Matt Taibbi on economic death by short-selling

In this month's Rolling Stone, Matt Taibbi once again takes on Wall Street with an article entitled "Wall Street's Naked Swindle." This article is not yet available online. Taibbi's focus this time is naked short selling. Taibbi has proven to be an excellent teacher of abstruse financial concepts, including the concept of short selling, and also including the insidious practice of naked short selling. With this technique (and others) Wall Street has turned the economy into "a giant asset-stripping scheme, one whose purpose is to suck up the last bits of meat from the carcass of the middle class." Taibbi's article is an excellent read, which is not at all surprising given Taibbi's track record. The bottom line is that naked short selling is a "flat-out counterfeiting scheme." How bad is the widespread use of this technique?

That this particular scam played such a prominent role in the demise of [Bear and Lehman] was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like Bear and Lehman no longer made their money financing real businesses and creating jobs.

As Taibbi then reminds us, there is more than one way to counterfeit. Consider credit default swaps:

If you squint hard enough, you can see that the derivative-driven economy of the past decade has always, in a way, been about counterfeiting. At their most basic level, innovations like the ones that triggered the global collapse-credit default swaps and the collateralized debt obligations-were employed for the primary purpose of synthesizing out of thin air those revenue flows that are dying industrial economy was no longer pumping into the financial bloodstream. The basic concept in almost every case with the same: replacing hard assets with complex formulas that, once unwound, would prove to be backed by promises and IOUs instead of real stuff.

In this related piece, Taibbi further discusses "naked short selling":

Again, a lot of this stuff is complicated and not only hard for people outside the finance world to follow, but kind of, well, boring as well. But it’s through these tiny regulatory loopholes, these little nooks and crannies, that the economy gets manipulated. The effect of all of these regulatory gaps has been to transform Wall Street from a means of connecting capital to good business ideas into a giant casino, where the object of the game is shaving little slices off the great flows of money as you push them back and forth using a great big toolbox of manipulative techniques. This is one of the tools.

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How foreclosed homes affect the rest of us

Arianna Huffington referred to the Brennan Center's recent study in reminding us that 300,000 homes are foreclosed every month in the U.S. This is terrible news for the people who used to make those houses their homes. But the problem is bad for the rest of us too:

[A]n estimated 40 million homes are located next door to a foreclosed property. The value of these homes drops an average of $8,667 following a foreclosure. This translates into a total property value loss of $352 billion. And vacant properties take a heavy toll on already strapped local governments: an estimated $20,000 per foreclosure (California is estimated to have lost approximately $4 billion in tax revenue in 2008). And the negative impact of a foreclosed home can affect the entire community: a one percent increase in foreclosures translates into a 2.3 percent rise in violent crimes.

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The twelve countries with the highest quality of life

The twelve countries with the highest quality of life do not include the United States. We come in at number 13, which means that we''re not doing badly as a whole. But we're not doing as well as we should be doing, assuming (as many conservatives insist without reference to any metric) that there is no greater country than the United States. We were beaten in the rankings by many "socialist" countries, such as Norway, Canada, Sweden and France. The U.N.'s measurement system is the Human Development Index, a complex objective formula, not a subjective determination. Some of the many dozens of factors that go into the HDI include the following:

  • Adult illiteracy rate
  • Asylum seekers by country of asylum
  • Average annual change in consumer price index (%)
  • Children underweight for age (% under age 5)
  • Combined gross enrolment ratio in education (%)
  • Earned income (estimated), ratio of female to male
  • Female adult literacy rate (% aged 15 and above)
  • Female estimated earned income (PPP US$)
  • Female life expectancy at birth (years)
  • GDI rank
  • GDP per capita (PPP US$)
  • Government expenditure on health as a percentage of total government expenditure
  • Government expenditure on health per capita (PPP US$)
  • Healthy life expectancy at birth (years)
  • Human development index value
  • Human poverty index (HPI-1) rank
Consider, also, this recent news from the Commonwealth Fund:

Although the United States now spends $2.4 trillion a year on medical care — vastly more per capita than comparable countries — the nation ranks near the bottom on premature deaths caused by illnesses such as diabetes, epilepsy, stroke, influenza, ulcers and pneumonia

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Alabama Supreme Court restricts sales of dildos and vibrators based on “public morality”

In the recent decision of 1568 Montgomery Highway v. City of Hoover, the Alabama Supreme Court upheld the Alabama Legislature's prohibition of dildos and vibrators, basing this decision on "public morality." More specifically,

In its second counterclaim, Love Stuff asks to have Ala. Code § 13A-12-200.2 (which generally bans the sale of sex toys) deemed unconstitutional.

The trial Court had found that "The target market for Love Stuff [the name of the store in question] consists of females, ages 32-52." The Court held that commercial public sales of devices geared toward masturbation can be prohibited (though the Court suggested that the decision would be otherwise if the devices were handed out gratuitously or if they were sold at private "Tupperwear"-like parties). Geoffrey Stone harshly disagrees with the decision of the Alabama Supreme Court and properly characterizes this as an improper exercise of religion:

[W]hat is it about the use of a vibrator or a dildo that affronts the "public morality"? Why is a person who uses such a device "immoral"? The answer, I submit, turns entirely on religion. The pivotal shift from the world of the classical Greeks to our contemporary world, in this respect, was the advent of Christianity, with its emphasis on sexual pleasure as sinful. Much of this can be traced to Augustine, who reasoned in the fifth century that sexual pleasure was integrally related to Adam's Fall from Grace. Adam's original sin, he argued, had not been one of pride or disobedience, but of sex. Thus, sexual pleasure was born out of evil, and man's best hope for redemption lay in repudiating the sexual impulse and, with it, the burden of guilt inherited from Adam. Sexual pleasure was therefore deemed defiling and shameful.

I agree with Stone's thorough analysis.

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