The problem with the govt "fixing" things...

[armor99]

I have not really posted in a while. But I thought I would take a moment and weigh in with this one. In all of the "fixing" that the govt wants to do, they seem to miss the problem that the very nature of govt "touching" something causes.

The govt wants strings attached to the money that they are giving banks, auto makers, etc. It makes sense. If you are giving money to get result "A", and people are choosing not to use your money for that intended puporse, then of course you would get angry. You would feel it is a waste of your money... and you would be right. But how exactly does a "private" business operate when not controlled, but is heavily "influenced" by the govt. The short answer is... that it cannot... at least not for very long.

The thing that makes a business... any business profitable and viable, is the free choice of what to do in daily operation. Is it such a radical thought that the markets should be allowed to correct this problem? I can see how bad things are getting out there, it frightens me as much as anyone else. But the more the govt continues to dictate to businesses what they are going to do, and how they are going to do it, the more damage will be caused. Most busnesses that I know of are as individual as the people that run them. By it's very nature the govt is more of a "one size fits all" solution kind of a place. What is good for one company will almost never be what is good for another.

It will not surprise me to see financial stocks continue to plummet. I believe the more money congress pumps into the banks in particular, the further and faster they will fall. Why would any investor want to invest in a company that is now subjected to the will of politics and not market demands? As an investor, I might buy stock in a comany based on what their balance sheets say, and if I think people want to buy their product. But how can I possibly know what political favors are going to be given (or not) to a company in the future? I would have to be crazy to invest in a company where their success or failure is no longer determined by what their balance sheet says, but in what political winds happen to be blowing at the moment. Does anyone really want to run a company that is profitable only because of how much influence it might have in the govt at a particular time? Do you start designing your business plan around what govt favors might be owed to you in a future quarter?

I believe that most of the folks in govt on some level really DO want to help, and believe that by throwing around close to a trillion dollars they will make things better. I fail to see how that can happen. When a business fails, it does so because it is no longer a viable business. That company made decisions that were not wise, or sell a product that people no longer want to purchase. To artificially "prop up" such a company is just to prolong the enevitable.

I wonder how long it will be until you start hearing the govt talking about laws to make it illegal for example to buy a foreign car. Or make the taxes on one so high that it would sort of be the same thing. What if the CEO's decide that 500,000 salary is not enought compensation for them and choose to leave their companies, and seek more profitable jobs somewhere else. Will the govt tell them they "cannot quit", because the econmy of this country "needs" them right now? When "for the common good" becomes your rallying cry, then your indifidual rights will always be trampled.

[Rustic23]

I concur.

Government seems to operate on a 'feels good' philosophy. I found it interesting that on one hand we should increase the tax on those that make more than $200k and on the other we should restrict salaries to $500k. Don't they see a large shortfall coming, or is the tax going to just be the difference between what they would be paid and the $500k?

[FinanceDude]

Quote:

Originally Posted by armor99 The govt wants strings attached to the money that they are giving banks, auto makers, etc. It makes sense. If you are giving money to get result "A", and people are choosing not to use your money for that intended puporse, then of course you would get angry. You would feel it is a waste of your money... and you would be right. But how exactly does a "private" business operate when not controlled, but is heavily "influenced" by the govt. The short answer is... that it cannot... at least not for very long.

But I have heard, "this time it will work", even though history would speak otherwise.......

Quote:

The thing that makes a business... any business profitable and viable, is the free choice of what to do in daily operation. Is it such a radical thought that the markets should be allowed to correct this problem? I can see how bad things are getting out there, it frightens me as much as anyone else. But the more the govt continues to dictate to businesses what they are going to do, and how they are going to do it, the more damage will be caused. Most busnesses that I know of are as individual as the people that run them. By it's very nature the govt is more of a "one size fits all" solution kind of a place. What is good for one company will almost never be what is good for another.

Good point........

