Mr. Galbraith notes that the speculative bubble in America in the late 1920's did not go unnoticed around the world. In fact, the demand to borrow for stock purchases was so great that the whole world got into the act. Galbraith writes:
This cost was being assumed, in the first instance, by the New York banks, but they, in turn, were rapidly becoming agents for lenders the country over and even the world around. There is no mystery as to why so many wished to lend so much in New York. One of the paradoxes of speculation in securities is that the loans that underwrite it are among the safest of all investments... At the beginning of 1928 this admirably liquid and exceptionally secure outlet for non-risk capital was paying around 5 per cent. While 5 per cent is an excellent gilt-edged return, the rate rose steadily through 1928, and during the last week of the year it reached 12 per cent. This was still with complete safety.
In Montreal, London, Shanghai, and Hong Kong there was talk of these rates.... A great river of gold began to converge on Wall Street, all of it to help Americans hold common stocks on margin. Corporations also found these rates attractive. At 12 per cent Wall Street might even provide a more profitable use for the working capital of a firm than additional production. A few firms made this decision: instead of trying to produce goods with its manifold headaches and inconveniences, they confined themselves to financing speculation. Many more companies started lending their surplus funds on Wall Street.
There were still better ways of making money. In principle, New York banks could borrow money from the Federal Reserve bank for 5 per cent and re-lend it in the call market for 12 per cent. In practice they did. This was, possibly, the most profitable arbitrage operation of all time.
Heh, the rhymes are almost drowning out my laughter at Mr. Galbraith's uber-cool writing! Complete safety...
For one, it seems to be accepted in the popular press that our global economy is a new phenomenon. It is not. Our great-grandparents lived in a global economy. They use telegraph instead of email, and steamship and railroad instead of planes and cars, and they read newspapers instead of blogs, but as Mr. Galbraith points out the speculative party in New York in the 1920's was an open one --- just as the wild securitization of crappy US home loans, and then of everything else that could be securitized, drew in partygoers from around the globe.
Secondly, the presumed bullet-proof quality of the collateral underlying our stew of CDOs, CLOs, CDSs, etc parallels the assumptions back then about the money-good nature of stock-margin loans. The Joe Cassano's of the world --- he being the magnificently remunerated mastermind of AIG Financial Products, the biggest pigeon at the poker table if ever there was one --- were not mindless idiots. They really felt they were dealing based on solid collateral, just as Mr. Cassano must have been certain the CDS insurance he sold would never face claims. (Or was he?)
Thirdly, finance in the late 20's became so attractive that companies dropped production to engage in it. Why does that sound familiar? GE, anyone? In general the premium for clever finance operations grew rapidly in their era and ours --- why be a loser and operate a low-margin manufacturing business when you could hit a home-run on Wall Street, especially if you can develop a reputation riding the tide inside a respected franchise, say Goldman or Merrill, and then cash in with a 2-and-20 deal?
Thinking of global, here comes a random comment. The current generation of Chinese government leadership is largely composed of people who were trained as engineers. It is widely presumed that the next generation will be lawyers and MBAs, as this is understood to be a self-evident and natural evolutionary progression for a successful modern society. Might they want to investigate that self-evident truth?
Tuesday, December 2, 2008
Crimes far worse than murder
Galbraith writes:
Hoover was elected in a landslide. This, were the speculators privy to Mr. Hoover's mind, should have cause a heavy fall in the market. In his memoirs Mr. Hoover states that as early as 1925 he became concerned over the "growing tide of speculation." During the months and years that followed this concern gradually changed to alarm, and then to something only slightly less than a premonition of total disaster. "There are crimes," Mr. Hoover said of speculation, "far worse than murder for which men should be reviled and punished." As Secretary of Commerce [under President Coolidge] he had sought nothing so much as to get the market under control.
