Explaining Economics one 6 Pack at a time.


  • Category Archives Economics

  • Nature will always win and The Origins of the Crisis

    Posted on April 6, 2009 by drinker

    The current financial crisis is a big example of how nature will always equalize a system.  When the consequences of an action are eliminated the rate of the action will increase.  Eliminate the hangovers and people will drink more.  I would at least.

    All things in nature will eventually equalize themselves, because a system imbalance cannot exist for long.  For instance if you eliminate the wolves; the deer will eventually over populate the area and start committing suicide by jumping in front of your car.  I think they miss the wolves too much.  So the system self equalizes. 

    Another example of risk and reward system we should all me familiar with is our sex lives.   What do you think would happen if a bunch of 20 something’s were kept on college campus but were told that pregnancy could not happen and STDs could not be caught?   In three months half the campus would be pregnant and the other half would be scratching themselves wondering what is wrong with their pubes.  I am not condemning them.  I would have taken part in such an experiment too (I would have been a whore but nobody wanted to be a whore with me).  So much for memories, either way you should have gotten my point.

    The current crisis can be tracked to who ever let Fannie Mae and Freddie Mac to buy very crappy mortgages.  The rest of the funny financials like collateralized debt securities and derivatives were simply the mold that grew from the cesspool of Fannie and Freddie taking risks no one in their right mind would take.   Normally when a private corporation would take unneeded risk it would burn out and die or outside investors would refuse to underwrite the endeavor.  What made Fannie and Freddie different was that they were tacitly guaranteed by the government.  This means that the underwriters had less risk of failure because if worst came to worst the government would take care of everything.  These underwriters, investors or gamblers saw rewards that were better than the risks of underwriting the companies. 

    For period of time the imbalance of the system was balanced periodically without crashing the system because the gains and leverage were not great enough to cause the system to collapse.  Housing prices went up and went down for all of eternity.  What made this different was the timing.  Stocks were tanking after the dot bomb debacle (another example people not using their heads) and the Fed was trying to get the economy moving again.  The Fed lowered interest rates making money very cheap.  In any boom and bust cycle there are still winners.  These winners began investing in real-estate. 

    Shortly before this time Herb Moses an executive a Fannie Mae was playing hide the salami with Barney Frank.  Barney Frank at this time was in charge of making sure Fannie Mae was doing good business.  He opposed the transferring of Fannie and Freddie oversight from the Department of Urban and Housing development to the Treasury Department.  Granted either one is still a government run.  It seems that a government department whose job is to get people into housing would have a conflict of interest with a company who provides financing for homes.  So if said company will provide additional financing for the department’s projects they would overlook the horrible risks they were taking.  I have no proof that this is what happened.  But it is not too much of stretch to think this is what was going on.  Especially since the ramifications became so clear a few years later. 

    Without anyone to watch over Fannie and Freddie and many investors willing to take extra risks because the government would back any risks these organizations ran rampant.  The CEO’s of the companies and the attendant executives began writing bonus rules that had nothing to do with long term viability of the organization.  So the bonuses that were given were for the amount of assets in management (or mortgages owned).  There bonus had nothing to do with the quality of the assets.  Who here can see what is about to happen next?  Raise your hand.

    Fannie began taking all the mortgages they could get from the private companies in the market.  These were sold as all kinds of securities and what not.  Investors not knowing what fannie was doing but believing the government would come to the rescue were willing to write checks to fannie.  The private companies realized that they would not hold the mortgage more than a few months to a year would sell the mortgages to Fannie.  The risk was off the private company but they still had the reward of the first year’s mortgage payments and other service fees. 

    The price of homes began to sky rocket.  Soon few people could afford a home with traditional methods.  But the private company could make up crazy mortgages that started off with smaller payments.  The buyer could afford these teaser rates in the beginning but by the time the real rates came the mortgage would be owned by another company (usually Fannie or Freddie).  These artificial buyers could only maintain this growth for so long.  Soon the market collapsed. 

    In this game of hot potato Fannie and Freddie were left holding the potato.  Which means that the we the American tax payer was actually holding the hot potato.

    This entry was posted in Economics, Politics and tagged , , , , . Bookmark the permalink.

  • Bank of Obama

    Posted on April 6, 2009 by drinker

    Does anyone think that the government not accepting the money back from TARP a good idea?

    I am against this on so many levels.  How can anyone who is not a total communist think that this is good idea.  If you were against the bailout to begin with how could you not want them to give the money back?  If you were for the bailout (and not a communist) of course this would be a sign that the banks are doing just fine and the crisis has passed. 

