banking – Curious Cat Investing and Economics Blog

Investing in Peer to Peer Loans

John Hunter — Mon, 16 Nov 2015 15:16:24 +0000

Peer to peer lending has grown dramatically the last few years in the USA. The largest platforms are Lending Club (you get a $25 bonus if you sign up with this link – I don’t think I get anything?) and Prosper. I finally tried out Lending Club starting about 6 months ago. The idea is very simple, you buy fractional portions of personal loans. The loans are largely to consolidate debts and also for things such as a home improvement, major purchase, health care, etc.).

With each loan you may lend as little as $25. Lending Club (and Prosper) deal with all the underwriting, collecting payments etc.. Lending Club takes 1% of payments as a fee charged to the lenders (they also take fees from the borrowers).

Borrowers can make prepayments without penalty. Lending Club waives the 1% fee on prepayments made in the first year. This may seem a minor point, and it is really, but a bit less minor than I would have guessed. I have had 2% of loans prepaid with only an average of 3 months holding time so far – much higher than I would have guessed.

On each loan you receive the payments (less a 1% fee to Lending Club) as they are made each month. Those payments include principle and interest.

This chart shows the historical performance by grade for all issued loans that were issued 18 months or more before the last day of the most recently completed quarter. Adjusted Net Annualized Return (“Adjusted NAR”) is a cumulative, annualized measure of the return on all of the money invested in loans over the life of those loans, with an adjustment for estimated future losses. From LendingClub web site Nov 2015, see their site for updated data.

Lending Club provides you a calculated interest rate based on your actual portfolio. This is nice but it is a bit overstated in that they calculate the rate based only on invested funds. So funds that are not allocated to a loan (while they earn no interest) are not factored in to your return (though they actually reduce your return). And even once funds are allocated the actual loan can take quite some time to be issued. Some are issued within a day but also I have had many take weeks to issue (and some will fail to issue after weeks of sitting idle). I wouldn’t be surprised if Lending Club doesn’t start considering funds invested until the loan is issued (which again would inflate your reported return compared to a real return), but I am not sure how Lending Club factors it in.

Return shown for my portfolio. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

They also don’t credit the money to you until what seems like about 5 days after the payment has been received. This also reduces your achieved rate of return, from the nominal rate charged to the borrower. I would like to assume they factor this into their calculated returns, but given the other decisions they make when calculating the return I am not certain they do.

In any case the real return is still very good compared to my other options and so if they inflate the results by 40 basis points (I don’t know what the actual discrepancy is and the uncertainty looking forward is much larger than that anyway). The expected rate is likely around 5-8% compared to about 0-.25% for me, so the slight exaggeration doesn’t matter to me.

For my portfolio (shown in the graphic above) Lending Club shows a current return of 12% with an expected return through the completion of the outstanding loans of 5.7% to 8.5%. The current return is very inflated when your portfolio is very new as you have experienced no, or very few, defaults. I will explore historical returns, returns as the portfolio ages and the expected returns in a future posts. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

You can read details on the loans (and filter loans on those details) for things such as: loan type, state of borrower, debt to income ratio, months since a delinquency, months since a default, monthly income, credit score, own/mortgage/rent. Lending club scores the loan quality and determines the loan interest rate depending on that (and 36 month versus 60 month term).

The more risk taken by borrowers the higher the expected returns. So if you take riskier loans you get a higher interest rate on the loan and historically even after losses from defaults the returns are greater. This brings up my biggest concern with these loans: underwriting risk. As long as Lending Club does a good job evaluating underwriting risk and properly assigning interest rates commensurate with that risk this should work very well as an investment.

As long as you have a well diversified portfolio of personal loans there is a long track record of the risk. And while plenty of risky personal loans will default, and more will default if the economy has a downturn the interest rates on the loans provides good income even after such losses. And even if things go poorly the actually losses of capital should be small (over the whole portfolio).

The discussion of investing in peer to peer loans using LendingClub will be continued in next post (next week, updated to add link to the post: Peer to Peer Portfolio Returns and The Decline in Returns as Loans Age).

Kiva Zip Is Ending Direct Loans to People in Kenya

John Hunter — Wed, 16 Sep 2015 21:30:30 +0000

My comments on a post by Kiva about their decision to end the Kiva Zip (direct to people loans – no intermediary financial institution) program in Kenya.