Mr. Hoover's attitude toward the market was, however, an exceptionally well-kept secret. People did not know of his efforts, uniformly frustrated by Coolidge and the Federal Reserve Board, to translate his thoughts into action. The news of his election, so far from causing a panic, set off the greatest increase in buying [ of stocks ] to date.
Who will be our Hoover, our secretly-frustrated woulda' been unsung hero, who instead of being tarred with supposedly helping to cause the Panic should have been enabled to prevent the bubble(s) that led to the Panic and downturn? Only time will tell, although we can surely cross a few names off the list now, like those of Greenspan, Bernanke, Rubin, Summers, and Paulson, Cox, Pitt, and, sadly because he strikes me as a man of great decency and generally superb judgement, Arthur Leavitt. I'm not sure about Paul O'Neill or Bill Donaldson. Certainly on the surface O'Neill may merit some consideration for his robust ability to annoy his bosses during the early years of the Bush II regime.
And what about speculation and 'crimes far worse than murder? ' Did Hoover have a point, or was he just dramatically evincing the bitterness that comes with looking back in deep sorrow and frustration at one's own failures? I think Hoover had a legitimate point: you can kill people in many ways, say, by starving them to death instead of shooting them, as Mr. Stalin and henchmen demonstrated so tragically in the Ukraine during the 1930s. (Hoover knew this better than most --- prior to serving Coolidge as Secretary of Commerce he led the US famine relief effort in Russia in the early 1920s.) And there is no doubt too the Great Depression did in more than just the few broken speculators who jumped during the Crash of '29. If this Panic of 2008 spins out of control --- and no one in their right mind wants it to do so --- people will starve to death, somewhere, as a direct result of economic activity needlessly reduced by the modern-day equivalent of the speculation Hoover so detested.
Hoover was elected in a landslide. This, were the speculators privy to Mr. Hoover's mind, should have cause a heavy fall in the market. In his memoirs Mr. Hoover states that as early as 1925 he became concerned over the "growing tide of speculation." During the months and years that followed this concern gradually changed to alarm, and then to something only slightly less than a premonition of total disaster. "There are crimes," Mr. Hoover said of speculation, "far worse than murder for which men should be reviled and punished." As Secretary of Commerce [under President Coolidge] he had sought nothing so much as to get the market under control.
Mr. Hoover's attitude toward the market was, however, an exceptionally well-kept secret. People did not know of his efforts, uniformly frustrated by Coolidge and the Federal Reserve Board, to translate his thoughts into action. The news of his election, so far from causing a panic, set off the greatest increase in buying [ of stocks ] to date.
Who will be our Hoover, our secretly-frustrated woulda' been unsung hero, who instead of being tarred with supposedly helping to cause the Panic should have been enabled to prevent the bubble(s) that led to the Panic and downturn? Only time will tell, although we can surely cross a few names off the list now, like those of Greenspan, Bernanke, Rubin, Summers, and Paulson, Cox, Pitt, and, sadly because he strikes me as a man of great decency and generally superb judgement, Arthur Leavitt. I'm not sure about Paul O'Neill or Bill Donaldson. Certainly on the surface O'Neill may merit some consideration for his robust ability to annoy his bosses during the early years of the Bush II regime.
And what about speculation and 'crimes far worse than murder? ' Did Hoover have a point, or was he just dramatically evincing the bitterness that comes with looking back in deep sorrow and frustration at one's own failures? I think Hoover had a legitimate point: you can kill people in many ways, say, by starving them to death instead of shooting them, as Mr. Stalin and henchmen demonstrated so tragically in the Ukraine during the 1930s. (Hoover knew this better than most --- prior to serving Coolidge as Secretary of Commerce he led the US famine relief effort in Russia in the early 1920s.) And there is no doubt too the Great Depression did in more than just the few broken speculators who jumped during the Crash of '29. If this Panic of 2008 spins out of control --- and no one in their right mind wants it to do so --- people will starve to death, somewhere, as a direct result of economic activity needlessly reduced by the modern-day equivalent of the speculation Hoover so detested.
