South Korea: The Next ‘Free Trade’ Battleground

[tim851]

Look Tim, I'm not sure what your argument is.

My 'argument' started as just an erratic comment. Made because I happened to be in a sci-fi mood. It had nothing to do with free trade.

But if you want me to specify:
There is no doubt, that the current technological progress will sooner or later lead to the creation of 'androids' (for better or worse), that are capable of performing any job that a human can do. Physically and mentally. At which point human labor ends. Except for certain jobs, that we won't let robots do, say judges or congressmen.

This has nothing to do with the lump of labor fallacy. The logical paradigm here is not that work is replaced, but humans are being replaced. Until now, jobs lost in mass production were offset by jobs created elsewhere. Or simpler: if you were replaced by a machine you needed to find a job no machine could do. In my scenario, every job that you could do, a machine can do too.

If money is continued to be used as the sole ressource management tool, then a growing number of people is being forced into quasi poverty through no fault of their own. Then there's the thing with companies operating for profit, but with more and more people out of job and money, whom are they servicing?

This is all very sci-fi though, beyond our lifetimes and has nothing to do with this topic. I apologize.

[m0002a]

If money is continued to be used as the sole ressource management tool, then a growing number of people is being forced into quasi poverty through no fault of their own. Then there's the thing with companies operating for profit, but with more and more people out of job and money, whom are they servicing?

The current economic problems are not due to jobs being eliminated by technology. Although an incredible number of jobs have been eliminated in the past 100 years due to technology, they were replaced by other jobs. The current problems are due to a real-estate bubble that went bust, mainly due to quasi-government agencies (Freddie Mac and Fannie Mae) buying up almost all mortgage loans originated by banks (who earned the origination and other fees) without due diligence (because they were backed by the US Government). The mortgage companies themselves had no real interest in whether the loans could be paid back. I am happy to see that Obama has suggested that Freddie Mac and Fannie Mae be shut down, so the problem won't happen again.

[aristide1]

The current economic problems are not due to jobs being eliminated by technology. Although an incredible number of jobs have been eliminated in the past 100 years due to technology, they were replaced by other jobs.

Oh please, by nowhere near as many jobs. Jeez, does your kind every stop manipulating a handful of facts to suit your own ends? People know what you're doing, you're only kidding yourself. Are you trying to run for Congress or what?

The current problems are due to a real-estate bubble that went bust, mainly due to quasi-government agencies (Freddie Mac and Fannie Mae) buying up almost all mortgage loans originated by banks (who earned the origination and other fees) without due diligence (because they were backed by the US Government). The mortgage companies themselves had no real interest in whether the loans could be paid back. I am happy to see that Obama has suggested that Freddie Mac and Fannie Mae be shut down, so the problem won't happen again.

Europe was smart enough to make credit default swaps illegal. You think the Wall St lobbyists would allow that? Hell no, it's a good game for them after all. Goldman failed to inform investors (the full disclosure requirement) of what they were selling. Apparently everyone except the buyer knew what a POS those mortgages were. They got a slap on the wrist from the SEC. S&P and Moody's, who rated the sh!t as safe have not suffered any penalties, but they they all got their bonuses, so who besides the Average Joe did suffer? No need to worry about Bank of America they still got that "fee du jour" business going for them. And have they paid TARP back yet?

Glad you brought this up. I got a letter back when this debacle was in the news everyday from Vanguard. Despite Moody's and S&P they have their own rules for what constitutes a safe mortgage. They pretty much ignored everything Tweedle Dumb and Tweedle Dumber were claiming was safe. Vanguards investors suffered NO losses, but then Vanguard is not a Wall St. player, they simple play by the rules.

More deregulation anyone?

McCain wanted to bring back the Graham Bliley Act, Wall St scoffed at that idea as well. No need to ask who's really running the country.

[judge56988]

The current economic problems are not due to jobs being eliminated by technology. Although an incredible number of jobs have been eliminated in the past 100 years due to technology, they were replaced by other jobs.

Is it not bleedin' obvious that jobs in Western Europe and the US are being lost because multi nationals are building factories and producing goods in China, India and Eastern Europe?
In another thread you remarked upon the fact that your speakers were no longer made in Canada but were being made in China.
In an earlier thread on a similar topic someone (maybe you) claimed that labour costs made up such a small proportion of the total cost of an item that cheap labour was not a factor in relocating factories to third world countries - so why do companies do it? Is it just so the executives can rack up more airmiles?

