Making Money Real

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A Capital Idea Part 118: Making Money Real

I saw a Dateline report recently from a series called Power, Money and Wall Street, which talked about the financial crisis brought on by derivatives trading. I had not really dealt with this issue in this series, given that money itself is an abstraction of sorts. Thus, I concentrated on the fundamental abstractions of creating perceived value in order to make claims on resources, an issue which goes all the back historically to the origins of money. However, money can be tied to things, labor or services of real worth. On the other hand, when "derivatives" are allowed to masquerade as something of real value, what we have is an abstraction of an abstraction, a kind of abstraction-squared situation, which makes connecting money to real value virtually impossible in the real world, and the idea of any semblance of fairness, essentially a joke. This is what the banksters did to the world of finance, in order to increase their profits.

In a fair, balanced, rational and sustainable economy -- of which the current economy is none-of-the-above -- economic processes not only have a moral, fair-minded basis, and a biomimetic property making the economy resemble a healthy ecosystem, but also, there should be a requirement that what we use to represent wealth, have a basis in reality. I have an analogy from my training as a psychology researcher. In psychology, there are many tests which have been written to measure various psychological properties. These are written essentially, according to the theory to which the author prescribes, as well as the author's intuition. Some of these tests may appear valid on the surface, but actually are poor ways of measuring what they intend to, due to some common misconceptions perhaps, among both psychologists who are test authors, and the test takers. Other tests do not appear to be measuring what they appear to, which is sometimes intentionally done by psychologists in order to prevent social desirability from affecting test responses, or in order to evoke material from the test taker's unconscious mind in the case of psychodynamically based, so-called "projective tests." (The psychodynamic perspective is the perspective in psychology which postulates that we are motivated unconsciously.) These tests according to research, never seem to have very good validity, and some of them have hardly any validity at all, especially among projective tests. However, some of these tests do have decent, if not good, validity, while preventing social desirability biases from affecting peoples' responses, at least to an extent. In fact, tests which lack "face validity" typically have poor or mediocre reliability, meaning that basically, the results of the test are unpredictable; when a test is unreliable, for example, respondents have a tendency to answer differently from one administration of the test to the next, or more to the point, answer differently on various questions which are supposed to be measuring the same thing. If a test is not reliable, it cannot be valid; reliablility puts an upper limit on potential validity.

Once a test has been demonstrated to have decent or better reliability, the hardest part of creating a good psychological test is validating it, which involves much empirical data collection that correlates the test with other measures in order to prove that the test works. The most difficult and crucial of several types of validity is called construct validity, which means getting down to the real nitty-gritty of demonstrating that the test measures what it was intended to measure. In order to demonstrate construct validity, a requirement that is absolutely essential, is that the test be demonstrated to predict results from real world variables. A psychological test could correlate with other psychological tests, but if those other tests are not valid, such correlations are meaningless. One would essentially be constructing a house of cards, a mirage giving the illusion of validity when in fact, the results of the test were fatally flawed, making the test's results misleading. I think "a house of cards" is a pretty good description of what has happened in the financial world. Such a system would never even pass for anything more than a joke in the realm of psychological testing. Money has basically been decoupled from any connection to real worth, in the places where most of the world's money resides, the financial industry.

To give an example from psychology, the Five Factor Model of Personality by Costa and McCrae has been tested extensively over the past couple of decades, and the five factors have been found to predict numerous real world outcomes. Extraverted people spend more time with other people, neurotic people have more psychological and physical problems, people who are open to experience are more progressive minded and interested in learning, agreeable people are more charitable and kind-hearted, and conscientious people have much better and more meticulous habits such as health habits, to name a few results. We know from these results, that the test is measuring something real which tends to correspond to specific real world outcomes.

When it comes to money, the financial industry is playing with its money in a fantasy world. I guess the most important message of this post is that we should not let financial institutions play with our money, because it distorts any real value to the point that it becomes unrecognizable. Rather, we need to tie money, in whatever form it may take, which could include scripts, vouchers, credits, proxies, local currencies, national or international currencies, to real value -- labor, natural or human resources. The first step in doing so would be to prohibit the use of derivatives and other forms of gambling by financial institutions. Banning derivatives should be relatively easy to do, as these activities have not even been done by financial instititions until the past couple of decades, when deregulation made the use of derivatives possible. I don't know that much about derivatives, but as far as I know, they are still being used although in a somewhat more regulated manner than before recent reforms. Perhaps someone else who reads this will know more about that. However, the stock market is essentially a gambling institution created by and for -- make no mistake about it and don't buy into the "stock market is for everyone" meme -- rich people in order to increase their wealth by distorting the value of their investments. Thus, the stock market -- that bastion of capitalism -- as difficult as this may be, should be eliminated in order to form a fairer economy in which there is more of a connection between money and real value.

