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Things We Should Know About The Current Crisis - Elf M. Sternberg
Things We Should Know About The Current Crisis
1. Wall Street did this to us.

The pseudo-capitalists will tell you that regulatory pressures passed during Democratic majorities in the middle of the Reagan presidency created perverse incentives that somehow turned Wall Street into a monster. All this says is that the regulator framework was a poor one. What we do know is that the shadow banks created a spiraling game of musical chairs, with more people joining every day and fewer chairs being added, and when the music stopped, it crashed. The invisible hand in this case destroyed America's wealth.

2. The 1% are paying lower taxes.

Because they make their money by using money, they can game the capital gains system and have a tax rate of 15-20%, whereas you and I can pay as much as 35% of our income as taxes.

3. The 1% are getting richer.

Unburdened from the tax obligations of ordinary Americans, the 1% are getting richer. By any measure, they are not doing more work or providing more service. There is no moral framework that justifies the climb to even greater wealth, and even greater impoverishment for the rest, without contributing more to the well-being of the world. The whole point of even libertarian schemes is that wealth is a measure of one's productivity.

4. The finance industry is rigged.

In one of Tom Clancy's books, he has a scene where he ridicules lefties for believing that there are "secret codes" by which the rich and powerful rule the world.

The codes aren't secret. You just can't have them. You don't have the resources, and can't make the handshakes necessary, to play billionaire's poker, nor do you even understand why traders are buying a $300 million cable to shave 9 milliseconds off international transactions. Between you and me, and the super-wealthy, is an insulating layer of half guard-labor, half high-speed computational "quants" that extract money from transactions without adding value to the system.

There are two legitimate forms of finance: values investing, and efficiency investing. The first ought to be the backbone of our markets: betting on the long-term value of real assets such as businesses and land. The latter ought to be a small side-game in which investors try to up the amount of knowledge they have about various stocks and other investment vehicles representing real assets. The latter used to be about 6% of US GDP in the 1950s; today it is 31%.

5. The problem isn't capitalism. It's plutocracy. And plutocracy is the problem.

Corporations themselves are not inherently evil. What is evil is the regulatory capture of the government by corporations that has led to unfettered tramping on the privacy, dignity, and even lives of ordinary Americans. What is evil is the donatory capture of senators and congresspeople by corporations that leads to the supposed representatives of the American People to look the other way at that regulatory capture.

There is nothing hypocritical about Americans buying and using the products of American corporations. The people at Occupy Wall Street are not protesting capitalism. They're protesting the way the legal infrastructure on which capitalism rests has resulted in a crash caused by runaway economic alchemy unrooted from reality, and the way the Wall Street Vampire Squid continues its clampdown on the face of main street, jamming its blood funnel into anything that even remotely smells of money.

Three years after massive fraud destroyed lives and decimated the American middle class, The Wall Street message to Washington remains the same: "nobody goes to jail," or we'll do it again.

Like they won't do it again anyway.

Current Mood: annoyed annoyed

10 comments or Leave a comment
From: (Anonymous) Date: October 11th, 2011 03:48 pm (UTC) (Link)
Unburdened from the tax obligations of ordinary Americans, the 1% are getting richer. By any measure, they are not doing more work or providing more service.

I'm not a fan of DailyKos generally, but they had a good article yesterday about how Steve Jobs, despite being in the upper echelons of "the 1%", was overwhelmingly admired even by the people who are doing most of the recent protesting.

I think that's the narrative that's going to win this, even among right-leaning moderates: it's not success that people have a problem with, and it's not even mega-wealth when that wealth is earned -- there's no doubt that Jobs changed the way half a billion people work and play. It's "the game," and more specifically the zero-sum game that the financial industry engages in, where the only innovation is in coming up with new and better ways to channel existing wealth into their pockets, rather than creating new wealth by improving people's lives.

Number 127
elfs From: elfs Date: October 11th, 2011 04:23 pm (UTC) (Link)
That's why I said, I have no problem with capitalism. It's not capitalism that's the problem here. It's the plutocratic infrastructure currently underlying our "capitalist" system that isn't capitalistic at all; it's an opportunistic predatory system that doesn't care if it's eating its own seed corn.
hydrolagus From: hydrolagus Date: October 11th, 2011 04:01 pm (UTC) (Link)
How does the 1990s bubble fit into this? Not a snark, just wondering.
blaisepascal From: blaisepascal Date: October 11th, 2011 05:26 pm (UTC) (Link)
I don't think it necessarily fits in very much -- except to the degree that the issues described have been in the background for decades.

