Dehydrated Banks: Just Add Water

[donalds]

Re: Dehydrated Banks: Just Add Water

JK says:

". . . you're correct that itulip is developing hypotheses which have yet to be proven. part of the purpose of these ongoing discussion is to monitor developments and share "sightings" that support or disconfirm our hypotheses."

Nothing wrong with putting forward a "hypotheses" they can't be "proven" until after the fact. In the social (and hard) sciences, a hypotheses is developed by means of testing it against logic and empirical consequences. iTulip's "ongoing discussion" "to monitor developments and share 'sightings' that support or disconfirm" your hypotheses" is of value in and of itself. But if you are really attempting to apply logic, then don't use terminology (i.e. nationalization) that is illogical.

[c1ue]

Re: Dehydrated Banks: Just Add Water

I don't mean here to be a trouble maker, and I very much appreciate iTulip's insights and historical breath, even where I disagree. My intent here is to prod, and in this discussion flesh out this notion of nationalization. In doing so, perhaps I have demonstrated obvious weakness in the analysis. Lesson: tighten up the terminology, or risk undercutting the basis for your assertions.

How about providing some new (or old) terms by which iTulip can define the extent of the problem?

It is easy to criticise other people's thinking based on existing terminology, but it is not so easy to precede such thinking with new definitions.

For example, you quibble on the meaning of "nationalization" - to wit - that since the government or government agencies do not have official control over those GSEs in question (FNMA, etc), that therefore the description of the ongoing process of nationalization is incorrect.

What then in your view is the correct definition?

From my point of view - Shakespeare had it right: "a rose by any other name would smell as sweet", or in this case, as foul.

Or put another way: sponsorship of assets, liquidity and/or collateral is the flip side of John Marshall's "the power to tax involves the power to destroy".

[donalds]

Re: Dehydrated Banks: Just Add Water

Clue says:

"How about providing some new (or old) terms by which iTulip can define the extent of the problem?

"It is easy to criticise other people's thinking based on existing terminology, but it is not so easy to precede such thinking with new definitions.

"For example, you quibble on the meaning of "nationalization" - to wit - that since the government or government agencies do not have official control over those GSEs in question (FNMA, etc), that therefore the description of the ongoing process of nationalization is incorrect.

"What then in your view is the correct definition?"

Since I'm not the one making the argument for nationalization here, it isn't clear to me how it is my responsibility to make the terminology. In any case, I did. I referred to it as taxpayer subsidization, and I contrasted that with nationalization, which I clearly did define (though perhaps you missed it) as government (taxpayer) ownership. There is a big difference between taxpayers subsidizing and taxpayers being owners. To take just one example: taxpayers subsidize health care for the poor but taxpayers don't own the health care industry.

You may perceive my argument as quibble, but when the entire basis of the commentary hinged on nationalization, then challenging that basis is not to quibble.

[jk]

Re: Dehydrated Banks: Just Add Water

[reposted below]

[EJ]

Re: Dehydrated Banks: Just Add Water

Fred, you state:

"You are correct that nationalization strictly speaking refers to the event of a private bank coming under direct ownership by a government entity. We are saying that if a private bank's assets are guaranteed or held by government the distinction between nationalization and dependency on government support is, from the standpoint of taxpayer liability, precious."

I agree with this. So, concluding from this, what EJ is referring to when he speaks of "nationalization" is not really nationalization, but instead he is referring to "taxpayer liability". So why call it nationalization when it is not?

Should he in the future run with this faulty notion of nationalization, then he is doing a disservice to his readers, for doing so is more than just a matter of semantics, but is to perpetuate a fallacy.

Call it poetic license, but the point is when all is said and done, will US banks be more or less nationalized, that is, government entities in all but name versus private corporations? There are other writers that will claim that government deposit insurance makes the banks effectively an extension of government and thereby nationalized. Others will not feel comfortable using the term unless a bank's board of directors is occupied by government employees. As the crisis evolves, government involvement in the industry that was not long ago unthinkable will become commonplace. Sometimes you have to stretch the strict definition of a term to show readers how the context is evolving.

