Financial fuckery thread

[Phox]

Fun indeed.

[Faust]

http://www.bbc.co.uk/news/world-us-canada-15830176

A US congressional committee tasked with reducing the deficit by $1.2tn (£762bn) has failed to come to an agreement.

The panel of six Republicans and six Democrats confirmed after the New York Stock Exchange had closed that its work had ended without a deal.

The outcome means automatic cuts outlined in the bill that created the committee should take effect from 2013.

The US national debt has just risen above $15tn.

The panel was set up in August, the result of a last-minute deal between the two sides in Congress to raise the debt ceiling and avert a default on US debt payments.

President Obama said he would veto any attempt to reverse the automatic cuts to government spending.

They are to be applied over the next 10 years, split between defence and domestic budgets. A few programmes are to be protected, including Social Security and Medicaid.

Republicans said Democrats had never been serious about making cuts to entitlement programmes for the elderly and the poor.

Senator Pat Toomey said: "Unfortunately, our Democratic colleagues refused to agree to any meaningful deficit reduction without $1 trillion in job-crushing tax increases."

But Democrats said the Republicans were solely to blame for the failure - because they ruled out tax rises for the wealthiest Americans.

Senate Majority Leader Harry Reid said Republicans had "never found the courage to ignore the tea party extremists" and "never came close to meeting us half way".

US voters are already deeply disillusioned with Washington.

The BBC's Steve Kingstone in Washington says the political finger-pointing is likely to continue through to next November's congressional and presidential elections.

Congressional approval ratings in recent polls have been at historic lows.

As the reductions triggered by Monday's announcement are not set to take effect until January 2013, lawmakers have the time to change or repeal the automatic cuts.

Republican senators John McCain of Arizona and Lindsey Graham of South Carolina are already working on legislation that would undo the automatic defence reduction, replacing it with cuts across the federal government.

So that'll be fun.

That's good isn't it? The automatic cuts sound more reasonable than anything they could come up with.

[Cain]

It is better than any Republican proposal, yes.  But then, so is practically anything the Democrats propose.

Without tax increases, the US is screwed.  The US can cut and cut all it likes, but discretionary military spending for foreign conflicts will never be reduced and, in fact, will likely increase to make up for whatever cuts do take place in spending there.  The US needs to raise revenue, and the only way that will happen will be to return to pre-Reagan progressive taxation.

[Luna]

So, Cain...  When things go tits-up over here...  Which country would it be easiest to take refuge in?  Or would it be less trouble just to stay put and watch it burn from ringside?

[Cain]

Global economic crisis equals global problems.

Might as well go somewhere with a beach.

[Scribbly]

I'm not sure exactly how this ends.

It seems unlikely that we're going to get the clearing of debt that it is now painfully obvious we need- nobody in any position of influence is arguing for it, despite the lurching crisis that has dragged on now for months and months. Instead we're tied to this insane position where only austerity and taxes can 'fix' the situation. At the same time, politicians are talking about trying to force the markets to pay and do as they are told, but there's no teeth to it. How could there be? Whilst governments are forced to borrow huge amounts of money just to pay back the interest on the money that they've already borrowed, the lenders have them over a barrel. Nobody wants to be the first one to go down (although Greece and Italy are now looking weak, and I'm starting to notice more grumbling about the UK too, hilariously), and everyone is clinging to the idea that they can get through this with the magic of positive thinking and austerity. As though this is some kind of hard-man competition where the first nation to give in to the 'pain' loses forever.

Meanwhile, the average person is getting more and more angry and determined to do something, but nobody has any idea what should be done. The situation is highly complex, no doubt, but there's some kind of massive stigma towards attaching blame to the people who leant the money, and demanding that we take that out of their hide. The protesters don't want to get violently - understandably - but nobody is really managing to capture the public imagination with even financial violence. Perhaps if governments simply seized all banking assets of their various nations, that would be a credible first step towards sorting out the tangled mess that is the world financial system. It'd fuck the people who profit from the current system, but that is exactly the kind of thing we should be looking to do.

Instead, my prediction is now that we'll lurch on in our current state. More countries will be forced to institute painful austerity measures and raise taxes, neither of which will help them outgrow the spiralling cost of their debt at a rapid enough rate. Growth will stagnate and probably recede over the next 3-5 years, joblessness and the social impact of long term unemployment (depression, crime etc) will further strain already overburdened public services.

Public discontent will rise along with these social issues and the apparent inability of the politicians to deal with the root cause of the problem. Nationalism and protectionism will rise as a result, pandering to the idea that all of our countries can blame the laziness, selfishness and indulgence of all of the other countries, not like We Good English/Italian/French/American/German/WTFever. People will lap this up, and blame the victims for what has been inflicted on them because it is more comforting to believe that is the case, rather than the class warfare which is being perpetrated by the rich on everyone else.

In short; things will fall apart, and nobody will do much of anything.

And I don't think there is anywhere in the world that this axiom will not hold true.

[Cain]

Except maybe China, Malaysia and Argentina, who had early brushes with this kind of problem in the 1998 Asian Crisis or early 2000s, and threw out the IMF rulebook and actually staged quick, sustainable recoveries and, indeed, seem to be weathering the current crisis fairly well (though keep an eye on the Chinese property bubble, especially come January, when debts are typically called in).

[Scribbly]

Except maybe China, Malaysia and Argentina, who had early brushes with this kind of problem in the 1998 Asian Crisis or early 2000s, and threw out the IMF rulebook and actually staged quick, sustainable recoveries and, indeed, seem to be weathering the current crisis fairly well (though keep an eye on the Chinese property bubble, especially come January, when debts are typically called in).

