Every once in a while I run across one of those economists who can only speak with a Calculator in their hand. This is a Case in Point. There are economic model tests which sometime have a relevance, and sometimes study only the inconsistencies of God. I believe that the real constant factor revealed must be the continuous nature of basic Living Costs; they little affected by either the total Income attained, or Hours worked. There may be some other correlation I do not recognize, but I don’t recognize a lot of things.
Is this a re-run of the S&L Bailout? Those with a sense of history may think so. This last Boom, like the not so successful Period in the mid-1980s, had identical Mind-sets; commercial venders desirous of the loans for the Tax advantages, with little Thought as to the long-term practicality of the loan structure. Everyone wanted the Tax Breaks, without consideration of the implications of repayment of the loans. Everyone wanted the Jobs and the Profits, no one wanted to worry about the fact that the loan structure could not support any sound commercial endeavor. The Result was to be expected, and Bankers now assume the attitude of violated Virgins, when Everyone knows they are experienced Street-Walkers. Children–Don’t Ask!
Simon Johnson seems to have the correct grasp of the activity of the financial sector, which I could possibly extend to the entirety of the corporate world. Financial innovation is the basic term utilized for the Trend of expanding the Risk for Investors, for the advantage of corporate managers. The Trend first appeared in the late 1970s, and began to roar in the 1980s; not really reducing withing the Period since. Corporate structure is run for the benefit of corporate managers, no one else. Bonuses are given for every Gain to Everyone, except Investors. Stock Options are given to Everyone, except Stockholders. Corporate growth generates greater issuance of Stock, ensuring that Stock price remains stable; the normal Profits generation for Stockholders is long-term gain in Stock prices. Investors must handle increased Risk, for corporate managers will assume none. Great Risks are taken by these managers, who get all additional Profits, and none of the additional Risk. Study modern Stock Exchange regulation: Stockholders get blamed for all mistakes, but are legally restricted from running the companies they own in Name only. It is a beautiful Shell Game, is it not? All you have to be is a corporate manager. lgl