Quote:

It will not surprise me to see financial stocks continue to plummet. I believe the more money congress pumps into the banks in particular, the further and faster they will fall. Why would any investor want to invest in a company that is now subjected to the will of politics and not market demands? As an investor, I might buy stock in a comany based on what their balance sheets say, and if I think people want to buy their product. But how can I possibly know what political favors are going to be given (or not) to a company in the future? I would have to be crazy to invest in a company where their success or failure is no longer determined by what their balance sheet says, but in what political winds happen to be blowing at the moment. Does anyone really want to run a company that is profitable only because of how much influence it might have in the govt at a particular time? Do you start designing your business plan around what govt favors might be owed to you in a future quarter?

It is an experiment in failure. Keynesian economics don't work, especially in a free market economy like ours.

Quote:

I wonder how long it will be until you start hearing the govt talking about laws to make it illegal for example to buy a foreign car. Or make the taxes on one so high that it would sort of be the same thing. What if the CEO's decide that 500,000 salary is not enought compensation for them and choose to leave their companies, and seek more profitable jobs somewhere else. Will the govt tell them they "cannot quit", because the econmy of this country "needs" them right now? When "for the common good" becomes your rallying cry, then your indifidual rights will always be trampled.

We are entering an era of protectionism and nationalism that will be unprecendented.

This post probably belongs in "FIRE-Related political topics", mods can move it there if they see fit.......

[FinanceDude]

Quote:

Originally Posted by Rustic23 I concur. Government seems to operate on a 'feels good' philosophy. I found it interesting that on one hand we should increase the tax on those that make more than $200k and on the other we should restrict salaries to $500k. Don't they see a large shortfall coming, or is the tax going to just be the difference between what they would be paid and the $500k?

Tax revenues are going to plummet, prompting the need to increase taxes........

[armor99]

It makes me angry.... and it makes me sad. And for the life of me I cannot understand how others just cannot seem to see it. The concepts that I spoke of earlier are logical and easy to understand. I would think that most of us in out daily lives have experienced similiar sorts of thing, if only on a smaller scale. Should be fairly simple for most folks to relate to. It seems so painfully obvious to me, that sometimes I wonder if others are willfully choosing not to see the truth of it. It is the only answer I can come up with for how someone can not see this sort of thing for what it actually is.

[Frugality_of_Apathy]

Quote:

Originally Posted by Rustic23 I concur. Government seems to operate on a 'feels good' philosophy. I found it interesting that on one hand we should increase the tax on those that make more than $200k and on the other we should restrict salaries to $500k. Don't they see a large shortfall coming, or is the tax going to just be the difference between what they would be paid and the $500k?

YouTube - Sloan - If It Feels Good Do It

Quote:

Originally Posted by armor99 It makes me angry.... and it makes me sad. And for the life of me I cannot understand how others just cannot seem to see it. The concepts that I spoke of earlier are logical and easy to understand. I would think that most of us in out daily lives have experienced similiar sorts of thing, if only on a smaller scale. Should be fairly simple for most folks to relate to. It seems so painfully obvious to me, that sometimes I wonder if others are willfully choosing not to see the truth of it. It is the only answer I can come up with for how someone can not see this sort of thing for what it actually is.

[ERD50]

Good thread armor99. Very pertinent to our money, as these political decisions are affecting that very directly. Much more so than many of the money topics we discuss here.

Quote:

Originally Posted by armor99 And for the life of me I cannot understand how others just cannot seem to see it.

I think we have touched on this before, but I'm starting to look at people not as conservative or liberal, right or left, but as "rational/analytical" versus "emotional/reactionary".

The "rational/analytical" looks at this bill and says, "how does this address the issues and restore faith in the economy?". If there is no evidence of that, they are not in favor of it. They see it as more money down the drain, an overall negative.

The "emotional/reactionary" looks at this bill and says, "Ohhh! I see they have money in there to support my favorite hot-button topic. I support this bill because, you know, we need to do something!!!". They see it as an overall positive, not through any measure, but just on an emotional response level.

