Economy Is People

A great demonstration of the fact that economy is people, from the 1920s:

On behalf of the pool, the pool manager, as broker, would begin buying and selling shares of the stock at frequent intervals, in no apparent pattern. Often he would buy and sell it back and forth among the members of the pool…..these essentially spurious transactions, accomplished with the sympathetic help of the specialist, would be so weighted that the price of the stock would begin to rise slightly. In speculators’ jargon, it would be “active and higher”…Thus the stock would be called to the public’s attention, and the notion of making a quick profit in it planted in the public’s mind. The eager tape-watchers would gradually begin to buy – cautiously and tentatively at first, then as the activity continued to increase and the price to rise, more and more boldly. Now the pool manager’s operations would become more delicate. On some days he would abruptly switch to the selling side, simply to create confusion; then just when the public was about to decide the picnic was over, he would come back in with a torrent of buying that would sweep all along with him. Finally, in a skillfully conducted manipulation, the thing would become self-sustaining; the public would in effect take the operation over, and in a frenzy of buying at higher and higher prices would push the stock on up and up with no help from the pool manager at all. That was the moment of the final phase….often spoken of indelicately as “pulling the plug.” With a mousiness in sharp contrast to the elaborate fanfare with which he had begun his buying, the pool manager would begin feeding stock back into the market. The price would respond by turning downward, gradually at first, then more rapidly as the pool manager’s trickle of sales mounted to a flood; and before the public could collect its senses, the retreat would have become a rout, the pool wold have unloaded its entire bundle profitably, and the public would be left holding the suddenly deflated stock….

Proof that fund managers are not in the business of manipulating dollars, they're in the business of manipulating people.

Another fantastic example of that (which actually extends the example above) is the profile Planet Money did on Proprietary Trading. The central contention there is that investment banks took money on behalf of people to invest in the market, and then used that money to help make their own investments do better, at the cost of the people who were investing their money through them.

Ian Moss Bait

Adolfo Guzman-Lopez for NPR's local affiliate 89.3 reported:

Almost half the department’s full-time positions — 33 out of 70 — will be gone through layoffs, early retirement, or unfilled vacancies, Garay said. Fifteen people who work for Cultural Affairs will lose their jobs - some in two weeks, others in July.

(...)

The layoffs, Garay said, are part of budget cuts that include transferring the administration of city-owned theaters and art centers to other organizations. Under the plan, outside groups would assume control of the Madrid Theater in Canoga Park, the Vision Theater in Leimert Park, the Warner Theater in San Pedro, and the Watts Towers Art Center. The city will issue requests for proposals.

Last month, supporters of the cultural affairs department jammed an L.A. City Council meeting to oppose a proposal that would gut the department’s $10 million budget. Council members shelved the plan.

I don't know what the impact of the city getting rid of the arts buildings, but it was gratifying to see that there are a lot of "supporters of the cultural affairs department" (don't they just mean "supporters of the arts"?) in Los Angeles.

A Strange Article

A strange news story that stuck out to me (it's behind a pay-wall, so here's the important bits):

IQALUIT, Nunavut (Dow Jones)--European members of the Group of Seven nations told their counterparts that budget problems in Greece are "no matter" for the International Monetary Fund, German Finance Minister Wolfgang Schaeuble said Saturday.

Speaking to reporters at the end of a meeting with top G-7 financial officials, Schaeuble said there was "no doubt" that the euro-zone members oppose any outside involvement in helping Greece to solve its problems.

"All our partners outside the euro zone have the firm impression that the Europeans will solve the problem and can deal with it and that we are aware of the problem," Schaeuble said. "But we have strongly and unanimously refused to discuss internal problems." To make that point, he added that Europe isn't discussing problems occurring in the U.S. state of California either.

I don't exactly know why this article struck me so oddly. I guess it's the strongest statement of territorial integrity from Europe I've seen yet. I've held that the slow process of the EU's birth and solidification has been like watching the US' Constitutional Conventions in slow motion -- watching a federation of states become a single nation -- but this is an interesting new take. I suppose this is a by-product of the new EU Constitution, stating that there's now one EU foreign policy and therefore things like the IMF have to go through Europe first.

I guess what really strikes me is that the State of California does not have any internationally recognized sovereignty, whereas as far as I know Greece still does. (side-note: the United States did want to give California some form of internationally recognized sovereignty during the very early days of the United Nations -- the USSR wanted each of its 14 Republics to be treated as separate states for the purposes of the UN's Security Council, and the US threatened that if that was the case, each of its 50 states would be given a vote on the council -- but I digress) I wonder how that statement played in Greece.

Nationalization Holiday?

An idea floated across my mind today. I've been reading a lot about how one of the barriers to nationalization may be an investor run on all the banks--shareholders know that they're going to be wiped out, so they will dump stock in their bank, assuming that their bank is next.

But what if the SEC closed trading during the nationalization period? Obama announces on Monday, "Today we're going to begin a process of restructuring the financial industry, and in the interest of stability, there will be a five-day stock market holiday. Only the Federal Government would be empowered to act, they nationalize the ones they want to nationalize and assure the public that any banks un-nationalized by the end of the holiday will remain un-nationalized.

I wonder how that would play out, though. I really am not sure how investors would respond at the end of the week. I personally think they'd wind up with more confidence at the end of the week, because they'd have more of an assurance that their bank is actually solvent. But I don't know.

Meritocracy and Capitalism

In my last class with Czech dissident/journalist Jan Urban (whose lack of a Wikipedia page is a travesty), he asked the question, is our current democratic system the only possible form? He then threw out some ideas, including a meritocracy.

My mind wandered, and I tried to imagine a meritocracy. I wondered what would happen if we had a council of folks who were empirically designated as the "best" of society--obviously a silly, impossible goal. Then I wondered about a possible way of empirically designating "the best."

Instantly, in our capitalist culture, I imagined a "board of directors" assembled from the highest paid CEO's in this country. And I laughed. Because the highest paid CEO's are the last people I'd want running this country. If our country was run by the CEO's of Merryl Lynch, Goldman Sachs, and a board of hedge fund managers, or the CEO's of the big three. Did you know that the CEO of Lehman Brothers is one of the top 10 paid CEO's of 2008?

Looking at the 2008 list, my utter disgust at the resulting board was a little unfair--many of the CEO's on that list run large successful companies well and without drama--like Howard Schultz at Starbucks. But is Larry Ellison at Oracle really a better CEO than Steve Jobs at Apple? Is he a better CEO than anyone else in the country?

It's just another way of looking at the whole "what does compensation mean in America" thing. If we chose our political leaders--or our economic leaders--from the top of this chart, I think we'd be fairly badly off.