    I initial thought that they way we would see government control more and more of our lives and economics was through a more soft style power like carbon credits.  But it now seems that they want something more direct.  And how else could you control things more completely then by actually controling the money. 

    The primary reason for the mess we are in was because of the government directly jamming loan requirements down the throut of the banks and by allowing Fannie and Freddie to buy crappy mortgages and take on excessive risk because the government would come to the rescue.  All of the other crap about secruitzation of debt and repackaging loans would not have been possible without Fannie artificially taking more risk then would normally be acceptable.  And no one in the government would stop it.

    Does anyone really think this is a good idea?  And who else is really scared of this?

    This entry was posted in Conspiracy Theories, Economics, Politics. Bookmark the permalink.

  • We are all rich when we are all poor

    Posted on March 30, 2009 by drinker

    What fascinates the hell out of me is that some very smart people do not understand that not everyone can be rich.  Nor can everyone be poor either.  We are rich or we are poor based on the people around us.  Both Ted Rall and Cynthia Tucker do not understand how basic everyday economics work.

    Although both are correct in criticizing the executive pay of these failing institutions, what they fail to recognize is aside from pulling back a little bit on the pay for CEO’s there will always be both wealthy, rich, poor, and a bunch of levels in the middle.  I also made a very conscience decision putting in both wealthy and rich as different levels. 

    To the primary reason I wanted to post about tonight.  The amount of middle class people has not changed in percentage of the population.   The primary reason has nothing to do with economic policies or anything that complicated.  The middle class are the people who make more than the lower class but less than the rich.  The factory workers were never really middle class.  The manager at the plant was middle class and the diner owner was middle class.  Could the factory worker live comfortably with the two point five kids and a white picket fence?  Maybe it really depended on the supply of houses with white picket fences.  But that is my point.  What does the average person today have in comparison to thirty years ago?

    Today the average household owns two cars (with reliability and features Mercedes Benz did not have), a HDTV in one or two rooms, air conditioning in almost every room, cell phones, cable TV with 100 plus channels, a computer with internet, some type of game system, and health care that those in the 1970s could only dream of (even if it’s expensive).   

    Mean while in the 1970s when according to Cynthia Tucker all was great, the average American made car was complete junk, went 0-60 in 3.4 months, got about 15mpg, and were good for about 80K miles.  Air conditioning was something only the rich people in the neighborhood had.  A house might have two TVs only one worked.  Cable was something for rich people also, if they even had it all.  There were no cells phones.  Ok that last one is bonus.  The personal computer was just a series of blinking lights.  Geeks really were geeks.  The internet was for even bigger geeks.  And healthcare although cheap was abysmal by today’s standards. 

    So where did all the productivity gains that the rich people ran away with go? It came back to the “poor people” in the form of better stuff for “poor people”.   One can argue that all the stuff is not worth it, but when it comes to economics the stuff and the services that people can have does matter.  Also if someone did not want the stuff they do not need to purchase the items.  

    The second point I want to make is directly related to the statistic mentioned in Cynthia’s editorial.  I don’t think there is anything wrong with it.  I think it actually shows exactly what it should show.

    A few years ago, Earl Wysong of Indiana University and two colleagues published a study on social mobility in this country. As outlined in the Economist, a right-leaning British news magazine, they “compared the incomes of 2,749 father-and-son pairs from 1979 to 1998 and found that few sons had moved up the class ladder. Nearly 70 percent of the sons in 1998 had remained at the same level or were doing worse than their fathers in 1979. The greatest social mobility occurred in those families already at the top of the income ladder,” the magazine reported.

     

    So 70 percent of the study did not move up the income ladder?  No kidding.  Not everyone can move up the income ladder since they have to move past someone else and then that person would move down the income ladder.   I would bet the statistics would come out that 1/3 moved up, 1/3 stayed the same and 1/3 went down.  Also 66% is really close to “almost 70%”. 

    The second part of the statement deals with that most of the social mobility was in the upper income brackets.  This too can be easily explained without it coming down to something evil republicans did by reducing taxes.  In 1979 a college degree was still a premium and those with them came from more affluent backgrounds.  While a high school education pre 1979 may have been good enough, after that is simply was not good enough.  One needed to have something besides a high school education.  So simply showing that those who were affluent made better gains was primarily because they had access to a college education and valued it earlier.  In addition it tends to the children of the rich that become the wealthy.  The grandchildren become drug addicts and home move porn stars.  So it sort of works out in the end.

