the offshore financial tsunami

In other news it is time to revisit February 12, 2004. That day Gregory Mankiw from the Bush White House economic department said something to the effect that outsourcing US jobs offshore was a good long term economic idea. I suppose five years later is getting on to long term, and It matter of fact does not look like such a fine idea. A wsj.com article on that date states that 2,000,000 jobs were lost to that point during the Bush presidency. Many of these were good paying middle class positions. You may remember trickle down economics from the Reagen – Bush era. You can’t remove 150,000,000,000 from the middle tier of any economy without some serious trickle down effects. In the communities where these positions were lost the impact was fairly immediate. The all night grocery store became the 8:00AM to 9:00 PM grocery. The classy car rental agency became rent-a-wreck. Restaurants closed. People lost their homes, cars, whatever. Some lost their families. Others moved in with relatives. In other places no one noticed. The market was up because companies could now pay bigger dividends. No one particularly noticed they were selling less stuff. Investors cashed out of the dot.com bubble and cashed in on the homes of displaced technical workers who once made $75,000 or better per year. Many of those displaced workers from 2001 either retired or worked part time for maybe 15,000 per year. Flippers flipped bargain basement foreclosure real estate for obscene profits to people with hidden balloon payment mortgages. Everyone was happy, except for those who had already lost everything. Bushie, Inc. was re- elected and all was good. Or so they thought. The free market crowd declared all the agencies which helped move the country out of the great depression could be disbanded, and all of that would have happened had Democrats been less successful in the 2006 election. No one but the affected voters had notice the brewing catastrophe. Voters had to some degree however, noticed, and a few of them were not particularly happy. But all was generally thought to be well, until those balloon payments on adjustable rate mortgages came due. By this time however the investor class had flipped out of the housing market into commodities, particularly oil. Bankers and their collateralizing friends were left to collect the profits in the wake of the flippers. All was thought to be well in the financial world. A couple hurricanes caused temorary shortages of gasoline and oil in the south eastern United States. This translated into a historic profit opportunity for the investor class, and they did not fail to take huge speculative positions in oil. The price of ramped up. For many months the retail price of gasoline would touch $3.00 per gallon in the United States. Demand would tank, and the price would fall back. This toying with disaster continued. Credit cards were maxed out buying gasoline for the big SUV. In the spring of 2009 retail gasoline prices again crossed the $3.00 threshold. A number of factors natural and otherwise kept the retail price of gasoline climbing this time however. The gas guzzling SUV was parked, sold, or traded for anything more fuel efficient. Demand trended down, but the price of oil kept climbing. All was well with the investor class, because everyone had to have oil. Everyone had to go to work to keep those ballooning ARM’s paid. Speculation pushed the price of oil above $150 per barrel. The retail price of gasoline crossed $4.00 per barrel. Auto sales crashed, along with sales of most everything else. As sales collapsed, profits collapsed, and with profits, payrolls, which completed the feedback loop. Home foreclosures, already bad, hit record levels. Home prices most recently supported by thebuyout cost of attached mortgages went underwater, shutting off US consumers home equity loan funds, and lots of credit cards. Adjustable rate mortgages went into foreclosure as their balloon payments came due. As ARM’s failed the underlying securities known as derivatives also failed. Investment banks in particular were forced banks into precarious positions, and many failed.

It is true there were many reasons for this chain of events. Mainly it was the final product of unbridled greed withing the investment community, but it started with the movement of good US jobs offshore, and became a tsunami which wiped out much of Wall Street.

Blundering Off

Today’s economic mess in America is primarily the result of blundering off in the direction of neo-conservative economic theory for many years.  This period of blundering was followed by eight years of practicing this economic theory, which seems to primarily suggest that markets are the absolute solution for all known problems.  This of course actually depends on the players in this economic game agreeing to a set of rules which protect all player value, assets, positions, and interests.  This presents a conundrum because neo-conservative theory asserts that rules and regulations (aka government) are inherently bad, and thus un-needed.  Once the actual practicing of the theory began, no ones values, assets, positions, or interests were protected, because the rule required for their mutual protection were gone.