Beyond these steps, minimum wages are useful, but need to be increased to reflect real costs of living. Businesses which cannot afford to pay a minimum wage to their employees, perhaps should not be in business. To go into relatively more uncharted territory, would suggest the use -- at least to me at the moment -- of price controls and government determined pricing, which along with eliminating the stock market, is another of my suggestions which I am recycling from earlier posts. (Okay, maybe I am running out of new topics or ideas here, but not new ways of explaining them.) Also mentioned previously, is that my studies of the world's health care systems has revealed at least one instance in which government determined pricing works very well, which is the price of medical procedures in Japan. If my studies of other topics can uncover that, there are likely to be other instances around the world (presumably not in the United States yet, though) which show that government pricing can work to create a fairer economy.

Coincidentally, my good friend Poor Richard has recently written a post on essentially the same topic, "Love's Labor Lost?" on May 3 (http://almanac2010.wordpress.com/). While in general agreement with this post, Poor Richard essentially makes the case that all monetary value can be connected to labor; it isn't really necessary to separately value natural or human resources monetarily, and this makes sense to me. Here are a few quotes from Poor Richard's post:

“Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.” Adam Smith

"As long as the value of money is ultimately based on (backed by) labor, I think it may be safer to use whatever currency, token, or proxy is most convenient for a particular kind of transaction." Poor Richard

"Many will object that labor is a poor value standard because the value of labor varies according to the qualities of labor (abundance, expertise, fitness for a given purpose, etc.). But to argue that the value of one person’s labor or time differs from another’s is to claim that the value of different people’s lives varies.

Oh, really?

The products or results of one person’s labor may be more valuable than the products of another persons labor, but we need not (in fact I believe we must not) conflate the value of the product or service with the value of the labor or the person– despite the tempting convenience and simplicity of so doing. Many things go into the value of a good or service besides the cost of labor. My proposal is only that the value of a unit of human labor should be universal and that this value might become the ultimate standard behind the value of any basic unit of currency. Might that make it easier to keep track of risk and value even if financial engineers converted labor into other units or bundled time into derivatives?" Poor Richard

"It may seem intuitive to simply make a distinction between the monetary value and the moral value of a person’s time, labor, life, etc.; but doing so may in fact, if my hypothesis is correct, be a slippery slope towards evil, because it introduces an element of hypocrisy and cognitive dissonance.

Labor’s love lost?

Instead of monetizing labor, maybe we should be labor-tizing money." Poor Richard

Comments

Robindell
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Robindell
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One of the first, if not the

One of the first, if not the first type of financial derivative is options.  They started off at the Chicago Board of Trade (now CME Group) as options on commodities futures contracts, and then a seperate operation began with stock options.  That activity broke away and formed its own exchange which was the first and I think remains the largest options exchange, the Chicago Board Options Exchange, where I worked for a number of months, right down on the trading floor.  One thing I learned while working there is that financial exchanges are self-regulating bodies.  I had assumed that they were directly regulated by the Securities and Exchange Commission, or in the case of commodites futures, the Commodities Futures Trading Commission.  The exchange have their own regulatory staff.  Back in the day, they were organized as non-profit organizations.  The members had different committees which set policy.  The government has certain financial requirements, rules (such as a prohibition on insider trading), limits to how many options or futures contracts one person or company can buy at a time or in one day, and so forth, but the exchanges fill in many of the details as to how they want to define allowable trading.  The exchanges are responsible for levying fines and/or suspending members when violations occur.  But at present, the government is questioning whether the CME Group has been doing an adequate job in its self-regulation of the futures trading.  Petroleum futures are not traded in Chicago as far as I know, but this has been in the news because of gas prices.  There are hedging strategies which I never studied in any great depth, and they use lingo such as spreads and straddles.  For options, they have all kinds of computer models and algoritms that they use.  The first and still one of the most well-known, which you probably have heard of, is called the Black-Scholes Model.  I am not good in math and don't understand these things.  When I was working at the exchange, we had a Ph.D. in biology I think who started with us at the bottom and within weeks moved both up the ranks and upstairs, off of the floor, to market analyst.  A co-worker of mine was "studying" to be a comedian by taking a non-credit class taught in the city at an actual comedy club.  We both took the same test that this other guy had taken to become a market analyst, and my friend portrayed the resulting interview that might occur with the exchange's director of human resources as he went over our test results, red in the face, saying, "This, this that you wrote, this is junk!" 

