Wednesday, September 24, 2008

Why we must kill Mammon

Is greed part of human nature? Of course it is. Greed, since the beginning of civilization has driven us to where we are today. Without greed, we would be nomadic tribes yet, wandering the earth with the purpose of survival. Greed has allowed us to invent money, trade, wealth, and poverty. But we, as moral agents, have the ability to suppress instincts. I do not believe greed as human nature can be used as a defense of actions any longer. The current economic situation can be blamed entirely on greed. I am not an economist by any stretch of truth; however I have followed economics with great interest for the past several years.
When I was young, a man who I had great admiration for planted a seed in my mind, he said; If you didn't have to work for it you probably shouldn't have it. I don't take things at face value, I have a tendency to look into things (sometimes far too much), and that seed (along with countless others) has fueled many thought experiments, and internal debates. A few years ago, the company I work for pushed me hard to start a 401k plan. Being a natural born skeptic, I wasn't interested at first, but the large percentages, and the dream of retiring rich one day (should I manage to survive that long) took over. "Wow, I can have a happy life just as soon as I am [really] old". The markets were high at that point, things have changed a bit. The 11% returns have turned into %-13 losses. I, having read a great deal about recessions, the great depression, and
Global economic turmoil past, understand that markets will bounce back. I do not believe they will bounce back to quite the extent they were at for a good chunk of the beginning of this century.
I do not think we will see huge returns ever again (again, I am not an economist, nor do I play one on YouTube) because of the simple fact that the USA has a mature economy. The huge gains and ridiculous returns were due, mostly, to boundless growth funded by seemingly limitless credit. The housing boom was caused by irresponsible lenders and borrowers. The greed factor is big: buy a house on credit, fix it, and flip it. You don't have enough money to pay for it, but in the housing market, you could sell it before you have to worry about it. Buyers were told that their wealth could only go up from these houses, and they as well figured they could sell if shit* hit the fan. We all know how that ended. Now, the chairmen of the fed, and other 'important' individuals are calling for a $700 billion "Bailout" (it's really not a bailout, and it won't really cost $700B, but that's a separate discussion. Go read about it if you’re curious). The part that scares me about this is that it was almost given to Paulson to do with what he pleased. Thank goodness congress is holding it up to make sure there will be some accountability.
At any rate, what does this mean? People are terrified. The stock market is afraid (Take all the irrational people you've ever met in your entire life, multiply it by a million, and that's the stock market). Stocks go up, and stocks go down, that's how a "free market" works. (For all you assholes* bitching* about the ban on short selling, RE: The Great Depression. We're not a completely free market, and that's a good thing. And you can shove your gold backed currency up your asses*, fiat money will save us from this being far worse than it could be). Is it really fair, albeit not $700B, but a good chunk of money has to come out of taxpayer funds to fix a big-ass problem created by a bunch of rich sons-of-bitches? Not really. But our desire to keep “our” money, instead of use it to fix a big problem is nothing other than greed.
My understanding of how money works suggests that if we cut taxes, costs for every day expenses will increase, as people would have more money, and would buy more.. supply demand. If income tax was dropped, prices for everything would go up, and by my calculations, nearly as much as you would have ended up paying in taxes, but now instead of getting something for that money, you’re buying a $25 loaf of bread. We’re going to end up paying for these bail outs in the form of taxes. Taxes will go up. Hopefully, they go up far more for people that have far more, but at any rate, they will go up, and when they go up, discretionary spending money will go down, which will in turn cause some deflation. We see deflation in the electronics sector every day.
Market downturns cause great concentrations of wealth. (See Berkshire Hathaway’s latest purchases for instance). People are going to get rich off of this weather we pump money into the markets or not. Provided there is proper oversight, and the public gets ALL of the returns from these bailouts (Yes, it's fucking* socialism. But it will, more than likely, end up bringing taxes down for everyone if it pans out. And if it doesn't pan out, we're all screwed anyhow). A feedback loop I see possibly coming from this: higher taxes on businesses and rich (to pay for the bailout they necessitated) will cause innovation, and growth. This flies in the face of everything I have ever read about economics.
According (abstractly) to Reaganomics, this will cause less spending and growth by business. According to logic, if business has to pay more in taxes they will work harder to make the same profit. They may raise prices, but if no one has the money to pay, they won’t sell anything. Rich people, and business are greedy- that will not change. But we can use it against them. Business will come up with new ways to create, and make more money with less. Keeping them within parameters regarding the environment, and consumption will cause them to work even harder to squeeze out a profit, but they will, and we will grow greatly because of it.
This huge bailout has the purpose of taking mortgages off the hands of banks. These mortgages and other bad debts (hopefully the gov only ends up buying mortgages. Screw the car financing, etc) are nearly impossible to value, and as a result, are hard to get off of balance sheets of major banks/lenders. This causes a lot of bank assets to become worthless, as the loans are "worthless" (we all know the properties that back them are not worthless, and never will be, however they end up being seen as such). This in turn causes banks to have a hard time lending to each other for withdrawals, etc. When this happens (it IS happening), credit seizes and there can not be any loans made (IE Growth/creation of wealth).
The Federal Reserve (which needs far greater oversight, but as is very apparent, is a very necessary evil) is scared shitless*. The fact that this plan was even brought up should show just how scared the money people are right now in this country. We ARE at the very edge of a worldwide economic collapse. Reaganomics is defunct, deregulation is a pipe dream for greedy corporate America (and is precisely what caused the current mess), and frugality will soon be the new Hummer. My point, besides exercising my rusty essay skills, is that greed got us into this mess, and our ability to overcome our instincts will get us out. We're going to have to raise taxes (to pay for this bail out), cut back, suck it up, and hope to GOD future generations will learn from our mistakes this time. That is, if we don't decide to go to war... Hopefully we don't fall into a deep enough of a hole that the only way to get out of is war. Big war. The next time you hear someone say "We need to deregulate x" tell them to shove it so far up their ass that it comes out in China. Think about that one for a minute. That's pretty far up ones ass.



Anonymous said...

If I didn't think the power would go to your head, I'd say you should rule the world. You should at the very least be an adviser to a world leader.

Lee LeMond said...

And by think you me KNOW the power would go to his head!