Gory Details of the Bailout:

[Lago PARANOIA]

It won't ever be updated; the guy has been dead for almost 10 years.

I'm a hateful little cuss, so I fully subscribe to the 'executed by Richard Mellon Scaife' theory.

[Koumei]

If someone comes out and tells you that open markets make peace, punch them in the face.

Duly noted. And a doctor someone in the medical field recommended it, so it must be a good idea!

You know, I have always hated mathematicians, and this justifies it all completely. I should have known they can't be trusted, eating the same meal several times per day, spitting at people, not moving unless hit with a stick...

[CatharzGodfoot]

You know, I have always hated mathematicians, and this justifies it all completely. I should have known they can't be trusted, eating the same meal several times per day, spitting at people, not moving unless hit with a stick...

Those are camels, not mathematicians. I'm sure that in Australia that's an easy mistake to make.

[Koumei]

Terry Pratchett suggests that the two are in fact one and the same.

And my math teacher in high school closely resembled a camel. I'm sure that a poll would reveal statistics suggesting he is more likely a camel than a human.

[Username17]

Yup, amazing, and significantly more interesting than any econ lecture I ever heard. It's also a seriously depressing read at the end, because these asshats are still going. I don't know if it's sadder if they actually believe it or if they just don't care.

The best rundown on that for modern times is The Shock Doctrine by Naomi Klein. Long and the short of it: they benefit tremendously and directly from the claims, so it doesn't really matter if they are just blowing smoke or actually converted.

-Username17

[Crissa]

I figured out what the 'populist' House Republicans are holding out for: 'mark to market'.

Apparently, they want a law change that allows banks to use the value or something as they decide the value of it, rather than the value on the market now.

That would solve a problem... But at a cost to transparency. It'd basically be the same thing as hiding assets in the fetid combos that have blown up the financial sector. Just making it legal.

-Crissa

[Josh_Kablack]

Jebus.

"mark to market" was key in the Enron shell game.

It has a valid accounting use.

Singular.

[Username17]

Well, from a corruption standpoint, mark to market is just a time saver. So long as the government has agreed to be the non-optional buyer of last resort on all the bad debt, the banks can simply in-kind swap their bad investments back and forth for whatever amount they agree to pay each other, thus setting the "market price" to some arbitrary (and presumably large) amount of money. What mark to market really does is admit what we've said for a long time: the free market is bad at setting prices.

It over reacts to news. Good news sends stock prices climbing faster and higher than the news warrants. Bad news lowers prices faster and harder than the news warrants. The system isn't really set up to do things efficiently, but rather to give disproportionate profits to large scale speculators with a jump on news. And of course, that's an extremely dangerous place to throw 700 billion dollars of pre-set payments.

-Username17

[Surgo]

I thought mark to market meant pegging something's value to the current market price?

[Josh_Kablack]

Well, that depends precisely what your definition of "current" is, as of the time of the marking:

Here's the recent IRS update on mark-to-market:

http://www.irs.gov/irb/2007-26_IRB/ar14.html

it's really dense but the key point is that for tax purposes, you can mark asserts to market value "as of the last day of the year".

How many billion you want to bet that a bunch of the toxic securities are worth a lot less right now than they were on december 31st, 2007?

For other accounting purposes, the specific date/time may vary.

[Josh_Kablack]

In the wake of the current crisis Nobel Committee Attempts Penance for Chigaco School awards, denies that's what it's doing.

[Username17]

Ha.

That's a good one. It's like when they gave Amartya Sen the prize in the middle of the Asian Currency Crisis back in 1998. Every so often they remember that their plan is fucking stupid and they try to make themselves relevant by giving out some prizes to some people who have been right all along.

-Username17

[Judging__Eagle]

Seriously, the key to a good society is to not let the rich get too rich, or let the poor get too poor.

The fact that publicly traded companies have no motive to do anything except increase stockholder value runs at counter-purposes with many other things. Like ethics or morality.

[RandomCasualty2]

Seriously, the key to a good society is to not let the rich get too rich, or let the poor get too poor.

Yeah, pretty much.

Its really why I think that there should be a general cap on the max income a person can get in a year.

I'm not talking about a company, I'm just talking about one individual person, like the CEO of a company or the owner.

The real problems tend to arise when people get way more money than they can spend, and thus that money is basically taken completely out of circulation, instead of going back to the economy. For all intensive purposes, that money is gone. Investing money in businesses can be good because it creates jobs and fuels the economy, but simply letting some CEO garner a ridiculous $20 million personal salary and then sit on the money is bad. Real bad, and we should stop that by just capping people's income at some point. Anything beyond that gets taxed 100% or something. So it goes right to the government.