If companies lowered prices, goods would become somewhat more affordable to lower-income people, but at the same time, you might end up with a place like Wal-Mart that dumps suppliers that don't meet its demands and then relies on foreign workers who are paid only a fraction of what Americans would earn, even at minimum wage.  We need to find a way to lower prices while at the same time having an accounting system that allows firms to pay people a living wage while still having enough money to function and invite investors. Social stratification is a complex thing that goes beyond economic ideas of supply and demand.  As you probably know, as I learned in a class I took in industrial sociology many years ago, sociologists actually develop ratings of the level of social prestige associated with many occupations and professions.  They use social surveys which are different of course from psychological tests, but are statistically tested.

I am not sure the unconscious figures into how someone responds to questions on a psychological test because from what I have read, at least Freud's idea of the unconsious is rejected by most psychologists, other than those who are trained in and practice psychoanalysis.  In understanding how people answer psychological tests, I suppose there are beliefs and values that people subscribe to in strong ways, and responses to those kinds of questions would be quite reliable.  But if you ask someone something that is more ambiguous, like if someone would tell someone a criticism or keep it to oneself, or if prefer to worry about a problem first and take action later versus confronting it immediately, I have to wonder if the mood the person is in when the test is being taken would have anything to do with how such unclear questions would be answered.

Do you ever listen to Smiley and West?  Dr. Cornel West could not be on the radio the last time with Tavis Smiley because Professor West had to go to court.  He was arrested in New York at some kind of police-related protest.  But they played a recording of a public meeting which was a question and answer session in connection with their recent "poverty tour."  Tavis Smiley, although very well-off and successful today, started off very poor.  He said that he grew up living in a mobile home with something like 11 kids all living there.  He and one of his sibilings was beaten by their father in one incident that put Tavis in the hospital, and he refused to speak to his father after that.  I would have to read his biography to review all the details.  Cornel West was raised middle class.  he defended is situation as an advocate for the poor working in what he called a ruling class institution, i.e., Princeton University.  Anyway, he was asked what he thought of capitalism, and he responded by saying that he couldn't answer the question as it was posed, because it would depend on what type of capitalism was being referred to.  He then mentioned that Finland has a very low unemployment rate and compared that to the rather high rate of poverty among children in the U.S.  I have a poor memory for numbers unless I have them in writing, and this was all being said on the radio rather quickly.  But you get the idea.  West concluded that our form of capitalism is rather brutal compared that found in Finland.  Tavis said that change would be slow in coming.

I also found it interesting that Smiley said that he was offered a six-figure amount by a major publishing company to write a book about poverty, but that the book that they wanted him to write was not the book that he wanted to write.  So then he came up with the poverty tour, and by then, he was working with Cornel West, so they both went on the tour, and he used his own publishing company, which I think is called Smiley Publishing, tyo publish the book that he and Dr. West co-authored.  I haven't read the book but I will look for it to see if I can get ahold of a copy.  They apparently have many facts and figures about poverty, but at the same time, and this is unique, they have interviews with poor people who they meet during their travels across the country.  Dr. West mentioned the need for a massive investment program in jobs, including green jobs.  Of course, the federal government cannot presently afford to do that, but even if it could, the Republicans would vote it down every time.

 

 

Natural Lefty
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Thanks for replying,

Thanks for replying, Robindell. I don't have much time to respond now, but perhaps tomorrow.

