Category Archives: Political Economy

Pithy approach to political economy

A colleague sent this along.  I know it floated around Internet for awhile.

SOCIALISM
You have 2 cows. You give one to your neighbor.

COMMUNISM
You have 2 cows. The State takes both and gives you some milk.

FASCISM
You have 2 cows. The State takes both and sells you some milk.

NAZISM
You have 2 cows. The State takes both and shoots you.

BUREAUCRATISM
You have 2 cows.  The State takes both, shoots one, milks the other, and
then throws the
milk away…

TRADITIONAL CAPITALISM
You have two cows.You sell one and buy a bull. Your herd multiplies, and
the economy grows.
You sell them and retire on the income.

AN AMERICAN CORPORATION
You have two cows…  You sell one, and force the other to produce the
milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.
Continue reading

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Filed under humor, Political Economy

Oil and Politics Visualization

Just started playing with this nifty tool that allows one to visualize relational patterns of oil sector employees’ contributions to federal politicians.

Price for oil.

I didn’t notice a difference between PAC money and individual contribution.  It seems a stretch to me to say that because an employee of Chevron gave $1,500 to Obama, Obama is in the pocket of big oil the way Bush or Cheney are.   One interesting thing to look at is how many people max out to all candidates.  That would seem a prxoy for people buying access versus supporting the politician they actually prefer (for better or for worse).

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Filed under activism, Network Visuals, Political Economy, Politics, Power, Activism

Can’t Grasp Credit Crisis? Join the Club

A good and brief description of how the housing boom, deregulation,  CDOs, and market ideology led us into this mess…

Can’t Grasp Credit Crisis? Join the Club – New York Times
Because these loans go to people stretching to afford a house, they come with higher interest rates — even if they’re disguised by low initial rates — and thus higher returns. The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.’s (a term that appeared in this newspaper only three times before 2005, but almost every week since last summer). Once bundled, different types of mortgages could be sold to different groups of investors.

Investors then goosed their returns through leverage, the oldest strategy around. They made $100 million bets with only $1 million of their own money and $99 million in debt. If the value of the investment rose to just $101 million, the investors would double their money. Home buyers did the same thing, by putting little money down on new houses, notes Mark Zandi of Moody’s Economy.com. The Fed under Alan Greenspan helped make it all possible, sharply reducing interest rates, to prevent a double-dip recession after the technology bust of 2000, and then keeping them low for several years.

All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But people — by “people,” I’m referring here to Mr. Greenspan, Mr. Bernanke, the top executives of almost every Wall Street firm and a majority of American homeowners — decided that the usual rules didn’t apply because home prices nationwide had never fallen before. Based on that idea, prices rose ever higher — so high, says Robert Barbera of ITG, an investment firm, that they were destined to fall. It was a self-defeating prophecy.

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Filed under economic sociology, economics, policy, Political Economy

Lessig talk on ‘hybrid economy’ March 27 || Bucknell University

I am encouraging all of my former Capstone (“Rise of the Network Society”) students to attend this one.   Lessig is an important voice discussing the pratcical and poitical implications of the overalps between technology, culture, law, and also politics.

As the press release states, Professor Eric Faden, who is bringing Lessig, is a client due to his creation of A Fair(y) Use Tale which explore issues of copyright protection.

Looks good!  Hope you can make it!

News: Lessig talk on ‘hybrid economy’ March 27 || Bucknell University
Lawrence Lessig, the renowned copyright and intellectual property rights author and Stanford Law School professor, will present a talk titled, “Remix — Making Art and Commerce Thrive in the Hybrid Economy,” on Thursday, March 27, at 7 p.m. in Bucknell University’s Trout Auditorium.

The talk is free and open to the public.

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Filed under Creativity, digital culture, economic sociology, Government, policy, Political Economy, Scholars, technology

Facing Default, Some Walk Out on New Homes

This NYT article caught my attention as a nice example of economic sociology.  The gist of it, captured in the quotation below, is about the shift in attitudes and practices around home buying and ownership in the US.   Traditionally home ownership is promoted by government policy and cultural norms because it is a means of encouraging personal savings, it boosts household credit ratings, and it improves neighborhoods by creating more local buy-in.  However, When those laudable goals merged with the world of financial innovation, deregulation, and a rise in a particular portfolio thinking world view, we end up with a new set of attitudes and behaviors about home ownership.  less than a Jimmy Stewart, feel-good, iron clad agreement between bank and homeowner, home ownership is a more fluid, transient financial deal that can be done or undone depending on the individual valuations of the players involved.  Home-ownership is one more liquid and negotiable financial arrangement, like owning stock, buying futures, or being paid in stock options.

