Economics

"It Is Quite a Punt"

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don't panic

Always good for us rah rah capitalism types to keep in mind that sweeping out the dusty corners of private enterprise will reveal just as many dunces as when one does the same thing in government. From today's Telegraph:

Were it not so serious, the role reversal would be hilarious. For years, US governments have called in titans of finance for advice on how to run federal affairs more effectively. Now, those clever clogs who were once deemed to have all the answers are asking difficult questions, like: "May we have some help, please, we appear to have burned through our shareholders' reserves?"

But as that other noble Brit, Douglas Adams, would remind us: Don't Panic. It seems as if the world is ending, and it may be. But keep your cool, because everything is going according to plan.

As a former Goldman Sachs executive, Paulson understands that the unravelling of Lehman is not a sign, per se, that free markets are failing. Quite the reverse. They work best when driving out weak and inefficient operators. Creation and destruction are part of the game. Nobody said that capitalism was devised to provide soft landings for hopeless losers. Sending a message that all sinners will be saved only encourages reckless behaviour.

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  1. [Free markets] work best when driving out weak and inefficient operators. Creation and destruction are part of the game. Nobody said that capitalism was devised to provide soft landings for hopeless losers. Sending a message that all sinners will be saved only encourages reckless behaviour.

    Amen.

  2. Nice. But do you really think Lehman marks the end of Federal bailouts, or just the ritual sacrifice of the insufficiently connected patsy?

    I find it hard to believe that Goldman Sachs, for example, wouldn’t get red-carpet treatment from the Fed.

  3. I’m with DannyK – the words sound nice, but Lehman just wasn’t connected or “big” enough.

    Is it too early to start clamoring for the complete and total privatization of FNM and FRM? please?

  4. I’m sorry, but that’s wishful thinking. Allowing crises like the current one to occur is the one way to make sure of regulations being passed which are much too onerous. It’s better to have fewer regulations that work, than allowing meltdowns that bring forth an avalanche of government regulations, which will take quite some time to get rid of when instituted.

  5. “Sending a message that all sinners will be saved only encourages reckless behaviour.”

    Me luvs that line.

  6. It’s better to have fewer regulations that work, than allowing meltdowns that bring forth an avalanche of government regulations, which will take quite some time to get rid of when instituted.

    We are WAY past that point. Do you know how regulatorily expansionist the Housing Bill was?

    Jeebus. We have to let some stuff fail for galtssakes.

  7. I tend to agree that letting the free market thin out the ranks of the poorly operated businesses is the best way to go, and that fear of that failure is what will keep people running the corporations from making bad decisions.

    I’m seeing a flaw in my theory, though … corporations aren’t really people (they are legally, but they aren’t in reality), and they are instead organizations run by individuals whose motivations might not be in the best or most prudent long-term interest of the corporation. As a result, they may tend to take more risks than are advisable to make short term profit for the corporation (and themselves) while at the same time harming the long term viability of the entity. Once those people have made their big pay-out, they are pretty much set for life, even as the corporation potentially falls into ruin, taking a chunk of our economic health with it.

    So although I still think that the Darwinism of the free market is generally the best solution, I do see some cases where some of the competing interests that are supposed to incent people to do the “right” thing (make as much money as possible for as long as possible) in a free market system can break down in a corporate setting.

  8. Brad,

    Corporations are an artifact of a mixed economy. Absent tax incentives, legal protections and welfare payouts to skillful lobbyists, corporations as we know them today would rise and fall like an economic Archaeopteryx.

    Once they started all of the short-term, go-for-broke thinking that they engage in currently, shareholders would bail out and avoid anything that even smelled like a corporation.

  9. Hugh – are you for reals? Corporations generally just “shortcut” the negotiations most managers, partners and shareholders would have to establish through a byzantine collection of contracts in the first place.

    I mean, are you an advocate for the rescission of limited liability or something?

  10. oh, whoops – you said “as we know them today”.

    My fault. I’ve met some libertarians who go on and on about corporations shouldn’t be “people” or somesuch nonsense and I got all jumpy.

  11. I’m sure many libertarians will find Katherine Mangu-Ward’s ideas refreshing! Then, they should review her and Reason’s past history where they in effect support massive corporate welfare.

