Armed Polite Society
Main Forums => Politics => Topic started by: Headless Thompson Gunner on December 03, 2008, 11:45:07 PM
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Apparently the Big Three now want $34 billion. $25 billion just wasn't enough? Funny how government payouts have a way of getting bigger as time passes...
http://news.yahoo.com/s/afp/20081204/bs_afp/usautoeconomypolitics
Big Three return to Congress to beg for 34 billion dollar bailout
WASHINGTON (AFP) – The Big Three US carmakers were to return to Congress Thursday to renew their plea for a massive 34-billion dollar government bailout to save their vital industry from collapse.
An estimated three million jobs and a potential crash of the US economy are at stake as General Motors and Chrysler warn that they could run out of cash within a matter of weeks if they are not given access to billions in low-cost, government-backed loans.
Neither automaker expects they would be able to survive if they were forced into bankruptcy protection and the ripple effects of their failure would be felt across the country as auto supplies and related companies collapse in the wake of a sudden loss of business.
Ford said it might pull through on its own and return to profitability by 2011, but asked for a nine billion dollar line of credit in case the economy worsens or one of its competitors fails.
GM asked for four billion dollars this month and another 14 billion next year and Chrysler said it needed seven billion by December 31 if they were to survive a perfect storm of a global credit crisis, falling demand for large vehicles and a global economic slump.
The fate of the key auto industry is shaping up to be the first major test of the incoming administration of president-elect Barack Obama , who has warned he is not prepared to write the companies a blank check.
Obama said he wanted to hear what the automakers had to say at congressional hearings on Thursday and Friday before committing himself to any bailout.
"We should maintain a viable auto industry," he told a press conference Wednesday.
"But we should also make sure that any government assistance ... is based on realistic assessments of what the auto market is going to be and a realistic plan for how we're going to make these companies viable over the long term."
The current White House said it was reviewing the three different plans and was open to a possible aid package, but cautioned not to expect any decisions in the coming days.
"I'm not ruling anything in or out," spokeswoman Dana Perino said.
Michigan senator Carl Levin was hopeful that a deal would be reached, telling the Detroit News that the restructuring plans presented Tuesday were getting good reviews on Capitol Hill and that Senate leaders understand the urgency of acting quickly.
"I think the reception on the plans has been good. I think people realize the plans are comprehensive and serious," Levin said Wednesday. "They see the amount of restructuring, the amount of pain that is out there."
Lawmakers turned the three chief executives away empty-handed last month and charged them with coming up with proper plans showing they would be able to repay the loans and attain long-term viability.
They were roundly criticized for letting their iconic brands crumble in the face of competition from foreign transplants, whose US plants operate at much lower costs, and failing to develop smaller fuel-efficient cars.
There was also anger that all three had flown to Washington for the hearings in separate corporate jets -- more proof of the excesses of the CEO lifestyle.
The automakers tried to reshape their image with several symbolic concessions.
Ford and GM will get rid of their company airplanes and all three chief executives will work for salaries of one dollar a year. They also drove to Washington in hybrid vehicles.
All three put forward plans to invest billions in advanced technology, shift their product mix towards more environmentally friendly vehicles and slash operating costs.
GM, which is considered to be at the greatest risk of collapse, offered the most radical plan Tuesday.
It said it will reduce its US workforce by nearly a third from the current level of 96,537 people to between 65,000 and 75,000 salaried and unionized workers by 2012 and cut the number of US plants from 47 in 2008 to 38 in 2012.
Auto workers also offered to share in the sacrifice, despite landmark concessions made last year which have taken billions of dollars in health care liability off the books of the Big Three and will bring labor costs in line with the non-unionized US plants of foreign rivals by 2012.
United Auto Workers (UAW) president Ron Gettelfinger said Wednesday the union was "willing to take an extra step to move this along" by negotiating modifications to the union's contract and delaying billions in payments to a health care fund.
Industry data out Tuesday showed US auto sales dropped 37 percent last month, as total US sales fell to 746,789 from nearly 1.2 million vehicles in November 2007.
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Let them fail.
We don't need no water, let the...
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Let them fail.
They did that a long time ago. What we need to do is let them finish failing.