In my opinion the multi nationals of today are doing exactly what companies did in Europe in the 19th century - making large amounts of money on the back of what is little more than slave labour and the exploitation of child labour. Now, however, they are also causing jobs to disappear in the developed countries leading to poverty and a huge strain on the welfare systems in those countries concerned.

No doubt you will have some clever answer relating to free market economy or whatever but there is no doubt in my mind that what is happening is just wrong.

[aristide1]

No doubt you will have some clever answer relating to free market economy or whatever but there is no doubt in my mind that what is happening is just wrong.

And many a republican capitalist extremist will happily die making this happen.

Oh, and they're Christians too.

[HFat]

The current problems are due to a real-estate bubble that went bust, mainly due to quasi-government agencies (Freddie Mac and Fannie Mae) buying up almost all mortgage loans originated by banks (who earned the origination and other fees) without due diligence (because they were backed by the US Government). The mortgage companies themselves had no real interest in whether the loans could be paid back. I am happy to see that Obama has suggested that Freddie Mac and Fannie Mae be shut down, so the problem won't happen again.

This is disingenuous in the extreme. You have been lied to. That or you're a liar. If you're not a liar, try to improve on your sources of information. Try to get some who have a track record.

The GSEs have been privatized a while back. They did nothing like this before. But that's not the issue. Everyone ate crappy mortages like there was no tommorow, including private banks. Shutting down or re-nationalizing the GSEs will do no good unless the whole system is fixed. Many private banks are backed by the government as well as you might have realized by now.

Credit-fueled speculative bubbles are a well-known phenomenon. This one was obviously deliberately created by the Fed and its allies abroad to deal with problems the politicians were not willing to face ("deflation") and then deliberately crashed when they realized the global economy was hitting limits ("inflation"). You only have to read what Fed officials stated through the years. They may not have realized how bad the bubble was before pricking it however. They adopted these obviously flawed policies knowning the risks because they were in a bad situation with no good alternative. They are being asked to fix problems they do not have the authority to fix.

[HFat]

Oh please, by nowhere near as many jobs. Jeez, does your kind every stop manipulating a handful of facts to suit your own ends?

m0002a obviously did not manufacture the fact that there are a lot more job now than 100 years ago!

"Losing" jobs is not the issue. That's change. The issue is unemployment. When unemployment is low, jobs are "lost" all the time as well. But people don't care as much obviously.

Europe was smart enough to make credit default swaps illegal.

WTF?
Granted, I don't follow the news very closely but what are you talking about? How do you explain stuff like that if they're illegal:
http://www.creditfixings.com/CreditEven ... ixings.jsp

Not that CDSs have anything to do with the crisis. Even if they did, you can't regulate away such crisis. Not that regulation is entierly ineffective but it's not the main issue. They've been worse crises before when they were no such things as CDSs and whatnot.

[aristide1]

This is disingenuous in the extreme. You have been lied to. That or you're a liar. If you're not a liar, try to improve on your sources of information. Try to get some who have a track record.

He's trying to out-Faux you. This groups lives and breathes these lies. It's only a matter of time before you're called a socialist, or perhaps even a communist. Whatever it takes to burn witches today.

m0002a obviously did not manufacture the fact that there are a lot more job now than 100 years ago!

Automation creates a handful of jobs compared to what it eliminates. If it worked in any other way there would be no automation.

WTF?
Granted, I don't follow the news very closely but what are you talking about? How do you explain stuff like that if they're illegal:
http://www.creditfixings.com/CreditEven ... ixings.jsp

Are you saying Europe is still as stupid as the US?
http://corporatelawandgovernance.blogsp ... swaps.html

[HFat]

You seem to be calling "stupid" things which you do not understand.
The higher the transparency and the less manipulation there is, the more useful CDS prices are, as with any market. So the government naturally regulates markets, in the US as in Europe. There are many institutions devoted to that end. Regulation in the US is lacking is often times lacking, as in every country. Thankfully national "stupidity" is not the cause. If it was, how would you take care of this "stupidity" problem?

[m0002a]

The current problems are due to a real-estate bubble that went bust, mainly due to quasi-government agencies (Freddie Mac and Fannie Mae) buying up almost all mortgage loans originated by banks (who earned the origination and other fees) without due diligence (because they were backed by the US Government). The mortgage companies themselves had no real interest in whether the loans could be paid back. I am happy to see that Obama has suggested that Freddie Mac and Fannie Mae be shut down, so the problem won't happen again.

This is disingenuous in the extreme. You have been lied to. That or you're a liar. If you're not a liar, try to improve on your sources of information. Try to get some who have a track record.