  12. TAO, I’ve sometimes been known to advocate rescinding limited liability. Why should government chartered groups have more legal privileges than individuals? I’ve got nothing against individuals freely associating together, pooling their money, and offering stock. But they shouldn’t get any special treatment for it.

    But that’s really a minor matter. A “necessary evil” if you will. Huge public corporations emerge because of the tax and regulatory structures.

  13. Corporations shouldn’t be people.

    Cause they’re…um, *not*.

    But I won’t go on and on. 😉

  14. It’s not that captialism prevents a person from loosing all his money through a bad investment. It’s that capitalism prevents a person from loosing all his money together with all the money of non-consenting his fellow citizens through a bad investment.

  15. I’ve got nothing against individuals freely associating together, pooling their money, and offering stock.

    Well…yeah, but do you think it makes sense that the entity they’ve created should impose joint and several liability on each participant?

    It’s an awkward thought to say “you guys did this as a group, and now each one of you is responsible.” I mean, we don’t even do that in criminal law!

    Huge public corporations emerge because of the tax and regulatory structures.

    Nu-huh! Ask the enlightened progressive crowd…it’s ’cause…uh, uhhhh…John McCain loves free markets!

  16. Corporations shouldn’t be people.

    Alright…so who at the company should be responsible for the company’s debts, should the corporation go under?

  17. It’s an awkward thought to say “you guys did this as a group, and now each one of you is responsible.” I mean, we don’t even do that in criminal law!

    WTF?! SURE we do! It’s called “Conspiracy”. A corporation is literally a conspiracy to act.

    So what’s the problem with applying that logic?

  18. Ok, El, but what I’m saying is, is that if five people get together, issue stock worth 100 dollars, and then default, which of the five actually owe 100 dollars? Or is it all of them? Or the one who contributed the most to the corporation’s downfall?

  19. TAO,

    Wouldn’t they owe in the proportion that they invested?

  20. Is it fair to say everyone who owned Lehamen lost just about all of it today? If so, what’s the rub? They took a chance and failed. The postive thing is no one goes to jail, they just lost money. Suck it up and move on. The folks who lent Lehamen money lose just like my creidtors lose if I die.

  21. WTF?! SURE we do! It’s called “Conspiracy”. A corporation is literally a conspiracy to act.

    So what’s the problem with applying that logic?

    So by your theory, if I come to you and say “LMNOP, give me 20 bucks now and at the end of the month, I’ll give you 40” and then use the 20 bucks to buy ammo and rob a bank, you’re liable.

  22. T —

    If I participate with the knowledge that you were going to buy ammo, you bet your fucking ass.

    When someone asks you for money, don’t you ask why before you consider the loan/gift?

    If the person *lies* about why, and I have no reason after doing minimal diligence to believe that I’m being lied to, then my liability is lessened if not obviated completely.

    This is really not that complicated. Honestly.

    TAO —

    Hugh was the man on the scene with what my answer would have been if I were as quick as he.

  23. You know things are bad when Katie M-W admits that capitalists sometimes fuck up. What’s upsetting is not that capitalists make mistakes, but that they keep making the same mistakes over and over again, for bigger and bigger stakes, and for bigger and bigger salaries.

    There would be no crisis if highly paid execs had realized that the housing boom, like every other boom since the tulip boom, would eventually cool off. But they wanted to salt away that last billion before reality set in, and they didn’t quite make it.

  24. “Alright…so who at the company should be responsible for the company’s debts, should the corporation go under?”

    Shareholders.

  25. “So by your theory, if I come to you and say “LMNOP, give me 20 bucks now and at the end of the month, I’ll give you 40″ and then use the 20 bucks to buy ammo and rob a bank, you’re liable.”

    No, SOX fixed that. 😉

  26. Off topic:

    http://www.cnn.com/2008/POLITICS/09/15/palin.investigation/index.html

    Doesn’t this sound familiar? Who else has just refused to cooperate with investigations of their wrongdoing for the past 8 years?

  27. This is really not that complicated. Honestly.

    Spoken like a man who’s never taken the CPA. I’m all for abolishing corporations and taxing them shits like partnerships, thus eliminating the portion I least want to study for.

    Also, have you guys, like, seen a movie called The Corporation?. If Naomi Klein AND Michael Moore say corporations cause cancer, it must be supertrue!

  28. dusty corners of private enterprise will reveal just as many dunces as when one does the same thing in government.

