Oh well...

[symbioidlj]

So now, you recall my posts on the Term Auction Facility, whereby the Fed loans cash to banks (who are flat-ass broke), and they've done over 200b, IIRC, of these loans.

Well NOW the Fed is doing a coordinated deal with other Central Banks (primarily EU and London), with a thing called Term Securities Lending Facility. This is *another* way for them to pump out 200b dollars in loans, on top of the other loans from TAF. This one apparently takes debt from the banks as, what, collateral??? Isn't this the same as CDO (Collateralized Debt Obligation?) Isn't that *exactly* what got us into the subprime bullshit? I don't know what the deal is with this.

If any of the other financial dudes on my list (I only know of 2 who've been following this stuff fairly closely, at least 2 who read my LJ) have better knowledge on this, please let me know. I'm not sure what the deal is here, except, that it sucks.

Comments

[roadriverrail.livejournal.com]

I guess I'm confused by your statement that the only way to grow an economy is credit or theft. I always thought the idea was that as productive capacity grows, so does profit. Or something like that. Obvious, you have so many other factors (demand, for one).

Improving productive capacity requires investment in labor, plant, and equipment. The money to do that has to come from somewhere. Either you borrow it, gather investors and split profits, or you rely on a supply of "free" labor, plant, and/or equipment. There's a reason that Chapter 2 of any book on film making discusses budget and how to court investors.

Like I said. I can give you an economy of 10 people (maybe less) and show you how adding person 11 requires credit.

The idea was that interest was generated by the reproduction of sheep. This is how value grew naturally.

I said your choice was to take credit or declare something "free". In this case, pastureland is "free". If the herder had to pay by the blade of grass, he would need a loan for every lamb born.

We, as a tool-making creature, have invented machines that can create more machines.

They aren't invented for free, serviced for free, or running for free.

I guess it just bothers me that people jump from one commodity to the next in the hope of some magical value raise, and waiting to cash out. There's some sense of disequilibrium there, and that's why I feel like a lot of this is just more shell games. Look, let's take your bad valued stuff, and, give you money for it.

I understand your anger at speculators. I really think, though, that you are viewing the problem of a few who are "far away". They're not. They're all around us, here and now. For better or for worse, they're the heart of the system. It's easy to show this-- every major recession or depression begins with a cascade of defaults on credit.

When you say "nationalize" the financial system, do you mean to bring it back to the founding fathers thoughts (banks, inflation, deflation, slaves on the continent their forefathers conquered, yada yada???)

No. I mean I think the government needs to exert far more control over banking. It's not without its own problems, but I think our rather loose control over banks has shown itself to be a problem again and again.

Generally, in public policy, the verb "to nationalize" means "to put under control of the government".

I guess the way I see it is that nothing rises forever, and that we will eventually have to face a downturn.

I disagree. Downturns are the result of an unsustainable process. If the process is made more sustainable, the oscillations will be smaller and slower.

But at this rate, we are feeling pain, regardless.

If we're not careful, the pain we could experience will make this look like the setup to a joke that's not funny. In the words of Al Gore, I am super-serial. Neither of us has a means to gauge how unhappy things will get because it'll be the first time in both of our lives.

[symbioid.livejournal.com]

Improving productive capacity requires investment in labor, plant, and equipment. The money to do that has to come from somewhere. Either you borrow it, gather investors and split profits, or you rely on a supply of "free" labor, plant, and/or equipment. There's a reason that Chapter 2 of any book on film making discusses budget and how to court investors.

And where do these investors get their money? It's all rooted in the physical world. That's what I'm trying to get at. This is what baffles me. On the one hand, everything we do is rooted in physicality, yet economics and the concept of interest is this weird intangible thing. We've got a chicken and egg thing. Why do we pay investors? Because they gave the money. Why did they get the money? Because they invested it. Why aren't the laborers getting the money and investing it (and yes, in this case it is also an investment, but it's coming from it's own productive capacity).

Honestly, my brain can't handle this kinda stuff right now :(

That said, I'll try to focus on the easier (IMO) things:

1) I get that speculators are all around us. Hell, in 97 I wanted to buy stock. I don't know if that counts towards your "all around us", but like, my boss is always asking me to check on his stocks. Or Brent (or I believe, you, or abadman all own stocks, whether through work or individual investment)

2) I mean I think the government needs to exert far more control over banking.

I guess this is what I'm asking. Do we revert to the constitutional "Congress shall have the power to coin..." or do we just add more oversight to the private institutions who run the joint? What level of nationalization do you mean?

3) I disagree. Downturns are the result of an unsustainable process. If the process is made more sustainable, the oscillations will be smaller and slower.

In this case, we're really talking about scale. An oscillation is a downturn. But in the long run, things are always going up, I mean, even after the great depression. So in that sense, yes, things keep rising. Of course, Mother Earth has a finite supply, and we haven't run out yet, but you and I both know we're on an unsustainable course. It's temporarily sustainable, I suppose. True sustainability is homeostatic. Which means there is a limit to growth, and I think we've hit that limit (when it comes to true sustainability). But that's a whole other topic, now, innit?

[roadriverrail.livejournal.com]

And where do these investors get their money?

Generally, from things that were claimed "free". This gave the initial seed wealth to allow the engine of credit to turn over.

It's all rooted in the physical world. That's what I'm trying to get at. This is what baffles me.

This is kinda like saying you're baffled that you can't read Italian because English and Italian both "contain letters". Currently, the only place where economics is genuinely rooted in the physical world is in the Land of Economic Ideals, which is next door to the Universe of Platonic Ideals. Economics is only rooted in the physical world to our extent that we see physical limitations or the rare moments when these physical limitations actually slap us in the face.

Economics is rooted only in human behavior. If it were rooted in the physical world, then there'd have never been an unpaid externality on CO2 pollution and we probably wouldn't be facing global warming.

We've got a chicken and egg thing. Why do we pay investors? Because they gave the money. Why did they get the money? Because they invested it.

You really need to slow down and start at the beginning. You're observing a complex engine in motion when what you need is to start with a non-moving engine with few parts. The most basic economy contains two people. Start there, with a farmer who grows grain on the land "for free" and sells it to a herder who raises sheep on the land "for free". Contrive the barter process. Abstract it to money. Then start adding new actors. You'll need credit the moment you have currency and the farmer or herder wants to expand their operations.

In response to your points:

(1) No. I meant that your insurance company is doing it and so is your bank and whoever is managing whatever pensions you might have. If you'd like to see your insurance premiums stay at their current levels, then you have a vested interest in speculators doing well, because the moment the insurance company's investments don't do well, you'll see your premium go up several times over.

(2) I think it's pretty fair that the government should set stringent regulatory targets for the balance sheets of banks as well as what kinds of financial instruments may exist. If Congress approves shitty securities, we can at least fire them.

(3) Actually, true stability is homeostatic only over variables you want it to be homeostatic over. There is no reason to believe that you can't hold the variables of environmental and social justice fixed while productivity and cleverness bring us more stuff with fewer inputs. I think there is a maximum, though, at which point we either need the population to become static or we need to find new planets to live on. If you go back to what I mentioned about how the credit cycle or "things for free" become necessary in economic expansion, you'll also see that the essential driving force for economic expansion is population expansion.

That said, I was addressing what I believed was you arguing that the business cycle is inevitable. I don't know that it is, but if you use the engine metaphor again, the private sector is basically one cylinder in an engine. Keynsian economics attempts to strap in a second cylinder in the form of government spending and tax policy. The second cylinder, just like in an engine, runs in the opposite direction of the first, providing continuous engine output and a technically sustainable process (so long as credit's available).