Thanks for your efforts and the explanation. I am very happy Kiva is trying new ideas (like Kiva Zip). I also think it is important to evaluate those efforts and when they don’t work as well as desired attempt to improve but if things still lag pull the plug. I was happy to have made several Kiva Zip loans to Kenya (and elsewhere).

I do think it is very important to retain an infrastructure for those people you got to try the new effort with, as I believe Kiva will. This has to be part of any innovation efforts – a budget to include unwinding the effort in a way that is in keeping with Kiva’s mission to help people. I strongly believe in efforts to avoid abandoning those who worked with you in general, but for those taking loans from Kiva it is much more important than normal.

Keep up the good work. And keep challenging Kiva to get better and not get complacent when things are not going as well as they should. I am happy to continue to lend to Kiva but I also am concerned that the focus on making a difference and making people’s lives better can be lost in the desire to grow.

I made a loan via Kiva zip for Hilda to buy a posho mill machine. The loan was repaid in full.

The Curious Cats group on Kiva has made over $27,000 in loans to entrepreneurs around the world (the way Kiva works the groups, they don’t include Kiva Zip loans). You can join us. I believe in the model of micro-finance (Investing in the Poorest of the Poor [this one is grants instead of loans]), though I also believe we need more data on real experience of borrowers. Kiva Zip gives loans directly to people with a 0% interest rate. Normal Kiva loans have financial institutions (some of which are charities but they still have expenses) make the loans and Kiva lenders provide capital (at 0%) but the borrowers have to pay interest (the idea is they pay lower interest since the financial institution has a 0% cost of capital).

Making Credit Cards More Secure and Useful

John Hunter — Tue, 09 Sep 2014 16:31:00 +0000

Business should not be allowed to store credit card numbers that can be stolen and used. The credit card providers should generate a unique credit card number for the business to store that will only work for the purchaser at that business.

Also credit card providers should let me generate credit card numbers as I wish for use online (that are unique and can be stopped at any time I wish). If I get some customer hostile business that makes canceling a huge pain I should just be able to turn off that credit card “number.”

Laws should be adjusted to allow this consumer controlled spending and require that any subscription service must take the turning off of the payments as cancellation.

For some plan where the consumer agrees up front to say 12 months of payments then special timed numbers should be created where the potentially convoluted process used now remain for the first 12 months.

Also users should be able to interact with there credit reports and do things like turn on extra barriers to granting credit (things like they have to be delayed for 14 days after a text, email [to as many addresses and the consumer wants to enter] and postal notification are sent to the user. Variations on how these work is fine (for example, setting criteria for acceptance of the new credit early at the consumers option if certain conditions are met (signing into the web site and confirming information…).

Better security on the cards themselves are also needed in the USA. The costs of improvement are not just the expenses credit card and retailers face but the huge burden to consumers from abuse of the insecure system in place for more than a decade. It is well past time the USA caught up with the rest of the world for on-card security.

The providers have done a lousy job of reducing the enormous burden of fraud on consumers. As well as failing to deal adequately with customer hostile business practices (such as making canceling very cumbersome and continuing to debit the consumer’s credit card account).

Beijing Real Estate Is Worth As Much as Tokyo Real Estate Was in 1990

John Hunter — Fri, 06 Jun 2014 09:30:05 +0000

This is a startling piece of data, from The nagging fear that QE itself may be causing deflation:

China’s top developer – says total land value in Beijing has been bid up to such extremes that is on paper worth 61.6pc of America’s GDP. The figure was 63.3pc for Tokyo at the peak of the bubble in 1990. “A dangerous level”

The situations have many differences, for example, China is a poor country growing rapidly, Japan was a rich country growing little (though in 1990 it showed more growth promise than today). Still this one of the more interesting pieces of data on how much a bubble China real estate has today. Japan suffered more than 2 decades of stagnation and one factor was the problems created by the real estate price bubble.

The global economic consequences of the extremely risky actions taken to bail out the failed too-big-too-fail banks including the massive quantitative easing are beyond anyones ability to really understand. We hope they won’t end badly that is all it amounts to. Noone can know how risky the actions to bail out the bankers is. The fact we not only bailed them out, but showered many billions of profit onto them (even after taking billions in fines for the numerous and continuing violations of law by those bailed out bankers), leaves me very worried.

It seems to me we have put enormous risk on and the main beneficiaries of the policies are the bankers that caused the mess and continue to violate laws without any consequences (other than taking a bit of the profit them make on illegal moves back sometimes).

