If you caught my video "Credit Default Swaps and the European Debt Crisis", you know that those who lent to Greece had the opportunity to buy a unique form of insurance called a Credit Default Swap, or CDS... Insuring that if Greece didn't make good, someone else (generally a large financial institution) would.. At least that's how it was supposed to go down...
In addition to Greece's creditors, there was a contingent of investors (we can assume hedge funds) who speculated big time by buying CDS contracts without ever having invested in Greek debt... So-called "naked CDS"...
Now the powers that be, the so-called Troika (the European Union, the European Central Bank and the International Monetary Fund, aka the bailouters) tried desperately to screw CDS holders out of their claims by pushing for a "voluntary" default... Supposedly, had all the debt-holders volunteered to take a 50+% haircut, the CDS contracts would not have triggered...
Within the latest Greek deal the "voluntary" isn't happening, and it therefore looks as though (unless the committee that ultimately determines whether the trigger's been pulled determines otherwise) CDS buyers will indeed get paid... And I say Hallelujah!!
Here's the thing folks, bailouts are morally hazardous events... And, for the sake of our system going forward, those who make irresponsible investment decisions (in this instance the institutions that backed the debt issued by Greece, of all places!!) have got to suffer the losses... And, for crying out loud, a contract is a contract!!
During our own credit crisis, AIG, and those who bought its CDS, got away with financial murder: AIG issued $hundreds of billions of CDS (insuring mortgage-backed debt) without the capital to cover... In a real market it would have defaulted on the default swaps, leading itself to bankruptcy and the buyers of those contracts with the incentive to do some real due diligence next time around... Instead,
you and I bailed em out, 100 cents on the dollar; unbelievable!!
Excess money printing (think Greenspan in the '00s) + lack of prudence (think real estate, second/third mortgages and MBS) = a bubble every time... Like I said, going forward we have to allow the system - the profit and LOSS system - to work...
Wednesday, February 29, 2012
Protecting "our" children...
According to yesterday's New York Times Article U.S. Rule Set for Cameras at Cars' Rear, tragically, two children are killed and fifty injured every week by [mainly] family members backing their automobiles... Therefore, in a move loving parents would surely endorse, the government is about to mandate rear-viewing cameras in every new automobile beginning 2014...
Clearly this would be an [albeit rare] example of the good in government regulation, right? I mean the free market doesn't require anything of anybody. We can't expect automakers, of their own accord, to protect our children... We therefore must force the issue, as we have with car seats, airbags, seatbelt laws and [possibly] sugar consumption (read Food for Thought) to protect children from their parents' poor decisions...
Funny thing is, according to the article, 45% of all 2012 models come with rear cameras standard, and 23% as an option... I.e., the marketplace (i.e., consumer, as opposed to government, demand) has indeed motivated manufacturers to produce a safer product...
Now there's no question that new cars, with or without rear cameras, are safer than old ones... And of course more mandated safety measures make for a more expensive product (not to mention how constant mandating perpetuates the existence of myriad taxpayer-funded regulatory bodies)... And a more expensive product (and ultimately higher taxes) makes for a consumer who's more likely to hang onto her old car longer... Which, ironically, makes for a more dangerous roadway experience for the nation's children (note I didn't say the parents' children) than would've been without the new reg (ala Milton Friedman)...
Alright, I know, many of you aren't with me on this one, not yet anyway... Here's another angle... Think about the $3 billion (well, let's say better than $1 billion [45% already have them]) a year that'll flow to the makers of the rear camera, all the result of government regulating how you and I spend our money... Would you agree then thatthe more avenues from which Uncle Sam can forcibly direct your spending, the more special interests (and yes, corporate America is a special interest) will work to inspire (think $$$$) politicians to act inyour their best interest?
And please don't get me wrong, I'm all for us protecting our children... That is you protecting yours and me protecting mine...
Clearly this would be an [albeit rare] example of the good in government regulation, right? I mean the free market doesn't require anything of anybody. We can't expect automakers, of their own accord, to protect our children... We therefore must force the issue, as we have with car seats, airbags, seatbelt laws and [possibly] sugar consumption (read Food for Thought) to protect children from their parents' poor decisions...
