Misery Economic Theater 2011

[ewmayer]

Originally Posted by R.D. Silverman

See:

http://www.nytimes.com/2011/08/15/op...rich.html?_r=2

Sorry, I simply can't take any more of Warren "Wall Street Bailout Whore #1" Buffett's self-serving editorials - I'll let Karl Denninger (link at bottom of this post) reply.

Denninger has a high-quality rant about "how to create jobs":

You Want growth and Jobs? Here's How

I'm an entrepreneur. I've done everything from carrying golf bags to washing cars to programming computers to selling PCs to small, medium and large businesses. I've pulled cable in hot warehouses, wired office buildings and repaired computers. MCS, as a company, existed twice - once as a small computer and networking concern which operated for a few years and then was closed voluntarily as there just wasn't enough business to make it work, and then again as an ISP - when it "hit big." I've worked for myself and I've worked for others, including Fortune 50 companies, IPO startups and, lastly, I was the CEO of my own small tech company (MCSNet.) I've known both failure and success, as have most entrepreneurs.

I've been an employee and I've created jobs - about three dozen of them at MCSNet, prior to its sale to Winstar Communications. And I've worked more than my share of 26-hour - and occasional 40 hour - days.

Large-company CEOs and other executives of that sort live in a different world. They may work "relatively" long hours, but it is relative. They fly in a private jet and are coddled in expensive suites with private cars and limousines. Entrepreneurs don't have that sort of money to blow, and our long hours are spent huddled over a desk, writing code, interpreting business data - or humping routers into racks in our ISPs.

Big company CEOs don't get phone calls at 3:00 AM when something goes wrong - they have someone else for that. Entrepreneurs are the ones with the pager - we're the ones who get up at 3:00 AM and go down to the data center to fix something our night guys can't handle, or just because we think we should make sure it's all ok. We're the ones who age at three times the rate of the line guy making his 40-hour wage and we're the ones who risk our health and wealth so that other guy can have a job. We're the ones who don't get a vacation for five straight years.

Finally, when we screw up we lose it all. When the big company CEO screws up, he gets a golden parachute and retires to write books, living out his life with his LearJet in Monaco.

If you want people like me to create jobs you have to stop threatening to steal my capital. I have several ideas for new enterprises, but today I wouldn't even consider committing that capital to these ventures. Not because I might be wrong and fail - that's always a risk, and one that entrepreneurs accept as inherent in the game - but because government wishes to reserve the right to steal my capital any time they wish with their unconstitutional and outrageous mandates and demands.

My Comment: The above is just the first half of the full piece. (Although his retort to Warren Buffet`s latest hypocrisy-dripping op-ed has a snappier title).

[Christenson]

There's one fly in my ointment:
What actually does cause entrepreneurs to start businesses? Ones that actually grow? And what discourages them? Any science, or just rantings? (Recalling Moneyball, where the experience of the individual does not generalize to the statistical whole)

[ewmayer]

Number of the Day: 795,000,000,000 Euros

A startling figure mentioned on last night`s "Number Cruncher" segment of DW-TV`s business news - It is the amount of debt which needs to be refinanced by Eurozone governments in the coming 2 years. You can guess how disparate the financing-needs-relative-to-GDP are among the various EU member states.

On the same topic, Mish has a piece describing yesterday`s nothingburger of a "critical high-level meeting" between Merkel and Sarkozy about the dead-on-arrival bailout idea of "Eurobonds":

Merkel, Sarkozy Reject Euro Bonds and Expansion of Rescue Fund; What Does it Mean? Middle of the End for Merkel

What Does it Mean?

For starters it means Angela Merkel no longer has capability to ram her ideas through the German Bundestag, the national parliament of Germany.

It also means that even if she could have, the measure would have failed.

The Dutch prime minister essentially rejected Eurobonds, and it is likely Finland would have as well.

More importantly, Germany's Finance Minister Wolfgang Schäuble emphatically stated "I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity."

Given that it takes a unanimous approval from all Eurozone nations to enact Eurobonds, Merkel and Sarkozy both realized political support was simply not present.

