[davelj]

[quote=CA renter][quote=livinincali]

The problem is that all the growth in the economy for the past 20-30 years has come from increases in debt. If you back out the debt the economy has been shrinking. [/quote]

Yep. Good post, livinincali.[/quote]

Well, not exactly. Roughly 1/3 of the annual growth over the last 30 years has been a result of debt accumulation. The problem, of course, is that if you keep building up debt at small incremental rates over a long period of time – say three decades – you eventually find yourself over-leveraged. As Dickens pointed out, “Annual income £20, annual expenditure £19 and six pence, result happiness. Annual income £20, annual expenditure 20 and six pence, result misery.”

It’s not that all of the growth has been fantasy… it’s just that a very small part of it has been fantasy over a long period of time such that now the cost of servicing that fantasy (resulting from prior debt) is (finally) dragging down our ability to grow.

[davelj]

[quote=squat250]the thing is, law, and colleges, have for so long been bound by “status” and “rank” and by trying to perceived by others as the best and brightest.

that brand value does have some value–when you talk to other lawyers, and you tell them you’re from a top school, they think immediately, here’s a smart guy. It also has a slight intimidation factor.

True also with college degrees. guy graduates from harvard you think, well, hell, he’s probably fairly clever. that’s translated into money and access to jobs for years.
[/quote]

I think the brand value only has any meaningful value at the beginning of one’s career. It helps open the first few doors. But after you’ve been at your profession for a decade or so… I don’t think your alma mater(s) count for much anymore – you’ve either done impressive stuff or you haven’t.

Having said that… humans are risk averse, and in hiring decisions they will often seek comfort in what a candidate “looks” like rather than what s/he’s actually done. For example, you’re probably not going to get fired for hiring the Harvard MBA almost no matter how bad the candidate turns out after the fact. So, many folks seek out the candidate who is least likely to make them look foolish, and this favors “resume-friendly” schools and work experience.

Interestingly, there was some academic research done several years back that concluded that the actual university that a person attended was generally less predictive of future success than the best university that person COULD have attended based on grades, test scores, etc. This makes sense to me.

The reason, after all, that a lot of Harvard MBAs (just to pick one example) tend to be successful in commerce is not because they attended Harvard, but rather because they were the type of person that could get accepted into the program in the first place. Obviously there are a lot of folks who are capable of going to the brand-name school who for various reasons don’t go that route… and turn out to be just as successful as they would have had they gone the brand route.

In the long run, however, all that really matters is your combination of ability, guile, work ethic, social skills, and, critically, luck. And luck plays a pretty damn big role.

[davelj]

These suits look kinda cool, but I would be careful about a couple of things:

(1) Do not self measure. I repeat: Do not self measure. You’ll screw it up. If you’re going to pay for bespoke clothing make certain that the person or company making the clothing takes the measurements. These guys are up in LA so I’d recommend driving up one day and getting measured.

(2) I like a narrower-than-normal lapel with a slightly short jacket and snug fit, but… not to early-60s standards (which is what Thick as Thieves specializes in). So, I like a styling/fit that’s in between “standard” and “early-60s.” My only reservation with the full-on 60s suit styling, which is currently very “in,” is that these things go out of style. Personally, I prefer suits that will never go out of style – but, again, that’s just a personal preference. (Recall that there was a time when double-breasted suits were popular – arggh.)

Astor & Black does a very good job with tailored suits at a not-unreasonable price, but you’re looking at at least $800-$1000 for a suit (and more depending on the fabric, cut, etc.). But… you will have enormous control over the details and it will fit perfectly. This is considerably less than what you would pay at the tailors in NYC and on Savile Row. My point is that there are very good tailors where you don’t have to pay $5000 for a suit.

For 85% of men out there it’s almost impossible to buy an off-the-rack suit that fits properly. (My right shoulder, for example is 1.5 inches lower than my left shoulder – you can’t fix that via alteration of a jacket you buy off the rack. It must be made from scratch.) I didn’t realize how true this was until about 10 years ago when I had my first bespoke suits made – you can’t go back.

Just my two cents.

[davelj]

For the bajillionth time… how housing prices react to higher mortgage rates will be largely dependent on how those rising rates correlate with rent inflation. If rent inflation rises with higher interest rates… higher mortgage rates may not have much of an impact on housing prices, or could possibly lead to higher housing prices depending on the circumstances. See the late-70s for a good example of this – rates skyrocketed… so did housing prices. Looking at mortgage rates in a vacuum is meaningless.

[davelj]

[quote=Arraya]Wow… Did this get off track.