This Fine Mess

The night the supreme court made Bushy, Inc president I told my in-laws our family would be unemployed, foreclosed, bankrupt, and homeless by the time he was out of office. This economic mess actually started much earlier – when the neo-conservative republicans took over the congress in 1994. Their win was a response to the liberal extremes on the democratic side attempting to force a more liberal vision of “morality” on a mostly moderate America. The middle class in our country has suffered through 15 years of oscillation between extreme political opinions on how to manage the economy, govern the country, and influence the world. The conservatives who claim to have all the answers have run up the US national debt in what can only be rationally described from their perspective as an effort to bankrupt the country. The only logical reason for this seems to be so that no future government could afford to pay for any social programs, particularly social security for neo-conservative’s most hated of all generations in history – the WW2 baby boomers. This has a lot to do with boomers social security being the largest government cost item in world history. Conservatives simply cannot get by giving up that much of a limited pile of wealth to support anyone in their old age. Up until now, these conservatives have been constrained in how to be rid of old boomers, by their supposed morality. Watch carefully, those nice woolly sheep are growing teeth, bushy tails, and pointy ears. The conservatives and their supporters in business systematically destroyed the fabric of the American economy in a desperate effort to maximize shareholder value, cut costs, save money, and eliminate taxes. At one point they even had a vision of going back and eliminating all the social programs that were put in place during the great depression. They have their depression. It will take more than a few months to move beyond this mess. Two years is a minimum.The republicans and their supporters did this thing over at least fifteen years. Their theory is basically there should be a limited amount of wealth in the world, they want it all, and no one else, including the American middle class should have any. This mentality pervades American business, and is the engine which is busy driving everything but retail, finance, and marketing out of the United States economy. Ok, so they haven’t eliminated your profession yet? You can bet they are busy figuring out how to eliminate you – because your salary is a cost on someone’s balance sheet. Eliminating you enables higher executive salaries and higher shareholder profits. If this train does not get turned about, your turn comes. If it can be moved off shore it will be. Ask those people who lost their jobs with the big hotel conglomerate a few weeks ago – they were outsourced to India. That particular outfit charges above one hundred bucks a night at their facilities across small town America which is almost double what it was only a few years ago. Their market is primary in the United States of America. Why are they further injuring the US economy by laying off people and running up the price of their service. Which makes fewer Americans able to afford to stay in their hotels? There is only one answer. They are greedy, beady eyed, and stupid. If they must move into these emerging markets, then they should build hotels there.

Sarah Palin and the Republicans

Wow. Things sure get cold in republicanville after a lost election. Especially, the vice presidential canidate is a relatively good looking woman. But wait – that is what they hated so much about Hillary in 1994 – wasn’t it? She was just too good looking to be a successful lawyer in her own right. Too pretty to fix health care. Sarah Palin has resigned from her governorship, probably for personal financial reasons, as well as the other big secret of state government – the job is incredibly boring. If it is not then why do the more interesting of the political types have these oh so secret lives, chasing interns, teleporting themselves from the hiking trail to Buenos Aires via the Atlanta airport, or cutting brush in 100 degree days in Texas. If being a governor is not so incredibly boring then why is it governors need these distractions? Lets face it being a governor IS incredibly boring. Sarah had a relatively simple choice. She could find trouble to get into. She could countinue the Obama bashing the republicans wanted which does not ring well one populist against another – party differences and looks aside. Otherwise, she could resign and go fishing. The republican pundits are of course having a field day, but one should look beyond the pundits. There has been a coordinated attempt by a handful of Republicans operatives in Alaska to destroy this Republican governor. Why? Because there is more to this than the fact she is a Republican. She is not the right kind of Republican. Republican women who make it to the big time are the daughters of wealth, power, pomp and circumstance. Not Sarah Palin.

Russian programmers manipulation of markets

If someone else could use this program to unfairly manipulate markets…  I presume that is exactly what “the bank” has been doing with said software. If this program was neting them millions and millions of bucks, I think you can bet they were using it to their own maximum advantage. Were other banks targeted by “the bank” using this program, or some similar technology, offensively? I think a US attorney should be looking into how “the bank” was using as well as mis-using this technology.

One other thing – as a software developer, we often insert clauses into contracts to protect our interests – particularly if our own prior art is involved. The defendant in this case is at least somewhat of an expert on image and neural processing. They would not be paying him 400K per year, if he were not. Any software expert would insert a clause into his employment contract, allowing himself a legal copy or “fork” of the code he developed. He would also insist on a clause maintaining his right to continue developing his “fork”. This would be particularly applicable if the developed system contained methods or algorithms he had previously designed, developed, or invented. This could be how the defense can say they have broken no law. It would also mean “the bank” is using the government, and the legal system, to break an otherwise legally binding employment or consulting contract.