[Lago PARANOIA]

I am a little sad that the Nobel committee has been so besmirched by their sucking offs of the hellspawn in which Friedman M-Pregged out his ass.

I'd rather not have Krugman's nobel victory tainted by such a sordid history. Neo-Keynesian policies haven't gotten nearly the recognition it needs nor deserves despite it being completely fucking accurate about the state the economy will end up in.

[CatharzGodfoot]

I am a little sad that the Nobel committee has been so besmirched by their sucking offs of the hellspawn in which Friedman M-Pregged out his ass.

I'd rather not have Krugman's nobel victory tainted by such a sordid history. Neo-Keynesian policies haven't gotten nearly the recognition it needs nor deserves despite it being completely fucking accurate about the state the economy will end up in.

It's not a real Nobel prize anyway, so who gives a fuck?

[Absentminded_Wizard]

The fact that publicly traded companies have no motive to do anything except increase stockholder value runs at counter-purposes with many other things. Like ethics or morality

The problem is that the emphasis is so often on *short-term* rather than long-term shareholder value. Adam Smith was right in saying that everything works out well for everybody if people look after their long-term self-interest. The problem is that a lot of people only look after their interests in the short-term, which leads to doing stupid things that screw people over and eventually cause problems for the whole economic system.

The real problems tend to arise when people get way more money than they can spend, and thus that money is basically taken completely out of circulation, instead of going back to the economy.

You're falling into the trap of thinking that money that isn't spent can't help the economy. That's not true. Money that is saved or invested in ways that allow businesses to raise capital can have a positive impact on the economy. The problem is that everybody's favorite thing to do with extra money is to put it in the stock market, and most stock transactions actually don't result in money going back to businesses, where it can be used to create capital. Unless you buy the share when it is first issued by the company, the money is going to another investor who is probably just going to buy more stock, with about the same chance that that money will ever find its way into the real economy.

[Username17]

Adam Smith was right in saying that everything works out well for everybody if people look after their long-term self-interest.

Honestly, even this claim is highly dubious, as it requires omniscience on the part of every single actor in the economy, which is absurd. Everyone's long term interest is served by maximizing the knowledge and power of the group. Honestly when you take into account kin selection, environmental degradation, and the benefits of specialization, everyone's long term interest looks exactly like radical communism, which isn't what Adam Smith was talking about at all.

You're falling into the Chicago trap. The thing isn't just that their theories don't accurately model human behavior in the real world, it's that their models aren't even theoretically true. Mass selfishness doesn't produce the positive results that they say it does. At any level.

-Username17

[JonSetanta]

So, can anyone explain why gas has now been dropping by about 10 cents a day since the Stock Market pulled a massive Fail?

PLEASE? THIS IS GETTING CREEPY AND MAKING SENSE

e.g., Stock Market = bad for economy

[Lago PARANOIA]

You're falling into the Chicago trap. The thing isn't just that their theories don't accurately model human behavior in the real world, it's that their models aren't even theoretically true. Mass selfishness doesn't produce the positive results that they say it does. At any level.

You don't even have to look very hard to find appropriate counterexamples.

Discounting externalities (which the Chicago school will never have an answer for), there's the two crippling facts that debunk their core theories:

A) Human beings are not exclusively selfish. Humans engage in both altruistic and destructive behavior every day. Even when human beings are behaving selfishly, there's absolutely no guarantee that this will produce positive economic ends. Very simple example: feudal lords exploited their peasants for fantastic profit, but if they had liberalized their system they would've ended up even richer than before. Just look at Russia for example. They had over four centuries to watch the rest of Europe abandon feudalism as an economic model and watched their own economy go into the shitter, but the ruling class kept their same shaggy dog model even though they would've been richer. Stalin completely skull-raped that poor country and it still ended up richer than before.

B) Chicago school assumes perfect knowledge in their actors, which is just crazy. Go buy a try to buy used car sometimes.

[Username17]

Stock Market = bad for economy

Not entirely. But mostly, yes. The stock market is actively bad for the economy as a whole. Sure, there is some positive outcomes: a high stock market is a socially acceptable way to create value and thereby increase capital investment, and a high stock market encourages companies to sell stock in order to finance capitalization. But honestly, those are pretty small effects compared to the fact that a rising stock market encourages monetary investment in the stock market - which itself doesn't produce, serve, or do anything.

To a very real extent, every dollar spent moving stocks around is a dollar that isn't putting a sandwich on a plate, water in a fire hose, or a child through school. When people are incentivized to move stocks around instead of produce things, production falls.

But I think the guy who said it best was Economist Joseph Stiglitz.