Middle of the End for Merkel

This is the "middle of the end" for Merkel. She has exhausted all of her political capital fighting a battle that is far bigger than she is. Merkel will not survive this mess.

Sadly, Merkel had it correct in the beginning, initially insisting on haircuts on bondholders. She gave in to the "no haircuts" fantasy under pressure from ECB president Jean-Claude-Trichet and French president Nicolas Sarkozy.

I said at the time it was a fatal Merkel mistake. Since then, Greece defaulted anyway and there are haircuts on bonds. More haircuts are coming.

My Comment: According to ZeroHedge, the corrupt ECB`s latest round of sovereign-debt buying has so far not been sterilized, that is, it amounts to pure money-printing. Overheard the following deft quip about that; "Trichet est un tricheur".


How to Create Jobs (cont.)

Back on yesterday`s theme of "how to create jobs at home", Starbucks CEO Howard Schultz has a pair of interesting proposal:

Starbucks CEO calls for boycott on campaign contributions

NEW YORK (CNNMoney) -- Starbucks CEO Howard Schultz is fed up with Washington.

And he is doing something about it.

Spurred by what he describes as a failure of leadership on the part of lawmakers, Schultz is mounting a one-man bull rush against a political culture that has "chosen to put partisan and ideological purity over the well being of the people."

What does that mean? No more political donations -- not for anybody.

And he's recruiting other CEOs to join him.

"I am asking that all of us forgo political contributions until the Congress and the President return to Washington and deliver a fiscally, disciplined long term debt and deficit plan to the American people," Schultz wrote in a letter that was passed on to members of the NYSE and Nasdaq.

...The Starbucks (SBUX, Fortune 500) CEO said that in the 30 hours since the letters went out, he has heard back from thousands of Americans -- both CEOs and everyday citizens. Not one lawmaker has contacted him so far.

"I suspect in the coming days, people who will be signing the pledge with me will be both Republican and Democrat CEOs who have had enough," he told CNNMoney.

The amount of money spent to influence elections has been steadily climbing.

During the 2008 election cycle, more than $5.2 billion was spent by candidates, political parties and interest groups, according to data compiled by the non-partisan Center for Responsive Politics

In 2010 -- a year that did not include a presidential election -- $3.6 billion was spent. Of course, 2012 has the potential to break all records.

It's unclear exactly how much of an impact -- if any -- Schultz's pledge might have. But a relatively small number of Americans do wield an outsized influence when it comes to political donations.

Only 0.04% of Americans give in excess of $200 to candidates, parties or political action committees -- and those donations account for 64.8% of all contributions.

My Comment: and on the "creating jobs at home" front, Schultz is the first major-company CEO I am aware of who is making a point of actually using some of his company`s recent "record corporate profits" (in no small part thanks to jobs-slashing and squeezing remaining workers until their pips squeak) to create a significant number of jobs at home:


Starbucks CEO Howard Schultz: Don't contribute to politicians

Starbucks CEO Howard Schultz has had it with political dickering in Washington, D.C., and is calling for a boycott on campaign contributions to President Obama and congressional lawmakers until they put the country's financial house in order.

He also wants companies to override their fear and start spending the cash they're sitting on. Starbucks had $1.7 billion in July, up from $1.2 billion when its fiscal year ended nine months earlier.

"Right now our economy is frozen in a cycle of fear and uncertainty. Companies are afraid to hire. Consumers are afraid to spend. Banks are afraid to lend," he wrote in a letter sent Monday to other corporate leaders. The heads of Nasdaq and the New York Stock Exchange forwarded it to their thousands of members.

Besides stopping campaign contributions, Schultz — the Northwest's top-paid CEO last year — vowed to help get the economy moving by hiring.

"We are going to accelerate growth, employment and investment in jobs," he said.

Confidence is contagious, he reasoned, so "we are not waiting for government to create an incentive program or a stimulus. We are not waiting for economic indicators to tell us it's safe to act. We are hiring more people now."

They are big promises for a company that over the past few years has closed stores and cut some 35,000 jobs. It had 137,000 employees when its fiscal year ended last October.