    I don’t know why libertarians have this blind spot. Of course there are. Where do you think government hires most of its dunces? It gets many of them from the private sector. And when they get fired from government, where do you think they go back to?

    The primary difference… well, the difference that should remain in effect is that when the dunces act like… dunces in the private sector, the only ones hurt are the dunces. In government, they get promoted or get more tax money thrown at them.

    Work in the corporate world for more than ten minutes, and you’ll meet plenty of thicky, thick-o dunces that pull down six-figure salaries. Believe me, there’s no shortage.

    Of course the market isn’t supposed to provide soft-landings for losers. It’s exactly the opposite. It’s supposed to provide the hardest landing possible for hopeless losers. Soft landings are for the public sector. Or, as we’ve seen lately, for too-big-to-fail corporations with government backing.

    I don’t know about the rest of you, but the failure of Lehman Bros. actually brought a smile to my face. So did it with Bear-Sterns, Fannie and Freddie. My smile turned to a frown when my doorbell rang, and clip-board wielding agent of social control asked for money to bail them out, however.

  29. Nobody said that capitalism was devised to provide soft landings for hopeless losers.

    And it should be said for free markets that its typical for people who worked for a failed business end up working at a better, more successful business. In that sense, business failure is more like losing at a game than losing in a life-or-death situation.

  30. Dagny —

    I did not mean to imply that corporate law was uncomplicated. Only that the simple principle of law (a person is liable to the extent of their participation, mitigated to whatever extent they did diligence on the actions that other people took as a result of their participation) is, um, simple. I know that execution in practice of even simple ideas is rarely simple. 😉

  31. I don’t know why libertarians have this blind spot.

    They do? Most libertarians I know have exactly the same understanding of corporate duncery that you described in your comment.

  32. For the record:

    Kolohe | September 14, 2008, 8:33pm | #
    Talking about epic fails, I’m already getting the popcorn out for tomorrow’s market crash.

    Prediction:

    DJIA finishes tomorrow up 55 +/- 10 points.

    Further on the topic of epic fails – Worse. Prediction. Ever.

  33. This Lehman is the same guy who was all for putting the taxpayer on the hook to bail out Fannie Mae and Freddie Mac, right? Did he suddenly grow a conscience or something?

    -jcr

  34. so who at the company should be responsible for the company’s debts, should the corporation go under?

    The way this is supposed to work, is that by entering into a contract with an entity describing itself as “limited” or “incorporated”, the creditors have accepted that the liability of the corporation is limited to the assets of the corporation.

    -jcr

  35. Oops, change “Lehman” to “Paulson” in my first comment above.

    -jcr

  36. “I don’t know why libertarians have this blind spot.”

    What’s all the fuss about blind librarians? Why can’t the Dewey Decimal System be translated into Braille? How hard can that be? Marley Matalan could do it. She hasn’t worked in ages. Don’t libraries stock Braille books? Can a sighted librarian even understand what they say? Or maybe blind librarians could specialize in books on tape. They’re very popular you know. Books on tape don’t just help the blind, illiterates read them too. Kids love them.

    Now I’ll admit that climbing those wooden library ladders could be dangerous for blind librarians, but if cripples can ride golf carts and play in the PGA, then why can’t blind librarians use pogo sticks to reach the top shelves. What’s even up there any way? I just don’t understand all the fuss.

  37. Now that’s a funny troll.

  38. Brad,

    I’m seeing a flaw in my theory, though … corporations aren’t really people (they are legally, but they aren’t in reality), and they are instead organizations run by individuals whose motivations might not be in the best or most prudent long-term interest of the corporation…… Once those people have made their big pay-out, they are pretty much set for life, even as the corporation potentially falls into ruin, taking a chunk of our economic health with it.

    Yeah. But the terms and conditions that coroporation gets to act under, are determined entirely by the government. Which is why I’d argue that the government should impose some kind of rationality on this corporate “entity”, if they’re going to let it come to life in the first place. Because when the board and the VPs rape the corporation and fill their own bank accounts, they’re screwing all their employees at the same time.

    Somehow, allowing corporations to exist as they do today, with the absolute lack of any incentive to think beyond next quarter’s stock market report, is inherently messing up the whole premise that free markets are supposed to operate on. But I’m not a lawyer or an accountant, so I can’t nail it much more clearly than that.

