Tuesday, April 15, 2014

Ukraine

Why would a people who got free of Russia now want to join the dictatorial Putin?  Is it just to have access to Russian oil?

Friday, April 4, 2014

Technology Screws the Little Guy

"The US stock market is rigged in favor of high-speed electronic trading firms, which use their advantages to extract billions from investors, according to the acclaimed author Michael Lewis.
In his new book Flash Boys: A Wall Street Revolt, Lewis says that firms are using their speed advantage to profit at the expense of other market participants to the tune of tens of billions of dollars.
"They are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price," Lewis, whose book is available on Monday, said on the television program 60 Minutes on Sunday." Source: The Guardian UK 4 April 2013
      The fiscal reform act outlawed some of the egregious practices banks were using.  I thought this would reduce bank earnings, but it did not.  They are back to their old (and equally egregious) tricks.

Tuesday, April 1, 2014

Minimum Wage

President Obama is making a push to raise the minimum wage.  Many economists using simple supply and demand analysis are sure this will hurt low income people by destroying jobs.  Some states and cities have defied economists and passed higher minimum wages laws. Michael Reich and Ken Jacobs of the University of California Berkeley have found that the $13 minimum wage in San Francisco has not had the predicted ill effects.  "Our studies show that the impact of these laws on workers' wages (and access to health care) is strong and positive."  They says supply and demand analysis" is not the whole story though.  A full analysis must include the variety of other ways labor costs might be absorbed, including savings from reduced worker turnover and improved efficiency as well as higher prices and lower profits.  Modern economics therefore regards the employment effect of a minimum-wage increase as a question that is not decided by theory, but by empirical testing."
    Reich and Jacobs say that there is a moral value as well.   I used to tell my students, "You are not paying enough for your burgers. The workers need to eat too."

Quantitative Easing




Quantitative Easing, don’t you love that term?  It is meant to be psychic balm.

The idea behind it is that the central bank can buy Treasury Notes and mortgage-backed  securities and thus increase their prices and drive down long term interest rates. The low rates are supposed to enable firms to borrow and provide employment.
      In 2012, the Bank of England (BOE) issued a report that said that the Bank of England’s policies of quantitative easing (QE)– similar to the U.S. Fed’s – had benefited mainly the wealthy.
Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.
        Many said the BOE's easing added to social anger and unrest. Dhaval Joshi, of BCA Research  wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it."
     "The question is whether putting more profits into the hands of the top 5 percent will really generate jobs for the rest of America. So far, the evidence is not promising."
Robert Frank, CNBC

According to an article in Wikipedia, “Central banks in most developed nations (e.g., the United Kingdom, the United States, Japan, and the EU) are prohibited from buying government debt directly from the government and must instead buy it from the secondary market. This two-step process, where the government sells bonds to private entities which the central bank then buys, has been called 'monetizing the debt' by many analysts.  The distinguishing characteristic between QE and monetizing debt is that with QE, the central bank is creating money to stimulate the economy, not to finance government spending."  Got that distinction?
     This is double-speak, as if government spending in recessions does not stimulate the economy. The term “monetizing the debt” is meant to be a take-out stopping further thought. Young economists are taught that monetizing the public debt is bad.  Further, they are taught that helping banks is good and helping people without jobs is bad.  It makes labor lazy, but not bankers.  Got that?

Monday, March 10, 2014

Contributions to the Financial Crisis


"The email from a Credit Suisse executive was blunt: The bank seemed to be pushing through risky home mortgages from questionable applicants.
One borrower, the executive wrote, appeared to be a gas station attendant who was living with his mother while claiming to make $93,000 a year. Another was a former sales clerk at Nordstrom who was said to be making $110,000 a year.
A different email, from another Credit Suisse executive in June 2007, went further: “Our diligence process is such a joke.”  NYT 9 March 2014
The joke was on us.  These guys still have not been held accountable for all the pain they created.

Union Busting

Recently, a vote to unionize a Volkswagon plant in Tennessee failed by a narrow margin.  Were the workers scared by threats to withdraw state subsidies to the automaker, or have they forgotten our labor history?  They probably forgot the good old days when unions were weak and had no Federal government protection.  In the Great Coalfield War of 1914,the Colorado Fuel and Iron Company owned by John D. Rockefeller, used standard union-busting techniques such as mass firings, and if that was not enough, they obtained the help of Colorado's National Guard who turned a machine gun on the strikers encampment killing twenty of its inhabitants including women and children. 
     Class war continues.

Melding finance and politics


William A. Ackman, the activist hedge fund manager who had bet a billion dollars on the collapse of the nutritional supplement company Herbalife, offered his latest evidence to a handful of other hedge fund managers about why the company’s stock could soon plummet. He also spreads the word in Congress and regulatory agencies, hoping the bad publicity will ruin Herbalife and cause its stock price to fall to benefit his short position.  (see NYT 10 March)
    Small time crooks who steal a purse or have an ounce of pot go to jail for long periods.   But if you steal a billion, you probably are featured in the Wall Street Journal.