The GSEs have been privatized a while back. They did nothing like this before. But that's not the issue. Everyone ate crappy mortages like there was no tommorow, including private banks. Shutting down or re-nationalizing the GSEs will do no good unless the whole system is fixed. Many private banks are backed by the government as well as you might have realized by now.

Well, not exactly. It is true that they were once completely owned by the US government, and then "privatized," but they are not exactly private in the normal sense, and as I said they are "quasi-governmental agencies". That is primarily because there is an implicit "understanding" among the public that the government would never let them fail, and will honor all their debts. This is sort of like the US Postal Service or Amtrak.

Here are some quotes from the wikipedia article (my comments in brackets):

"In 1999, Fannie Mae came under pressure from the Clinton administration [this could not happen if it were really a private company] to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the Community Reinvestment Act of 1977."

"The perception of government guarantees has allowed Fannie Mae and Freddie Mac to save billions in borrowing costs. Estimates by the Congressional Budget Office and the Treasury Department put the figure at about $2 billion per year."

"There is a wide belief that FNMA securities are backed by some sort of implied federal guarantee, and a majority of investors believe that the government would prevent a disastrous default. Vernon L. Smith, 2002 Nobel Laureate in economics, has called FHLMC and FNMA "implicitly taxpayer-backed agencies". The Economist has referred to "the implicit government guarantee" of FHLMC and FNMA. In testimony before the House and Senate Banking Committee in 2004, Alan Greenspan expressed the belief that Fannie Mae's (weak) financial position was the result of markets believing that the U.S. Government would never allow Fannie Mae (or Freddie Mac) to fail."

"Fannie Mae and Freddie Mac are allowed to hold less capital than normal financial institutions: e.g., it is allowed to sell mortgage-backed securities with only half as much capital backing them up as would be required of other financial institutions. Specifically, regulations exist through the FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%. The GSEs, Fannie Mae and Freddie Mac, are exempt from this capital/asset ratio requirement and can, and often do, maintain a capital/asset ratio less than 3%. The additional leverage allows for greater returns in good times, but put the companies at greater risk in bad times, such as during the current subprime mortgage crisis. FNMA is also exempt from state and local taxes. In addition, FNMA and FHLMC are exempt from SEC filing requirements."

--end of wikipedia quotes

So you can see from the above quotes taken from widipedia, that these were not like any other private companies, at least not in the USA. That is why I called them quasi-governmental agencies (and I am not lying).

Obama's chief of staff for the first 2 years was Rahm Emanuel (who recently resigned and is now mayor of Chicago), who served on the board of directors of Freddie Mac at a time when scandal was brewing and at a time when he was a member of Congress. It is pretty unusual (and maybe doesn't happen, not sure) for a member of Congress of who is on the board of directors of a large truly independent for-profit company (Freddie Mac was for-profit, but not truly independent of the US government).

Of course, as of September 7, 2008, both Fannie Mae and Freddie Mac have been placed into conservatorship of the Federal Housing Finance Agency (FHFA).

So while technically in certain areas they were private companies (they were for-profit companies), they were really quasi-governmental agencies that acted recklessly knowing that the US government would bail them out (as they did in fact do).

Credit-fueled speculative bubbles are a well-known phenomenon. This one was obviously deliberately created by the Fed and its allies abroad to deal with problems the politicians were not willing to face ("deflation") and then deliberately crashed when they realized the global economy was hitting limits ("inflation"). You only have to read what Fed officials stated through the years. They may not have realized how bad the bubble was before pricking it however. They adopted these obviously flawed policies knowning the risks because they were in a bad situation with no good alternative. They are being asked to fix problems they do not have the authority to fix.

It is true that credit default swaps were part of the problem. I don't deny that. But the fundamental problem was that the US government (explicitly before 1968, and implicit since then) has been in the business of buying mortgage loans originated by others (for purposes of reselling them as mortgage-backed bonds), without due diligence as to the credit worthiness of the loans (which is hard to do since they don't make the loans, and the originators of the loans always made a profit on loan origination and other fees).

That is why Obama has proposed that Fannie Mae and Freddie be dissolved, something else that you don't see in regard to a truly independent company.

[m0002a]

The current economic problems are not due to jobs being eliminated by technology. Although an incredible number of jobs have been eliminated in the past 100 years due to technology, they were replaced by other jobs.

Is it not bleedin' obvious that jobs in Western Europe and the US are being lost because multi nationals are building factories and producing goods in China, India and Eastern Europe?

Cannot you read? Where did I say jobs are not being lost to cheap labor overseas. Clearly they are.

