"I would raise taxes. America is a very rich country." Laurie
"The robots owners and the ownership class in general could pay the bulk of the taxes." Laurie
Laurie's comments above from robots remind me of when Hiram's typical view, maybe it is a Liberal / Democratic Socialist view that America's wealth is the sum of the Public Net Worth and every citizen's Private Net Worth. And that all of it should easily accessible to fulfill the whims of society.
Here is a randomly selected piece on property rights.
Intro to Property Rights
From my more Conservative view the USA is a financially stable country that has many wealthy, capable, driven and smart citizens that work hard to keep it that way. I mean even our poor are middle class or rich on a global basis because of the welfare we distribute.
I will never understand why Laurie and folks like her think that people like Bill Gates owe society and her an even bigger cut of his wealth. Thoughts?
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77 comments:
I will never understand why John and folks like him think that people like Bill Gates deserve 50 billion dollars..
For a large part of the 20th century the top tax rate was 70% or above. Maybe with the way the economy is rigged to benefit the 1% it is time to raise tax rates again. When you were a kid didn't you ever change the rules of a game to make it more fair?
When I did some quick research into how rich Gates is I came across this:
"And although Gates has given an astounding $38 billion to his charitable foundation, thanks to Larson, he's getting richer faster than he can give his money away.
His $81.6 billion is nearly $6 billion more than it was as of March 2014, when he was worth $76 billion, we reported at the time. And $76 billion was $9 billion more than he was worth in March, 2013."
If you were creating a game / economic system is this how you would design it to work?
"change the rules of a game to make it more fair?"
I think the definition of "fair" is the problem here. Bill Gates and Microsoft literally changed our world. Some welfare Mom with 3 kids from 3 different Fathers just drains resources.
I am done with this topic as I am too disgusted by your contempt for the poor and worship of the uber rich. You have a very sick sense of what people are worth. Do you really believe one person deserve 400,000 times more income and 50,000,000,000 times more wealth than another?
Laurie,
I believe you are missing the point of my belief system.
I have no contempt for the poor, I simply believe that people shall reap what they sew. Whereas you apparently believe that every person standing on American soil is owed food, clothing, money, healthcare, housing, phones, etc no matter what choices they make or actions they take.
I am happy to help anyone who wants to improve and contribute, however taking more from those who learn, work, save, invest, etc to support those who choose not to is what I deem as unfair.
Let's follow your thoughts:
Contempt:
1. the feeling with which a person regards anything considered mean, vile, or worthless; disdain; scorn.
2. the state of being despised; dishonor; disgrace.
1. The feeling or attitude of regarding someone or something as inferior, base, or worthless; scorn.
2. The state of being despised or dishonored: was held in contempt by his former friends.
You believe that I hold poor people in contempt, which of course I disagree with.
In fact I believe that I respect these individuals more than you do. I truly believe in them and their capability to improve their circumstances if they choose.
Whereas the Liberals seem to believe that these folks are incapable and need to be cared for like animals in a petting zoo. That is what I deem to be true contempt.
I am still thinking on how to entice poor people to stop making poor decisions and start making wise decisions. And preferably encouraging the wealthy to give more to charities that are truly capable of helping the poor people to make better decisions.
Not our public schools that put the wants of Teachers before the needs of the poor kids.
Not our welfare system that believes handing out checks with no expectations for improvement is in somehow helping the people "escape poverty".
America's wealth is the sum of the Public Net Worth and every citizen's Private Net Worth.
What else could America's wealth consist of?
--Hiram
John, I think "entice" is the wrong word. Starvation is a powerful motivator. Do I need to quote Ben Franklin's compassion again?
I will never understand why liberals insist that Bill Gates, who earned every nickel by creating and producing products that millions of people willingly buy, is evil, while the federal government, who takes in that much EVERY WEEK from the unwilling, and produces essentially nothing, is seen as perfectly virtuous.
I think the USA produces and maintains something wonderful.
A secure country law controlled country with tons of freedoms.
The question is why does it cost so much and why do some citizens have to pay infinitely more than others to live here?
Sorry, but I think the USA is a wonderful place largely in SPITE of its government, not because of it. We got along pretty darn well before modern liberals decided that they could run our lives better than we could ourselves. I remain of the opinion that we would all be better off with government half the size in power and spending as we now have.