Glimpsing the Genius of Capitalism, and Leverage
Galbraith writes:
As noted, at some point in the growth of a boom all aspects of property ownership become irrelevant except the prospect for an early rise in prices. Income from the property, or enjoyment of its use, or even its long-run worth is now academic....
Such is the genius of capitalism that where a real demand exists it does not go long unfilled...
The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise, and almost beautiful. Banks supply fund to brokers, brokers to customers, and the collateral goes back to banks in a smooth and all but automatic flow...
Wall Street, however, has never been able to express its pride in these arrangements...
Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot.
Whoa! Where do we, in the midst of the Panic of 2008, start looking for rhymes? Somehow the Time Magazine cover of February 15, 1999, comes to mind when I think of Mr. Galbraith's stunning harlot metaphor. It shows a happy troika of Messrs. Rubin, Greenspan, and Summers, looking for all the world like true financial statesmen with the utmost gravitas. Time Magazine does not reveal that less than a year earlier these three had concocted, along with Arthur Leavitt of the SEC, to prevent Congress and the CFTC from seriously considering applying some kind of regulatory oversight to the budding Credit Default Swap business. Instead it applauds them for pulling together a temporary coalition of self-interested banks to prevent the 1998 collapse of Long Term Capital Management from toppling many other banks and financial companies.
Natural are analogies to a similar effort by JP Morgan himself to staunch the panic in 1907. But sadly missing in the 1999 Time paean to the troika's genius is an awareness that these gentlemen had put a band-aid on the problem at hand while aggressively sawing off the only limb in the body politic that might have saved the patient -- they killed regulation of OTC derivatives so decisively that no one could stop Enron, and then AIG and the banks, from their appointed rounds with destiny.
And Mr. Galbraith's admiration for the beautiful flow of collateral in support of speculation, written in 1954 about the rather simple stock-margin machinery of 1929, could with almost no adjustment apply happily to the CDO, CDS, CLO, ABCP, MBS, CMBS etc. machinery of our time. Was Mr. Galbraith so prescient? Were our financial leaders and regulators so dumb? Or is it just a matter of finding ourselves, once again and this time with a real pounding hangover that won't go away, to have been charmed by the harlots in the black cotton stockings?
As noted, at some point in the growth of a boom all aspects of property ownership become irrelevant except the prospect for an early rise in prices. Income from the property, or enjoyment of its use, or even its long-run worth is now academic....
Such is the genius of capitalism that where a real demand exists it does not go long unfilled...
The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise, and almost beautiful. Banks supply fund to brokers, brokers to customers, and the collateral goes back to banks in a smooth and all but automatic flow...
Wall Street, however, has never been able to express its pride in these arrangements...
Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot.
Whoa! Where do we, in the midst of the Panic of 2008, start looking for rhymes? Somehow the Time Magazine cover of February 15, 1999, comes to mind when I think of Mr. Galbraith's stunning harlot metaphor. It shows a happy troika of Messrs. Rubin, Greenspan, and Summers, looking for all the world like true financial statesmen with the utmost gravitas. Time Magazine does not reveal that less than a year earlier these three had concocted, along with Arthur Leavitt of the SEC, to prevent Congress and the CFTC from seriously considering applying some kind of regulatory oversight to the budding Credit Default Swap business. Instead it applauds them for pulling together a temporary coalition of self-interested banks to prevent the 1998 collapse of Long Term Capital Management from toppling many other banks and financial companies.
Natural are analogies to a similar effort by JP Morgan himself to staunch the panic in 1907. But sadly missing in the 1999 Time paean to the troika's genius is an awareness that these gentlemen had put a band-aid on the problem at hand while aggressively sawing off the only limb in the body politic that might have saved the patient -- they killed regulation of OTC derivatives so decisively that no one could stop Enron, and then AIG and the banks, from their appointed rounds with destiny.