    How exactly did it come to be, that the one man empires (Howard Hughes types) went the way of the dinosaur, to be replaced with these soul-less, range of the moment corporate beasts that are dominating the US economy today?

    I’ve got lots of friends working inside lots of large corporations and I’m hearing the same story from the majority of them: “I don’t know what the top brass are thinking, but we employees can all tell that what we’re currently doing is not good for the long term health of the company.” And this isn’t coming from a few disgruntled hourly types, it’s coming from engineers, scientists, accountants, all up and down the white collar ranks.

    Lots of people are saying, “something is very very wrong”. And yet this seems to be what the backbone of the US economy has evolved into. If I didn’t know better, I’d think that today corporations are now evolving into some perverse sort of direct extension of the US government…..

    If any of you law and finance types understand more clearly what’s really going on with the corporate universe, I’d love to understand it better. Maybe I’m just a finance-illiterate engineer, but my nose tells me something’s gotten really rotten over the past decade.

  39. btw, I work in R&D and have for going on 20 years now. I know that in the 90’s there were still corporations that were still thinking long range. At least to a degree.

    Most of my friends in other corporations are also in R&D, and I don’t believe more than the tiny few are thinking a single inch further ahead than they absolutely have to. Five year development efforts no longer exist, you’re lucky if you can find somebody who got a fuse extending beyond 18 months in today’s world.

    I don’t believe the perception that things have changed over the last decade is all that far off the mark. I don’t pretend to understand why, other than — the “old fashioned” VPs who used to act like they cared where the company would be in 10 and 20 years, have mostly retired.

    The creatures that have replaced them are an entirely different type. They think we’re going to “outsource” absolutely everything, all our hard problems. That way we can dumb down our employee pool and pay them less, and somehow (they think) we’re still going to be the ones collecting the checks.

    It kind of reminds me of Spain during the Dark Ages, when the Visigoths asked the Moors to come over and fight their wars for them. You just go get somebody else to do your hard work for you. What could possibly go wrong?

  40. I’m with DannyK – the words sound nice, but Lehman just wasn’t connected or “big” enough.

    I think this is about right in this instance. It will be interesting to contrast how stuff plays out with Lehman vs. what happens with AIG.

    The NY Times is reporting that a deal is in the works but it may involve loans from Goldman Sachs and JPMorgan and the Feds.

    On a related note I came across this post that I thought was rather clever about lesons learned from the Bear Stearns bailtout

    Go Big: Don’t just risk your company, risk the entire world of Finance. Modest incompetence is insufficient — if you merely destroy your own company, you won’t get rescued. You have to threaten to bring down the entire global financial system. The fear and disruption caused by a Bear collapse is why it was saved. (AIG has the right idea on this)

    Threaten your counter-parties: Bear Stearns had about 9 trillion in its derivatives book, of which 40% was held by JPMorgan (JPM). Some people have argued that the Bear bailout was actually a preventative rescue of JPMorgan. Its a good strategy if your goal is a bailout — risk bringing down someone much bigger than yourself.

    There are a few more like this.

  41. If it can be determined that a certain group of people were either responsible for or privy to information about an upcoming collapse, then they should be held criminally responsible. Otherwise, companies should be allowed to fail if they are going to fail. We should try to deter executives from driving companies into the ground for short term benefit. Driving a company into the ground should be a criminal act, if it is possible to determine a person or group who was responsible for it, or at least knew about it.

  42. QOUTE” “I mean, are you an advocate for the rescission of limited liability or something?”

    Libertarians most certainly should advocate the elimination of limited liability and other corporate protections. And so should Objectivists, especially, as corporations are just another form of collectivism.

    Limited liability is the root of most evil in business as it removes from actors responsibility for their actions, transferring it instead to a fictional “corporate” body, which is a nonsensical convenience only for the collective. It may provide some utilitarian value in concept, but it is ethically offensive in design and moral corrupting in practice.

    I’ll defend business to the last breath, laissez faire and all, even with mutually agreed upon limits to liability in individual negotiated contracts, but the prevalence of libertarian support of these start=chartered limited liability monsters is a constant source of embarrassment..

    The alternative may not be as convenient, or even as efficient (although I suspect it would be exactly the opposite), but it would certainly be less corrupting and provide less fodder for the anti-business mobs. Let’s face it folks, corporations are talking over the country, mom and pop, independent businesses are being driven to extinction, and America is the poorer for it — quite literally.