Some other US attorney should also be asking what this software had to do with the price of oil one year ago…

I Love Republicans

I love republicans. Most of them are good people, but politically, they are their own worst enemies. Take the great governor of the great state of South Carolina. Mr. Governor screws up big time by sneaking off to visit his mistress in Argentina, while hiking on the Appalachian Trail. He gets caught on the way back to the trail by a reporter in the Atlanta Airport. Now he can’t stop talking. I hope his mistress is at least half as embarassed as the rest of us while he is revealing the details of their tryst to on-air reporters. His republican friends now want to dump him, cause he is no longer a good republican. He is no longer ideologically pure. The party must be pure to win. Some of his friends think “he needs help”. The rest of us have thought so for a while now. I guess a New York call girl wasn’t good enough for the likes of him. Before the governor snuck off to Buenos Aries, he was presidential material. Now, he is mentally unstable. Go figure.

Maybe double daring him to “out perform” that NY gov was a bad idea.

What happened at GM

The real problem at GM is the “big company” mythology which some have said GM created. This big company image conveyed the idea they could do anything, and everything.  Unions wanted more. Retiree’s wanted more. Investors wanted more.  Customers wanted more.  Everyone wanted more. Many years ago a ten percent ROI was good, then good grew to twenty percent, then thirty, and somewhere after that consumers of cars, oil, and real estate, ran out of money.

In the early days GM built cars like the Pontiac version of a Chevrolet Nova a friend bought in 1974. The transmission died after 3000 miles. He was out of luck. So what if you rip off a few baby boomer’s on their first car? So what? So there are a lot of them, and they chose to not be ripped off twice – buying GM cars only when the quality was guaranteed. I have bought GM cars and since the government mandated quality and mileage they have in general gotten to be good cars. Having worked occasionally in the car business, I doubt there is better quality vs price available. Years ago a friend bought an import, which had to be at the dealer every few weeks – yet he insisted that it was a great car! Why? Because their TV and radio ads said so. The imports have quality of advertising. Another friend told me about taking her import for the 30,000 mile service, which cost hundreds of bucks in the early 1980’s – I was shocked – an American car would still be under warranty! It’s not a problem she said – they replace all the parts, electric motors, and stuff, that wear out, every 30,000 miles. Wow. We buy their car because it has better quality, then pay them to replace all the parts that might wear out to make sure it survives the warranty. Wow. Lol. Whatever happened to the consumers brain? Lol, some more. Consumers were told by import marketing departments their cars were of better quality, implying American cars were not. Consumers did not miss the implication. TV ads got the consumers brain.

Once I took my Delta 88 to Columbia Olds in Cincinnati for service. When I got there to pick it up I was told it would be a half hour before it was ready. I ask why. I was told they were replacing a transmission part per a factory service bulletin or some such – and it would not cost me – even though the car had many miles on it. That is quality. Charging a customer to replace every electric motor in a vehicle every thirty thousand miles is not. Incidentally, we drove that car 272,000 miles, and out on the interstate it got 29 miles to the gallon. By the way I only use Mr Goodwrench dealers for service – there is a reason.

It is my opinion that GM may have inadvertently helped kill itself with patents and design mods. On a Buick 3800 engine from some years ago there is a small coolant hose which attaches to a plastic fitting on the intake manifold behind the alternator, and then attaches to the engine block. When this plastic fitting disintegrates because of age and heat, it automatically kills the alternator as well. Why use this plastic fitting? To reduce weight a few ounces. Same engine has a plastic plenum on the intake which perhaps saves a couple pounds. The gaskets and coolant seals have to be replaced every few months. Why this design? To save weight? Probably has a lot to do with keeping patents current as well. In any case the net effect is to drive the perception of quality down. Why not just use a tried and true system for these parts, or over engineer them just a bit so they are not so failure prone? Tried and true patents have run out. If you are familiar with American cars from the 1970’s you will recognize a lot of technology in certain modern imports, yet you will not recognize anything under the hood of a modern American car, except maybe the basic engine.  Constant changing to keep patents has led to higher part prices, higher maintenance, lower reliability, and less economy of scale.

Oh, by the way if you think your new import is so technologically advanced – go physically compare it to a new GM vehicle.  I think you will be shocked.

