see lists, and points, and substantive arguments backed up by academia and the legal fraternity as the sign of (gasp) serious people. Fuck all that. Sometimes you just have to nail a few theses to the Wall. Other revolutions began in a similar fashion.

Up the rebels.

It’s wonderful that those attending want to make a difference in public policy – but the specific demands are uninformed for the most part, and seem to rely heavily on documentaries for any facts they reference.

At this point I’m not sure what exactly the protests are actually protesting, and I’m disappointed by what they’re demanding. We’ve had God knows how many investigations by various government agencies, and Congress, into every corner of the financial crisis. We’ve had far-reaching legislation passed for which hundreds of new rules are still being formulated, and the effects of which remain disturbingly uncertain. We have a financial sector beaten down and lagging every other sector, at a time when we need that sector to push forward aggressively.

Enough pointless anger and uninformed protest! You have to be reasonably well informed before you can know what, or whether, to be angry. Thus far, these protesters don’t meet that standard. Frankly, I think Jamie Dimon’s condemnations of Basel III constitute more of a responsible and helpful “protest” than the Occupy Wall St. demonstrations.

Yesterday afternoon the Occupy Boston folks were shouting “How do you fix the deficit? End the wars! Tax the rich!” which sounds enough like policy advocacy to me, and not bad policy advocacy for a marching slogan.

Not that I’m so keen on the “how do you fix the deficit” angle, but it’s probably one that will play all right in the current climate.

The “They have poisoned the food supply through negligence” part refers to how ag companies poison the food supply by negligently allowing salmonella and other pathogens into the food they sell. Here’s a specific example with eggs:

“When inspectors checked Wright County Egg’s barns after last year’s salmonella outbreak, they reported finding uncontained mountains of chicken manure; feces in the hens’ food supply; rodents; and maggots and flies “too numerous to count.”

http://www.washingtonpost.com/business/many-egg-producers-still-not-complying-with-food-sanitation-rules/2011/09/26/gIQAPGx9CL_story.html

stubydoo: If you have read the release and followed the livefeeds and other writing it should be VERY OBVIOUS that there is a world of difference. This is clearly a diverse left-wing popular protest. Fair (meaning radically progressively restored) taxation is a key theme.

As for policies I think the 99% theme is already on the right track. Right now there is nothing more important than defunding and defanging the top 1%. Restore taxation, shut down the tax havens (including those jurisdictions within the US and UK that in fact operate as tax havens) and disrupt the capitalist capture of the political sphere.

“We have a financial sector beaten down and lagging every other sector, at a time when we need that sector to push forward aggressively.”

I’ll leave the mockery of this to others, and just point out that if you’re gonna go after other people for being uninformed, you might want to nuance your own claims just a little more carefully. Wilfred’s struggle against seriousness, by contrast, is at least internally consistent!

…

The set of proposals John Taylor linked to represents a thoughtful effort at the inherently difficult task of building popular support for financial sector reform. The abolition of corporate status part seems at best quixotic, but why not have a conversation about it.

The obvious political path, to answer John’s later question, is developing a compact set of plausible proposals that you could start asking politicians and organizations of all kinds to sign on to. A lot of meetings and patient coalition building. Perhaps this is already underway. I’m sure John Q, who is seriousness personified, will tell us more about his work on this in due course.

The subthread on direct debits, debit card interchange fees, modalities of moving your bank account, etc. reminds me of a underremarked issue in D^2FAIL. That is, Brits don’t appreciate fully how much less bad the UK’s banking system is for you as a customer than that of the United States, just in terms of bog-standard utility functions like payment processing. Really? $5 to use a fucking debit card? Debit cards being a weird new thing? No free personal banking? Direct debits and electronic credits that don’t just, you know, happen in the background without being a problem?

D^2 is very well aware of the difference, having been both a banks analyst in the private sector and a bank regulator at the agency that built the UK’s securities clearing platform, and British bankers tend to be quite proud of the basic infrastructure. After all, they invented ATMs and ATM interoperability. But he may not be aware quite how much more Americans hate their banks as a result of day-to-day interaction with them being a horrible and expensive experience. Similarly, Americans hate telcos with a real passion that isn’t matched in Britain or elsewhere in Europe, and I suspect this is down to AT&T being a fuckenormous corporate lobby that provides really astonishingly dreadful standards of service to the paying punters.

Come to think of it, Americans also hate various state government functions that nobody in the UK even thinks about (registering cars! I mean, who ever cared about filling out form V5 in Britain?) for very similar reasons, and I suspect that the common British belief that standards of customer service are better in the US is an artefact of not many tourists needing to interact with a bank or a telco or a government agency, and what they really mean is that there are a lot of good restaurants in New York City. Further, this meme got started when there were not a lot of good restaurants in London and I suspect that its decline will begin soon, lagging the change by about 15 years.

Also been meaning to post a couple of mildly amusing banking-related video clips:

From the documentary Inside Job, interviews with academic economists:
http://www.tudou.com/programs/view/Loh4yHeWaGM/
(YouTube won’t host it, apparently due to Sony’s copyright – they wouldn’t want anyone else advertising the film by publishing short extracts, after all.)

Explanation of what daddy does on Wall Street, from Bonfire of the Vanities:

There is some problem. My last post did not have any strikeouts or italics or any other HTML tags at all.

I noticed that my list (starting at “-the vast majority”) came out in a small font in the preview window. I posted anyway but the result was in no way predictable from the preview.

Also “the kind of bureaucrat depicted in The Cabinet of Dr. Caligari“.

maidhc, you and the fascist state will get along famously, if you think a “normal” wait of 2 to 3 hours to do 10 minutes of routine paperwork is sensible.

This blog-famous series of rants actually has some decent analysis of how desperately wrong it can go:
http://www.samefacts.com/2011/01/public-management/how-the-dmv-undermines-democracy-part-ii/

The idea that the ramshackle remnants of the credit union movement can be a financial refuge seems almost goofy. Have a nice day.

Maidhc: American banks will screw the customer if they can, but I think this is not much different than in other countries.

Well it is, in so much as many of the things that US banks get away with are illegal in most western countries, and some of them are even illegal in the US. There’s a reason that US banks are terrified of real regulation. Unregulated banks will screw the customer.

US banks are also pretty backwards in terms of the services they offer. Security for online banking is virtually non-existent. and so on.

Barry, by replying to Andrew F, you have fallen into the very trap he has set for you. If you’re looking for a way to pass the time, I suggest punching some tar babies — you will find it more rewarding.

I do find it hilarious that boomers and gen-xers have the nerve to criticize the ways millenials protest.

They protested for like 40 years, succeeded in doing nothing but making themselves feel better, and all the while the world sank further into crapsackdom. Yet to hear them tell it, they personally stopped 18 wars, ended all bigotry and persecution, and brought the establishment to its knees. I have never seen a group of people who have a higher, and less well deserved, image of their own efficacy. That these people think they have any place to criticize us proves more about their own lack of self-awareness than it could ever prove about our tactics or goals.

soullite 10.03.11 at 1:40 pm

” I do find it hilarious that boomers and gen-xers have the nerve to criticize the ways millenials protest.

They protested for like 40 years, succeeded in doing nothing but making themselves feel better, and all the while the world sank further into crapsackdom. Yet to hear them tell it, they personally stopped 18 wars, ended all bigotry and persecution, and brought the establishment to its knees. I have never seen a group of people who have a higher, and less well deserved, image of their own efficacy. That these people think they have any place to criticize us proves more about their own lack of self-awareness than it could ever prove about our tactics or goals.”

History is not your friend, I see. What you’re seeing here is the same old same old that has *always* happened; the powers that be and their toadies have always mocked, opposed and belittled any attempts at real change. Even in the depths of the Great Depression, FDR was opposed by the majority of newspapers. They were apparently willing to bet on fascism as the end result of an economic collapse (rather than communism).

“Would agree to paying higher fees to reduce wait times?”
I mean would YOU agree to paying higher fees to reduce wait times?
Sorry.

I think rather that we Gen-Xers recognize that we’ve achieved nothing, and don’t want the next generation to make the same mistakes.

“Thinking of the Post Office as a potential bank, or the examples of the Bank of North Dakota, or of credit unions, is a place to begin thinking. But, the credit union movement is long dead, and the remaining credit union system was nearly destroyed in 2008, in case no one noticed; the Post Office or Postal Service is going down for obvious reasons of obsolescence.”

I usually agree with you, Bruce, but I have to disagree with the idea with coupling the idea that the institution comes first with defeatism. There’s a long history of protests and institutions, with protests both curtailing, overturning, and beginning institutions. I admit, I am disenchanted with any argument that begins with stating something about the “Left” – since the Left has become a pantomine donkey, a hybrid that represents anything – but I do think opposition to the current neo-lib hegemony has to start with examining how it is that neo-liberalism became politically viable in a democracy, and find institutional ways to counter that viability, in the forum of protest.
Which is why re-formating institutions that are losing their object – say postoffices, which are physically present all across America – with another institutional object – government sponsored loaning mechanisms, for instance, that would capitalize government sponsored investment mechanisms – seems not such a bad institutional idea.

It is, indeed, an idea directed towards overthrowning one of the fundamental structures of neo-liberalism. The problem with neo-liberalism is how it ever became politically viable – how could rewarding a minority and destroying the socio-economic supports of the majority succeed in a democracy? I think the answer is: it makes the wage class collaborators in their own downgrading. Because the government has, for decades, encouraged sluicing money from the wage class to the private financial sector while deregulating that sector to make it a center of enormous gain from artificially created risk, “Main Street” has become allied to Wall Street. Rolling this back and creating another space outside of the invidious one that aligns Wall Street interests with certain of the interests of the wage class is indeed the way to shift the balance of power in this nation away from the financial sector, and ultimately to regulate that sector and make it much less important.

Cian, that’s a violation of property rights. At least in america we have the fifth amendment. But if the government reduces its promises to you, you have no recourse.

For depositors who maintain low balances (those are the ones who would pay the $5 fee), where else is the bank going to earn enough to offset the cost of servicing the customer

Exactly why should some bank be earning a handsome profit off my biweekly salary?

If banks can’t provide free basic services to all their potential customers, then the banks can shove off, frankly. Let’s have a free opt-in national debit card system, administered through the states, with interest-free checking accounts, basic stuff like direct deposit processed free of charge, private companies can compete for printing checks for you (just like they already do), fees for overdrafts and such that somewhat scale with one’s balance, criminal penalties for anyone who flagrantly overdrafts to bilk the system, and freeeeeee debit cards that double as government-sanctioned IDs and/or driver’s licenses for those who have driver’s licenses. If these types of accounts really are killzoring the banks and costing them serious money, we’re just doing them a favor by absorbing those accounts, right? (I guess you could even put a modest limit on the max amount people can store in the account, if you’re worried about large-balance bank customers switching over. Personally I see no reason to discourage them from doing so, but whatever.) We’d also need a standard and fair way to deal with overdrafts and check fraud, but the machinery for that is mostly already in place.

So… yeah! Free checking accounts for all with free debit cards that double as IDs! Small businesses that can’t afford the fees for ringing up small purchases on a credit card could accept this card, because it wouldn’t charge them! And if it doubles as ID it’d mean one less card to carry in the pocketbook! And a whole lot less bullshit!

Cian, that’s a violation of property rights.

Eminent Domain being a figment of my imagination I suppose. Taxation obviously being another way that they can do it. I’m sure a reasonably savvy lawyer could come up with other mechanisms.

But if the government reduces its promises to you, you have no recourse.

As opposed to the recourse that you have if you retire in the middle of a market collapse? Or the scheme goes bankrupt, or all the other things that do in fact happen. I suppose one form of recourse would be democracy.

The other problem with government run schemes, of course, is that they’re too damn efficient. The fees that get skimmed off private pension schemes by Wall Street are quite remarkable.

“Let’s have a free opt-in national debit card system, administered through the states, with interest-free checking accounts, basic stuff like direct deposit processed free of charge, private companies can compete for printing checks for you (just like they already do), fees for overdrafts and such that somewhat scale with one’s balance, criminal penalties for anyone who flagrantly overdrafts to bilk the system, and freeeeeee debit cards that double as government-sanctioned IDs and/or driver’s licenses for those who have driver’s licenses.”

You want to go through the trouble of setting up and paying for all this, replacing a (completely adequate) infrastructure that’s already in place, because banks want to charge you $5 a month to use your debit card?

As far as the “coherence” f the protests is concerned, is Occupy Wall Street any less coherent than Glenn Beck’s March On Washington, or whatever that was? It was supposed to be a Tea Bagger protest, that turned into a support the troops thing, and wound up as a “restoring honor” rally.

WhateverTF that is.

Are the “dirty hipsters” any less coherent than that?

Salient, you can switch to a bank that won’t charge the fee if you don’t want to pay it. Citibank is not introducing a fee yet, and credit unions probably won’t follow suit.

…I really enjoyed typing that last sentence, but I should clarify in an aside to Watson that it wasn’t intended to be a description of him. My love of overdone florid phrasing got the best of me.

The long lines at DMVs here in Colorado have more to do with budget cuts, and with some county offices not being open all weekdays due to furloughs and no money (license plates and driving licenses are done at different offices). Driving licenses are a hassle because the actual printing of the license was outsourced to a private company as part of REAL-ID (therefore it has to get mailed to you when they feel like it). Going at a very popular time (last couple days of the month, or Friday afternoons) tends to result in long lines. Renewals and simple things can be done online. The last 2 times I had to visit a DMV office were: (a) apartment burgled and I needed a replacement title, (b) getting a new car and the special plate I wanted was not available at all locations (and apparently was unpopular enough it is now no longer available).

My “horror” stories at DMV offices involve the person in front of me. Samples include the guy who hit several cars during his driving test and bent the parallel parking test signs (they no longer have parallel parking on the driving test in FL); or the guy who was arrested because his license was revoked in another state and he was trying to get another state license with his duplicate.

‘and then access your money by writing a paper checks (environmentally wasteful and not universally accepted) or by using a debit card (less paper waste, much more universally accepted).”

Well, this is wrong — most banks, as far as I can tell, offer free online banking that allows you to pay all your bills at no cost. For daily transactions, the obvious alternative to above is cash, which is universally accepted, is easy to carry around, and costs nothing to access. And despite your huffy tone, you don’t convince about debit cards, either: banks take your money and allow you to access it from anywhere in the country with enormous ease. $5 a month hardly seems like an extortionate fee for that. And if it is, then you’re free to move your money to an institution that doesn’t charge $5, like a credit union. You seem to be saying that we should determine what counts as a “fair” price for financial services, and if certain banks don’t provide it, we should go to the trouble of setting up and paying for an entirely new financial-transactions infrastructure. It’s an absurd way to run an economy — should we decide that Apple’s profit margins on the iPhone are too expensive, and that the government should go into the business of selling touchscreen cellphones, too? There is no market failure when it comes to collecting deposits and allowing access to money on the part of banks — there’s a tremendous amount of competition in the sector, the system is staggeringly reliable (when was the last time you tried to use your debit card or take money out of an ATM and the bank made a mistake), and costs are not high, particularly since new regulations of things like overdraft fees have gone into effect. Economic policy shouldn’t be determined by what you think is too expensive.

“You seem to be saying that we should determine what counts as a “fair” price for financial services, and if certain banks don’t provide it, we should go to the trouble of setting up and paying for an entirely new financial-transactions infrastructure.”

