May 07, 2009
Boomers and our Grandparents
I noticed a long time ago that things go in cycles. Most of us don't make the mistakes of our parents. We usually make the mistakes of our grandparents, great-grandparents, or even their parents. This is a real shame, but it is reality. Long after I noticed this phenomena I learned about Kondratiev waves and realized that my observation was not my own alone. Our Grandparents and great grandparents suffered some horrific effects that came entirely from bad business, Government and banking policies. They experienced something called a "Great Depression." They also took steps to avoid a repeat of the Great Depression. Unfortunately, my generation and the ones that have been following it, decided that they'd done such a good job, they could afford to dismantle it. We got folks like Rush Limbaugh promising to "do something about that" in regard to those policies. And they did. Now we are facing a disaster.
In the late 19th century and early 20th century ordinary people were encouraged to invest in the Stock Market through "Bucket shops" scattered all over the country. They also invested indirectly by depositing their money in banks, and the banks would invest in stocks or where-ever they thought they could maximize risk. There was no thought about risk. Some of this was through Bucket Shops. The way a bucket shop worked is that a local salesman would sell a derived security that allowed a number of investors to pool together to buy a security on wall street. This allowed ordinary people to play the stockmarket, and was sold as a way to protect their investments. Unfortunately the same stock could be sold 10 times and the profit pocketed by rich and well connected con men 9 times before anyone caught on. Some bucket shops actually bought stocks, but many of them turned into simply cons. And eventually even "legitimate" bucket shops would get caught short when the stock market did something expected and didn't perform as expected. As a result of tens of thousands of people being scammed bucket shops were outlawed.
Even after the bucket shops were exposed, ordinary people were still encouraged to invest in the stock market. Worse, most people put their money in banks, and many of those banks over-leveraged (borrowed more than they had assets to cover) or invested in the Stock market. Eventually the stock market crashed, the banks closed. And ordinary folks realized that this whole idea was stupid, they'd been had. Meanwhile unemployment levels went to 30% while the rich, many of whom had created the casino in the first place, continued to live a life of inconsiderate luxury.
When men were put out on the street in the 1930's, they'd been so sold on "rugged individualism" that many of them wouldn't admit that they had been victimized or work together. Men in those days would blame themselves. That is part of the reason suicide rates were high, and men would ride the rails looking for work.
Casino capitalism is for people with enough money to be able to diversify their holdings and afford to take a risk with some of their money. It's not for people who depend on their income to eat. Eventually casino capitalists either outsmart themselves and whatever bubbles they are blowing pop. Unfortunately they are usually working with Other People's Money, so its ordinary folks left holding the bag. We are seeing this in the current financial crisis. We outlawed a large number of practices in the 30's because they were risky, downright fraudulent, or not in the public interest.
Enter the 1970's. Specifically, our society changed. Our business leaders decided that they didn't want to pay pensions anymore, so they started selling us on 401K's and pension plans. They hired folks like the now deceased Jack Kemp and Ronald Reagan to sell us on the notion that "we too" could be stockholders and make lots of money investing in risky things. They seem to have honestly believed that making ordinary people investors would help invest ordinary people in the system. They knew that if people identified with the investor class it would be easier for investors to rule the country. It worked. These guys enabled 30 years of more and more blatent kleptocracy. The risky behavior repeated. And now we are paying the price.
What they most people didn't understand is that getting people to invest in a casino is only good for the casino owners. As a result most of us now have inadequate 401K's and Keogh's and no pension plan. Those of us with pensions have them in the able hands of the PBGC, which usually has to cut benefits to keep them solvent. And we are facing a demographic disaster. And what are people doing? Blaming themselves. Well to a certain extent we deserve some blames. We are the ones who didn't pay attention in history class.
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/06/AR2009050603322.html
Posted by cholte at May 7, 2009 07:24 AM
Have you seen this?
http://www.timepage.org/time.html
"Power Down"? F that, Power Up!
I blame the boomers (err, most boomers)...too much coke, too much celebrity-worship, not enough psychedlics, not enough Nichiren, not enough vidya games, way, way too much racism and misogyny. Bob Dylan finds Jesus, transforms into Burt Reynolds who then turns into the Terminator, goes to Wall Street, reads a lot of Norman Poderhetz, vacations at Jurassic Park and invades Iran...ouch
I meant "Norman Podhoretz"
In any case, here's another one:
http://www.hermetic.ch/frt/frt.htm
I can't blame boomers too much. I'm the same age as the Rush Limbaughs and the "New Right" folks. As I've gotten older I've learned my criticisms of my older brothers were unfair.
I've watched too many people with good ideas or good hearts turn themselves into tools of others with sleazy motives simply because they weren't willing to think for themselves. We boomers criticized the older generation before us. The people who criticize the boomers are levying equally unfair and biased criticisms at the boomers to those the boomers (mostly the first half) levied against their parents.
I blame our youth culture where people are taught not to learn history or civics, our elites who prefer manipulating others from behind the scenes and sitting on their behinds to working, and our failure to understand economics and pay attention to history. We have Rich-folks welfare, Corporate Welfare, and oligarchy, not genuine functional free enterprise. And we have a political culture dominated by TV, Advertizing, and the big lie.