And Mr. Galbraith's admiration for the beautiful flow of collateral in support of speculation, written in 1954 about the rather simple stock-margin machinery of 1929, could with almost no adjustment apply happily to the CDO, CDS, CLO, ABCP, MBS, CMBS etc. machinery of our time. Was Mr. Galbraith so prescient? Were our financial leaders and regulators so dumb? Or is it just a matter of finding ourselves, once again and this time with a real pounding hangover that won't go away, to have been charmed by the harlots in the black cotton stockings?
Monday, November 17, 2008
Andrew Mellon and incantations in lieu of knowlege
One of Mr. Henry Paulson's predecessors was Andrew W. Mellon, US Treasury Secretary under Calvin Coolidge. In the summer months of 1928 the stock market briefly swooned, and as the presidential election approached there was concern that a victory by Al Smith, Democratic governor of NY, and a Democratic congress would lead to a real swoon.
Mr. Mellon addressed these concerns in September, 1928, as Galbraith writes:
Andrew W. Mellon said,"There is no cause for worry. The high tide of prosperity will continue."
Mr. Mellon did not know. Neither did any of the other public figures who then, as since, made similar statements. These are not forecasts; it is not supposed that the men who make them are privileged to look farther into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great.
Gentlemutt: Who engaged in such marvelous incantations during the time leading up to the Panic of 2008? Or more accurately, who is your favorite candidate for the Andrew Mellon 'no-worries' prize? We know from experience our government leaders are so prone to this behavior that nowadays it hardly seems fair to poke fun at them for merely going through the motions and playing their required role. On the other hand, for a few weeks in autumn 2008 there was a fun video clip on youtube that certainly brought to mind a few deserving candidates, including Ben Stein. These people actually get paid by, heh, heh, the forces of the free markets to charm us, so surely they are most deserving of the 'no-worries' prize.
NB: The youtube clip of Peter Schiff versus Stein et al has apparently been taken down, evidence of the ephemera of the internet when the lawyers or censors get involved -- or just the ephemera of the internet, for that matter. Presumably the attorneys for one of the networks or for one of the now-embarrassed 'chanters' have forced the removal of this educational gem. This is a pity, since we all, yours truly most of all, surely need vivid and recent reminders of the dangers of public pontificating.
Mr. Mellon addressed these concerns in September, 1928, as Galbraith writes:
Andrew W. Mellon said,"There is no cause for worry. The high tide of prosperity will continue."
Mr. Mellon did not know. Neither did any of the other public figures who then, as since, made similar statements. These are not forecasts; it is not supposed that the men who make them are privileged to look farther into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great.
Gentlemutt: Who engaged in such marvelous incantations during the time leading up to the Panic of 2008? Or more accurately, who is your favorite candidate for the Andrew Mellon 'no-worries' prize? We know from experience our government leaders are so prone to this behavior that nowadays it hardly seems fair to poke fun at them for merely going through the motions and playing their required role. On the other hand, for a few weeks in autumn 2008 there was a fun video clip on youtube that certainly brought to mind a few deserving candidates, including Ben Stein. These people actually get paid by, heh, heh, the forces of the free markets to charm us, so surely they are most deserving of the 'no-worries' prize.
NB: The youtube clip of Peter Schiff versus Stein et al has apparently been taken down, evidence of the ephemera of the internet when the lawyers or censors get involved -- or just the ephemera of the internet, for that matter. Presumably the attorneys for one of the networks or for one of the now-embarrassed 'chanters' have forced the removal of this educational gem. This is a pity, since we all, yours truly most of all, surely need vivid and recent reminders of the dangers of public pontificating.
Winston Churchill
Afficionados of Britain's more recent currency crises will enjoy this: aside from winning world wars Mr. Churchill had amazing market-timing skills.
