House Republicans Reject Package, Dow Falls Over 700 Pts

[Todd]

Fortunately we still have a capitalist economy and are not dependant on the government to formulate an energy policy.  While the tax credits were renewed with the TARP legislation, which will help, ultimately high prices are the best incentive.

True enough, but if oil prices fall during the recession like they always do during recessions, then incentives to alter current energy use will begin to shrink.  Hopefully, the oil intensity of GDP will drop like it did as a result of 70s oil politics.  I'm not sure we should just wait around to see if that happens, and since there are other reasons to reduce oil consumption, including strategic considerations, then a nudge in the direction of less oil consumption seems like more than a good idea. 

[drogulus]

     Government action is always deeply entwined in the capitalist economy, which relies on sound decisions for capitalism to continue. Free markets are an artificial construct by governments. They don't exist in nature, a fantasy conservatives are misled by.

     

True enough, but if oil prices fall during the recession like they always do during recessions, then incentives to alter current energy use will begin to shrink.  Hopefully, the oil intensity of GDP will drop like it did as a result of 70s oil politics.  I'm not sure we should just wait around to see if that happens, and since there are other reasons to reduce oil consumption, including strategic considerations, then a nudge in the direction of less oil consumption seems like more than a good idea. 

      You're right, and this is why our capitalist economy need sound decision-making at the government level. We need to set the rules markets play by and alter events in a favorable direction. Even if your ideology tells you governments can't do this well, they still need to do it as well as they can, because ideologically inspired drift is a policy, too, and usually a bad one.

[Catison]

Free markets are an artificial construct by governments. They don't exist in nature, a fantasy conservatives are misled by

This coming from a follower of Darwin?  Surely you don't mean to imply that nature is governed by some central authority?

[drogulus]

This coming from a follower of Darwin?  Surely you don't mean to imply that nature is governed by some central authority?

    Of course not. Central authorities evolve, too. They don't just appear out of the void, do they? 

    I see where you're coming from here, but the mistake is an obvious one. Self-organizing systems like universes and complex societies must have an evolutionary history to explain them, since you can't start from complexity, you have to build it up over time. And there's nothing contradictory about invoking the authority of a central control system once you've designed it. The error seems to be that human control systems need a metaphysical justification or inspiration. They don't, and that's good because there's no way such a thing could exist or reason why it should. It gets everything backwards. Design is a consequence rather than a creator of everything that's evolved. That's the whole point of the evolutionary paradigm shift. Everything else is just a thinly disguised creationism, sometimes dressed up in modern language, but creationism nonetheless.

[ezodisy]

Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years...

[Todd]

Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years...

That's not so bad considering the US wasn't in recession 40 years ago.  Perhaps he meant to say 35 years.

[drogulus]

     If we are in recession now, it hasn't been for long, since the economy will still growing slowly until very recently. That's using the official definition of 2 quarters of negative growth. By that standard some downturns are barely recessions at all. You might have negative growth for a few months followed by 2 years of very slow growth with high unemployment and tight credit. There should be a real world definition that encompasses all forms of economic distress even when some growth is happening. By that measure we've been in a recession for about a year.

The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent.

      It could get that bad, I guess. The part that sounds right to me is the length. The home prices may have stabilized. In many parts of the country home prices haven't gone down that much. Unemployment will go up, but 9% for the whole country seems too high. It's 6.1% now (Sept. figures). I'd be surprised if it goes much over 7%.

[ezodisy]

interesting take with graph:

In past downturns we have reached a bottom when the S&P Price / Earnings ratio falls below 10. We are currently around 12.

[Catison]

I see where you're coming from here, but the mistake is an obvious one. Self-organizing systems like universes and complex societies must have an evolutionary history to explain them, since you can't start from complexity, you have to build it up over time. And there's nothing contradictory about invoking the authority of a central control system once you've designed it.

Then centralized governments don't come out of nature either.  So what is this criticism of free markets?

[Florestan]

Then centralized governments don't come out of nature either. 

Actually centralized governments are against nature and their establishment was accompanied everywhere by terror and supression of dissents. Witness, among others, that monstrous paradigm of centralism, the French Revolution.

[adamdavid80]

...we are sooooo off-topic....

(yikes!  just took a look at the DJI...it's fallen about 400 pts in about an hour...christ!)

[drogulus]

Then centralized governments don't come out of nature either.  So what is this criticism of free markets?

     I love free markets. They are just not described correctly.

Actually centralized governments are against nature and their establishment was accompanied everywhere by terror and supression of dissents. Witness, among others, that monstrous paradigm of centralism, the French Revolution.

     Governments create free markets, and they are against nature only in the way that nature is against itself. Nature gives rise to humans who create central authorities and then posit a central authority that created everything. It's an honest mistake, that's all.

     Certainly central authorities can be evil and make bad decisions, but the decision to create an artificially equal playing field for economic actors was not one of them.

[ezodisy]

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
   
-Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)

[Catison]

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
   
-Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)

Jefferson, for all his brilliance did not have the advantage of 200 years of economic research that we do.  He was wildly against the central bank.  Perhaps we should find some quotes from Alexander Hamilton?