I admit, I'm no expert on any of those economies - my understanding, though, was that China needed to keep high growth targets going in order to meet their own debt obligations, and that as the US collapses they are likely to be dragged down too.

It is bizarre that economists haven't looked at those situations and tried to argue for similar measures there. I've not heard Malaysia or Argentina mentioned at all until now (and usually the assumption seems to be that China will go down in flames if everyone else goes into a depression).

[Triple Zero]

Global economic crisis equals global problems.

Might as well go somewhere with a beach.

Good. I don't really like beaches, so I can just right here!

[Luna]

Global economic crisis equals global problems.

Might as well go somewhere with a beach.

Maybe I'll descend on my uncle.  He has a farm.

[Triple Zero]

Public discontent will rise along with these social issues and the apparent inability of the politicians to deal with the root cause of the problem. Nationalism and protectionism will rise as a result, pandering to the idea that all of our countries can blame the laziness, selfishness and indulgence of all of the other countries, not like We Good English/Italian/French/American/German/WTFever. People will lap this up, and blame the victims for what has been inflicted on them because it is more comforting to believe that is the case, rather than the class warfare which is being perpetrated by the rich on everyone else.

Hey exactly.

I've heard some otherwise very intelligent friends already comment in this fashion of "well yeah but the Greeks kinda have it coming, the way they were running their economy".

Any good arguments against this line of reasoning? that, indeed will lead to creeping nationalism as things get worse

So far I've been asking them:

"who exactly have it coming? who are responsible? [govmt, big finance, etc] and who exactly are going to 'get it'? [the people of Greece, due to austerity], now are those the same people? even some partial overlap? and who again are probably going to get away with it, who have the means to make sure they can remain living very comfortably? [again the rich, big finance, etc]"

I mean that's probably as good a reason as any.

But I do wonder, I get the feeling this is just one side of the scenario.

Why is the Netherlands doing so much better than Greece? Is it really because we were running a more responsible economy than they? Maybe, there's probably some difference, in favour of NL. But is that the whole story? Because haven't our (Dutch) bankers and stock brokers and whatnot been running the same scams all those years here just as well? Okay maybe we don't have a lot of subprime lending going on, just some but not huge problems with poor people racking up huge debts from loans or credit cards, apart from mortgages on our houses the Dutch don't like living on credit. But I still don't believe this is the whole story.

And now I'm speculating, because lacking knowledge about big international finance, sometimes things that seem like a good thing can actually be a bad thing and vice versa, so please correct me if I'm wrong.

But I'm looking at, say, IKEA putting their financial headquarters in the Netherlands. So does Yandex, the "Russian Google", and many other big companies have some sort of financial incorporation here. Speaking of Google, I recently posted about them using a tax-evasion construction for AdSense called the "double Irish / Dutch sandwich". Well the Irish authorities never "see" those revenues and cannot tax them, but what about the Netherlands? (I dont know btw maybe we also dont see a dime) And then I see these huge offices of financial law accounting firms such as Price Waterhouse Cooper, these are the guys that get paid millions of bucks to start a "project" and collect and request all the paperwork and licenses and things to create these incredible tax evasion constructions.

So I'm thinking, and again maybe I'm completely barking up the wrong tree here:

Either the countries that are not yet hit by this global economic crisis have so far managed to "stay on top" because they're "exploiting", in a financial sense, through convoluted loopholes, these countries that are now down in the dumps, the "PIIGS". OR, it's not the richer countries doing this, but Big International Finance, acting as a sort of "transnational superpower" by moving money [through loopholes and legislations] around deciding which countries get fucked and which ones stay on top. And then I wonder why? Is there any particular reason why the Netherlands is getting the good end of the stick and Spain is not? Or is it just that that's the way things happened to go and you gotta have winners and losers even when there's no intentional/purposeful reason for one not being the other.

[Reginald Ret]

I always figured it was because of the poldermodel

No single political party has ever had anything approaching an overall majority in parliament, so coalition government is inevitable. This makes parties extremely cautious, today's enemy may be tomorrow's ally.

A cautious organization is one that keeps oodles and oodles of reserves ready at all times.

Plurality has made our groups/organizations fearful.
Fear has made them cautious.
Caution has made them seek security through redundancy.
Redundancy has made them robust.

Now bad things are happening it's the efficient economies that go belly-up first and the robust economies survive a bit longer.
Finland has a similar policy according to wikipedia so that and The Netherlands will be the last bastions of civilization in the coming Eschaton.

[BabylonHoruv]

Isn't Germany run on that model as well?

[Phox]

Global economic crisis equals global problems.

Might as well go somewhere with a beach.

Maybe I'll descend on my uncle.  He has a farm.

Fuck that, Imma turn the Midwest into a Road Warrior-esque wasteland. You should totally come and join my band of renegades. It'll be fun. We can have picnics.

[Golden Applesauce]

Okay - I know basically nothing about global finance - but I don't understand why governments defaulting on some of their debt is such a terrible idea.  Obviously it will make banks less willing to lend money to gov'ts in the future, but can the banks afford to boycott the US + EU if it really came down to it?  If anything was too big to fail, it'd be something like the North Atlantic economic zone.  (hopefully?)

We've tried giving banks free money, and they still didn't lend it out properly - it seems like the next thing to try would be not giving the banks any money, since they aren't using their resources to help the global economy anyway.