Facing Default, Some Walk Out on New Homes – New York Times
You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of   and foreclosure have changed, economists and housing experts say.

As the article points out, this change is made clearer by the foreclosure bulge (upswing?  crisis?  not sure which term is the most objective).  As Todd Sinai, a professor at Wharton, points out, the very loans that made the housing market balloon set the stage for people to walk away.  many marginal home buyers shifted from being renters to nominally owners.  What actually happened is that they started renting from the bank with the chance to won if the value of the home increased faster than their repayment obligations.  If it doesn’t, quite rationally, they walk away from a mortgage that costs more than the underlying value of the house.  For the purchaser, he says, its a Heads-I-win-tails-you-lose situation.

Of  course, banks could sue in some states, but what bank is going to sue someone who can’t afford the mortgage?  Seems like a bit of poetic justice to me.

The article also focuses on You Walk Away, a company that somehow (I don’t get the business model) makes a profit on people walking out.  There seems to be  another interesting tension over the knitting  together of economic and moral realities.  Traditional auxiliaries to the home buying process don’t want to encourage people to walk away due to the embedded assumption that home ownership is indisputable social good.  Jon Maddux, one of the owners of You Walk Away responds:

“It’s not a moral decision,” Mr. Maddux said of foreclosure. “The moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’ They made a bad decision, but they shouldn’t make more bad ones just because they have this loan.”

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

Zulueta is one of the homeowners who Walks Away (is that trade-marked?  haha).

His line of reasoning seems good to me.  The financial and home buying industries ravaged the marginal home buyers and waved their magic wands of financial innovation to off load the debt to other financial players.  The unraveling of a social compact around home buying started among the banks and mortgage companies.  Seeing the writing on the wall, the home owners are following suit and treating a mortgage as one more financial arrangement and not a “marriage contract.”

My interest  in this was piqued by some work Jerry Davis is doing on “The Portfolio Society.”  So keep an eye peeled for that.

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Filed under Banking, economic sociology, innovation, macroeconomics, Political Economy

Market contagion

This will make economic sociologists of all of us.   Expand later…

A Crisis of Faith – New York Times
Today, we’re witnessing another kind of contagion, not so much across countries as across markets. Troubles that began a little over a year ago in an obscure corner of the financial system, BBB-minus subprime-mortgage-backed securities, have spread to corporate bonds, auto loans, credit cards and now — the latest casualty — student loans.

Indeed, this week the state of Michigan suspended a major student-loan program because of the sudden collapse of another $300 billion market you’ve never heard of, the market for auction-rate securities.

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Filed under Banking, economic sociology, Political Economy

The power of power- Warren Buffett throws $800bn lifeline to bond insurers

If you haven’t been watching the slow, ugly waltz to recession, the role of the bond insurers in the housing mess in the US has been crucial. Bored with insuirng boring (but so important) municipal bonds, the insurers decided to lend their good name too the high risk securitized mortgages which were the basic log on the bonfire of the housing fever.

They insurers now face lots of uncertainty ad because the rating they give to ANY bond becomes the rating for EVERY bond, their former gold standard (but boring, of course). Idiots. Boring can be good in all things financial). The ripple effect of not covering their claims and loosing their rating will be wide, profound, and in some schoolyard way, unfair. Why should my little borough face a credit crunch because the Martini swilling money classes in NY were “bored” by municipal bonds?

Anyway, enter Warren Buffet, superman of the financial age.

Warren Buffett throws $800bn lifeline to bond insurers – Times Online
Warren Buffett, the world’s third-richest man, has offered to help out three of the biggest bond insurers by reinsuring the $800 billion £408 billion of local government securities they underwrite.

Mr Buffett told CNBC television in the US that his firm, Berkshire Hathaway, had approached MBIA, Ambac and FGIC and offered to take on their municipal bond liabilities by providing a second level of insurance.