[EJ]

Re: Dehydrated Banks: Just Add Water

specificity and clarity is always valuable. but part of what's going on is the masking of "reality" - the cpi does NOT measure inflation, real gdp is NOT real, and the relationship of government to the financial system will be couched in free-market language, while behind the scenes the fed et al provides life support. so, in a literal sense "nationalization" is incorrect, yet it captures some of the flavor of what's happening.

i used to have an interest in the soviet union, when there was a soviet union. academic analysts discussed a "circular flow of power," in which the central committee picked the politburo, and the politburo nominated new members to the central committee. it's the first thing i thought of when trying to conceptualize the relationship between the fire economy, its funding of both political parties, the appointments to the fed and treasury, and the interventions [or lack thereof] of the federal agencies - the fed, the treasury, the federal home loan banks, the sec, the futures board, etc. this is not to say that i think we live in a one party dictatorship; we don't. but we need a way to conceptualize what's happening, and i don't think we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do.

This is an excellent point. Take for example Henry Paulson, who moved from a FIRE Economy leadership role into a key government leadership role. When applied to Japan this is called "crony capitalism."

The NYTimes published an editorial on the subject in July 21, 2002: The Global Cost of Crony Capitalism

THROUGHOUT much of the 1990's, Washington had a standard and somewhat preachy -- message to the rest of the world: In an era when markets rule and military might is of limited use, a nation's influence rises and fall largely on its financial credibility.

That was easy to say when the country's markets were rising, its biggest companies were trusted to report the facts each quarter and the rest of the world wanted to look like America. But now that a chunk of that 90's success has been exposed as mythical -- and markets have staggered back to pre-boom levels -- a sobering question is settling over Washington.

If America's corporate prowess and clean markets were as much a source of its superpower status as its military might, could corporate abuses erode a key element of national power? Is America going to pay a diplomatic price for crony capitalism, as so many other countries have?

After the demise of the housing and other debt bubbles the question applies even more today.

[EJ]

Re: Dehydrated Banks: Just Add Water

JK says:

"i think the take away here is that the banks are kept liquid and are helped enough to avoid having to sell paper into a no-bid market. this stretches out the process so that the paper can be held long enough to default [or not] over a prolonged period, instead of all being marked down at once."

Fine. No argument here. But this is NOT nationalization. So my argument holds.

Unless I'm mistaken, the entire iTulip thesis of reinflation and the infrastructure/alternative energy boom rests on government taxpayer subsidized fiscal injections (aside from, and presumably more significant than, Fed rate cutting and dollar weakening) which in more extreme cases might take the form of nationalization(?).

OK. No harm in promoting ideas and predictions. But . . . as I've said before, no analysis siting sources/studies/documentation/data to support the assertion of reflation leading to this boom have been provided. So far, it is only speculation. Being clever ain't good enough, for without empirical support, the thesis is grounded on ideas/predictions and nothing more.

Somewhere there must be a methodology from which the ideas/prediction is based, one which is supported by empirical analysis. If not, then no methodology exists and we're left with nothing short of pure, thin air, speculation.

For starters, I recommend the Harper's article which is now available online. More specifics that support and track the hypothsis are developed in the subscription area. As JK mentions, Bill has done an outstanding job of tracking down legislation and other supporting data.

[jk]

Re: Dehydrated Banks: Just Add Water

[i moved this because it was followed in less than a minute by a post of ej's, so might have been overlooked, and i'm both annoyed and amused by it]

Quote:

Originally Posted by donalds Jk says: "so, in a literal sense "nationalization" is incorrect, yet it captures some of the flavor of what's happening." ". . . we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do." Lets see if I'm getting this. In order to capture "some of the flavor of what's happening", one has developed a precise vocabulary using a term loosely, meaning here using a term incorrectly. Doesn't sound very precise to me. I expect politicians to take license with such careless abandon, but I would not presume the same of iTulip. Should I from here on? I don't mean here to be a trouble maker, and I very much appreciate iTulip's insights and historical breath, even where I disagree. My intent here is to prod, and in this discussion flesh out this notion of nationalization. In doing so, perhaps I have demonstrated obvious weakness in the analysis. Lesson: tighten up the terminology, or risk undercutting the basis for your assertions.

now i know how politicians feel. talk about peculiar editing! you chose to leave out the words "I DON'T THINK" before the phrase "we have a good analysis.." just SLIGHTLY changing the meaning. duh!:rolleyes:

[i think some embarrassment and apologies are in order.]