I am not sure about half, but I think we would better off spending about 20% less on government and the inefficiencies it creates.
Now to help people understand my "infinite" comment. The reality is that many citizens get more back from society than they contribute to society. I mean if a low income person in Minneapolis has 2 children in the Public Schools, receives a child tax credit, earned income tax credit, food stamps, etc they are definitely getting much more back than they are paying in. Thus their net contribution to our society is <$0.
Whereas Bill gates and other wealthy people do benefit from our country's stability, laws, etc just like the poor folk, however they will pay much more in than the government will pay them in credits, services, etc. Thus their net contribution to our society is much greater than $0.
Anything positive number (ie $1000) divided by $0 is infinitely more...
I don't want to quibble numbers, but if numbers lead us to truth, so be it. Defense spending is about 22% of the federal budget. About 4% goes to support Congress, the courts, the diplomatic corps, and other essential bureaucracies. We spend another 6% covering interest on the national debt (which should be greatly reduced). That leaves about 2/3 for various forms of wealth transfer payments, which IMHO should not exist at all. Government has no business taking from one person to give to another. That's not "equality under the law" under any circumstance.
Your argument, however, for a perfectly flat tax, based on the idea that we all have equal opportunity and equal protection under the law, I think is a bit unrealistic. I actually support progressive taxes, simply because poor folks need every penny they earn and Bill Gates doesn't. BUT, that doesn't mean the poor folks are entitled to GET anything from Bill Gates and other taxpayers, nor does it mean that Bill Gates should pay a disproportionate PERCENTAGE of his income in taxes as he does now. My idea of a progressive tax is one in which everyone pays the exact same percentage, minus an exemption for the "poverty level." That is what the FAIR tax does, by the way (except it is levied on consumption, which is even MORE fair than on income, and it DOES include a small "guaranteed income" for those below poverty level). Here's how it works: Everybody-- from Bill Gates on down-- gets the sales tax on poverty-level spending "prepaid" in a monthly check. Everybody pays the exact same percentage on things they buy. Therefore, those below the poverty line actually end up with more money, after taxes. Those just above poverty pay taxes on the last few dollars of spending but with the rest exempted, their average tax rate is tiny-- 1% or so. Somebody spending at twice the poverty level (middle class, say), pays an equivalent of 50% of the nominal rate, and people spending millions asymptotically approach the full rate. It's perfectly progressive even though everybody pays exactly the same percentage. I don't have a problem with that, I applaud it.
All wealth belongs to those who earned it and that includes the IRS classification of "unearned income." There's no such thing, unless you count all the forms of welfare that governments create to redistribute and DESTROY wealth. Any cash/goods people receive beyond the value of what they produce is, in fact, destruction of wealth.
"I am not sure about half, but I think we would better off spending about 20% less on government and the inefficiencies it creates."
Is this another picked out of the air number like your 33% of GDP number?
How, specifically, would you cut 20% in government spending?
These folks seem to have a PLAN. Thoughts?
Do you endorse these ideas?
I find it fascinating that you love to rip apart other people's ideas, but when asked for your ideas you link to something else without suggesting if you endorse it or not. What do YOU think?
It seems to me when you talk about cutting the federal budget, the first place to start is looking at what we spend money on, and how that money is spent. Here is a link to one explanation of the federal budget.
https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
Would a 20% cut be applied to the entire budget? Or to just discretionary spending?
--Hiram
It looks like I overstated the necessary cut.
To get to my 33% number we only need to keep "Total Government Spending" fixed for a few more years as the GDP grows. Unfortunately this means the politicians and bureaucrats will need to prioritize, shift money, cut someplaces, add someplaces, improve efficiencies, etc as some costs need to increase.
Isn't this what we hired them for?
Another way of looking at expense reductions is Pareto's law, which says that 80% of the spending occurs in 20% of the categories. That says we need to start with entitlement reform, rapidly approaching 50% of the budget. Privatizing Social Security (phased in over 30-40 years) and turning Medicare and Medicaid into premium support programs administered by the States, would be a good start.
Hiram, there isn't enough "discretionary spending," even including defense that I don't think ought to be called "discretionary," to get much beyond 20% of the budget. You have to trim entitlements and I think, rather than the "meat axe" approach called for in some of the Cato line items, it ought to be done through reform of those programs. Same or more benefits, substantially lower costs. What's not to like?
