EXTRA EXTRA! Post all about it! (new news thread)

[alexandra]

Now is the best time ever to mail-order shit from the US - quick, get all your wishlists filled before American businesses revert to the barter economy.

fucking seriously. The orders for my works product in Canada have tripled. And thank Christ our Corp is based in Vienna.

[Good Intentions]

Here in NZ we are quite sheltered from the effects - our economy is buoyed by commodities, which have been doing fantastically for a long time, and our government has been sensibly run for some time. There's been a lot of very vocal grumbling that our economy is not enough like that in the US and Australia, said grumbling naturally gets on my tits, but this might cut that back a bit, as strings of finance companies go belly-up and the real-estate bubble burst nastily in speculator's faces.

South Africa is also largely unaffected, but has its own problems. They've started rationing electricity after the gov, in some spectacular mismanagement, ignored repeated calls by the state-owned electricty company for investment and expanding infrastructure, all the time pimping out SA as a cheap-electricity location for heavy industry. The gov has gone into a flat spin now, but the horse has bolted, and the problem is only expected to be resolved halfway through the next decade.

[Andrew_TSKS]

ok, for real, andronicus and others with a really good understanding of the situation--how bad can we expect the economy to get? i keep hearing that this is not even going to be a real recession, just a stagnation. but the way some people are talking, i'm waiting for a full on stock market crash. what should i expect?

[slow west vultures]

george bush sr. will rise from the grave and bands playing a noisy brand of garage rock and wearing flannel will fascinate a nation with their disillusionment.  that's how bad its gonna get. 

[Good Intentions]

My economic nous is not up to that of andronicus or Dave, but I can tell you this much: the credit crunch is decimating parts of the finance sector. The most succesful companies in that sector have, for some time, been reaping the benefits of sailing closer and closer to the wind, and sub-prime mortgages is is something that was stupidly profitable if you made space for it in your risk profiles, which everybody, seeing the cash roll in, instantly did. Which means that more and more people were exploiting more and more marginal resources in the course of doing business as usual, classic boom-bust-cycle stuff. This is why Jim Cramer is so perplexed by it all: he and his friends were just dotting their i's and crossing their t's as usual, but suddenly everything turned sour. He's begging for a buyout because he can't see what they did wrong - one day business as usual made them riches, the next their cheques start to bounce.

The effect of this is that a lot of high finance activity is going to at least be curtailed. At worst, the entire venture could be given up for dead, much the way that mass production of durable goods stopped being a viable business plan in the course of the Depression. Now, the US economy thrives on high finance - not only do you have venture capitalists and banks and financiers who shuffle around money for a living, you have entire companies devoted to buying out other companies to later sell them on at a profit, kind of like speculating on antiques or paintings but on the scale of millions of dollars, all of which paid for by huge loans. But these types of loans are not really viable anymore, across the board, because of the gory collapse of the sub-prime mortgage market cutting very, very deep into everybody's pockets. So a major driving force of the US economy is at best going to spend some time in its room sulking, and at worst is facing an existential crisis. Every other sector had become used to and started depending on the huge cash injections from the finance sector in order to build up capital, and if those dry up a lot of people's business plans will no longer be viable. Without the driving force of high finance, and the seriously negative outlook it's instilling on the movers and shakers of the market, it's quite possible that expansion of the economy will grind to a halt as everybody goes into damage limitation mode, and without that expansion an economy like the US's is basically going to sink like a stone.

[Andrew_TSKS]

word, thanks, that all made sense to me. this reminds me of what caused the great depression. i can't imagine it will go that bad though. i'm pretty sure there are safeguards in place to keep that from happening again anyway. but still, the whole sub-prime thing reminds me of the debt-deflation thing that happened in the great depression. maybe my relative ignorance of economics is showing with that comparison, though.

[Andrew_TSKS]

ok, wait, i know none of you expected to have to give me a crash course in economics here, but i just thought of something--isn't the way out of situations like this to turn to deficit spending and tax cuts? but didn't we already get into this situation in part due to simultaneous tax cuts and relaxation of regulations on businesses? won't we need to RAISE taxes to get ourselves out of this situation? or is keynes right? and IF keynes is right... well, fuck, we can't afford any more deficit spending/tax cutting than we've already done. can we?

[Good Intentions]

I wouldn't base too much on what I'm saying, though - this is just how I see it, and my economics may not entirely be up to scratch. I am very confident that this is a classic boom-bust cycle, and typically those are followed with a lot of people staying out of the field where they got their fingers burnt, in this case, high finance.