One of the aphorisms that Castells throws around that rolls around in my read is that in the information age what matters is not “the flow of power but the power of flows.” Maybe, as the hobbling of mighty banks and investment houses to the power of credit ratings and cash flows away. But, doesn’t Buffet’s potential to single-handedly right the global financial system offer a different new vision of power- the power of the super-duper rich to make singular impacts in the gargantuan global financial economy?

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Filed under Banking, Network Society, Political Economy

Thoughts on SL Banking ban

I know I’ve talked to people about virtual worlds and when they point out that it is “odd” or somehow “wrong” for people to adopt other identities, I sometimes repsond that the ability to do so, or at least, the ability to do anything meaningful as your alter ego, will be limited by how porous the boundary between virtual and real wrold is.  moreover, that barrier is getting more porous in most cases.  As virtual worlds develop, what people want to do in and iwth them will bump against the very real world of durable identity and the need for regulation

So, the fall out from the banking crisis as described in his WSJ article seems to affirm my point.

First, only in SL  :>):

Cheer Up, Ben: Your Economy Isn’t As Bad as This One – WSJ.com
On Sunday night, the female character was wandering topless through the virtual lobby of a Second Life bank called BCX Bank, where a sign said it was “not currently accepting deposits or paying interest.”

I still don’t get very well what these banks’ business model was?  What is their loan portfolio?  How could they possible deliver 100% returns?  The answers are not clear.  I suppose partly it is speculative dynamics around land.  Do the bankers know about Linden’s plans to control land supply?  Would that constitute insider information?  Or, through fast growth SL business; this was the story behind Ginko Financial which failed last summer and was purportedly investing in gambling in SL (another story of regulation).

For example, how can this guy say the ban will not effect his business?

Cheer Up, Ben: Your Economy Isn’t As Bad as This One – WSJ.comSteve Smith, who runs BCX bank under the avatar name Travis Ristow, yesterday said depositors — who are owed a total of $20,000 — will be able to get their money back next week. The bank, which had promised to pay depositors more than 200% in annual interest, is now allowing only small withdrawals.

“This won’t affect us long term. It’s just a short-term difficulty,” said Mr. Smith, 40 years old, who also has significant land and real-estate interests in Second Life. He said he retired from the real-life mortgage business to devote his time exclusively to his Second Life enterprises.

Finally, there is one mention that one bank was arbitraging Linden-US exchanges to the tune of $15,000/year in profit. and

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Filed under Banking, Business, policy, Political Economy, Second Life, virtual worlds

Irrational versus Rational Financial Panics

There is  a big difference between a crisis of liquiditya nd solvency, as Pual Krugman popintso ut in today’s NY Times.  Liquidity is a problem of access to cash in a defined time frame.  Solvency is a problem of not having value (assets).  The problem with the current housing blues (sub prime weakness et al) is one of solvency, not liquidity.   The big financial institutions simply made a lot of bad loans.  Until those are uncovered and dealt with, fundamental confidence will not return.  hence, investors, worried that market signals about which loans and institutions are high irsk are not clear at all, are quite rationally paniced.  This is quite different from the “irrational” bubbles I discussed with my students like the 17th century tulip bubble or the 1990s dot-con bubble.  In those cases, values were bid up over hard to specify assets because decision makers paid attention to relevant others.

When will things be better?   Can the Fed and Treasury make things right? Here is what Krugman prognosticates:

After the Money’s Gone – New York Times
Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

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Filed under Banking, Government, macroeconomics, Political Economy

Apple 2.0 Dell vs. Apple: 10 Years Later «

FORTUNE: Apple 2.0 Dell vs. Apple: 10 Years Later «

Michael Dell famoulsy siad about ten years ago  that appls should shut down and liquidate.  Ahhh, such hubris.  Fortune has the scoop on the intervening ten years.

Seems a resounding endorsement of a value-oriented, innovative company.  Of course, Michael Dell is personally wealthier than Steve Jobs.  So how do you measure success?  Which company is doing more for the overall prosperity of the country?  You could argue that Dell does a lot by making PCs so cheap.  Point taken, but that would have happened anyway.  It woudl be good to know wthe relative numbers of employees as well.

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Filed under Great Companies, innovation, Political Economy