He begins his article with, “Consumer confidence and spending is up, as are new home sales. Good news, right? Clusterstock has 25 questions to put to people who think the economic recovery is real.”
Let’s hear from a real expert:
Are We Going The Way Of The Weimar Republic?
Rod Dreher asks that very question in his May 25th Column from belief.net. I believe (and hope) that he is mistaken. We lack the pain of losing the first World War and many of the strains on the fabric of society that they had that are not present here. Nevertheless it’s a good read. I like Dreher. I don’t always agree with him. But agreeing with me is only a small part of being a good writer. (a very small part)
This is a short video on Weimar:
Credit Card Reform?
Credit Card Reform?
The Senate passed a law that will force credit card companies to reduce fees for debit card transactions.
I have often said that these institutions simply cannot be fought by individual card holders. A single human being is but an insignificant statistic to a corporation of this size. Only the government can stand up for you on these kinds of issues.
In a true free market society, credit card companies would have to compete. The competition we see in this field is not price based but based on the successful amount of fine print allowing extra fees and penalties. You win by apparent price advantages when a whole reading of a document many pages in length is necessary to give you an idea of the real costs. This isn’t capitalism, it’s the law of the jungle, it’s the consumer as prey animal like a rabbit to a wolf.
Take a look at what I’m talking about. –
Blow Out Preventer On BP Rig Would Have Cost 1/2 Million
Blow Out Preventer On BP Rig Would Have Cost 1/2 Million
That’s right folks. According to the Houston Chronicle, a blow out preventer on the rig would half cost an astronomical 1/2 million dollars. Oh the horror! I can see the giant multi national corporation British Petroleum teetering into bankruptcy and, God knows, what do you think?, $300 dollars a barrel for oil and gasoline so precious we have to trade pure gold for it?
A half mil doesn’t even come close to an executive bonus. A half million is chicken feed, chump change, pocket money, etc. and they wouldn’t spend it.
In 2003, the Department of Interior’s Mineral Managements Service reversed a Clinton era decision to require the preventers. All Hail! Hosanna to the free market. We all know that companies confronted by the real world will do what’s best for the public because it’s in their interest.Isn’t that the Friedman doctrine? A perfect world run by perfectly coordinated self interest. Don’t you love it? It works perfectly. In the financial world, in coal mines, with baby cribs and now with off shore drilling we find that impersonal market forces drive the highly intelligent, hard working corporate boardroom elites toward the best possible decisions.
Or it could be such total blithering nonsense that only a self interested business buffoon could take it seriously. Just maybe?
Now, a fairly large proportion of America’s sea coast is being or about to be struck by an oil slick larger than an average European nation. I’m thrilled.
I don’t know if a half million dollar preventer would have averted the crisis, but I do wish someone had tried it.
James Pilant
Read Americans For Financial Reform’s Call To Action
Read Americans For Financial Reform’s Call To Action
Americans for financial reform want to change the predatory financial system that has done so much harm to our country. Please take a moment and have a look at their “call to action.”
Take a look at The Young Turks as they do a phone interview with the director of AFR.
Matt Taibbi’s Blog
Matt Taibbi’s Blog
Matt Taibbi is one of my heroes. He tells it like it is and if he feels the need for a few obscenities, he puts them in. And why not, he writes about the financial crisis and analyzes the irresponsible behavior of the financial sector and the government. I have trouble talking about them without using obscenities and I sometimes do.
If you don’t have his blog on your favorites, you’re missing out.
Watch –
Social License
“Social License” is a term straight from the textbooks of the squishy soft science of sociology. However, it is an interesting and important concept. Social license is the willingness of others to tolerate your activities. An example might be the willingness of the neighbors to tolerate your bizarre lawn decorations. Presumably your lawn jockey although tasteless and ugly will be found tolerable while a Greek statue of the 5th BC will feature nudity and drive the local religionist into convulsions and conniption fits and send them straight to the city for new municipal rule banning art. See, you lost your social license.
Of course, social license has more serious ramifications for the society at large. A good article in Slate discusses these implications. There is serious discussion here of how the perception of behavior determines whether or not organizations are able to continue in the face of social consensus.
It’s a good read, I recommend it.
Rating Agencies Were Part Of The Disaster On Wall Street
Rating Agencies Were Part Of The Disaster On Wall Street
If the rating agencies were key players in the financial mismanagement that destroyed eight million jobs and threatened the world’s economy, why are they not included in the financial reform bill now before the Senate? Alain Sherter wants to know why. So do I.
This is a report from “Now” – a PBS program. In this particular episode an insider from a credit rating agency explains what happened.
Here is Alain Sherter explaining more about this ratings disaster –
The ratings agencies business model is based on a flagrant conflict of interest — they’re paid by the firms whose credit they evaluate. That makes them vulnerable to pressure from investment banks and securities issuers, which naturally want a bullet-proof rating in order to attract investors.
In the years leading up to the housing bust, Moody’s, S&P and Fitch passed out AAA ratings like candy bars at Halloween. In mid-2007 and early 2008, with the real estate market in free-fall and mortgage delinquencies soaring, they suddenly started downgrading scads of formerly top-rated securities. In January of ‘08, for instance, S&P lowered ratings on more than 6,300 and 1,900 CDOs — in a single day. Then, the deluge. The bottom fell out of the secondary market for subprime loans, and the rest is history.
Without the credit rating industry giving triple A ratings to these risky investments, the tragedy that has engulfed and continues to damage the lives of so many Americans would not have been possible.
What are these people not being called on the carpet or prosecuted for conduct that seems to many observers to look very similar to fraud?
James Pilant
Madoff and Shapiro, Ponzi Schemes?
Madoff and Shapiro, Ponzi Schemes?
Ponzi Scheme (from Wikipedia)
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff’s investment scandal demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff’s variant of the Ponzi scheme stands as the largest financial investor fraud committed by a single person in history. Prosecutors estimate losses at Madoff’s hand totaling roughly $21 billion, as estimated by the money invested by his victims. If the promised returns are added the losses amount to $64.8 billion, but a New York court dismissed this estimation method during the Madoff trial.
Nevin Shapiro is accused of stealing around 80 million dollars from investors. Like most Ponzi scams, everyone wanted to believe. Read the article.
One Thousand Banks Closed?
One Thousand Banks Closed?
Could 300 to 400 banks be closed by the government this year? It’s likely. Currently 185 banks have been seized by the government. Another 300 would almost reach the halfway point to a thousand and it is highly unlikely that the current economic crisis will have significantly improved in a single year.
He believes as I do that the collapsing real estate market is going to produce serious losses in bank income. Those of you who take my classes are well aware of my predictions of a serious commercial real estate crisis and a further increase in the seriousness of our current economic plight.
The FDIC reports there are 702 banks on its problem bank list. Of course historically only a little more than a fourth of the banks on the list have failed. I believe we are in a far more serious economic crisis than we have seen before and I strongly agree with James Dunne’s numbers except that I think will be worse. I’ll predict 450 closures by the end of this year.
This is going to be a long, hard economic crisis and we have NOT encountered the worst.
James Pilant
Pilant's Business Ethics Blog 
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