I don't know for sure, but in my day-to-day meetings with people there seem to be far more "emotional/reactionary" types than "rational/analytical" types. So Congress responds to the majority.

-ERD50

[ERD50]

I just had another thought on this:

I don't know the details of our bankruptcy laws, so maybe someone can help here, but.... When a company goes into bankruptcy, isn't that when the govt can come in and oversee some of these business decisions, like what kind of salaries the officers may receive and such?

But that is a trade-off. The company is looking to legally absolve itself of some of its obligations, and in return they give up some of their decision-making power. So it sounds like Congress is trying to circumvent the bankruptcy laws we have.

Why not just let the companies go bankrupt, and let the laws on the books determine the actions required? Remember, "bankruptcy" does not mean "shut down the business". The goal of many bankruptcy proceedings is to get the company back on its feet and become profitable again. If there is no clear plan for that, then yes, it could just be an orderly shut down. But then, that's what it should be.

-ERD50

[armor99]

Quote:

Originally Posted by ERD50 I just had another thought on this: I don't know the details of our bankruptcy laws, so maybe someone can help here, but.... When a company goes into bankruptcy, isn't that when the govt can come in and oversee some of these business decisions, like what kind of salaries the officers may receive and such? But that is a trade-off. The company is looking to legally absolve itself of some of its obligations, and in return they give up some of their decision-making power. So it sounds like Congress is trying to circumvent the bankruptcy laws we have. Why not just let the companies go bankrupt, and let the laws on the books determine the actions required? Remember, "bankruptcy" does not mean "shut down the business". The goal of many bankruptcy proceedings is to get the company back on its feet and become profitable again. If there is no clear plan for that, then yes, it could just be an orderly shut down. But then, that's what it should be. -ERD50

Good point... but you forget about the enormous political pull that the unions have today. And by law.... the only way for most unions to be told to "go away" is after a company declares bankruptcy. There is a huge vested interest by the unions for these companies (UAW in particular) NOT going bankrupt. I believe this is why things are being done the way that they are.

[ERD50]

Quote:

Originally Posted by armor99 Good point... but you forget about the enormous political pull that the unions have today. And by law.... the only way for most unions to be told to "go away" is after a company declares bankruptcy. There is a huge vested interest by the unions for these companies (UAW in particular) NOT going bankrupt. I believe this is why things are being done the way that they are.

Yes, I'm certain that is part of the deal.

The recently impeached Governor of my State has been held up as the poster-boy for corrupt politics. He more likely deserves to be the poster-boy for stupid.

I wonder just what kind of deals were made behind the scenes to secure Union support/votes in the last Pres election? Of course, there were probably no phone calls or any other tangible evidence of the deals, and everything was probably done very indirectly, but I think it would be naive to think they are not very real.

And if the D-3 are not dealt with in the most effective manner, that surely affects our money.

-ERD50

[armor99]

Quote:

Originally Posted by ERD50 Good thread armor99. Very pertinent to our money, as these political decisions are affecting that very directly. Much more so than many of the money topics we discuss here. I think we have touched on this before, but I'm starting to look at people not as conservative or liberal, right or left, but as "rational/analytical" versus "emotional/reactionary". The "rational/analytical" looks at this bill and says, "how does this address the issues and restore faith in the economy?". If there is no evidence of that, they are not in favor of it. They see it as more money down the drain, an overall negative. The "emotional/reactionary" looks at this bill and says, "Ohhh! I see they have money in there to support my favorite hot-button topic. I support this bill because, you know, we need to do something!!!". They see it as an overall positive, not through any measure, but just on an emotional response level. I don't know for sure, but in my day-to-day meetings with people there seem to be far more "emotional/reactionary" types than "rational/analytical" types. So Congress responds to the majority. -ERD50

I re-read this again.... and I think that is right.... most people want to "will" things into existance. That somehow wishfull thinking alone will cause something "magical" to occur, and everything will turn out better.

