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They care if they are investing for the long term. Debt led growth is both weak and subject to severe corrections like in 2008.
I think the common perception is that companies think short term, not long term. Do you disagree?
And if it really was true that companies were worried about the future, and therefore delayed investments, then this tax bill came at the right moment.
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Originally Posted by rruff
Oh, it isn't hard at all! We did it for our entire history prior to 1980. Wage growth was particularly high from the early 1930s to 70s. High income taxes, wage and benefit supports, balanced trade. Done. It worked great in spite of a very inefficient union system.
The only problem is that the oligarchs like it just the way it is. They hatched a scheme to subvert the symbiotic nature of consumer capitalism, via globalization, finance and fiat currency, and gutting of unions. That was about 40 years ago. It's working fabulously. For them.
What about the rest of the policies from the 1930s to the 1970s. Should we emulate those too, or just the ones you like? What do you think about much smaller government, and almost no public spending on health care?
And Italy has high income taxes, has wage and benefit supports, has a trade surplus and has unions. Must have amazing income growth right? Wrong! And if you think Italy is just different, then Netherlands and Belgium also fit your criteria and has had weak income growth. It is not that simple, no policy can recreate the post-war economic expansion.
I think the common perception is that companies think short term, not long term. Do you disagree?
The big ones most certainly plan many years in advance. Decades in fact. Some investments take that long to bear fruit.
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And if it really was true that companies were worried about the future, and therefore delayed investments, then this tax bill came at the right moment.
Investments are only ever "delayed" because projected sales do not warrant expansion. If sales growth is led by debt, then a crash is inevitable. The tax bill will only make it worse.
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What about the rest of the policies from the 1930s to the 1970s. Should we emulate those too, or just the ones you like?
Which ones do you think I don't like? Healthcare made it affordable. Wage supports and work benefits mitigated the need for extensive public benefits. Income taxes and corporate taxes were much higher then. The government doesn't need to be "big" to accomplish what it needs to do.
The big ones most certainly plan many years in advance. Decades in fact. Some investments take that long to bear fruit.
Investments are only ever "delayed" because projected sales do not warrant expansion. If sales growth is led by debt, then a crash is inevitable. The tax bill will only make it worse.
So you think the problem is, lack of business confidence because corporations think consumer debt is too high. What do you think companies would do, if they are really confident about the economy? They will borrow more money, and invest it. You think high consumer debt lead to a recession, but corporate debt doesn't?
The idea that companies are afraid of a recession and therefore doesn't invest is ridiculous. Business confidence is high, and corporate debt is increasing rapidly. And before you say they are forced to borrow, corporate profits is also high. You don't borrow money while having profits, unless you are confident about economy.
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Which ones do you think I don't like? Healthcare made it affordable. Wage supports and work benefits mitigated the need for extensive public benefits. Income taxes and corporate taxes were much higher then. The government doesn't need to be "big" to accomplish what it needs to do.
1. Do you support increasing military expenditure from 900 billion to 2000 billion?
2. Do you support getting rid of Medicare, Medicaid and go back to the 60s health care regulations?
3. Do you support reducing welfare and education expenditures?
4. Do you support massive cuts to pensions?
It is easy to look at the past with rose-tinted glasses, if you only look at the policies you support. And as pointed out, the policies you mentioned hasn't led to income growth in other countries.
The big ones most certainly plan many years in advance. Decades in fact. Some investments take that long to bear fruit.
Investments are only ever "delayed" because projected sales do not warrant expansion. If sales growth is led by debt, then a crash is inevitable. The tax bill will only make it worse.
Which ones do you think I don't like? Healthcare made it affordable. Wage supports and work benefits mitigated the need for extensive public benefits. Income taxes and corporate taxes were much higher then. The government doesn't need to be "big" to accomplish what it needs to do.
They can plan all they want in advance. But, having worked for big corporations my whole life, I can tell you their plans are more often discarded than not. Look at GE. A perfect example of long term planning that has served very poorly. In fact, their insistence on staying the course could explain their miserable performance.
AT&T is another good example. A massive cash cow that has a measly 3% 10 year total return and is down 10% YTD (2017). They are reknown for failed mergers and leaving a wake of destruction in their path. They abandon another long term plan every few years.
Successful companies like Apple and Amazon are much more agile and able to follow the market where it leads. The automakers are forced to make long term bets and that often has led them to huge failures.
Last edited by shaker281; 12-22-2017 at 02:25 AM..
I remember the S&L crisis and ensuing recession. I also remember the credit crisis and ensuing Great Recession.
totally different causes . the savings and loan deal was not a duplicate of what caused 2008. they may eventually see similar results but the reasons were very different.
the s&l crisis was kicked off by fraud . 2008 was all about untested cdo products , the credit default swap markets and loans that were taken that were to big .
1929 was the crash of the stock market and failure of the banks .
do you know the worlds or us have done something sooooo stupid that at least every 20-30 years we have always had a major crash . been that way since the 1800's . but the reasons were never because of the prior reason .
totally different causes . the savings and loan deal was not a duplicate of what caused 2008. they may eventually see similar results but the reasons were very different.
the s&l crisis was kicked off by fraud . 2008 was all about untested cdo products , the credit default swap markets and loans that were taken that were to big .