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I heard on fox news the other day an even better idea.
Let them fail, along with anyone else who can't make it. Theres 371 (give or take as I recall the number) billion left of the bailout.
Declare a three month tax holiday. No income, SS, or other current federal income taxes. That would cost an estimated 311 billion, in the mean time divert said remaining bailout money to cover that. Whatever is left of the bailout money gets put other places or, better yet, not spent at all and forget the bailout ever happened.
I for one think an instant 25+% raise would do wonders to stimulate the economy.
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Detroit uses the tin cup asking for a mere $40 billion give or take some change and you'd think mass faintings were afoot. Shift back a month ago and the financial sector asked for $700 billion which later was revealed to be $1.4 trillion and the response? Ce la vie! Amazing!
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Detroit uses the tin cup asking for a mere $40 billion give or take some change and you'd think mass faintings were afoot. Shift back a month ago and the financial sector asked for $700 billion which later was revealed to be $1.4 trillion and the response? Ce la vie! Amazing!
There was wailing and gnashing of teeth back then, too.
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there was much bitched then too. This though is another layer on the when does it end cake. So now the people who were bitching then, are now bitching louder. The people who were on the fence then, have now jumped over and our bitching too.
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There was wailing and gnashing of teeth back then, too.
Yes there was. However, it is not like the grandstanding that they are putting the three automakers through now. I find it amusing.
In relative terms, the finanicial district asked for $700 and got $1200. To fix a problem, that was more or less, created by their own ignorance of risky business practices.
On the other hand, the automakers in America have been the victim of :
a) A credit crisis caused by the above making it difficult to buy a new car.
b) An overinflated price of oil causing a false demand for fuel efficient vehicles.
(Not to say they don't need improvement, but, these are the straws that broke the camels back)
They are asking for $34 and are getting ramrodded every second of it.
This is why in a previous thread I wrote that congress takes care of its friends.
I can see no logical explaination but this as to why one sector gets $1200 at the 'drop of hat' (I know it failed the first time but it didn't take long to revive it and shove it through), because they were careless, but the other sector must be paraded infront of congress and cameras to beg for $34.
Obviously, some one in the financial district has friends on the hill, and the big three do not.
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In relative terms, the finanicial district asked for $700 and got $1200. To fix a problem, that was more or less, created by their own ignorance of risky business practices.
On the other hand, the automakers in America have been the victim of :
a) A credit crisis caused by the above making it difficult to buy a new car.
b) An overinflated price of oil causing a false demand for fuel efficient vehicles.
No....
The financial problem was created by Congress pointing a legislative gun at the head of the bank industry, saying "make these loans OR ELSE." The banks would have been held accountable for "racist" lending practices otherwise and sued out of existence.
Ford/GM/Chrysler, on the other hand:
a) Have their own credit institution wings to finance vehicles to buyers not encumbered by such Congressional silliness.
b) Failed to negotiate smartly with the UAW. They should have shut down for 6 months at a time to stop this type of union abuse that is now going to put them out of any competitive position in the market.
The UAW is throwing peanuts at this point because they know bankruptcy opens GM et. al. to scabs and free market industry/labor. You can bet your last nickel on GM getting the hell out of Detroit and other union towns in favor of "the west." Utah, Arizona, Colorado, Wyoming, Montana, Idaho, New Mexico. Right to work states.
Or... possibly even Mexico or Canada.
Only at the point of killing the host does the parasite begin to withdraw, lest it create its own demise.
Michigan senator Carl Levin was hopeful that a deal would be reached, telling the Detroit News that the restructuring plans presented Tuesday were getting good reviews on Capitol Hill and that Senate leaders understand the urgency of acting quickly.
"I think the reception on the plans has been good. I think people realize the plans are comprehensive and serious," Levin said Wednesday. "They see the amount of restructuring, the amount of pain that is out there."
A little more Atlas Shrugged, please. A little more "liberals like misery spread about equally." I didn't quite catch that. ;/
I worry for our country when asshats can say something like that, be quoted in print truthfully, and the bastard isn't run out of office on a pole (or the tallest tree and shortest rope found). :mad:
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No....