I said that the current economic problems (since 2007) are not because of jobs lost to technology (as suggested by the space cadet). Now whether the jobs lost to overseas are the cause of the current economic problems is debatable, but that is a different issue. These jobs shipped overseas are not exactly high paying jobs, and until the real estate bubble burst in 2007/2008, the US had historically low unemployment and the economy was quite strong.

[aristide1]

The markets were fine before CDS, there's no justification for them.

[croddie]

Jobs are not lost as a result of new technology. They are not lost as a result of international competition.

To be more precise, (involuntary) unemployment is not caused by technology, or by international competition. Unemployment is the degree to which the labor market does not clear, and is related to frictions in the job market. These can be created by search costs, price rigidities, and spurious labor market regulations. (Personally, I believe that technology will reduce the first two things, reducing unemployment.)

Now wages are another matter. Wages of low-skilled jobs could be suppressed by technological progress. And if you have a country 1 with a small proportion of low-skilled workers and a country 2 with a high proportion of low-skilled workers, then trade in labor (outsourcing of labor, or relaxed immigration) will lower low-skilled wages in country 1 (but raise them in country 2).

[tim851]

The current economic problems

Are you daft? How often do I need to write "in the future" ? Do you make it a point not to get it? I've repeatedly stated that jobs lost to automation have been replaced by other jobs. Of course they have. Because at this time, humans are not nearly replacable.

they were replaced by other jobs.

Once again, I'm talking about the replacement of humans. Do tell me: if there is an Android (think: Data from Star Trek) available, who is gonna give you a job? What job would that be? Being annoying on a web forum is not a job, mind you.

And don't call me a frickin' space cadet just because you have comprehension problems.

[croddie]

But if you want me to specify:
There is no doubt, that the current technological progress will sooner or later lead to the creation of 'androids' (for better or worse), that are capable of performing any job that a human can do. Physically and mentally. At which point human labor ends. Except for certain jobs, that we won't let robots do, say judges or congressmen.

Interesting hypothesis. Assume the stuff about androids is true.

Androids will not create the "unemployed poor" situation you may be envisaging.

People can still subsist by doing everything themselves. They can exist at a higher level of wealth if there exist labor markets and specialization of labor. This can still be done with androids: just ignore the androids.

In a free (competitive) market there cannot be a subgroup of poor people who because of the existence of technology are doing worse than they could do by forming their own market (including jobs) and ignoring technology. This is impossible by the first welfare theorem of competitive markets.

However there remain a lot of societal consequences, in terms of power, war, evolution, that I'm ignoring and may be dramatic.

However human intelligence (among more intelligent humans that is) has not been under threat from computers. If you are imagining these androids are intelligent, there are big problems with that, unless you find a new form of computer that is not a turing machine. (See Penrose, the Emperor's New Mind.) Even difficult problems that can theoretically be tackled by non-polynomial algorithms may not see much advantage from a mere 1000000x increase in computing power. That's 20 more years of Moore's law which can't happen without a radical new way of doing computing.

[HFat]

In case you are not dishonest but have been lied to so easily becuase you are missing the context, m0002, let me point out the obvious:

That is primarily because there is an implicit "understanding" among the public that the government would never let them fail, and will honor all their debts.

Same as any number of private institutions such as Goldman Sachs. See "moral hazard".

In 1999, Fannie Mae came under pressure from the Clinton administration [this could not happen if it were really a private company]

The administration is under pressure from big business and vice versa. All the time.

"The perception of government guarantees has allowed Fannie Mae and Freddie Mac to save billions in borrowing costs.

Same as any number of private institutions such as Goldman Sachs.

"Fannie Mae and Freddie Mac are allowed to hold less capital than normal financial institutions:

Normal financial institutions are not the norm any more. This is irrelevant.

Obama's chief of staff for the first 2 years was Rahm Emanuel (who recently resigned and is now mayor of Chicago), who served on the board of directors of Freddie Mac ... It is pretty unusual

Look up how many people in government have had positions in Goldman Sachs (and vice versa). Goldman Sachs is not an exception, just an extreme example. Ever heard about this Dick Cheney fella?

they were really quasi-governmental agencies that acted recklessly knowing that the US government would bail them out (as they did in fact do).

Same as any number of private institutions such as Goldman Sachs.

I have been critical of the GSEs long before you heard about any of this. It was appropriate to be concerned about them around 2003. Since then, the rest of the financial sector has succumbed to a delirious real-estate mania (as it often does) and has done worse things than the GSEs ever did. This was all over the papers.
To claim that moral hazard is somehow unique to the GSEs is utterly ridiculous and disingenous in the extreme. You like to quote that swindler Greenspan so look up his quotes about moral hazard to see what they were about!