Yeah, let’s get the government out of the banking business! Oh wait, banks couldn’t function unless the government ensured deposits and thereby prevented bank runs. That’s, that’s … totally different… for some reason. And bailouts. But that doesn’t count for… some… reason…

Banks are middlemen and there is no longer any real reason for them to exist. When government creates a standard and various crippled private schemes go away, that’s a good thing. Or maybe we should all have been happy with America Online rather than the Internet.

“various crippled private schemes”

“Private schemes” in the case of depository institutions are not crippled. They work great. I’ll say it again: when was the last time you couldn’t get your money out of an ATM, or couldn’t use your debit card, or had a bank make a mistake in your account data. Hell, when I would write the wrong total (that is, put too small a number) on a deposit slip (back when we had to use deposit slips), my bank would fix it, and credit me with the dollars I hadn’t included. On the rare occasions I have to deal with a teller, I’ve never waited more than three or four minutes. What is crippled about the way depository institutions work, aside from the fact that you and Salient think $5 a month is intolerably expensive?

On payment systems, I think there is a zero chance that the U.S. will do the right thing. The parasitic and predatory banking institutions will provide great service and “bonus point” systems (airline miles!) to rich people, while charging usurious rates for credit, and fees, and more fees, to poor and working-class people. The financial returns on the “investment” in these great systems will crowd out investment in productive factories or service businesses. And, Brad DeLong will gaze on the academic credentials of the class system, and lecture us on how more education would pay off (for the providers of student loans, at least).

Of course, I’d be willing to concede the $5 fee on debit cards for a prohibition on usury.

“all of that works laughably badly compared to the European system, which is automated more completely, and is much more efficient. ”

I really have no idea what you’re talking about. Maybe the European system is mildly more efficient, but how much more efficient can it be? When I use my ATM card, I have no problem withdrawing up to $1000. It takes 15 seconds. When I use my debit card, it works. I deposit checks now without having to use a deposit slip. Online banking is free, and that includes bill-paying where the bank actually sends a physical check (because the vendor hasn’t set up electronic bill-payment). There are branches and ATMs of my bank everywhere. This is a serious question on my part: what’s laughably bad about the way this works?

“And yet somehow they still manage to have profitable banks in France. How could this be?”

Maybe it’s because French banks have, according to 2010 E.C. report, plenty of hidden fees and incomprehensible price structures, and were charging users 154 euros a year to maintain their accounts. Yes, that sounds so much better than the American system.

MPAVictoria: “how long a wait would you consider reasonable? Would you agree to paying higher fees to reduce wait times?”

There’s no “trade-off” involved here. The waiting-in-line for 2 or 3 hours is pure waste. The DMV has to process all the licenses, all the vehicle registrations, regardless. If they devote inadequate resources to the task, and the task is undone, that’s a waste.

Queuing theory isn’t exactly rocket science. It is all a matter of load-balancing. Since a lot of DMV business is by mail correspondence, one would think that they could service the people, who have to show up, on a priority basis, and use the mail-in stuff to keep staff busy, in the off-peak period.

My experience is with the California DMV, which has to be among the worst. If they have an off-peak period, I am unaware of it. I’ve shown up there more than an hour before they open, and stood in a phenomenal line; I’ve been there in mid-afternoon and it is the same thing. Their mail business, evidently, is handled centrally, so there’s no load-balancing there; in fact, the office personnel have a lot of trouble even finding out the status of paperwork in central processing, which just adds to the delays and confusion.

It is absolutely clear that the problem is chronic understaffing and poor systems design. The fees already collected by California’s DMV already greatly exceed the expense of running the office. Which is fine by me — these are partly fees and partly taxes. I just do not think California should be extracting a tax in waiting time, which does no one any good.

“Who on Earth has money for a computer?”

More than 85% of American households.

“And I bet there’s a wonderful selection of fresh fruit and vegetables at your local grocery store, and you have the choice of three grocery stores if you’re willing to drive a short ways.”

So you want to set up government-owned grocery stores, too? Brilliant.

As I said above, it’s senseless and unproductive to remake the economy in order to help a small minority of citizens. The vast majority of Americans have easy and affordable access to reliable banking services. If you want to subsidize banking for the poor, I’m all in favor of it. But setting up a government-run transaction system is an absurd way to do it.

I actually think that the ’68 slogan “Be realistic, demand the impossible” slogan should be inverted–i.e., we should be unrealistic and demand the possible. The current structure has made widely popular reforms impossible. The “left” has to think in the long term (5 to 10 years at least). My fear is that after a few months the occupiers will become disillusioned (like the global justice movement in ’99) and recede into the background. While the lack of clear demands probably help ignite the kindling, something a little more concrete has to emerge to keep the movement moving.

Did anyone look up the etymology of Wall Street anyway? Doesnt it come from the dutch De Wallen? How apt since its the modern day red light district of New Amsterdam!

@127
Fine. (On Glass-Steagall, I don’t know the details of the argument why this isn’t possible, but I’ll bet there are some demands on the list that are.) Was there really NOTHING that could be done except have a big protest and put a demand on a list? Similarly, was there no way to set up and publicize something like “We are the 99%” except through this kind of protest? I really don’t see how the people behind this can have any kind of “theory of politics” any more than those “neoliberals.”

There’s nothing that could be done after a protest like this that couldn’t have been done before, and I will be surprised if it is done. There will be no effort to educate the public, no effort to persuade people this is important, no effort to find people who could be switched to the other side. And this isn’t just a problem for people who are already very disinclined to agree with them.

@128: So, maybe this won’t achieve anything to alter the terrible imbalance between the power of the rich and of everybody else in this country. But maybe it (and the support it gives to the growing recognition of some politicians that there are votes to be had on this side of the argument) will. So why not, as I asked? Why not make clear what should be done that isn’t — some leveling of the economic playing field, some avoidance of the danger of more bubbles inflated by the investment bankers having taken over commercial banking, some restriction on the use of corporate money to buy politicians. Why not?

But your welcome to give your better ideas. Not much else has worked here, lately.

My experiences at the DMV in Brooklyn have been quite good. Unlike California, many NYkers don’t have cars.

Oh, another idea in the spirit of there is really no reason for banks to continue to exist.

Require that any transaction through an exchange (i.e. stocks) be processed with a randomized delay of up to 60 seconds. Any serious investor won’t mind, but the quants’ ability to exploit nanosecond-long inconsistencies will be fried.

…

Anyhow, dbk has a point. 99% takeaways:

School. Health. Rent.

Nearly every person is either overweighted by college debt, anticipating becoming overweighted by college debt for themselves, or anticipating becoming overweighted by college debt for their kids. Other than {we are / I am the 99%} the words college/school/university appear most frequently. Might be selection bias.

A sample of quotes for those with not enough time to click though 40 tumblr pages:

* “My aunt has resigned herself to die at the hands of lung cancer because she knows that her family would not be able to pay her medical bills.”

* “I grew up watching my single mother cry and worry about whether me and my two siblings would have food or be homeless. I am her only option for a retirement plan.”

* “my mom’s $13,000 income for last year, total, is too much for foodstamps”

* “I sell my body for sexual uses to men I do not know or love. This is something I will have to know about myself until my dying day.”

* “I have a tooth that is only 1/4 left. I was supposed to have a root canal over 6 years ago. I can’t afford to get it taken out. It’s literally slowing poisoning me.”

* “I am mostly still in school so I can keep my insurance. Otherwise, my medications cost $2000 per month. I am already 50k in debt from previous schooling”

* “I am 28 years old. I have $50,000 in debt. I have never made more than $18,000 a year. (And that was in 2006.) Still, I am one of the richest men alive if you consider the whole world. I think that’s a problem.”

* “I have to choose between medicine and food.”

* “I would be homeless if”

* “I will be homeless when”

A question. How unusual is Occupy Wall Street? Occupations themselves are common tactics of student movements of course, but occupations of public places, and public camps seem less so. The Greenham Common Women’s Peace Camp (1981 – 1992?) was an extended camp. Have there been many others, and how successful were they? Oh, and while you’re at it, what made them successful or not?

Bianca Steele:

“Was there really NOTHING that could be done except have a big protest and put a demand on a list? Similarly, was there no way to set up and publicize something like “We are the 99%” except through this kind of protest? I really don’t see how the people behind this can have any kind of “theory of politics” any more than those “neoliberals.””

Bianca, were you conscious for the past several years? We’ve seen systematic and deliberate failures – the system in *%*O)#%@34uo broken.

Second, we’ve seen the ‘theory of politics’ of neoliberalism – afflict the afflicted, comfort the comfortable. It’s time to try something else, and there will of course be a lot of fumbling around. The right has the advantage that their fumbling around causes massive destruction, which seems to help them.

I’m getting sick and tired of people who feign ignorance at that sh*tstorm we’re in, the massive political failures, and the sheer difficulty of trying to force the system to do things that it doesn’t want to do.

Bruce Wilder: Unlike the person in the post you linked to, the California DMV gave me a 90-day temporary registration the first time I went in, since it does take Sacramento 90 days to process an out-of-state registration. And the number of forms you need is not that large. It’s an amusing rant, but it’s a bit of an exaggeration.

It’s a well-known fact from queueing theory that there is a predictable relationship between the waiting time and the number of idle servers. In the DMV all the servers are occupied all the time, so there is a long waiting time. If we wanted to reduce the waiting time, we could hire more workers, but that would increase the probability that some of them would be idle some of the time. Then people would complain about government employees getting paid to sit around twiddling their thumbs.

There’s a website you can go to that will tell you the current waiting time at any California DMV.

In the case of firefighters, we place enough value on a short response time that we are willing to have them be idle much of the time. But such is not the case for DMV workers.

Since almost all transactions can be done by mail, the inconvenience of having to wait in line once every 10 years, which is about how often I have to go in physically, is not worth the trouble of overthrowing the government.

I’m sure the DMV could be re-organized to operate much more efficiently, but with all the problems California is having, I don’t think it’s a top priority.

I also belong to a credit union. And I have two bank accounts, neither of which charge monthly fees or per-transaction fees. One of them requires a minimum balance of $300. You can get some really rotten deals from banks, but you can find better deals if you shop around.

DMV’s and banks. Well, re banks. I can’t figure out — I really don’t know — but it seems to me that the bank gets benefit from having my money in its accounts, whether that balance is $5.00 or $50,000.00. That’s money the bank gets to invest or to do with whatever banks do with such monies (say, use them in some credit ledger that is part of much bigger transactions they deal in). There may be some cut-off point of benefit to the banks, but in this age of electronic transfers and such, the cut-off point must be very, very low. Maybe I’m naive, but I suspect that banks expect to make undue amounts of money off of me, whatever my average daily balance.

So, I should just change banks, right? The old free market answer. Except, well, except for endless practical problems here. (I’ll pass over the possible, implicit collusion among banks, which would make free market models totally irrelevant.) For starters, it’s damned inconvenient to change banks (new checks to order, new payroll deposit forms to fill out, and so on.) Still, in theory you can change banks — but can you, really? Some commenters here make it sound like there are twenty different banks on every street corner. Sorry, no, there are not. In my small town in Massachusetts, there are three banks, two being local Saving Banks (with checking options) that lack the advantages of TD North (at least for checking and such, and for people who occasionally leave town.) But as for cities: I have one grown child in NYC, another in Boston, and neither has much choice of banks in any practical sense. You live here, you work there (12 hours/day, at least), and you choose a bank you can actually find a branch for in vicinity to work or home. There are not very many different banks any more, in case anyone hadn’t noticed, and they don’t put branches everywhere. (A version of the company store?)

Btw, the MA DMV (in my rural area, anyway) is a million times better now than it was just ten or fifteen years ago. No lines at all. (The reward for living in a rural area with almost no banks to choose from.)

Barry @79: Which has resulted in how many punitive actions against high-ranking Wall Streeters? That would be zero.

Which has resulted in criminal prosecutions and billions in civil penalties levied against financial firms and individuals. And those investigations continue! This idea that somehow the government hasn’t investigated, aggressively, actions underlying the financial crisis is mind-boggling to anyone who has followed the subject.

This is multiple lies. The financial sector is pulling in fat profits, and raking in government subsidies, and making all other sectors look like undernourished orphans. And the last thing that we need is the financial sector to ‘push forward aggressively.’.

You’re not the first person on here to have claimed this, and as someone who follows the financial sector somewhat closely, you’re therefore not the first person to make me wonder if we’re all living on the same planet. The financial sector is getting hammered. I really have no idea why anyone thinks the financial sector is making others look like “undernourished orphans.”

So you’re a guy who trusts Wall Streets after all that they’ve done. That shows that nothing you say anywhere should be considered worth listening to.

I’m the person who understands that you don’t stimulate economic progress by flailing about for ways to punish an entire sector. It has nothing to do with “trusting” anyone.

It is absolutely clear that the problem is chronic understaffing

…which the DMV has no control over, because their budget, including their staff budget, is a political football and not something that they can simply say “we need X number of staff to serve Y number of customers, so let’s hire them”.

That’s an argument for the superior efficiency of the private sector, if you like, but not a very good one; it just says that you can choose to have your government operate needlessly badly, and if you do, the outcomes will be needlessly bad.

I’d be more sympathetic of criticisms of the DMV if it weren’t being kneecapped by the same people who are criticizing its *resulting* ineffectiveness.

Which is not to say that the factors identified by Salient are insignificant, but they could be compensated for by an adequate level of staffing, if the agencies were allowed to have one. It would even create jobs. Yet you so rarely hear politicians call for hiring more DMV clerks to serve the people better and put (some of) the unemployed to work.

P.S. Why did they close the DMV in town and make not only me, but everyone else who would have gone there, go to the one out in sprawl hell, making traffic worse in the process? Budget cuts, and possibly a desire to sell the old building to someone’s cousin’s real estate holding company for pennies on the dollar. Why, when I do go all the way out to sprawl hell, are half the staff windows closed at the busiest time of the week, when any fool can tell you that’s going to drive the wait times way up? Budget cuts again, almost certainly. Who complains the most about the poor quality of service? The same people who support cutting government spending, of course!

Just want to chime in with Salient on the “lets get banks out of the wage deposit and electronic payment business if all they’re going to do is gouge people”.

It’s not just wage earners they gouge either – merchants pay really ridiculous fees for the ‘privilege’ of accepting debit and credit card payments. Electronic debits should cost pennies per transaction, not dollars. As we know, the surplus, along with all the fees they charge people who need to use basic checking, is used by the banks to entice “better”, more well-off customers with rewards points schemes, interest checking and the like. It’s a good deal if you can get it, but I’m just not seeing how airline points are so important that we need to have a retail economy where small coffee shops can’t afford to do credit transactions for less than $5 or $10. Doesn’t seem like the healthiest or most equitable transaction system we could have.

On top of that, it’s not even as if the transaction processors have used all their wealth to build up a solid, secure system. How many people here have had to deal with bogus charges showing up on their statement, or having their debit card info swiped by an ATM skimmer? For $4 per transaction, the ATM company can’t figure out how to keep your card info reasonably safe? Really?

Technologies like “chip and pin” are a marginal improvement, but they’re still far from invulnerable (though of course that didn’t stop the banks from lobbying to shift liability onto fraud victims). And adoption by US banks of even that much has been non-existent to glacial. All in all, I’m fairly unimpressed with banks’ and credit card systems’ ability to innovate anything but new ways to screw over customers and extract more rents.

Electronic transactions are basically a kind of public utility. There’s no reason I can think of that the government shouldn’t be in the business of providing, or at least heavily regulating, some kind of a sensible system for “electronic cash”.

146: The financial sector is getting hammered.