[donalds]

Re: Dehydrated Banks: Just Add Water

JK alludes to my quote:

". . . we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do."

He then says:

"now i know how politicians feel. talk about peculiar editing! you chose to leave out the words "I DON'T THINK" before the phrase "we have a good analysis.." just SLIGHTLY changing the meaning. duh!"

EJ (I'm presuming, or some administrator) ends with:

"[i think some embarrassment and apologies are in order.]"

While JK assumes telepathic powers, I on the other hand concede simple human error: the "I don't think" was lobbed off inadvertently, not by choice. In any case, though I can't prove it (proving a negative is always hard to do), it doesn't change one iota the substance of the argument I made.

I think more likely JK's point has more to do with an attempt to suggest lack of integrity on my part, thus undercutting all rationality and logic in my arguments - and thus no need on his part to rebut my reply to him in any substantive way.

As for embarrassment and apology: it seems I have offended the iTulip clique. My apologies given, though no embarrassment felt.

[jk]

Re: Dehydrated Banks: Just Add Water

JK alludes to my quote:

". . . we have a good analysis with a developed vocabulary to describe things precisely. thus, "nationalization," loosely used and acknowledged as loosely used, will do."

He then says:

"now i know how politicians feel. talk about peculiar editing! you chose to leave out the words "I DON'T THINK" before the phrase "we have a good analysis.." just SLIGHTLY changing the meaning. duh!"

EJ (I'm presuming, or some administrator) ends with:

"[i think some embarrassment and apologies are in order.]"

While JK assumes telepathic powers, I on the other hand concede simple human error: the "I don't think" was lobbed off inadvertently, not by choice. In any case, though I can't prove it (proving a negative is always hard to do), it doesn't change one iota the substance of the argument I made.

I think more likely JK's point has more to do with an attempt to suggest lack of integrity on my part, thus undercutting all rationality and logic in my arguments - and thus no need on his part to rebut my reply to him in any substantive way.

As for embarrassment and apology: it seems I have offended the iTulip clique. My apologies given, though no embarrassment felt.

it was not an administrator; i appended the note re embarrassment and apologies. i think [speculating] the error arose because you were worked up, emotionally, about the issue, and thus read hurriedly instead of carefully. i don't impugn your motives or integrity, only your process. i don't assume telepathic powers, unless you assume telepathic powers are required to take care enough to read the words as they are written on the page. to rephrase, what i wrote was that IN THE ABSENCE OF CAREFULLY ELABORATED ANALYSIS AND TECHNICAL VOCABULARY, we are reduced to using terms loosely in an attempt to convey, against all odds, our intended meaning. there is no harm done by you pointing out that the process described by ej is not, in fact, nationalization strictly speaking. rather, the term nationalization is being used loosely to convey a more hidden and indirect form of government involvement and control.

[i know of no clique you offended. i felt a bit offended to be so misconstrued and, inadvertently but nonetheless concretely, misrepresented. your apology, heartfelt or not, is accepted. in turn, i must apologize for my childish glee for finding you with egg on your face. don't be dissuaded, please, from continuing to contribute here.]

[donalds]

Re: Dehydrated Banks: Just Add Water

JK,

I must say, your having speculated on emotions running through me as I enjoy a raining day near the coast of far SW Oregon, sipping coffee and gazing outdoors, quietly resting in my forest cabin with ducks and geese making their presence know, waiting patiently for the downpour to subside so I can chop firewood, seems just a bit of a reach.