Galbraith writes:
In 1925, under the aegis of the then Chancellor of the Exchequer, Mr. Winston Churchill, Britain returned to the gold standard at the old or pre-World War I relationship between gold, dollars, and the pound. There is no doubt Churchill was more impressed by the grandeur of the traditional, or $4.86, pound than by the more subtle consequences of overvaluation, which he is widely assumed not to have understood. The consequences, nonetheless, were real and severe. Customers of Britain had now to use these costly pounds to buy goods at prices that still reflected wartime inflation. Britain was, accordingly, an unattractive place for foreigners to buy. For the same reason it was an easy place in which to sell.
Like a kind of Zelig who specialized in financial disasters, Mr. Churchill also appears front and center in the narrative on October 24,1929 (aka Black Thursday):
Rumor after rumor swept Wall Street...Stocks were now selling for nothing. The Chicago and Buffalo exchanges had closed. A suicide wave was in progress, and eleven well-known speculators had already killed themselves.
At twelve-thirty the officials of the New York Stock Exchange closed the visitors gallery on the wild scenes below. One of the visitors who had just departed was showing his remarkable ability to be on hand with history. He was the former Chancellor of the Exchequer, Mr. Winston Churchill.
Gentlemutt:
Whatever his deficiencies as a market-timer, to Mr. Churchill are attributed numerous great quotations, some of them accurate. Click here for a few chuckles:
http://www.winstonchurchill.org/i4a/pages/index.cfm?pageid=388
Galbraith writes:
In 1925, under the aegis of the then Chancellor of the Exchequer, Mr. Winston Churchill, Britain returned to the gold standard at the old or pre-World War I relationship between gold, dollars, and the pound. There is no doubt Churchill was more impressed by the grandeur of the traditional, or $4.86, pound than by the more subtle consequences of overvaluation, which he is widely assumed not to have understood. The consequences, nonetheless, were real and severe. Customers of Britain had now to use these costly pounds to buy goods at prices that still reflected wartime inflation. Britain was, accordingly, an unattractive place for foreigners to buy. For the same reason it was an easy place in which to sell.
Like a kind of Zelig who specialized in financial disasters, Mr. Churchill also appears front and center in the narrative on October 24,1929 (aka Black Thursday):
Rumor after rumor swept Wall Street...Stocks were now selling for nothing. The Chicago and Buffalo exchanges had closed. A suicide wave was in progress, and eleven well-known speculators had already killed themselves.
At twelve-thirty the officials of the New York Stock Exchange closed the visitors gallery on the wild scenes below. One of the visitors who had just departed was showing his remarkable ability to be on hand with history. He was the former Chancellor of the Exchequer, Mr. Winston Churchill.
Gentlemutt:
Whatever his deficiencies as a market-timer, to Mr. Churchill are attributed numerous great quotations, some of them accurate. Click here for a few chuckles:
http://www.winstonchurchill.org/i4a/pages/index.cfm?pageid=388
Sunday, November 16, 2008
On speculation (1)
Galbraith writes:
One thing in the twenties should have been visible even to Coolidge. It concerned the American people of whose character he had spoken so well. Along with the sterling qualities he praised, they were also displaying an inordinate desire to get rich quickly with the minimum of effort. The first striking manifestation of this personality trait was in Florida. ...
In Florida land was divided into building lots and sold for a 10 percent down payment. ... The buyers did not expect to live on it; it was not easy to suppose that anyone ever would. But these were academic considerations. The reality was that this dubious asset was gaining in value by the day and could be sold at a handsome profit in a fortnight. It is another feature of the speculative mood that, as time passes, the tendency to look beyond the simple fact of increasing values to the reasons on which it depends greatly diminishes. And there is no reason why anyone should do so as long as the supply of people who buy with the expectation of selling continues to be augmented as a sufficiently rapid rate to keep prices rising.