Living is serious business... lots of choices to make, things to learn, lessons to apply. Thinking for yourself is a difficult road to travel. When you think for youself and things go wrong, there is no one to blame, or point a finger at, or feel the victim of. I always thought that is what adults do... as opposed to how children behave anyway.

And people will either look at the truth and accept it for how it is..... or use emotion to re-write reality as it suits them. And the day you surrender your ability to think for yourself, you just handed over that right to someone else for you. And after that.... well.... you deserve whatever you get. Maybe that is why I start laughing every time I hear union members complaining about how something in their contract is "unfair". Or I laugh even harder when I hear others say things like... "well... how was I supposed to know I could not afford that loan, that is the loan officers job to tell me....". Ok.... rant is over....

[samclem]

Quote:

Originally Posted by armor99 And by law.... the only way for most unions to be told to "go away" is after a company declares bankruptcy.

It is possible to decertify a union, and healthy companies have done it (once employees see that having a union does not benefit them). It's hard, and it is rare. It will become much harder if "The Employee Free Choice Act" now winding its way through the legislature passes. The "card check" provision in that bill takes away the right to secret ballots in union elections. It is nothing more than a transparent way to allow intimidation of workers, and it is heavily favored by at least one political party. One candidate who was elected to very high US national office in 2008 backs the idea.

This isn't a political issue, it is an economic issue. And, I'm not saying there's anything negative about this proposed law--if it is being pursued by a major party, then it must have a lot of merit. And "more powerful" unions--heck-"more power" sounds like a good thing for America. If those auto workers unions were just "more powerful," those auto companies wouldn't be in such trouble, 'cause they could just harness the more powerfulness of those united workers.

[laurence]

I definitely think things are going overboard, but you'll forgive me if I am sceptical that the "loyal opposition" all of a sudden found religion on not spending money like drunken sailors the moment the POTUS didn't hail from the same political party. I would say 100% of the congressmen and senators are acting in a logical/analytical manner with their votes. It is beyond my ability to suspend disbelief to think 99% of one party falls in the emotional category and 99% of the other falls in the rational category. If you look at the three senators who bucked their party, they hail from very vulnerable seats and know what their local constituents want.

As far as the money being spent, even the economists who criticize it say it could diminish growth by as much as a third of a percent 5 years down the line. I know there aren't many fans of Keynesian economics here, but I think his point about the long run = RIP is a valid one here.

There have been comparisons to this current plan and FDR's new deal here, and I think that's appropriate. But while there were numerous flaws in his plan, he did succeed in restoring what was most lacking - confidence. When FDR died this nation mourned like the loss of it's father. Grumble all you want about the nation being fools, this didn't happen by accident.

The nations debt doubled during Bush's Presidency, and what do we have to show for it? Am I believer in capitalism and free markets? Absolutely. I also wish for more fiscal discipline. But now both parties have learned to vote their constituents the treasury, and what we had under Bush was not capitalism, it was a corporate oligopolistic state where the corporate interests had the government acting as enforcers to bloat their profits and help mask their risks. It was a corpse-like pantomime of Adam Smith.

My particular beef with this whole multi-trillion dollar bailout is not the money ( o.k., that hurts) but something armor99 touched upon. Freddie Mac and Fannie Mae were abominations, the GazProm of the U.S. with political considerations and a government provided monopoly horribly distorting free market forces. But what we are doing now is going to make that pale by comparison. We are setting up a collection of partially or fully government owned industries that will sap our productivity for generations.

[ERD50]

Quote:

Originally Posted by laurence .... I would say 100% of the congressmen and senators are acting in a logical/analytical manner with their votes. It is beyond my ability to suspend disbelief to think 99% of one party falls in the emotional category and 99% of the other falls in the rational category.

Just to clarify my earlier "rational/analytical" versus "emotional/reactionary" comment - I agree with you that Congress is mostly working on the "rational/analytical" basis, but the motivation is to stay in office. And, if that means responding to what I think is a mostly "emotional/reactionary" populace, that is what they will do. So their actions become "emotional/reactionary" to address that motivation, but they are cold calculations.