This isn’t actually true. Go away, look up the annual profits for 2010 for the ten largest US banks, and then come back and tell us what they add up to. Here, I’ll give you one to get you started. JP Morgan: $17.4 billion net. Seventeen Billion Dollars In Profit. That is not the sign of an industry that is getting hammered, unless you are using British slang and mean “Bollinger all round!”

“merchants pay really ridiculous fees for the ‘privilege’ of accepting debit and credit card payments. Electronic debits should cost pennies per transaction, not dollars. … . It’s a good deal if you can get it, but I’m just not seeing how airline points are so important that we need to have a retail economy where small coffee shops can’t afford to do credit transactions for less than $5 or $10. Doesn’t seem like the healthiest or most equitable transaction system we could have.”

Debtit and credit are two very different products. One (debit) does cost pennies per transaction (now capped at even fewer pennies under Durbin legislation), the other, (credit) costs 1.5-3% on average of value purchased. Retailers are free to take debit and not credit, why don’t they? Because most people in the US (less extent in the UK), live on debt, and do not have available funds to pay for coffee, gas, groceries, etc.

You can argue that the US system of facilitating the leverage of consumer balance sheets is bad, but as a democrat, I can’t and won’t, blame the banks for products that people want.

Ajay – Citi has lost 18.7 billion over the last 3 years …

Ajay, that Dire Straits pun _hurt_.

The MA RMV may have been improved by the budget cuts, because they increased the number of things you can do by mail or phone or online, and restricted the number of services you could get at each location. I haven’t been to an RMV, except the one on the turnpike to renew my license, in years and years. But when I do need to get to one, it will be a 20-30 minute drive instead of 5 or 10.

You can argue that the US system of facilitating the leverage of consumer balance sheets is bad, but as a democrat, I can’t and won’t, blame the banks for products that people want.

I’m sorry, but what does that even mean? Were they given a choice of all the available systems, and this was the one they chose? Was there an election. If I’m given the choice between a car that will kill me, and a car that simply breaks down; would you argue “As a democrat, I can’t and won’t, blame the car companies for products that people want”.

And Ajay’s point was that now citibank are making large profits, making Andrew F’s point about the banks being hammered total bullshit. Citibank wasn’t hammered by the government, instead they were almost wiped out as a result of their executive’s greed and incompetence, before being bailed out at taxpayer expense. For which they are so grateful, they are now looking for new ways to gouge their customers.

But this isn’t the class struggle just the commercial struggle of buyers and sellers.

One where the sellers are the upper classes, and the buyers are the working classes. One where the full legal might of the state is on the side of the sellers. One where in practice it is very hard for people to move their bank accounts, for reasons identified by various people up thread.

And this in a situation where the biggest problem faced by the working class is inescapable debt; debt often caused by the various ways devised by banks, mortgage lenders and credit card companies to gouge the poor with bogus charges. But hey, its unlikely to lead to the dicatorship of the proletariat, so screw them.

Have you ever thought about getting a bumper sticker saying “Marxists for Plutocrats”?

the US does almost all public sector things really badly – which leads US people to think that all government is bad. UK does it less badly, and often better than the private sector, which leads UK people to a different set of attitudes

This was rather my point.

Also, Mother Jones had a good article on the tax-prep companies preying on the poor earlier this year.

Debtit and credit are two very different products. One (debit) does cost pennies per transaction (now capped at even fewer pennies under Durbin legislation), the other, (credit) costs 1.5-3% on average of value purchased. Retailers are free to take debit and not credit, why don’t they? Because most people in the US (less extent in the UK), live on debt, and do not have available funds to pay for coffee, gas, groceries, etc.

Yes, the rate cap is a first step. I think it finally took effect 3 days ago.

Of course, even though it’s almost twice as high as originally proposed, banks are still threatening things like the cancellation of “free” debit card usage for depositors. You’ll pardon me if I don’t accept bank claims that a mere 21 cents per transaction is going to cause massive losses that require levying new fees on customers. Unless by “losses” we mean “slightly less profit”.

As for credit card transaction fees, I’m certainly aware that a credit account is a different product. But why should the transaction system be any different or more costly?

I’ve been waiting for this protest for three years now. Bout time! See ya’ll down near Wall Street!

I’ll second Uncle Kvetch’s anecdatapoint for New York. The last 10-20 years has indeed seen a drastic improvement in DMV service here. Given the horrorshow it was when I was a teenager and in my twenties it feels like a whole nother country.

Like the point about grumbling about the private sector too.

The US is completely alone in wasting almost 25% of government spending on the most massive military establishment the world has ever known. What do most Americans get from the federal government? Some basic infrastructure, the interstate highway system, Social Security, and Medicare/Medicaid.

As Paul Krugman said: basically, in terms of spending, the US government is an insurance company with an army. Everything else is too small to notice.

Ajay – Citi has lost 18.7 billion over the last 3 years …

And how much have they made over the last five? Or the last ten? Sure, they took losses in 08-09, but so did a lot of people, and now they’re back on top.

Blimey, three links and in moderation. Please discard the previous and this one; sorry for hassle.

(link, link, link)

(Oh.)

ajay – In Britain it’s money for nothing and the cheques for free.

Well, unless you’re one of those who wield their consumer sovereignty in such a way as to take advantage of the availability of swingeing unauthorised overdraft charges (see #71 above and the link there, also Office of Fair Trading (OFT) v Abbey National plc & Ors [2009] UKSC 6 (25 November 2009))

Actually, I’ve repeated it twice now, while attempting (still unsuccessfully) to avoid going into moderation. This wordpress installation evidently uses the new ‘design impenetrable and ever-changing fuzzy algorithms, because all users are incurious morons who can’t formulate clear intentions’ model of software design. Well, I suppose the idea is to stay one step ahead of the spambot designers or something, but it’s still annoying and the wider phenomenon does exist.

JQ – sorry about this (not my fault) – please could you release that last one from moderation once it’s daytime in Oz and you have a moment? Ta muchly.

Tim, the only reason its a no brainer to have an ATM is because of capital. No feudal serf would ever use a seed drill even if someone had thought it up.

Tim: Watson thinks that history consists solely of feudalism and capitalism because Saint Marx said so. He seems to belong to the American equivalent of the RCP, only spart rather than Trot in orientation. He’s waiting for the neoliberal rapture, which will lead to the communist singularity. Any day now.

The actual technical IT side of ‘interoperability’, once the politics was settled, was a near-irrelevance. The banks’ ridiculous over-egging of the achievement involved in hiring a handful of programmers to perform routine programming tasks is a source of endless wonder to me.

Well to be fair, there were probably loads of really boring meetings; and hiring Accenture to screw everything up the first time round doesn’t come cheap.

The statistics I would like are what the actual credit risk to the bank of an overdraft is. I’m guessing its close to zero, and even those who technically default have probably paid way more than the principal.

Diminishing the growth of a cancer is considered by many experts pre-requisite to staying alive.

AndrewF: yeah actually a return on assets of 0.85% is pretty damn good for a bank. Spectacular in a weak economy.

And we’ve yet to begin talking about risk, the impact of forthcoming regulatory requirements, or how financial sector companies without JPM’s enormous advantages are faring.

Given the level of ignorance displayed by you so far, I somehow doubt the conversation would be enlightening.

Cian, it’s a decent ROAA relative to some other banks, but it’s not spectacular – especially for a financial company that has as many advantages as JPM, which is a remarkably well managed business. When you begin to compare appropriate measures to the rest of the S&P, things begin to look considerably worse; and when you factor in various risks going forward… The financial sector continues to struggle out from the debris of the last crisis, is staring another in the face, and is racing to raise capital and adjust business in anticipation of new regulations. But, I’ll spare you a conversation unlikely to be enlightening.

Getting back to the main discussion, there are roughly two lines of criticism aimed at the financial sector. One is that they take on too much linked risk, and expose us to massive systemic problems; the other is that they’re inefficient and wasteful, able to use an entrenched position to exert prices that are too high for services that can be replaced with a cheaper alternative or eliminated.

Unfortunately, I don’t think the protests address either line of criticism. It’s populist anger about the economy mediated through the minds of college students. Run the same anger through other demographics and you get the Tea Party. But in no case, yet, do you get understanding or good policy prescription from the end result.

Tony Lynch way back at #59 said it best. This is about democracy, and democracy is all about real political equality. The international banking crisis has just made visible some serious political inequality.

Now, when what you want is democracy, obviously you should not have too specific demands. Because the way you want to achieve your goals isn’t by protesting – what you want is precisely a better system than protesting within which to achieve those goals.

It’s no accident that they’re experimenting with various forms of direct democracy and decentralized decisonmaking. My only concern is that they’re flailing somewhat in this, not that they aren’t reasonable.

The most inspiring pro-democracy efforts to ne, to come out of the international protest movement, is the Spanish initiatives towards use of allotment in democracy, Partido Azar and Sorteo Politico. But they are still very small.

“so that eventually they could loan it to us at amazingly high rates. ”

Yes, loan rates really are amazingly high. 4% for 30 years: why, that’s positively extortionate.

Oh, and of course I’m talking about government banks have much smaller up front requirements than are normal with the ‘low mortgages’ offered by banks at the moment. Who, after all, can afford the upfront costs to get them?
From http://www.emortgagenews.info/us-mortgage-rates-lowest-in-decades/

Mortgage rates in the US have reached their lowest levels in six decades, making this the best time in most Americans’ lives to buy or refinance a home.

Yet most Americans can’t take advantage. Half of would-be buyers say they’ll never save enough for the 20 per cent down payment now usually required. and shrunken home values have erased much of the equity people need to refinance.

“Low rates are great, but the real issue is that the pool of peoplewho can get a loan or refinance is small,” Bankrate.com’s senior financial analyst Greg McBride said.

K Williams, I think you’ve misread the graph, assuming it’s Chart 3 you’re referring to. The thick line is return on equity, which is different, and relates to the scale on the left. The return on assets is the thin line and the scale on the right, and that dips below 1% for the years 1965, 1974-78 inclusive, 1981-87 inclusive and 1988-91 inclusive. Out of the 34 years in that sample, ROA was below 1% for 15 of them.
And, of course, what Cian said was that 0.85% is very good for a bank operating in a depressed economy. Trying to refute this with examples of ROAs for banks not operating in a depressed economy is missing the point.

Yes, loan rates really are amazingly high. 4% for 30 years: why, that’s positively extortionate.

Given the spread, yeah its pretty extortionate. Particularly given I’m assuming that 4% is the lowest rate on offer for a secured loan. The rates on credit cards are still usurious, and last I checked had not come down.

During most of the 1970-1982 period, the economy was mired in recession

OK, now you’re just saying things that are provably wrong.

“And no, a 3% spread is not extortionate […]”

Why should people have to pay a 3% higher rate on being leant taxpayer money than the banks do?

Is it because people are bad credit risks, while the banks are good ones? No. The banks just need more and more bailouts. We should just let the banking industry go, since it serves no purpose.

Incidentally, the MBS market still exists, so banks are probably not hanging on to these 30 year mortgages…

stubydoo @187: Those sneaky default fees of a few years ago

Not ‘of a few years ago’; of the past 20 years or so, and still going strong.

Some folks get mad about it

– but actually relatively few of the overwhelmingly poor and vulnerable ones who pay those fees – and the knock-on fees that they cause – do, because they are conned into focussing on the fact that the fees are, in theory, the price of a service that could, at the cost of considerable care, attention and hardship through foregone consumption, be avoided. They cannot be refused in advance – any more than increases in one’s overdraft limit can be – nor can the exact balance of the account at a given time be determined except by keeping one’s own cash book to make conservative calculations. And of course all the high street banks have basically the same terms and conditions.

Having a bank account into which to deposit one’s measly wage, and from which to set up direct debits so as to avoid paying extra for bills, is not a luxury like eating at a restaurant.

And for pity’s sake, spare us the poor little ‘barely profitable’ banks sob story. Why should I be concerned that the banks should make a profit? The banks have lobbied and manoeuvred for many years to make their payment systems utterly indispensable, and now they’ve achieved it. Since when is there a right to a profit from that position?

That is the really demented thing – constantly, the viability of some enterprise – even its worthwhileness – is assessed as though turning 10%+ profit were a given. It’s not. Running without a profit (above inflation) is perfectly sustainable. Running without a profit is supposed to be the ideal standard in the competitive market model that’s used to build toy equilibria justifying Panglossian market mythology. Running without a profit ought to be the norm. Running without a profit is what you get when there is no parasitism in the system.

K. Williams – similarly, who gives a shit if JPM is ‘struggling’? If the supposed social functions performed by banks are suffering, well, let the government step in directly rather than topping up the trough these porkers guzzle from.

Also, re: #197.
pp. 35 ff. of the report does have some rather pertinent stuff on “Concern about the growing participation of banks in derivatives markets” expressed very clearly, in the mid-90s, by the chair of the House Banking C’tee.

The authors see no reason for concern. p40: Some argue that derivatives are so complex and so nontransparent that it is difficult for regulators to devise capital regulations to control banks’ risk taking (or, for that matter, for the market to monitor banks’ derivatives activities). We are skeptical about this view.

And one of the report’s authors is – Frederic S. Mishkin, who features memorably in the ‘Inside Job’ clip linked to above @72, with much squirming and stuttering about his fees for producing a ‘nothing to see here’ paper about Icelandic bank regulation, then, it seems, changing the title of the paper as cited on his CV from ‘Financial Stability in Iceland’ to ‘Financial Instability in Iceland’ – priceless! (Well, not literally: $124K.)

I know it’s hard for many to really internalise the realisation that cultivated people in suits and ties, comprising a large section of the upper reaches of an academic discipline, are just plain bent and not to be trusted. But it does keep being found to be the case; CT itself repeatedly establishes it, discusses it, then carefully folds the observations and puts them back in the bottom drawer.

It’s time to accept that the whole discipline of econoomics is suspect, that the onus is on practitioners to earn trust if they can, and that any of them who is paid money by big finance really ought to be told in no uncertain terms to shut their cakehole, and preferably to fuck off while they’re doing it.

Re Tim @208:

Re: fees that are still going strong – the monthly fees are being reintroduced precisely because the stealth overdraft fees are being banned by the new regulations coming on line.

Re: restaurant meals being a luxury – well and good, but do you really think that the insight that business overhead costs need to be recouped somehow should only apply to luxury goods?

The standard “Panglossian” economic theory which you deride holds that economic profit would go to zero, not accounting profit. The difference between accounting profit and economic profit is that investors have to be compensated for the time value of money (as has been pointed out this is only about 1% per year right now, though somewhat higher if long-term committments are necessary), and also for risk (since banking like most businesses has some inherent risk in it).

Right now the economic profit level of retail banking in America is less than zero. This implies (by standard “Panglossian” theory) that the industry will gradually decay (capital already deployed will hang around due to sunk costs, but new investments will not be made), until the diminished level of competition brings the economic profit level back up to zero.

That’s the situation even with all those nasty fees.

It is not a situation beneficial to consumers in the long run, but at least it’s better than the rapid collapse you’d get if accounting profits also went negative. Which is why I think its wrong to be nonchalant about people pushing for ways to make it even tougher for the banks.

“It is not a situation beneficial to consumers in the long run, but at least it’s better than the rapid collapse you’d get if accounting profits also went negative. Which is why I think its wrong to be nonchalant about people pushing for ways to make it even tougher for the banks.”

Tobacco companies at least have the excuse that they provide a pleasurable drug to people. What excuse do banks have? Why should we care if they go away fast or slowly?