Gentlemutt:
10% down means 10x leverage, and it means that a 10% drop in the price of the asset will wipe out your equity in that asset, so it didn't take much to pop the Florida real estate bubble of the 1920s. This is why small community banks typically require that you be able to put at least 25% down before they will think about lending you money to buy a house or car or equipment for your company. (And this 'abundance of caution' is why sleazebag lenders like Countrywide, WaMu, and countless mortgage company chop shops could step in and offer no-money-down loans once they figured out that they could sell the loans to other suckers before the loans went bad.)
Now jump forward 75 years and imagine what 20x or 30x or 40x leverage meant for firms like Bear Stearns, Lehman, Goldman, and Morgan Stanley -- razor thin ability to withstand a real downdraft in the value of the assets they held. ( 20x leverage means you put up only $5 and then borrow $95 to buy $100 of assets, so a 5% drop in the value of those assets means you are toast when your bankers refuse to extend your loans.) In retrospect Bear Stearns and Lehman Brothers were certainly broke long before the global marketplace for credit --- their bankers --- finally shut them down. (And BS and LB management may have violated the Sarbanes-Oxley law, amongst others, by pretending to be solvent long after they were not.)
Mr. Galbraith goes on to mention Charles Ponzi's imaginary residential developments near the imaginary city of Nettie, Florida. William Jennings Bryan, he of the high principles and onetime Secretary of State under Woodrow Wilson, earns honorable mention for allowing himself to be enlisted to help sell swampland to suckers and speculators. Who was the Bryan of our era? I admit to being partial to Robert Rubin, for moving effortlessly from upright dollar-defending Treasury Secretary under Clinton to Chairman of Citibank while it revved up to destroy itself, although given Rubin's earlier and quite lucrative career at Goldman Sachs he admittedly was never quite as fervent in his defense of the little guy as was Bryan. Rubin's eventual role in unleashing unregulated credit derivatives on the unsuspecting suckers, including his buddies Sandy Weil and then Chuck Prince at Citi, will be his legacy. On second thought I am being quite unfair to William Jennings Bryan.
And Peter O. Knight, a prominent businessman after whom an airport near Tampa is now named, merits special attention from Mr. Galbraith for expressing concern about the negative public relations affect from the solicitation of funds for Red Cross relief in the aftermath of the 1926 hurricane.
Mr. Knight was evidently a hard man.
One thing in the twenties should have been visible even to Coolidge. It concerned the American people of whose character he had spoken so well. Along with the sterling qualities he praised, they were also displaying an inordinate desire to get rich quickly with the minimum of effort. The first striking manifestation of this personality trait was in Florida. ...
In Florida land was divided into building lots and sold for a 10 percent down payment. ... The buyers did not expect to live on it; it was not easy to suppose that anyone ever would. But these were academic considerations. The reality was that this dubious asset was gaining in value by the day and could be sold at a handsome profit in a fortnight. It is another feature of the speculative mood that, as time passes, the tendency to look beyond the simple fact of increasing values to the reasons on which it depends greatly diminishes. And there is no reason why anyone should do so as long as the supply of people who buy with the expectation of selling continues to be augmented as a sufficiently rapid rate to keep prices rising.
Gentlemutt:
10% down means 10x leverage, and it means that a 10% drop in the price of the asset will wipe out your equity in that asset, so it didn't take much to pop the Florida real estate bubble of the 1920s. This is why small community banks typically require that you be able to put at least 25% down before they will think about lending you money to buy a house or car or equipment for your company. (And this 'abundance of caution' is why sleazebag lenders like Countrywide, WaMu, and countless mortgage company chop shops could step in and offer no-money-down loans once they figured out that they could sell the loans to other suckers before the loans went bad.)
Now jump forward 75 years and imagine what 20x or 30x or 40x leverage meant for firms like Bear Stearns, Lehman, Goldman, and Morgan Stanley -- razor thin ability to withstand a real downdraft in the value of the assets they held. ( 20x leverage means you put up only $5 and then borrow $95 to buy $100 of assets, so a 5% drop in the value of those assets means you are toast when your bankers refuse to extend your loans.) In retrospect Bear Stearns and Lehman Brothers were certainly broke long before the global marketplace for credit --- their bankers --- finally shut them down. (And BS and LB management may have violated the Sarbanes-Oxley law, amongst others, by pretending to be solvent long after they were not.)