The financial problem was created by Congress pointing a legislative gun at the head of the bank industry, saying "make these loans OR ELSE." The banks would have been held accountable for "racist" lending practices otherwise and sued out of existence.
That is a convenient scapegoat to get you foaming at the mouth, but the fact of the matter is, a great percentage of the faulty loans were given to white suburbinites that simply didn't read the fine print and/or didn't understand variable APR. How many people on here have told stories about buying a house in the last few years and being approved for way too much? How many of those people are 'minority'?
Ford/GM/Chrysler, on the other hand:
a) Have their own credit institution wings to finance vehicles to buyers not encumbered by such Congressional silliness.
b) Failed to negotiate smartly with the UAW. They should have shut down for 6 months at a time to stop this type of union abuse that is now going to put them out of any competitive position in the market.
The point is that their credit institutions are not large enough to handle the volume of loans they need to distribute to keep their business running. Not to mention, this whole idea is assinine because if one company gives out loans to buy most of the products they produce, how would they pay their workers/suppliers? Loans? And what is thier profit? They would have no profit, they gave all their cars away with balance to be paid at a later date.
Again, I agree that the UAW is a major fault here but it is not the only one. UAW has been strangling the auto industry for years, and GM hasn't redone their contract with the UAW recently, the UAW simply hasn't alloted them breathing room for economic downturn. (If times are good, the UAW wants part of it, and when times are bad the UAW wants none of it. Too bad a real company has to save for the up times to make it through the down times).
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There's a halfway compelling argument for saving the major banks, given their roll in monetary policy and their necessity for the overall economy. No such arguments exist for the automakers.
Heck, saving the banking and credit industries probably does as much to help the automakers as the money congress wants to give them. As long as credit markets are functioning, industry can get financing from them instead of from Uncle Sam.
And apparently Alan Mulally testified that Ford can probably survive without any bailout money. Tell me again why we should give the money to them?
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There's a halfway compelling argument for saving the major banks, given their roll in monetary policy and their necessity for the overall economy. No such arguments exist for the automakers.
Heck, saving the banking and credit industries probably does as much to help the automakers as the money congress wants to give them. As long as credit markets are functioning, industry can get financing from them instead of from Uncle Sam.
And apparently Alan Mulally testified that Ford can probably survive without any bailout money. Tell me again why we should give the money to them?
From what I understand, Ford isn't asking for any money up front. They are asking for a $9 billion line of credit from the government just in case things change. They're arguing that having that line of credit there in case they need to use it will help stabilize their situation. The CEO of Ford even offered to work for $1/year if they ever actually have to use it.
That being said, I still don't think we should give money to any of them. Ford will simply have to make damn sure their situation doesn't turn sour, and the rest of them can fend for themselves. Just as we can't have a free market if congress regulates businesses into extinction, we can't have one if they keep throwing life preservers to companies that can't compete.
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There's a halfway compelling argument for saving the major banks, given their roll in monetary policy and their necessity for the overall economy. No such arguments exist for the automakers.
Heck, saving the banking and credit industries probably does as much to help the automakers as the money congress wants to give them. As long as credit markets are functioning, industry can get financing from them instead of from Uncle Sam.
And apparently Alan Mulally testified that Ford can probably survive without any bailout money. Tell me again why we should give the money to them?
Such arguments obviously do exist for the automakers-no one believes that the big 3 can fail without disastrous consequences for the economy, as that would basically be the end of large-scale manufacturing in America.
Because the credit markets were not saved by the Wall Street welfare package, Congress will have to do something more if they don't want the automakers to sink. It's a tough call.
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Ford is in better shape than GM.
GM's problem is their management. Wagoner is a clown and needs to leave. But he won't. Because he's too clueless to even see that he needs to.
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Such arguments obviously do exist for the automakers-no one believes that the big 3 can fail without disastrous consequences for the economy, as that would basically be the end of large-scale manufacturing in America.
GM and Ford don't play any part in monetary policy. And while they're important economically, their loss wouldn't be a disaster. The loss of the banking industry is a whole different story.
Because the credit markets were not saved by the Wall Street welfare package, Congress will have to do something more if they don't want the automakers to sink. It's a tough call.