[Good Intentions]

I can answer the relaxation of regulation part of that: for some time now the finance sector has been lobbying for less regulation, saying that it's risk assessment is perfectly capable of regulating them themselves, and they've had some success in getting more free reign. The credit crisis makes a mockery of that claim of self-regulation, and some of the sharper observers have noted that (the Financial Times in England has had some excellent coverage of the crisis throughout, for instance). With this nasty experience in mind, it's likely that more regulation will be put on the finance sector, possibly as part of a rescue package. It's not the tax cuts and the deficit spending which caused the problem, though it certainly gave the financiers more money to piss against the wall, but the increasing deregulation. Giving more tax cuts and more deficit spending would probably lighten the blow a bit by putting some money into the pockets of the finance sector again, but if they use it to do more business as usual, most of that will most likely be good money thrown after bad.

[andronicus]

I saved this response after we took a shit:

To GI: Credit can't really disappear or even diminish from our economy.  Become more tightly regulated, be issued more conservatively, yes.  But (relatively easily available) is foundational to capitalist society in the same way that money is to a market society.  I'm extremely pleased you brought up the consumer durables revolution though; it's a hobby-horse of mine, and I have to ask where you got it from.  Anyway, there is a parallel to be drawn with all this.  What happened with consumer durables (and the Great Depression) is this: After the Civil War, the American economy shifted from a market society of artisanal goods and began industrializing in rapid succession primarily by means of massive increases in production of capital goods, encouraged by and in turn abetting high and increasing improvements in labor (and capital, but everyone likes to pretend it's just the workers that can get better; capital has always been in some perpetual Platonic immaculate state) productivity.  From the 1870s to the 1890s the oscillations of the market due to this unpredictable production situation led capitalists to scratch their heads, because it appeared that after so long of being short capital to fuel growth, their embarrassment of riches became less and less needed.  They weren't just going to give it away, so they looked for other markets.  This led to, among other things, imperialism, but in the 20th century, after we managed to finance a war in Europe, the capitalists finally fixed on consumer durables as being 'just like capital goods production, except better!' and of course the stock market simultaneously became a massive dump for this superfluous capital.  And we all know what happened there. 

I would argue that there are definitely behavioral parallels between that time and our own, in which we witness labor productivity tick upward (how far upward is the subject of some debate) at the advent of the information revolution, and at the very end of the 90s when that fell flat again (because the market had taken as much (and quite a bit more then, thank you very much pets.com) investment as it needed, and needed only depreciation capital thenceforth, which can always easily be funded out of profit) they began to look elsewhere.  So housing is the consumer durables of our century, and the subprime market is the pre-Black Friday stock market. 

To Andrew: If you are Keynes, and your base economic problem is one of insufficient aggregate demand then you run deficits yes, but certainly you do not lower taxes, as the entire idea behind this is to use the surplus tax money to spend on demand-generative activity (which should have a multiplier effect).  The problem is, we've been running pretty large deficits already, with Bush having presided over the largest expansion in the federal government since the Johnson presidency, and the tax cuts that would pay for themselves, not so much.  Additionally, Bush is precisely in the spirit of his idol Reagan in having never made even an attempt at balancing the budget, ever.

Taking both my responses together, I'll say that Keynesianism is basically a superficial liberal justification for direct wealth transfer; the pragmatic recognition that poor people know how to allocate resources more efficiently (in a manner, that is to say, that yields the greater marginal return) than rich people do, and that the answer to capital that is mouldering or being put into bad investments is to give it to the less well off.  What will they spend it on?  Well, you can make a party platform from the list of answers.

In actual news, now the Dow is rallying after 1. an emergency Fed cut of 75 basis points (!) and (probably purposefully-injected) rumors that the government is going to buy out the tits-up insurers.

[Good Intentions]

I got the consumer durables revolution stuff from history class in my junior year in high school. Needless to say I had a very good teacher.

While I see and understand that the availability of credit is something which is not negotionable, I do think that some of the activity I want to capture under the term 'high finance', where this credit is manipulated in more and more intricate ways and becomes an end in itself, rather than merely a necessary and lucrative service to the economy, things like hedge funds and the type of packaging of credit which made the sub-prime crisis so devestating. From where I'm standing it looks like a safe bet to say that this type of activity is certainly going to be curtailed, and while there will still be some credit available, it will be more traditional and conservative than the zero-money-down refinancing packages that many larger enterprises have been using as huge and instant cash injections. Saying this seems like a roundabout way of agreeing with you.

[andronicus]

Yeah I mean it's a short step from one to the other, is what I'm saying.  The entire idea is you can buy anything, even the buying of not buying (which is actually one main component of the rebounds in the markets this last couple of days, referred to as 'covering shorts').  Realizing that, it's actually a sensible thing to invest in these bundled debt securities, as it tends (if there is an actual market for them and thus pricing isn't just some internal accounting fantasy at Wachovia or Bank of America or whatever, and decent risk information on their components) to minimize risk and maximize return on that particular kind of investment. 