Like Cornel West, what I think of capitalism also depends on what type of capitalism we are talking about. In my studies of capitalism, I have found that it is an extremely broad and difficult to avoid aspect of an economy. However, a specific connotation of capitalism is inferred when people talk about it, certainly here in the U.S. and for the most part around the world. I have an aversion to "capitalism" based upon that connotation, but actually what we speak of as capitalism is in no way synonymous with capitalism, and their are potentially much better forms of it which have been or could be developed, forms which involve more democracy, more public input, greater fairness, less concentration of capital in the hands of a few, and less privatization.

Natural Lefty
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I have heard of "options,"

I have heard of "options," but I don't really know what they are. On the Dateline report, stock traders said that nobody understands derivatives, even the stock traders. They just know that they have figured out a way to make money by doing that. They know to "buy low, sell high" and figure out ways to do that, but they don't understand the implications of what they are doing at all. I have heard Randi Rhodes say that the stock market is like a game where nobody understands the rules, and I agree with that. It's a gambling game, but nobody really understands how it works or what its implications are.

I have seen Travis Smiley sometimes, but not very often. So he was asked to write a book of poetry too? Just kidding. I almost misread "poverty" as "poetry." I didn't know that he had such a rotten childhood. I guess he would be what developmental psychology researchers call a "resilient person."

I have heard good things about Finland too. I had not heard much about Finland until recent years, but it makes sense that Finland would be a thriving socialist democracy, much like its scandanavian neighbors. I did hear a few years ago that Finland has the highest rate of cell phone usage in the world. I think it has very good internet access too, and high rates of internet usage.

Robindell
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Options traded on an exchange

Options traded on an exchange are regulated under government rules, but there are other kinds as you mentioned above that have been done in private with no outside oversight.  (The Dodd-Frank Act which regulates banks and created the Consumer Protection Agency and chief probably somewhat begins to regulate non-exchange-listed derivatives, but the government is inexperienced in this area, and these are complex investments, and the law may not be adequate in this respect.)  Options are sort of interesting.  There are options on stocks, stock indexes, on commodities futures contracts traded at exchanges, and I have heard of real estate options.  Executives are sometimes given "stock options," but I think those are different from the kind that you buy from an investment broker.  Options are different from stocks in several respects.  The price of the option is based on the price of the underlying security.  All options have expiration dates.  If you own one and don't sell it before it expires, it becomes worthless.  They also have something called the strike price.  There are two kinds of options, calls, which allow you to buy a security such as a stock at the strike price, and puts, which allow you to sell at the strike price.  If you own call options and the stock it is for goes up, you can buy the stock at the guaranteed strike price, and then turn around and sell it at the current higher price.  If you have a put, say, for a price of $5 a share, and the stock goes down to $3, you can sell the stock at $5, and then buy it back at $3.  If you still have put options on it, you can sell it again for the strike price, or wait for it to go up again and then sell it.  If you are knowledgeable and clever enough, you can make money with options whether a stock goes up or down.  Professional investors use them to protect their investments through hedging.  Traders buy and sell repeatedly and try and come out ahead.  There are also more long-term options.

The subject of finance and investments has been in the news this past week with political overtones regarding the loss of $2 billion on the part of the nation's largest bank, J.P. Morgan Chase.  The vice-president in charge of investments and trading and such offered to step down, and I just heard the CEO Jamie Diamond on the news earlier today, saying that serious mistakes were made.  For $2 billiion, I would think so.  I bring this up because if you are reading this, knowning that your original post is from some time ago, I would be interested in your thoughts on the following analysis on my part.  Banks like J.P. Morgan Chase are "too big to fail."  Yet, the Tea Party Republicans are largely opposed to the regulation of the financial services industry, and are also against any future bailouts of the banks, should they again collapse.  A collapse of major financial institutions, like the last time, would adversely affect the entire U.S. and even world economy because, as I understand it, of the central role that banks play in lending money to those who want to purchase homes and to businesses that rely on bank loans to function and to stay in business.  The right-wingers say that they do not believe in regulation because it interferes with the freedom of business executives to conduct their business.  They ignore those types of business practices that are wreckless and harmful, because they don't acknowledge that rich executives and traders are capable of making any mistakes.  If they do, their firms should be punished as was Lehmann Brothers, which went out-of-business.  My theory that I would like to mention for you to respond to is that these extremists actually want there to be another financial meltdown.  This would probably lead to economic pandemonium as it did previously, which in turn would result in even worse social disorganization, breakdown, chaos, and potential conflict.  This would justify the extremists in imposing some form of martial law and give them an "option" of seizing control.  Two examples of this sort of situation come to mind.  The first is the manner in which police either evicted or physically attacked peaceful Occupy protesters.  Examples of this took place around the country, but the most notorious examples took place in California, in Oakland, from what I remember, and at the University of California at Davis, where the campus place were rather harsh toward students who were protesting.  The other example comes from U.S. history in which President Herbert Hoover ordered General Douglas MacArthur to attack a ragtag group of impoverished soldiers known as the Bonus Army who had set up camp in Washington, D.C., hoping to get paid a bonsus which they had been promised, because of their dire need.  MacArthur went beyond his mandate as was his way and drove them out.  They later returned to Washington, and Eleanor Roosevelt came out and meet with them and was very nice to them and I think offered them something to drink.