It is true that credit default swaps were part of the problem. I don't deny that.

Did you even read what I wrote? I said CDSs were not the problem.
For the other poster who got worked up about them, CDSs are basically a fancy sort of insurance. What deletrious effect are they supposed to have beyond the well-known problems caused by insurance?

But the fundamental problem was that the US government (explicitly before 1968, and implicit since then) has been in the business of buying mortgage loans originated by others (for purposes of reselling them as mortgage-backed bonds), without due diligence as to the credit worthiness of the loans

Quoted for comedy. So FDR is to blame? Priceless.

[HFat]

Croddie's anwer is not satisfying so let me try:

Until now, jobs lost in mass production were offset by jobs created elsewhere. Or simpler: if you were replaced by a machine you needed to find a job no machine could do. In my scenario, every job that you could do, a machine can do too.

Assuming we're talking about productive jobs in the private sector, a human job is replaced by a machine if that replacement is thought to be profitable. The profitability depends on the cost of the machine and the wage of the worker. Because the costs are paid on different timescales, there are complicating factors such as interest rates. But prevailing wages are a big factor in automation which is why countries in which people are badly paid have tend to have a lot of people doing work that could be automated with some investment. On the other hand, jobs are sometimes automated even if the machine is incapable of doing the job the human was doing. But if savings are high enough, they justify the drop in efficency or quality.
So you need high wages for jobs to be replaced by more and more sophisticated machines. And you won't have high wages for long if you've got a lot of unpaid unemployment. So your scenario will never come to pass unless the unemployment problem is managed halfway decently to being with. What you should be worried about over the long run is not progress but low wages and unemployment stopping progress.
You can have situtations where lots of people are out of a job but wages don't drop for a while. Wages have an easier time rising than falling of course. Such temporary problems can be eased with decent unemployment benefits and a little inflation if the cause was automation. But if lots of people are out of a job without having been replaced by machines (because production is dropping that is), you have a potential vicious cycle on your hands. Automation is self-limiting but economic depressions are not.

[tim851]

So you need high wages for jobs to be replaced by more and more sophisticated machines.

Or sufficiently cheap machines.

But if lots of people are out of a job without having been replaced by machines (because production is dropping that is), you have a potential vicious cycle on your hands. Automation is self-limiting but economic depressions are not.

That is true. The problem is that Androids themselves don't participate in the market.

It would require a conscious and somewhat concerted effort by humans to counter the negative effects of androidization.
In the end, it would require limits on what we let them do. People quotas, so to speak. But I don't know if that is either doable or actually desirable.
And sure, unemployed humans could be trying to form their own (sub-)markets, provided they have access to space and ressources. But that screams third world to me. These submarkets would still have to compete with cheap labor from robots that never sleep.

Or we could accept that robots are taking over the unpleasant part of life for us. The end of human labor is actually a highly desirable sci-fi-idea to me.
I never meant to say that capitalism wouldn't prevail in that world, I meant it's probably not the system of choice by then.

[HFat]

Or sufficiently cheap machines.

Cheap machines mean wages are worth more. Any way you look at it, if you can buy wonder machines with your wages, you won't need to work. And if you can't, chances are you're still cost-competitive with those machines. It's not a given but you can't rule it out.

The problem is that Androids themselves don't participate in the market.

It would require a conscious and somewhat concerted effort by humans to counter the negative effects of androidization.

That's basically what Marxism says about all machines and factories, except Marxism tends to focus more on the supply side (profits) than the demand side.
What you don't take into account is that the owners of the droids do participate in the market. The (deliberate) mistake in Marxism is more subtle.

[tim851]

I give up.

No matter how advanced machines get, they will never replace human labor.

[aristide1]

It takes timing and dexterity to flip a burger. And it's so much more personal when a human does it.

Meanwhile continue to waive goodbye to jobs that paying a living wage.

[m0002a]

In case you are not dishonest but have been lied to so easily becuase you are missing the context, m0002, let me point out the obvious:

I don’t appreciate being called a liar (or the underhanded comment that I have been “lied to”).

Same as any number of private institutions such as Goldman Sachs. See "moral hazard".

There was never any implicit understanding that Goldman Sachs or any other truly private financial institution would be bailed out. Did you ever hear of Lehmann Brothers? They were allowed to go bankrupt.