A quick look at a LIBOR chart seems to show that credit markets are returning somewhat to normal. Say what you will about Congress' intentions, but it does look like they're getting the results they wanted.
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Say what you will about Congress' intentions, but it does look like they're getting the results they wanted.
BS. Of course they want you to think that. How do you know it wouldn't have recovered any faster? Nobody can say. As soon as the first bailout passed, and the stock market dipped slightly, the first thing the government said wasn't 'it's a stupid idea', no, of course it was 'it just wasn't fast enough'.
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And the bank bailout has worked beautifully:
http://www.msnbc.msn.com/id/28065054/
But perhaps the auto bailout will be better?
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Banks failed, the stock market is down, but so what? That's what you expect in a down eonomy. That's normal.
What you don't expect is for the Fed to lose control over the money supply. That is exactly what was beginning to happen in September, and I think that's what had Bernanke and Paulson and the top party leaders so freaked out at the time. LIBOR and other rates were spiking, despite the Fed's efforts to lower rates.
The Fed has, at least temporarily, regained control over the money supply, and interest rates now reflect the policy the Fed has set.I think Congress' actions are largely responsible for this. It may be heresy to say so, and I sure didn't think this at the time, but I now think FedGov actually got that one right. That's what the data shows, anyway, and I don't argue with the data.
Credit markets are once again functioning normally (more or less). Anyone who's a safe credit risk can now get a loan without too much difficulty. As I said before, that fact probably helps the Big Three more than the money Uncle Sam is trying to throw at them.
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So wait. If the Big 3 die, the UAW, an amazingly powerful 'labor' (socialist/big government) lobby, dies with them?
...let them die, I say.
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I don't think it'll be that easy. UAW is tenacious, and has their tentacles deep into America's automotive infrastructure, and I'm not just talking cars and trucks. EMD is GM's railroad locomotive division, and even the suppliers of parts are union shops. Companies like AM General and General Dynamics seldom catch the public's attention with respect to union-run automotive shops.
I much favor letting the Big Three reorganize under Chapter 11, but depending on whom you ask, the ripple effect covers more than just those particular employees.
I bought a new Jeep earlier this year, and am somewhat curious if they don't get their bailout, and are forced into Chapter 11 proceedings, what happens to vehicle warranties and spare parts?
It could get very interesting.
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The primacy of paper is one of the causes of this disaster. Fixing the financial sector is meaningless if there is no economy to finance, and that is what happens when you lose major industries like, for example, the entire automobile manufacturing sector.
The Wall Street lobby would like for us to believe that paper is primary, I'm sure, but the paper isn't actually worth anything if it doesn't represent a real economy. That is why manufacturing is at least as, if not more, important than financial services.
You're just trading cute pieces of paper if there's no resource that can actually be commanded by the money.
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So wait. If the Big 3 die, the UAW, an amazingly powerful 'labor' (socialist/big government) lobby, dies with them?
...let them die, I say.
Killing the UAW would probably be the biggest milestone in the resurgence of union power in the past 50 years.
The problem is that this is happening in tandem with the biggest welfare package in the history of the Nation. The UAW and similarly situated workers are not going to ignore that when their contracts are broken.
The lack of a principled stand against welfare is going to drive socialism more than anything, and the more unions and labor get told "sorry, you don't belong", the more they will organize to have some effect. It is a losing game in the long run, because labor can always deliver more votes than the board of GM or all of Wall Street.
Have to watch out for the flipside of moral hazard-unfairly gifting money (for whatever reason) to financial houses and large corporations will be seen as just that, unfair, by the folks for whom we're all proposing a benefit cut and a union rights cut.
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Your argument is now - if we didn't start a principled stand against socialism yesterday, we should never start?
When does the principled stand against socialism start?
Look, I am not against unions as such. As a libertarian, I believein the freedom of men to organize and to sign contracts in any voluntary fashion they choose.
But in a choice between subsidizing a giant socialist organization to the tune of almost forty billion dollars and not subsidizing it and watching it die, and thus reducing the power of socialists throughout the land, while also observing the Constitution? Guess where this Balrog is going.
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Killing the UAW would probably be the biggest milestone in the resurgence of union power in the past 50 years.