The theme refuses to go away. India’s central bank chief, Raghuram Rajan, says QE is a beggar-thy-neighbour devaluation policy in thin disguise. The West’s QE caused a flood of hot capital into emerging markets hunting for yield, stoking destructive booms that these countries could not easily control. The result was an interest rate regime that was too lax for the world as a whole, leaving even more economies in a mess than before as they too have to cope with post-bubble hangovers.

The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump.

I hope things work out. But I fear the extremely risky behavior by the central banks and politicians could end more badly than we can even imagine.

Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000

John Hunter — Thu, 12 Sep 2013 10:20:21 +0000

A report by the Dallas Federal Reserve Bank, Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath, puts the costs to the average household of the great recession at $50,000 to $120,000.

A confluence of factors produced the December 2007–June 2009 Great Recession—bad bank loans, improper credit ratings, lax regulatory policies and misguided government incentives that encouraged reckless borrowing and lending.

The worst downturn in the United States since the 1930s was distinctive. Easy credit standards and abundant financing fueled a boom-period expansion that was followed by an epic bust with enormous negative economic spillover.
…
Our bottom-line estimate of the cost of the crisis, assuming output eventually returns to its pre-crisis trend path, is an output loss of $6 trillion to $14 trillion. This amounts to $50,000 to $120,000 for every U.S. household, or the equivalent of 40 to 90 percent of one year’s economic output.

They say “misguided government incentives” much of which are due to payments to politicians by too-big-to-fail institution to get exactly the government incentives they wanted. There is a small bit of the entire problem that is likely due to the desire to have homeownership levels above that which was realistic (beyond that driven by too-big-to-fail lobbyists).

“Were safer” says a recent economist. Which I guess is true in that it isn’t quite as risky as when the too-big-to-fail-banks nearly brought down the entire globally economy and required mass government bailouts that were of a different quality than all other bailouts of failed organizations in the past (not just a different quantity). The changes have been minor. The CEOs and executives that took tens and hundreds of millions out of bank treasures into their own pockets then testified they didn’t understand the organization they paid themselves tens and hundreds of a millions to “run.”

We left those organizations intact. We bailed out their executives. We allowed them to pay our politicians in order to get the politicians to allow the continued too-big-to-fail ponzie scheme to continue. The too-big-to-fail executives take the handouts from those they pay to give them the handouts and we vote in those that continue to let the too-big-to-fail executives to take millions from their companies treasuries and continue spin financial schemes that will either work out in which case they will take tens and hundreds of millions into their person bank accounts. Or they won’t in which case they will take tens of millions into their personal bank accounts while the citizens again bail out those that pay our representatives to allow this ludicrous system to continue.

Banks Seen at Risk Five Years After Lehman Collapse

While the amount of capital at the six largest U.S. lenders has almost doubled since 2008, policy makers and some Wall Street veterans say that’s not enough. They see a system still too leveraged, complicated and interconnected to withstand a panic, and regulators ill-equipped to head one off — the same conditions that led to the last crisis.

“We’re safer, but we’re not safe enough,” said Stefan Walter, who led global efforts to revise capital rules as general secretary of the Basel Committee on Banking Supervision.

If you get the impression I am upset by the actions of those who have been given responsibility that can be used to ruin millions of people’s economic lives and who have done so you are correct. When teenagers are selfish, irresponsible, brats it is obnoxious but fairly common. When our political leaders and those giving those political leaders the most cash behave as our have the last 20 years it is reprehensible. When the obvious result occurs and tremendous suffering is caused by their reckless, greedy, selfish, foolish and uncaring actions and then just continue to do the same things it is despicable.

That we chose to put those politicians that enable this is sad. But those that are risking the global economy in order to continue their narcissistic behavior are not excused by our foolish decision to re-elect those selling out the country to those paying them for favors.

The exact balance that is unknown. What amount of corruption from political leaders and financial executives can the economy support and survive? I don’t know. Maybe we can support the unforgivable behavior of those leaders in the last 5 years and the the 10 years before that. Maybe throwing millions of people out of jobs, killing thousands of businesses, forcing retirees to have their yields cut to almost zero in order to bail out banks that allow their executives to bleed their treasuries dry with more gusto than kleptocratic dictators in soon to be bankrupt countries. It is disgusting that this behavior continues. How many hundred of billions or trillions more in bailouts and fraud will be extracted from the productive parts of our economies to pay for this unsupportable behavior. Maybe our economies can take this kleptocratic behavior and survive. Maybe it can’t. That we elect people that have decided to take the cash and allow that risk to be tested is a foolish risk to take.