1929 was the crash of the stock market and failure of the banks .
Not that you are incorrect, but 2008 was all about the big investment banks packaging inadequately rated toxic assets into SIVs, which were sold to investors seeking high risk assets, which enabled lenders to provide even more funds to unqualified buyers with shaky financial foundations. Lots of bad players here.
From the home buyers who took out huge mortgages they could not afford, to the lenders who looked the other way, knowing they could move the paper. Then there were the RE agents and appraisers that were looking for quick bucks and the ratings agencies that failed to raise the red flags.
These lenders could not have moved the paper without the investment banks buying the loans, which in turn allowed the lenders to find more eager idiots! If it wasn't outright fraud, it was borderline!
there were lots of reasons but i think the biggest was the collapse of the credit default swap markets and the newly marketed multi-level loan packages to investors .
with the public complaining about wanting higher yields , wall street created products they thought were safe .
the took the same old mortgage bundles and sold them with a twist .
a conservative group would get say 5% on the normal package of loans , the next group who was more aggressive would buy that very same bundle , get 6% but they would not get paid until group 1 did . the next group who was even more adventurous got the same deal at 7% but they had to wait for the first 2 groups to get paid .
since these were the same normal loan packages credit was not a problem on the package .
well when news broke about loans being made that should not have been made , groups 2&3 started to sell , but there were no takers . eventually all the groups wanted out but no one would buy and so money stopped moving and things froze .
at the same time more money was bet on loans being paid or not being paid in the credit default swap markets that it was more than the debt being bet on .
firms like goldman were actually selling those multi-level products , then betting against them being paid . it was insane .
we had two co-ops we owned sell in 2009 . when it came time to close two different banks told our buyers they had no money to give them .
it took 6 months before these two buyers found banks that would follow through with money .
We agree on the mechanics of it all. My point is about the reason those assets were toxic. Those lenders were able to pass off the paper, knowing full well they were inadequately vetted. The investment banks knew full well what they were buying and packaging and the ratings agencies sat by idly while it all transpired. The collapse of the CDS markets was inevitable given what was being fed into them. In other words, the result, not the precipitating cause.
The reason so much money was being bet on eventual default was EVERYONE knew what was transpiring. It was pure and simple greed from the beginning to the end. And another reason why I never trust people to act in their own best interest.
It was a giant game of musical chairs.
i kind of disagree on the vetting . there really was nothing different about those packages sold . they were the same packages of good and bad mortgages that were sold forever . it passed all vetting because of that fact as far as the credit rating agencies .
in fact my money market which was bound by very narrow rules as far as what they could buy owned quite a bit of it . it only turned toxic when no one wanted to buy it anymore .
i hold the distinction of actually losing 3% in a money market .
banks knew they were making questionable loans but there was no way a credit rating agency would know that since there was nothing new going on with the mix itself .
a major contributor was the credit default swap market became a las vegas betting parlor with firms betting amounts on the long shots they couldn't cover because they never expected to lose the bet .
to tell you the truth i think any book you read will give you another reason for 2008 and all would be correct . it was the perfect storm for so many things that by themselves would not have been to bad . but they all converged and reinforced each other .
fidelity investments even maintained a central core fund for all its mutual funds to use . even their most conservative fund the ultra conservative bond fund owned this paper to boost yield . they got stuck holding an insane amount of this paper and lost a lot of money .
today what a money market used to be able to buy is now forbidden and the money markets left that do not conform are actually bond funds today .
i own fidelity conservative bond fund but in actuality they are a money market of old and don't have to be valued at a dollar . .
but i think the one thing we can agree on is the catalysts for all these events while financial in nature are all different in nature . so in 2008 we avoided the fraud and junk bond issues of the s&l crisis , but different things set us off this time .
Last edited by mathjak107; 12-22-2017 at 03:38 AM..
i kind of disagree on the vetting . there really was nothing different about those packages sold . they were the same packages of good and bad mortgages that were sold forever . it passed all vetting because of that fact as far as the credit rating agencies .
in fact my money market which was bound by very narrow rules as far as what they could buy owned quite a bit of it . it only turned toxic when no one wanted to buy it anymore .
i hold the distinction of actually losing 3% in a money market .
banks knew they were making questionable loans but there was no way a credit rating agency would know that since there was nothing new going on with the mix itself .
a major contributor was the credit default swap market became a las vegas betting parlor with firms betting amounts on the long shots they couldn't cover because they never expected to lose the bet .
to tell you the truth i think any book you read will give you another reason for 2008 and all would be correct . it was the perfect storm for so many things that by themselves would not have been to bad .
re: vetting, I am talking about the original lenders. They were giving loans to anyone with a pulse! And at ridiculous valuations. Lending standards fell by the wayside in an effort to grab as many fees as possible and sell the loans upstream. Because they knew they could sell the paper. If they had to hold that paper, it would have been quite a different story. The appraisers and mortgage brokers dropped all pretense of seeking "qualified" buyers. Got a job? Been there a month? How much you need?
IMO, the short sellers were doing exactly what they always do, betting on failure! The system provided them vast opportunity and great odds.
But, yeah, you are 100% correct. The CDS market was out of control and so was everyone else. The level of complicity is what I find astounding.
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