-Username17

[Lago PARANOIA]

Well, fuck it. I'm up late. Let's go into externalities a little bit.

First of all, let's talk about the Coaese Theorem, because this is the crown jewel in the Chicago school's tiara of horseshit.

Quick history, markets cause negative spillover effects that have to be solved by government action. Such as pollution. Now, if pollution was confined solely to, say, someone's house it'd be easy to solve. Either the person would make a contract to let the market pollute in their house or they'd sue them in court to make them stop polluting. The problem with this comes into effect when externalities affect resources that aren't owned by anyone. Deciding how much a market gets to pollute and how they should compensate you falls onto the onus of the public at large (by elections and such), which of course is government intervention.

Since economic conservatives hate government intervention, they've come up with their own crackpot theory so that the market can take care of it all on their own. So, Coase theorum. First of all, they want to divide up all the property so that it's privately owned. All of it, even the fucking ocean and skies. From then on, externalities are handled like this.

If you own the property and someone wants to abuse it, they pay you to abuse it. For example, if some douche meteor wanted to construct an oil derrick next to your want which blows black smoke around, you sell them some of your air to pollute. If you didn't own the air around it but didn't want to watch an ugly black sky and birds getting killed off, you would pony up the money for anti-pollution machinery or fucking deal with it.

I'm sure anyone who doesn't have their head stuck up their asses can already see the tons of problems with this economic theory. But I won't go into them now. I just want to point out that fully applying the Chicago school's ultimate goal would end up requiring people to pay to avoid getting acid rained on. That's fucking fucked up.

Needless to say, like I said before the fact that Obama wants to solicit advice from these cranks makes me really nervous.

[Username17]

Coase's Invariance Thesis is comedy gold.

He claims that regardless of who owns the property initially, the most "efficient" use of the property will be eventually produced because the more efficient users can pay the less efficient users to use the resources.

This is, on the face of it, complete bullshit. For starters, if two users have similarly efficient uses for the property and one of them owns it already, then the owner guy will be using it. Unless the profitability of the non-owner is so high that he can pay the other guy the entire value and still make a profit, it just ain't going to happen. Ownership is therefore "sticky" in that no one is going to be willing to rent out someone's entire property and put it to some other use and take all that risk unless the rewards are large.

Imagine for the moment that you have a piece of land (Coase used radio frequencies, but whatever), and you're doing something with it that makes 10,000 dollars. I have an alternate plan that will make 10,002 dollars. Coase would have us believe that both you and I would be willing to have me rent your land from you for 10,001 dollars such that both of us would make a dollar. Mutually beneficial, so obviously we'd do it, right? Fuck no! I'm not going to invest my time and effort and risk my livelihood for a frickin dollar. That's retarded. No one is going to do that.

Which comes down to the basic flaw in Coaseian theory: ownership doesn't create the most profitable setup unless the most profitable setup is obvious and also substantially larger than whatever the owner happened to be doing anyway. If in the previous example my alternate plan was going to make 30,000 dollars, one could easily see how you might be willing to trade away your land rights for an additional 5,000 in profit and how I might be willing to take all that risk for 15,000 bucks. But if the differences are small or uncertain, ownership is in fact very unlikely to give you the "best" use.

Even from the stand point of "best" used by Coase - namely to make the most money in profit.

-Username17

[Lago PARANOIA]

Even from the stand point of "best" used by Coase - namely to make the most money in profit.

Of course, the real bullshit of the Coase theory is that it results in wildlife rape, environmental degradation, and pretty much having to pay people not to kill you. I mean, the corporatists in this nation have pretty much entrenched the meme of caring about the environment=Unamerican and that people getting killed by pollution isn't a big deal.

But since these fuckers don't care about things like having a clean water supply, only how much money is made, I'm glad we can at least point out that their own bullshit theory doesn't even help them best accomplish their sociopathic goal.

If in the previous example my alternate plan was going to make 30,000 dollars, one could easily see how you might be willing to trade away your land rights for an additional 5,000 in profit and how I might be willing to take all that risk for 15,000 bucks. But if the differences are small or uncertain, ownership is in fact very unlikely to give you the "best" use.

Of course, someone might ask that if someone's use of someone else's resource had that big of a profit margin then why wouldn't the original owner implement the business plan anyway. For example, going back to your original idea of 10002 dollars versus 10000 dollars, if the guy who already owned the land put in the same business plan, he'd make a killing.

The wealth concentration implications are just staggering. This will obviously create a monopoly. Of course, since all of the private property is already owned, how are we going to break this up?

[CatharzGodfoot]

According to the New York Times, the bailout is currently being used to create a banking monopoly.