The Economy: Where are we now and what should be done?

[J]

Open discussion time.

We have many conflicting opinions on how bad the current recession is, where the end of the tunnel is, and solutions for getting a recovery started or helping one along. The mainstream media for the most part tells us we've turned the corner and a recovery is just around the bend, and we must help it along by spending money and giving bailouts to all the financials. There are others who say we've bottomed and heading for years of stagnation with continued high unemployment, and we must keep the bailout money flowing and continue deficit spending to avoid a depression. And a very few say we're headed for a depression no matter what we do, and the longer we continue wasting money on failed bailouts & guarantees the worse it'll be for all of us. They say the bailouts need to stop now and the money put towards social support programs so people don't starve in the streets when the crash comes.

So I ask for your opinions, where do you think we are now, how bad do you think things will become, and what kind of policy measures should be undertaken to help us through the recession/depression?

[KrauserKrauser]

Option 3 as I can't make myself believe a word that comes out of Bernanke or Geithner's faces and use the Kramer rule to get the actual news from what they say.

If they say everything is going to be ok, we're all gonna die firey deaths soon.

If they say we're going to have a bad quarter, the world is going to explode and sink into a singularity

etc.

[Darth Wong]

When experts can't even come to the most vague sense of agreement on the economy (and particularly when many of those experts have been spectacularly wrong in the recent past), I don't see what the point is of soliciting our opinions. And it's not as if any of the doomsayers on this forum are necessarily any more reliable; sure, they were right that the economy was headed for a tank last year, but they were also predicting that oil would never drop below $100 a barrel again, and they also denied that market speculation had anything to do with the sky-high prices of the time.

[MKSheppard]

First thing we do, we stop giving out money to Goldman Sachs through various backdoors.

Second, we institute new conflict of interest laws for treasury appointments. At times, it seems that treasury is a revolving door of people coming and going from major finance houses.

[Einhander Sn0m4n]

First thing we do, we stop giving out money to Goldman Sachs through various backdoors.

Full agreement. Let's break the bastards apart with a good whack from an Antitrust Stick™ while we're at it.

Second, we institute new conflict of interest laws for treasury appointments. At times, it seems that treasury is a revolving door of people coming and going from major finance houses.

Again, completely agree. I'd like to see us Audit the Fed and sic the SEC, FBI, and Secret Service on Wall Street, too. Add whoever Feds regulate casino gambling as well! That'll be an economic stimulus that keeps on stimulating long after the fat cats get convicted!

[Darth Wong]

Attacking a few banks we hate will make us feel better but it won't really improve the structural problems in the economy. The problem right now is that we borrowed a decade of prosperity from the near future by encouraging a wave of reckless spending on cheap credit, and guess what: we're now in the future that we borrowed from. That's not an easy problem to fix.

Some would advocate just letting the pain hit everyone full-force so that we get it over with, like tearing off a Band-Aid. However, I would note with some cynicism that the people who advocate this are invariably well set to survive such chaos with minimal suffering. In other words, it's one of those "I'll be personally fine, so what's the problem?" solutions. Frankly, it's contemptible and disgusting, but let's face it: some people have already decided that they don't give a damn about ethics in any shape or form, so why stop now, eh?

Others would advocate finding some way to replicate what happened in the last decade, thus pushing the problem farther into the future. This is the classic "I'll pay off my Visa by getting a cash advance on my Mastercard" solution and it's idiotic. However, I'm sure that a large contingent of the financial industry would advocate this solution because they're experts at raising vast personal wealth quickly and then getting out of the market before it collapses. See the previous paragraph; it's the same mindset.

Something in between seems to be a bit more responsible: try to cushion the pain as much as possible, without going so far that we actually replicating the same foolishness that got us into this mess. Absorb some of the pain now, push some of it into the future. Unfortunately, in a society which divides up all ideas into two polarized camps, this comes off as wishy-washy do-nothing hem-hawing indecisive weakness.