  43. “Protect investors from themselves.” Yes, that’s precisely what my point about the economy as whole going down the tubes is about.”

    Libertarians love to throw around straw-men arguments on here because they’re so bad at discussing gray areas. It’s a form of panic. The backhanded comments inevitably begin to fly as well. It’s a predictable process much like mitosis.

    I guess the King Rand Version of the Libertarian Bible doesn’t include all of the necessary codes.

  44. Tharms,

    The “LLC” in the name of a limited liability company informs potential stock holders, customers, and service providers that the company is only accepting a finite amount of liability. People who do business with an LLC volunteer to that arrangement. They have to option of sticking to other types of companies if they prefer.

  45. Alan Vanneman | September 15, 2008, 11:40pm | #

    You know things are bad when Katie M-W admits that capitalists sometimes fuck up. What’s upsetting is not that capitalists make mistakes, but that they keep making the same mistakes over and over again, for bigger and bigger stakes, and for bigger and bigger salaries.

    There would be no crisis if highly paid execs had realized that the housing boom, like every other boom since the tulip boom, would eventually cool off. But they wanted to salt away that last billion before reality set in, and they didn’t quite make it.

    If millions of investors did not buy stocks in companies that depended on an indefinite housing boom, then Freddy, Fanny, Bear Stearns, and Lehman Brothers would not have had such inflated stock values. Take any 50 year period, adjusted for inflation, housing prices stay stable. This makes sense, because houses don’t produce wealth. Unless you have a home business, your house is an end product, not capital.

    You can make money in realestate by timing the market, the same what you make money in commodities. This is difficult, and I would not recommend it to the average investor. You can also sit and hold a diverse realestate portfolio for decades if you want low risk, but don’t expect growth. A diverse portfolio is one that includes 100 different companies, so investors with a diverse realestate portfolio only lose 4% of their portfolio value when 4 companies go down. If I saw a realestate portfolio booming, I would investigate why and consider selling if there is no fundamental reason for the quick increase.

  46. In related news, markets in England, Russia, and Asia dipped in the past two days in response to the US market dip. I predict all of these markets, except maybe Russia’s, to rebound within a month or two. The month to month market trends depend on short term economic fundamentals. Unless there’s some sort of sudden national change (like civil unrest or a new government policy) a single day large rise or fall in market value will reverse itself once the panickers are gone.

  47. “Limited liability is the root of most evil in business as it removes from actors responsibility for their actions, transferring it instead to a fictional “corporate” body, which is a nonsensical convenience only for the collective.”

    Eliminating limited liability eliminates the small casual investor. If you find that all of your assets are on line over one share of stock, you are not going to buy stock unless you have enough assets to cover or intricately involved with the running of the company. In that case someone with one share of GM stock could find himself liable for all of GM’s debt.

    Maybe that would improve corporate governance, maybe. But it would also very bad side effects. Turning corporations into boogeymen is a simplistic way to think about the problems in our economy.

  48. You may be right. But they are causing problems too.

    I think we need a new conceptual definition (re-definition?) of “corporation”, not their elimination.

    But I’m not sure what a more rational definition, T&C’s, etc, would be. That’s a question I’ve been tossing out for a while and nobody seems to have much for answers….

  49. The very fact that we have quote-unquote market where players are quote-unquote too big to fail is the quote-unquote problem.

  50. I talked with capitalism this morning and it resents being associated with this salmagundi of pragmatism, welfare and locked-hip cronyism we have today posing as a free market.

    Capitalism requests you leave it out of the discussion and suggests you call it mixed-ignorance.

  51. If we did away with “registered with the Secretary of State” corporations tomorrow, limited liability would be recreated in another form in about ten minutes using some other instrument.

    Why do I think this? Because limited liability predates the corporate form. Late medieval bankers were able to create a form of it using debt instruments, for Christ’s sake. If guys who didn’t even have double entry bookkeeping or the number zero [OK, maybe they had zero] can find a way to structure transactions to create limited liability, it ain’t going anywhere.

    The limited liability rant is very crankish. If people will have freedom to contract, I can create limited liability, believe me. That means that you can’t avoid the concept in libertopia.