Funny thing is, according to the article, 45% of all 2012 models come with rear cameras standard, and 23% as an option... I.e., the marketplace (i.e., consumer, as opposed to government, demand) has indeed motivated manufacturers to produce a safer product...
Now there's no question that new cars, with or without rear cameras, are safer than old ones... And of course more mandated safety measures make for a more expensive product (not to mention how constant mandating perpetuates the existence of myriad taxpayer-funded regulatory bodies)... And a more expensive product (and ultimately higher taxes) makes for a consumer who's more likely to hang onto her old car longer... Which, ironically, makes for a more dangerous roadway experience for the nation's children (note I didn't say the parents' children) than would've been without the new reg (ala Milton Friedman)...
Alright, I know, many of you aren't with me on this one, not yet anyway... Here's another angle... Think about the $3 billion (well, let's say better than $1 billion [45% already have them]) a year that'll flow to the makers of the rear camera, all the result of government regulating how you and I spend our money... Would you agree then thatthe more avenues from which Uncle Sam can forcibly direct your spending, the more special interests (and yes, corporate America is a special interest) will work to inspire (think $$$$) politicians to act in
And please don't get me wrong, I'm all for us protecting our children... That is you protecting yours and me protecting mine...
Sunday, February 26, 2012
The UAW's Latest Hit...
The UAW Choir parades a banner featuring Mitt Romney's infamous quote "Let Detroit go bankrupt" (preceded by "Mitt Romney said:"), while in route to their performance at the Republican front-runner's economic address... Their conductor (with a bullhorn) is none other than their president Bob King... They've come to debut their latest single; Thank You President Obama...
Now let's look past Romney's poor choice of words and consider his statement within the context of the law... In fact let's offer this tone-deaf victim of foot-in-mouth disease a little help and re-state it to something [perhaps] a tad less exploitable:
"Let a U.S. company that can't pay its bills go bankrupt... Let it reorganize, if it can (GM could've), and emerge leaner and more competitive... If it can't (maybe Chrysler couldn't have), liquidate it... Let the better-run companies within that industry (Ford and a host of non-US firms [with U.S. plants]) benefit from their leaders' foresight and good management... Let's not fashion a monster, legally-questionable, bailout (born under Bush then expanded 5-fold under Obama), only to later allow a Chapter-11 in a style that breeches bankruptcy law, and the Constitution, to win a union's political favor..."
Let them try and stick that on a banner!
Now let's look past Romney's poor choice of words and consider his statement within the context of the law... In fact let's offer this tone-deaf victim of foot-in-mouth disease a little help and re-state it to something [perhaps] a tad less exploitable:
"Let a U.S. company that can't pay its bills go bankrupt... Let it reorganize, if it can (GM could've), and emerge leaner and more competitive... If it can't (maybe Chrysler couldn't have), liquidate it... Let the better-run companies within that industry (Ford and a host of non-US firms [with U.S. plants]) benefit from their leaders' foresight and good management... Let's not fashion a monster, legally-questionable, bailout (born under Bush then expanded 5-fold under Obama), only to later allow a Chapter-11 in a style that breeches bankruptcy law, and the Constitution, to win a union's political favor..."
Let them try and stick that on a banner!
Friday, February 24, 2012
If he only looked like Mitt...
I'm afraid I'm going to step on a couple toes here... One, for this reactionary critique of the Tea Party... Two, for not having truly delved into the whole Tea Party message (I imagine we agree on many of the eight toes remaining)... I'll say first that I sympathize passionately with what I believe to be their message; which is Fiscal Responsibility, Constitutionally Limited Government and Free Trade, right?
I was therefore perplexed when I witnessed, the other evening on Fox Business News' Cavuto program, a young Tea Party co-founder mightily ripping Constitutionalist Ron Paul's candidacy, while promoting Rick Santorum's...
My respect for Ron Paul, and my belief that he'd win the coming general election hands-down (think Independents, Vets and college kids), doesn't earn me much respect amongst my pals... That said, the fact that the Tea Party isn't embracing him (he eats, sleeps and poops their message), I find troubling...