Starbucks has hired 36,000 people in the U.S. and Canada since January, including filling an unspecified number of positions that were left open when workers left the company.

That's up 15 percent from a year ago, and Starbucks expects to hire 70,000 more people in the U.S. over the next six to 12 months, said spokeswoman Stacey Krum.

[fivemack]

Originally Posted by ewmayer

Sorry, I simply can't take any more of Warren "Wall Street Bailout Whore #1" Buffett's self-serving editorials - I'll let Karl Denninger (link at bottom of this post) reply.

Denninger has a high-quality rant about "how to create jobs":

It seemed to make reasonable sense down to the bottom where he suddenly asserts the existence of a malevolent government. The US government has been a lot better than many at not stealing capital.

If he means 'I don't want to have to pay health insurance when I hire employees', he should say so; and this means that his employees aren't creating wealth disproportionate to their compensation, and probably small companies shouldn't be dealing with employees who aren't creating value disproportionate to their compensation. Small boosts at the margins are what big industries can afford to do.

[fivemack]

There is a problem that 'entrepreneur' often goes in the same box as 'freelance' or 'consultant'; it gets used as a middle-class way of being unemployed without saying so.

And governments 'promoting entrepreneurship' on any sort of scale are encouraging people to risk things they can't afford to lose; it's sad to see the owners of small stores on the news complaining that they're having to close down because "the bank won't lend them money" (to cover their ongoing losses), because you know that they're losing money they didn't really have. The buy-in was too much and the cards were against them from the start.

[fivemack]

To what extent does defense spending (especially on weapons engineering programs) constitute a "brain drain" on the rest of the economy?

Oh, a hundred percent. As a noted pacifist wimp once said,

"Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the clouds of war, it is humanity hanging on a cross of iron."

[ewmayer]

Originally Posted by fivemack

It seemed to make reasonable sense down to the bottom where he suddenly asserts the existence of a malevolent government. The US government has been a lot better than many at not stealing capital.

That is quite debatable, as there are so many ways for a government - especially one which issues its own unbacked fiat currency - to steal capital. Currency debasement has been the favored method of the U.S. government for the past century.

If he means 'I don't want to have to pay health insurance when I hire employees', he should say so; and this means that his employees aren't creating wealth disproportionate to their compensation, and probably small companies shouldn't be dealing with employees who aren't creating value disproportionate to their compensation. Small boosts at the margins are what big industries can afford to do.

He does pretty much say so:

Chief among them is that Leviathan must stop protecting and incentivizing those who use leverage in an abusive fashion to undermine entrepreneurship. Chief among them are tax and trade policy. Borrowing should never be a tax-deductible act and neither should offshoring production. In addition, compelling me as an entrepreneur to provide health coverage to all employees irrespective of cost means that the abusive leverage employed by the medical industry, including restraint of trade across national boundaries that forces me to pay for the health developments that benefit everyone in the world, falls on my lap.

He is talking there about the fact that e.g. Canadians can buy many U.S.-developed pharmaceuticals far cheaper than U.S. citizens and healthcare providers can, thanks to anticompetitive deals made between the U.S. government and Big Pharma.

Bottom line: U.S. spends twice as much as the next-highest-medical-cost developed nation on healthcare, for no better overall outcomes. Due to economies of scale, small businesses are hit disproportionally by this.

KD also describes the litany of taxes businesses are forced to fork over to the government in a followup post today (the details of the costs start below the "Finally, let's deal with the "but the poor!" crap and the truth about your W2 income" line).

Lastly, here is a snip from his "Dear Mr. Buffett: Bite Me" post which I forgot to include alon with the link yesterday:

I'll listen to you when you take the very step you claim needs to be taken all on your own, voluntarily. At the same time I insist that you deposit with Treasury every penny Berkshire - and you personally - earned by stealing from others with bailouts, handouts and inside information, along with your "special status" with the SEC allowing you - and pretty much only you - to not disclose large positions that every other American must.