What services do banks really provide to people that a government-run electronic system couldn’t? I really can’t see why a bank is any different from a private health insurance company. What’s the point?

Sorry, but after the most expensive bailout in history, we are being told that the banks are now too weak to repair the systemic problems that caused them to explode in the first place, plus we should be happy that they seek to chisel earnings from their less rich customers – then we are back to the question of why we did the bailout in the first place. By continuing the too big to fail system, we’ve simply committed ourselves to a cycle of every more bailouts and ever more cheats by the banks, while we stop regulating their casino like behavior cause, maybe this time they will make some quick money. Wow, this is crony capitalism refurbished as some type of ideal. The best argument for the government creating its own bank is exactly this: that in the event that the banks can’t make it cause they engaged in idiotic deals, their crash won’t effect the credit necessary to keep ordinary life going in the states. Instead of coddling the “flailing’ sector with its sad crew of upper management types, with their 9 million dollar salaries and their 10 million dollar in stock options sidecars – we should speed up the process of reform, clean up the options and derivatives market, institute rigid mark to market rules, and create an American state sponsored bank that can and will provide real service to Main street at this time. Credit cards with interest rates three to five points below what is being charged now. Debit cards with no charge. Mortgages that don’t require extraordinary amounts down.
At the end of Rambo II, Sly, in one of the great corny speeches in Hollywood history, says – I just want my government to love me [a Viet vet] like I love them.” Or something like that. My slogan suggestion for the Occupy Wall Street people is similar: I just want my government to treat me like it treats its banks. I know, heady stuff! I mean, it can even lead to democracy.

Stubydoo: It is not a situation beneficial to consumers in the long run, but at least it’s better than the rapid collapse you’d get if accounting profits also went negative. Which is why I think its wrong to be nonchalant about people pushing for ways to make it even tougher for the banks.

Banks in the USA are very laxly regulated on consumer banking compared to European banks, yet are less innovative and invest less in consumer banking. I’m not really seeing a case. Banks are profitable, and continue to make high profits out of consumer banking. The reason that Bank of America and the like have problems is due to the insane lending decisions/criminal behaviour they indulged in. Like I said to somebody else, I fail to see why the consumer should be forced to bail banks out a second time.

But if government agencies were staffed by people who actually gave a horse’s ass about the cost of providing banking services, we’d have a rather different set of banking regulations than what are currently on the books.

I don’t really follow what you mean by this. Which banking regulations are you referring to?

AndrewF:

Does adding regulatory risk, expanding capital requirements, and increasing taxes augment or diminish the value of companies in the financial sector? If that value is, overall, diminished, will this help or harm an economic recovery?

Does it matter if we diminish the value of companies in the financial sector? In historical terms they’re grossly oversized – and banking is basically a utility. You need a certain amount of it for the economy to function, but it doesn’t contribute to growth in a material sense.

In terms of regulations, banking has recently come out of a period where it was operating under the laxest regulation since the 1920s. Recent regulatory changes are pretty negligible. Given that one of the strongest contributors to the crisis was the lack of effective regulation at all levels, I’m not really seeing it as a problem. In fact I’m seeing the lack of regulation as the problem, given that it led to reckless and criminal behaviour.

In terms of capital requirements. Ignoring the fact that the capital statements of the banks are fictional at this point anyway (and were during the crisis), and investors known this, what happens if there’s another crisis? Do you really think another bailout is a possibility. Several of them are probably, if anyone did a serious audit of their books, bankrupt. The capital requirements are to prevent a future crisis. Allowing the banks to take on yet more risk, particularly in a zero growth environment, is hardly going to help them out of this situation, though it might make a future crisis more likely. And given much of the risk the banks were taking on were trading positions, I think clamping down on this can only help things.

Secondly, the reason that banks aren’t lending money isn’t because of a shortage of funds, its because they are very very risk adverse in the current environment. Partly because several of them are essentially insolvent, and partly because the economy is screwed. However, there isn’t a shortage of credit. Consumers are heavily in debt, and so they’re not going to want to borrow any more money. Companies are sitting on enormous cash reserves which they’re not investing, there’s a demand problem. Giving the banks more money isn’t going to solve either of those things.

The banking sector needs radical reform to prevent a repeat of the current crisis. Banks need to be massively reduced in size; partly to eliminate TBTF, and partly because large banks are less efficient than medium sized ones.

I’m quoting this simply as an example. It is possible to disagree here without being unpleasant or insulting.

It is, and if you’re arguing in good faith I apologise. But maybe you should stop patronising other people for being ignorant of banking. Memorising banking industry talking points does not make you an expert.

I’m sure that many protestors fought back by impeding the free swing of nightsticks with their faces. This is basically the only kind of story that modern journos know how to write. I’ve met a lot of journalists, and they are basically now people who went to college but couldn’t handle majoring in anything other than writing to deadline. Actually, most journalism students, maybe the smarter ones, end up becoming P.R. flacks for some company.

Well a start would be turning the payments system into a public utility. Essentially turn it into a non-profit, that charges a percentage on each transaction (no matter what the size). If one needed a hook to hang it on, I’d make it security. The security of the current system is hopeless, and the private sector is really bad at it (their instinct is to cover up, rather than spend the money on it). A public system, which was fairly open, would be more secure.

And arguably small-scale credit is an area where you really don’t want innovation, as the current crisis demonstrates.

Ajay,

You’re right, my distinction probably isn’t the right one either. Mainly I just wanted to emphasize that businesses as well as households would benefit from a public payments system. On the savings side, I was thinking of something like the Japanese postal savings system.

stubbydoo: “Right now the economic profit level of retail banking in America is less than zero. ”

Stop lying. Financial profits are right back up in the stratosphere, and after risk adjustment they’re in Lunar orbit.

I’d like to make the stock market a lot more inefficient. Perhaps rules such as you have to hold a stock for at least a week, high transaction costs. Corporate governance changes as well, so the owners of stock are only one of the interested parties.

Stupidly huge rewards are stupid, from a social welfare point of view, because there almost never socially productive activities capable of yielding huge returns to fund those huge rewards. You can only win Big, by cheating.

The U.S. is in the midst of massive disinvestment, because disinvestment pays more than investment and can fund those stupidly huge rewards. The locus of those kinds of financial activities isn’t Wall Street, by the way. The metaphor is obsolete. The titans of finance are Connecticut, in Greenwich and Stamford and Westport; that’s where the hedge funds and private equity groups have their headquarters.

The tasks of the financial sector, as others have emphasized, ideally, do not include the glitz and glamour of Casino Capitalism, or its threat of risk of ruin. They are mundane and routine; the stuff of clerks. The chief task is not to seek high returns; it is to avoid actual loss.

The image of the bankers channelling scarce savings to abundant waiting investment projects is misleading in many ways. Much of what retail banking does with deposit checking and savings, isn’t channelling a flow of loanable funds, but, rather, providing credit and maturity transformation. Be that as it may, in any well-functioning banking system, there will always be an abudance of funds available. The scarcity problem manifests as trying to avoid having those funds sucked into the sinkhole of bad or fraudulent investment opportunities. A banker’s job is to say no to fraud and bad faith.

An idealistically normal monetary and financial system would be managed by a low, steady positive rate of inflation, which pressures people to put their transactions balances into banks, hoping to at least reduce the inflationary loss to currency, and provides a cushion against bankruptcy for investment in projects promising a de minimus return. The banks lend to everyone, who offers an honest expectation of positive net present value, no matter how small.

Paradoxically, perhaps, it is the very large number of investment “opportunities” which can promise only very small positive returns, which can power a general rise in productivity and prosperity. This is how the capital stock increases, and wages increase.

Stupidly huge rewards for financiers and bankers is an invitation to set up a con game.

It is pretty clear to me that capitalism does not even exist without a stock market.

The creation of financial markets in Amsterdam and London, and the institution of international business corporations with a marketable stock — the English and Dutch East India Companies — at the beginning of the 17th century, is the foundation point of capitalist (as opposed to feudal) economic institutions.

The Dutch East India Company, and its English counterpart, were a decided departure from the trading guilds, and before them, the monastic orders, of the feudal past. The Dutch East India Company employed a bureaucratic hierarchy, and that became possible, because the ownership interest was made into a marketable stock.

Without explicating the details of why bureaucratic control is facilitated by having a stock market, I would submit that the basic insights are available in contemplation on Fisher’s Separation Theorem.

The Bank of England was founded on the parallel insight, that making the national debt into a marketable stock, and keeping it liquid by active management, created a enormous arbitrage gain.

The fact that neither stock markets nor bank systems are funnels for the flow of funds to investment constitutes an objection to the unaccountable naïveté of economic theorists, not to the usefulness of stock markets or banking.

When 18th century English gentlemen began to account the worth of a landed estate, or a man, by comparing its income to an equivalent holding in the City — “he’s worth 500 pounds a year” — capitalism was off and running. When the Duke of Bridgewater, instead of raising an army and pillaging the countryside as Dukes of centuries before were inclined to do, made himself the richest man in England by building a canal and selling coal, he was calculating returns, in a way made possible by financial markets.

It is pretty clear to me that capitalism does not even exist without a stock market.

This is one of the rare occasions when I have to disagree with you, Bruce.

In the US, publicly traded stock for industrial corporations (other than railroads) essentially did not exist before the 1890s. Yet 19th century industry in the United States was certainly fully capitalist. In the UK, the joint-stock corporation didn’t become the main form of organization in industry until even later.

It’s true that joint-stock companies existed in UK and the Netherlands in the 17th century; similar forms of organization existed in Italy centuries earlier, and in the Islamic world centuries before that. But these were exclusively concerned with trade and finance; they weren’t involved in production. Specifically capitalist production developed quite independently. The evidence is pretty clear that very little of the finance for 19th century industry came through the systems of publicly traded securities developed for financing governments and long-distance trade. (Phil Mirowski has a nice article on this, which unfortunately I can’t find a free version of; Braudel is good on the earlier period.)

The fact that neither stock markets nor bank systems are funnels for the flow of funds to investment constitutes an objection to the unaccountable naïveté of economic theorists, not to the usefulness of stock markets or banking.

Let’s not mix up stock markets and banks. Very different institutions. And, OK, “they don’t finance investment” isn’t an objection to the usefulness of stock markets for rentiers. But I’d say it’s a pretty decisive objection to their usefulness for the rest of us. What else do we get from them?

Bruce Wilder: “When 18th century English gentlemen began to account the worth of a landed estate, or a man, by comparing its income to an equivalent holding in the City—“he’s worth 500 pounds a year”—capitalism was off and running. When the Duke of Bridgewater, instead of raising an army and pillaging the countryside as Dukes of centuries before were inclined to do, made himself the richest man in England by building a canal and selling coal, he was calculating returns, in a way made possible by financial markets.”

ISTR the comments about incomes being worth some amount of money per years being used loooooooooooooooooooong before the 18th century.

@237

The accumulation of “mistakes” is too Austrian an epithet for my taste.

The simple fact of durable goods is going to drive some sort of cycle. It is simply not possible to have a smooth trend line for new auto and new housing demand, indefinitely. The existence of a stock of autos and houses competing with new production is going to create a sinusoidal rhythym. So there’s that. And, any disturbance to inertial flows is going to set an inventory cycle into motion.

On a whole ‘nother level, political institutions, like all organic arrangements, age and must renew themselves in reproduction. There’s a sense in which societies have to re-write their constitutions continuously, which is also to say, periodically. I like to play with the idea of a roughly 70-75 year cycle, that shows up pretty plainly in the red-letter dates of countries, powerful enough that endogenous forces dominate their historical development.

Then there’s the Minsky / Kindleberger sort of financial cycle, in which the pursuit of financial returns and the moving-average experience of volatility interact to produce a kind of madness of crowds (“This time is different”). Kindleberger, as I dimly recall, made that into a generational cycle (~20-25 years), with crises on the inflections, every 11 or so years.

The last sort of cycle, with its writing of bad debts and the creation of unrealistically optimistic capital structures, requires the correction of “mistakes”.

If we could deal with the Minsky cycle in abstract isolation, as a technocratic problem, maybe the expectation that the smart technocrats could competently ameliorate the situation would not be so unrealistic. The insights of Keynes or Fisher or Minsky do seem to apply. But, the experience of the last five years discourages me.

The Minsky cycle cannot help but interact with the political lifecycle of institutions. Elites of an aging Empire might as well have some form of collective alzheimer’s, and business and financial cycles cannot be divorced from the predation of rentiers or class warfare. Even if elites were not stupid and ignorant (and they are), the conflict of established interests with good sense would lead them to act badly.

There’s no end to history, apparently.

B.W. @ 242:

Obviously, you know I’m no Austrian, nor an “Austerian”, so if you don’t like my phrasing, (having omitted the qualification of “-” and “under endemic uncertainty”), well, so be it, though I don’t think we’re actually disagreeing here. Though parenthetically, “(..)”, I’ve often found myself in ironical agreement, in the run-up to the crisis, with “Austrian” commenters on narrowly-tailored points. And I find the classic Austrian arguments completely wrong, but interestly so, informatively so, in contrast to some other species of fallacious or sophistical economic arguments, which run legion. But appealing to the inventory cycle in “durable goods”,- (umm, without distinguishing between consumption and investment goods?),- won’t quite do, as I know you know from reading your comments over these last years, to address the issues of re-structuring of production under changing global and technical conditions. Structural transformation of the basic system of production is a different issue from maintaining the current structure within the inventory cycle. Which is where the “Minsky cycle” and growing financialization come in. At a minimal level, the accumulation of “fictitious capital” in the financial system actually has a fairly salutary function, as regulating and smoothing the write-downs of accumulated financial assets under continuous change. But, of course, very large accumulations of such fictitious capital within the financial system, (basically via the capitalization of land or other economic rents), are already a symptom of the failure of the realization of productive capital investment, which renders the subsequent realization crisis vastly worse, and is an obstacle to productive restructuring and rebalancing toward a “new beginning”.

That’s a synoptic account of the political-economy crisis we’re now facing. Though I myself would take objection to the (somewhat Whiggish?) characterization of political institutions in terms of “organic” metaphors.

Lemuel: stock markets today have the purpose of allowing founders to cash out. And I think there’s something to be said for replacing debt with equity. Its the perpetual ownership that bothers me, along with the creation of a rentier class.

You do need financial assets of some kind, as there’s always going to be a lag between production and consumption. Without the ability to bridge that gap (with debt, or the equivalent), the economy would be far more unstable. The trouble is that debt tends to have a logic of its own, and its how you manage that which is the tricky question.

I think it would be better if markets were a bigger portion of finance, and banks a smaller portion. While policymakers are certainly solicitous of the desires of the stock market, in any big crisis they are completely at the mercy of the banks. The bursting of the NASDAQ bubble was much less painful than the current economic downturn, and one big difference is that governments can let hedge funds fail consequence-free, while the same is not true of the banks.

Also, without public equity markets, every single firm will be owned by the same family for generations and generations, which would only make society even more oligarchical.

Banks are a much larger source of finance in German and Japanese economies. Think this is true of Italy and Scandinavia also. It seems to work very well; the trick is careful regulation of your banking system.

The bursting of the NASDAQ bubble was much less painful than the current economic downturn

Well that’s because it was smaller. And the Fed’s attempts to reduce its affects on the economy were one of the contributors to the current crisis.

Also, without public equity markets, every single firm will be owned by the same family for generations and generations, which would only make society even more oligarchical.

