Author: Economoralist in Chief

$SPX 666: 15 years later, did the devil win?

by Economoralist in ChiefIn the News / Timely CommentaryLeave a Comment on $SPX 666: 15 years later, did the devil win?

We’re not saying Neel Kashkari (current president of the Minneapolis Fed, and former assistant secretary of the Treasury under Hank Paulson) is the devil incarnate or anything like that. But he did play a key role during a devil of a time for the American economy and markets (overseeing TARP in late 2008) – and looking back 15 years to the day – one can’t help but wonder exactly whose hand might have been at work when the post-GFC S&P index finally bottomed at the infamous number of 666 on March 6th, 2009.

Why pick on Neel? Not because it’s all his fault. But because we found a number of quotes from him over the years, talking about his experiences from that time in retrospect (and we credit him for his honesty) that seem to really capture the essence of why we believe the actions taken in 2008-2009 (and then again when we doubled down on them in 2020) have led to the society & culture we have today. Neel (and perhaps you would agree) might have looked at those actions as a “necessary evil” at the time – but we emphasize the “evil” nonetheless (even if the human perpetrators didn’t intend it that way) in a way that has only become more apparent over time.

Neel might have just been an innocent bystander or well-intentioned enabler at best (we won’t bother pondering over the worst) but when you look at the way American values & behaviors have changed over the 15+ years since #QE first began in 2008 (and for all the nominal “growth” in “value” the “markets” have experienced since SPX 666) you can’t help but notice a correlation. The Devil’s work? (or at least the Devil’s market?) We’ll let you decide.

“This is not the time to worry about moral hazard or whether people are incentivized not to work.”

“if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.”

“In 2008, there was great anger across the country because banks had taken risks and Main Street bore the consequences.”

“Americans were angry at the thought of their “irresponsible” neighbors getting a bailout.”

Neel Kashkari

https://www.minneapolisfed.org/article/2020/op-ed-what-the-2008-rescue-package-can-teach-us-about-todays-relief-bill

it’s very likely that we’d have to turn to the taxpayers to bail the banks out again, and I don’t think most Americans think that’s acceptable.

It’s in their financial interest and in their shareholders’ interest to grow as large as possible, and unfortunately, the risks are then borne by society.

Neel Kashkari

https://www.npr.org/2016/02/18/467112859/he-led-the-financial-bailout-but-says-banks-are-still-too-big-to-fail

“The shareholders got bailed out. The boards of directors got bailed out. Management got bailed out. So from their perspective, there was no crisis

Neel Kashkari

https://finance.yahoo.com/news/fed-apos-kashkari-wall-street-172000046.html

“I think the legacy of the financial crisis is the extreme polarization that we are experiencing every day.”

“we violated core American beliefs. We have beliefs in our country that have been passed down from generation to generation. A belief in free markets. If you take a risk you get the upside but you get the downside. That’s been with us for a couple of hundred years and we violated that in ’08. And when you violate the core beliefs of a society I think it leads to great anger.

Neel Kashkari
The man in charge of TARP: "I’m proud of the actions that we took"

Whatever you think of Neel, again, it wasn’t all his fault. And we’re not trying to pin the blame on him. We’re not even trying to pin the blame on any human being who lives above ground here on Earth – though we might question the temples at which some of these enablers do their dirty work (and perhaps also their worship?)

Yes, we’re suggesting bigger (and darker) forces at work.

Some even made light of the situation:

“Yes, wouldn’t that be ironic? One hell of a terrible market bottoms at the sign of the Devil. Maybe the apocalypticists are right!”

Alan Brochstein, CFA

https://seekingalpha.com/article/124821-in-this-devil-of-a-market-could-666-be-the-bottom

While others take a more subtle swipe at some of the parties involved, while avoiding calling them out directly for their “evil” deeds:

“Gains since 666 have been driven in large part by the Fed’s forays into bonds.”

“Will we suffer a catastrophic return to the devil’s number? That depends on the exit from QE.”