The problem is that this is happening in tandem with the biggest welfare package in the history of the Nation. The UAW and similarly situated workers are not going to ignore that when their contracts are broken.
The lack of a principled stand against welfare is going to drive socialism more than anything, and the more unions and labor get told "sorry, you don't belong", the more they will organize to have some effect. It is a losing game in the long run, because labor can always deliver more votes than the board of GM or all of Wall Street.
Have to watch out for the flipside of moral hazard-unfairly gifting money (for whatever reason) to financial houses and large corporations will be seen as just that, unfair, by the folks for whom we're all proposing a benefit cut and a union rights cut.
This "bailout" is the tip of the iceberg (like the previous packages and the coming stimulus package), they'll be back for more because they will need it. Yes, they can adjust their mix of vehicles and push their MPG's up, but as the other car makers response, the Big 3 will continually be left outside of the loop of change and innovation and still be left with grossly high manufacturing costs.
The next goody that they (Big 3 & UAW) will drop on us will be the need to have the gubmint take over and guarantee the unfunded liabilities for the pension and benefit plans.
Folks can organize, strike, picket, whatever to their hearts content, but if the host dies, there is nothing left to suck from its corpse. The auto industry as we know it and have known it is a dead man walking, and most realize it. The question is, do they start passing on next month, next year or in five years? The answer depends upon how much taxpayer based debt are you willing to flush down that toilet?
Jeff B.
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Maybe we could get anti-trust legislation passed that would make labor unions subject to that rule also.
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Actually Michigan is a Right To Work state, os if there was a bankruptcy they would probably temporarily stay in state, but eventually move out due to the single business tax
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Micro,
What you say is true-the problem is that this happening is likely to strengthen whoever will pick up after the UAW, more than anything else.
Best case scenario: the contract is honored, not broken, for pensions, and GM ends up totally reorganizing such that it doesn't depend on government welfare and can negotiate new contracts for future production freely.
Throwing a contract in the trash because a union negotiated it is no different from breaking any other contract; you either stick to your bargains or you do not, and markets don't seem to function well if no one is ever obligated to deliver what they bargain to deliver.
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Best case scenario: the contract is honored, not broken, for pensions, and GM ends up totally reorganizing such that it doesn't depend on government welfare and can negotiate new contracts for future production freely.
Calling this bailout "corporate welfare" is naive. This is a UAW bailout, plain and simple. Bankruptcy for GM would mean the end of those precious UAW contracts, so it becomes critical for the UAW that the government save GM from bankruptcy.
The UAW has killed its golden goose. Government money is the UAW's only remaining play.
I think that Micro is right. The only true solution for this mess is for the carmakers to go bankrupt and be restructured.
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Throwing a contract in the trash because a union negotiated it is no different from breaking any other contract; you either stick to your bargains or you do not, and markets don't seem to function well if no one is ever obligated to deliver what they bargain to deliver.
What does this have to do with anything?
If GM has failed to hold up their end of the contract with UAW, why exactly should you be forced to help them do so?
How is this different from [using the Randian analogy] Hank Rearden supporting Orren Boyle?
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Calling this bailout "corporate welfare" is naive. This is a UAW bailout, plain and simple. Bankruptcy for GM would mean the end of those precious UAW contracts, so it becomes critical for the UAW that the government save GM from bankruptcy.
The UAW has killed its golden goose. Government money is the UAW's only remaining play.
I think that Micro is right. The only true solution for this mess is for the carmakers to go bankrupt and be restructured.
Believing that this is all for the UAW is naive-it's not like the execs are working for them. And yes, it would cost likely on the order of millions of jobs (note that this number vastly exceeds UAW membership) should the big three go under. That is why the Government is interested in this welfare package.
Giving taxpayer money for something other than a bargained for exchange is welfare. If you don't think it's welfare, I'm not sure why you'd agree with Micro on this, because his position presumes that this sort of welfare is bad.
Micro,
There are easily enough assets to satisfy the contract-but bankruptcy here allows you to throw contracts in the trash. That is what the bailout package has to do with the program. GM's contracts with its own workers aren't the only contracts that would be broken, either.
Bankruptcy does not favor free market principles here, in other words.