In the case of most of the truly private institutions that received TARP funds (with the exception of AIG), they probably did not even need the funds and were basically arm-twisted by the US government into accepting the funds to provide stability to the markets. It is unlikely that this will happen again (a TARP bailout). Furthermore, Goldman Sachs paid back the money in 2009 and the US government received a “fair” return on the borrowed funds (in addition to the payback of the principal).
http://money.cnn.com/2009/07/22/news/ec ... s.fortune/
So you statement that there always was, and continues to be, the expectation that government will bail out these “truly private” intuitions is a falsehood. It may have happened that one time, but was not “expected” in 2008 by the markets, and is not expected in the future.

Not so in the case of Fannie Mae and Freddie Mac. They began as federal agencies and were “privatized” ONLY for the reason that the US government wanted the liabilities off the books of the US Government financial statements (sort of like the Enron criminals who put their bad investments into “off the books” into phantom companies).

In addition, Fannie Mae and Freddie Mac were allowed to have less capital requirements than other private firms in the same business, were exempted by US Federal Law from state and local taxes, and are exempt from SEC fillings even though they traded (until recently) on a stock exchange. This is absolutely, categorically, unprecedented for any other truly private company in the USA.

The administration is under pressure from big business and vice versa. All the time.

It would not have been possible for the US government to successfully put that kind of pressure on a truly private firm (to accept loans from unworthy borrowers).

Obama's chief of staff for the first 2 years was Rahm Emanuel (who recently resigned and is now mayor of Chicago), who served on the board of directors of Freddie Mac ... It is pretty unusual

Look up how many people in government have had positions in Goldman Sachs (and vice versa). Goldman Sachs is not an exception, just an extreme example. Ever heard about this Dick Cheney fella?

Cheney was not CEO (or on the board) of a private company while he was in office. Same applies to Goldman Sachs. We are talking about a sitting member of the US Congress (Rahm Emanuel) who was on the Board of Freddie Mac (there were others as well). This kind of misleading response is characteristic of the half-truths posted in this thread.

I have been critical of the GSEs long before you heard about any of this. It was appropriate to be concerned about them around 2003. Since then, the rest of the financial sector has succumbed to a delirious real-estate mania (as it often does) and has done worse things than the GSEs ever did. This was all over the papers.
To claim that moral hazard is somehow unique to the GSEs is utterly ridiculous and disingenous in the extreme. You like to quote that swindler Greenspan so look up his quotes about moral hazard to see what they were about!

I am happy for you that were critical of GSE’s for a long time, but that is not the issue here. Neither is the issue any kind of “moral hazard”. The problem is that a quasi-governmental agency was underwriting (guaranteeing to purchase) loans made by others without due diligence. The reason why FNMA and FMAC were created by FDR was as a public service to make it easier to obtain mortgages (by guaranteeing that the mortgages would be purchased from the loan originator, making the loan originator free of any risk). This same mission “for the public good” continued when it was “privatized.” There is no morality here, just the facts.

It is true that credit default swaps were part of the problem. I don't deny that.

Did you even read what I wrote? I said CDSs were not the problem.
For the other poster who got worked up about them, CDSs are basically a fancy sort of insurance. What deletrious effect are they supposed to have beyond the well-known problems caused by insurance?

The reason that CDS’s were part of the problem is that, as you suggested they are a type of insurance, but there were no capital requirements in place as there is for normal types of insurance issued by private companies and regulated by the government. An insurance company is required to have a certain amount of protected capital that sits behind the amount of the policies they underwrite to make reasonably sure that they can pay off claims if required to, but this was not done for CDS’s because the government did not classify them as insurance, even though they were.

So FDR is to blame? Priceless.

Some people in government have tried to tighten up the underwriting criteria and procedures used by Fannie Mae and Freddie Mac in the last 15 years, but they were rebuffed. As mentioned above, Clinton made a (successful) push to loosen the lending criteria to make mortgage loans more affordable. So there is a lot of blame to go around. Fannie Mae and Freddie Mac “may” have been a good idea, but it was poorly executed (especially during the last 15 years). Obama has proposed eliminating these agencies, which is good start.

[HFat]

You have no idea how many of your statements demonstrate an ignorance of the context, m0002a. I'll do one example and leave it at that if you can't realize how much you don't understand:

Neither is the issue any kind of “moral hazard”. The problem is that a quasi-governmental agency was underwriting (guaranteeing to purchase) loans made by others without due diligence. The reason why FNMA and FMAC were created by FDR was as a public service to make it easier to obtain mortgages (by guaranteeing that the mortgages would be purchased from the loan originator, making the loan originator free of any risk). This same mission “for the public good” continued when it was “privatized.” There is no morality here, just the facts.

Moral hazard is not about morality. Hence the quotes. What you describe is indeed moral hazard.
What you describe is also essentially what the Fed does now (minus helping the little guy). It's the whole financial and monetary system you need to overthrow if you want to get rid of it!