    Did some people become obscenely rich, while others were brushed to the wayside?  Yes.  Do I wish that people could live in a minimal of comfort even when they are on the lowest rungs of the economic ladder?  Yes.  And they do, but in comparison to the truly poor in this world they are doing pretty damn good, even if everyone else around them is doing better.

     

    This entry was posted in Economics, Politics and tagged , , , , , , . Bookmark the permalink.

  • And the corruption begins

    Posted on March 19, 2009 by drinker

    Ok its not like corruption ever stopped, its just has  a lot more to feed it now.  And larges pots of money feeds corruption.  I knew the stimulus would attract the flies like a pile of dog crap. 

    I look at obama and his crew and see a typical academic arrogance with the stimulus bill and the extra spending bills.  Arrogance may be too strong of word but what I mean is they seem to think that while other governments have failed to spend the money properly they will succeed.  They are making a very good go at it with the media.  The speechs about holding people accountable for where the money gets  spent are all well and good but it won’t get spent correctly.  And I can’t think of anyone who really did a good job of spending our money. 

    But what will happen is that after about a year the bulk of the spending money will begin to hit the local governments and by that time americas attention will be on the next great thing.  Perhaps the budding adult movie career of Britney Spears will captivate us at that point I don’t know.  Part of me thinks the reason for so much of the stimulus money being spent so long after it was signed may be because by then (a year from now) they will be able to do as they please with it.

    I need another beer.

    This entry was posted in Economics, Politics and tagged , . Bookmark the permalink.

  • How to piss off the Europeans

    Posted on March 18, 2009 by drinker

    I can’t think of better way to piss of the Europeans then to start universal health insurance in the United States.  I say why should we be paying for all the research and development costs of new procedures while they can just leach off of our hard earned money.  Not to mention all of the European firms that spend all that money on research and development of new drugs can save that money. 

    The overpriced system in the United States allows for the socialized mendicene states to survive.  The new treatments are created so that they can be done in united states where they can charge and arm and a leg to fix your arm or leg.  Once the initial treatment is perfected and the initial investment is recouped the rest of the world can now benefit from it.  Pharmacutical companies will end up being the biggest losers in this new plan.  Primarly because the jackpot they get when they invent the next viagra will be eliminated.  But that also means that no one will invest to invent the next viagra. 

    This brings me to one of my primary principles of life.  No risk no reward.  No reward no risk.  Talent will follow the money.  I can’t think of another cliche but you get he point.  The top researcher or two may do it for the love of the task but there are about another hundred people in the chain that are not doing their job for the love of it.  These include other researchers, book keepers, IT guys, janitors, and general managers.  Without these jobs being done the researchers can not do their job.  All of these other people want to get paid, because at the end of the day they want to take their money and do something or someone they enjoy.

    So now that nobody can hit the jackpot by inventing the next great thing in medicine, the research and development will dryup.  Sure the charity money will still be their but the private money will slowly leave the market.  It will be replace by government research money which will be determined by the amount pictures showing hookers with the congressmen then the actual use of the end product.  Ironicly the amout of hookers and congressmen pictures is inversely proportional to the price of viagra.

    Smokem if you got em.  Mind as well look cool

    This entry was posted in Economics, Politics and tagged , , , . Bookmark the permalink.

  • And they overplayed their hand

    Posted on March 17, 2009 by drinker

    I want to say I am sorry to the 8 of you how read this.  I deprived you with my wisdom for a week.  I am sure you are all very sad.  Unfortunately for me, your sad because I decided to write again.

    In today’s post I want to talk about government overplaying their hand with their bailout money and thank god they did.  In this story about the strings the government attached to the bailout money the banks have basically balked at taking the money or they are trying to give it back.  In classic government fashion everyone tried to get their little social engineering or pet project task on the strings of the bail out money.  I am very thankful for that.

    In general am not a big fan of large government.  The primary reason is that the government is incompetent.  Like the old saying about those that can’t do something, teach it.  Well those who can’t work, go to the government.  And of course my disclaimer about some people at the government actually trying to do the right thing.  That being said I love to limit the governments power.  By returning the money and overall telling the government bureaucrats to stay out their business they are limiting the governments power.  Which I think is great.  In addition it is less of my money going to people who are incompetent (If you needed this money then you were incompetent).

    Here’s to the government continuing to overplay their hand.

    This entry was posted in Economics, Politics and tagged , , . Bookmark the permalink.

  • Ted Rall is officially a Communist

    Posted on March 10, 2009 by drinker

    Insulting CEOs (while letting them keep their perquisites) may be fun. But it doesn’t begin to address what’s killing the U.S. economy: the rancid notion that one person’s hard day’s work deserves more pay than another’s.