National Priorities Budget Basics
Sean,
I am sorry for not doing a better job of answering your questions right now. I have been working hard on my "Honey Do" list and have little time for reading/blogging.
there isn't enough "discretionary spending," even including defense that I don't think ought to be called "discretionary," to get much beyond 20% of the budget.
I think there is, it just isn't politically acceptable to make them all there.
You have to trim entitlements and I think,
That may be so, but we must keep in mind that people are entitled to that spending. People aren't entitled to discretionary spending.
--Hiram
I don't think it's the job of elected officials to prioritize stuff. It's our job to prioritize stuff and the way we do that is elect people who share and will implement our priorities.
--Hiram
One of the things I believe but not one else seems to is that the size of government should be considered terms of the dimensions of the government itself, not in terms of money that passe through it. If you look at discretionary spending, it's mostly wealth transfer, from one group of people to another. Take Social Security. Does government really get bigger when someone files an SS claim? Does the government get smaller when a Social Security recipient dies?
--Hiram
"That may be so, but we must keep in mind that people are entitled to that [entitlement] spending." -- Hiram
I'm sorry, but you are wrong. Courts have ruled that, for Social Security for example, you have ZERO "entitlement," even to the money supposedly in "your account." Congress can reduce or eliminate SS payments at any time, at will (but of course they won't). The only reason it is an "entitlement" is because that's what Congress likes to call things that run out of money on autopilot, so it's not their fault.
"Does government really get bigger when someone files an SS claim?"
Yes, it does. The reason is because the government CONTROLS your access to your money. That makes them "bigger" not in expenditures but in impact on your life. BOTH need to be curbed, and denying them the money, say by privatizing SS, accomplishes both simultaneously.
Looks like Jerry beat me to it...
"people are entitled to that spending"
Actually no. The court ruled long ago that payroll taxes are just a tax. A change in law today can alter the payments at any time. Just like a welfare or medicaid program can be changed. People may feel entitled to those benefits, however they are disbursed at the discretion of the current government. It would just be very unpopular to do so, thus no one takes action.
I agree with you but differently.
"because the government CONTROLS your access to your money"
It is actually during the collection that Government is increased. Your salary could be ~15.5% higher, however the government has decided that it knows better how to use your money. Thus it removes the burden of what to save, where to invest, what insurance to buy, etc.
In essence, personal freedom shrinks and government control increases.
That is why I keep arguing that the costs of these programs must be reduced by reforming the programs, rather than just cutting back. I believe it is possible to deliver the same benefits for some of these programs, at far less cost. In many cases this would be by removing them (at least partly) from federal government control.
I have to ask, if we are entitled to entitlement spending, why do we call it that? If entitlement spending is the same as discretionary spending, how can they be different? As far as what courts have ruled, currently we have a very activist set of courts, and I, quite frankly, have no idea what they will rule in the future. Meanwhile, I am looking forward to politicians explaining to me how the things they always told me I was entitled to in the past somehow are not.
"It is actually during the collection that Government is increased."
So when the government relinquishes that control, it gets smaller? Just a moment ago, I saw an argument that that we are not entitled to the money politicians say we are entitled to. Doesn't that argument make the government bigger? If we passed a law saying we are entitled to the money politicians love to say we are entitled to, wouldn't that make the government smaller?
--Hiram
I won't believe that Republicans truly believe this is a crisis until they are willing to whack the benefits of current retirees. Because that -- if you really believe this is a problem that puts the future of our nation in doubt -- is what you would do. You wouldn't force our children and grandchildren to pay a bill run up by the current generations if you were truly serious about doing the right thing.
We mostly hear about the deficit from Republicans when Democrats are in the White House. We didn't hear about it so much when George Bush wanted to go to war with Iraq when the country was in recession, and should a Republican be elected president next year, I don't think we will hear much about the deficit as they ramp up the war with Iran.
--Hiram
Politifact - No Right to Social Security
What we will get back is all in the hands of our current and future politicians... (ie government) We have no direct control over the money we have paid in for decades. The government will decide where it will be invested, when we will get it back, how much we will get back, who will get it, etc.
That is why I do not put it into my retirement planning... It will be a nice benefit if I get any of the hundreds of thousands of dollars back that I have paid in over the decades.
