The worst crisis in our lifetime

[Dirtweasle]

The “tax extenders” bill, which yesterday I relabeled The Hypocrisy Act of 2010, contains some little-discussed provisions that would allow certain firms to further underfund their employee pensions.  Advocates for the legislation promote this as a virtue, continuing a longstanding bipartisan trend of Congress rewarding bad pension behavior by both management and labor bosses in firms with a certain type of pension plan.  These provisions are irresponsible and should be removed from the bill.

I’m going to use this as an opportunity to provide a crash course in a few aspects of pension policy.  Let’s begin with some background on defined contribution and defined benefit pension plans. ...

[...]

... One particularly egregious provision (in section 303 of the draft House bill) would begin to weaken the “no new promises until you fully fund old promises” rule.  Even worse, it would do so through an accounting change to make plans whose asset values declined significantly appears as if they had not lost as much value.  The market losses of 2008 and 2009 were damaging and real, and the lost value in DB pension plans needs to be rebuilt through new employer contributions.  To pretend these losses did not happen while allowing new pension promises to accrue is irresponsible.

Like so many other changes in this bill, these are drafted as temporary changes.  Experience strongly suggests that if these provisions are enacted once into law, they will become “extenders” in the future, resulting in a permanent weakening of the funding of DB pension plans.

This is like planting a time bomb, with future retirees as potential victims.  Years from now, when a firm goes bankrupt, the press will run heart-rending stories of retirees forced by the PBGC rules to take haircuts to their pensions, in which they receive less than they were promised over a lifetime of work.  The reporter will wonder, “Why didn’t anyone object at the time, when Congress weakened the requirements that employers fully prefund the promises they make to their retirees?”

I am objecting.  Will anyone in a position of power say no?

Tip for reporters: These legislative provisions are almost always driven by 1-4 specific firms.  There’s a story waiting for the reporter who can uncover which firms benefit from each provision, and which Members of Congress are responsible for the insertion of those provisions into the draft House bill.

[Egbert]

From nowhere in particular.

All economies start with barter, in which you exchange one good that you have for another good that you want. As economies get larger and more complex, indirect exchange becomes more efficient and thus preferred. In indirect exchange, you do not trade for a specific good that you want. Instead, you trade for a good that you know everyone else wants (a placeholder good), trusting that when you finally find something that you want, you will be able to exchange your placeholder good for the item you really want.

If someone were to remove much of the silver from a barter economy, the remaining amount would be more highly valued. But, it wouldn't cause the economy to come to to a halt. Rather, a new placeholder good would come to be used -- gold, or copper, or platinum, etc. Remember that there is nothing magical about metals for use as money. They merely possess all of the qualities that define a reliable store of value: they are portable, divisible, durable, homogenous, and exist in limited supply.

The supply of money does not constrain the healthy rate of growth of an economy. Economic growth is actually the slow process of building up ever larger amounts of capital in the economic system. Some of that capital will exists in the form of manufacturing and infrastructure improvements which improve worker productivity, some lives in the mind of workers in the form of additional training and knowledge, and some resides in the form of stores of value like silver. It is possible to "fool" an economy into using some of that capital to build or buy things that it doesn't really need (like tons of abandoned, foreclosed homes, for instance.)

During the phase when these things are being built, it seems like the economy is doing better. But, that is because you are converting stored value in the system into these items, and adding the income produced in the process to everyone's paycheck. This means that what you are actually doing is eating your seed corn. If you eat your seed corn, it may seem for a while like you have a lot of food and you feel rich, because you still have your normal amount of food, plus the seed corn that you are eating. Eventually, however, when it comes time to plant again, you realize that all you were doing was cannibalizing your own capacity to produce a steady supply of corn. You exchange short term gain for long term loss, which is the opposite of good investment in which you exchange short term loss for long term gain.

Thus, increasing the size of the money supply through the fraud of paper money does initially seem to boost the economy. But, every ounce of boost is a bad investment. And eventually, when the economy runs out of things to cannibalize, the whole thing collapses

[Yossarian0815]

I´m curious. So when we switch to the egbertopia civic  , who gets which amount of gold? do the top 1% earners who under the current system own half the money get half the gold?

[Egbert]

I told you, when I am Caesar, it's mine to dole out. Whiners get none. Producers get the spoils.

[Kingfish]

I told you, when I am Caesar, it's mine to dole out. Whiners get none. Producers Brunettes with big tits get the spoils.

If you're going to be Caesar, you might as well act like Caesar

[Yossarian0815]

Whiners get none.

Does that include the "It´s all the gubmint´s fault" - crowd?   

[Egbert]

Whiners get none.

Does that include the "It´s all the gubmint´s fault" - crowd?   

No.
If you put my statement back together, if they produce, they get paid.

[Egbert]

For those that argue that mandatory minimum wage raises are a good thing.
Here's a fine example of a real world situation where minimum wage law will sink an economy.
Cannery meat packing has many minimum wage jobs. In the past, Samoa was exempted from minimum wage requirements. this allowed the 2 canneries to remain open as the wages could remain competitive.
Now, they are being forced to increase the minimum wage. These last of the canneries in Samoa is working towards closing.
http://online.wsj.com/article/SB10001424052748704596504575272991349796452.html?mod=WSJ_newsreel_opinion

This same stuff is echoed around the newspapers.

[dumrox]

Tuna tease!

The WSJ article requires a subscription :-(

[Seminole]

Walter Williams has touched on this subject a few times.

[Seminole]

http://www.cnbc.com/id/37446571

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

[rleete]

It should be perfectly legal for the banks to hire someone to shoot these squatters.

You signed a damn contract.  If they "snookered" you, it's your own damn fault.  Move out, freeloader.

[Egbert]

There was no snookering.
They assumed that if the bank would lend to them, they could afford it.

The bank sold it to them because Fannie or Freddie would buy the loan from them.

[rleete]

There was no snookering.
They assumed that if the bank would lend to them, they could afford it

Then they are stupid enough that they should die to preserve the gene pool.  I have 30k limit on my CC.  Does that mean I should max it out and not have to pay?  Should I go buy a new Ferrari, and expect to drive it without paying?

Freedom is not the option to break whatever law you want, or to screw everyone else for your own shortsighted ignorance.

[dfgardner]

I disagree.

A home is nothing more than an asset.  When the market value of the asset is less than you're obligated to pay, the correct business decision is not to pay.

Companies do this all the time.

What the mortgage lenders want is for homeowner to feel a moral obligation that, in fact, the business companies do not.

Sauce for the goose is my thinking.