As for the banking industry, rather than attacking any particular banks we should just put some harsh new rules into place, cracking down on speculative investing in general and particularly things like naked short-selling, computerized trend trading, etc. The computerized trend trading leads to a classic example of what a control systems engineer would call an underdamped system. Not that a typical MBA would have any idea what that means. Strict segregation of different financial and commodities markets from each other should also be restored, as well as rules on how much capital a bank must have, etc. Basically bring a fuckton of harsh regulations down on the banks and investment firms: all of them, not just the few that we're pissed off at. Also, raise taxes sharply on investment income. The tax structure should favour people who actually work for their money, not people who acquire it by fucking around with the financial system or having rich parents.

[Rye]

How feasible would it be to wipe out money bonuses all together, instead opting for a time-locked retirement-age share in the company you're working for? Something given for a more sustainable profit. Would that force bankers to play "long term" games instead, making a carrot as well as a stick for dealing with the short term conflicts of interest between individual profit and system-wide growth?

[ArmorPierce]

When experts can't even come to the most vague sense of agreement on the economy (and particularly when many of those experts have been spectacularly wrong in the recent past), I don't see what the point is of soliciting our opinions. And it's not as if any of the doomsayers on this forum are necessarily any more reliable; sure, they were right that the economy was headed for a tank last year, but they were also predicting that oil would never drop below $100 a barrel again, and they also denied that market speculation had anything to do with the sky-high prices of the time.

True. If you keep saying that the economy is going to get worse, you'll eventually hit a dip that you can point to.

Currently, I think everyone is optimistic because people want the economy to get better and people thinking that the economy is getting better often results in the economy actually getting better. Self-fulfilling prophecy. If people believe that the economy is getting better, they are willing to spend more, businesses are able to make more money and able to hire more people.

In order to avoid this from happening again. We obviously cannot go back to what we were doing before. Things to prevent this:
1. Socialize health care, health care cost is the most major cause of home mortgage default.
2. Break up and limit too-big-to-fail banks. This causes excessive risk taking due to moral hazard. Chop them up.
3. Fix executive pay. Less carrots, more stick, balance between the two and shift the compensation to long term performance of the company rather than short term pumping up of the companies financial report in order to cash in those stock options. The current situation results in major moral hazard as executives aren't punished for losses but are handsomely rewarding for short-term gains.
4. More regulation of the financial market period and less of this hands off approach because people are afraid of discouraging growth. Excessive growth results in excessive recessions. The key is to have strong sustainable growth even if that limits present growth.

[muse]

How feasible would it be to wipe out money bonuses all together, instead opting for a time-locked retirement-age share in the company you're working for? Something given for a more sustainable profit. Would that force bankers to play "long term" games instead, making a carrot as well as a stick for dealing with the short term conflicts of interest between individual profit and system-wide growth?

It would help but you'd still have the shareholders to deal with. If the shareholders demand growth now or else they can keep voting out the executives until they get the people in place who will do what they want them to even if it damages the company in the long run. Shareholders generally think in quarterly to yearly timeframes so what benefits them isn't necessarily what's good for company on a generational timescale. I think a big part of the problem is that the major holders of bank shares are other banks, insurance, and financial companies, plus government & private pension plans; they all want to see large short term gains in the bank's shares to keep their own clients & shareholders happy. I work for one of the Canadian banks and even now we have a lot of pressure from shareholders to chase profits & take larger risks, heck, even newspaper "experts" are telling us to up our leverage and commit more money to the game.

[Uraniun235]

What if legal personhood was revoked from corporations... and what if only people (as in individual stockholders) were permitted to vote in corporations? Granted, it wouldn't eliminate short-term profit seekers, but hopefully it would at least ameliorate the demented feedback loop where corporations seeking maximum short-term gain on behalf of their stockholders, themselves vote for maximum short-term gain in the corporations they themselves own stock in.

[Solauren]

In addition to the suggested.

Legalize, Regulate, and Tax drugs of comparable, or less harmful, than to alcohol and tobacco;
This would save money on criminal law enforcement, and prosecution for offenses.
It would also raise tax revenues from sale.

Legalize, Regulate, and Tax the Sex Trade
This would save money on criminal law enforcement, and prosecution for offenses.
It would also raise tax revenues from sale. (Income Tax really)

Regulate the Credit Card Industry
Put enforced limits on number and credit value on credit cards people can have, based on reported income.
Possibly Tie/associate with Sin Number to enforce?

