Yesterday Mrs. Drang and I had a meeting with out Financial Adviser. (I can't help giggle when I say that: "My financial adviser." What a hoot!) Anyway, he was outlining some strategies we could use to a) Cut our expenses, and b) Ensure we'd be able to afford Ensure (heh) in our dotage, and I kept wanting to say "Yes, yes, I know that history tells us that the markets will come back stronger than they were before the implosion, but what if His Imperial Majesty nationalizes everything? What then?" But I didn't want to start a fight...
So, today, there are these two, not one, but two, rants on teh Intertoobz.
First up, we have one of those eeeee-vil investor types from AIG telling AIG to pound sand, since he was nowhere near the stuff that made AIG go bad, AIG enticed him to stay for a one dollar a year salary with offers of massive bonuses, and then the backstabbing git who made the offer rolled over and told congress "Yeah, sure, go ahead and tax the piss out of them, they deserve it." (Personally, I think he should have spent more time pinging on the congresscritters and President Hopey-Changey, but wotthehell, as mehitabel used to say to archie.)
NY Times, via Powerline (When they came for AIG). (In case you can't access the NY Times op-ed online, and can't get "BugMeNot" to work for you, I have the text saved...)
In the meantime, courtesy Tamara, Viewing Things From Her Porch ("This is John Galt speaking...") I learned of this little
While Austrian gave permission to any there to re-post his rant on their blogs, or forwArd them via email, I'll keep this (sort of) short by only posting his re-cap of "How we got into this mess":
I currently manage a medium sized hedge fund (long/short equity).The rest of the thread has:
The current populist uproar is absolute insanity. I don't know how else to say it. You are never going to legislate away greed. Period. It is part of the human psyche. That's all there is to it. You can either fight it, or use it. Incentives work. This is why.
Let's step back a minute and think about why and how this happened:
1. Starting back in the 1970s Congress addressed discrimination in mortgage lending (which was really a serious problem) with the Home Mortgage Disclosure Act of 1975. This approach was to open lending statistics by requiring banks to disclose the details of their lending by geography and, eventually, demographics and income level. This was a stroke of genius. Large banks were shamed into good citizenship. The act did have the effect of elevating a number of "civil rights" personalities (Jesse Jackson, for instance) as they used shrewd public relations to expose some rather egregious practices by large banks when it came to mortgage lending. These same personalities, names you doubtless recognize, in some cases, adopted more aggressive tactics, some that borderline on blackmail and extortion today. I leave it to you to determine if this downside outweighs the upside of truth in lending practices. I, for one, think that forcing disclosure like this was enlightened. It was to be the last of its kind.
2. The Community Reinvestment Act really was a serious break with the legislative practice before the legislation. Suddenly, you have a small number of people determining where dollars will flow based on some political definition of who is worthy. The early definition could be right as rain in terms of who is deserving, needs a leg up, has been wronged, etc. etc. but once you go down this path, you are truly fucked. Once you start dictating capital flows based on political worthiness (an entirely subjective and whimsical standard) you have opened the door to all kinds of mess. Play stupid games...
3. ...win stupid prizes. In the 1980s and 1990s Congress literally had a hornet's nest up its ass with mortgage regulation. Almost 400 bills in the 101st Congress contained the word "mortgage." This doesn't seem like a big deal until you realize that the housing ranged from 7-20+% of GDP in a quarter. Absorb that. Something like 1/5 of quarterly GDP. Now put in place mechanisms to literally pour trillions of dollars into the system to encourage "The Dream of American Home Ownership." Think of it. You have a small group of regulators/legislators (less than 100 people are making major decisions about how much Freddie or Fannie will lend, or what their capital ratios will be raised to, or what interest rates should be) controlling a massive portion of the economy. You suddenly have price fixing for a sizable fraction of the GDP. To compete with Fannie and Freddie, their subsidies, their tax breaks, their implied government backstop and their downward pressure on interest rates, you have to take on more risk for less money. Hello Countrywide. (Just a bit of history, Countrywide was explicitly founded to collateralize the only loans left to non-GSEs- those not already being siphoned by Freddie Mac and Fannie Mae). GSEs held 1/3 of all residential mortgages by 2001 or so. ONE THIRD. GSEs were run by political hacks, installed there as a reward for political services rendered. These are facts.