PS I read a rumor somewhere that the rate cut came down the pipe so quickly because Bernanke's been pissing his pants for months now about when the other shoe was going to drop, and so already had this plan in place.

[DCDave]

Andro - Have you been reading about Goldman Sachs' golden boys?

[Good Intentions]

From a lefty board I also hang out on:

over the last few months there's been a massive investment by chinese, asian & middle east state funds (sovereign wealth funds) into high profile/top tier US & european financial institutions, and a lot more is set to come in the next few weeks as well, taking the total up to around $100bn in the space of a few months

the need for capital by western banks has all stemmed from the losses they've made in the sub-prime crisis, and their domestic markets have pretty much run out of bottle or money to give them any more, hence the turn to cash rich asia & middle east govt funds

from the point of view of the state funds that have been doing the investing, part of the reason is just pure economics in that up until now, the bulk of these states having massive trade surpluses and a need to keep the value of their currency low, or pegged to the us dollar, end up investing most of it in low yielding US treasury bonds - due to low real interest rates over the last decade or so in the usa they don't get much return on this at all and no opportunity for capital appreciation on them either

up until now previous attempts to take over or even take minority shares in strategic US assets have been rebutted, the main ones being a chinese oil company trying to take over a US oil company and the dubai port authority trying to invest in/take over some company that owned US ports. Energy & transport/communication may be seen as being more strategic than banks in a geo-political sense, but given the centrality of banks to the domestic economy, you'd think banks would be seen in the same light, but obviously the crisis is now at a point where concerns about asian/middle east ownership have to be set aside if these banks are going to get the money that they need to survive

most talk about these investments so far have focussed on the fact that they are purely economic transanctions and that the investors plan to play a passive role (i.e. not be active in trying to influence strategy/direction) and they are happy to sit back and leave current management to get on with things, but surely this is being a bit naieve to think that, and given the likelihood that now this activity has been opened up by the weakness of the US financial sector and the deep pockets of asian/middle eastern state funds, it's likely to be an increasen trend over the years to come. if that trend continues (and the likelihood of another crisis for US/european banks in areas like credit derivative markets is quite high which would mean even more new capital required) it could effecitvely lead to the part or full nationalisation of the US financial sector, albeit with ownership by a foreign government.

not really sure what the point of the thread is, partly it's just another manifestation of the decline of the US as a financial superpower, but could it also be seen as a sign of the decline of the type of capitalism we've had for the last 30 odd years and a shift back to an increasing explicit role for national governments in funding & directing capitalism?

and

A similair thing happened in the 60s with Japanese and German money coming in combined with them beating the US in productivity and growth - the US responded eventually by pushing up the preice of oil and devalauing the dollar. They're not really in the position to take such an agresive aprroach today though. They can't turn this money away. Nor can those sending it keep it. It shows the direcly interconnected nature of all the leading capitalists states today. And they all know it, they're all in danger as a result. Hence SEA is now going to try and pusg domestic demand to break the circle, and amazingly, i was reading yesterdy that the US is pinning it's hopes on massively increased domestic saving over the next few years  - clown!  #-o

[dieblucasdie]

Lulz.  There's probably a greater chance of a zombie apocalypse rendering the question moot than there is for massively increased domestic saving.

[santaclaustral]

Distinct possibility that Italy will have elections again this year

Berlusconi probably won't be so incompetent with the (alleged *cough cough*) vote-rigging this time round

 

[SPACERACE]

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=509713&in_page_id=1770

goths not allowed on bus

[FreddyKnuckles]

I wouldn't have let the freak or dog on my bus either.

[Andrew_TSKS]

i would. who gives a shit?

[FreddyKnuckles]

NEWSBREAK: BLUE COLLAR WORKER MAKES FUN OF GOTH KIDS

[dieblucasdie]

NEWSBREAK: FK RATIONALIZING DOUCHEBAG BEHAVIOR

[FreddyKnuckles]

NEWSBREAK:  BLUCAS ANALYZES EVERYTHING FK SAYS WITH AN ASSUMED CONSERVATIVE BENT EVEN THOUGH HE THINKS THE STORY WAS STUPID.

[dieblucasdie]

I didn't say it had anything to do with a conservative bent.

[FreddyKnuckles]

AND LICKS MY BALLS

I MEAN HIS...  HIS BALLS

[FreddyKnuckles]

This story is funny to me, and if that makes me a douche, then so be it.  I mean, the part where the guy calls him a fascist pig CRACKED ME UP