Close down all 'pay day loan' industries. They discourage people from learning to pay their bills.

Regulate all insurance industries that people are required to have by law. Some of those rates are legalized extortion.

More Tax Credits and Rebates for Energy/Environmentally friendly home renovations
- Canadian program. Generates work for people, and lowers monthly bills.

Regulate Housing and Construction Industry
I’m sorry, part of what caused the housing industry to collapse, and hurt the economy, is the unrealistic prices of houses. Locally, a new house is going for $230 (at minimum) - $300,000 dollars. Entire subdivisions of houses in the quarter million dollar range (Or Higher).

How many people can really afford that? Especially if, in a two income family, someone loses their job?

This may cause a slow down in the housing market, but you know what? Someone will start building cheaper houses.

[ArmorPierce]

What if legal personhood was revoked from corporations... and what if only people (as in individual stockholders) were permitted to vote in corporations? Granted, it wouldn't eliminate short-term profit seekers, but hopefully it would at least ameliorate the demented feedback loop where corporations seeking maximum short-term gain on behalf of their stockholders, themselves vote for maximum short-term gain in the corporations they themselves own stock in.

You support creditors being able to go after the share holders for the companies debt? I believe that's the major reason that corporations were given legal personhood status. Maybe we can leave that part in whilst removing other benefits of their current status.

[Uraniun235]

Maybe "legal personhood revoked" is a poor choice of words, then - I'm not a lawyer - but the rights of corporations should not be equated with those of a living person, and in my opinion should in general be severely curtailed and regulated. The important thrust of my post was the idea that corporations shouldn't be allowed to be voting stockholders of other corporations. Non-voting, sure. But amoral entities lurching towards maximum short-term profit at all costs should not be permitted to (inadvertently or otherwise) herd other amoral entities into doing the same.


EDIT: Alternately, I could just go with "I don't own any stocks so I don't care if shareholders get harassed by debt collectors", but that would be the dick post.

[Master of Ossus]

I've actually been thinking a lot about this, recently. I don't think I can give an opinion on where the economy is and where it's going now--I don't know enough. I also won't pretend that these suggestions, even if adopted in some reasonable format, would fix the economy all by themselves. But I do think that they would help:

1. Have the SEC adopt new securitization rules requiring disclosure of the underlying assets on securities, allowing for independent valuations. A big part of the problem with "toxic assets" is that there's no market for them because the due-diligence required to purchase them is so extraordinary that no one (including, often, the holders of the asset themselves) don't fully understand the risks and values of the actual security. That has to stop.
2. I don't have a constructive way to do this, really, but the "No Downgrade Letter" nonsense from rating agencies has to stop. Perhaps, instead of a stupid summary score like "A," "BBB," etc., they could come up with more discrete point scores that would allow for more variation in the scoring of financial assets. Saying, "In isolation, we [Moody's] won't downgrade your asset if you engage in the proposed transaction" is really stupid because any large security asset will likely be modified by many dozens or hundreds of transactions over the course of its lifetime. While any individual transaction may affect too small a portion of the security to substantively change its risks or valuation, in aggregate small transactions can cause large changes in the underlying security [see above]. Having a numerical score (say, 1-10,000) may allow for better reflections of what's going on with assets. It'll significantly change corporate finance, and will doubtless require countless deals to be restructured, but it may provide better informational content to the market. Also, the "No Downgrade Letter" requirements in existing deals will likely have to be restructured to allow for better changes, s.t. you could have "categories," within which a security is meant to fit. "You can't do this unless Moody's and S&P and... will continue to rate the security at no lower than 9,400."
3. End RePo loans--I realize that this was the method du jour for banks to pass their stupid "stress test," and probably that was a big part of the Obama Administration's point, but really it was just another means of concealment. The Administration should've made them all take a haircut and gotten back to the point where people were willing to start lending money, again, because they knew their assets were back in a position where they had already taken their losses and either realized them or been put in such a position that they had essentially taken them--no more "waiting for the market to improve" stuff.
4. Perhaps in compensation for 3, they could've liberalized application of tax rules (if only for the time being) on the realization of losses. Later, this could've been fixed, but in earlier financial crises (e.g., the S&L one), "liberalized" tax rules generated a lot of paper losses that companies actually wanted to take because they foresaw high profits in later periods which they could shield from tax laws through their deferred losses from the present period. Today, there's so much uncertainty as to the regulatory environment that there's a real reluctance to realize losses in the present period for fear that there will be no future gains with which to offset them (or, at least, that the future gains will be far enough in the future that discounted for the time value of money they are small in comparison with the present losses that would be required in order to generate valuable offsets).

