California Governor Jerry Brown is going to have a very successful third term since he'll probably be able to solve - or claim he's solved - the state's budget mess next year. Brown - the Steve Jobs of politics - is going to be the beneficiary of what can only be called pent-up demand in both the venture capital business and the stock market. In other words, people who need to sell their stock to earn their keep (venture capitalists, angel investors) have plenty of customers (wanna-be shareholders). And the stock market's increasingly looking healthy enough to support large-scale stock offerings.Basically, one or more of Big Social (Facebook, Groupon, Zynga, Twitter, LinkedIn, etc.) may go public in the coming year. When they do, the knock-on effect on the regional economy is going to be significant...and that is going to lead to a surge in tax collections.
This is one of the reasons that we can't fix all our budget problems with higher taxes on the rich--if we do that, revenues are going to collapse dangerously every time there's a recession.What I said. Michael Hiltzik, the pathetic excuse for a business columnist in the LA Times, disagrees.
I won't pretend to be the world's most full-throated defender of public sector unions. If I could trade ten points of union density in the private sector for ten points in the public sector, I'd take the trade in a heartbeat. But that is, obviously, not the trade on offer. Nor is what's happening in Wisconsin merely hard bargaining during tough economic times. That would be understandable. Rather, it's an effort to destroy one of the few institutions left that fights relentlessly for the economic interests of the middle class. That's why conservatives oppose unions of all kinds, both public and private, and regardless of their faults, that's why they deserve our support.Well, it's great that he 'may not be the most full-throated supporter of public sector unions', but in fact - as a liberal - he should be their biggest opponent.
Marc tweeted this recently, and it's worth a post. Umair Haque at "Bubble Generation":
"It's the oft-unspoken thought on many lips: America's in decline. The glory days are over, the train's left the station. So: is this a great decline? Unfortunately--probably. And I'd suggest that when you take a hard, serious look into the economy--when you voyage past it's superficial, largely irrelevant position in terms of budgets, "gross product", or "unemployment"--that great decline is deeper and darker than pundits, beancounters, and politicians think, want to admit, or even suspect.
The great crisis is a story of structural decline: a decline that's hardwired into the patterns amongst this great machine's many parts. They've settled, over the last three decades and more, into fundamentally bad, toxic equilibria..."
Note that the criticisms of finance and its role that follow are coming from someone who worked in the field, including as a derivatives trader. Haque is the author of The New Capitalist Manifesto. Haven't read it yet, but based on his blog post, it looks interesting.
Marc's tweet asks if he should be depressed or challenged. Well, what do you think?
Why does the economy continue to suck? The LA Times is hosting a symposium on the topic today, and USC business professor Ayse Imrohoroglu says the answer is uncertainty:Businesses don't know what will happen to interest rates. They have trouble calculating what new workers will cost in light of potential new healthcare mandates and costs. They don't know what will happen to tax rates, which could rise dramatically. They are uncertain about increasing financial regulation and the possibility of a carbon tax. And as if that isn't enough, the soaring deficits and national debt raise very real questions about the federal government's long-term ability to meet its debt obligations.
"Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."Business is moody. Consumers are moody. They're moody for a reason, to be sure...and I get it that the left wants to claim that government has no part in the uncertainty. But that just makes no sense. People don't parse the regulatory environment from the general environment, and they look, above all, to the government for leadership.
The uncertainty meme is just mind boggling. Businesses always have a certain amount of financial and regulatory uncertainty to deal with, and there's simply no evidence that this uncertainty is any greater now than it usually is. (It is, of course, entirely believable that business owners who spend too much time watching Fox or reading the Wall Street Journal editorial page might believe otherwise, but that's a whole different problem - and one that Imrohoroglu should spend his time debunking, not promoting.) The only significant real uncertainty that American businesses face right now is uncertainty about whether there's enough customer demand to justify hiring more workers and buying more equipment.-
If, in the long run, principal reductions really, truly were the most profitable way to deal with underwater homeowners, I'd expect that not only would banks figure this out pretty quickly, they'd be figuring out ways to create securitized bundles of principal reductions to sell to gullible German investors. That well can't be completely dry, can it?
So why hasn't this happened? There are a couple of obvious possibilities here. One is that the complicated nature of mortgage securitization simply makes principal reduction too hard. Once the loans have been securitized, tranched, retranched, and re-retranched, there are so many note holders with a legal stake that it's all but impossible to get unanimous agreement to do a principal reduction. Another possibility is that banks are afraid of knock-on effects: once they start reducing principal in a few cases, their entire customer base will find out what's going on and start withholding payment in hopes of getting the same treatment. Reducing principal for 10% of their customers might make sense, but banks might be afraid that there's no way to hold the line there.
You've heard the name Mortgage Electronic Registration Systems or "MERS" mentioned in relation to the foreclosure problems in the residential real estate market.That's not necessarily a problem. The way they managed it is.
But what is MERS?
It is the company created and owned by all of the big banks to process title to property in the U.S. Approximately 60% of the nation's residential mortgages are recorded in the name of MERS.
MERS is a shell corporation with no employees, but thousands of officers.
There is, of course, a way out of this bind: produce more without consuming more. For all practical purposes, that means grabbing a bigger share of global markets, either by exporting more goods and services, or replacing some of the stuff we import by producing it at home.
Which brings us back to the story of GM's Orion plant. There are lots of reasons why American companies like GM have lost market share (yes, I wrote about currency manipulation last week), but one is that in too many industries, our labor costs are now too high to be globally competitive. Reducing wages and benefits in those industries would not only help to create and save jobs, but would also force a further reduction in consumption and living standards that is necessary to bring the U.S. economy back into balance.Wednesday - Ezra Klein: What to do about state pensions
The question is not whether this is an ideal outcome - obviously it's not. But for the 1,550 auto workers who would be called back to work at GM's Orion plant, the real-world choice is to either accept a 20 percent wage cut or remain unemployed with little prospect of getting another job at the old union wage. For them, and for the economy as whole, the better choice is to take the jobs at the globally competitive, market-clearing wage and hope to build back up from there.
There's also the obvious prophylactic measure: States need to stop deferring so much of their employee's compensation. The current deal for most state employees is that they get worse wages than they would in the private sector and better benefits. Politicians like to cut that deal because it means they don't have to pay for anything right now. And when the market was making everyone rich, such deals even seemed affordable. But the faith that the market will continually hand you back 10 percent a year is now shattered, and so compensation schemes that relied on it have to be rethought.-
Unions might not like that, but nor will taxpayers. There are two sides to deferred compensation: costs later, and savings now. We've been paying our public employees less than we would've needed to pay them in the absence of these pension promises. That means that going forward, we're going to have to pay wages closer to the true cost of our payroll.
George Soros, a major funder of progressive causes, criticized President Obama today for giving in to deficit hawks amid an economic recession. "To cut government spending at a time of large-scale unemployment would be to ignore the lessons of history," he said.Wouldn't it be nice to know what his currency positions are today vis a vis the dollar??