Depends how one did it. I’d push for employee-ownership as the only form of ownership. You work for a company you own a stake. You leave, your equity stake converts to a bond.

without public equity markets, every single firm will be owned by the same family for generations and generations, which would only make society even more oligarchical.

Not necessarily. If you and your family own Walt & Co., and you want to get some money to expand the business, there’s nothing to stop you from selling me a 30% stake in the business for a mutually agreed price.

jch @ 253

Yes, this is how I’ve always understood what was meant by the efficient allocation of capital, at least in its most up-to-date formulations. As a non-economist, however, I simply can’t fathom how it was that the market for derivatives slipped its moorings to underlying asset values so quickly, and to such an extreme degree. Irrational exuberance doesn’t half express the absurdity of it all.

I realize that the decision to cast off and put out into a sea of troubles wasn’t a series of rational decisions, let alone a single rational decision, but even so…. What the events of the past four years have done to my sanity could be ameliorated, perhaps, if just one of the smug assholes at the top of the financial industry would admit that, as a group, they’re no better at controlling themselves than the Huns were when sacking a city which had opened its gates to them. It would also be some comfort if we could convince them that we might someday do to them what they’ve so blithely done to us. It would be unfortunate for everyone if they actually forced us — against our better judgment — to prove it to them.

@255:

The point is that if one is to consider replacing or reforming capitalist financial markets, wholely or in part, then one needs to propose functionally equivalent solutions to them, rather than just denouncing their depredations. Otherwise, you’ll just be “evolutionarily” out-competed and at a dead end.

a) This is discussed in “Capital” Vol. 3 on the role of the system of credit and finance.
b) This amount the the classic first and most basic theorem of all economics, the equalization of the rate of profit across firms and sectors.
c) The capacity for investment switching, (which also requires “free” labor), is the source of the overwhelming productive superiority of capitalism over feudalism or any other pre-capitalist society/mode of production.
d)The technical improvements of the means-of-production over the last 2 centuries has been enormous and can’t plausibly be denied. That capitalism might become a fetter to their further and more equitable development was and is the point. And that innovation under the control of capitalist accumulation might be quite trivial or destructive rather than a uniquely glorious attribute of capitalism. But there was a reason why Marx in Vol. 3 extolled the “heroes of finance” as at once seers or prophets and as swindlers.

Bruce Wilder’s comment @236, which provoked this little discussion, by the way, was retrospective and historical, not prescriptive. He’s an old MBA with long experience in both industry and finance, so he tends to know practically what he’s talking about.

Cian is 100% right, both @250 and @255. The history of capitalism is full of examples of major investment in productive enterprises without any financing from liquid, tradable assets. If anything, the historical record suggests that institutions that make wealth more liquid tend to depress investment.

financial assets serve as a means of switching real investment to their most productive uses and optimal allocations, (while bankruptcy allows for the recirculation of the remaining value of disused resources).

This is just silly. Actual physical capital can’t be reallocated when the claims to its output take liquid form or not. And existing firms or banks can direct profits to new sectors just as well as owners of financial assets can.

john c. halasz and Bruce Wilder:

I’ve learned a great deal in the course of these CT threads from both of you. For what it’s worth, I very much appreciate your contributions to my education.

Actual physical capital can’t be reallocated when the claims to its output take liquid form or not. And existing firms or banks can direct profits to new sectors just as well as owners of financial assets can

LP, you’re an economist, so explain to me where I’m wrong:
1. if most of the corporations weren’t public, how would these firms and banks know where to direct their funds? This is jch’s b).
2. “actual physical capital” is what you get in the liquidation. Fair enough, and jch noted that in parenthesis, in his c).
3. stock market allows you to direct not just profits, but also anticipation of future profits, which is a big part of the stock price, correct? This seems more efficient, than directing just current profits, no?

Thanks.

John,
a) Regardless, history is filled with both periods of productive investment without financing from tradable assets.

b) Seriously. That theorem leads to that result? That’s the thing about mainstream economists, their theorems lead to ridiculous results that are empirically false, and nobody ever thinks that possible the theory might be a little off. Stock prices, they reflect fashion, are subject to bubbles; the company financials are manipulated by CFOs (how else do you think they manage perfect quarterly growth). Bonds – they reflect the markets best guess as to the health of a company. Sometimes they’re right; sometimes they’re wrong.

Non Anglo countries where stock and bond markets are far less important seem to do just fine. Better in a couple of cases.

c) I sell 20% of AT&T, and buy 20% of Ford. How exactly has real investment changed? How has productive investment changed?

d) Yeah you haven’t actually argued your case. How do liquid and tradable assets lead to the development and circulation of innovative technical improvements. What is the mechanism here that is not achievable by, for example, the investment structures you get in Japan/Korea, family firms, bank lending, bank investment arrangements you get in Germany , partnerships, or illiquid investments.

For that matter how did the industrial revolution occur, given that stocks are apparently so crucial to technological development?

Incidentally the technical improvements of the last couple of centuries have a lot to do with cheap energy sources.

Henri:

1. Firms direct investment into parts of their business that are most profitable (or they think will become so).

3. A stock market doesn’t direct investment. It just allows transfer of ownership. In theory companies can raise new investment capital through selling stock, but for the most part they do so either through retained profits (what remains after paying a dividend and taxes), or less commonly selling bonds, or very uncommonly (in the US, anyway, for large companies) borrowing from a bank.

We have two classes of people: owners, who have private capital, market capital, and bank accounts, and workers who have market capital and bank accounts.

Ignoring the fact that the vast majority of workers have very little money invested in the markets. Are you saying that a guy who has a hundred million in stocks is a worker? And a guy who owns a convenience store is an owner?

Cian,
I certainly do agree that most of the stock market activity is speculation, but not all: companies do raise capital and pay expenses by issuing stock. Plus, speculations themselves – stock prices – are not entirely useless: they send signals, provide information. Can you really deny this?

Cian, interesting points. You know, in the Progressive Era, one of the reforms that was permanently tabled, unfortunately, was the reform of the stock market. Back then, the reformers were concerned that there was too much speculative abuse in the market – the issue was overcapitalization, and watered stock.
In 1911, a bill was voted through the House of Representatives and narrowly turned down in the Senate, S. 232. This built on legislative ideas already crafted during Roosevelt’s term (remember, Roosevelt was in the wings in 1911, and would run in 1912, thus ruining Taft’s chance at a second term). S. 232 would not only have required federal incorporation of all interstate businesses, but have gone much further. Lawrence Mitchell, in the Speculative Economy, describes it as followst:

“It would have replaced traditional state corporate finance law by preventing companies from issuing “new stock” for more than the cash value of their assets, addressing both traditional antitrust concerns and newer worries about the stability of the stock market by preventing overcapitalization. But it would have done much more.

S. 232 was designed to restore industry to its primary role in American business, subjugating finance to its service. It would have directed the proceeds of securities issues to industrial progress by preventing corporations from issuing stock except “for the purpose of enlarging or extending the business of such corporation or for improvements or betterments”, and only with the permission of the Secretary of Commerce and Labor. Corporations would only be permitted to issue stock to finance revenue-generating industrial activities rather than finance the ambitions of sellers and promoters. … S. 232 would have restored the industrial business model to American corporate capitalism and prevented the spread of the finance combination from continuing it dominance of American industry.” (137) In Sklar’s account of the Roosevelt era draft, ‘whenever the amount of outstanding stock should exceed the value of assets, the secretary would require the corporation to call in all stock and issue new stock in lieu thereof in an amount not exceeding the value of assets, and each stockholder would be required to surrender the old stock and receive the new issue in an amount proportionate to the old holdings.”

Now this would be a wonderful break on the Casino aspect of the Stock Market. S. 232 would surely have slowed the growth of the U.S. economy, but it would have also prevented the Depression. An alternative history in which such an act had been passed would probably show an equal level of well being for Americans, but a much lesser level of inequality.
Interesting to consider.

@272 …and issue new stock in lieu thereof in an amount not exceeding the value of assets

What does it mean? I don’t understand. Stock represents a share of something, not the value of it. This sounds like some corporate bonds thing, not stock market shares.

roger: “Now this would be a wonderful break on the Casino aspect of the Stock Market. S. 232 would surely have slowed the growth of the U.S. economy, but it would have also prevented the Depression. An alternative history in which such an act had been passed would probably show an equal level of well being for Americans, but a much lesser level of inequality.”

First, preventing the Great Depression would have been a nice boost to the economy, just by itself. Second, at this point the null hypothesis is that the casino aspects of the world financial system *retard* growth; it’s up to the casino supporters to make their case, and to prove it with data and models which match the data.

The price is controlled. The traders can’t, in other words, trade it for higher than a certain limit. Just as you can set a low limit for an auction price, this sets a limit that is determined by earnings plus assets. Which is why the open market is closely controlled by the Commerce Department. This is, of course, the same time of price limiting behavior that impinges on what power companies can sell electrical power for in most localities. There’s nothing unusual about it.

roger you are making very strong claims, namely that this would have prevented the Great Depression. Why would it have done so? Furthermore this creates an incentive for firms to overaccumulate assets to raise market valuation and hence the multiple of future profits they can have, just as electricity rate capping does.

Secondly the “casino” aspect is nothing more or less then people putting their money where their mouth is. If I suspect company A will do better or worse then B or C I can put some money down on that prediction, and get payed if I am correct and lose if I am not.

A previous comment of mine seems to have been lost in the ether. This is the short version.

LP@238: I have no idea what you mean by “fully capitalist”, but I regard the advent of large, bureaucratic corporate business in the latter half of the 19th century as epochal.

JCH@244 I love your language. Are you trying to say, “disinvestment”?

Henri:
I certainly do agree that most of the stock market activity is speculation, but not all: companies do raise capital and pay expenses by issuing stock.

Yeah, they raise capital occasionally that way (paying expenses that way would be unusual), but if you look at the data it plays a surprisingly small part in raising capital after initial floatations. Its by no means essential. Well unless you’re a dotcom with no revenue stream, but overinflated expectations :)

Plus, speculations themselves – stock prices – are not entirely useless: they send signals, provide information. Can you really deny this?

Well yeah I can, what information do they provide that isn’t be better provided elsewhere? Stock markets are pretty unimportant in other countries, and their companies tend to be better managed. I think this aspect is completely overblown.

roger you are making very strong claims, namely that this would have prevented the Great Depression. Why would it have done so?

I’m guessing the argument is that it would have prevented the Wall Street crash, by preventing the bubble forming in the first place. Its an interesting proposal, though I think its problematic for other reasons.

Furthermore this creates an incentive for firms to overaccumulate assets to raise market valuation and hence the multiple of future profits they can have, just as electricity rate capping does.

I really don’t see why it should do any such thing.

The current system incidentally incentivises companies to take on unsustainable levels of debt. But I’m sure you knew that.

“Stock markets are pretty unimportant in other countries, and their companies tend to be better managed. ”

Cian, you keep making these sweeping, and totally unsupported, statements about the difference between companies abroad and in the U.S. How can anyone, seriously, look at the past twenty years and say that foreign companies have been better managed than American companies? U.S. productivity is higher than productivity in most developed countries. Corporate profits are higher. And, most importantly, American companies have dramatically outperformed foreign companies in terms of innovation. What’s the German or Japanese equivalent of Google or Apple, or even of Intel or Amgen? What was the last great new French or Italian company? There are a lot of things you can criticize the U.S. economy for. An inabilitiy to produce well-managed companies is not one of them.

How can anyone, seriously, look at the past twenty years and say that foreign companies have been better managed than American companies?

In Germany and Japan there is mandated paid vacation. That’s some better management that affects all employees right there. Mind you it’s not necessarily the managers of the companies who have done the managing, but would the average American worker be better off in Germany or Japan?

Henri, I have no doubt! There are no economic arrangements that don’t, sooner or later, fuck up.
However, the point of the exercise is to help us understand that the stock market didn’t take the shape it has today because it was magically shaped by the most efficient way to create an ‘ownership society’, but rather because the progressives didn’t have the votes to reform it back when it needed to be reformed – even though regulations on issuing stock did prevent some of the watered stock problems of the era.
I think that there is every reason, then, to ask about limiting speculative excess on the market today. A good example is high frequency trading. This, to me, is parallel to card counting at a casino. Casino’s are very tough about violations of their rules, and yet, they havent collapsed because the ‘efficiency’ brought in by card counters has been blocked.
I also think that it is long past time that all interstate corporation be forced to incorporate at the national level and obey one set of laws, instead of the patchwork that we have which allows, say, Credit card companies to incorporate themselves in North Dakota so that they can obey easy laws concerning interest and other companies to incorporate in Delaware so that they can get tax advantages, etc.
As for limiting the amount of stock (which, remember, is determined by the company) and its value – which is determined by traders – I can’t see any reason that we must suffer from massive bubbles that we can see because it is an ‘open’ market. Especially as that market then pulls the Fed in its wake, which is forced to adopt ridiculous policies to keep the market going up, a phenomenon that happened in 2007, when the Fed did just that. The Fed has no mandate and should have no mandate to keep traders in stocks wealthy.

Northern Italy is a manufacturing power house. Among other things, they still (profitably) produce high end textiles and (like france) Food manufacturing. Also cars, white goods, a lot of very nicely designed/built home wares. Machine parts. Lots of other stuff too that’s less visible. Its a very dynamic economy tied to a very poor one (the rest of Italy basically).

France’s economy tends to be dominated by stuff that sells to other businesses, though they also have a very large food industry (Danon, for example). Mind you I lost interest in the debate when K. Williams suggested that there were no makers of electronic or consumer goods in Germany and Japan. I mean seriously..? What’s that, arguing from your own wilful ignorance?

Pharmaceuticals is mostly located in Switerzland and the UK I think. Dunno, there’s so much consolidation there who can keep up with it.

K. Williams: How can anyone, seriously, look at the past twenty years and say that foreign companies have been better managed than American companies?

Well you could also reverse it and ask how could anyone not? :)

If you remove the financial sector, the performance of the US corporate sector has not been terribly impressive. Profitibility has never really recovered from the late 70s. I would guess if you removed those sectors that essentially have captive profits (telecommunications, healthcare and other monopoly based sectors) it would be less impressive again.

Germany and France have trade deficits in manufacturing, the US has a surplus. They have high levels of internal investment (suggesting confidence in the future), the US industrial companies tend not to. Some sectors have indeed done well (though the US is rapidly losing electronics/hardware), other sectors have done well through becoming US holding companies for foreign production sources (like GE – which is becoming a finance company, that has heavily investments in foreign manufacturing plants). The US managements response to foreign competition was to invest abroad in cheap labour sources; in Europe they have mostly kept ahead by investing in better technology. They also have manufacturing trade surpluses, something the US does not have.

One reason I think US companies are badly managed is the cult of the MBA. In much of Europe an executive tends to be someone either from the company, or a similar company from the same sector. The idea that a manager from a drinks company could manage a manufacturing company would be seen as ridiculous. In the USA executive levels are basically financial people; in Europe they are usually operations types. There are exceptions obviously (Apple being one in the USA)

The US is good at producing start ups, but then so are Germany, Italy and the Scandinavian countries. Germany and Italy have a far healthier mid-size company sector than the US.

U.S. productivity is higher than productivity in most developed countries.

I don’t think this is actually true, but even if it is International productivity comparisons are pretty flawed for a number of tedious data collection reasons that I can go into if you want. Its not a very good way of comparing countries, though it doesn’t seem to stop people.

Incidentally US GDP was greatly increased by a series of bubbles, the latest of which was the real estate bubble. It also uses techniques that raise GDP values, while France and Germany use more conservative measures.