@johnauthers

Hint: We never exited.

https://www.ft.com/content/3cb7838e-a547-11e3-8988-00144feab7de

We have a slightly less subtle view:

It’s been quite a run since the March 2009 low of $SPX 666.

Feel like you’ve been running with the bulls? 🐂

Or maybe with someone else? 😈

The “#value” of your portfolio might depend on your #values.

#runningwiththedevil #moralhazard #Fed #QE #ZIRP

Coincidence? We think not.

And for what it’s worth, the results are pretty clear:

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Can paradise be found in prudence?

by Economoralist in ChiefIn the NewsLeave a Comment on Can paradise be found in prudence?

Bloomberg: A Polynesian Paradise Sacrificed Its Economy to Stay Virus-Free

https://www.bloomberg.com/news/articles/2020-05-26/polynesian-cook-islands-sacrificed-its-economy-to-end-coronavirus

We know the knee-jerk reactions…

  • The Right – That horrible government, treading on their people’s liberties, shutting down their economy like that…

  • The Left – That wonderful government, making the decision for their people because their people wouldn’t have known any better, regardless of economic impact…

We’ll take no particular position on the role of government in this particular case. We simply read this article to mean – the less debt you have, and the more savings you prudently accumulated while times were good, the more flexibility you’ll have to make a choice, either way. And isn’t choice what it’s really all about?

Choice, coconut drinks, and no central bank. Sounds like paradise to me.

“With no central bank of its own, the policy options are limited. A relatively low debt-to-GDP ratio of 21% gives the country room to borrow, Brown says. The government is in talks with the Asian Development Bank and the New Zealand government to provide loans until border restrictions are relaxed and visitors can return.“

“During the recent run of good economic times, Puna’s government had the foresight to bank NZ$56.7 million in an emergency reserve fund to be used during downturns or to recover from cyclones. The funds helped pay for the stimulus measures.“

Or to just cut right to the important parts…

“no central bank of its own”

“relatively low debt-to-GDP ratio”

“foresight to bank NZ$56.7 million in an emergency reserve fund”

To be fair, we do, of course, hope all the individual business owners (including ones like the Napa family and their Kiikii Inn & Suites) in the Cook islands had also been just as prudent with their savings.

“I thought the same thing as everybody else: What are we going to do?” says Napa, 59, recalling the moment he found out there would be no more guests arriving at the motel. “I was just gearing up for busy season.”

Thanks to Emmanuel Samoglou writing for Bloomberg BusinessWeek for chronicling this inadvertent case of prudence being the ticket to paradise – at least in relative terms?

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It’s ALWAYS about the economy, stupid.

by Economoralist in ChiefOriginal ContentLeave a Comment on It’s ALWAYS about the economy, stupid.

As James Carville said back in 1992 to help Bill Clinton (D) prevail over George H.W. Bush (R) in what now, looking back, seems like a downright quaint presidential election during much simpler times – “it’s the economy, stupid”.

That part still hasn’t changed much. What may have changed since then is how much more faith people seem to be putting in (D)s and (R)s to help shape their destiny, solve all their problems, and determine their ability to lead a more fulfilling life going forward. It’s as if everyone’s looking for a deity (or a scapegoat), and few can think of more than two places where they might find it.

We’re going to keep this simple (well, sorta).

For all the horrors taking place in Minneapolis this week, the shamefully unfortunate circumstances in NYC’s Central Park, the role of “Jack vs. Zuck” in determining who should be allowed to say what, and of course our ongoing response to COVID-19 (and the renewed symbolism of the “face mask”), it’s clear that we all have a tendency to get caught up (and probably too easily) in the emotion-driven “political” themes of the moment that pit one against another, diametrically. Whether it’s black vs. white, rich vs. poor, male vs. female, cisgender vs. transgender – you name it, it’s cool to pick a side. At least, it seems comforting. Once you know which side you’re on, you then know which side to blame, which then makes it easier to let your anger out because you have somewhere you can direct it. And letting your anger out feels good, because lord knows there’s plenty to be angry about these days.