Again, Denninger's problem is that his posts are too often over-the-top on the rant coefficient, but he does a good job at providing solid facts and figures to back up his arguments. (In other words, most of his rants are far from baseless). I just wish he'd stick to economics, rather than wasting time and digital ink (and making it easy for TPTB to dismiss him as a loon) on distractions like the Obama birth-certificate controversy, where he did some exhaustive "forensics on the White-House-provided PDF").

[xilman]

Originally Posted by fivemack

There is a problem that 'entrepreneur' often goes in the same box as 'freelance' or 'consultant'; it gets used as a middle-class way of being unemployed without saying so.

I resent your casting of nasturtiums against the honourable profession of consultancy.

I call myself a consultant and have been happily employed as such for several years.

Paul

[fivemack]

Denninger definitely presses a lot of my 'loon' buttons.

I would like to see what his use of 'leverage' means other than 'economies of scale'; there are lots of sectors in which a person without spare millions/billions and without political power cannot compete with organisations which have spare millions/billions and political power, and the answer which he never mentions is to work only in the sectors in which that doesn't apply.

It comes across as complaining that there are lots of fields in which he can't competitively operate; but the whole point of entrepreneurship is to pick fields in which one can. Which he clearly managed initially; if he's now got tired of it and would rather live off the capital, I can't see why he shouldn't, and I hope he invests the capital in instruments by dint of which useful activity by others is furthered before he gets round to spending it. Motivating the weary and adequately-wealthy serial entrepreneur is not obviously a sensible target for tax policy.

And the tax burden that he complains about is pretty uniform; he can't justify paying someone $30k a year unless he gets work amounting to substantially more than that out of them, but neither can his competitors in the United States.

[ewmayer]

Max Keiser contrasts the UK government`s response to the trillion-dollar London looters (the banks), and the small-time (in terms of scale of their looting, not degree of thuggishness) London looters in the recent riots:

YouTube: Max Keiser on Russia Today

"STFU, David Cameron - you are a total product of an elitist school of banking schmucks..."

And speaking of government-abetted financial criminality, Matt Taibbi`s latest Rolling Stone piece reveals that the SEC has been destroying huge numbers of investigative dossiers in contravention of the law:

SEC Destroys 9,000 Fraud Files Involving Wells Fargo, Bank of America, Citigroup, Goldman Sachs, Credit Suisse, Deutsche Bank, Morgan Stanley, Lehman

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back.
...
In at least one case, according to Flynn, investigators at the SEC found their desire to investigate an influential bank thwarted by senior officials in the enforcement division – whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating.
...
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website.

The final call on whether to prosecute cases rests with the enforcement director at the SEC. Not that there have been any potential conflicts of interest with said enforcement heads, or anything:

The allegations were made by SEC enforcement attorney, Darcy Flynn, in a letter to Grassley. Flynn is a current employee, and according to the letter, received a bonus for his past year’s work.

Flynn alleges the SEC destroyed files related to matters being examined in important cases such as Bernard Madoff and a $50 billion Ponzi scheme he operated as well as an investigation involving Goldman Sachs Group Inc. trading in American International Group credit-default swaps in 2009.

Flynn also alleged that the agency destroyed documents and information collected for preliminary investigations at Wells Fargo, Bank of America,, Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, and the now-bankrupt Lehman Brothers.

The letter goes into particular detail about Deutsche Bank, the former employer of current SEC enforcement chief Robert Khuzami as well as former enforcement chiefs Gary Lynch and Richard Walker.

My Comment: Deutsche Bank is probably speedily putting together a multi-million-dollar job offer to Sen. Grassley as I write this.

[Christenson]

Originally Posted by Christenson

There's one fly in my ointment:
What actually does cause entrepreneurs to start businesses? Ones that actually grow? And what discourages them? Any science, or just rantings? (Recalling Moneyball, where the experience of the individual does not generalize to the statistical whole)

And, asking another question: What about reforming the rotten patent system?

Two things are needed:
1) Technical juries instead of lay juries -- laymen from the general public are in no sense the peers of those who patent things. This would allow the patent office to actually require nonobviousness on things patented.
2) The legal sense that the purpose of patents is to put useful things into commerce, and concrete changes to make that a reality.