The point of the article is the hypocrisy of running a campaign on the evils of reckless debt creation while making a fortune off of fomenting reckless debt creation for profit NOT who pays for the reckless debt creation. Kind of like a strategic defaulter x 1000.[/quote]

Personally, I wouldn’t have lent a single dollar to any one of Bain’s LBO companies – it’s too risky for me. But… whether or not all of Bain’s debt (both for Bain itself and its portfolio companies) was “reckless” in totality – with 20/20 hindsight, of course – depends on how much was repaid (plus interest) versus how much resulted in losses to the lenders. I don’t know the answer to that but I suspect that if a bank did nothing but lend money to Bain in proportional amounts it probably did o.k. (Recall that even in a BK, debt holders – particularly senior debt holders like banks – generally end up getting a recovery while common shareholders get wiped out.)

I agree we’ve got too much debt, generally (as a society), and that these LBO shops (and the banks that enable them) are not helping things… but “reckless” should be judged in totality rather than one single, or even just a few, transactions.

[davelj]

[quote=CA renter][quote=davelj][quote=CA renter]

In the end, the government surrendered. At the time, The Boston Globe cited bankers dismissing the bailout as “relatively routine” – but the federal documents reveal it was anything but. The FDIC agreed to accept nearly $5 million in cash to retire $15 million in Bain’s debt – an immediate government bailout of $10 million. All told, the FDIC estimated it would recoup just $14 million of the $30 million that Romney’s firm owed the government.

Read more: http://www.rollingstone.com/politics/news/the-federal-bailout-that-saved-mitt-romney-20120829#ixzz2570bSRpz%5B/quote%5D

I think Romney’s kind of a d-bag, but… let’s recall that this particular *bailout* by the FDIC is really a bailout by… the banking industry itself, as it’s the banks that pay a portion of their profits (based on total deposits) to the FDIC to capitalize the insurance fund. So, while I agree that Romney’s maneuverings here are sleazy… I’m curious as to why folks care about how the 1% go about screwing each other – here Romney simply outfoxed his Banksters, and the industry as a whole plugged the hole.

This applies to the money lost in Bain’s failed LBOs as well – it’s the banks and other creditors that took the hits, not taxpayers. Again, who cares how the 1% goes about screwing each other?

The job destroyer/job creator issue is much more complicated. Personally, I think that net/net most LBOs are destroyers of jobs, but… it’s probably not as insidious as it appears on the surface.

Take the KB Toys example. Yeah, they screwed that up bigtime. Lots of jobs lost… at KB Toys. But I’m pretty sure all of the toys no longer sold by KB were sold by someone else, so jobs were created at those other companies. And some of the folks who lost their KB Toys job were probably happier in their new jobs and/or started small businesses themselves. Again, net/net jobs were almost certainly lost and in many cases the new job sucked worse than the KB Toys job – I’m not an apologist for the LBO industry. But… the industry’s not quite as evil as it’s portrayed although clearly the “value added” is questionable, at best. Generally, piling debt onto a company simply because you can – or think you can – is a dubious business strategy. But it has certainly served the 1% well!![/quote]

And the profits of those banks are, for the most part, paid for by consumers. If bank executives had their compensation slashed in order to pay these costs, it would be one thing, but I sincerely doubt that’s what happened here (could do some more research on this, and will try if I find the time). Romney screwed the banks, and the banks likely screwed their customers (or other employees) in order to make up for the losses.

I don’t distinguish between “taxpayers” and “consumers.” Taxpayers are simply consumers of government services. Whether or not we are being ripped off is all that matters, not whether or not those ripping us off are wearing a “private sector” hat or a “government” hat.[/quote]

True, but you’re only looking at one side of this issue. Just as consumers subsidize losses so are they subsidized by other consumers’ profitability. For example, the 80/20 rule typically applies for most banks, especially the largest ones. So, the largest 20% of a bank’s customers – almost all corporate customers – are the really profitable customers and subsidize the vast majority of the others. (On average, 2/3 of bank customers are not profitable or barely so. Voluminous regulations make it very difficult to get rid of them.) So, yes, customers theoretically pay some portion of the losses generated by corporate customers that generate those losses (as they are passed on). But most customers also benefit from the subsidy of the largest (corporate) customers that actually make the bank profitable. I don’t see anyone defending these corporate customers for this subsidy. Instead, most folks just focus on the corporations that cause the losses and end the analysis there.

Likewise, yes, Bain Capital has no doubt done some unsavory things in its pursuit of profits. Things that have not benefitted the middle class. However, many of Bain’s largest investors have been public pension funds (I saw a list recently – it included SDCERA) who have reaped huge gains by investing with Bain. Those gains go toward paying the pensions of mostly middle-class folks. My point is that all of these issues are much much more complicated and far less black-and-white than most in the media would have us believe.