4. Banking and Insurance regulation is, and always has been, daft. The blind focus on capital ratios, reserve ratios and the like, and the pedantic concentration on definitions of risk that results in notional insured figures being counted in capital ratio calculations but credit default swaps not counted in this way was insanity. Of COURSE massive capital is going to flow into the exception you, regulator, have explicitly written into the regs. Now you are shocked and surprised that people wrote Credit Default Swaps like there was no tomorrow? Incentives matter. Period.
ETA: I am not stupid enough to ask you to explain to me why you cannot just let dying firms in dead industries FAIL? Watching an airline enter its THIRD bankruptcy, and proceed to wage a deleterious price war, only to suck down millions if not billions in federal aid may pull $50 off a ticket to Florida, but it also fucks the entire industry. You've created the appearance of a right to cheap airfare, cheap gas, cheap insurance, and bailout if the McMansion you were stupid enough to built on a 20 year flood plain gets- quelle surprise- leveled by a storm. Of course you can't let anything fail. You've promised the world. You've been borrowing and delaying the inevitable to deliver it for decades.
5. The market for talent is global, and you can't legislate it away. Like it or not there is a metric ass-ton of money in finance. The power to create, move or allocate wealth is very valuable. It always will be. You aren't striking a blow for social justice by enacting the first salary caps in the modern history of the United States. You are guaranteeing that finance experts will flee. The hiring binge going on right now as the likes of UBS suck out talent is just amazing. UBS, with the support of the Swiss Government, is offering 10 year permits to execs and their families who relocate to Switzerland, not to mention the ability to negotiate your personal tax rate for the next 10 years up front in some Cantons. You can't determine what finance execs will be paid, folks. You can only determined WHERE they will be paid. Who exactly do you think is going to pull the United States out of this mess. Big Auto?
So, let me get this straight, Mr. or Ms. Congressional/Executive Scumbag....
You've spent the last two decades pumping trillions upon trillions of dollars into particular segments of the mortgage market, a major portion of the U.S. economy, dictating what risks were appropriate, how much would be paid for assuming those risks and generally underpricing risk in the entire system for years and years. You've been inflating a bubble and assuring that the inflation passed to the riskiest portions of the economy. You've been passing the buck for four decades. Every time the economy tries to correct itself, you stall, pump borrowed money into the system, and grow the disaster the country will eventually have to face. You buy votes year after year by delivering graft now, to be paid for later (after you've long left office). In effect, nearly one third of the American economy has been run by central planning for the last five years. During this inflation, you happily collected taxes on everyone, effectively collecting tax on borrowed money and inflated assets (none of which you propose to repay- what luck would I have asking for the real-estate taxes I have paid for years on appraisals that were pure illusion?) I didn't hear you complaining when you saw massive, record revenues to the Treasury thanks to the boom the finance community facilitated and delivered to you, year in and year out. I didn't see you pointing fingers when we dug in and pulled your ass out of two recessions. Finance is a massive portion of the economy because it creates wealth. Period. Your social programs, state and local, are massive bloated vote-buyers because of our hard work, sweat and craft. (New York State, I'm looking at you). We work until mid-May for you and your vote purchasing juggernaut. I accept that. I have for years. This is because what I make from June to December is more than enough to, not just enjoy the American Dream and the promises of success and wealth, but to take the capital I collect over the years and invest it, again and again back into American business, start-ups, and even your fucked up GSE mortgage securities (which my taxes support). We carry the freight. 10% of us pay 70% of all income taxes. 50% of us pay 97% of all income taxes. We tolerate this because this is the promise of America. Work hard, pay taxes, and no one will second guess what you spend your money on in your personal time. No one will tell you how much is a "fair wage."
Now, now that you have run out of delaying tactics, you want to point the finger at... me?
- Commenters saying "Dittos!" (One of the most annoying part of these fora, in some boards you can only subscribe to a thread by responding, so a lot of the responses are semantically null. AR15,com has changed that, but habits abide...)
- People accusing Austrian of cutting and running.
- People asking cogent questions, and Austrian giving the world a free education. (Or trying.)
- People arguing with Austrian (or others) about points, and Austrian giving the world a free education. (Or trying.)
No comments:
Post a Comment