The problem? Painting the world in such simple colors is ultimately a recipe for mass misunderstanding, and a world plagued by mass misunderstanding is much more likely to focus on all the wrong problems – or at least, be distracted from the ones that might actually matter most if we could solve them.

Is “mass misunderstanding” just an unfortunate by-product of an inherently complex world clashing with the inevitable limitations of human nature, or is it a conscious policy and a deliberate attempt to mislead and misdirect? We’re not sure, but Fed Chairman Jay Powell seemed to offer an inadvertent perspective (by accident?) during his briefing earlier this morning that at least has to get you thinking: Why all the misunderstanding? Because you have better things to do…

To diminish nothing of the very real scourges of racism, sexism, and other “isms” that affect some of us more than others (as we once talked about here), it seems there’s at least a remotely legitimate chance that some people might be trying to keep you from focusing too much on at least one particularly universal scourge (or at the very least they don’t seem to mind if your mind wanders a bit), and it’s the one scourge that at least indirectly touches and influences almost all of the others, whether we realize it or not. That, of course, would be any such scourge that denies or prevents the concept of “value” itself being related to the things you actually value.

Or, in other words – who’s in charge of the “value” of the very dollars you get paid in for your work (love or hate what you do), that you use to buy things (whether you need them or not), that you use to sell things (whether you wanted to or not), that you use in any transactions that help you pursue your own hopes and dreams (whatever they may be), and that you probably use to calculate your very own personal “net worth”, however high or low? Hint: It’s not you, it’s not your parents, it’s not your employer, it’s not your employer’s CEO, it’s probably not your “rich” neighbor, it’s probably not even just a specific race or gender (apparent correlations aside), and it’s usually not even your President (though some presidents end up having a little more influence than others). Nor is it even the God you might pray to, even if your God is Plutus or Mammon. Nope, it’s even simpler than that.

It’s a single, private, central bank.

Wondering who determines the value of your life savings if you saved it in dollars? Them. Wondering who ultimately determines how much a given “need or want” – whether it a be a house, a car, a vacation (especially one you took out a loan for) – or a donation to your favorite cause – or the very food on your table – could be worth relative to your life’s work and the values you stand for? Yup, them too. Now, we’re not here to debate whether their intentions are nefarious or not (we’ll leave that to the genuine conspiracy theorists whose theories we have no way of proving or disproving on this blog). We’re just here to call attention to the fact that they are, well, central. And if something is central and you haven’t been invited to have a seat at the table (not unlike that whole “Jack vs. Zuck” thing?) that means you don’t have a say either way.

There’s an old quote attributed to Mayer Amschel Rothschild (that, admittedly, no one seems to know for sure if he actually said or not)…

“Permit me to issue and control the money of a nation, and I care not who makes its laws”

Maybe good ol’ Mayer Amschel (or at least whoever quoted him) was just trying to make a point? You know, just a little 18th-century snark?

In any case, it doesn’t seem like we’ve learned much since then. And it doesn’t sound like our friend Jay Powell is particularly interested in seeing us start now.

All the while, arguments like #DemocratsTheEnemyWithin vs. #RepublicansAreDestroyingAmerica keep getting more attention than things like #debt vs. #savings, #SoundMoney vs. #UBI, and other things that actually matter.

It’s ALWAYS about the economy, stupid. Especially when you realize that most of the things we fight over have to do with our ability, as individuals, to live out our values – whatever they are, and however we got them.

Or are you happy to keep sitting at the kids’ table arguing over your favorite colors while the “grownups” at the central table decide what you get to eat for dinner? (if you get to eat at all…)

Another possibility: We need more tables?