Colin Powel and the Republicans

Extremist movements whether they are national like the Confederate Republicans, or your local ultra conservative religious group, eventually suffer the same fate unless something forces diversification. Idealogical extreamists have a need to be “correct”. If they are “right” enough, their thinking goes, then they will win. Rush has been busy talking about the need to do this. Colin Powell, who is not a Confederate Republican, is voicing the exact opposite opinion: the GOP must expand to get beyond this recursion into self. If the recursion into self continues, all those who disagree with the “core” group which seems to be Confederate Republicans, will be kicked out of the party. Whether Stalinist, Nazi, Confederate Republicans, or a small fundamentalist church do this, it is always for the same reasons: Ideological Purification. Small fundamentalist churches do it something like this: There are sinners in the world. We are in the world. There must be sinners in us. No sinners found. If we were perfect we would win.  We are not winning.  Someone among us must have impure thoughts. Find the ideological sinner.  No sinners found.  Find the guy who looks like he has impure thoughts.  Throw him out. Repeat process until one man is left standing. Perhaps Powell understands the GOP will self destruct if this process is not stopped. Hitler destroyed Germany and much of Europe riding this engine. The same pattern can be found in any extreme ideology searching for purity. Consider the Soviet Union and Stalin’s purges if you are in doubt. The quest for ideological purity can destroy most human endeavors, and perhaps humanity itself. So what has suddenly killed Republicanism? The quest for ideological purity forced out government regulation. If they could, they got rid of it.  If they couldn’t get rid of it, they didn’t bother to enforce it. If capitalism and the market economy can solve every problem known to man: why do we need any regulation?  Or government, for that matter? So now we have toxic assets, toxic air, toxic peanuts, toxic toys, toxic vegetables, toxic water, and toxic wall board. Ok, so we had toxic government.  The nation tossed them out last year. Now they are off purifying themselves, tossing out all the impure ideological fellows amongst them. Shouldn’t be too long after that task is complete, they will be purging all their fellows who look idealogically impure.  When Rush is the only one left standing, he should consider himself lucky. In another place and time, he might find himself in his own bunker, in his own Berlin, waiting the arrival of his own Soviet Army. This America finds a comfort zone in the area under the bell curve. You might call it the umbrella of diversity of thought and union of common interest.  Powell would move the republican party back under the bell curve, and away from ideological extremism. That might save the party. Sure couldn’t hurt America.  Couldn’t hurt the rest of the world, much either.

What is Money?

Money is first and foremost a trading currency. A trading currency is a set of tokens representing some immediate value which one receives in exchange for a product or service. These tokens can then be exchanged for additional products or services. Because trading currency is needed in day to day business, government, and personal trading operations, those who save extensive sums, reduce the currency available for trade, which causes prices to rise, reducing the volume of trade, which in turn reduces the value of the given currency, in turn reducing the value of savings, which induces more saving, further reducing the currency available. When currency available for trade is significantly reduced, and prices rise, eliminating demand, with the value of the saver’s holding tend toward zero, the central bank is forced to produce more currency so trading can resume, allowing demand to increase, which tends to stabilize the value of savings. This production of currency eventually dilutes the value of the currency, causing further loss in the value of savings. There are only two known working solutions to this mathematically recursive process. The first involves some forced redistribution of savings, before the deflationary processes start. The second solution requires the central bank to adjust the money supply, such that sufficient currency and credit is always available to sustain trade – which also forcefully devalues savings. Those who have attained significant wealth dislike both solutions. Periodically some of these campaign for the gold standard, or silver certificate solution – which eventually eliminates trading currency. In recent times central banks have largely relied on interest rates to stabilize currencies, however this tool alone does not seem to be sufficient, and may in fact exacerbate the problem.

Investor Pessimism

Today the DOW has a fine new intra-day low of 7249 unless it collapses again toward the end of trading. The last time the DOW probed below that level was 11 APR 1997 when it closed at 6391. Market volume is up – currently approaching 530 million shares – well above the recent average. Supposedly Investors are concerned the governments plan will not help them. Well. Actually, I don’t think it was designed too. Investors are discovering the world is not about them – Surprise. Surprise. As this reality sinks in, stock prices are going down. Probably way down, perhaps down to levels not seen since 1994. Unfortunately we are still watching the house of cards collapse, and it aint flat yet, so there may be a ways to go before a bottom is declared. With so many rumors of nationalization, there must be fire or manipulation somewhere. Who is to profit if any of these banks are forced into collapse? It is hard to see, because with the current mentality, any successful banker knows it is his term tomorrow or the day after.

Then reality is the government may have no choice but to remove investors from the economic equation – at least for a short time. The governments problem is keeping everyone fed and entertained well enough so as to be relatively happy. Investors have an interest in this also. To do so, the the electronic payment and reconcilliation networks must be maintained. The FED simply can’t print enough cash to get around that problem. Think about how you are paid, and how you pay your bills – very little is done in cash these days, so the electronic funds networks are essential.