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Complex Systems

I wouldn't consider China, which tries to maximize employment and output a particularly good model of economic activity.
China's horribleness largely comes from their concurrent effort to minimize wages, workplace safety and health, environmental protections, personal freedom, and the free flow of information.

One doesn't have to be China to increase one's output, however. As China's approach is not in fact the most efficient model - being unsustainable, as it is, in the long term. It mainly depends on a very large and completely expendable workforce. Also an outside market for your goods with a lot of money and very little social conscience.

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Secondly, it is not the role of an investment firm to care about people. Again, finance is weird. I'm sure on some level individuals do, and should, care, but anyone who places it as a primary prerogative is foolish.
Th'ultimate extension of this, however, is Fisk and Gould - since their higher responsibility is to maximize profit, actively and intentionally destroying wealth for other people remains on the table.
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Finally, the weight of the financial crisis doesn't rest solely on the banks. They ******** up, and they should have paid the price for that debacle, but there were any number of policy and demand side issues that make financial crises polycentric and hard to lay blame.
I certainly wouldn't make the argument that it was 100% banks. More like 80% banks. 8% speculators buying houses as an investment over any term shorter than a decade. 5% people who already owned homes and wanted to sell, adjusting their asking prices based on the "fair market price." 4% people who should never have purchased homes in their financial situation taking out mortgage loans. 3% other.

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Not only on banks, no. Finance ******** up, but if you look at countries that have open financial markets, versus ones that don't, those with open financial markets tend to grow faster, deal with less economic crises of all sorts, and generally have faster rising incomes.
Open financial markets as in investments from/going to elsewhere, yes? Doesn't make a difference to me, personally.

Now, when it comes to financial markets where you can sell insurance against a company's debts that anybody can buy, or financial markets where you can sell homogeneous slices of hundreds of heterogeneous properties which don't precisely convey ownership of anything in particular, it's probably time for somebody (like Mark C. Brickell, or Phil and Wendy Gramm) to be in prison.
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So I guess the fact that the median wage has decreased since the 60's comes from tighter regulation? Or how would you explain it?


Not according to The Census. One can easily see that the greatest income growth has occurred among those in the top 10%, certainly, but all demographics have seen rising real incomes. The real median income went down the most during the 90's and recovered during the 00's, and yet no one is saying clinton is to blame. Furthermore, what exactly people are able to buy with that money has drastically increased.

You're not adjusting for inflation. If you adjust according to the cost of living, say so but I don't believe the cost of living (also adjusted for inflation) has gone down in the same time frame.


Yes I am, the link I provided includes 2010 adjusted real dollars. The real value of a median income is lower than it was in the 70's, sure, but the real value decreased the most from the late 70's to the 90s and saw a rise at the end under Clinton, and came back up to parity with Bush, then dropped slowly through the later part of the decade. But again, that's a relatively meaningless statistic, as using today's income to buy goods in the 1960's or 70's would be comparably ridiculous, even if the "real value" is the same. The price of goods has fallen, which has increased the real buying power.

What you're saying is that the President has absolute power to control the market value of labor, and the cost of living, having this power since after Reagan, for an obscure reason.

I gather that Clinton regulated the least? Or the most, I don't know anymore, and count me out of your free market utopia.


....No? I'm simply benchmarking trends due to who was in office at the time. You're still not actually addressing the point that
1. Real median wages have increased since the 60's (though relatively stagnated since the 70's)
2. Real buying power has increased regardless.
Complex Systems's avatar

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I'm not sure if what Bain is doing is in any way comparable to the invention of the automobile. If it shits like a horse, and all that.

Wasn't talking about Bain specifically. I'm referring to large scale economic progress and weeding out economic inefficiencies. Yes, Bain's market function is one of many tools of the free market to do that. And even Bain existing in the market is beneficial to us because it incentives companies' managements to self regulate and embrace efficient resource allocation.


The problem is, that's not always what happened. Apparently, they would do things that saved money in the short term, but might doom the company in the long run. The clear example was when they talked about how they skimped on maintenance. Sure, you can save some money in the short run if you don't take care of the equipment, make the company seem more profitable, but that doesn't actually benefit the company.
The clearest quote from the article, I thought, said something to the effect that they were trying to increase the companies profit, not it's output, or whatever. Sometimes those things coincide, sometimes they do not.