Really, the question is whether Social Security should be and should be treated as, an entitlement. Something the government owes us, or more precisely we owe each other. After all, the ancient case law could changed with a simple law.
The political question remains the same. Should entitlements, and by that's Medicare and Social Security, which are what Republicans call wealth re distributions and transfers, be included as government spending subject to the 20% cuts. As the charts show, if they are not, but if we consider these wealth transfers as part of government, then it's pretty much the case that we have to slash pretty much everything else government does.
--Hiram
That is why it is important that we hold politicians of both parties accountable to solve this impending train wreck sooner than later.
By the way, social security and medicare as they were, were not wealth redistribution devices. At least not too bad. People paid in premiums and got insurance and income, somewhat relative to what they contributed.
It was when they started to limit the benefits that could be received by higher income folks, and/or taxing those benefits that the program went astray. And now Liberals want to fix the funding issue by removing the contribution cap without providing more benefits.
If that happens, I think we should just scrap Social Security and Medicare and consolidate them into Welfare and Medicaid... At least we would be calling them what they had become. And then the benefits would all be means tested to ensure the people with money were not benefitting from the program.
There seems to be this idea that reforming Social Security requires cutting benefits to current retirees. It is the big, fat lie that Democrats tell to scare senior voters about Republicans. It's a wicked lie because, without reforming the program, benefits WILL have to be cut sooner or later, even WITH the fiction of the SS Trust Fund in play.
Meanwhile, years ago in fact, bills were introduced to "phase out" Social Security in such a way that current and near retirees received full benefits (without breaking the bank), and younger workers had time to build MORE wealth in private accounts to which they were entitled. It took us 40 years for SS to get into this pickle; we can get out in another 40. Or we can have a bigger problem, if all we allow our politicians to do is promise to "protect Social Security."
"...but if we consider these wealth transfers as part of government, then it's pretty much the case that we have to slash pretty much everything else government does."
Hiram has it right. SS and Medicare, without reform, are on track to consume ALL federal revenues in the not-so-distant future. The solution is to not consider these wealth transfers the proper role of government. Simple, eh?
Any Social Security "reform" plan that involves a transition to "private accounts" is going to have hundreds of billions or even trillions of dollars in transition costs. They also fundamentally undermine the purpose of the program in the first place, which was to be a social insurance program.
Any such "reform" is inevitably going to be bead for future generations, because they are going to pay the transition costs for the bills run up by the current and previous generations and take on the market risk involved with turning SS into an investment program instead of an insurance program.
But it's perfectly in line with current GOP dogma which protects today's wealthy at the expense of future generations.
Sean, you are making your prediction from a liberal point of view, while I am making mine from knowledge of the actual mathematics of such proposals and the experience of other countries that have made the transition.
Yes, the "transition costs" are large, but they are much larger if you want to keep the program as it is. Also, those costs would have been considerably smaller if they had been made when this was first proposed almost 20 years ago. Continued Democrat opposition has prevented it.
By the way, social security and medicare as they were, were not wealth redistribution devices. At least not too bad. People paid in premiums and got insurance and income, somewhat relative to what they contributed.
Insurance is a wealth redistribution scheme too. SS is and always has been a program that shifts wealth from one group to another, active workers to retirees. Whether or not that's good policy is certainly a disputable issue, but that's what the policy is.
--Hiram
"Sean, you are making your prediction from a liberal point of view, while I am making mine from knowledge of the actual mathematics of such proposals and the experience of other countries that have made the transition."
How about a link to back that up?
"Continued Democrat opposition has prevented it."
Republicans didn't have the votes for it, either. The GOP controlled Congress when Bush proposed his plan and never brought anything to the floor for a vote.
The solutions are very simple...
The desired benefit costs have increased faster than inflation/wages, so if we want to maintain these, the ~15% payroll tax should be increased. (ie ~18% or maybe 20%?)
Or if we want to keep paying the ~15% premium, then we need to reduce the benefit spend. (ie later retirement, less dollars, etc)
Not sure why folks resist these changes? The longer we wait the worse it gets.
Folks resist these changes because we have demagogues who insist, like they insist about the public schools, that these government programs are the best solution and that any "reform" suggested is because "evil people" want to "destroy" these "wonderful" programs.