But, of course, if I'm going to be passing out welfare, I'd rather pass it out to pay a contract for a few thousand pensioners who actually did what they promised, than to whoever else is going to get the welfare this year.
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So your essential argument is "We're handing out money like candy anyway, and since we're not going to stop any time soon, I'd rather some of it go to these guys, too?"
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All this dough we're handing out comes from where exactly????
Either taxes or inflation.
Don't bet on taxes. At the rate we'd have to tax, a huge portion of the economy would go off-shore or under ground.
Am I missing something? Are most (or enough, anyway) willing to put up with Swedish tax rates in order to finance bailouts of failing bidness?
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So your essential argument is "We're handing out money like candy anyway, and since we're not going to stop any time soon, I'd rather some of it go to these guys, too?"
No-it's that handing out welfare to organizations that aren't as powerful as massive corporations, and that will pay contracted pensions (thus relieving the vote pressure on freedoms) is more palatable in the long run.
You can reason with the folks that comprise the UAW, because the average American worker actually does believe in economic liberty, and the reality is that they were never so powerful in the first place. The UAW can't snap its fingers and get $700 billion in welfare, for example-but destroying all of the pensioners that were part of it can easily make six figure vote tallies in favor of robin hood socialism.
I think I see the root of our disagreement in this: I'm presuming that welfare money is going to hit the industry in some fashion, and you aren't. Letting GM die isn't an option for the politicians, because it's actually more important in every measure than the financial sector....which already got $700 billion.
What you're seeing now is showboating, no more.
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No-it's that handing out welfare to organizations that aren't as powerful as massive corporations, and that will pay contracted pensions (thus relieving the vote pressure on freedoms) is more palatable in the long run.
You can reason with the folks that comprise the UAW, because the average American worker actually does believe in economic liberty, and the reality is that they were never so powerful in the first place. The UAW can't snap its fingers and get $700 billion in welfare, for example-but destroying all of the pensioners that were part of it can easily make six figure vote tallies in favor of robin hood socialism.
I think I see the root of our disagreement in this: I'm presuming that welfare money is going to hit the industry in some fashion, and you aren't. Letting GM die isn't an option for the politicians, because it's actually more important in every measure than the financial sector....which already got $700 billion.
What you're seeing now is showboating, no more.
>.<
Every day I weep for our education system.
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I understand that the politicians who are opposing this are doing this for show.
But I do not think it matters why they do so.
At some point you will have to stop bailing people out.
The earlier you can start, the better.
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>.<
Every day I weep for our education system.
Is that because the financial gurus who have had charge of the economy over the past 20 years did such a horrible job, or because you believe that it's incorrect to note that finance is primarily a paper chase, and paper doesn't actually feed people.
Having successful investment banks and home loan programs doesn't turn dirt and seed into corn; it is only one of many methods to facilitate the exchanges between the folks who actually produce.
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Having successful investment banks and home loan programs doesn't turn dirt and seed into corn; it is only one of many methods to facilitate the exchanges between the folks who actually produce.
I don't think you quite understand how the system works.
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I don't think you quite understand how the system works.
Feel free to correct my understanding. I mean that sincerely.
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Feel free to correct my understanding. I mean that sincerely.
The existence of a working loan/investment system (provided by banking services) essentially allows the market as we know it to operate. This manifests not only in the form of businesses getting loans to start up or expand (which REQUIRES an existing loan/investment system), but also in a lot of kinds of small time farming, where it is common for farmers to loan money at one time of the year to pay it back at harvest. In essence, without an operational system of loans, investments, and so forth, the economy as we know it would not exist.
Consider this:
Most of what economists call the 'money supply' is not physical greenbacks. Most of the 'money supply' is what is called 'outside money' - loans, derivatives, and bonds. This virtual money is created by modern banking.
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In essence, without an operational system of loans, investments, and so forth, the economy as we know it would not exist.
Yes, that's true-but we have an economy that is based on this sort of finance. Economies need not be so-there is no law of the universe that mandates having investment banks and interest bearing accounts in order for investment and trade to occur. You can allocate resources by command, by direct ownership of assets (ie, you have to buy a house if you want to invest in real estate, not a mortgage backed security), and you can also completely overhaul finance by going to something like the gold standard.