[Master of Ossus]

Maybe "legal personhood revoked" is a poor choice of words, then - I'm not a lawyer - but the rights of corporations should not be equated with those of a living person, and in my opinion should in general be severely curtailed and regulated. The important thrust of my post was the idea that corporations shouldn't be allowed to be voting stockholders of other corporations. Non-voting, sure. But amoral entities lurching towards maximum short-term profit at all costs should not be permitted to (inadvertently or otherwise) herd other amoral entities into doing the same.

How does that work? What of wholly-owned subsidiaries? What of joint corporate ventures that have no non-corporate shareholders? Would you just do away with those? Why?

If you're concerned about the pyramidal structure allowed by holding companies, those were essentially eliminated by the US Tax Code in the early 19th century (although they're admittedly still all the rage in virtually every other country). But fundamentally, why should the voting rights of corporate shareholders be curtailed, given that the corporate shareholder is still controlled by underlying shareholders and given that the US has no holding-companies that leverage controlling capital? What is uniquely dangerous or damaging about corporate shareholder voting rights?

In addition, what other rights does a corporation have that you consider problematic because of their legal status as a fictional person?

[LadyTevar]

Get some of the homeless and unemployed gainful work, as per the Civilian Conservation Corps of the 1930s.

[aerius]

Currently, I think everyone is optimistic because people want the economy to get better and people thinking that the economy is getting better often results in the economy actually getting better. Self-fulfilling prophecy. If people believe that the economy is getting better, they are willing to spend more, businesses are able to make more money and able to hire more people.

This only works if people actually have the capability to spend money. I really want to buy a C6RS Corvette right now and I'm totally willing to do it, but I don't have the money to do it and I can't get a loan for it either so no matter how much I want it the transaction ain't happening. Going back to a larger scale, this is true of North Americans as a whole, we've spent well beyond our incomes for years to the point where we have a negative savings rate, and have been borrowing trillions of dollars with credit cards, HELOCs and other loans and spending it on consumer goods. Problem now is the savings are empty and credit's been squeezed off so that people can't spend even if they wanted to. Doesn't matter how happy & optimistic people are and how much they want to spend if the capability to do so isn't there, they have to get their hands on money or credit first before they can spend it.

1. Have the SEC adopt new securitization rules requiring disclosure of the underlying assets on securities, allowing for independent valuations. A big part of the problem with "toxic assets" is that there's no market for them because the due-diligence required to purchase them is so extraordinary that no one (including, often, the holders of the asset themselves) don't fully understand the risks and values of the actual security. That has to stop.

That's definitely part of the problem, with the way the assets get sliced & diced it's damn near impossible to figure out which underlying goes with which security, and hence no way of getting an accurate valuation on it. The sick part is the securities are purposely designed this way, the securitizers don't want the buyers to know what the underlying assets are so that they can make up any price they want when they bundle & sell them. The other part of the problem is that securities are pretty much next to worthless, but the holders refuse to mark them down. For example, many securities which are backed by HELOCs or 2nd mortgages are worthless since the recovery on the underlying is zero when the home defaults & forecloses. However the holders continue to hold them at 80% of full value when their actual worth is probably around a nickel on the dollar, which happens to be where all the bids are.

4. Perhaps in compensation for 3, they could've liberalized application of tax rules (if only for the time being) on the realization of losses.

This has been done already, which is how Wells Fargo got something like $18 billion in future tax write-offs when they bought Wachovia for $15 billion or so. I could be off a couple billion either way, but I'm 100% sure that they got more in write-offs than the cost of the purchase.