Corporate profits are higher.

Again I’m not sure that’s actually true, but I don’t have time to check. Though again one would need to be quite careful in making the comparison. Some companies have captive markets, so their profitability is essentially a marker of effective regulation. I’m sure that telecommunications in Europe is far less profitable. Healthcare is also far less profitable. Pharmaceutical profits again (which in Europe are largely based in Switzerland and the UK). US corporate profitability is far less impressive if one excludes the financial sector, and so on. For that matter US productivity investment is far lower than in Europe, which is actually quite a good way of measuring industrial performance.

A far larger part of US corporate profits is given to shareholders incidentally; the shareholders seem to mostly spend it on luxury goods, best anyone can work out.

And, most importantly, American companies have dramatically outperformed foreign companies in terms of innovation. What’s the German or Japanese equivalent of Google or Apple, or even of Intel or Amgen?

A number of people have alread pointed out various examples, so I won’t add to that (for pharmaceuticals you want Switzerland – though there’s stuff elsewhere). Where’s the American version of Panasonic, or Toyota? Or the German machinery companies? Or their white good companies? Or their companies that make kit-houses. Or their companies that make trains. Or Mercades. etc.

Olivetti was a good, innovative company. A while ago, though.

I don’t think bubbles are created because of the stock market; it’s a more fundamental problem. Stock market, seems to me, is more like a vehicle; playing a role similar to that of the railroad in a gold rush – it transports suckers to the destination where they will, most likely, lose all their possessions. Doesn’t mean it all happens because of the railroad.

American companies tend to be extremely well managed, but then so are companies in Europe. Nothing I’ve seen here thus far furnishes any good basis for comparison of management. But as a corrective to some of what has been said, the ease of doing business in the US is substantially greater than in Germany, France, or Italy. Productivity is not only higher in the US than most of Europe, it’s also growing faster than most of Europe.

That’s not to say that US policies are better from a broader social perspective, of course.

As to financial markets generally, I have little to add to what jch said above regarding the extremely important role they play in the economy. But I do wonder how those who want to destroy trading in equities are saving for their retirement.

cian @265: No. Is there a reason why I would, as you seem to have forgotten to make an argument.

Sorry, so all else being equal, you think it would NOT harm the economic recovery if a large sector were to lose value? Can you explain why?

Currently nobody really knows what the big banks situation is, though I think most sane people suspect its way worse than they and the treasury are admitting. For example, banks are sitting on empty properties, because the moment they sell them they have to book a loss. Until then, they can pretend its worth a lot more than it really is. There is also the threat of lawsuits, and various other issues to do with the transfer of mortgages. I suspect BofA is a dead man walking, for example.

Eh, we’ll have to agree to disagree here. My perspective is that regulators monitor the larger financial companies and banks extremely closely, and that those firms prefer to sell or write-off real-estate owned as quickly as possible.

No, wouldn’t allow them to sell the stake. Employee owned companies. You work for the company, you get a vote, you get a share of the profits. Leave the company, no more stake. Most peoplem, incidentally, place their savings in banks. That is if they have any.

First, a very large number of people don’t simply put their savings into a bank. Certainly most of those approaching retirement have not. That’s not a way to save for retirement. A savings account might be a good place to stow away an emergency fund that you can access fairly quickly, but it’s not a place for long-term savings or investment.

Second, I don’t see how your response addresses the basic problems with your proposal. Your proposal is to force employees to accept equity as part of their compensation, and then restrict their ability to diversify. The end result is that employees now have even greater risk in the fate of their employer.

Reasons why you shouldn’t post with a hangover, your brain is half asleep.

One of the major affects on the profit rate is of course employee compensation. If you live in a society where unions are weak, and wage pressure is down, companies will of course take a larger take of the revenues. Good management be damned.

Roger, I think the myth of Walmart was demolished by their entry into the German market. German supermarkets operate on razor thin margins and are extremely well managed. Wallmart was unable to compete.

But as a corrective to some of what has been said, the ease of doing business in the US is substantially greater than in Germany, France, or Italy.

Based upon what exactly? Its far easier to set up a small to medium sized engineering company in Germany, for example. Lots of financing, technical support, access to universities, etc. Are we talking small, or large companies? Established companies, or foreign entrants? Are we including labour law here? Regulation? Starting a company? I dunno, that sounds like a vague and fairly meaningless statement to me, which is loaded with ideological assumptions.

I’d also add that if the cost of business really is higher in these European countries, and still they are better at the US at manufacturing (and they are), then presumably they’re managed better.

Productivity is not only higher in the US than most of Europe, it’s also growing faster than most of Europe.

Cross country comparisons of productivity are not terribly meaningful as the ways in which employment data, hours work, etc are collated in each company vary so enormously. Also the US collates its GDP differently to most European countries (it gives a higher value). Also, several trade economists have recently argued that US GDP may have been inflated by cheaper imports from outsourcing.

Recent increases in US productivity are entirely down to squeezing existing workers far harder in a way that is simply not legal in Europe. Incidentally, from memory I think productivity is in fact higher in the N. Europe than the US, though I’m too lazy to check.

Sorry, so all else being equal, you think it would NOT harm the economic recovery if a large sector were to lose value? Can you explain why?

Much of what the financial sector does is essentially parasitic. Which means its taking money from other parts of the economy. Its not producing anything as such. Reducing the size of finance would probably help the economy, in that it would return money to more productive parts of the economy.

Eh, we’ll have to agree to disagree here. My perspective is that regulators monitor the larger financial companies and banks extremely closely, and that those firms prefer to sell or write-off real-estate owned as quickly as possible.

And what’s this based upon exactly? My perspective is based upon what is happening on the ground with real estate (I mean fair enough – I wouldn’t want to sell all those houses, or foreclose on all the bad assets either – but it still results in a minimisation of the problem), the fact that the big investigation of the books was clearly a fraud (and for those that think the markets are god – well the markets thought they were a fraud also), that the banks assets have repeatedly been overstated. There’s a lot of skepticism in the business press (FT and WSJ) also, so I’m hardly out on a limb here.

But I do wonder how those who want to destroy trading in equities are saving for their retirement.

I am, though I haven’t held equities for several years now. Which has worked out quite well for me.

First, a very large number of people don’t simply put their savings into a bank. Certainly most of those approaching retirement have not. That’s not a way to save for retirement.

Most Americans have comparatively little in the way of retirement funds when they approach retirement. And actually if you’re approaching retirement you’re really going to want most of your funds in some form of savings account/bond.

A savings account might be a good place to stow away an emergency fund that you can access fairly quickly, but it’s not a place for long-term savings or investment.

Most Americans have very little in the way of long-term savings. Most Americans can’t afford to save much. This is because they are broke, and struggling to keep up. It has been this way for a long time.

Second, I don’t see how your response addresses the basic problems with your proposal. Your proposal is to force employees to accept equity as part of their compensation, and then restrict their ability to diversify.

Seriously, how hard is to it to understand employee-ownership. You work there, you own a stake as an employee. At the end of the year you receive a portion of the profits. A number of companies operate this way, and they tend to perform very well, and employees like working there.

And most employees can’t diversify their income, because most workers live off their salary, if they’re lucky (debt if they’re unlucky). Your refusal to admit this most elementary of facts is quite impressive.

The end result is that employees now have even greater risk in the fate of their employer.

Right because if you’re sacked from an employee owned company, you lose your job. Whereas if you’re sacked from a shareholder owned company you…oh hang on.

ISTR that Enron employees were actually forced to put their 401(k)* funds into Enron itself: so the problem of your pension fund being tied up in your employment is not one unique to the co-operative / partnership sector.

I’m not sure what we’re arguing about here. Both American and European companies tend to be very well run.

We’re arguing about whether capitalism requires a stock market. The fact that we can find successful national variants of capitalism where stock markets play a greatly reduced role is evidence that it does not.

AF: “In fact the financial sector has very little to do with whether we get better health-care reform, better public infrastructure spending, or better education spending.”

I think we are diametrically opposed in our views. The health insurance industry is a major obstacle to reform and ought to be, not coincidentally, an object of reform. For profit insurance is a source of corruption. The student loan industry and the rise of for-profit schools is part of what drives the destruction of higher education and debt peonage.

‘Both American and European companies tend to be very well run.’

This statement is beyond broad. I mean, compared to what? Asia? Anarchy? Martians?

And well-run for who? For CEOs? Shareholders? Workers? GDP figures? If we don’t know what the argument is, is it worth pursuing?

Bruce, I’m not sure exactly what about the stock market isn’t allocating capital. Stocks are capital which is being sold and bought in a market.

Andrew F: “Eh, we’ll have to agree to disagree here. My perspective is that regulators monitor the larger financial companies and banks extremely closely, and that those firms prefer to sell or write-off real-estate owned as quickly as possible.”

Cian: “And what’s this based upon exactly?”

Andrews well-demonstrated ability to ignore what goes on around him. He’d make an incredibly right-wing macro guy.

Cian, earlier you claimed Wall Street directed investment contra Fischer’s theorem, now you claim it doesn’t? Unless I’m misreading your posts, I don’t see how you can disclaim both an informational and allocational role to the stock market. If stock prices dip below the value of the firm to someone else, it gets scooped up and the capital reemployed. Changing stock prices indicate how well strategies are working.

Chris Williams, your responses to Andrew F. on the question of employee ownership are weak. Saying Enron forced its workers to buy its stock doesn’t make it a good thing to have all companies do so, and in fact proves the point Andrew and I were making: employee ownership is bad for employees because it increases their risk exposure substantially.

‘response_s’_? eh? What’s observing that Ajay’s pun was bad got to do with anything?

Employee ownership is indeed bad for employees in that over their lifetime it increases their risk. On the other hand, it’s good for employees, because it incentivises the employers to invest in human capital, not make them redundant in order to shave a couple of tenths of a percent off costs, etc. And it pays them dividends which would otherwise have gone to shareholders; dividends that they can invest in other companies as their pension fund if they so chose.

The question is, does the bad outweigh the good? And, lo, the fact that John Lewis recruits better than Tesco implies that no, it doesn’t.

I have to confess that I’ve been skimming this one: has anyone mentioned lawyers, accountants, consulting engineers, or the Aberdeen Shore Porters yet?

…a Marxist who asserts employee ownership is categorically bad for employees? Huh. Somehow even a ‘WTF’ feels insufficiently exclamatory.

Good little socialist / socialist-democrat-on-odd-numbered-days that I am, I figure we could address “employee ownership is bad for employees because it increases their risk exposure substantially” by ensuring there’s a decent safety net for all workers, courtesy of the state. If there’s some risk insurance built into the system at the individual person’s level, it’s safe for workers to expose themselves to some risk.

Nonetheless, the very idea that an employee could possibly be worse off as a partial owner of the company confuses me. I really don’t see how “the company you work for goes bankrupt so you lose your job and your stake” is all that worse than “the company you work for fires you” for an individual. Losing your stake in the company (to the firm declaring bankruptcy) is still better than never having had that stake in the first place, right?

Watson also thinks workers are better off with private pensions (invested in equities, natch) than government provided pensions.

I’m not sure why I caught such flack for @253 and had to face all sorts of sheerly adventitious claims supposedly refuting the 4 basic functional points I made. I explicitly stated that if one wants to criticize the many dysfunctions of financial markets, then one has to first understand their basic functions. And that if one wants to deliberately move beyond status quo capitalism, whether to a fundamentally reformed capitalism or to a “socialist” or post-capitalist economic system, then one would at least have to devise or evolved functionally equivalent solutions, since credit and finance are essential to any advanced (i.e. highly differentiated and complex) industrial production economy, which is also a monetary production economy, (in contrast to the neo-classical myths about underlying barter). (I really don’t care what you call it anymore, “socialism”, “social democracy”, “post-capitalism”, a “green economy” or whatnot, but I would have in mind a movement toward a much more mixed economy with much tighter public regulation, especially of the financial sector, a larger role for public investment and publicly guided investment policy, wealth and income compression through the tax-and-transfer system, both for reasons of equity and to maintain sustainable READ, and public subsidization for essentially non-market, non-economic goods or subsystems, such as education and health care). But what I was not doing was issuing an apologia for status quo capitalism like Andrew F. Only if you understand in an organized, quasi-systematic way the basic functions of the system of credit and finance is it possible to distinguish them from the pathologies or dysfunctions that have resulted from the financialization of the real productive economy under neo-liberalism.

Yes, there is a basic contradiction between long-run fixed capital investment, which is illiquid and financial asset claims on it which render it fictitiously liquid, but that problem of large-scale, high-cost long-run real productive investment and its realization through revenues from the sale of output under endemic uncertainty is intrinsic to any advanced industrial economy, as I said @237. And though financial assets are mere paper claims on the realization of real productive investment, thus reduplicating it and taking on a certain fictitious quality when traded-off against each other on financial markets, they are also a partial solution to that basic contradiction. Which was my point a) that they extend and accelerate real productive capital formation, which otherwise would be obsessed with preservation of existing capital through the sharing of risk. It’s only when the claims of finance outrun the realization of productive investment through speculative inflation of financial asset prices that the deeper dysfunctions come to the fore and the basic contradiction comes home to roost in crisis, which amounts to a failure of the informational and monitoring function of financial markets and “institutions”, (which for some reason only financial companies are so entitled), often with the help of a large dollop of fraud, even if legalized. But b) and c) the measuring of productive surpluses through the proxy of profits accruing to financial assets and c) the re-switching of real investment to more profitable firms/sectors and the withdrawal of investment from diminishing firms/sectors, let allow bankruptcy for perpetually losing firms/sectors should be fairly self-explanatory. d) the role of the system of credit and finance in promoting and bringing to scale/market technical innovation in the means of production and the quality/level of output is perhaps the most crucial point, which is why Marx styled financiers satirically as half visionaries, half frauds, since HiFi, as opposed to more ordinary forms of credit provision, is bound up in developing the next, futural wave of technical innovation, which is highly uncertain in its prospects, even as the financiers take their cut in advance and leave the failures and mis-coordinations for others to clean up. (How do you think the U.S. railways were (over)-built in the latter half of the 19th century? By raising vast up-front financing on the stock markets, and then swindling mostly British investors by manipulating stock markets).

I don’t think any of this is really controversial. Which is not at all to say that financial markets can’t and don’t manifest large dysfunctions and failures to perform even their most basic functions. But it’s generally not a good idea to suppose that historically emergent phenomena arise from and as sheer phantasms, rather than as atleast partial solutions to emergent problems. I took that to be B.W.’s original retrospective point about the joint-stock company (and I might add limited liability), even if he went way back to the “origins”, when he was really interested in the late 19th century. This is not to deny that there are lots of problems with corporate law, corporate charters, artificial legal personhood and the like and lots of problems with the current functioning of stock and other financial markets, (which are far more inter-connected than lots of comments here seem to allow). But the innovation allowed for the raising of funding for real productive capital investment on a greatly expanded scale, and over longer time-frames, precisely by allowing for the sharing and diversification of risk. And if there were no after-market for such shares then the initial raising of capital would be far less attractive to investors. And it’s simply not true that trading in outstanding shares have no functional effects and that large-scale corporate finance could occur independently of financial markets. (Traditionally, large corporate bank loans were by subscription or syndication, which is a financial market of sorts. Only retained earnings for infra-corporate investment could be called “non-market” finance, but it is not unrelated to stock markets, as when successfully done, it results in capital gains and/or increased dividend yields for share-owners, which, in turn, attracts further buying of shares, i.e. attracts further investment, which firms with high stock prices can use to buy up lesser fish or raise further funds from on both stock and credit markets. Such elementary points really shouldn’t need to explained here). The idea that Germany or Japan, though having a somewhat different capitalist political-economy structure than the U.S. (pace Myles) don’t have working stock markets is absurd. Look up the DAX and Nikkei indexes, (though exactly what Japanese policy makers were think in the late 1980’s by responding to the rising Yen with loose monetary policy and precipitating a huge stock and RE bubble, is lost on me. Though I think the roots of that crisis are more in the failure of maintaining a quasi-mercantilist export-oriented industrial policy, which Germany has in a much lesser degree.) In fact, pace Miller-Mondigliani, I would think equity financed corporate investment, including retained earnings, which used to be far more prevalent than nowadays, is far more desirable that debt-financed corporate investment, “high operating leverage”, let alone PE LBOs, which is a point that has been missed by several here, in adventitious criticisms of current stock market and corporate practices. This, of course, applies especially emphatically to equity in finance companies. (I-banks were far more functional when they depended on partners’ equity).