Anyway, JK, I appreciate the apology contained in the following sentence:

"i must apologize for my childish glee for finding you with egg on your face"

Aside from this being a bit condescending, I'm still waiting for an explanation for how my having left off your words "I do not think", changes anything in terms of substance regarding my original reply to you.

Without such an explanation, seems this discussion has fully disintegrated.

[jk]

Re: Dehydrated Banks: Just Add Water

I'm still waiting for an explanation for how my having left off your words "I do not think", changes anything in terms of substance regarding my original reply to you.

Without such an explanation, seems this discussion has fully disintegrated.

1. i agree with your point that the word "nationalization" was being used imprecisely.
2. your omission of the "i do not think" was not the basis of this point, but the basis of the sarcasm with which you again expressed it.
3. your omission of a phrase which entirely reversed the meaning of a fragment bespeaks an error which i posit [mere theory] was not random in that you thought that fragment important enough to quote and highlight in your discussion of the issue.
4. i am ready to drop this discussion. hope the rain has stopped and you got some use out of your maul.

[metalman]

Re: Dehydrated Banks: Just Add Water

1. i agree with your point that the word "nationalization" was being used imprecisely.
2. your omission of the "i do not think" was not the basis of this point, but the basis of the sarcasm with which you again expressed it.
3. your omission of a phrase which entirely reversed the meaning of a fragment bespeaks an error which i posit [mere theory] was not random in that you thought that fragment important enough to quote and highlight in your discussion of the issue.
4. i am ready to drop this discussion. hope the rain has stopped and you got some use out of your maul.

you are both really, really, really smart.

ok?

now that that's settled, what was it we were talking about?

[Down Under]

Re: Dehydrated Banks: Just Add Water

Well, I'm a new member here and have been a subscriber to Elliotwave for about 2 years. Now, now, now, stop gloating at my expense.

iTulip I find excellent to read as it provides a clarity of explanation for complex financial issues that I find immensely refreshing.

Of course, I'm still trying to get my head around it all. But, iTulip provides an excellent forum for one to at least have a chance of understanding what is really going on.

Now, having said that, I think donalds was providing a very helpful point in clarifying the mis-use of the term "nationalization".

[Slimprofits]

Re: Dehydrated Banks: Just Add Water

i used to have an interest in the soviet union, when there was a soviet union. academic analysts discussed a "circular flow of power," in which the central committee picked the politburo, and the politburo nominated new members to the central committee.

This is an excellent point. Take for example Henry Paulson, who moved from a FIRE Economy leadership role into a key government leadership role. When applied to Japan this is called "crony capitalism."

Under Mussolini it was called corporatism.

Italian social critic Gaetano Salvemini wrote in 1936 that under corporatism, “it is the state, i.e., the taxpayer, who has become responsible to private enterprise. In Fascist Italy the state pays for the blunders of private enterprise.”^[25] As long as business was good, Salvemini wrote, “profit remained to private initiative.”^[26] But when the depression came, “the government added the loss to the taxpayer’s burden. Profit is private and individual. Loss is public and social.”^[27]

[..]

Another result of the close “collaboration” between business and government in Italy was “a continual interchange of personnel between the . . . civil service and private business.”^[29] Because of this “revolving door” between business and government, Mussolini had “created a state within the state to serve private interests which are not always in harmony with the general interests of the nation.”^[30]



Mussolini’s “revolving door” swung far and wide:

Signor Caiano, one of Mussolini’s most trusted advisers, was an officer in the Royal Navy before and during the war; when the war was over, he joined the Orlando Shipbuilding Company; in October 1922, he entered Mussolini’s cabinet, and the subsidies for naval construction and the merchant marine came under the control of his department. General Cavallero, at the close of the war, left the army and entered the Pirelli Rubber Company . . . ; in 1925 he became undersecretary at the Ministry of War; in 1930 he left the Ministry of War, and entered the service of the Ansaldo armament firm. Among the directors of the big . . . companies in Italy, retired generals and generals on active service became very numerous after the advent of Fascism.^[31]

From Thomas Dilorenzo's, Economic Fascism