The too-big-to-fail crowd is just fleecing foolish taxpayers and paying those taxpayers representatives (I imagine to knowing continue to fleecing or I suppose it is possible the politicians don’t have the ability to understand what they are doing). The global economy generates trillions of benefits. Such wealth allows for a great deal of kleptocracy and risky bets (that can just be passed onto foolish taxpayers if they don’t work).

The scope of the swindle being perpetrated by the too-big-to-fail crowd and their bought and paid for politicians (who it must be said we continue to put back into office) is beyond anything every attempted before. The devastation caused by their reckless action doesn’t slow them down. They just take the bailouts and place even biggest bets, continue to take tens of millions for themselves, and leave the taxpayers to pick up the mess when it is too large.

That too-big-to-fail bailout champions are not only still alive and allowing those working their to take millions every year is nearly unbelievable.

In order to survive this massively risky economic future you would be wise to be very financial adept. Debt is very risky in such a situation. But debt is actually a way to get huge rewards at the right times in this environment (but do this wrong and you will be bankrupt). The huge bailout culture creates bubbles – making a great deal during the bubbles can be used a way to get capital to survive the costs of bailing out the kleptocrats we have allowed to steal from the productive economy. I am not even sure what are safe investments.

My guess is that the right real estate is one good place to invest (but the kleptocrat economy creates all sorts of risks that are difficult to measure). Companies that are very resilient to economic catastrophe are likely another good place. You have to find companies that don’t listen to the too-big-to-fail crowd that attempts to create risky financial structures in order to make cases to justify taking tens of millions (basically they pretend that this financial engineering created millions in value today so count that as earnings, based on those earnings I get millions… it is innately crazy that anyone accepts this junk but just watch those CEOs of our too-big-to-fail institutions when they testified on the hill and you see these are people that don’t have a clue about running an honest business.

Others said they weren’t troubled by bigness or a system that requires government intervention every now and then, calling it an inevitable cost of financing global business.

This is such utter crap. For decades this excuse has been used to justify insane risks. Businesses may need cash to fund growth (buy assets, invest in research and development…). They might need some cash to get by while cash flow is not adequate. It may well make sense to have some sensible hedging. None of this requires too-big-to-fail banks.

Relatively small banks can do facilitate these needs. Insurance for business risks can be financed by insurers.

There is nothing that requires us to have speculators allowed to create risks that require government bailouts larger than the largest expenses any governments have every made (larger than World War II). There is nothing that requires 98% of the speculation. I don’t care if people speculate with their money and do not have the ability to massively impact the entire market (capitalism is based on the idea no actors have market power – every actor is a the mercy of the market, not the other way around).

Too-big-to-fail speculation mainly allows fake financial estimates to claim profits that haven’t actually taken place yet have. We can eliminate that with no loss to society. It also allows creating financial speculation so complex no-one can understand the huge fees the too-big-to-fail crowd takes. Again who cares, eliminate this. Nothing should be allowed to be 1/10 the size of too-big-to-fail. The only potential cost of this (and I doubt it would be a cost but theoretically it could be) is perhaps borrowing or hedging would be a bit less efficient. This is completely fine. There is not even remotely any justification for large, risky financial institutions in order to reduce the costs a small bit.

The current financial system is extremely complex and risky. There is no economic reason to allow such risks to continue. We can have financial needs met without ludicrously risky financial gimmicks. We should not vote in people that continue to sell out our productive economy to kleptocrats in the too-big-to-fail financial institutions to game the system the way they have the last 30 years.

The collusion (investment banking fees, front running trading [“high frequency trading”], libor, foreign exchange price fixing…) are illegal actions that use fraud to steal from market participants. Those actions should be investigated and criminally prosecuted but frankly that is minor compared to the main too-big-to-fail system corruptions.

The truth is I am able to navigate the massively distorted investment climate created by out too-big-to-fail designed financial system better than most. It is tricky but I think I’ll do fine. I imagine I will actually likely benefit – there are massive distortions and bubble that too-big-to-fail directed economies will generate that I imagine I will likely benefit from (though I have a greater risk of messing up in this riskier investment climate than one that would be much better for everyone in the economy outside the too-big-to-fail kleptocrats). I would much rather be able to invest without the massive distortions caused by the too-big-to-fail directed economic policies of our largest governments. But others are much less able to navigate the massively distorted investing climate. It is immensely more difficult to just make sensible long term, and safe, investment strategies today than is was until recently (the last 10 years or so).

