I suspect that the government is, at this moment, screwing the pooch. Starting in November, the government sold the bank bailouts as a way to stave off a truly catastrophic economic tailspin. Just a little priming of the pump, a little life support. Fine.
But what I hear now – from everyone – is that we need to do everything we can to “get banks lending again” – as in, consumer lending – which is insane. That lending is precisely why we got into this crisis in the first place. For the last decade, Americans have been on a debt-fueled spending spree that is completely unsustainable. Borrowing does not create wealth. We need to pause to pay back our debts, and then start actually producing things to generate wealth.
Instead, the government is obsessed with cajoling you into taking out a mortgage, and banks into offering it to you. Great plan.
What’s worse, yesterday’s new plan seems intended to keep the real estate-backed asset bubble inflated by, basically, subsidizing shit, keeping the risk with the taxpayer, and handing the profit to private companies.
Of course the stock market rallied yesterday: We’re about to write those knuckle-heads another check for $1 trillion!
Why we don’t force some banks into bankruptcy, fire the management, restructure them, and sell off the pieces, rather than keep bailing out someone else’s leaky boat, is beyond me.
Have you stopped to ask yourself what the world is going to look like a few years from now? What with millions of people getting canned, stable employers no longer stable, the whole economy on fire. Imagine: General Electric just cut its dividend. GENERAL ELECTRIC. GE hasn’t done that since THE GREAT DEPRESSION.
How bad can it get? Let’s see. The last Great Depression culminated in global fascism, World War II, and the invention of the atom bomb.
Forget T-bills… I’m investing in Krugerrands and ammunition.
The Economist comes out in favor of legalizing drugs as “the least bad policy.” They make a very convincing case. Come on people: Prohibition doesn’t work. And we have better things on which to spend $40 billion a year.
I guess if you look at the facts, the reasoning is obvious. As The Economist puts it, the West’s war on drugs has lasted 100 years, and completely failed. Can’t we try something else? The hard part would be convincing unreasonable people – like Limbaugh Republicans who get extremely bent out of shape over cigarette smoking bans (it’s a free country!), yet rally around felony charges for the possession of minor quantities of marijuana.
Does this make sense? No.
It’ll be awhile before the topic of drug legalization is anything but political suicide in the U.S.
How many articles have you read about newspapers being the foundation of democracy? (Oh hey! There’s one right there!) What those articles don’t often mention is that approximately 98.7% of content published in newspapers has nothing to do with democracy, and is, in fact, total horseshit.
Barbara Corcoran, a real estate executive, said that most well-to-do families take at least two vacations a year, a winter trip to the sun and a spring trip to the ski slopes.
Total minimum cost: $16,000.
Oh dear Jesus. NOT THE VACATIONS. The intrepid, democracy-saving journalist goes on to point out that “a chauffeur’s pay is between $75,000 and $125,000 a year,” which I assume is supposed to make us feel sorry for the beleagured i-banker who now has to drive his own Jaguar, which, actually, fuck him.
And also, fuck cash flow. Hasn’t anyone ever heard of asset sales? Sell the summer home, slick! The rest of us are hocking our home appliances!
I’m going to take a risk and make public a prediction I originally made whilst slightly intoxicated: Before the end of this year, there will be an enormous financial scandal that will bring the Chávez administration to its knees.
Although I guess, given the facts, this maybe isn’t the riskiest prediction anyone’s ever made. Oil’s down around $40 a barrel, even though Venezuela’s (conservative) 2009 budget assumed $60 a barrel. (Oil makes up over 90% of exports, up from 68% in 1998.) Starting last year, the state oil company got way behind in its payments to contractors, a trend that’s continuing this year, to the tune of $7.6 billion.
The late payment is both a symptom of Venezuela’s worsening public finances and a cause of the same, as contractors suspend work and oil output falls further (Venezuelan oil output is down by about 1 million barrels a day since Chávez took over, according to OPEC).
How will Venezuela keep up its massive spending programs? By dipping into billions in reserves the government supposedly saved during the boom time.
And there’s the problem.
There have been no checks or balances in Venezuela for a long time, with Chávez loyalists dominating every part of government. There is no way to confirm that it actually has billions of dollars lying around. In fact, The Economist reports that Chávez has already skimmed $12 billion from $42 billion from the Central Bank’s reserves, which are supposed to be backing up the worthless bolívar, not spent on social programs.
So here’s how it’s gonna go down: At some point, the real direness of the situation is going to hit home, someone’s going to open the government’s vault, and they will find that vault empty, or anyway a lot emptier than it’s supposed to be.
That discovery will be followed by the suspension of the Venezuelan government’s credit card and shortages in the public grocery stores, and the government will start handing out coupons rather than cash to welfare recipients. Payments to public employees will be suspended as well, and the state oil company won’t be able to save anyone because it will have its own crisis with angry contractors, striking workers, and free-falling output. The bolívar will hyperinflate and Venezuelan bonds will explode, and when the bank accounts in Switzerland are finally unearthed, various cars and buildings will be set on fire by very large groups of angry (and more importantly, unpaid) ex-Chavistas.
Exit Chávez, stage left.
In retrospect, these events will seem practically foreordained. Every single person in Venezuela has several stories about government people stealing money or handing out suspicious contracts, and little videos like this one…
… are numerous.
Pedro Carreño, Justice Minister: The only path to justice is socialism. It’s not capitalism.
Inconvenient journalist: Isn’t it contradictory to trash-talk capitalism when you’re wearing a Louis Vuitton tie?
In the end, the Venezuelan government is like a huge Bernie Madoff scam. With boom-times over, they will not be able to hide the stealing, and Chávez and his minions will have to flee to their new homes in Havana.
Wall Street says, hey! We’re playing fair! Bonuses are down 44% from last year! They also argue that they have to pay their people obscene amounts of money to keep them from defecting to other firms (as if this were a great time to switch jobs).
But this pay structure is clearly insane. The average Wall Street bonus this year – average – was $112,000. That’s in addition to salary and stock options. These are not doctors who study for 12 years, or astronauts, or scientists who are inventing shiny new things that make life easier. They are (many of them) 27-year-old kids from Long Island with Master’s degrees in economics or finance, whose job is to use other people’s money to buy things at one price and sell them at a slightly higher price.
While these middlemen (and women!) are necessary for the gears of capitalism to turn smoothly, I’m skeptical that their relatively small contribution to society is worth so much compensation. In fact, in my experience, whenever disproportionate compensation is offered in exchange for fairly basic tasks, it ends up selecting for the clever, daring, and unscrupulous among us, who are willing to do things like clear-cut rain forests, counterfeit Rolexes, and build sub-prime mortgage-backed securities shell games.
Clearly, the system has failed, and the libertarian “I leave you alone, you leave me alone” ethos didn’t work: We left them alone, and they leveraged the hell out of everything and drove the market off a cliff. Massively disproportionate compensation structures played a part, and now we’re all suffering (and paying) because of it.
Maybe it’s time to get out the tar and feathers and cap some bonuses.