Why is increasing output good? Furthermore, if an investment firm buys up a company, why should they necessarily care about the company at all? They're incentive is to maximize their own returns and recoup the losses of buying the company. Again, finance is weird, but little empirical and theoretical work says that finance is bad. In fact, access to capital markets, in all it's many forms, has been shown to be the best promoter of increasing real wages at all levels of an economy. We get too caught looking at a single tree to realize the vibrant forest around it.


Well to me, increasing the firm's productivity (specifically long term productivity) seems like it would serve the company better in the long run than just trying to make more money by any means necessary, for the reasons I stated before.
An investment company may not have any incentive to look out for the company. That is, in fact, the problem. Me, I personally think it would benefit the economy more to work on a businesses long-term productivity, ensuring that all its employees stayed employed, rather than have a small group of already very rich people make even more money.
But even if one doesn't expect a businessman to watch out for the little guy, I'm not sure I'd want someone like that for President.
Though again, maybe I'm not understanding something here.


Taken from my post to Wendigo;

I wouldn't consider China, which tries to maximize employment and output a particularly good model of economic activity. Especially since all the environmental damage they cause is a direct cause of over production, and that a lot of the goods sit depreciating in warehouses. There is no particular reason to assume that expanded production is automatically good, even if it might lead to lower prices for some.

But the point of finance is to try and maximize returns to investments. If a company isn't particularly efficient, liquidating it, and investing said money in another company that is more efficient can create value for an economy over all, employ more people, etc. Again, finance is weird. Tanking companies can be a good thing at ensuring efficiency. Meanwhile, trying to restructure a company can result in tons of losses for everyone involved.
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I'm not qualified to analyse Brothern's analysis so I will not, but on the reasoning spectrum I have to agree that you sometimes you have to sacrifice a few to make the whole better. In reality we just can't satisfy everyone and work to everyone's immediate advantage.

On the flip side, is it responsible to sacrifice the whole for the immediate benefit of a few? Is that not what we take issue with in the first place?

[Note that I am not approving of or advocating any particular method, but merely questioning the notion that we shouldn't do something that potentially benefits many people by ******** over some. It's unfortunate, yes, but it has to happen sometimes.]
Depends on the whole, the few, what is being sacrificed on either side, and what is being gained on either side.

In the case of our investment firm systematically dismantling an otherwise functional company in order to add to their personal supply of quatloos, then the loss of hundreds of livelihoods which would otherwise still be there is not worth the more centralized supply of delicious quatloos. Same principle applies with equal validity to, let's say, Wal*Mart breezing into a town, driving the mom 'n pop businesses under with a lower cost business model based on a high turnover from overseas distributors, then leaving town when everybody's out of work (or working at Wal Mart) and there isn't enough juice left in the local economy to sustain a Wal Mart there. There may indeed be more people under the umbrella of Wal Mart's corporate identity than there were in that town, but razing that town to sustain Wal Mart's damn foolish. We need towns more than we need retail giants striding across the landscape like a colossus.
Complex Systems's avatar

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Wendigo
China's horribleness largely comes from their concurrent effort to minimize wages, workplace safety and health, environmental protections, personal freedom, and the free flow of information.


yeah, also the fact that firms are told to maximize output, are given tons of subsidies to do so, and as a result the country is treated like s**t (due to lack of environmental protections), tons of goods sit in warehouses that no one wants, and the entire model is unsustainable. My point here is that output isn't automatically good, creating output no one wants does nothing but hurt the environment.

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Th'ultimate extension of this, however, is Fisk and Gould - since their higher responsibility is to maximize profit, actively and intentionally destroying wealth for other people remains on the table.


Yeah, I like hyperbole to. You know, rather than anything substantial.

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I certainly wouldn't make the argument that it was 100% banks. More like 80% banks. 8% speculators buying houses as an investment over any term shorter than a decade. 5% people who already owned homes and wanted to sell, adjusting their asking prices based on the "fair market price." 4% people who should never have purchased homes in their financial situation taking out mortgage loans. 3% other.


Okay, I like pulling numbers out of my a**. 148% of my figures in this post are fabricated.
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Open financial markets as in investments from/going to elsewhere, yes? Doesn't make a difference to me, personally.

Now, when it comes to financial markets where you can sell insurance against a company's debts that anybody can buy, or financial markets where you can sell homogeneous slices of hundreds of heterogeneous properties which don't precisely convey ownership of anything in particular, it's probably time for somebody (like Mark C. Brickell, or Phil and Wendy Gramm) to be in prison.

You're going to hurt a lot of manufacturing by doing so, but ******** it. DERIVATIVES ARE BAD.
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Complex Systems

Quote:

Th'ultimate extension of this, however, is Fisk and Gould - since their higher responsibility is to maximize profit, actively and intentionally destroying wealth for other people remains on the table.