It's not true, of course. We now have people, Dems and Repubs alike, who think we should just raise the retirement age ("modestly") as a solution. My question is, why do we have a mandatory retirement age at all? With private accounts, you could have full control of your retirement account and, by contributing more than the minimum, you could set yourself up to retire early. If you enjoyed your job you could keep working and paying in only the minimum, knowing that, unlike SS, any excess would pass to your heirs.
Hiram is right-- SS and Medicare were supposed to be supported by taxes and "premiums," respectively. Now they are wealth distribution (and destruction) schemes.
Jerry,
Unfortunately I agree with the Liberals that there are too many US citizens that we can not trust to save adequately or buy long term care insurance. We need this or a varied forced savings /insurance system in place. When those irresponsible people get too old to work, no one is going to put them on the street.
We just need to adjust either the benefits or the premiums ASAP.
By the way, we are waiting for a link to a site that describes your ideal new system.
I wouldn't have thought a link was necessary-- it's a pretty straightforward proposal.
Here's one from the Cato Institute along those same lines, with a lot of history and supporting evidence:
http://www.downsizinggovernment.org/ssa/social-security-retirement
Rod Grams' proposal is similar but with one great exception, and that is that the amount of your SS taxes you can "divert" to your private account increases as you talk about younger workers. For example, 55 and up continue to pay 100% and draw full SS benefits. 45-55 pay 75% and get 75% of benefits, 35-45 pay 50% and get 50%, under 35 are in the private system. ALL have the option of regular SS if they want it, though why you would I don't know. Also, two nice features of the Chilean system is the distribution of the existing trust funds into the private accounts based on "your share," and a government "top off" of your retirement account if you failed to save enough. The beauty of this phase out is that the people drawing the higher benefits die off as those who paid for and expect lower benefits enter retirement. The "transition costs"-- people still drawing high benefits while others pay in less-- is minimized. Also, in the Grams plan, Employers would continue to pay the 8% until the system fully transitioned, also covering the transition cost.
Down Sizing SS Retirement
To keep it simple, the main difference is there is a real trust fund. And the participant can determine where some portion of the money is invested?
People would still be forced to put 15% into the program?
SSA Chile Retirement Program Explained
"Folks resist these changes because we have demagogues who insist, like they insist about the public schools, that these government programs are the best solution and that any "reform" suggested is because "evil people" want to "destroy" these "wonderful" programs."
It's very important to understand that no government program is the "best solution". Quite honestly, the most common form of demagoguery I see is this idea that we should reject policies which are possible, feasible and beneficial, simply because they aren't the "best" or someone's notion of the "best". Almost invariably, these are attempts to prevent anything done at all, in ways to avoid the consequences that follow from doing nothing.
More specifically, there is nothing perfect about Social Security. It was designed to meed a specific historical situation of a kind that hasn't always been present since it was enacted, namely the depression. But I do note that after the great recession, and the subsequent discrediting of Wall Street and the investment community, we have a better understanding of the reasoning behind Social Security than we did in 2004, when many of those Wall Street bankers, asked the politicians who were in their pay, to entrust America's financial future to them. We can thank our lucky stars, and believe me it was a matter of luck, that that didn't happen.
"the subsequent discrediting of Wall Street and the investment community"
I agree that they do have their faults, however please remember that if one did not sell their equities or home during the chaos which was created due to choices and actions taken by many groups of people. (ie Wall St, Mortgage companies, Mortgagees and government), they are likely much wealthier than they were in 2007.
I am much happier having some risk and more earnings... Than about cost of living earnings (ie no earnings) and very low risk.
That is why it would be good if people could choose a diverse portfolio for the money they put into SS. Or if there was an actual managed diversified portfolio, not just government bonds. I assume pensions carry more than just government bonds within their asset base.
Of course, how could the politicians have borrowed / spent those SS Trust Fund assets if the were invested elsewhere?
Just curious... Do you look to invest your money in Mutual Funds, CDs, Bonds, Stocks, etc that underperform compared to other similar investment instruments?
Or do you work to put your money where it will earn the highest rate of return?
Or do you only buy government bonds?
If people had invested their SS taxes in government bonds ONLY, they would likely be far ahead of the SS benefits they will receive. Especially if they die before or early in retirement. It's not a very good investment, and it's a worse insurance program.