The problem as I see it is two-fold: One, Mr. Paul has no shot (if he only looked like Mitt)... And two; the Tea Party has itself morphed into a political party; subject to all the glad-handing and wink-winking: "Yes, Rick, we've seen your voting record; multiple yes votes on raising the debt ceiling (supposedly anathema to the Tea Party), etc., but you have a shot and we want a horse in the race. Never mind your core fiscal principles, we'll mold ya..."
Alas, whether we're talking Tea Partiers or the Occupiers; organize your efforts, elect officials, raise funds and before you know it, you become what you supposedly abhor, a life-source for your own rent-seeking leadership...
I was therefore perplexed when I witnessed, the other evening on Fox Business News' Cavuto program, a young Tea Party co-founder mightily ripping Constitutionalist Ron Paul's candidacy, while promoting Rick Santorum's...
My respect for Ron Paul, and my belief that he'd win the coming general election hands-down (think Independents, Vets and college kids), doesn't earn me much respect amongst my pals... That said, the fact that the Tea Party isn't embracing him (he eats, sleeps and poops their message), I find troubling...
The problem as I see it is two-fold: One, Mr. Paul has no shot (if he only looked like Mitt)... And two; the Tea Party has itself morphed into a political party; subject to all the glad-handing and wink-winking: "Yes, Rick, we've seen your voting record; multiple yes votes on raising the debt ceiling (supposedly anathema to the Tea Party), etc., but you have a shot and we want a horse in the race. Never mind your core fiscal principles, we'll mold ya..."
Alas, whether we're talking Tea Partiers or the Occupiers; organize your efforts, elect officials, raise funds and before you know it, you become what you supposedly abhor, a life-source for your own rent-seeking leadership...
Thursday, February 23, 2012
Capitalism and Trade; the best foreign policy...
I gotta tell ya, if you think for a minute that trade ("free" or unilateral) is somehow, on net, bad for the U.S., you have another think coming...
Just consider these two headlines from CNBC.com this morning:
1: "HP, Dell Watch China Labor Costs for Apple"... Last week Foxconn (they assemble all three's products) raised worker pay 16-25%... The third increase since 2010...
"If Foxconn's labor costs go up, their product cost to us will go up", says HP Chief Meg Whitman... "Then we have to decide how much do we pass on to our customers versus how much cost do we absorb."
Now imagine how much you'd pay for an Apple, Dell or HP product if they had to pay U.S. labor costs... And imagine what that would do to U.S. labor in the U.S. industries currently benefiting from your discretionary income...
2: "Chinese Court Says Apple Can Sell iPads in Shanghai"... Rejecting a request by a Chinese technology firm that the sale of Apple's iPads be halted across the affluent Chinese city (a battle over the iPad trademark in China)...
Wow! Who would have thought that a Chinese court would rule in favor of a U.S. company - over a Chinese company?
In Thomas Friedman's fascinating book The World is Flat, he claims that no two countries, after having opened McDonald's restaurants, have ever gone to war with one another... I.e., if you want to make peace with other countries, introduce them to capitalism...
Just consider these two headlines from CNBC.com this morning:
1: "HP, Dell Watch China Labor Costs for Apple"... Last week Foxconn (they assemble all three's products) raised worker pay 16-25%... The third increase since 2010...
"If Foxconn's labor costs go up, their product cost to us will go up", says HP Chief Meg Whitman... "Then we have to decide how much do we pass on to our customers versus how much cost do we absorb."
Now imagine how much you'd pay for an Apple, Dell or HP product if they had to pay U.S. labor costs... And imagine what that would do to U.S. labor in the U.S. industries currently benefiting from your discretionary income...
2: "Chinese Court Says Apple Can Sell iPads in Shanghai"... Rejecting a request by a Chinese technology firm that the sale of Apple's iPads be halted across the affluent Chinese city (a battle over the iPad trademark in China)...
Wow! Who would have thought that a Chinese court would rule in favor of a U.S. company - over a Chinese company?
In Thomas Friedman's fascinating book The World is Flat, he claims that no two countries, after having opened McDonald's restaurants, have ever gone to war with one another... I.e., if you want to make peace with other countries, introduce them to capitalism...
Wednesday, February 22, 2012
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