In short, I find it tedious to be accused of things I never said, to be lectured about things I obviously already know or to have apodictic proofs demanded for basic points of understanding that the demanders haven’t themselves grasped. (The idea of axiomatic proof is an unfortunate reflex of neo-classical economics, since the terms of such “proofs” omit or stylize away not just evident realities, but some of the most basic conceptual underpinnings of classical economic thinking).

@282:

Commenter “kharris” chez Thoma once remarked that the effects of the U.S. housing bubble resemble the “Dutch disease”. To which I replied that, yes, but natural resources are a real and valuable productive resource, whereas the implied land-rents of housing lots are not. Given the rule-of-thumb that countries with uncompetitive tradeables sectors with tend to direct investment into non-tradeable sectors, I’m surprised how little comment has been made on the rise in U.S. health care costs, which especially increased as % of GDP during Bushevik 1, when the CA deficit also blew out. But MNCs haven’t been dis-investing per se, only over here rather than over there. Even if the “global savings glut” is bollocks, since by short-run accounting identity, it’s actually a decline in global investment.

Employee ownership is more risky/dangerous than wage employment in the same sense as wage labor is more risky/dangerous than slave labor. After all, the slave, being a property, is likely to be taken care of, while the free laborer is merely rented, and, as they say, no one has ever washed a rented car…

cian @304: And what’s this based upon exactly? My perspective is based upon what is happening on the ground with real estate (I mean fair enough – I wouldn’t want to sell all those houses, or foreclose on all the bad assets either – but it still results in a minimisation of the problem), the fact that the big investigation of the books was clearly a fraud (and for those that think the markets are god – well the markets thought they were a fraud also), that the banks assets have repeatedly been overstated. There’s a lot of skepticism in the business press (FT and WSJ) also, so I’m hardly out on a limb here.

That there is close monitoring by regulators is based on what regulators, the press, and the firms themselves say. There’s no skepticism in the business press that regulators are monitoring closely.

There is some skepticism/uncertainty as to whether a few of the largest banks can raise enough capital to meet regulatory requirements if certain events occur, e.g. another recession, greater than expected losses from the Euro crisis, and/or legal liabilities far outside current reserves. But that’s not quite the same as skepticism that the largest banks are currently solvent – and investors today, if anything, tend to overreact negatively to uncertainty.

I am, though I haven’t held equities for several years now. Which has worked out quite well for me. … Most Americans have comparatively little in the way of retirement funds when they approach retirement. And actually if you’re approaching retirement you’re really going to want most of your funds in some form of savings account/bond.

And through what vehicle does an investor without a very large amount of capital buy into a diversified portfolio of bonds? There are a lot of excellent bond funds out there, but this is part of the market you seem to want to destroy.

Nor, frankly, would an investor with a long horizon want to pile completely into (which is where I assume this is going) the least risky bonds and settle for a 3% return over 30 years.

Right because if you’re sacked from an employee owned company, you lose your job. Whereas if you’re sacked from a shareholder owned company you…oh hang on.

Your proposal was that employee ownership become the only form of ownership. The equity would be paid to an employee as part of their compensation, and upon leaving the equity would convert into a bond.

The equity given to the employee as part of his compensation has a certain value and risk. By requiring that compensation, and by rendering it completely illiquid, you’ve reduced an employee’s ability to diversify his savings (in your proposal, in fact, you’ve restricted his ability to invest in any other company since there is only employee-ownership). You’ve also obligated the employee to share in the risk that a firm, in any given year, may simply not have any profits to distribute.

Noting that many Americans have insufficient long-term savings isn’t an answer to this objection. In fact it’s an excellent reason to be especially wary of legally mandating such a form of compensation.

Re equity markets: first, companies do utilize the equity markets in dealing for new capital; Bank of America’s recent 5b injection is simply one example. Second, a secondary market is important to the existence of the primary market. The liquidity of a security is an important consideration in its valuation.

cian @321: Well what information is there in the stock market that you can’t get from company reports (and if anything, the cult of shareholder value has probably made the accuracy of those far lower than it otherwise would be)?

Among many other things, information about how the market views those reports. Is the market always “right”? Of course not. Does the market provide important signals against which any fundamental analysis should be checked? Absolutely.

John: to be honest I have no real idea what you’re getting at this point, and if it requires four very long and dense paragraphs to make it, I’m probably not going to.

From what I could understand, you’ve read stuff that wasn’t there (or intended, or something), responded to an argument that I don’t recognise.

In short, I find it tedious to be accused of things I never said, to be lectured about things I obviously already know or to have apodictic proofs demanded for basic points of understanding that the demanders haven’t themselves grasped. (The idea of axiomatic proof is an unfortunate reflex of neo-classical economics, since the terms of such “proofs” omit or stylize away not just evident realities, but some of the most basic conceptual underpinnings of classical economic thinking).

You made a bunch of statements, then supplied for a couple (but not all – one was basically a tautology) of arguments that were taken from economic proofs that omit and stylize away evident realities. And while I’ve read Marx, I don’t have a lot of patience for the Saint Marx said x on page 345 style of argument. Marx was right about some things, wrong about others and the world has changed in other areas. Financial markets in particular have changed out of all recognition since Marx’s day. At the very least you have to show why what he said is still relevant. Or possibly I’ve misunderstood you – that was not the easiest of paragraphs to follow.

Ah, those rigorous regulators of financial services companies, watched like hawks by the Financial Press. Which is why OTS pulled out the stops and prevented AIG from making a mess of all financial markets in the summer of 2006… Er, or didn’t. In fact, they had one man on the case, and the Office of Thrift Supervision was actually picked by AIG to supervise them.

It seems that Wall Street and its supporters want to bury recent history very fast. And they have help: as we know now, up until this summer, the SEC ordered the papers that are collected in investigations that don’t come to term to be destroyed. From Taibbi’s story: https://crookedtimber.org/2011/10/02/occupy-crooked-timber/comment-page-7/#comment-381199

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.”

Those muckrackers! Taibbi’s not in the respectable business press, which would surely understand why you can’t have a regulatory agency just keep ominous papers around. Funny, though, police departments act completely differently. But police departments are about arresting losers. And the SEC is about ‘helping’ this major economic sector. Which is why so many SEC personnel drift on to the companies that they were supposedly regulating, and why revolving doors have not been touched by any law or regulation that I know of – hell, software companies put more restrictions on the work of their ex employees than the government does on theirs.

So, I suppose another Occupy Wall Street demand could be: smash the revolving door.

Henri Vieuxtemps 10.10.11 at 6:35 am

” Employee ownership is more risky/dangerous than wage employment in the same sense as wage labor is more risky/dangerous than slave labor. After all, the slave, being a property, is likely to be taken care of, while the free laborer is merely rented, and, as they say, no one has ever washed a rented car…”

Please go to Ta-Nesi Coate’s blog on ‘The Atlantic Monthly’ and say that.

I’m flabbergasted by the number of people who don’t seem to understand the first thing about slavery.

Well, when you’re a slave you, at least, don’t risk losing your job. Badda-boom!

What’s the matter, is the subject sacrosanct? Sorry, but I’m not talking about The Slavery, just slavery.

#332:

“Financial markets in particular have changed out of all recognition since Marx’s day.”

D’oh! But Marx did offer a very prescient sketch of a core issue, which was a key part of his family of crisis theories: productive vs. fictitious capital. The point is that you’re making rather ad hoc, anecdotal complaints about the symptoms of financial dysfunctions without getting to any diagnosis of the disease, the financialization of the production system itself, (on a truly globalized scale), which, as Henri V. hinted above, has “deeper” and longer running sources than just financial chicanery, in the diminishing of profits-of-production and the spilling-over of excess capital accumulation into financial speculation. And it’s worth paying closer attention to what Bruce Wilder has been saying: it’s a matter of financing and regulating large-scale, capital intensive production systems, with the rents or quasi-rents accruing to them, which are partly, ambivalently, “justified”, both by their high level of technical efficiency, (far exceeding the supposed competitive efficiencies wrung out by markets), and by the need to manage such high levels of long-run investment under endemic uncertainty. But when the operations of such production systems become highly financialized, motivated by various short-run arbitrage games, the economy as a whole becomes riddled with basically unproductive financial rent-extractions.

@336:

Henri V. was being sardonic or sarcastic.

Here’s a really good take-down of the right-wing economic arguments being bandied about as if recent history was ignorable (actually, as if the past two centuries was ignorable):

http://www.ginandtacos.com/2011/10/10/crying-poor/

jch @ 340

And it’s worth paying closer attention to what Bruce Wilder has been saying: it’s a matter of financing and regulating large-scale, capital intensive production systems, with the rents or quasi-rents accruing to them, which are partly, ambivalently, “justified”, both by their high level of technical efficiency, (far exceeding the supposed competitive efficiencies wrung out by markets), and by the need to manage such high levels of long-run investment under endemic uncertainty.

For someone standing idle with a wrench in his hand, or a laptop under his arm, and no way to make a decent living with either one, this is a pernicious logic indeed. Translated into ordinary language, this is what it sounds like, at least to me: We don’t need you to make things, but at the moment, we DO still need you to buy them. Even when we outsource the making part, as long as our outsourcing partners need to restrict wages, and therefore domestic consumption, we can’t outsource the buying part. A paradox. Also a nuisance. Maybe we can make more money by gambling in a game rigged so that we have all the advantages, and cut you out of the process altogether.

What amazes me is that so many people thought that this game could go on forever, or if it couldn’t, that they’d get to run away with the loot to some Arcadia where the consequences couldn’t find them. So many smart people, such a large accumulation of stupidity. Why do I have the feeling that I waited far too long to try to find out what economics was all about, and now that I’m finally making the attempt, it may already be too late to matter?

BTW, I’ve washed a rental car. Because I wanted it to look nice.

D’oh! But Marx did offer a very prescient sketch of a core issue, which was a key part of his family of crisis theories: productive vs. fictitious capital.

Yeah I’ve read him. I’ve also read several of the people who’ve attempted to apply his theories to the modern era, ranging from Brenner, Harvey, the Monthly Review guys and the latest tome on neoliberalism from Dumenil and Levy (very good, as it happens). I find it useful up to a point, but I do get irritated with the way Marxists tend towards abstraction, though I guess that’s far better than neoclassicists.

However, I’m also aware of how wall street works in the USA (for which Doug Henwood’s book is oddly still the best primer), and how its changed since the Golden age when Galbraith wrote about it. And like I said, I really think we’re talking at cross purposes.

There’s two takes on stock markets. First of all there is their usefulness as a way of raising capital. They certainly can serve this purpose (the railways, East India Company, 20s, the dot-com bubble – though in the latter I’d be interested to see how much actually went into productive capital rather than the financial sector), and at various points this has been quite an important source of capital. However today companyies mostly don’t use them for that purpose. Indeed, there has been a trend in the other direction, with companies both using profits and issuing bonds to fund buybacks. Generally, a large company goes to the market to raise funds because it is in trouble, and this is generally how its interpreted. There are exceptions to this, if a company is engaging in exceptional investments, such as a mining company exploiting a particularly large and hard to develop opportunity. But its a tiny part of the overall productive investment picture. And even less so outside the USA/UK in countries where markets are less important (yes they have them, but they’re far less powerful and play a smaller part in the overall economy).

What the stock market is important for in capitalist terms is ownership. It allows speculators to buy and sell control and rights to future profit streams. But that doesn’t make the necessary for a functioning economy, it makes them necessary for a capitalist one. Stock markets played a crucial part in the past 30 years in increasing the returns to the capitalist class at the expense of workers. I agree with the class analysis of Dumenil and Levy, that the rentier/capitalist class (not really happy with either name) pulled the managerial class from a partnership with labour during the golden age, towards one with capitalists. One of the ways they did this was through the cult of shareholder value, by closely aligning managerial salaries with stock performance. I also agree with their (very empirical incidentally) analysis, that this explains the greatly reduce rate of investment as more money was given to shareholders instead.

So, yeah, markets important to capitalism, as they provide control and access to profits. I don’t see them as essential to the running of a healthy economy, unless one thinks that capitalism is the only way to run an economy.

the financialization of the production system itself

Yeah I’m not quite sure what he meant by this. I’ve seen several people made this argument, but they’re all kind of vague on what this actually means in practice, unless it means simply the outsourcing of production globally.

diminishing of profits-of-production

Perhaps, but given it was accompanied by a period of greater inequality, an accompanying reduction in investment by both private and public sectors, and increasing amounts of hot money seeking higher and higher returns, there could be other reasons for this.

spilling-over of excess capital accumulation into financial speculation.

Well yeah, but this is what you’d expect in a period of the wealth all going to the top. Then as Minsky observed, at some point people start to default and the whole edifice comes tumbling down. Which seems to be the period we’re in right now.

But when the operations of such production systems become highly financialized, motivated by various short-run arbitrage games, the economy as a whole becomes riddled with basically unproductive financial rent-extractions.

I don’t actually understand what it means to say a production system is highly financialised. If I did its possible I’d agree with the point. Certainly I’d agree that the US system has become riddled with unproductive financial rent-extraction, and one of the problems (for the economy) with the current preeminance of Wall Street is that it prevents companies from doing what they’re best at, which is long term planning insulated from the vagueries of the market. But its possible I’ve completely misunderstood you.

the latest tome on neoliberalism from Dumenil and Levy (very good, as it happens).

Now this is what we should be talking about.

I appreciate the time you’ve taken to expand on your argument, and I certainly didn’t mean to be patronizing and apologize for anything I said that was.

Fair enough, I’m guilty of it too.

I’m not going to disagree about the fact of mergers failing, but that seems to be easily explainable as management self-dealing. An argument that this is because the stock owners are systemically stupid seems to be fairly weak: this would imply that people could capitalize on it.

It can be explained in all kinds of ways, the question is which is empirically the right explaination. Part of your problem is that you come up with theories that explain things to your satisfaction and never bother to check if they actually fit the facts.

The major reason that mergers fail (as anyone who has ever been in one can tell you) is that they are sodding hard. Companies have different cultures (culture – there’s a word that economists don’t seem to be aware of), there are going to be internal power struggles, IT systems don’t connect properly (really expensive to make it work), the wrong people leave (if your job seems uncertain and you can get a job elsewhere – you leave. The people who can leave are usually those the company can least afford to lose). Customers get pissed off by the chaos and go elsewhere. And so on, and so on. Some companies make them work.