But hundreds of millions or billions of people are suffering greatly and likely to continue to as long as we allow the kleptocrats at too-big-to-fail institutions to direct our government’s to continually do those too-big-to-fail institutions huge favors.

13 Bankers

13 Bankers describes the rise of concentrated financial power and the threat it poses to our economic well-being. Over the past three decades, a handful of banks became spectacularly large and profitable and used their power and prestige to reshape the political landscape. By the late 1990s, the conventional wisdom in Washington was that what was good for Wall Street was good for America. This ideology of finance produced the excessive risk-taking of the past decade, creating an enormous bubble and ultimately leading to a devastating financial crisis and recession.

More remarkable, the responses of both the Bush and Obama administrations to the crisis–bailing out the megabanks on generous terms, without securing any meaningful reform–demonstrate the lasting political power of Wall Street. The largest banks have become more powerful and more emphatically “too big to fail,” with no incentive to change their behavior in the future. This only sets the stage for another financial crisis, another government bailout, and another increase in our national debt.

The alternative is to confront the power of Wall Street head on, which means breaking up the big banks and imposing hard limits on bank size so they can’t reassemble themselves. The good news is that America has fought this battle before in different forms, from Thomas Jefferson’s (unsuccessful) campaign against the First Bank of the United States to the trust-busting of Teddy Roosevelt and the banking regulations of the 1930s enacted under Franklin Delano Roosevelt. 13 Bankers explains why we face this latest showdown with the financial sector, and what is at stake for America.

Is Adding More Banker and Politician Bailouts the Answer?

John Hunter — Tue, 12 Jun 2012 02:17:22 +0000

When critics say that Europe is running out of time to deal with the financial crisis I wonder if they are not years too late. Both in Europe responding and those saying it is too late.

It feels to me similar to a situation where I have maxed out 8 credit cards and have a little bit left on my 9th. You can say that failing to approve my 10th credit card will lead to immediate pain. Not just to me, but all those I owe money to. That is true.

But wasn’t the time to intervene likely when I maxed out my 2nd credit card and get me to change my behavior of living beyond my means then? If you only look at how to avoid the crisis this month or year, yeah another credit card to buy more time is a decent “solution.”

But I am not at all sure that bailing out more bankers and politicians for bad financial decisions is a great long term strategy. It has been the primary strategy in the USA and Europe since the large financial institution caused great recession started. And, actually, for long before that the let-the-grandkids-pay-for-our-high-living-today has been the predominate economic “strategy” of the last 30 years in the USA and Europe.

That has not been the strategy in Japan, Korea, China, Singapore, Brazil, Malaysia… The Japanese government has adopted that strategy (with more borrowing than even the USA and European government) but for the economy overall in Japan has not been so focused on living beyond what the economy produces (there has been huge personal savings in Japan). Today the risks of excessive government borrowing in Japan and borrowing in China are potentially very serious problems.

I can understand the very serious economic problems people are worried about if bankers and governments are not bailed out. I am very unclear on how those wanting more bailout now see the long term problem being fixed. Unless you have some system in place to change the long term situation I don’t see the huge benefit in delaying the huge problems by getting a few more credit cards to maintain the fiction that this is sustainable.

We have seen what bankers and politicians have done with the trillions of dollars they have been given (by governments and central banks). It hardly makes me think giving them more is a wonderful strategy. I would certainly consider it, if tied to some sensible long term strategy. But if not, just slapping on a few more credit cards to let the bankers and politicians continue their actions hardly seems a great idea.

Related: Is the Euro Going to Survive in the Long Run? (2010) – Which Currency is the Least Bad? – Let the Good Times Roll (using Credit) – The USA Economy Needs to Reduce Personal and Government Debt (2009 – in the last year this has actually been improved, quite surprisingly, given how huge the federal deficit is) – What Should You Do With Your Government “Stimulus” Check? – Americans are Drowning in Debt – Failure to Regulate Financial Markets Leads to Predictable Consequences

Simple Explanation of the Fractional Reserve Banking System

John Hunter — Fri, 23 Dec 2011 10:12:52 +0000

The webcast is by the great Kahn Academy which produces simple educational content (like the above) on all sorts of topics. I find this too slow but I think it might be good for people that are not really sure how the banking system works. There is a group of people that are very apposed to fractional reserved banking, as a principle. I actually am fine with it, but it needs to be regulated much better than we have done.