The point was not that modern American finance doesn't serve this purpose (although, ironically, it doesn't at present-look at what's happening to investments and credit in this market as a result of all the paper-pushing); it's that modern American finance is only one of many ways to get the job done.
And that's how it should be treated-it's a means to facilitate production and exchange, not an end in itself. But because financial centers tend to acquire disproportionate purchasing power (without actually building anything-they essentially just give others the green light to manufacture via extending credit or investing money), they tend to buy themselves equally disproportionate political power.
So now we have the financial houses, which aren't serving their purpose in the economy, and who actually have been just issuing play-securities for some time and reaping real money as a result....getting a trillion dollars in welfare because they have the most political clout of any part of the economy.
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Economies need not be so-there is no law of the universe that mandates having investment banks and interest bearing accounts in order for investment and trade to occur.
True, but economies that do not have exchanges involving interest on lending or borrowing are not as efficient. One of the major reasons that many Arab countries are stuck in the 1600's is that Islamic law forbids charging or receiving interest. It's very difficult to grow a business if you're not able to borrow money, and it's very difficult to find a lender who will take goats as payment for a loan. ;)
This is a big reason why the Jewish economic culture flourished during the same time period that Islamic economic culture stood still.
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And that's how it should be treated-it's a means to facilitate production and exchange, not an end in itself. But because financial centers tend to acquire disproportionate purchasing power (without actually building anything-they essentially just give others the green light to manufacture via extending credit or investing money), they tend to buy themselves equally disproportionate political power.
You're right that finance facilitates production. You just don't see the implications of that concept. You can't produce anything in a factory unless you first build the factory. Without finance and the capital improvements it provides, there would be no production.
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Most of what economists call the 'money supply' is not physical greenbacks. Most of the 'money supply' is what is called 'outside money' - loans, derivatives, and bonds. This virtual money is created by modern banking.
This is crucial to understand. The money supply doesn't exist in the form of dollars, it exists as credit extended from the banking system. Bank loans expand the money supply via fractional reserve banking. The money supply expands whenever loans are made. The size of the money supply is roughly proportional to the amount of credit issued in the economy.
That's how the Federal Reserve controls the money supply. They raise interest rates and it becomes more costly to borrow money, so less people borrow, credit contracts, and the money supply shrinks. They lower rates and more people borrow, credit expands, and the money supply expands. Thus monetary policy in the US depends upon the existence of a functioning banking system.
So what happens if all of the major banks in the US disappear? It's far worse than just the loss of the bank businesses themselves (lost jobs, lost deposits, and so forth). The real problem is that the nation loses control of the money supply. Without banks to issue credit, credit disappears, deflation sets in, and you have yourself another great depression. No thanks, personally.
This is what I was alluding to earlier when I said the banking system plays a vital roll in national monetary policy. The economy depends upon money, and the banking industry is what makes money work in our country. The banking industry is far more important than the car industry.
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HTG, you are not quite correct.
As far as I understand, the Fed has three tools to control money supply:
1. Adjusting the rates on its loans, as you described.
2. Printing outside money, which is the smallest fraction of the money supply.
3. Its regulations of the banking system, because the banking system itself creates inside money/derivatives.
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HTG, you are not quite correct.
As far as I understand, the Fed has three tools to control money supply:
1. Adjusting the rates on its loans, as you described.
2. Printing outside money, which is the smallest fraction of the money supply.
3. Its regulations of the banking system, because the banking system itself creates inside money/derivatives.
You were right except the last one.
HTH is essentially correct in the effects, it is the causes he is missing.
The Fed controls the money supply through:
1. Interest rate on Discount Loans to banks (NEVER uses this one for policy)
2. The reserve requirements banks face (NEVER uses this one either)
3. Open Market operations- this is what they use.
In open market operations, the Fed will buy or sell T-Bills to (or from) banks.
This will then add cash to the bank (open market purchase) or remove cash from a bank (open market sale).
With this cash that did not exist until the Fed bought the T-Bill, the bank may then make loans. This increase in loanable funds (increase supply) is what causes the market price of loans (interest rate) to fall. As such, when the Fed says it's lowering the interest rate, what it really means is that it will create the conditions until the interest falls by X percent.