Unlike the housing bubble of the 2000's, the tech bubble of the 1990's was not finance-driven, but rather by the feeling that the web changed everything. People were willing to pour money into any half-assed idea that sounded webby. A lot of weath got spread from investors to "innovators" who were trying to put out real (but perhaps stupid) products for people to buy. There was enough money flowing around that the non-rich middle-class had enough extra to buy into the hype and invest themselves. There was very little fraud, but a lot of poor vetting of bad ideas. When it became clear that few of these bubble start-ups were actually selling anything, the bubble crashed. The folks who made money in the process were all the folks who were hired by the startups which ended up crashing, and the investors of the companies which actually succeeded.

The recent bubble was a result of a lot of factors, including some outright fraud, allowing people to buy houses and things using debt that they ultimately couldn't afford. When this "couldn't afford" caught up, consumers started defaulting, investors started seeing their future monies fall, and the bankers and other middle-men walked away with their commissions in hand.

At least, that's my opinion today.
dr_memory From: dr_memory Date: October 11th, 2011 10:13 pm (UTC) (Link)
Unlike the housing bubble of the 2000's, the tech bubble of the 1990's was not finance-driven, but rather by the feeling that the web changed everything.

I'll double-down on this: it wasn't just the "feeling" that the web changed everything. The web changed everything. Yeah, sure, a lot of stupid money got spent and there were some spectacular flameouts. (Pets.com, Webvan, etc) But at the end of the day: scoreboard, bitches. We really did change how business and information were delivered to a large chunk of everyone in the world, and that change is still working its way through the entire infrastructure: much in the same way that the invention of the railroad, the telegraph and the steamship did.

I'll take that against tulip mania any day of the week.
eddvick From: eddvick Date: October 12th, 2011 01:17 am (UTC) (Link)
All too true. If only there were some people willing to... I don't know, occupy Wall Street.
ideaphile From: ideaphile Date: October 12th, 2011 06:13 am (UTC) (Link)

C'mon back to Earth

If Wall Street did this to us, it's only because Washington, D.C. did it to Wall Street first. The facts in Reckless Endangerment ( http://www.amazon.com/dp/0805091203 ) are not up for debate. The housing bubble was deliberately calculated to buy votes with more union jobs and artificially affordable houses, and to expand the Federal government's authority over the banking industry.

Capital gains shouldn't be taxed at all because they already HAVE been taxed. The money being invested was all taxed when it was created, and all the money being used to create a return on the investment was also taxed before it was returned to the investors.

Before the government began manipulating the economy to such an extent, everyone was getting richer. Even today, most people-- not just the 1%-- are still getting richer, even though the government is wasting a large and increasing share of the nation's ability to generate wealth.

If you think the financial industry is rigged because it siphons off a few percent from each transaction, what the hell do you think of the government, which siphons off about 30% of the ENTIRE ECONOMY??

While it's true that the poor get only a minority of all government spending, they certainly take a lot more out of the economy than the entire financial industry, and if you think that quants aren't making a contribution, I hope you'll agree that people who won't work at ALL aren't exactly a national asset.

I agree completely that it is the "legal infrastructure on which capitalism rests" (in this country, at least) which is the problem here. So instead of tearing down capitalism, let's tear down that infrastructure. Capitalism doesn't NEED legal infrastructure beyond "don't lie" and "pay your debts".

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mikstera From: mikstera Date: October 12th, 2011 08:15 am (UTC) (Link)

Re: C'mon back to Earth

"So instead of tearing down capitalism..."

Did you even read the original post?

ideaphile From: ideaphile Date: October 14th, 2011 02:38 am (UTC) (Link)

Re: C'mon back to Earth

That's a silly question, since I replied to it point by point. Did you read MY message?

Did you consider that perhaps I was agreeing with Elf's observation that it isn't capitalism that is at fault, but then disagreeing with his apparent (but not clearly stated) belief that what we really need is a _different_ legal infrastructure that puts a different set of seed-corn vampires (hell of a metaphor there) in charge?

No, I didn't think so.

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_candide_ From: _candide_ Date: October 18th, 2011 02:16 am (UTC) (Link)
One thing about Steve Jobs that occurred to me yesterday: He could've made only 1/200th of what he's worth and still have been fabulously wealthy.

That's because wealth is like nuclear weapons: at some point, having more doesn't do anything more.
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