Either-Or Politics
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Either-Or Politics
| Fri, 09-19-2008 - 7:53pm |
There is an excellent explanation at freakonomics about how the Bear, AIG, etc. unfolded. Be sure to click the link and read.
But this discussion is being placed under politics because of the following quote lifted from the comment section of that article. What may have precipitated it was an early question in the comments about whether, after so much money is diverted to holding up the markets, there will be any left for the government to provide services to the American people and a later response asking if the Norquist plan "starve the beast" to reduce the government might be in play. I don't know but this rant is a good rant showing a main issue in the political divide - what is politics and what is economics. Despite the obvious politics of the author, the question he raises, if you remove ideology and think about it, is intriguing. Note how he only sees the far left, far right ideology. Why do people think this way? I have always considered blind loyalty to an unwavering ideology to show that one is either too stupid, scared, needy, etc. to face a session with reality or is a denial of facing the truth that unfolds from the real data as ideologies bring us to the brink of danger or disaster. So what do you think about this comment - not it's ideology (which is obvious) but it's perception of the world and answers as either-or and a matter of swinging the pendulum between extremes?
But this discussion is being placed under politics because of the following quote lifted from the comment section of that article. What may have precipitated it was an early question in the comments about whether, after so much money is diverted to holding up the markets, there will be any left for the government to provide services to the American people and a later response asking if the Norquist plan "starve the beast" to reduce the government might be in play. I don't know but this rant is a good rant showing a main issue in the political divide - what is politics and what is economics. Despite the obvious politics of the author, the question he raises, if you remove ideology and think about it, is intriguing. Note how he only sees the far left, far right ideology. Why do people think this way? I have always considered blind loyalty to an unwavering ideology to show that one is either too stupid, scared, needy, etc. to face a session with reality or is a denial of facing the truth that unfolds from the real data as ideologies bring us to the brink of danger or disaster. So what do you think about this comment - not it's ideology (which is obvious) but it's perception of the world and answers as either-or and a matter of swinging the pendulum between extremes?
quote: freakonomics blogs nytimes
In my university economics courses almost 40 years ago, we read Galbraith and had Marxist professors rant about capitalism. My conclusion out of all of this is do not confuse your economic system with your political system. This administration created or at least perfected the fusion of the two: crony capitalism. Putting George W. Bush in charge of this country was like putting a highly trained pig, sorry Sarah, as a pilot , in the cockpit of a Boeing 747. We learned about the efficiency of free markets. Galbraith noted that these markets were never free and that as capital became more concentrated market forces stopped working. Oh have they stopped working.
Econometrics rose and a Nobel prize was created for economics. Now the Nobel Prize group should create a prize for economic sophistry for this truly characterizes what we have been subjected to in the past 30 years. The prize would go to the economist who writes something that the fewest people understand. In the end, the mathematical gibberish that filled the journals created the opportunity for these republican con artists to loot this nation. We can only be thankful that a valiant group of Democrats in 2006 were able to resist the efforts of the fool in the White House to expend his “political capital†as he said to privatize social security. Had he been successful, probably two or three trillion dollars more would have gone into this financial conflagration and gone up in smoke while the cronies put several hundred billion dollars of that into their pockets. We must strengthen our democratic institutions and always remember the difference between republicans and Democrats is that republicans want one dollar to have one vote and the Democrats want one person to have one vote. We must not confuse our political system with our economic system and we must insure that our democracy works to represent and protect the people and not these monsters who have created the economic version of genocide.

I like to call it air and asset. There was a bubble. The bubble was worldwide. It was not purely American mortgages so let us assume for the explanation that the air was 30% and the asset backed values was 70%. Of that, lets assume, 15% was in the funny American mortgage category. These were sold worldwide via investments in the American Financial services. Most of these services operate out of the US but are multi-national corporations with worldwide operations. (Read about AIG) When we shift the bad debt held to the American taxpayer, we are saying that the taxpayer will assume the obligation to make good on all the debt, not just that that was bought within the US.
If ones assumes that socialism is an economic ideology which it is, then this is a form of socialism where all Americans share the loses in 15% of the private debt by shifting it to public debt. It is not being shifted to public debt to create a socialist economy, it is being shifted to save a private economy. But sometimes the result is more socialism - the government share of ownership in the private sector increases. This measure was taken to increase confidence, especially worldwide, that multi-national financial services centered in the US would make good on the lies that were sold - namely that junk was sold as AAA asset. Even now no one has got their arms around the value of the debt being absorbed into the transfer to the taxpayer. Right now if it were sold on the open market, I have seen bid estimates as low as 10 cents on the dollar. Rumors have it that the taxpayers may pay 50-65 cents on the dollar. I hope these upper estimates are correct valuations and the taxpayer will, in time, be made whole or make a profit. We will have to wait until next week to see the entire plan.
The success of the moves that are currently being enacted have economical impact on all taxpayers. They are assuming the risk that was previously concentrated in private and semi-private entities. It has no political flavor as it is pure socialism. If it works all will win. If it fails, the private sector will win at the expense of the taxpayer but may ultimately also lose if the liquidity needed does not materialize. It boils down to the taxpayer buying the debt at a good price. Shifting to government ownership of the debt did not reduce the risk of the debt unless the risk was accessed (guessed?) accurately. It reduced the risk of the previous owners of that debt by shifting that risk to the American taxpayers (full faith and credit). The bet is that the world still considers the US to be a good risk.