A bank is not venture capitalism. TWA was venture capitalism. A legitimate risk is the Spruce Goose, not a leveraged buyout. A leveraged buyout is a scam way to make money. Capital investment was a legitimate kind of tax shelter. Leveraged buyouts are not. Our current generation of capitalists are privateers because we legalized piracy. The guys we are bailing out belong in jail, not getting bonuses.
Chris
"I blame our youth culture where people are taught not to learn history or civics, our elites who prefer manipulating others from behind the scenes and sitting on their behinds to working, and our failure to understand economics and pay attention to history."
damn straight
I kid the baby boomers, for the most part, but how did Ronald Reagan (aka Grandfather Corn Syrup) get away with this whilst I was playing with my Atari 2600?
You might like this:
http://www.monthlyreview.org/090406-mcchesney-foster-stole-holleman.php
Hi Chris,
I agree with almost everything you wrote except the part about it all being a scam for the investor class to rule the country. I think you were right when you said that they "honestly believed that making ordinary people investors would help invest ordinary people in the system". Much the same way as home ownership does. Hence the reason for the tax breaks for homeowners. I think "they" honestly beleived that creating opportunities for people to become invested in the system would be in the best interests of those people.
I agree that it has not turned out real well for alot of people at least in the short term, but I also think that 401k investments will be fine in the longer term, are good way for people to save for retirement and we all have choices about how aggressive we want to be with our investment choices in those 401ks. People should be investing in their 401ks. The vast majority of people have never had pension plans and never saved anything for retirement. Encouraging people to take advantage of the before tax benefit of the 401ks and the matching funds provided by their companies, is a good thing. 401ks are much more widely available to people than pensions ever were.
Of course we also need regulation on the CDOs, other types of exotic derivative products and hedge funds. But I don't agree that the whole thing has been a conspiracy to enrich and empower an elite group. I think that gives way too much credit to that elite group.
People will find ways to game any system. If CL is a real "vidya" gamer, he knows that there's always a way to cheat. That doesn't mean that the game was set up for the cheaters.
Bill
Bill,
Yes, but in video games, (with cheat codes) there's no death, just an infinite replay option or infinite life option. In historical material terms, corporations and, it seems banks, are given infinite life options in the material sense. You and I, our lives are based on the primacy of our finite nature insofar as we are categorized as a 'risk' no matter what we do, what assets we own, we will certainly die and not incur any more debt to leverage our lives. Financial forecasting is based upon a set of assumptions and one those assumptions is infinity, to time travel on paper through alogrithms. Wouldn't it be nice if I could base my personal finances on bardo states?
namaste
I'm sure many of the front men, and their enthusiastic converts were sincere about trickle down economics, 401K's, Keogh plans, etc... providing buy in for the masses into the Capitalist system. I was an enthusiastic supporter myself. Although I thought these things should be as supplements to pensions and not substitutes for pensions, at one time I bought the arguments that a competative market wouldn't be able to sustain pension plans and that the only way smaller businesses could be competitive with other businesses. However, that was only true because of market failures, and moving pension plans to 401k's only put the risk all on workers.
The market failure is in a variation of the prisoners dilemma. Companies who were forced to do the right thing by Unions annd public pressure were penalized by corporations who could cut costs by forcing their workers to accept pay rates that barely covered their day to day expenses and provided no provision for retirement, emergencies, or even getting sick. States that tried to do the right thing were penalized by laws such as Taft Hartly which allowed individual states to assist corporations in oppressing their workers.
And then to solidify the effort, these materials were cut out of the history books and civics education in general was removed so that people wouldn't even be aware that they'd ever fought for such rights.
And yes, there was and is an ongoing (and very open so not secret) conspiracy to rule the Government from a very open group of very rich private "investors" who created the think tanks, Privately Held investment companies, etcetera which have carried out those policies and bankrolled the groups and individuals who champion them. Reagan and Kemp were nice people but they were the friendly faces of some really disfunctional, undemocratic, and anti-liberty ideas that were propagated under the flag of their being the opposite of what they were.
It's as if we had Tea Parties sponsored by the East India company, which would be the case if that company were still around.
And yes, the derivatives markets, complex arbitrage, and other schemes weren't an organized conspiracy. They were merely the results of people believing the BS put out by the conspirators and their frontmen, and others making money out of the arbitrage between delusion and reality.
Hey Cl,
I'm not talking about cheat codes. Cheat codes are like like tax breaks, thingsd when they have specifically put into the system to give people a break. I'm talking about exploits, or hacks, or any number of other behaviors which give certain people the ability to play the game in ways which were neveer intended and which are detrimental to the enjoyment of the vast majority of players who don't cheat. Like sitting at a spawn point and killing players just as they enter the game and have no ability to defend themselves.
Anyway it's an imperfect analogy, but it's not the intent of the designers of the game. Cheat codes are usually designed in.
The thing about complex systems is that there are always unintended consequences and we need to be vigilant about fixing those that are negative rather than about assigning blame for them.
Bill
Bill, you are right about the power of cheating. There are three ways to make money off of a complex system: all of them essentially involve taking advantage of the discrepancies between discovered value and actual value. I call this arbitraging delusion. Hacks take advantage of the discrepancy between advertized function and actual function.