    This is just a hobbyhorse of a subset of the libertarian community. It’s like the people who get all agitated about fractional reserve banking. “We libertarians must work to get rid of fractional reserve banking!” Um, guys, in libertopia if I want to open the Fluffy Fractional Reserve Bank no one can stop me.

  52. Also, I think this is one of the occasions when I should ride my OWN hobbyhorse: namely, to point out that once again this shows how critical it is that we libertarians not refer to the US economic system as capitalistic and/or free. We should focus at all times on the unfree parts of the market.

    Why? Because once again state policymakers have fucked up and assholes like Obama – AND McCain – are running around talking about how this shows that the market can’t be trusted.

    Do I really have to list the ways in which state policy has encouraged overinvestment in suburban residential real estate, for decades? Does anyone really doubt the role of Fed monetary policy, and Bush fiscal policy, in creating an asset price bubble in the first half of this decade?

  53. I don’t know why libertarians have this blind spot.

    I don’t really know any libertarians who have this “blind spot”.

    Most of the libertarians I know feel pretty much what you state here..

    The primary difference… well, the difference that should remain in effect is that when the dunces act like… dunces in the private sector, the only ones hurt are the dunces. In government, they get promoted or get more tax money thrown at them.

    Perhaps the problem is that we sometimes oversimplify and fail to spell this out. Possibly the fact that it is so self evident to us we forget that we might have to explain it to people who think that with the right amount of power men like McCain or Obama can make a perfect society.

  54. Fluffy,

    Great point. Government interferences contributed much to this problem. For one thing, tax deductions for home mortgages created a one time, simultaneous jump in home values throughout the country. Everyone who owned a home or bought a home when the tax deduction took effect got a windfall. This contributed to the idea that home ownership leads to free money. By now, the value of the tax deduction is already priced into homes, so today’s young adults are stuck with the short end of the stick.

    So what do we do now? Suddenly eliminating the deduction on home mortgages would cause a second economic shock and be unfair to families that are only now rising into middle class, but slowly eliminating it over a couple of decades would be a good idea.

    Bailing out realestate investors would repeat the mistake of the home mortgage tax deduction. The bailout implies that the government will pick up the tab for future stock declines. Transfering risk from the stock holders to the government will raise the value of the stocks at everyone else’s expense. This one time windfall for a select few would have no long term benefits.

  55. The way this is supposed to work, is that by entering into a contract with an entity describing itself as “limited” or “incorporated”, the creditors have accepted that the liability of the corporation is limited to the assets of the corporation.

    Furthermore, lenders frequently demand that one or more of the better heeled shareholders guarantee any notes thus spreading the liability beyond the corporation.

    You know, sort of like the bank does every time your loser brother-in-law tries to buy a new Camaro. The fact that you have more sense means he’s stuck with his twenty year old Chevy Cavalier.

    Naturally, this is more common with smaller and privately held corporations. Where things have fallen down is that lenders have to frequently not adequately determined the creditworthiness of big companies.

  56. What Fluffy said. Freedom of consensual contract will continue to allow for limited liability and fractional reserve banking. I recall even Dr. Murray Rothbard being stopped cold when this was pointed out to him at a libertarian conference in the 1970s. Now, if plaintiff attorneys could be severely reined in, there would be far less need for limited liability as one would fear less “joint and several liability,” and awards to careless consumers of one’s product.

  57. The State pays well that its “good citizens,” the possessors, may be able to pay badly without danger; it secures to itself by good payment its servants, out of whom it forms a protecting power, a “police” (to the police belong soldiers, officials of all kinds, e. g. those of justice, education, etc. — in short, the whole “machinery of the State”) for the “good citizens,” and the “good citizens” gladly pay high tax-rates to it in order to pay so much lower rates to their laborers.

  58. This is just a hobbyhorse of a subset of the libertarian community. It’s like the people who get all agitated about fractional reserve banking.

    Bingo. People who want to get rid of fractional reserve banking and limited liability basically want to get rid of capitalism, and must want to return to an agrarian economy. Because, historically, I don’t think you can find a single economy that lacked fractional reserve banking and limited liability that wasn’t an agrarian economy.

    You can make a pretty good case that capital markets are fractional reserve banking plus limited liability firms, or at the least that those are necessary conditions for functioning capital markets.