If there was a matter of lack of due diligence, it would have showed up in less than 70 years! The problem would not have waited for a bunch of other financial actors, foreign and domestic, to join in the game (what a coincidence!). Due diligence can not prevent bubbles and can not prevent losses when they burst. Or perhaps you could tell us what were the due diligence issues behind the other bubbles?

The reason that CDS’s were part of the problem is that, as you suggested they are a type of insurance, but there were no capital requirements in place as there is for normal types of insurance...

Actually I'll answer this as well since it apparently matters to someone else: all derivatives work like that. Do you have any idea how many derivatives there are and how long they've been around? Do you want to outlaw them all?

[m0002a]

Actually I'll answer this as well since it apparently matters to someone else: all derivatives work like that. Do you have any idea how many derivatives there are and how long they've been around? Do you want to outlaw them all?

I certainly did not say they should be outlawed. I do believe that:

1) Certain kinds of financial institutions (such as banks) should not be allowed to invest in them (as they were not allowed to do prior to the late 1990's when Clinton proposed and signed into law the deregulation of them.

2) There should be full disclosure about what kinds of derivatives are being held by any financial institution (private or public) or public company that is traded on a stock exchange, or quasi-governmental agency.

3) Congress should look into the possibility of classifying CDS's as insurance, and regulate them as insurance (but I don't have a definitive position on this).

[HFat]

Huff and puff over irrlevant issues.
Whatever happened to the benefits of markets signals advocated by Friedman et al?
Transparency? Make the prices transparent, yes. Deal with OTC and the offshore mess. That would do a whole lot more good than partial disclosure of information the average market participant in not in a position to use.

as they were not allowed to do prior to the late 1990's when Clinton proposed and signed into law the deregulation of them.

We've heard it all.

[Trip]

I don't like how capitalism destroys the middle class.

It wasn't captilism that destroyed the middle class, it was technology that has made manual labor less valuable than it used to be (and only economic if performed offshore). Or call it "Revenge of the Nerds."

There's truth to this in the long term but not so much in the present.

What's happening in Europe & colonies is free trade has shipped capital to countries where labour is cheaper. Transnational capitalists seek out maximal profit for personal gain, not in service of any state. Presently they seem to be molding the world into a global state, an Orwellian nightmare I'm sure.

Furthermore mass immigration is pouring in, immigration of the unskilled who cannot fill the high tech demands you mention. They can only lower the wages of unskilled professions - too much supply of workers. We're not taking in Chinese immigrants but Turks in Europe and Mexicans in the US. These are unskilled people. (Note: I'm not making a racial comment here). Adding to this, the immigrants are different ethnically (in identity, not making a racial comment here), so ethnic tensions are rising to crisis levels, which is frightening. For some reason, we're not supposed to mention this last bit, but it is significant since we're not interchangeable cogs. And it's blacks and Mexicans in the US who are hit hardest since they presently make up a larger percentage of the unskilled.

Were this capital outflow and unskilled worker inflow not the case, there would be more capital in Europe & colonies and a stronger middle class (which would adjust as the economy replaced outdated jobs), especially in the US which, contrary to popular belief, indisputably pushes an America-last policy. The US government acts for the transnational corporations, not for America.

Capital flowed out of the US to build Soviet Russia, out of Britain to build NS Germany, out of the US to build Japan, and it's flowing today into China. Only a madman would claim otherwise. The miracle of these developing states is they offered higher profits, discouraged consumption, and encouraged investment.

To contradict what I've said somewhat: we're also seeing large numbers of skilled workers entering via colleges (they tend to stay in the US) and work visas (e.g. Microsoft). These combine with the decreasing amount of capital to lower skilled worker jobs.

This global development is leading to a high concentration of wealth among global plutocrats. Such a path of development is not ideal I fear. We might argue the US and Europe are too wealthy, that they ought to pursue free trade somewhat to export their wealth. However, if such is agreed upon, at again the loss of US standard of living, it should be done without enriching such an elite who do not deserve to rule us people of the world. Rule should surely be more decentralised.

-

In an increasingly high tech society, more things are needed. One might think people would choose leisure, e.g. pursuits of art or childrearing. Instead, higher demands of consumption and projects (mix of consumption, research, and investment) seems to be where the excess labour, resources, and capital flow. And with higher demands on the talented few, those with the ability to manage and design such tech acquire labour bargaining power and thus wealth. Those who lack such ability though can still offer service such as gardening, food service, etc. Such jobs wouldn't pay as low as they do today were it not for mass immigration which again increases the supply of unskilled workers.