By the way, the term "extremisism" and putting all of the blame for our government's stalemate on the Republicans are two aspects of a book by Congressional and government scholars Thomas Mann and Norman Ornstein.  The book is called, It's Even Worse than It Looks: How the American Constitutional System Colided WIth the New Politics of Extremism."

I am not a psychologist, but whenever I read comments on these blog pages or elsewhere by conservative extremists, I get the impression that they are rather authoritarian and intolerant of anything that they don't understand very well or anyone they disagree with.

I sort of understand the difficulty that you are going through with your father and am sorry to hear about that situation.  Both of my parents passed away a number of years ago, my father having been in a nursing home for several months.

Laughter can be a good thing, so I will mention another example from my former co-worker and amatuer comedian at the CBOE.  The exchange is or at least was, when I was there, different from a stock exchange in that the exchange had their own traders, who were more like clerks than investors,  who participated in the open outcry system of trading options on the floor of the exchange.  These traders were not there so much to make money as to make a market.  They operated from something which was called, "the Book," a filing system of the options they had on hand.  I am not sure how they got the options they had in their inventory, but they were able to buy and sell different options to make sure that there was always someone there on the opposite side of a transaction.  They also had traders who fufilled a similar function but who were independent business people, known as "market makers."  Everyone on the floor, including myself, wore a different colored coat.  The brokers and traders had badges with their initials on them, and we had CBOE on our coats, since I worked for the exchange.  My friend sat at a counter that was reserved for the Book people who also worked for the exchange.  I use the past tense because it has been years since I worked there, and I don't know what changes have been made since then.  The observation floors with glass windows at the exchanges have been closed to the public ever since 9/11.  Anyway, I would sometimes approach my friend or he to me and some of the other staff in our area, and he would suddenly make a fist while holding his pencil as if it were a weapon, and make a terrible, fierce expression, a kind of angry grimace.  This would crack me up every time, because my friend was satirizing the mentality of the entire operation.  He was turning the tool of a mere clerk, an innocuous pencil, into a dangerous weapon, as if everyone there involved with trading options, who, after all, were required to yell out the price and number of shares and so forth publically, all hated one another and were locked in a kind of economic combat as they did their transactions.  Simply with how he held his pencil and the expression on his face, he was putting forth quite a powerful, but very funny commentary on the free market system.

Later on, he brought in a videotape of his "final exam" from his comedy class.  It wasn't really an exam but was just a routine.  It was just sort of wild and extreme, but not nearly as funny as the jokes he made with me about our workplace through the time that I was there.

 

Natural Lefty
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I think I get options now,

I think I get options now, Robindell. They are a way to buy or sell at a guaranteed price so that whether the stock goes up or down, one can make a profit. In other words, it's cheating.

I heard about J.P. Morgan's "2 billion dollar boo boo" as I think it was described in internet reports. Certainly, this is a sign that things are still not well under control regulation-wise in the financial industry.

According to Tea Party reasoning, the financial industry should be allowed to make wild gambles with money, fail and go out of business, no matter what the consequences for the public. Of course, this also will cause further consolidation of the financial industry as more companies go out of business, leaving fewer remaining in business. As you so aptly point out, this position of no regs but no bailouts is pretty ridiculous, well at least the no regs part of it is. I certainly don't think we should have to bail out "too big to fail companies" but their actions when unregulated put the public in a horrible bind.