Yeah, I like hyperbole to. You know, rather than anything substantial.
Rather noticed, when you brought up China in response to the phrase "higher output." Which means one of a great variety of possible things; more streamlined production methods, greater quality control, more efficient equipment...or, in China's case, long hours, low wages, and no labor relations to speak of.
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I certainly wouldn't make the argument that it was 100% banks. More like 80% banks. 8% speculators buying houses as an investment over any term shorter than a decade. 5% people who already owned homes and wanted to sell, adjusting their asking prices based on the "fair market price." 4% people who should never have purchased homes in their financial situation taking out mortgage loans. 3% other.


Okay, I like pulling numbers out of my a**. 148% of my figures in this post are fabricated.
Thing is, right? Banks were right on top of the crisis. Take a look at ACC Capital Holdings, please do. Look at the size of their subprime portfolio, and then the hole that was left in Citigroup, which purchased it. It's a precise match - Roland Arnall fired a cannon through Citigroup the size of Ameriquest, the nation's largest subprime lender.

And then banks started folding like houses of cards, because of derivatives they'd created in the '90s to spread out a thin layer of risk over all their bank friends. In case they all needed warm risk blankets, you know, to take risks in.


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You're going to hurt a lot of manufacturing by doing so, but ******** it. DERIVATIVES ARE BAD.
They are bad. The people who create them are bad people. The situations those people have created are bad situations. People have been financially ruined and killed because of those situations. Banking does not happen in a ******** vacuum.
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Wendigo
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I'm not qualified to analyse Brothern's analysis so I will not, but on the reasoning spectrum I have to agree that you sometimes you have to sacrifice a few to make the whole better. In reality we just can't satisfy everyone and work to everyone's immediate advantage.

On the flip side, is it responsible to sacrifice the whole for the immediate benefit of a few? Is that not what we take issue with in the first place?

[Note that I am not approving of or advocating any particular method, but merely questioning the notion that we shouldn't do something that potentially benefits many people by ******** over some. It's unfortunate, yes, but it has to happen sometimes.]
Depends on the whole, the few, what is being sacrificed on either side, and what is being gained on either side.

In the case of our investment firm systematically dismantling an otherwise functional company in order to add to their personal supply of quatloos, then the loss of hundreds of livelihoods which would otherwise still be there is not worth the more centralized supply of delicious quatloos. Same principle applies with equal validity to, let's say, Wal*Mart breezing into a town, driving the mom 'n pop businesses under with a lower cost business model based on a high turnover from overseas distributors, then leaving town when everybody's out of work (or working at Wal Mart) and there isn't enough juice left in the local economy to sustain a Wal Mart there. There may indeed be more people under the umbrella of Wal Mart's corporate identity than there were in that town, but razing that town to sustain Wal Mart's damn foolish. We need towns more than we need retail giants striding across the landscape like a colossus.
My point wasn't that every sacrifice is justified, but that it must happen sometimes.

I can't quite tell yet, but we appear to agree. biggrin
Complex Systems's avatar

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Wendigo
Rather noticed, when you brought up China in response to the phrase "higher output." Which means one of a great variety of possible things; more streamlined production methods, greater quality control, more efficient equipment...or, in China's case, long hours, low wages, and no labor relations to speak of.


Sorry, I don't feel like sifting through the books I've read dealing with the topic, synthesizing notes from the two different academics I've sat through classes specific on the economy of china, or the two other classes I've taken specific to domestic policy of china. Yuang Yasheng's Capitalism with Chinese Characteristics is a good start.

But, here's the thing, long hours, low wages, and no labor relations do not equal overcapacity and overproduction, which is what I'm talking about. Increasing production isn't automatically good, you haven't addressed this topic at all.


Quote:

Thing is, right? Banks were right on top of the crisis. Take a look at ACC Capital Holdings, please do. Look at the size of their subprime portfolio, and then the hole that was left in Citigroup, which purchased it. It's a precise match - Roland Arnall fired a cannon through Citigroup the size of Ameriquest, the nation's largest subprime lender.

And then banks started folding like houses of cards, because of derivatives they'd created in the '90s to spread out a thin layer of risk over all their bank friends. In case they all needed warm risk blankets, you know, to take risks in.

They are bad. The people who create them are bad people. The situations those people have created are bad situations. People have been financially ruined and killed because of those situations. Banking does not happen in a ******** vacuum.


