How The Economic Machine Works

Ray Dalio's economics lesson on YouTube is a must see for everyone, individuals as well as policymakers.  His take is that increasing productivity is the only pathway toward progress and prosperity. And for me it's a different view of the Keynes versus Friedman debate.

J P Morgan's $13 Billion Settlement

Bill Moyer's interview with Gretchen Morgenson "Why J P Morgan may be getting off easy"  doesn't get to the heart of the matter until late in the interview where she observes that until Wall Street does real banking for the real purpose of investing and growing the economy, instead of playing games with each other, that they are drag on our society that should be disemboweled rather than protected. Where is Andrew Jackson when we need him?

You could almost feel sorry for Jamie Dimon

The next time the Fed's call in a favor by asking you to buy a toxic waste hole such as Bear Stearns, beware of the tail of litigation and bad mouthing from the very people who asked for your help!  I am not giving J P Morgan a free pass here because they apparently did not understand that a fortress balance sheet in a world of financial crisis is to buy the good stuff at distressed pricing and not the bag full of odorous excrement as the Jeremy Irons character in the movie "Margin Call" so colorfully described the firm's portfolio.

The Bernanke Market

Jeff Sommers "Strategies" article in today's New York Times business section rates Ben Bernanke by how well the market did during his tenure which is a rather mindless measure of competence.  I have blogged previously that despite being an Ayn Rand Libertarian, Alan Greenspan failed catastrophically as Chairman of the Federal Reserve because he promoted concentration of the banking system with the systematic elimination of fear, the great economic regulator, among the big players.  Big banks could borrow at lower at rates and leverage higher than smaller competitors so that business drifted their way exacerbating the trend toward bigger and riskier behavior.  As a libertarian I agree there should be less regulation, even banking regulation, but I consider Greenspan a traitor to my ideals by not forcing one small easy to understand regulation. That being whenever a financial institution reaches an asset level of x, let's say one tenth of a percent of GDP, that it is required to break up into independent pieces, spin offs in Wall Street parlance. After all Adam Smith's Wealth of Nations describes free markets as having many players on both sides, which apparently is something the former Chairman forgot.

Wall Street Exploits Ethanol Credits

I hate the ethanol subsidy.  If you are a true small government tea party activist then this should be the number issue you should be all over your congressman to sequester out of existence. It is a truly ridiculous incentive to feed our cars and not our bellies.  That Wall Street is taking advantage is no surprise.

I believe Wall Street is over funded with a surfeit of true economic growth inducing ideas.  It is particularly disconcerting that the Dow will shortly include Goldman Sachs as part of the thirty stocks in the Dow Jones average because I can't for the life of me see their long term business model.  Publicly funded gunslingers do not make a worthy benchmark of American industry.  For example today's article in the New York Times business section on the proudly private brokerage firm of Sandler Oniel describes the business in hunting terms.  "We eat what we kill." And you know what?  I find that to be exemplary.  Compensation is high but so is the risk to the partners.  Goldman on the other hand is a rent seeker diddling the system pretty much as Gretchen Morgensen describes regularly in her Fair Game column in the same paper.

The Perils when Megabanks Lose their Focus

This New York Times business section article leaves a out critical point, which is that gaming behavior is not a long term profit growing strategy.  As an individual investor I have lost interest in Megabanks.  If they keep up their idiotic loser course then others will as well.    

Goldman IT not so intelligent

Today's report of "2 Accused of Stealing a Trading Firm's Code" reminded me of Michael Lewis's article in Vanity Fair about the very same issue and where after all the mindless prosecuting and jailing it is Cyrus Vance, Manhattan District attorney, and Goldman Sachs who come out looking like they don't know what they are doing.
I bring it up solely for the fact that Goldman's vaunted high speed trading prowess apparently is not. Those managing the program do not understand that, while proximity gives a slight edge in the speed of light transaction, if your logic is a patched together piece of convoluted gobbledy gook, then you arrive late and out of luck.  I think high speed trading is a waste. But to participate in a waste and not be good at it is like being declared second runner up in the nit wit club.

September 1 Postscrpt

Reading Code Blue in the Economist and I smell Goldman's IT rat as the culprit for the three hour crash at the NASDAQ last week. Not only are they incompetent, but now it appears they are dangerous.