    Ted Rall for those who don’t know is a writer who is left of, well everybody come to think of it.  The primary premise for this editorial is that the CEOs of these failed banks should be tarred and feathered and that is something we agree on.  But after that we differ on just about everything else.

    I don’t like CEOs who get paid enormous amounts of money and run the company into the ground.  I believe in rewarding success and not failure.  But I firmly believe that some people should have more than others, if they deserve it because of their efforts.   I also think that the only person who can get someone out of crappy financial situation is themselves. 

    First we must recognize people are not poor because of the money they have or don’t have.  They are poor because someone else has more money.  Poor and Rich are both relative.  Always remember that.  Even in the height of communist Russia there was still rich and poor. 

    “In 1980, according to a Forbes magazine study, executive compensation was 40 times the average worker’s pay; by 2007, that had soared to more than 400 times,” CBS News reported on February 25th. Now that the companies those ridiculously compensated executives were charged with running are tanking, CEO pay is coming under attack by pundits and politicians.

    So what does this mean to the average employee?  Let’s say the average employee makes 50K a year and that there are 100000 employees in the company.  How much would it matter to each employee if the difference between 40 and 400 times was distributed evenly between those employees?  50K a year multiplied by 40 is 2 million.  Then 50K multiplied by 400 is 20million.  This yields a difference of 18million.  But what does that mean to the 100K employees; about 180 bucks a piece.  What would this have done to the average employee’s bills, something between diddly and squat. 

    I want people to know that I do not think they deserve to get paid if the company goes down the toilet.  They should be the last ones paid but when they do well they should be richly compensated.  But the current compensation scheme is out of whack.  I would like to see a limit on salaries.  Before you call me a hypocrite I think there should be additional types of compensation.  Their money should come from bonuses and shares of stock in the company.  The bonuses would be paid at the end of the fiscal year based on the net profit of the company while the stock would be rewarded to the CEOs but it could not be sold for 2 years. 

    This brings me back to my primary purpose of my post.  People should get paid what their days worth of work is worth.  I am sorry that the best someone can do is ask “do you want fries with that” but why should that person get the same as someone repairing an electrical circuit on the top of telephone pole.  A job that is both hard and dangerous.  Or perhaps someone guy making a decision that could destroy or rejuvenate the company.  I know that most left wingers believe that the CEOs of many companies are heartless pricks but in actuality they are human beings who care about their employees.  They might not be as caring as we would like but very few of them don’t sweat over laying people off. 

    Although there are still too many pricks out there.

    This entry was posted in Economics, Politics and tagged , , , . Bookmark the permalink.

  • Drinking to forget your broke

    Posted on February 19, 2009 by drinker

    When they came for cigarettes,  I did not speak up
    When they came for porn, I did not speak up
    When they came for my beer, I was freaking too drunk to speak anyway.

    There is nothing like slaughtering the golden goose.  Oregon wants to raise the tax on a barrel of beer by  about 1900% or something like 2.50 a barrel to upwards of 50.00 a barrel.  If you don’t know a barrel of beer is about 31 gallons or two kegs.  In Pennsylvania a keg will run you about 60 bucks for something descent.  So if this was happening in Pennsylvania it would be an additional 25 bucks or almost a 50% surcharge in the price of keg of beer.  You can decide if you think that this is too much, but for me I think it is just a money grab.

    You know that I could not preach about something after this but here goes.  Taxes should never have to increase if they are based on a percentage of something.  By something I mean income, stamps, tea, or beer.  In other words if taxes are taken as a percentage of the cost of something then they will automatically adjust with inflation. 

    Unfortunately taxes are taken by a group of people who are not held accountable.  Go over budget and the next year you get more money.  Do poorly with the money you have, just ask for more.  Achieve goals and do it for less then you thought, then you lose your budget to someone who did poorly.  This is why taxes never really go down. 

    What really sucks is that for you in Oregon, crying in your beer will cost you a lot more.  Oh and they want to raise the taxes on your cigarettes too.

    This entry was posted in Beer Reviews, Economics, Politics, Random Thoughts for the Day and tagged , , , , . Bookmark the permalink.

  • Dual Incomes are they Worth It?

    Posted on February 14, 2009 by drinker

    In today’s America dual incomes are the norm.  But are they really worth it?  I am not going to look into the value that someone places on going out and earning an income but I am just going to look at it from the stand point of supply and demand.

