Archive for December, 2008|Monthly archive page

Google Monetizes Public Libraries?

With public libraries reeling under expanded budget cuts, Google’s new deal with the publishers seems to threaten public libraries, which offer Internet service.

Karen Coyle’s warning about Google’s new plan is short enough that I need not summarize it. Google’s response seems disingenuous.

Keep in mind that the major university libraries supplied books that were subsidized by public money.

Whatever happened to “do no harm”?

Financial Regulatory Daisy Chain

I read that Marc Mukasey, son of Atty. Gen. Michael Mukasey, who works for Rudolph Giuliani’s law firm, is representing Frank DiPascalli, whom the Wall Street Journal reports is suspected as being in the center of the Madoff scheme. Of course, Madoff himself and his family had numerous connections with regulators.

Now just imagine that Madoff had been a poor person cheating on welfare. How long could he have gotten away with it?

Shock Doctrine in California

California is undergoing its own shock treatment. The Republicans are a minority, but they have enough votes to block the supermajority required to pass a budget. They have all signed a no tax pledge. They have a plan to balance the budget without taxes, by drastically cutting spending and destroying environmental and labor protections, such as giving employers flexibility to demand as much work for as many hours without overtime pay on any single day, so long as the number of hours does not exceed 40.

Bernie Madoff’s Ponzi Scheme and the Stock Bubble

Bernard Madoff, former Chairman of the Board of Directors of the National Association of Securities Dealers, has just been arrested for operating a Ponzi scheme that lost perhaps $50 billion. His clients were supposedly sophisticated investors.

He reported a healthy rate of profit that was amazingly steady — so much so that it should have been a source of concern. His clients accepted the reported profits as real, making them more than satisfied with their investment. Only after the downturn caused people to make withdrawals did they learn that the investment was nothing but an old-fashioned pure amid pyramid scheme.

The difference between Madoff’s scheme and the stock market bubble is intentionality. In a pyramid scheme, someone knowingly promises higher profits, which can only be paid out from the proceeds of new “investors.”

A stock market bubble works in a similar fashion, except that no individual agent is organizing it. The stock price goes up, causing more people to throw money into the stock market, which causes the stock to grow, irrespective of further perspective of any underlying value. Everyone can become rich so long as enough new money exists to keep the game alive.

Preemptive Coverup on Wall Street

The Wall Street Journal reported today that securities firms have a claw back clause that allows them to call back bonuses from people whose screw ups turn out to cost the company big bucks. ok. But Morgan Stanley’s contract includes “reputational harm”: which sounds like it would include people who tell tales out of school:

Grounds for invoking the provision include “the need for a restatement of results, a significant financial loss or other reputational harm to the Firm or one of its businesses,” the memo said. Morgan Stanley’s rule applies to 2008 bonuses and cash payouts vesting over a three-year period. The roughly 7,000 employees covered by the policy range from top brass to midlevel workers.

Patterson, Scott. 2008. “Securities Firms Claw Back at Failed Bets.” Wall Street Journal (10 December).

Thoughts from the Great Depression

“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.” Continue reading

New Radio Interview

I just had a wonderful time talking with Kris Welch about the economic crisis for the second half of her hour long show on KPFA. She is such an enthusiastic host that she brings out the best in her guests.