***Disclaimer***
We have quoted “Tweets” from select “Twitter Users” in this story because we thought the views & opinions expressed by those “Twitter Users” were relevant to the topics being discussed in this story. These “Twitter Users” have no affiliation with the Economorals blog, and we make no assumptions about any particular political, religious, or other affiliations of any kind that may or may not be held by any of the “Twitter Users” quoted, nor the specific validity or credibility of what they say. Again, we just thought a few “Twitter Users” had some genuinely interesting words & ideas to share in the context of this story’s main themes, and since they’ve already shared those words & ideas in the public domain, we wanted to share them again here too. Because if there’s one “market” we can all hopefully agree on, it’s the “marketplace of ideas”.

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UBI & Bitcoin = perfect together? (or is anything really perfect?)

by Economoralist in ChiefOriginal ContentLeave a Comment on UBI & Bitcoin = perfect together? (or is anything really perfect?)

We live in interesting times, to say the least. No one can really agree on anything, yet everyone seems to expect everyone else to agree with them. We may never be able to fully solve that quirk of human nature (and even if we thought we could, should we really even be trying?) but one thing almost everbody seems to agree with these days is that something seems to be broken with the economy. Like really broken. Not even just broken like – will I be able to find a job, will I be able to put food on the table, have I saved enough to weather the hard times kinda broken; no, we’re talking broken like – fundamentally flawed, ready for a reset, let’s just tear the whole thing down and start over kinda broken. When enough people are thinking like that – from all different sides of the political spectrum – it might be time to start paying attention.

One particular “dichotomy” (which may not actually be as much of a dichotomy as you think) is between the Universal Basic Income (or #UBI) camp — those who think everyone should be entitled to a minimum monthly public payment to meet basic needs, regardless of means or contributions to society, and that such is essentially a basic “human” right — and the Sound Money camp — basically, people who really don’t love the idea of “printing” money for any purpose, tend to dislike debt and governments in general, believe strongly in free markets, and feel “liberty” itself is very much contingent upon all three.

Enter the cryptocurrency craze which got its nascent start in the wake of the 2008 financial crisis (likely not a coincidence) and it’s leading brand – Bitcoin ($BTC).

One of the rallying calls for $BTC has been the way it might serve as a “stealth” means of transferring wealth from those who have wronged us in the past (think “Boomers” what with their penchant for Fed bailouts, asset-price inflation, increased inequality, and the like) to those tech-savvy, purpose-seeking “Millennials” who will lead us to a more noble and ever-more-virtuous future. The $USD has been so badly manipulated and bastardized by centralized monetary-policy-makers in recent years they say (and we can’t really argue with that) that it’s time to throw the baby out with the bathwater and move to a new “standard” – one that, like $GOLD in years past (but now easier to carry in your “wallet“) – is free from centralized government control (and thereby all the opportunities for corruption and cronyism) and governed only by the natural laws of math. Hard to argue, right?

Well, it may depend on what argument you’re trying to make.

If a more “noble future” is what you seek (who wouldn’t?) and $BTC is your solution, then of course, that makes the assumption that Bitcoin holders (or hodlers) are all well-intentioned, ultimately selfless stewards of the “greater good” who will, at every opportunity, seek to use their newfound $BTC-denominated wealth to further causes that benefit all. Right?

Kind of like these guys, maybe?

https://news.bitcoin.com/immortality-cryogenics-and-ubi-how-the-crypto-rich-influence-science/

“The rise of cryptocurrency is changing the philanthropic world by causing the redistribution of wealth from old money to visionary innovators and early tech adopters. The new crypto rich invest their donations by supporting scientific research in groundbreaking fields that may one day enable humanity to cure aging, reverse death and completely change the relationship between work and income.”

Or, not to complicate things further, but…

What if I happened to be a right-leaning “free-market libertarian” with contemporarily “conservative” (but maybe classically liberal?) views & values that include my right to believe in an almighty yet unknowable God with at least some kind of method behind his or her (or its?) divine madness? (yes, some believe all these can perhaps even co-exist together!) Might I then suppose that $BTC holders need not necessarily “always be thinking about the greater good” in order to achieve a greater good, because as long as they (just like I) are using decentralized sound money (21 million cap for life!) to further whatever economic activities & causes are of value to them (whether it be trying to reverse death, or simpler things like producing and consuming goods & services with people in their community who are fine with just one go-around if done well), the “greater good” is being served by default through their exercising of individual sovereignty & liberty?