I suppose it might be true that our political leaders are much too subservient to those giving them lots of cash to regulate in a manner even close to acceptable: and therefore fractional reserve banking is dangerous. I am not sure that they are so hopeless that this is the case, though the more I see of how much they don’t know, and how often they seem to just vote based on what those giving them cash want it gets to be harder to believe they can be trusted to act close to properly (this is extremely sad). And it is mainly an indictment of ourselves: we keep putting people back in power that act mainly to reward those giving them cash and don’t seem interested in actually what is important for the long term interests of the country.

I believe the FDIC actually does quite a good job of providing a solution to manage some issues with a fractional reserve banking system and people being able to rely on getting their money back.

Don’t Pay Debit Card Fees

John Hunter — Mon, 03 Oct 2011 05:17:10 +0000

In the first place debit cards are a bad idea. They don’t have the same protection as credit cards. Banks pushed them in the USA because of the huge fees they charged (hidden from users). Now those banks are not allowed to charge the hugely excessive fees (compared to any other country) they had been charging retailers. And the banks are now trying to push huge fees onto those using the cards. Just dump any debit card you have.

Secondly, you should have long ago severed any ties with the large banks (that not surprisingly are the ones announcing the huge fees, so far). They provide lousy service and extract exorbitant fees whenever they can sneak them by you. Choosing to do business with companies that you must remain hyper vigilante to abuse from is just not sensible. Small banks unfortunately get bought out by the large banks to prevent competition. So while using small banks is ok, you keep having to go to a new one as the large ones buy out your bank to prevent the competition.

So it is more sensible to just pick a credit union. Credit unions are decent overall. Some can still be bad choices but it is almost impossible to do worse than any of the large banks. If you use ATMs a good deal make sure you minimize ATM fees when selecting a credit union (their policies in that area – waived fees, network ATM access… are significantly different between your options).

The free checking we have grown accustom to may well be on the way out. That seems fine to me. Essentially the government’s subsidy to the large banks and financial institutions in repressing short term interest rates (at the expense of course of savers and retirees) has greatly reduced the value of checking and savings balances at banks. I am sure the large banks will be the most customer unfriendly as fees are added to accounts, based on their track record.

Obviously you should not carry credit card balances, with high interest rates.

There really is almost no excuse for dealing with the large banks (other than a mortgage that was sold to them without your permission where you have no option but to put up with their behavior as their customer). Many of the other extremely bad customer service industries (cable TV, internet access providers, airlines) have monopolistic powers than often make it extremely difficult to avoid dealing with them. Of course the large banks make huge anti-competitive moves that shouldn’t allowed in any capitalistic system. But then our system is more about what you can buy with your cash payments to congress than capitalism. And you can’t accept the proponents claims of capitalism as a reason to do what they ask; more often then not those playing the capitalism over government argument are asking for anti-capitalist measures (allowing anti-competitive practices etc.) in support of special interest at the expense of society (markets require regulation to have the benefits of competition provide a dividend to society).

Jobs News in the USA is not Good, Unemployment Remains at 9.1%

John Hunter — Fri, 02 Sep 2011 14:23:57 +0000

This was a bad month for jobs in the USA. Not only did the U.S. Bureau of Labor Statistics report that the number of jobs remained at the same level as last month (125,000 additional jobs are needed for population growth, on average and we have huge losses from the credit crisis recession that have to be gained back) the last 2 months were revised down. The change in total nonfarm payroll employment for June was revised from
a gain of 46,000 to a gain of 20,000, and the July was revised down from gaining 117,000 job to gaining
85,000. That results in a total loss for this report of 58,000.

Still much better than the huge losses of several years ago but, along with the last few months, not a good sign for short term job growth. And the failure to address decades of favors given by politicians to too big to fail banks may actually create serious problems much sooner than most people feared. Pretty much everyone knew that the failure to address the main cause of the credit crisis was setting us up for again having the economy suffer huge blows due to the behavior of too big to fail institutions but I, and I think most people, thought it would be at least 5 years away and maybe even 10 before we had to seriously pay for the failures of our politicians to address this problem they (and their predecessors created).