I hope you like never owning a house or starting a business unless it's accompanied by already having perfect credit, and 15% interest on the loan.
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Complex Systems

I hope you like never owning a house or starting a business unless it's accompanied by already having perfect credit, and 15% interest on the loan.
Since we didn't have those requirements before the derivatives in question were created in the late '90s, I don't think I give a s**t.

I hope you like it, though, when the irrational behavior of speculators, arbitrageurs and corporate raiders in the US causes the banking system here to collapse, and that collapse causes a ripple effect through developed industrial economies in Europe, Asia and Africa. Because it'll be all kinds of surprising every time it happens, I'm sure.
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I hope you like never owning a house or starting a business unless it's accompanied by already having perfect credit, and 15% interest on the loan.
Since we didn't have those requirements before the derivatives in question were created in the late '90s, I don't think I give a s**t.

I hope you like it, though, when the irrational behavior of speculators, arbitrageurs and corporate raiders in the US causes the banking system here to collapse, and that collapse causes a ripple effect through developed industrial economies in Europe, Asia and Africa. Because it'll be all kinds of surprising every time it happens, I'm sure.


What derivatives help with most homeowners never see. However, despite what people say about financial crises, as I noted in my Recovery(?) thread, the economy hasn't drastically underperformed given historical crises trends, and despite all the deregulation, the great moderation was one of the longest periods of undisturbed economic growth. We've suffered less financial crises, despite opening up more financial markets. There is a variety of literature on cross country analysis using panel data that shows that countries that allow more open financial markets tend to do better. All else being equal, I'll talk the good with the bad. The aim was to get people into houses, and even after the financial crisis, home ownership rates are higher then they've been in any time since the turn of the century
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Complex Systems
What derivatives help with most homeowners never see.
True, one rarely sees 30:1 leverage, which was the specific goal behind the creation of the Credit Default Swap by Blythe Masters of JP Morgan. Blasted Basel rules, always holding the lending man down.

Well, there are some circumstances where one sees it.
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the only question I have is what companies has Obama started that are still running today? The "green" jobs that folded don't count.
That is not a fair question, considering he does not have direct control over such things.


I think it is. I thinks it's fair to ask about the jobs that went bust under Obama. the same ones that he took tax payer money to set up. I think it's must to ask why he sold GM and lost money on it by selling it. But I guess we should give Obama a pass on everything and just blame Bush.
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I'm not sure if what Bain is doing is in any way comparable to the invention of the automobile. If it shits like a horse, and all that.

Wasn't talking about Bain specifically. I'm referring to large scale economic progress and weeding out economic inefficiencies. Yes, Bain's market function is one of many tools of the free market to do that. And even Bain existing in the market is beneficial to us because it incentives companies' managements to self regulate and embrace efficient resource allocation.

So basically they're the horror story the CEO's get to hear when the shareholders tuck them in at night. "You better look busy or I'll sell you to Bain. The end. Good night"

ROFL! ... Yes, that's actually quite accurate.
Wendigo
Furthermore, if an investment firm buys up a company, why should they necessarily care about the company at all?[/quote
Because companies are made of people. The investment firm, presumably being staffed by people, should care about people. If they do not, then they are being bad people. We call people who don't care about people sociopaths.
Complex Systems
Secondly, it is not the role of an investment firm to care about people. Again, finance is weird. I'm sure on some level individuals do, and should, care, but anyone who places it as a primary prerogative is foolish.

I'll take this a step further. Investment firms do care about people, but only the people that will improve the value of the firm. The biggest predictor of success for a company (esp. in start-ups) is being able to have not just a competent management team, but a world-class one at that. It's why three quarters of company founders are usually fired from the companies they found. They mostly are just unable to lead a company.

And to mirror Complex Systems, it's not the job of investors and those overlooking CEOs to care about the feelings of others. That especially holds true in Bain's world where the vast majority of their purchases are on a fiery, screaming path to hell bankruptcy. The only thing that matters is keeping the business profitable because you'll lose millions and millions of dollars otherwise.

In Venture Capital? Multiple that by a factor of TEN. The majority of investments in business ventures made by VC firms outright fail and go bankrupt. Another 20-30% do nothing and only about 10% of all investments made are able to become massively successful. With that high of a failure rate, one is not able to afford being nice to people.
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Romney actually maid tons of money from the company-- so I read all the time at work. The surveys we do are crazy about bashing these very specific events.
Honestly I will not vote for this man. He just seems so sketchy and his whole idea about screwing up Medicaid and Planned Parenthood just I can't handle that kind of level of conservative.

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