One clear example, it is beyond the pale to believe that our tax code was the result of "rational/analytical" actions.

And, I don't ascribe those characteristics to straight party lines. If I did, there would be no need for the alternate descriptors.

-ERD50

[FinanceDude]

I'm not sure yet. I know it will stimulate govt spending, but what is going to get the consumers to start spending, it ALL starts with them.......

I suppose we will learn more and more after a few folks have time to peruse the 1500+ page document in its final form........

Our governor says we are eligible for $3.5 billion, but he plans on using that to close part of a $5 billion shortfall in the budget, so I don't think much roadwork or bridges will be fixed or built........

[Purron]

Quote:

Originally Posted by FinanceDude Our governor says we are eligible for $3.5 billion, but he plans on using that to close part of a $5 billion shortfall in the budget, so I don't think much roadwork or bridges will be fixed or built........

If part of the funds your state receives go to close the budget shortfall, don't you think that will help avoid layoffs? How about all the state funded projects that would be canned to close the budget deficit?

Quote:

Originally Posted by armor99 The thing that makes a business... any business profitable and viable, is the free choice of what to do in daily operation. Is it such a radical thought that the markets should be allowed to correct this problem?

I can understand this viewpoint. However, in the case of financial institutions, the government was already on the hook since they are federally insured. IMHO, the situation financial intuitions found themselves in was not due to rational free market actions. Profits were sought without properly weighing the associated risks while the regulators were asleep at the wheel.

[ziggy29]

Quote:

Originally Posted by FinanceDude I'm not sure yet. I know it will stimulate govt spending, but what is going to get the consumers to start spending, it ALL starts with them.......

I think this is pretty simple: the ones that still have jobs need to be firmly convinced they won't lose theirs.

Now how to make THIS happen, I don't know. And I still think there will be a hangover effect for a while, meaning a recovery might come grudgingly until the memories of this economy and job market begin to fade out and the "recency bias" in our thought processes no longer reflect the current reality.

Quote:

Our governor says we are eligible for $3.5 billion, but he plans on using that to close part of a $5 billion shortfall in the budget, so I don't think much roadwork or bridges will be fixed or built........

Sounds like the tobacco settlement all over again. No matter how much some windfall is targeted for a certain purpose, the lure of using it to shore up the general fund is too great to pass on for many states.

[Rustic23]

Go to your banker. Ask to borrow say 100k for a business start up. Show him the can't fail business plan. Then show him the 10k you plan on spending on a cruise to celebrate getting the loan, cash for you aging mother, new car for your daughter, son's wedding, new cloths for the other kids, and well a few bucks to go to Vegas.

See how quick you get the loan. IMHO, that is exactly what congress did! Only problem is we, those of us who are going to pay the bill, had no real say in it.

The stimulus bill was a jobs bill. Jobs for congressmen!

[armor99]

Quote:

Originally Posted by Rustic23 Go to your banker. Ask to borrow say 100k for a business start up. Show him the can't fail business plan. Then show him the 10k you plan on spending on a cruise to celebrate getting the loan, cash for you aging mother, new car for your daughter, son's wedding, new cloths for the other kids, and well a few bucks to go to Vegas. See how quick you get the loan. IMHO, that is exactly what congress did! Only problem is we, those of us who are going to pay the bill, had no real say in it. The stimulus bill was a jobs bill. Jobs for congressmen!

Well said Rustic23.... I tell you what.... the very first thing that I would do for a stimulus program, would be to institute a flat tax system. Instead of the highest rate being 35% (sorry if that is the wrong number), make it the same for everyone, say at 22%. This means that the 38% who pay no taxes at all... are now paying taxes like the rest of us.

[laurence]

National sales tax, abolish IRS. Exempt essentials like basic food items. Everyone pays as much tax as they want to. You want a fur coat? Go for it, thanks for the 10% contributed to the general fund. Get rid of the construction lobby, tons of other lobbying efforts for exemptions, etc. That's my dream.