  59. Fluffy is spot on. There’s a frood who knows where his towel is.

  60. i also think a lot of this mess has to do with there being no safe store of wealth. People have to invest in real estate, stocks, bonds etc (without having to have any knowledge of what they are buying) because they cannot just sit on cash. Inflation forces people to seek investments. Without inflation people would not need to invest unless they wanted to and would eliminate some of the problem IMO. Of course fiat money and inflation are not going away any time soon.

  61. For the record:

    Kolohe | September 14, 2008, 8:33pm | #
    Talking about epic fails, I’m already getting the popcorn out for tomorrow’s market crash.

    Prediction:

    DJIA finishes tomorrow up 55 +/- 10 points.

    Further on the topic of epic fails – Worse. Prediction. Ever.

    You are an honorable man Kolohe.

  62. I did not mean to imply that corporate law was uncomplicated.

    El,

    I know. Just taking the opportunity to bitch. 😉

  63. Fluffy, don’t forget the role of local and State governments in restricting new construction under “open space” laws (think San-Francisco).

    These initiatives artificially skewed supply and demand and drove home prices up to the point that people resorted to creative financing in order to buy even a modest home.

  64. While I have just as many concerns about the Federal government as the rest of you, I think that we sometimes forget the old adage that “all politics are local”, and forget just how profoundly municipal, county, and state players affect our lives.

  65. If any of you law and finance types understand more clearly what’s really going on with the corporate universe, I’d love to understand it better.

    It’s not as bleak as it appears. There are hundreds of well-run, profitable, long-term thinking corporations out there. Many of them are intentionally boring and don’t often show up in Business page gossip. If you want to really learn about nonsense-free investing, I highly recommend the free classes from the NAIC (National Association of Investors Corporation).

  66. Here’s the thing–huge lenders made poor choices and should be forced to pay the penalty. Fine. Whatever. In the process of paying this penalty, the credit pool in this country dries up. I have no choice but to pay for college largely through loans. I’m halfway through, and now can’t get a loan to finish. I have to begin paying back what I borrowed whether I finish or not. So the penalty these “losers” are paying–I seem to be paying a stiff one too. What the hell did I do to deserve this?

  67. Capitalism requests you leave it out of the discussion and suggests you call it mixed-ignorance.

    Lately I’m thinking we libertarians should just give up on the word, capitalism. It is now commonly used for what we would call “crony capitalism”. Luckily, the meaning of “free market” is still fairly untainted, although I’ve seen some big efforts to try to sully its meaning, too.

  68. These initiatives artificially skewed supply and demand and drove home prices up to the point that people resorted to creative financing in order to buy even a modest home.

    Your correct about what drives prices up in certain real estate markets, but I was under the impression that the hot spots for creative financing were places like the exurbs and Las Vegas area where land is relatively cheap rather than high-priced housing markets like the San Francisco area. Am I wrong about that?

  69. Creation and destruction are part of the game.

    Capitalists know this. Problem is, it’s an election year and most Americans (and certainly most politicians) haven’t the foggiest notion of what capitalism is.

  70. QUOTE: “People who want to get rid of fractional reserve banking and limited liability basically want to get rid of capitalism, and must want to return to an agrarian economy.”

    That’s baloney (to use a polite word, where another would be more appropriate). There is more than one way to skin a cat. You don’t have to rely on the government to provide the knife. Those who want to get rid of limited liability and fractional reserve banking only want to get rid of government chartered (and therefore special interest) versions of those instruments. If you want to recreate them in individually negotiated contracts, you are perfectly free to do so, but bear the full cost of doing so yourself. Yes, you may not be able to as easily create giants such as Bear Sterns, Fannie May, or AIG, but you also won’t be able to create the moral hazard that comes with them, and where is the problem with that?

    America was a perfectly functional country when it was run by millions of small business bearing their own risk, than it has been under the leadership of of a bunch of overweening mega-national corporations that are gobbling up every last unique aspect of America. There is nothing anti-capitalist about opposing that, only anti-corporate-state.

  71. Tharms, regarding fractional reserve banking, isn’t your problem actually with things associated with fractional reserve banking: fiat currency, legal tender, bailouts?

    Regarding individually-negotiated contracts, do you think there’s any practicality or usefulness to one’s government defining certain default or standard contractual arrangements as long as parties are free to negotiate different arrangements?

  72. Nobody said that capitalism was devised to provide soft landings for hopeless losers.

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