Mr. Galbraith goes on to mention Charles Ponzi's imaginary residential developments near the imaginary city of Nettie, Florida. William Jennings Bryan, he of the high principles and onetime Secretary of State under Woodrow Wilson, earns honorable mention for allowing himself to be enlisted to help sell swampland to suckers and speculators. Who was the Bryan of our era? I admit to being partial to Robert Rubin, for moving effortlessly from upright dollar-defending Treasury Secretary under Clinton to Chairman of Citibank while it revved up to destroy itself, although given Rubin's earlier and quite lucrative career at Goldman Sachs he admittedly was never quite as fervent in his defense of the little guy as was Bryan. Rubin's eventual role in unleashing unregulated credit derivatives on the unsuspecting suckers, including his buddies Sandy Weil and then Chuck Prince at Citi, will be his legacy. On second thought I am being quite unfair to William Jennings Bryan.
And Peter O. Knight, a prominent businessman after whom an airport near Tampa is now named, merits special attention from Mr. Galbraith for expressing concern about the negative public relations affect from the solicitation of funds for Red Cross relief in the aftermath of the 1926 hurricane.
Mr. Knight was evidently a hard man.
Calvin Coolidge on prosperity and Galbraith on distribution of income
Galbraith wrote:
On December 4, 1928, President Coolidge sent his last message on the state of the Union to the reconvening Congress. Even the most melancholy congressman must have found reassurance in his words. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding..."
Galbraith goes on:
There was much good about the world of which Coolidge spoke. True, as liberal misanthropes have insisted, the rich were getting richer much faster than the poor were getting less poor.
Gentlemutt:
My view is that the Panic of 2008 was broadly a function of the gradual triumph, and then unquestioned acceptance, of all things "free-market" in the sixteen years of the Clinton-Bush era, and not merely some simplistic result of the mindless mendacity and cronyism for which George Bush II's regime will sadly long be known (quite unfairly to the many people who did their best to serve it well). It took a loooong goodtime during the 1990's and 2000's to bring us to the sorry state of affairs we see in late 2008, just as many things were good and improving in American life in Cal Coolidge's era.
It matters not that Coolidge was a Republican and Clinton a Democrate; Coolidge's farewell speech could have been Clinton's. Remember, we're talking about rhymes here, not repetition. The social dry rot of accelerating disparity in incomes was common to both regimes.
One question, with a long preface, comes to mind for those who feel that income distribution should be decided purely by 'the free markets.' When we speak about the distribution of prices, say in the stock or bond markets, we talk about the rough bell curve those distributions typically take, and the wider the disparity between high and low prices the greater the stated 'volatility.' Large and growing (ie, excessive) volatility in stock or bond prices seems to be generally accepted as a bad thing. At least, it is true that in recent months heart-stopping volatility created so much uncertainty as to paralyze many markets, especially that for credit. That is why Hank Paulson got down on his knees in front of Nancy Pelosi recently in September, 2008.
Here is the Question: If the labor market is, as ideologues like former senator Phil Gramm insist, just another market like that for stocks, bonds, or Credit Default Swaps, why is the equivalent of large and growing volatility in labor markets somehow not a bad thing? In other words, forget about whether there is a moral element to your stance on what constitutes reasonable distribution of income; I say this to skip such arguments and proceed straight to the pragmatic issue at hand. Suppose instead we just plain seek to avoid problems in the labor market, and the cascade of problems that would come from problems in the labor market, like we now belatedly realize we want to avoid stoppages in the credit markets. Unfortunately our leadership seems to have been blind to credit market problems until it was obvious to all. Must the dangerous consequences of real problems in the labor market be similarly obvious to all before we can agree to try to fix them?