[Lord Insanity]

How about making it such that the highest paid "employee" of a company can not make more than ten times the lowest paid employee. For example in order for a CEO to qualify for a 20 million dollar bonus the company must be so well off the lowest paid guy gets a 2 million dollar bonus and everyone else on up gets something in between. Basically if a company is going tits up the CEO should not get squat unless the people who actually need their jobs are getting likewise compensated.

[Darth Wong]

In addition, what other rights does a corporation have that you consider problematic because of their legal status as a fictional person?

The right to freedom of expression via monetary donations, which has been interpreted as a blank cheque for corporations to engage in political lobbying efforts.

[Master of Ossus]

How about making it such that the highest paid "employee" of a company can not make more than ten times the lowest paid employee. For example in order for a CEO to qualify for a 20 million dollar bonus the company must be so well off the lowest paid guy gets a 2 million dollar bonus and everyone else on up gets something in between. Basically if a company is going tits up the CEO should not get squat unless the people who actually need their jobs are getting likewise compensated.

So the CEO of McDonald's is worth $75/hour? That's a painfully retarded idea.

The right to freedom of expression via monetary donations, which has been interpreted as a blank cheque for corporations to engage in political lobbying efforts.

Personally I don't see this as being nearly as problematic as the hyperventilating internet crowd views it, but I can buy that we might want to scale this back. I don't see how doing so will fundamentally change the economy.

[Darth Wong]

The right to freedom of expression via monetary donations, which has been interpreted as a blank cheque for corporations to engage in political lobbying efforts.

Personally I don't see this as being nearly as problematic as the hyperventilating internet crowd views it, but I can buy that we might want to scale this back. I don't see how doing so will fundamentally change the economy.

In the short term, it wouldn't. But corporate lobbying influenced a lot of the financial deregulation atmosphere that led to the "asleep at the switch" situation which in turn precipitated this meltdown.

[aerius]

The right to freedom of expression via monetary donations, which has been interpreted as a blank cheque for corporations to engage in political lobbying efforts.

Personally I don't see this as being nearly as problematic as the hyperventilating internet crowd views it, but I can buy that we might want to scale this back. I don't see how doing so will fundamentally change the economy.

It won't change all that much, but what it does do is help prevent companies from buying off politicians so they can get favourable laws passed for them along with removing pesky laws which get in their way. For instance Gramm-Leach-Bliley which repealed the last part of Glass-Steagall wouldn't have passed without massive lobbying by the financials, and the leverage limit removal in 2004 wouldn't have happened either. If Glass-Steagall and the leverage limits were still in place, the meltdown wouldn't be as severe and it would be confined to the investment banks instead of taking out the entire financial sector and getting us to where we are now. On top of that the stimulus money would go towards the people who need it instead of being given to the banks so they can go gamble some more and suck the Treasury dry.

[Darth Wong]

There should also be some way to shut down clandestine lobbying efforts, like the bullshit "non-partisan citizens' advocacy groups" which turn out to be a front for yet more corporate lobbying.

[Broomstick]

Out of pure self-interest, I vote for a better social safety net.

Oh, and more/better work. Right now my biggest problem is there is no work to be had. No one in my circle of acquaintances is able to get full-time hours. Just as right now you can't get a loan, right now there doesn't seem to be full time work.

[Master of Ossus]

Again, I can buy that socially we should look into how corporations finance and lobby various political measures, but I don't see these types of lobbying activities as problematic because companies are involved. I think the problem is broader than that: that we should restructure how political campaigns and groups and lobbyists are financed, but I don't think that stopping companies fixes or even addresses the main problem--structuring political finance so as to strike a balance between free expression and effective legislation should be the objective.

Edit: I'll go further. I think that companies affirmatively should have influence and input in national politics--they should have a voice about legislation coming out that will affect their operations or their shareholders. I understand that under the current rules of political financing their involvement can create problems, but I view this as endemic to the entire modern system of political financing and lobbying--it's not uniquely bad because some company is involved. You can't have a reasoned discussion about net neutrality bills, for instance, that doesn't involve AT&T, Comcast, Google, and eBay. That shouldn't be the objective. I can buy that companies might have too much influence, or that we might restructure their political involvement so it's not based on their status as artificial individuals (that strikes me as being an incredibly outdated view of firms), but the problems with campaign finance neither start nor end with corporate involvement.