And continuing with the complications…

What if I happened to be more of a left-leaning “humanist” with contemporarily “liberal” values, a tendency to appreciate at least some form of “socialist/collectivist” thinking, and a belief that all humankind has a natural right to the assets of the planet that bore them (a reasonable & logical view, if slightly dogmatic in its own way) because as far as we know, “we’re all part of the same compost heap“, so why should some (pieces of organic matter?) get a man-made head start right out of the gate? Might I then suppose that $BTC holders are just replacing “old” arbitrary aristocracy with “new” arbitrary aristocracy – winning the battle of generations maybe, but doing little to put to bed the perpetual war between haves and have-nots? What would one who believes we have a right to “natural inheritance” say about how Satoshi Nakamoto himself obtained his first 980,000 BTC (even if he wanted to spend it on cryogenics) and whether he should pass it on to his children and grandchildren after he’s gone? (well, again, that is, if the whole “eternal life through freezing” thing doesn’t work out)

Once again, we don’t assume any easy answers to any of these not-so-easy questions. We’re not totally sure if the questions even make sense – and you might be wondering the same thing. But we’re pretty sure they do get to a larger point, if even in a dreadfully roundabout way.

Sound money (in some form or another) is a big step in the right direction, probably. The #UBI-ers have a point, too.

The #UBI-ers basically want a “reset” to a fairer baseline, while the #soundmoney camp wants the right to preserve the risk-adjusted relative value of what they feel they’ve earned (and might seek to earn in the future) while playing by the rules of a system they were born into.

Could the two ideas somehow be combined to make a greater percentage of the world “happy” at least in relative terms? It seems like whenever we try to force the dialogues apart, we end up with stupid results like this one. There’s got to be a better way.

Ever hear the saying “when the left hand doesn’t know what the right hand is doing” or vice versa? Hint: There’s a double (maybe even triple) meaning, both of which might be relevant here.

Another possibility: We don’t really know right from left in the first place anymore (another case of potential double meaning). And it might be in our interest to forget that we ever did. Although, that’s not to say we should all just start moving in the same single direction either – that would be boring, if nothing else.

In continual search of the system that works the least badly…

Or maybe we’re all still just missing that larger (and probably simpler) point?


***Disclaimer***
We have quoted “Tweets” from select “Twitter Users” in this story because we thought the views & opinions expressed by those “Twitter Users” were relevant to the topics being discussed in this story. These “Twitter Users” have no affiliation with the Economorals blog, and we make no assumptions about any particular political, religious, or other affiliations of any kind that may or may not be held by any of the “Twitter Users” quoted, nor the specific validity or credibility of what they say. Again, we just thought a few “Twitter Users” had some genuinely interesting words & ideas to share in the context of this story’s main themes, and since they’ve already shared those words & ideas in the public domain, we wanted to share them again here too. Because if there’s one “market” we can all hopefully agree on, it’s the “marketplace of ideas”.

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When even the Fed is warning on asset prices (or when the rules just keep on changin’)

by Economoralist in ChiefIn the NewsLeave a Comment on When even the Fed is warning on asset prices (or when the rules just keep on changin’)

Bloomberg Law: Fed Warns of Significant Hit to Asset Prices If Crisis Grows

https://news.bloomberglaw.com/banking-law/fed-warns-of-significant-hit-to-asset-prices-if-pandemic-grows

When even the Fed is warning of a “significant hit to asset prices”, is that a sign we should be worried? Or are they just warming us up for even more #QE? (in which case, you might want to re-think who should be doing the worrying…)

An excerpt from Bloomberg Law’s coverage of the Fed’s recent statement which, at face value, sounds awfully logical:

“Asset prices remain vulnerable to significant price declines should the pandemic take an unexpected course, the economic fallout prove more adverse, or financial system strains reemerge,” the Fed said in the report. It cited commercial real estate as being particularly susceptible to falling valuations because “prices were high relative to fundamentals before the pandemic,” and there have been severe disruptions in the hospitality and retail industries.

