Where the free market fails

Democratic Underground nicely sums up where the "free market" approach works and doesn't work.  Here's where it works:

The Republican belief in privatization is based largely or totally on their faith in “free market” ideology. That ideology says that everything or almost everything works better, is more efficient, and is fairer when it is driven by a free market than when it is “dictated” by government. The rationale for this ideology is that in their quest for profits corporations are simultaneously motivated to produce quality products, and everyone benefits as a result. In other words, the corporate quest for profits happens to be a good thing for everyone.  Under some circumstances they are correct. For example, the entertainment industry is a good example of an activity where free market principles work well. The more entertaining the product produced by the industry, the more people will want to purchase it and the more money they will be willing to pay. The industry produces a quality product, they make a big profit, the people get what they pay for, and everyone is happy. Here's where it doesn't work:
  1. Activities that are an intrinsic function of government
  2. Activities where pertinent third parties are totally unrepresented in the transaction
  3. Monopolies
  4. Scarce resources which are essential to American citizens
  5. Situations where free market principles cannot operate because of lack of essential information
  6. Services which are required for the public’s welfare

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China’s debt woes

In a detailed article at Huffpo, Janet Tavakoli argues that China has an economic problem too, that it is caused by fraud and mismanagement, and that China's bubble will be popping. She also offers a way to determine when China's bubble will be bursting:

If the rate of change of public officials fleeing the country, df/dt > x, where x is yet to be defined, or the acceleration in fleers, d2f/dt2 > y, where y has yet to be defined, or the rate of change of the average amount of loot dl/dt > z, where z is yet to be defined, then conditions of the Chanos Equilibrium have been violated and destabilization will occur. Stated differently, when you see the absolute amount of embezzled wealth fleeing the country suddenly increase, or when you see a sudden increase in the absolute number of Chinese officials leaving the country on "holiday," or when you see an acceleration in the number of officials leaving the country in a stealthier way, you'll know China is sinking.

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More details on the $16 trillion backdoor bank bailout

Today I received a mass emailing from Alan Grayson. I had previously heard about this backdoor bailout by reviewing an article by Bernie Sanders and see here. Nonetheless, I hadn't before seen the details of massive loans made by the Fed to banks and non-banks. These numbers are mind-boggling. Click on Grayson’s link to the Federal Reserve report (below) with the outrageously sterilized title: “FEDERAL RESERVE SYSTEM: Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.” Then follow his road map in order to see the problems with your own eyes. I've printed Grayson's entire mass mailing below. Consider that the Fed created $16 TRILLION and distributed much of it to foreign banks. This amount is 20 times bigger than the publicly disclosed TARP, yet the American People were never given a chance to know about this or have their representatives vote on it. The banks tried to keep this backdoor bailout secret, but it took Senator Bernie Sanders of Vermont, neither Democrat nor a Republican (he is a democratic socialist), to raise hell in order to force the Federal Reserve to account for this backdoor bailout. And back then, it was believed that this backdoor bailout was "only" $2.2 trillion. One more thing: The total annual tax receipts of the United States are “only” $2 trillion. But, of course, based on the news media, you would think that the most important things going on concern Michael Jackson’s doctor and Herman Cain’s sex life. -- Dear Erich, I think it’s fair to say that Congressman Ron Paul and I are the parents of the GAO’s audit of the Federal Reserve. And I say that knowing full well that Dr. Paul has somewhat complicated views regarding gay marriage. Anyway, one of our love children is a massive 251-page GAO report technocratically entitled “Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.” It is almost as weighty as that 13-lb. baby born in Germany last week, named Jihad. It also is the first independent audit of the Federal Reserve in the Fed’s 99-year history. Feel free to take a look at it yourself, it’s right here. It documents Wall Street bailouts by the Fed that dwarf the $700 billion TARP, and everything else you’ve heard about. I wouldn’t want anyone to think that I’m dramatizing or amplifying what this GAO report says, so I’m just going to list some of my favorite parts, by page number. Page 131 – The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank. Pages 133 & 137 – Some of these “broad-based emergency program” loans were long-term, and some were short-term. But the “term-adjusted borrowing” was equivalent to a total of $1,139,000,000,000 more than one year. That’s more than $1 trillion out the door. Lending for these programs in fact peaked at more than $1 trillion. [More . . . .]

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