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Yes, I grossly oversimplified things. Shoulda known you rascals would come along and nitpick me for it. :lol:
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You were right except the last one.
The Fed is also a regulatory authority. Wouldn't its various rulemaking powers also affect inside money by affecting the way loans are made?
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The Fed is also a regulatory authority. Wouldn't its various rulemaking powers also affect inside money by affecting the way loans are made?
It is a regulatory authority. However, those regulations are not used for monetary policy because the Fed has far better tools for that.
Edit:
Also, as far as I know, the regulatory authority of the Fed does not extend into lending rules: most of theirs has to do with governance, reserve requirements and bank capital requirements. Lending rules are created and enforced by one of the other myriad agencies.
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Well it appears they aren't getting squat because the bailout died in the Senate.
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Well it appears they aren't getting squat because the bailout died in the Senate.
For now. It'll be back...
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For now. It'll be back...
I need to haul out my favore quote again, do I?
"It's a trick. Get an ax."
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If the previous bailout is any guide, the only reason it failed is that there wasn't enough pork attached to it. In round two, I expect a $150 billion bailout package to sail through both the house and the senate.
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You're right that finance facilitates production. You just don't see the implications of that concept. You can't produce anything in a factory unless you first build the factory. Without finance and the capital improvements it provides, there would be no production.
Again, this is plainly untrue-some of the largest periods of development in history have happened without any sort of modern finance whatsoever. Finance is one method of assigning the right to use resources, not the only one. In some places it has happened by birthright, in others by force (ie, your resources go here or my soldiers come and shoot you, ala Russia), and so on.
Capital improvement is a name for the method by which the right to demand resources from others is assigned; it is not a natural fact of human production.
Monkeyleg, I agree in principle with the point that modern finance has outpaced other forms of development (for the most part-there are odd examples of command economies vastly outpacing economies that worked more like a capitalist/finance economy in the 20th century)....but in terms of "jewish financial culture", I don't think there is such a thing, and I do note that the prime time of Islamic civilizations was under the Islamic financial system, which was mostly abandoned after the mongol invasions....monetary and banking policy is a big part of Islamic law, and it was advanced for its day.
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...it was advanced for its day.
The operative phrase, "for its day."
The phrase "Jewish financial culture" was probably the wrong one to use. I read an interesting article about how Jews in the Middle East were able to prosper because they saw no wrong with leveraging money, while Arab countries subject to Islamic law were held back because of the prohibition on charging or paying interest.
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Again, this is plainly untrue-some of the largest periods of development in history have happened without any sort of modern finance whatsoever. Finance is one method of assigning the right to use resources, not the only one. In some places it has happened by birthright, in others by force (ie, your resources go here or my soldiers come and shoot you, ala Russia), and so on.
Capital improvement is a name for the method by which the right to demand resources from others is assigned; it is not a natural fact of human production.
Building a factory is an investment, regardless of who decides to build it. The factory must also be paid for one way or another, because factories cannot be wished into existence. That's investment and finance.
It's certainly true that there are multiple ways of deciding how to utilize finances and investments. Governments can decide it, monarchs can decide it, or free citizens can decide it. That doesn't change the basic nature of the problem, though. Investment is a prerequisite for production as we know it, and finance is a prerequisite for investment.
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The operative phrase, "for its day."
The phrase "Jewish financial culture" was probably the wrong one to use. I read an interesting article about how Jews in the Middle East were able to prosper because they saw no wrong with leveraging money, while Arab countries subject to Islamic law were held back because of the prohibition on charging or paying interest.
I suspect that was true in Europe as well, but I'm wary of the generalization. It was almost certainly more complicated than that. The "Islamic finance" rules were pretty much toast by the past 200 years from what I can gather, anyway. Even now it's mainly a fad offered by a few relatively wealthy countries looking to attract Arab oil play money.
Headless,
It appears that you're simply redefining the term "finance" to cover any production. The term doesn't actually mean anything useful, if we're to accept that definition. And if you qualify it to describe the financial system that we live in, with negotiable instruments flying left and right, then you will easily see the point about alternative means of facilitating production.