In the old days, “asset prices remain vulnerable to significant price declines” would mean #savers get rewarded (by waiting, prudently, to buy low and re-establish equilibrium in markets at more appropriate valuations) while #debtors take the hit – and perhaps deservedly so, because “prices were high relative to fundamentals before the pandemic”.

In the new (or at least recent) normal, “asset prices remain vulnerable to significant price declines” would simply be cover-speak for ::printing more money to ensure asset prices don’t decline:: which would mean #savers get duped (by waiting, apparently foolishly, for their savings to be devalued) while #debtors get rescued and rewarded for their irresponsible behavior of having driven up prices to be “high relative to fundamentals” in the first place.

What will the very latest version of “normal” turn out to be?

Can someone just tell us what the rules will be once and for all?

Or is it time to walk away and find another game to play altogether?

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Math is universal. Income thresholds are not.

by Economoralist in ChiefTimely CommentaryLeave a Comment on Math is universal. Income thresholds are not.

Oh, the trouble with thresholds. Whether we’re talking tax brackets, or in this case, stimulus checks. It remains to be seen how (or if) things will actually play out with all the various proposals for a “second round” of stimulus in the face of the COVID-19 pandemic, but however unlikely it may be to come to actual fruition, we just had to call out this particular proposal as described by Alison King for NBC10 News in Boston as an example of how “glossing over” the math can lead to, well, “confusing” outcomes…

NBC10 Boston: Markey Joins Sanders and Harris to Call for Plan to Provide Americans With Monthly Income During Crisis

Markey Joins Sanders and Harris to Call for Plan to Provide Americans With Monthly Income During Crisis
https://www.nbcboston.com/news/coronavirus/markey-joins-sanders-in-harris-to-call-for-plan-to-provide-americans-with-monthly-income-during-crisis/2122610/

“The Monthly Economic Support Act would provide $2,000 each month to people earning $120,000 or less annually.”

So, let’s do the math. $2,000/month over 12 months would be equal to $24,000/year. An extra $24k/year in your pocket? Not bad! Except, we noticed it would kinda stink for you if you happen to find yourself already in the income bracket between $121k-$143k.

The easy answer for some, at quick glance, would be to say “you’re really complaining about people who already make a six-figure income? They’ll be just fine!! They’re already “rich”!!! (we can debate the definition of “rich” another day…)

Clearly, there were a few “Twitter Users” who missed the point right out of the gate…

OK, we get it, it would only “stink” in very relative terms, sure, and for that reason, if you’re already at $144k+ then even we’ll suggest you should probably just be happy you’re already there.

That said…

In the particular scenario described here, the $120k salary guy nets out with $144k on the year, while the $121k salary guy nets out with – well, $121k. Maybe the second guy should have asked for a $1k pay cut first? (or at least a few more weeks vacation). Silliness.

It’s a fair enough point – no one making that much money should really be “complaining” either way, at least not yet (we’ll see where inflation takes us…) But the point is, thresholds are dangerous because they’re completely arbitrary. And when things are completely arbitrary (or worse, opportunistically targeted at well-connected friends in the case of Wall Street bailouts, or just as opportunistically targeted at impressionable would-be voters of certain political leanings in the case of “stimulus checks for the people”), there’s bound to be #moralhazard somewhere. At the least, we’re once again playing “god” with the very definition of value – and it’s not like you had a say, either way.

Sure, maybe we’re over-emphasizing the plight of the $121k salary guy who ends up with $23k less at the end of the year than his $120k salaried counterpart, because someone (his employer?) had valued his work $1k higher before all the “stimulus” talk started (or maybe he was just a better salary negotiator – and ha, isn’t payback just a bitch for him now…)

The main point here is – we don’t like when people mess with the rules in the middle of the game. The laws of math never actually change, but if we’re going to leverage those laws to help apply the concept of value in human society, we ought to be more careful about how we try to manipulate them.