As for why the stock owners back them. Dunno, haven’t given the matter sufficient thought. And actually it is quite hard to capitalise on mergers being relatively unsuccessful. Long term shorts are kind of tricky and expensive – and there’s not really a way to capitalise on a company simply underperforming its sector over a long period of time.

Secondly funds that perform opposite the market are under CAPM theory highly valued for their correlation properties. So both weak EMH and CAPM need to go under the bus for your assertions to hold. I’m more confident in CAPM and EMH then I am in a theory of systemically stupid investors.

They don’t perform opposite the market because they’re counter-cylical, they underperform just because they’re unfashionable.

Incidentally CAPM theory was used to demonstrate that the CDOs were safe AAA investments, so arguably its already been under the bus. Of course given that the theory assumes erroneously that asset returns in the stock market are normally distributed, and independent random variables, it should never have got off the ground in the first place. But I digress.

John c. is making a very good bunch of points that I agree with: capital markets have particular functions in capitalism that are part of coordinating long-range production.

But how do they do this. You both keep stating this as if its proven, in which case there should be concrete examples that you can point to. Or even a description of how this works.

barry @335: Was there skepticism in the business press that financial firms were not being monitored closely enough before 2007-08?

Certainly not enough, but quite a bit has changed since 2008. Regulators at this point, in the US certainly, are very, very intimately acquainted with the balance sheets and operations of the most crucial financial companies.

As to the discussion of the stock market generally. It’s not going anywhere. Attempts to eliminate it would result in a more massive destruction of wealth and GDP than anything we’ve seen in the US before. Contrary to Cian’s assertions an enormous amount of retirement savings of middle class and upper middle class earners are invested in the market in the form of pension funds, mutual funds, and other vehicles. And unless you have well over 100k to invest, there is no way for a person to diversify other than by utilizing the stock market.

So, flights of economic fancy/hey-what-if-we-could-start-from-year-zero-fantasies aside, the suggestions above are not remotely realistic.

And I think this brings us back to the question: what in the world do the people at these protests want (besides to voice a vague condemnation of “corporate greed” and “inequality”). I’d also be curious to know how exactly are they sustaining themselves if they’re sitting in the park 24/7.

They’ve been there for almost two weeks now. It’s nice that they’ve gotten together to express themselves, but without organization and specific demands it simply resembles a haphazard theme party that couldn’t find a suitable warehouse.

@348:

I don’t quite understand why you have such a problem with the “financialization” thesis, which is the source of many of the phenomena you’re apparently complaining about or criticizing. When firms cease to invest in real productive capital, either to expand current production or to innovate in processes and products, (which will, of course, devalue and drive out older capital stocks, which is another aspect of the dynamic), then they will increasingly turn toward extracting “value” from already extant assets, deploying their profit streams in speculative, financialized ways. This could be through stock option grants to C-level managers, which incentivize them to manipulate stock prices, on behalf of “insiders”, or equivalently, through stock buy-backs to boost capital gains, which amount to replacing equity with debt, or though PE LBOs, which amount mostly to tax arbitrage, asset-stripping, and implicit, if carefully legal, bankruptcy fraud, etc. But if profits do flow out of firms, then they will be taken up by the broader financial system and distributed elsewhere. I can think of no more perfect illustration of the notion of “fictitious capital” than the U.S. housing bubble, in which, not housing prices, let alone their “utilities” or construction or replacement costs, but their underlying implied land-rents were “capitialized” by the financial/credit system. (Have you read the 1993 Akerlof/Romer paper on corporate looting or bankruptcy for profit?)

But the sources of this tendency go back before the contemporary time-frame, to the “stagflation” of the 1970’s and the crisis in capitalist profits therein, (as “fixed income” assets yielded a net capital loss and the stock market entered into one of its recurrent ‘bear” phases), after the break-down of Bretton Woods. To which the rise of “neo-liberalism”, TINA, the corporate counter-offensive to the expectations of the 1960’s and the demanding expectations of labor and social minorities, allied with a social reactionary “base”, and the successive waves of of globalization, i.e. corporate and financial arbitrage of currencies, wages, taxes and regulations, presented a “solution”.

If you’ve read what you say, I don’t think any of this should be strange or incomprehensible to you, regardless of phaseology.
And my basic point was that these processes need to be comprehended, before they can be replaced, that some sort of functional equivalents must be devised to replace the defective operations of “financial/capital markets” to guide effective criticism, before they can be replaced.

I don’t quite understand why you have such a problem with the “financialization” thesis, which is the source of many of the phenomena you’re apparently complaining about or criticizing.

Because different people mean different things by the terms and some people often use those terms in place of actually thinking about the phenomenon in question. All I really wanted was a definition of terms, but the quick summary was useful as I now know exactly where you’re coming from. We don’t really disagree too much up until the final paragraph. I don’t share your analysis of what the existing stock markets do. I think they’re crucial to the capitalist classes and concepts of ownership, but I don’t think they’re of huge significance to the running of the economy.

Watson: There is one sentence I’m not clear what it means: “They don’t perform opposite the market because they’re counter-cylical, they underperform just because they’re unfashionable”.

Counter-cylical stocks are those which perform inversely to the performance of the economy, at least in theory. So if the economy goes up, they go down, and if the economy goes down, they go up. You need counter-cylicals of some kind for CAPM to work. In practice one of the practical problems with CAPM is that true counter-cyclicals are quite rare (the other problem being that working out the risk profile of a stock accurately is nigh on impossible).

However, a phenomenon with the stock market is that certain sectors become unfashionable for some reason. Sometimes they’re just less fashionable than other areas, because everybody’s excited by pharma, or software, or something. Sometimes they’re unfashionable because they went through a bad patch a while back, but they have since recovered. And sometimes the reasons are mysterious. So you’ll get certain sectors with low PEs, for no real obvious reason; other sectors with high PEs, again for no tangible reason save fashion.

A mutual fund has a value equal to the value of its holdings iirc. Furthermore the larger funds get the more trouble they have putting their money on the right investments.

Well mutual funds largely buy the same stocks, because portfolio managers mostly don’t want to underperform their sector, as that gets you fired. But you’re right, the larger a fund is, the harder it is for them to trade well. They tend to move the market, you’re going to have to buy

Which is why for most people the best thing to do is to buy trackers (which tend to perform slightly better, have a better tax profile and have very low fees). Of course if everyone bought trackers, the market would be a very strange place indeed.

So it should be that unpopular investment strategies tend to do better then expected.

Yeah, now you’re getting it. Markets in practice are filled with this kind of stuff, which is why I find the textbook stuff so silly and why if you talk to people who work in wall street they often have very different models of how things work.

If you want another one to consider. Imagine what would happen if social security funds were placed in the stock market. What would that do to share prices, what would it do to executive bonuses? Or conversely, imagine what happens if you have a population bulge, heavily invested in the market, and they retire. Now what happens to the market. People have a tendency to forget this stuff.

Andrew, you are right about one thing – this ain’t no desert island. “We” are mostly in crappy jobs, or unemployed, or looking at costs for education and medicine that we are certainly not able to afford. We have watched income growth go exclusively to the one percent, and we have watched the one percent get bailed out with a program of various loans that amounted to 16 trillion dollars, with various major banks borrowing billions every day in the 2009-2011 period at less than one percent, all to buy us a recovery/depression. And the financial sector is not even healthy, on anybody’s account.
We aren’t on a desert island. We have a government that we could use to create a banking modality, and one that could provide a much better alternative to our present neo-liberal model, which has failed and put a burden on the majority. On this island, in fact, the majority can rule – and it needs to know its power. OWS might be a crucial moment in the awakening of populism, which can reform the financial system in bold ways much like it was reformed in the 10s and in the 30s. The end result would, hopefully, be that the richest Americans lose much of their wealth and the median Americans gain it.
I myself don’t take your complaints seriously about the OCW, but the real question is whether, in reality, the Occupy Wall Street movement proves powerful enough that it doesn’t matter if you or your financial sector friends take it seriously or not. That is the point of the movement, and that is my hope. You are the enemy, obviously, and I rather like it that you think this is noise and not to be taken seriously. Although one of the reasons I don’t take your disclaimer seriously is that you woulnd’t even be in this discussion if you didn’t take OWS seriously. You’ve devoted quite a bit of time to something that you claim isn’t worth your time.
I figure that, at least provisionally, OWS is succeeding in making even the enemy, people like you, take it seriously. And that’s cool.

cian @359: Given that the bankers themselves don’t know the value of many of their assets, I find this extremely unlikely. Given that there is a shortage of regulators I find this very unlikely.

Hmmm… there are always difficulties in fair valuing certain assets where markets are thin – which is I assume what you’re alluding to – but that’s not really the problem here, though it was in the last crisis. The problems instead revolve around wholesale funding concerns, the extent to which real-estate loans intended to be held until maturity will actually perform under various scenarios, obviously GIIPS related issues, and certain other risks.

Given that you’ve shown no actual sign that you understand how banks, or markets, work – I find it unlikely you’d know one way or the other. Incidentally, by business press I meant the FT/WSJ, etc. Not USA today’s business page.

Hah! Yes I really must remember to start reading the FT and the WSJ someday.

I forget the exact figures, but it’s mostly money held by the upper 25%. The bottom 50% have very little in there. They’ll largely depend upon social security.

Of course, the top 50% includes everyone from teachers who have been working for a number of years, nurses, police, other government employees, and a great many others – in fact the median household income of older age groups tends to be above 60k. I’m not sure how any of this contradicts the claim that the market is pretty damn important to the retirement of a huge number of Americans.

Or conversely, imagine what happens if you have a population bulge, heavily invested in the market, and they retire. Now what happens to the market. People have a tendency to forget this stuff.

Eh, this (in the form of asking what happens as boomers begin to shift out of equities and retire) is something looked at by the GAO a number of years ago, and much more recently in a short article by two economists at the Federal Reserve Bank of San Francisco.

The latter concluded significant effect, and the former concluded very little effect. As I recall the GAO study had the better of it.

In any event, not a possibility that people aren’t paying attention to.

roger, the IRS is far more able then banking regulations to redistribute wealth.

cian, you seem to have thrown weak EMH under the bus in a big way. You’ve identified a strategy that you claim will outperform the market over long periods of time and told us all about it. Either bankers are less greedy then I thought, much stupider then I thought, or you are wrong. I think we can all agree the first isn’t an option.

Either bankers are less greedy then I thought, much stupider then I thought, or you are wrong.

If I make $200,000 negotiating trades that will enrich the bank I work for by ten times that, I make $200,000. If I make $200,000 negotiating trades that will end up compromising the financial integrity of the bank I work for nearly to the point of bankruptcy, I also make $200,000. If the latter is much easier and possibly more lucrative, and ‘everyone else’ is doing it… it’s important to distinguish rational actors rationally looting a firm for personal gain, from allegedly-rational firms maximizing their profit. The looting thing occurs often enough to practically be a default assumption when we discover a firm is in trouble…

cian @358:

My basic point was this: since real productive investment requires financing in advance, against future increases in productive surpluses, there needs to be a balance between equity and debt finance. A purely debt-based system of finance is dangerous, besides which credit will simply not be extended to new companies and new markets, (since pre-existing collateral is usually required). Requiring that all investment come from pre-existing savings would just crimp both investment and aggregate demand, since investments produce savings, not the other way around. And allowing investment returns to flow into equity markets provides a functional solution to that problem, up to some limit, though, as William Timberman remarked above, perhaps faux-naively, things have a tendency to turn into their opposites. Once that basic function is understood, by all means, criticize existing stock market functionings and practices and propose any restrictions, regulations or re-distributions of ownership you would like, so long as the preserve, enhance, or adequately replace that basic function. That’s the way to test proposals for basic change.

Germany and Japan have different, though still entirely capitalist political-economic structures than the U.S., both featuring cross-ownership and inter-locking directorships and alliances between between banks and industrial firms, with a larger role for government coordination. But aside from the fact that the capitalist system of finance nowadays is thoroughly globalized and highly inter-connected, I don’t think you can claim that they are vastly different and superior or more secure than the U.S. system. The fate of the Nikkei index is sufficient evidence for the point. (They are also both chronic CA surplus nations, which maintains their industrial base, but also renders them acutely vulnerable to global downturns). And your proposal for employee ownership, (which is a different issue from employees as stakeholders with a right to a say in management), suffers from the obvious flaw that others have pointed out: the lack of diversification of risks. (Besides which ESOPs already exist; they are often used as tax dodges). IIRC the Swedish social-democratic plan to gradually buy out the stock market never got implemented. I do agree with you, however on public pensions, since firms have looted and financial “professionals” have mismanaged private pension plans anyway. But it does entail a problem of demographic aging: i.e. countries with aged populations would likely have to partly depend on returns from investment abroad.

William Timberman @ 344:

My computer froze up while typing @356 and it took me half an hour just to cut-and-past the half-finished comment elsewhere, but when I rebooted my reply to you was gone. My reply was that that observation isn’t anything new, but constitutes one of the basic “contradictions”: labor as production cost vs. labor as prime source of consumption demand. But I think it’s not something that “pure” capitalism can sustainably resolve, and certainly not equitably, which is why “we” advocate public deficit spending and public investment and would hope to arrive someday at a significantly post-capitalist future.

roger @362: but the real question is whether, in reality, the Occupy Wall Street movement proves powerful enough that it doesn’t matter if you or your financial sector friends take it seriously or not. That is the point of the movement, and that is my hope. You are the enemy […]

Roger, I’m simply a guy that wants precious forces like popular movements and media attention to be focused on the right points. I’m a 99-percenter who is not willing to applaud a mere ability to camp out in the Financial District during an unusually warm autumn, or to take the subway to chant outside a rich guy’s home. At the moment, very few people are taking the OWS movement seriously because it has no organization and no direction. They’ve burned almost two weeks in aimless self-expression. The main beneficiaries are the media, who sell coverage of that aimless self-expression, though at this point I’d imagine the coverage will wane. And it sounds like the ones bearing the cost are the businesses around Zucotti Park and those donating food and other goods.

Walt @363: Roger said specifically that more derivatives should be traded on markets, and your counterargument is to link to that portion of the derivatives that are traded on markets?

No no, not a counter-argument at all. It’s a question about whether that is what he has in mind. I happen to agree that many derivatives should be traded on exchanges, and that disclosure in all cases (exchange traded and not) has to improve.

Cian @365: Which wasn’t actually my point.

Er, your point was that the market doesn’t pay attention to many things, and as an example you offered the possibility that a portion of the population previously very invested in equities would withdraw. My point is that this is a possibility not ignored at all. But now I feel somewhat bad for having interrupted your crabbiness. Please, continue.

Salient, I fully supported the teachers’ protests in Wisconsin, and was hopeful that it would spark a national conversation about broader issues. If the OWS movement were to discuss/request any number of things, I would support it. What annoys me a little, fairly or unfairly, is the complete loss of opportunity, energy, and time that this movement represents to me.

The enormously general nature of the topics to be discussed at the “General Assembly” is to me a symptom of the problem, not an indication of progress.

As to people taking OWS seriously, perceptions can vary. But in discussions I’ve seen, that hasn’t been the case.

Now, do I think there was/is potential to it? Absolutely. But they shouldn’t have been applauded for mere potential, and I’ve long since stopped considering sending them anything. Criticism from the left of their lack of organization and direction should have been pointed and constructive from the very beginning. Instead OWS received empty plaudits and celebrity appearances, both of which give the illusion that they’re doing something right.

99% of success in life may be in just showing up. Maybe that’s the 99% they’re representing. But the other 1% is pretty damn important.