It really seems like politicians don’t understand that their predecessors (decades ago) could afford to payoff large political donors and avoid dealing with problems and the enormous amount of wealth the economy was generating would let us prosper (even with lousy leadership), but that is no longer the case. The USA has used up huge economic advantages and that easy time is not coming back. Sadly the main hope for the USA is that other countries leaders create enough waste that the USA can remain competitive with all the waste our create (extremely lousy health care system, for example). It seems the American public doesn’t understand either, if anything we are electing even less intelligent and capable leaders today (over the last 10 years).

The USA has 14 million unemployed. Among the major worker groups, the unemployment rates for adult men was 8.9%, adult women 8.0% and teenagers 25.4%, whites. Of those 14 million the number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6 million in August.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.4 million to 8.8 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour over the month to 34.2 hours. The manufacturing workweek was 40.3 hours for the third consecutive month; factory overtime increased by 0.1 hour over the month to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down to 33.5 hours in August, after holding at 33.6 hours for the prior 6 months.

As bad as this news is, it could be much worse. The economy is actually growing (very slowly), probably. Many companies are actually still very profitable (I am not counting companies that have fake profits with congress approved ability to report fake values for their assets – Congress granted their too big too fail donors, this, and many other favors while most others are left out in the cold). The wealth in the USA, even after we have been consuming our capital to live beyond what we earn each year (for decades) is still extremely high. This allows us to live well and invest even with many bad practices in place. We continue to have many excellent companies doing great work and providing great jobs. Even with all the problems in the USA there are few countries that are in as enviable an economic position. The biggest problem I see is we have been squandering those advantages far too easily and quickly for far too long. That leaves us much more economically venerable than we need to be.

I Strongly Support Elizabeth Warren and the Consumer Financial Protection Bureau

John Hunter — Thu, 02 Jun 2011 22:27:38 +0000

I strongly support Elizabeth Warren and strongly support her for to head the Consumer Financial Protection Bureau. She would do a great deal to improve the economy of the USA. And she would do a great deal to improve the life of tens or hundreds of millions of people. We have allowed a few people to bribe our elected officials to distort markets to damage hundreds of millions and provide huge gains for a few. We need to support capitalism not crooked elites breaking capitalism to favor their allies at the expense of the economy and those who want to benefit from free markets. It is very difficult to impede the greed fueled distortions that politicians put in place to break free markets and provide huge benefits to those who pay them. Elizabeth Warren is one of the few that is knowledgeable and skillful enough to reduce the damage those people cause the economy and everyone else.

Why I Support Elizabeth Warren and the CFPB

To simplify, government’s retreat from principled and thoughtful regulation licensed investment banks, credit agencies, insurance companies, and Wall Street gurus to put greed above reason. We permitted them to persuade ordinary citizens (and pension funds and homeowners) that securitized instruments, of similar efficacy to carney-sold patent medicines, were worth buying. We also allowed them to sell the idea that wishing could repeal the law that what goes up must come down.

Nobody is entirely innocent; money’s promise is for most of us a siren’s call. And, as a nation, we’ve willfully scanted education in civic and financial literacy in schools at all levels. So guilt is not worth focusing on. We need instead a future practice of clear rules and tough oversight. And we need to remind ourselves that Adam Smith’s concept of an invisible hand did not contemplate that hand’s picking the pockets of the people whose individual decisions and actions, if the market works perfectly, let supply match demand.

There are few political appointments I care much about. They normally are so co-opted even if they have good ideas they can’t get anything done. Don Berwick is a great person to have lead health care reform. The system is so messed up I am skeptical he can actually get much done, but I also strongly support him.

Elizabeth Warren is excellent and wise enough to actually accomplish things even with those who will attempt to thwart and improvements in the financial system that move forward capitalism at the expense of a few nobles that are protected by political allies. I have no doubt those in power will still thwart most efforts to stop politically sanctioned distortion of markets to enrich a few people that then pay a portion of their gains to the politicians that let them ruin free markets for their own huge personal gains.

Very few political appointees make much difference. If Elizabeth Warren gets this position she will have a good chance and making a huge difference o the quality of life for hundreds of millions of people and the economy overall. That is true even though she will have to continually fight those politicians seeking to protect the anti-competitive benefits they have lavished upon those that pay them to enact policies that benefit them at the expense of everyone else.