Full-on #UBI – or the idea of Universal Basic Income that’s been tried in places like Finland and enthusiastically touted by the #YangGang in recent months and years – would actually be more fair if fairness is the goal. No artificial thresholds. Scale from the bottom up. Everyone gets the $2,000 check. Purely progressive. Those with the least need it the most, and therefore each citizen would experience a net-impact that’s consistently proportionate to his.her current economic standing – from the guy who manages to scrounge together $500 a month panhandling on the streets and would stand to see his fortunes rise by 400%, to the one already pulling in a cool million each month (we’re not sure how he’s doing it) and will see his fortunes rise by just a measly 0.2%. The beauty – no flawed human being had to decide where the “thresholds” were. We let the math speak for itself…

And one would think that “letting the math speak for itself” would be a solution that even modern liberals and libertarians can agree on – while perhaps continuing to debate whether the preferred implementation of said solution is via bottom-up inflation (i.e. #UBI) or programmable sound money (i.e. #Bitcoin, #Ethereum) or maybe some weird combination of the two we haven’t entirely thought of yet…


***Disclaimer***
We have quoted “Tweets” from select “Twitter Users” in this story because we thought the views & opinions expressed by those “Twitter Users” were relevant to the topics being discussed in this story. These “Twitter Users” have no affiliation with the Economorals blog, and we make no assumptions about any particular political, religious, or other affiliations of any kind that may or may not be held by any of the “Twitter Users” quoted, nor the specific validity or credibility of what they say. Again, we just thought a few “Twitter Users” had some genuinely interesting words & ideas to share in the context of this story’s main themes, and since they’ve already shared those words & ideas in the public domain, we wanted to share them again here too. Because if there’s one “market” we can all hopefully agree on, it’s the “marketplace of ideas”.

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Is it worth it to be careful when carelessness pays just as well?

by Economoralist in ChiefIn the NewsLeave a Comment on Is it worth it to be careful when carelessness pays just as well?

It’s refreshing to know there are at least some companies that still see prudent financial & risk management practices (i.e. saving for rainy day) as relevant to their ability to operate as a going concern. Sounds almost quaint in this era of #Fed bailouts, #QE, and rampant #moralhazard.

We’ve added a few [COMMENTS] from an “Economoralist” perspective to the excerpts below from Nina Trentmann’s recent piece for the Wall Street Journal. Take them or leave them.

WSJ: Some Companies Began Preparing for a Downturn Before the Pandemic

https://www.wsj.com/articles/some-companies-began-preparing-for-a-downturn-before-the-pandemic-11588637143

“Finance chiefs were preparing for a downturn [GOOD IDEA!] long before the coronavirus roiled the global economy; however, few expected it to be as swift or severe. [OK, FAIR ENOUGH] “

“After 11 years, we were expecting a slowdown or a recession,” [PROBABLY SMART?] said Max Brodén, chief financial officer of Aflac Inc., an insurance company.“

More executives were being proactive in planning for a recession; [ALWAYS A GOOD IDEA] however, they weren’t as aggressive in tackling “the extreme downside that we are seeing now,” [OK, FAIR ENOUGH]

“We had seen an expansion that had gone on for more than 10 years,” said Linda Huber, the company’s chief financial officer. “Market conditions don’t go on forever.” [NOPE, THEY USUALLY DON’T]

“When the sun is shining, you plan and take advantage of that,” Ms. Huber said. [GOOD ADVICE!]

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The hazards of discussing moral hazard?

by Economoralist in ChiefIn the NewsLeave a Comment on The hazards of discussing moral hazard?

NY Times: How Bailout Backlash and Moral Hazard Outrage Could Endanger the Economy

https://www.nytimes.com/2020/05/04/upshot/bailout-backlash-moral-hazard.html

The excerpt below from a recent piece by Neil Irwin writing for the New York Times about sums up the “economics vs. values” equation we like to talk about on this blog (and perhaps also the popular political-partisan sentiments of the times we live in…)

“My conservative friends don’t think states and cities deserve help,” said Tony Fratto, who worked in the George W. Bush White House and is now a partner at Hamilton Place Strategies. “My progressive friends think certain businesses don’t deserve help. And my libertarian friends don’t want anyone to get help.”