"I agree that they do have their faults, however please remember that if one did not sell their equities or home during the chaos which was created due to choices and actions taken by many groups of people. (ie Wall St, Mortgage companies, Mortgagees and government), they are likely much wealthier than they were in 2007."
What I choose to remind myself is that if a lot of these people weren't holding the financial system hostage, they would be serving jail sentences right now. These folks came pretty close to wrecking the economy during the Bush years, and if really the American economy proved just a bit stronger and a bit luckier than the people whose actions were so destructive, well that's not something they should be given credit for.
You know we talk a lot about foreclosures. We don't talk so much about the millions of Americans who faced with hard times through no fault of their own worked and strived to meet their obligations and keep their homes. Why don't they get a little credit?
--Hiram
"Do you look to invest your money in Mutual Funds, CDs, Bonds, Stocks, etc that underperform compared to other similar investment instruments?"
I like stock index funds. Really, in terms of financial investments it doesn't really make sense to invest in anything else.
--Hiram
If people had invested their SS taxes in government bonds ONLY, they would likely be far ahead of the SS benefits they will receive.
I don't go to the track often, but when I do, sometimes I like to go up to the teller and ask if I can bet on a race after it's completed. So far, the answer has always been no, but I will let you know if the answer ever changes. Meanwhile here is a sure fire stock tip: Buy Microsoft in the year 1986.
--Hiram
Jerry,
SS is more like long term care insurance or a pension... If you live a long time it is an excellent program...
So don't die early.
Hiram,
So you support buying stock index funds because they make you a better return than other options.
Yet you rail against companies and bankers who work hard to earn you those returns. Most of their compensation plans are set to drive them to increase the stock price for your benefit. As an investor your choices motivate those managers to make the choices they make.
"worked and strived to meet their obligations and keep their homes. Why don't they get a little credit?"
I am very happy that they did the responsible thing. However should we be praised for being responsible and paying the debt that we accepted of our own free will?
Or is this just what a good citizen does?
"Most of their compensation plans are set to drive them to increase the stock price for your benefit. "
Yes, clearly history has shown that no one looks out for the average citizen quite like Wall Street does. we should thank them for their benevolent (and ever-increasing) control over our society.
Yet you rail against companies and bankers who work hard to earn you those returns
Those folks aren't Wall Street. Buying index funds is in fact, a way around Wall Street. The companies whose stocks comprise index funds were victimized by Wall Street's machinations, sometimes directly, sometimes indirectly, just like everyone else. I have talked to Wells Fargo bankers, to cite just one example, who explained to me how his bank was under a great deal of pressure to sell the toxic waste Wall Street was selling. They resisted the pressure, moetly, but others weren't so resistant or weren't so lucky.
--Hiram
Gentlemen,
Please explain who you think "Wall Street" is.
Remembering that most of the companies in America are publically held by private citizens.
Just look at TIAA-CREF as an example. Or my favorite Vanguard.
"Remembering that most of the companies in America are publically held by private citizens."
Sure, bust the vast majority -- 80% to 90% -- depending on which source or methodology you use are publically held by the top 10% of income earners. Those are the folks the large financial corporations are looking out for.
Here is an interesting poll. Apparently half of Americans are scared to invest that way.
That means more people need to get educated.
Then they can take better advantage of what companies work towards to help those us who invest.
Wall Street is a place where financial products are created, bought and sold.
--Hiram
Remembering that most of the companies in America are publically held by private citizens.
Just a quick glance at google tell me that there are about 19000 companies in America that are publicly held. Another quick look at google tells me that there are 18 million businesses in America. I don't vouch for the exactness of either figure, but it's my guess that the vast majority of businesses in America and in the world for that matter are privately held.
--Hiram
I assume you are correct based on quantity, but based on total market cap I think the ratio is significantly different. Especially when it comes to the BIG banks...
I am a very happy part owner in Bank of America. Thanks to a hint from my Dad, I bought in after the implosion. At the same time I bought VFH
I am not sure what the relevance of the public holding of companies is. The fact is, we often talk about the importance of s amall business to the economy. Many, many of those companies are privately held. Many very large companies are privately held. The vast majority of them aren't "Wall Street". Wall Street is just where there stock is bought and sold, assuming that it is. Assuming their stock is publicly traded.