In my view there are two elements to income: a real component that corresponds to what we can actually do with our income, and a sentiment component that is driven by where we think our income stands relative to that of other people. The greater and more evident the dispersion of real incomes the greater also the impact of sentiment on our perception of our income. And the slope of volatile social friction regarding fair distribution of income may prove to be as slippery as the slope down which the credit and stock markets just fell --- and a lot harder to climb back up. So, even if you reject all arguments about fairness issues in income distribution (which usually means you perceive yourself a winner in the income game or a friend of the winners), why would you want to chance losing so much of what you have gained? Why not agree to actively moderate income distributions for the sake of keeping alive the very game you feel you are winning?
Liberal misanthrope, indeed.
On December 4, 1928, President Coolidge sent his last message on the state of the Union to the reconvening Congress. Even the most melancholy congressman must have found reassurance in his words. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding..."
Galbraith goes on:
There was much good about the world of which Coolidge spoke. True, as liberal misanthropes have insisted, the rich were getting richer much faster than the poor were getting less poor.
Gentlemutt:
My view is that the Panic of 2008 was broadly a function of the gradual triumph, and then unquestioned acceptance, of all things "free-market" in the sixteen years of the Clinton-Bush era, and not merely some simplistic result of the mindless mendacity and cronyism for which George Bush II's regime will sadly long be known (quite unfairly to the many people who did their best to serve it well). It took a loooong goodtime during the 1990's and 2000's to bring us to the sorry state of affairs we see in late 2008, just as many things were good and improving in American life in Cal Coolidge's era.
It matters not that Coolidge was a Republican and Clinton a Democrate; Coolidge's farewell speech could have been Clinton's. Remember, we're talking about rhymes here, not repetition. The social dry rot of accelerating disparity in incomes was common to both regimes.
One question, with a long preface, comes to mind for those who feel that income distribution should be decided purely by 'the free markets.' When we speak about the distribution of prices, say in the stock or bond markets, we talk about the rough bell curve those distributions typically take, and the wider the disparity between high and low prices the greater the stated 'volatility.' Large and growing (ie, excessive) volatility in stock or bond prices seems to be generally accepted as a bad thing. At least, it is true that in recent months heart-stopping volatility created so much uncertainty as to paralyze many markets, especially that for credit. That is why Hank Paulson got down on his knees in front of Nancy Pelosi recently in September, 2008.
Here is the Question: If the labor market is, as ideologues like former senator Phil Gramm insist, just another market like that for stocks, bonds, or Credit Default Swaps, why is the equivalent of large and growing volatility in labor markets somehow not a bad thing? In other words, forget about whether there is a moral element to your stance on what constitutes reasonable distribution of income; I say this to skip such arguments and proceed straight to the pragmatic issue at hand. Suppose instead we just plain seek to avoid problems in the labor market, and the cascade of problems that would come from problems in the labor market, like we now belatedly realize we want to avoid stoppages in the credit markets. Unfortunately our leadership seems to have been blind to credit market problems until it was obvious to all. Must the dangerous consequences of real problems in the labor market be similarly obvious to all before we can agree to try to fix them?
In my view there are two elements to income: a real component that corresponds to what we can actually do with our income, and a sentiment component that is driven by where we think our income stands relative to that of other people. The greater and more evident the dispersion of real incomes the greater also the impact of sentiment on our perception of our income. And the slope of volatile social friction regarding fair distribution of income may prove to be as slippery as the slope down which the credit and stock markets just fell --- and a lot harder to climb back up. So, even if you reject all arguments about fairness issues in income distribution (which usually means you perceive yourself a winner in the income game or a friend of the winners), why would you want to chance losing so much of what you have gained? Why not agree to actively moderate income distributions for the sake of keeping alive the very game you feel you are winning?
Liberal misanthrope, indeed.
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