The only viewpoint that’s missing here – is there anyone out there who just thinks everyone should get help? At least then we’d avoid that whole nasty #moralhazard problem… well, sorta (and then we can just let the “economists” figure out the rest?)

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The kids are angry because they’re not getting “value” – are any of us?

by Economoralist in ChiefTimely CommentaryLeave a Comment on The kids are angry because they’re not getting “value” – are any of us?

We knew the college kids were angry, but as Bob Van Voris and Janet Lorin described in their recent piece for Bloomberg, we could be in for yet a whole new round of conversations about how we “value” things.

In this case, it’s the value of that good ol’ college education – you know, the one everyone’s been demanding student loan forgiveness on in recent years as it was.

But, as the kids are debating the “value” of their experiences in the face of the COVID-19 pandemic, let’s not forget, also, that a big part of the reason those tuition bills were able to reach numbers like “$70,000/year” in the first place (all the “value” they were bringing notwithstanding) – well, you guessed it – #moredebt.

Not unlike in the case of the housing market and other types of assets over the past two decades, when monetary policy remains loose, interest rates remain near zero, and #QE rules the day, it’s easy to convince everyone they should take on #moredebt because low interest rates! And “because low interest rates”, the actual price (in theory, the actual value) of the asset, good, or service, can be artificially inflated to no real end (as can the profits that flow to the owners of said assets and those who benefit from the production of said goods & services – whether they be real estate speculators, bailed-out corporations and private equity firms, or tenured college professors & administrators…)

Now, we’re all for profits flowing to those who create genuine value in our economy & society – as best determined by the exchange of value someone is willing to offer for whatever it is they want in return. The problem is, whenever the fuzzy math of #moredebt is involved, that means your values are most likely not being considered… (especially if you were someone who played by the rules, worked hard, saved money, sacrificed time, and hoped to be able to exchange the value of your hard work & sacrifice for something of genuine sound value to you in return…)

Bloomberg: Angry Undergrads Are Suing Colleges for Billions in Refunds

https://www.bloomberg.com/news/articles/2020-05-01/angry-undergrads-studying-online-sue-for-billions-in-refunds

“To justify annual prices that can top $70,000 a year, colleges have long advertised their on-campus experience…”

What students are saying:

“I am missing out on everything that Drexel’s campus has to offer”

“…making claims of “unjust enrichment,” arguing that it’s unfair for the schools to profit from services they didn’t provide.”

“…seeking compensation for what is known as “diminution of value,” or the difference between the worth of an on-campus education and one delivered online.”

What colleges are saying:

“…called the suit against it “misdirected and wholly without merit.”

“…the crisis hasn’t changed the “core value” of its education.”

We’ll anxiously stay tuned to see how this particular series of battles plays out.

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When debt is always the solution, what is the final solution?

by Economoralist in ChiefIn the NewsLeave a Comment on When debt is always the solution, what is the final solution?

The quotes below speak for themselves – and will make you want to read the full story for one man’s relevant perspective; an engaging piece by Rana Foroohar for Financial Times, after “lunching” with investment strategist & research firm founder Kiril Sokoloff…

Financial Times: Kiril Sokoloff: ‘There will have to be massive debt relief’

https://www.ft.com/content/b8639ab6-8936-11ea-9dcb-fe6871f4145a

“Recently, he has been trying to make the financial elite see the dangers of seeking to solve the problems of debt with more debt.”

“Then as now, he says, “central bankers were pushing on a string”, trying in vain to whip up a real economic recovery with monetary policy.“

“…a debt-phobic Midwestern child of immigrants who never understood why more people (not to mention companies) didn’t save for a rainy day.”

“…we collected money from a lot of poor devils and gave it over to the four winds.”

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