--Hiram
"These folks came pretty close to wrecking the economy"
The relevance to me is that for some reason Liberal citizens continue to blame some nameless boogeyman group for doing what we the stockholders and consumers want them to do.
Americans want the highest returns on their investments, and they want to buy the best quality, best performing, most reliable products / services at the lowest prices. And we have no qualms about changing our investment holdings, stores, services providers or product brand to attain these goals.
The then Liberal folks complain that Walmart does not pay well enough or that looking at in hindsight the mortgage companies/ banks accepted too much risk.
Just like the silly minimum wage argument... "Those American businesses should pay more and keep the jobs here in the USA, yet we the consumers will continue to buy from the best lowest cost global provider." How much of a hypocrite can the "Liberal Minimum Wage Union Environmental supporter" Foreign buying consumer be?
I'm going to try to explain why the crash of '08 happened in a way that does NOT blame the big banks or "wall street" or "greedy capitalists"-- favorite boogeymen of the left. First, we had all of those subprime mortgage loans given to people with poor credit but favored by leftist government policy in the name of "equality" or somesuch. These loans got "guaranteed" (i.e. bought up) by the /government/, who then turned around and "commoditized" packages of these loans and sold them as "mortgage backed securities." All very good so long as housing prices continued to rise and people paid their mortgages, but that was not going to happen. We had a "bubble" in home prices (caused by all these new loans) that would burst when those loans adjusted and people couldn't make their payments. So, bankers did what government told them to do (make the loans & sell them to Fannie/Freddie), Wall Street brokers did what the government encouraged them to do (sell MBSs), and average investors toppled over. No guarantee the free market would have done better, but it seems more likely.
The problem wasn't risky loans. The problem was that Wall Street created financial instruments that made the risks impossible to evaluate. These instruments were then sold to unsophisticated investors, often with assurances from Wall Street that they were safe, assurances that Wall Street knew were false. When, as inevitably happens, some loans were defaulted upon, the purchasers of these instruments, who suddenly realized they didn't know what these instruments were worth, panicked which rendered banks and other financial institutions insolvent.
There are deeper problems here, problems for which both parties bear some responsibility. In our urge to deregulate, we allowed banks to combine their evaluation and sales functions, creating an unsustainable conflict of interest. We allowed the creation of these exotic instruments which were too complicated to understand. We allowed banks to distance themselves from the quality of the loans they originated, creating a moral hazard, which many of them couldn't or were unable to resist. One thing to note is that all these problems are inherent in capitalism which throughout history has been vulnerable to the boom and bust cycle we have seen in recent decades. The reason they have returned is that our current batch of politicians were born since the depression and have forgotten or never learned the issues the depression taught us.
--Hiram
The problem with that theory is that Fannie and Freddie were small players in both the subprime and MBS markets. In 2006, Fannie/Freddie issued just 14% of subprime loans and only insured 24%, while their share of MBS had dipped to under 30%. And, as it turns out, loans originated by private companies defaulted at a rate 6x higher than those originated by Fannie/Freddie. (And, by the way, no one has yet been able to point me to an instance where a bank was forced by government regulators to issue a risky loan. They did so of their own accord, and many banks stayed out of the subprime market.)
We also need to remember that it wasn't just the bubble in residential housing that burst -- it also simultaneously happened in commercial real estate, student loans, and car loans, too. And there's not a Fannie or Freddie to be found there. Which speaks to the fact that the loose credit policies of the big banks played a primary factor in the crash.
Not sure how anyone can read this and walk away without a feeling that these folks weren't knowingly doing wrong.
The article reminds me of the Planned Parent videos. Someone taking snippets from years of history, and then assembling them to match their view of reality. Definitely worth considering, however it is unlikely the whole truth.
I have no doubt that that some brokers, mortgage houses, banks and investors did questionable things. The question is if they were illegal? And apparently Holder and Obama thought that they were not. At least not in the "send people to jail" way. Good thing the Democrats were in charge, or the Liberals would say the GOP was protecting the "criminals".
Related info:
Newsweek Fines
Forbes Fines
Forbes Morgan Stanley
Wall Street has purchased its protection from prosecution through generous campaign contributions.
