Economic (and other) Collapse

Although insulated from the immediate effects of a collapsing/restructuring/whatever Economy by nature of my employment, it’s big news and I shouldn’t just ignore it here. Or maybe I should, but it turns out that I won’t, so lucky you.

Much attention is paid to the Stimulus Package although it’s obvious that no-one, especially not the people supposedly passing it, seem to know what all is in it. This is disturbing on this scale (there is undoubtedly a LOT of pork), but not my government, so what do I care, right?

Well, as Canadians we share a continent with what is (for now, at least) the largest economy the world has yet seen; I recall something about an elephant… It is plainly obvious to anyone not on the public payroll that our economy is taking a pounding as a direct result of what is happening in the US and to a lesser extent the rest of the world. Even China has a $600B stimulus package for its’ economy, as China has been severely punished by the implosion of American investments and the sub-prime (read: bad loans) housing bubble.

I know bugger-all about economics past the supply/demand curve and the guns-vs.-butter debate, but some things are apparent even to me. Bad investments of the sort Wall St. has been pushing of late (derivatives, toxic mortgage paper, whatever) are pyramid schemes on the largest scale. That scale is big enough to undermine major banks and wipe out smaller ones and many investment firms, while leaving the “Masters of the Universe” with the fruits of their ill-gotten gains.

Optics are important, and the above is how it looks to most people, especially the taxpayers on whose backs this will be paid off. A lot of people, including Vladimir Putin are less than enamoured of bailing out capitalists with public money, and I am one of them. If you’re running a for-profit enterprise (especially one that produces nothing) and you go tits-up, I fail to see where that’s my problem as a taxpayer. You tried, you failed, and the world will go on without you, trust me, so now go do something else.

For the Gain, something must be Ventured, and this implies risk. I have no objection to people making money by any legal and ethical (not always the same) means, and I’m known to take a few chances myself. No, I don’t have a gambling problem or anything like that, but I recognize that life is pretty dull if you don’t push your luck now and again. A bit of danger is great for focussing, so too much of a safety net makes it at the vey least an unsporting proposition.

If you can convince people to invest in junk of whatever stripe in order for you to make millions, well caveat emptor is the rule of the game and a reasonably regulated market will sort you out eventually. That is what happened here, although the reasonableness of the regulation in that market was questionable to say the least. What should be happening here is a lot of investors are poorer and (some of them, anyway) wiser, and the speculators and junk bond kings are out of business. Some banks fail, and the FDIC insures your deposits as long as you were a smart enough investor to know the limitations of that coverage. In Canada it’s up to $100K, and the US has in light of the current flap raised theirs to $250K. More money than that? Figure it out yourself, I say.

These institutions have been saved by the US government, although with strings attached. The big one right now is Obama’s executive pay cap of $500K for any firms receiving bail-out money. This may look good, and executives of companies suckling at the public teat certainly don’t deserve bonuses (though they were getting them while running their companies into the ground) but the law of unintended consequences kicks in with a vengeance.

It has been pointed out that $500K is not enough money for an executive of a major company to live on in places like New York, and I do have to say I agree with that. The first effect will be to drive the best and (supposedly) brightest execs away from these companies. The next will be more government involvement in everything.

Yes, bigger government, more government jobs, more regulation and less people actually producing anything. There was some talk of Protectionism out of all this, but that’s being pooh-poohed. Everyone loves Free Trade, but I’m beginning to think that countries had best start thinking of their own best interests again. There is a certain amount of market “survival of the fittest” implied, but that is not the same as big-fish-eat-little-fish which is what most people think of when they hear about evolution.

You need a big trade bloc to make tariffs work, but NAFTA could do that, especially if we build more nuclear plants and get off the imported oil and gas. More of an issue for the USA than us, but they drag is down with them. Inefficient companies fail, consumers (taxpayers) are protected, and the US sets out to rebuild itself. Prosperity breeds more prosperity and we benefit too. Some protectionism prevents the Japanese and Koreans from selling us cars that weren’t built here, so who would really care if the used-to-be-Big Three go under?

Nothing should be too big to fail, and market things should be left to the market to solve. The government’s only job there is to make sure things don’t get out of hand (i.e. slavery, etc.), certainly not to bail out banks that couldn’t be bothered to do due diligence. I say that, but it’s far more of a mess than that, as many of these banks were forced by the US government to take on these bad loans. That requires a more nuanced approach, but no matter what the government does to fix things, the laws should at the vey least be clear and understood by all.

Yes, I’ve wandered off whatever the hell it was I wanted to say. It was mainly personal and corporate responsibility and transparent government, but I suppose I should be concerned that I even had to talk about that. Comments or critiques can as always be addressed to me here, but other than mental exercise for myself I’m hoping to make people think critically.