It is capitalists who push for free trade. It is capitalists who push for mass immigration (e.g. Tyson Foods has long been a major advocate).

In a right society the virtuous, the "natural aristocracy", would rule. In our society, the greedy and immoral rule: those who'll do anything for money. Admittedly skills are also needed, but there's nothing that would reward morality. As a result, we have wars and such, which are profitable for some. Put the wrong people in power, and you get an evil society. I don't say this as if there's an easy solution, but such is at least the problem: we're ruled by a distant elite of strangers who have little motive to act for the greater good. "Capitalism", as we call it, inevitably leads to this. And so, I reject capitalism.
-

North Koreans, btw, are included in this trade bill. Apparently they'll build parts of these cars for sale in the US at wages of 25-38 cents an hour.

Some in here will see that as good (better than starving), some bad (exploitation & possibly the wrong way to develop).

[Trip]

I do admittedly put the US first in my concerns. However, I don't wish for domination or anything like that.

With 7 billion people in the world, I'm wary of seeking to equally distribute natural resources, tech, and capital via free trade. I fear we'll be equally impoverished.

However, I don't think it would be right for the US to dominate all natural resources, technology, and capital either.

Furthermore I don't think the development we're seeing today is the right sort. We're destroying ancient traditions and histories, and we're working towards an Orwellian global state composed of interchangeable cogs ruled by a far off immoral elite.

I don't think Europe is in anyway superior to the rest of the world. We (incl here colonies like America) merely happened to recently be successful. If you look at history, Europe has not always been so strong as it was during Colonialism. And indeed we're seeing an end to this era today.

So when I say "right wing", I'm America-centered but not to an immoral extreme. Capitalism, if speaking academically, is in no way right wing. The term comes from the French Revolution, and as with the right then: I wish to conserve the best of the Ancien Regime, what's left of it. I'm not a monarchist, but I do find such traditionalism interesting. Somewhere we went very wrong with the French Revolution. I wouldn't want to return to that time, but I fear the future we're moving towards.

There's surely some path towards a better world order. Regardless, I don't wish for domination, but at some point an American like me has to take a stand for a partial protection of America as well. There's some right balance between caring for one's own people and caring for the world. And again, development doesn't equal "caring". Ancient societies are being destroyed.

I don't really understand the left wing view. It seems like so much shouting, to be honest. Something about putting the world first and not looking at the plutocracy behind the curtain? And since everything is so global, it becomes easy to rule via the mass media and divide-and-conquer. Somewhat, politics has to be organised locally. Surely there's some way to exist as smaller states without warring. It seems like the reality is choosing between a few oasis of civilisation on the one hand and a vast desert on the other. You want there to be as many oasis as possible though.

[HFat]

Adding to this, the immigrants are different ethnically (in identity, not making a racial comment here), so ethnic tensions are rising to crisis levels, which is frightening.

Europe sure doesn't need "ethnically different" immigrants for "ethnic tensions" to rise up to genocidal levels. People always seem to find some population that's different enough when they're in the mood. No differences in skin pigmentation required, you're right about that.

Capital flowed out of the US to build Soviet Russia, out of Britain to build NS Germany, out of the US to build Japan, and it's flowing today into China. Only a madman would claim otherwise. The miracle of these developing states is they offered higher profits, discouraged consumption, and encouraged investment.

You may be confusing technology transfer and capital flow.
That or I'm crazy. It's an affliction you're liable to contract when you look at the national accounts. The capital flow to China you're talking about isn't there. Crazy, isn't it?

I commend you for taking the time to write down a more sophisticated argument than most but I think you should hold out on the "crazy" until you have less prejudiced understanding of what's going on.

The Nazis famously increased consumption in Germany by the way. There's something to be said for Keynesianism...

we're ruled by a distant elite of strangers who have little motive to act for the greater good. "Capitalism", as we call it, inevitably leads to this. And so, I reject capitalism.

Inveitably is a strong word. How much research have you done? It might be that an unwillingness to examine some of the cultural issues involved in this governance problem could lead you to write off the centuries of democratic experience accumulated in many countries.

I don't really understand the left wing view. It seems like so much shouting, to be honest. Something about putting the world first and not looking at the plutocracy behind the curtain?

You may be confusing liberal and left again. The traditional left program is all about stringing up the plutocrats... often metaphorically, sometimes not.

[aristide1]

You may be confusing liberal and left again. The traditional left program is all about stringing up the plutocrats... often metaphorically, sometimes not.

Still a man hears what he wants to hear and disregards the rest....

I may be way out there, but as of late I really don't understand reverse Robin Hood-ism.