     I believe that the first people that went out and began the dual income lifestyle were the only ones to truly see a bonus.  This is because they were able to take advantage of the market before it adjusted to the increased supply of labor.  When the two income household began to be the norm it increased the labor force.  And given supply and demand this would have decreased the price of this labor.  The market soon adjusted to this increased supply of labor and soon made dual incomes almost mandatory. 

     This of course was not all bad.  Sure one hours of work pre-dual income was not the same but it also brought down prices because it increased the amount of goods and services.  And I am not talking about the services offered at the Caesar’s of Atlantic city by the friendly women out of you league that talked to you.  They are usually single income households unless she lives with her pimp.  I am talking about the fact that there are more doctors, lawyers, factory workers, etc. that are in the workforce creating things you want or services you need.

     The one thing that I believe that did get out-of-whack was real estate.  This is primarly because no amount of extra labor can make more land.  Well it can but its very expensive and environmentalist don’t like filling in swamps.  The amount of land to put a house on has not increased but the money available for people to spend has.  So if there is more money going after the same amount of resources the price will increase.  And it has.

     I will speak about the other costs and bonuses of dual incomes from a day to day life in a later post.

    This entry was posted in Economics, Random Thoughts for the Day and tagged , , . Bookmark the permalink.

  • It’s All About Getting Laid

    Posted on February 11, 2009 by drinker

    If you are searching for some smut related material you are going to be sorely mistaken.  I am not going to be discussing about the actual act of getting laid.  Only getting to the bedroom, after that you are on your own (what perv searches blog posts looking for porn).

    This insight came to be in a discussion about minimum wage.  I know minimum wage and sex how did they go together.   Well as a buddy and I were discussing the raising of minimum wage and the living wage laws, and we were drinking of course (see title of blog).  It came to me.  Why is a BMW different then a Ford, aside from actual driving dynamics, it is its exclusivity.  So why is exclusivity so important?  Because it shows the ability to gather resources and there by make a better life for your potential offspring and partner.  People like to hang with people that can make their life easier.  And in general people that have more money have the ability to make the life of those immediately around them easier. 

    But here is the kicker to this whole thing.  Money or the amount that you have is relative.  A millionaire in a room of billionaires is the poor guy.  In more ancient times it was litarlly the size of your club.  And I am not speaking of the club between your legs.  The cave man that could swing the big club and kill the bigger animal or smash the guy who just worked hard killing the bigger animal had an advantage.  It really depends on your morale standard.  They could get more resources in this case food and there by those around them could have more to eat.  Being a little plump was at a time a sign that you were affluent now it’s just a sign you eat too many fries and quarter pounders. 

    Ok now your fat and have a big club big deal what does it actually get you.  That’s right a mate.  We have evolved to search for things in our mates that are a sign of health and fertility.  Given our male dominated society this means that men who bring home lots of bank are more attractive.  Women with nice shapes (which depend on your taste, boob guys, butt guys, and leg guys) are a highly desired commodity.  Sorry ladies I am not trying to demean you.  But lets face it the hotties have a selection of men while the rest bitch and moan about blog posters. 

    I previously stated that hotties have a selection of men, they begin their selection on some very superficial criteria.  Yes ladies you can be superficial too.  The guy you choose to end up marrying may be completely different from what you went for on first impressions, but getting past date one for those guys was a lot harder then most I am sure.  Just remember we are talking about generality’s here and not a case by case basis.  But lets be honest, a guy who takes you out on a date in a beat-up 80’s hatch-back is not nearly as impressive as the guy with the new Benz.  Why?  Simple a guy with access to the money for a Benz simply shows the ability to make you and your children better off and more likely to succeed. 

    Now that we have established guys with cool stuff are better we must take in the relativity factor.  In high school, we students not in the 90210 zip code were moved to the top of the heap by just having a car.  (I did not have a car but I did have access to my parents van.  Yes I was the van guy in high school.  My buddies loved me, but it did not help me a whole lot.)  Having a car was a sign of some sort of success.  It was also and easy way for people to get together.  Of course after high school a car was not enough.  College brought on more competition.  Now you had to have a nice looking car.  You were not at the BMW, Lexus, or Benz level yet but a nice looking one of those cars was pretty useful but not a deal breaker.  After college the badge on the front of the car started to really matter.  So your level of success or access to resources depends on your competition. 

    What the hell does this all have to do with minimum wage?  Simple if all you do is raise the last rung of the ladder nothing changes.  It is not about which rung on the ladder you are on or the height at which the ladder is at.  It’s about the height of everyone else on the ladder.  And chicks dig the guys at the top of the ladder.   

    This entry was posted in Economics, Random Thoughts for the Day and tagged , , . Bookmark the permalink.



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