Your theory seems likely to me, although I don't know how many conservatives are knowledgeable enough to really think of intentionally doing such a thing. Getting rid of Obama has been the explicitly stated purpose of Republicans in Congress. What better way to do that, than create another financial meltdown? In addition, social unrest brings opportunities for autocratic crackdowns on populist movements, as inevitably seems to happen during times when revolution is fomenting. Yes, we have already seen some of that in response to OWS. By the way, here in California, where I go fishing at various locations in the region, several areas where closed to the public immediately after 9/11; at least the parking lots were closed so that people couldn't drive there, especially to the dams of state reservoirs. Apparently, officials were afraid of tackle box bombers blowing up dams, and they have never rescinded their restrictions. I feel this is yet another example of over-reaction to 9/11, restricting public access in order to make something which would probably never happen, somewhat more difficult, when in fact, if terrorists really wanted to destroy a dam, they definitely still could do that.

Economic wars among financial moguls -- that's what this world seems to be coming to. I think the problem largely comes down to overcompetitiveness among males, and perhaps insecurity. I am reminded that researchers have found that many men are found to be stuck in Erik Erikson's state of Industry versus Inferiority which is supposed to occur during elementary school, in a sort of state of permanent competitive stasis.

 

Robindell
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I wouldn't exactly call

I wouldn't exactly call options cheating.  It is just another way to invest and to offer risk management to individuals who have money to invest.  It is supposed to help bring some stability to the investment area so people won't lose their shirts.  What happened at Chase Bank is the result of gambling huge sums of money in an irresponsibly risky manner.  Many people by options and never fool around buying the stock or futures contract that they are based on.  Just because you own an option that allows you to buy a stock at a certain price does not guarantee that the price of either the stock or the option will go up.  If it goes down, you likely would be better off buying the stock at the market price rather than your "special" option price.  The option's strike price does not last forever.  It is sort of like when you go to a store such as you previously mentioned, Best Buy (whose CEO resigned, whose Chairman of the Board and founder, Dick Schultz, who I once met in Indiana, is stepping down because he didn't disclose that the CEO was having a relationship with an employee, and which is closing a number of stores) or any other retailer, and the salesperson says to you, "Natural Lefty, I'll tell you what I'm going to do for you.  I'm going to reduce the price on this computer or stove or whatever and give you a special price, but I can only offer you this discount for the next several days.  After that, it will go back up to the current price." 

Also, many people cannot afford to participate in the stock market as a way to invest because you have to put down a certain percentage in advance and keep it in an account with your broker, as a protection, sort of like insurance, in case you lose money.  That is called a margin.  People may buy and sell stocks and may either make a profit or lose money and owe the firm money, and the margin account already has money in it which can be used to pay for a streak of bad luck.  Options can be bought in smaller amounts and the price per option is probably less than that of the actual stock, so you don't have to put as much money into an account at the beginning, allowing people to invest who have less money available.  With commodities futures, there is also future price for the particular commodity until the contrat expires.  In that business, very few people take actual delivery of the commodity, be it wheat, soybeans, hogs, foreign currency, or whatever.  Food producers who make food products or farmers and agribusiness buy certain futures contracts to give them some security if the price of the commodity goes up or down.  If they lose money on the grain they bought,  they might make it up by making some money on the futures contract, sort of like compensation for a loss. 

With options, people might lose money on a stock but could possibly make it up with put options which are the opposite of calls. 

That is one of the problems with capitalism, when you spend money to produce something, there is no guarantee that people will buy enough of the product for the operation to continue.  The investors who bought stock in the company could lose out if things go awry.  If the raw materials go up, you would have to pass on the increased costs to the consumer, who may not be receiving any pay increase to compensate for the rising prices.  I just heard on the news within the last few weeks that a well-known airline, it might be Delta but I hardly fly and would have to review the news story to be sure, is buying a refinery that a energy company was going to close down, so that the airline will become the first possibly in the world to own its own fuel refinery.  Needless to say, the airline is trying to control the cost of their fuel by making it themselves, so they won't have to raise their prices as much.  In China, they are building more airports than any other country in the world.  China has the most pollution of any industrialized, urbanized country, but with their growth in aviation, they are looking into using biofuels as a way to fuel their aircraft as a way of cutting down on emissions from flights.

If we could find ways to stablize finance, that might prevent people from pulling away from investing in jobs.