[davelj]

[quote=enron_by_the_sea][quote=davelj]

I think Romney’s kind of a d-bag, but… let’s recall that this particular *bailout* by the FDIC is really a bailout by… the banking industry itself, as it’s the banks that pay a portion of their profits (based on total deposits) to the FDIC to capitalize the insurance fund. So, while I agree that Romney’s maneuverings here are sleazy… I’m curious as to why folks care about how the 1% go about screwing each other – here Romney simply outfoxed his Banksters [/quote]

Isn’t FDIC back stopped by Us taxpayers? Doesn’t markets treat FDIC like the arm of the federal govt.? Doesn’t govt./congress appoint FDIC members?

Saying FDIC is separate from taxpayers is about as true as saying that Fannie and Freddie were separate from taxpayers![/quote]

All true, but… this article references a specific point in time. So, the costs of the specific transaction mentioned were not borne by taxpayers, but rather the banks themselves. And this is not made clear by the article. Even in the recent Financial Crisis, the FDIC insurance fund remained solvent by increasing levies on the banks themselves. So, yes, technically the Treasury backs the FDIC insurance fund, but this has little to do with Romney’s shenanigans. And even if the taxpayers were involved… the top 20% of taxpayers pay over 80% of federal taxes so all we’re doing is shifting funds between the uber-wealthy and the reasonably well off. The typical member of the middle class has plenty to be upset about but their tax dollars, by and large, aren’t subsidizing the 1% – it’s the group just below the 1% that takes care of that.

Regarding Fannie and Freddie, yeah, we’re taking losses. That’s the bad news. The good news – and, admittedly, it’s barely good news – is that those mortgages that we now own are going to offset the current losses in the LONG term, albeit in nominal as opposed to real dollars. Don’t get me wrong, it’s still a real loss but it won’t look as bad with the passage of time from the standpoint of real red ink. Not that I’m condoning the takeover of Fannie and Freddie; I’m just sticking to the math.

[davelj]

[quote=CA renter]

In the end, the government surrendered. At the time, The Boston Globe cited bankers dismissing the bailout as “relatively routine” – but the federal documents reveal it was anything but. The FDIC agreed to accept nearly $5 million in cash to retire $15 million in Bain’s debt – an immediate government bailout of $10 million. All told, the FDIC estimated it would recoup just $14 million of the $30 million that Romney’s firm owed the government.

Read more: http://www.rollingstone.com/politics/news/the-federal-bailout-that-saved-mitt-romney-20120829#ixzz2570bSRpz%5B/quote%5D

I think Romney’s kind of a d-bag, but… let’s recall that this particular *bailout* by the FDIC is really a bailout by… the banking industry itself, as it’s the banks that pay a portion of their profits (based on total deposits) to the FDIC to capitalize the insurance fund. So, while I agree that Romney’s maneuverings here are sleazy… I’m curious as to why folks care about how the 1% go about screwing each other – here Romney simply outfoxed his Banksters, and the industry as a whole plugged the hole.

This applies to the money lost in Bain’s failed LBOs as well – it’s the banks and other creditors that took the hits, not taxpayers. Again, who cares how the 1% goes about screwing each other?

The job destroyer/job creator issue is much more complicated. Personally, I think that net/net most LBOs are destroyers of jobs, but… it’s probably not as insidious as it appears on the surface.

Take the KB Toys example. Yeah, they screwed that up bigtime. Lots of jobs lost… at KB Toys. But I’m pretty sure all of the toys no longer sold by KB were sold by someone else, so jobs were created at those other companies. And some of the folks who lost their KB Toys job were probably happier in their new jobs and/or started small businesses themselves. Again, net/net jobs were almost certainly lost and in many cases the new job sucked worse than the KB Toys job – I’m not an apologist for the LBO industry. But… the industry’s not quite as evil as it’s portrayed although clearly the “value added” is questionable, at best. Generally, piling debt onto a company simply because you can – or think you can – is a dubious business strategy. But it has certainly served the 1% well!!

[davelj]

[quote=ucodegen]Unfreaking believable. For a 105mil bond to turn into 981mil would require an interest rate over 10% on a gov bond. No wonder there is a no-refinance clause in the bond. The bond issuers got the city by the gills and doesn’t want to let go. The City of Poway should look into whether there was any conflict of interest on any of the advising parties.
[/quote]

Yup, if this was a zero coupon 40-year bond it would yield about 5.75%, but… if you start straight-lining the interest and principal payments (just to simplify) beginning on the 20th year, you get a rate just north of 10%. So these muppets got their faces ripped off.

If Uncle Sam can borrow for 30 years at 3% you’d think that a local government could borrow for 40 years in the 5%-6% range. These folks got horsef*cked. How difficult is it to ask what the assumed all-in yield is on the instrument, and then compare that to other alternatives? Apparently quite difficult.