[Florestan]

Perhaps we should find some quotes from Alexander Hamilton?

How about these two?

All communities divide themselves into the few and the many. The first are the rich and wellborn, the other the mass of the people...The people are turbulent and changing; they seldom judge or determine right. Give therefore to the first class a distinct, permanent share in the government. They will check the unsteadiness of the second, and as they cannot receive any advantage by a change, they therefore will ever maintain good government

When occasions present themselves, in which the interests of the people are at variance with their inclinations, it is the duty of the persons whom they have appointed to be the guardians of those interests, to withstand the temporary delusion, in order to give them time and opportunity for more cool and sedate reflection.

[ezodisy]

Perhaps we should find some quotes from Alexander Hamilton?

Why has government been instituted at all? Because the passions of man will not conform to the dictates of reason and justice without constraint.

or, more cryptically,

You should not have taken advantage of my sensibility to steal into my affections without my consent.

[ezodisy]

lol!

Deutsche Boerse Cuts Volkswagen DAX Weighting Following Surge

By Nadja Brandt

Oct. 28 (Bloomberg) -- Deutsche Boerse AG reduced Volkswagen AG's weighting in the DAX Index to 10 percent after the shares surged almost fivefold in the past two days.

The rally had driven the company's weighting in the measure to 27 percent from 6.8 percent on Oct. 24, according to data compiled by Bloomberg.

[drogulus]

    I found this interesting post over at The New Republic, responding to an article on the financial crisis:

     The situation is not that complicated. The banking system has to be taken in hand much more firmly. This means (1) clearing and then guaranteeing interbank liabilities amongst banks who are subject of a common regulatory regime, (2) getting bad assets, funded debt, and derivatives off the books of financial institutions of all kinds by pushing them up to a holding company level and then letting the bondholders and shareholders sort it out without bothering the rest of us, (3) inject capital where needed and restrict unacceptable uses of cash, such as dividends, with a covenant structure that only goes away when government investment has been redeemed -- not so tragic, just what banks do to private firms when they lend them a lot of money; I've written more cash flow covenants than I can count, (4) limit compensation to executives of more than $1 million to payment with stock that is restricted for 10 years or until government investment is redeemed, whichever is late; (5) impose effective regulation of the leverage of financial institutions -- no more of that off-balance sheet/derivative nonsense by which they conceal their liabilities -- and limit the loans they can make to unregulated financial institutions such as hedge funds.

If the hedge funds want to lose their own investors' capital, let them. It is when they are using funds that come from the regulated financial system that we have trouble. As they are unregulated, and there is not really a point in regulating them directly, let them do whatever they want so long as their leverage is limited by limiting the exposure of regulated institutions -- you see, lending by institutions to highly levered unregulated institutions is another means by which they slip the bonds of regulation. Knowledgeable people do understand how this can be done; it is only that the deregulation fanatics have been all too happy to concede everything to the pleas of the regulated that they need a free hand (to pretend) to make as much money as possible before someone else does.

Finally, we must let bankruptcy courts cram-down mortgages to limit the damage being done to real estate markets and to keep people who can afford the market value of their homes at modest interest rates in those homes. All it takes is the political will to tell the bad boys to sit in the corner, face the wall, and shut the hell up until this is over. If we do these things, we will not have financial institutions hoarding cash because they will have no means of making money other than to lend it -- except that so long as demand continues to fall, no one is going to invest anything. Why should they? The supply-side wackos and monetarists are simply wrong, about almost everything other than the fact that printing too much money inevitably produces inflation, not a deep insight. Anyone who owns a business will tell you that they do not invest a dime unless they believe they have demand for the output. They don't invest and put their principal capital at risk merely because tax rates or interest rates are low. THEY HAVE TO THINK THERE WILL BE A RETURN IN THE FIRST PLACE. A recession is now inevitable because the downswing in spending has repercussions for employment that cannot be reversed on a dime. The ship has too much momentum downward. Hence, the downward trajectory will continue for some time no matter what even as we push upward upon it. If the financial system is properly recapitalized (see above), we must simultaneously get money into the hands of the people at the bottom of the economic pile who will spend every cent they get.

As private investment will be slack, this is also the time to shift toward massive government investment in infrastructure, something we badly need to do anyway as this place is falling apart. And we need to start taxing the rich to pay for a big chunk of this. As they are not going to be investing much in the near term anyway and their consumption as a percentage of their wealth is trivial, it is time to get back some of the wealth that has been forked over to them by Bush & Co. They will be hungry for new investment opportunities soon enough once their capital starts to erode. In answer to the question, a pretty deep recession is inevitable at this point. It need not be long if the financial sector is dealt with properly and the government moves to put money in the hands of consumers who will spend it and to replace missing demand for private investment with demand for public investment. Do we have the political will to tell all the right-wing supply-side monetarist bullshit artists to go screw themselves, or must things become truly dire, a depression, before we do so?

[adamdavid80]

The House passed the bill, and Bush signed it.  OUR ECONOMY IS SAVED!  Now we can concentrate on global warming.

Well, the economy is hardly saved, but there is this...

http://www.nytimes.com/2008/11/19/us/politics/19climate.html?hp