 

Natural Lefty
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I forgot that the person has

I forgot that the person has to use the option within a certain time. But the fact is, people in the financial industry know about the various ways to use money to make more money and have the motive and opportunity to do so moreso than people in any other line of work. I think this is also one of the problems with capitalism. I guess strategies such as options are supposed to stablize the market by preventing meltdowns, but the market still seems quite unstable. I weekly here that the market "went up so and so percent today" or "went down so and so percent today." And then there are the crashes. That is not what I call stability. What if the world's oxygen supply went down 5% in a day, the world's biomass went down 5% in a day, or the world's oceans went up 5 feet in a day? Events such as that would be ecological disasters. A healthy ecology is based upon having relative stability with gradual change = evolution; it seems to me that a healthy economy should have relative stability and long-term evolution, too. I agree with you, then, that stabilizing finance would be a big step in the right direction. 

I heard about the airline, but I also forget which one it is. My namesake cousin works as an agent for American Airlines, and their pay and benefits are all in the process of being cut substantially, so things are not going well in the airline business, at least not for the ordinary employees.  I believe that China with its proactive yet autocratic government will forge ahead with future-oriented, green economy building projects such as switching to biofuels or massive use of solar energy in the coming years, much as they have forged ahead with infrastructure projects, and even have done things to build a larger middle class such as greatly raising its minimum wage.

The history of business is replete with developments which resulted in people no longer buying certain products, which are then forced to go out of business. However, I have noticed that business moguls who rise to the top of the socioeconomic ladder tend to be ones who who either in the financial industry or make something that everybody comes to depend upon so that they can form a virtual monopoly. This includes technologies (cars, computers) as well as necessities such as food or utilities, things that are unlikely to go out of business in the foreseeable future, at least. But perhaps something better than cars or computers will come along too, and people's tastes in food changes over time, too.

Calperson
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Natural Lefty wrote: When it

Natural Lefty wrote:

When it comes to money, the financial industry is playing with its money in a fantasy world.

 

The financial crisis is primarily rooted in personal home mortgages, and the fact that millions of people decided that they weren't going to pay theirs anymore and yet still live in the house that their fellow citizens (via bank deposits) had bought for them.

Do you really believe "derivatives" are the problem? Do you realize that if everyone paid their mortgage like the said they were going to and legally contracted themselves to do, then the "derivatives" would be fine? Why are you blaming this secondary financial instrument when you should be looking deeper as to way the instrument was "toxic" in the first place?

Money is not "virtual" or fantasy" in an adult world and civilized society. Money has value not because it is a several square inch piece of paper, but because WE THE PEOPLE, all agree on what is worth to us as a society.

The blame lies in people who decide to take loans and not pay them back. Their fellow human bank workers took them at their word that when lending them money that they would be paid back according to the terms that legally signed to in the lending contract.

They had every right to trade the promissory note on the value of that contract. Who were they to assume the lendee would NOT pay them back as agreed? 

It is the defaulters that have screwed their fellow Americans by squelching on their debts and forcing their fellow bank mates to foot the bill. It is so strange when the left refers to banks as these huge monolithic ogres when they are nothing more than the sum of all of you neighbors savings and earnings. Banks don't have their own money, they are just keeping your aunties money, your moms money, and Bobs money from down the street. It is all of OUR money pooled together, and when some fleabagger bum decides to not pay back their loan, well, it is WE THE PEOPLE who take the hit.

We seriously need to apply more social pressure to those who welch on their commitments to their fellow citizens.

Robindell
Robindell's picture
The above view is one-sided

The above view is one-sided and shows the conversative distrust and disdain for one's fellow citizens.  Conservatives are the same as Torys who were against the American Revolutionary War, against the creation of the Constitution with its Bill of Rights, and in favor remaining a colony ruled by the King of England. 

When I walk into a bank, I can't just go up to a banker and tell them how I need to buy a home automatically be given the money.  The bank is the one that takes the application.  They are the one who checks a borrower's credit.  If they were so eager for the business that they disregarded a poor credit history or financial status, that would be just as much fault of the lender as the borrower.