I’m hoping there’s more to this story that makes it look considerably less moronic.

[davelj]

[quote=patb]he’s been saying this for a while, which depends upon interest rates and liquidity.

if rates rise?

we are back in a down spiral.[/quote]

Actually it all depends on WHY rates rise (assuming they do), right?

[davelj]

[quote=davelj][quote=harvey][quote=davelj]Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.[/quote]

I’d be curious to see any attempt to calculate the asset values of the US. It is much harder than calculating GDP, because has to measure natural resources – stuff that’s always been there and is unknown in quantity and ultimate value.

The key reason a balance sheet is important for corporate reporting is that shareholders actually buy a portion of the entity. There is no such notion in government or for the country as a whole. I just don’t see how useful this (very coarse) data would be.

I think it would be fun so see some of these numbers and estimate, but I would be very dubious about the utility of such data.[/quote]

I found this after searching for less than 60 seconds (yeah, it’s a few years old)… it ain’t that hard. We lack the will… (the comments section addresses some interesting issues as well.)

http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

[davelj]

[quote=harvey]
Although consumer debt and government debt are big problem in our current economy, corporate debt is not an issue.
[/quote]

This is true. Further, corporate debt over the last few years has been termed out into longer maturities such that low rates have been locked in for pretty long periods of time. This article is two years old and things have improved since then.

http://www.marketminder.com/c/fisher-investments-how-strong-is-corporate-americas-balance-sheet/b14e50c8-8ae3-42cb-b046-ee62a28051b

[davelj]

[quote=harvey][quote=davelj]Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.[/quote]

I’d be curious to see any attempt to calculate the asset values of the US. It is much harder than calculating GDP, because has to measure natural resources – stuff that’s always been there and is unknown in quantity and ultimate value.

The key reason a balance sheet is important for corporate reporting is that shareholders actually buy a portion of the entity. There is no such notion in government or for the country as a whole. I just don’t see how useful this (very coarse) data would be.

I think it would be fun so see some of these numbers and estimate, but I would be very dubious about the utility of such data.[/quote]

I found this after searching for less than 60 seconds (yeah, it’s a few years old)… it ain’t that hard. We lack the will…

http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

[davelj]

[quote=harvey][quote=davelj]
One of my issues with the reporting of GDP is that it’s only an income statement number. It should be reported alongside a balance sheet as well.[/quote]

Good idea, but the accounting for the government balance sheet would be difficult at best, especially when determining the value of assets.

Some examples of basic, but very difficult, accounting issues that would make a useful government balance sheet (using GAAP) almost impossible:

– What to we put down for the dollar value of all of the federally-owned land?

– Do we reduce the value of the land when we log or mine on that land? By how much?

– Many, many more, big accounting questions…

There is certainly room for improvement when measuring the financial health of our government, but using a traditional financial accounting balance sheet probably wouldn’t be very useful.[/quote]

Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.

[davelj]

[quote=harvey][quote=livinincali]

I do know that over the past 30 years of various stimulus spending exercises we’ve never gotten GDP to grow faster than government debt for any length of time. Look at any GDP vs debt chart and it’s rather clear.[/quote]

You might want to check what “you know.”

We haven’t been doing stimulus spending for the past 30 years – we’ve barely, and half-heatedly, been doing it for about 3 years. And there is some evidence that it has helped.

In the aggregate, the economy has done rather well in the past 30 years – e.g. we’ve gone from the Apple II to the internet in that time. The accumulating debt in that time period is a problem, but cutting taxes surely isn’t going to solve that problem.
[/quote]

Actually, we have been engaging in stimulus spending for the past 30 years – the Powers That Be just didn’t realize it or label it with that name.

A lot of research has been done on how much GDP growth over the last few decades has been the result of debt accumulation and the results vary from 40 bps to 90 bps annually, which is a pretty large number when you’re talking about an average of 300 bps of real annual GDP growth. So, now we know that, in fact, we’ve been engaged in stimulus spending for a very long time and the drag of servicing the debt that’s built up is considerable.

Bottom line: much of the G [in G+C+I+N(Ex)] has been fueled by additional debt over the last several decades. (Of course, this applies to the “C” as well.)

One of my issues with the reporting of GDP is that it’s only an income statement number. It should be reported alongside a balance sheet as well. You don’t see companies getting away with just reporting results from the income statement without an accompanying balance sheet, but that’s exactly what we let the PTB get away with, and we’ve been doing so for time immemorial.

So, arguably some portion of the economic strength over the last 30 years has been a mirage, resulting merely from increasing liabilities. It’s still been a nice run… but not nearly as nice as it “appears” in the absence of a balance sheet.

This is a good article on the effects of too much debt (a level which we’re well beyond):

http://www.bis.org/publ/othp16.pdf

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