I would like to say I learned what I know about taxes and economics from some high falutin' text, Samuelson on Economics maybe. But the fact is, most of what I know or at least visualize I got from a movie called "The Wheeler Dealers" starring James Garner, based on a book by a guy who later became "Adam Smith" a well known commentator on market issues. In the movie, the Garner character explains the essence of capitalism which among other things, making sure than when a deal goes bad the government absorbs three quarters of the loss.
--Hiram
"Not sure how anyone can read this and walk away without a feeling that these folks weren't knowingly doing wrong."
Well, sure, when you say it like /THAT/. But if there were real wrong-doing there would be indictments, yes?
"Wall Street has purchased its protection from prosecution through generous campaign contributions."
And by making one of the principals into the Treasury Secretary under Obama. The next obvious question is: Are all politicans corrupt at the outset, do they become corrrupt over time, or is there such a thing as an honest man? Be careful, the libertarians believe the first one.
Well, sure, when you say it like /THAT/. But if there were real wrong-doing there would be indictments, yes?
Just because something is wrong doesn't mean it's a crime. It doesn't even mean that there is civil liability. This is may be one of the areas where the scandal isn't that a crime has been committed, but that what has been committed isn't a crime.
"Are all politicans corrupt at the outset, do they become corrrupt over time, or is there such a thing as an honest man?"
Well, the assumed premise that all politicians are corrupt is certainly untrue, and that makes the question unanswerable as stated. The odd Virginia who is selling his office for a daughter's wedding or a Rolex is much more the exception than the rule. As it happens, I know a lot of politicians from both parties, and my experience is that they are hard working people performing a necessary but rarely thanked task. But they also work an environment which has certain rules and forces which they had little role in creating but which affects what they do. This is the case to some degree in just about any job or profession.
"And by making one of the principals into the Treasury Secretary under Obama."
Let's not let the Democrats off too lightly. The problem goes much deeper than a cabinet appointment. If I didn't hear any Republicans campaigning for tighter money back in 2004, I didn't hear any Democrats campaigning for it either. It was Bill Clinton who played a major role in the deregulation of the banks which proved so economically disastrous for us all. Mistakes were made, and the leaders of my party had a role in making them to say the least. But people are always in the process of making mistakes. Going forward, we need to ask, "Who learned from the mistakes we made?"
--Hiram
Before we can set blame we have to ask what actually caused the problem, and needless to say that devolves into a partisan debate. I don't blame "deregulation" as much as I blame Fannie and Freddie for CREATING the investment vehicles that went kaput. And I'm going to blame the NEXT problem on the Fed's monetizing of that outrageous Obama debt. Hard to blame the banks or bankers for doing what government actively encourages them to do.
I don't blame "deregulation" as much as I blame Fannie and Freddie for CREATING the investment vehicles that went kaput.
That's a somewhat unusual charge. I don't recall Fannie and Freddie being blamed for creating the investment vehicles that went kaput, or at least kaput in the ways that were so damaging. The exotic instruments were created mostly by banks and investment firms.
Conservatives find it much easier than the rest of us who live in the real world to separate money and what it pays for. The debt level is increasing because we are getting older and the costs of aging must be paid for. The way, in theory at least, to stop those costs from increasing is slow the pace at which we get older. But conservatives aren't willing to do that.
" Hard to blame the banks or bankers for doing what government actively encourages them to do."
Actually, I find that to be something remarkably easy to do. Banks owe a fiduciary duty to their shareholders, not to the government. And it's also the case that banks have an extraordinary amount of influence on the government, so it is disingenuous to claim that they were just doing what the government wanted them to do.
--Hiram
I remember the world and the politics of 2004 quite well. What I don't remember is politicians campaigning on a platform of tightening money. I don't remember Republicans telling voters, "Elect us, and we will reduce your property values and make your property harder to sell. Elect us, and we will make it harder for young couples just starting out to buy their first house. I didn't hear George Bush tell investors to sell their stocks and run for the hills. I do, however, have a distinct recollection of Republicans telling us that we were becoming an "ownership society" and proclaim how wonderful it was that these wonderful investment devices were making it easier for the average American to own a piece of America. I do remember listening to Soucheray on KSTP radio proclaiming the wonders of a myriad of mortgage companies who were buying commercial time on his station. Soucheray is still around of course, but has anyone heard from those mortgage companies lately?
--Hiram
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