Lehmann Brothers as far as I know was a Wall St. investment bank that did not make consumer loans such as mortages.  They went out-of-business.  Merrill Lynch was a brokerage firm, not a consumer bank, and the only way they could survive back then was for Bank of America to buy them out, which caused legal problems for an executive at the bank for not fully disclosing the full extent of Merrill Lynch's financial difficulties to the Bank of America's Board of Directors. 

Your immorality is seen in your categorical thining which according to Dr. Gordon Allport is at the heart of prejudice, along with hateful, inflamatory language.   Your ideas about poverty (Calperson) are stupid and uneducated, not because there are not some irresponsible people, but because a large number of people, and I have seen reports about former corporate professional employees in this situation, lost their jobs and despite much effort and strong attempts on their part to find a new job, could not earn enough money to keep their homes in time to prevent default or at least having to sell their house and move elsewhere.  I met a man in Chicago once who said that he was from a well-off suburb, that he had become unemployed, and was now desperate and apparently asking people for help.  The thing is that when you havea one-track mind with an unwillingness to study an issue from more than one perspective, to absorb facts, to talk to actual people, you are living in a fantasy world of repeating the same thing, editing out anything that you don't care about and don't care to admit, and that is inaccurate and dishonest.

Natural Lefty
Natural Lefty's picture
Calperson, I agree with

Calperson, I agree with Robindell's assessment broadly speaking. Aside from that, this is how I see the issues you brought up.

You said that money has a value agreed upon by WE THE PEOPLE. Actually, it seems to me that there is a never-ending struggle for control in defining the value of money. Clearly, the value of a dollar is not static, or it would never change. I see a struggle between corporations, which want the value of consumer dollars to decrease, and the consumers, who want the value of their money to increase. When corporations collude and consolidate, corporatism wins, monopolism kicks in and the purchasing power of the public decreases. When competition is strong among sellers and supply exceeds demand, consumers win and prices remain reasonable or go down. These past few decades, corporatism has won out over the consumer, and so there has been increasing concentration of wealth in the hands of the "winners." Government also plays a role in pricing and the value of money, by setting its employees salaries, and through its policies. Banks are indeed places where the sum of people's earnings are held, but in America, they are private institutions, and deregulation has allowed them to play with that money -- thus the fantasyland. Government, which it seems to me is portrayed by conservatives as the monolithic ogre, is public and thus accountable to the public in a way that private held banks are not. Governments are also not for-profit institutions, a fact which helps to neutralize the profit motive in government transactions. That is why to me, if there is any monolithic ogre out there, it is some private institution with unelected owners who are driven by the profit motive; however, it is probably unfair to characterize any institution as a monolithic ogre, including banks.

Our next door neighbors and the house immediately across the street, were both foreclosed early in the financial crisis. Foreclosures are still going on around here, too. Clearly, these people were living beyond their means. However, I don't think it is fair to blame people for buying into the "American Dream" of owning their own house when it is offered to them. They were lead to believe, I think (although I don't know very much about the mortgage business) that as long as they kept paying down their debt on their homes, bit by bit, they would be okay, which really wasn't true. Homeowners were mislead, it seems to me. I think that since the corporate and financial fat cats have been winning the money game over these past few decades, they changed the rules on the public but never told them. They in essence (perhaps not intentionally but at least as an inadvertant side-product of their consolidation of wealth) decided to downsize America's middle class without telling the middle class that; in fact, they continued to give people the impression that they could still be part of the middle class, or even could join the middle class if their families had been poor, while in fact, they were making it more difficult to be part of the middle class by letting wages stagnate or even decline, and denying benefits while people had to deal with inflation, and bankers who were playing dangerous games with their money. You may dispute the reasons I see, but the evidence seems clear that America's middle class has shrunken considerably over these past few decades. I don't think it's reasonable to expect American citizens to just sit there and take it on the chin when they are in essence being told that they have been downsized financially by corporate and financial America.

Robindell, I am glad you brought up Dr. Gordon Allport. He is well-regarded and well-known for his early work on prejudice. I have actually mentioned that people who say "all politicians are alike" or something to this effect, are engaging in unjustified stereotyping even though they self-identify as committed progressives. I think this has thrown a few Obama-haters on the left for a loop, as they know I am correct. If politicians were all alike, we wouldn't be seeing the partisan divide among politicians in which Democrats and Republicans can almost never seem to agree on legislation. As you point out, conservatives tend to stereotype liberals negatively as well.