Wednesday, September 24, 2008
Bank Xecutives
The Americans are now questioning whether the bail out money for the banks will end up in the hands of the people who created the problem-ie the executives and fund managers. This is a fair question. There is an easy solution though. Just make the directors of the banks and financial institution sign a guarantee before they get the bail out. Then put a provision in the legislation stating that any losses are recoverable from the directors first and the bail out fund second. Essentially make the executives insure their own companies. If you get the benefit you should take the risk and corporate executives have got away with too much for too long.
Wednesday, September 17, 2008
Truth and Belief
The current woes on the financial markets are making me think about the people who run merchant banks. Do they really think they are doing a good job or is it all just bullshit? Either way you have to worry.
Securities are based on trust. Effectively a security is a promise to repay money with interest. When you buy one of them you have to trust that the person you bought it from will pay the money back. The problem is that if they don't there is very little you can do. You can sue them but that will just make money for the lawyers. At least in Australia, the regulators are totally useless so your on your own.
The boards of financial institutions have effectively been paying themselves huge salaries to take these risks with other people's money. Compulsory superannuation means that we are all forced to give our money to these people. If they don't know what they're doing why are we doing this? If they do know what they're doing why have they lost so much money?
Securities are based on trust. Effectively a security is a promise to repay money with interest. When you buy one of them you have to trust that the person you bought it from will pay the money back. The problem is that if they don't there is very little you can do. You can sue them but that will just make money for the lawyers. At least in Australia, the regulators are totally useless so your on your own.
The boards of financial institutions have effectively been paying themselves huge salaries to take these risks with other people's money. Compulsory superannuation means that we are all forced to give our money to these people. If they don't know what they're doing why are we doing this? If they do know what they're doing why have they lost so much money?
Sunday, September 7, 2008
Competition v Cooperation
Competition and cooperation are two opposites which exist everywhere. We live in a system which values competition. Our whole economy is based on it; businesses compete for the consumer's business and cut their prices in order to get that business. This is the mechanism which stops prices from rising due to the greed of the seller.
The problem with competition is that it is resource intensive. It requires at least 2 businesses with the same or similar product. It then requires the consumer to go to both sellers, negotiate and finally buy from one of them. The consumer expends a lot of effort. Both sellers expend a lot of effort and one of them does not get the sale and so wastes his effort. Unless there is a significant profit in selling the item it's not worth it. As a result, competition does not work well for small items-which are the vast majority of the transactions occurring every day.
A cooperative system would solve this problem. It would be much more efficient.
The problem with competition is that it is resource intensive. It requires at least 2 businesses with the same or similar product. It then requires the consumer to go to both sellers, negotiate and finally buy from one of them. The consumer expends a lot of effort. Both sellers expend a lot of effort and one of them does not get the sale and so wastes his effort. Unless there is a significant profit in selling the item it's not worth it. As a result, competition does not work well for small items-which are the vast majority of the transactions occurring every day.
A cooperative system would solve this problem. It would be much more efficient.
Saturday, September 6, 2008
market failure
Market failure has been in the news again this week. It reminds me of the failure of communism. The American's decided they had won the cold war when the Soviet system collapsed-until their system started to collapse.
The reason for market failure is the vulnerability of markets themselves and the blinkered view that de-regulating markets will produce a self-regulating system. Nothing could be further from the truth. Firstly, there is no such thing as a free market. All markets are based on property rights which set the framework for the market. The market will behave differently depending on what rights are recognised. A good example is carbon trading. It works by restricting the right to pollute and therefore creating a market for carbon credits. Without the "distortion" of restricting rights in the first place, the market would not exist.
It's easy to see that there is no such thing as a free market. All markets are the product of their environment. When those in charge of the markets forget this they are doomed to fail.
The reason for market failure is the vulnerability of markets themselves and the blinkered view that de-regulating markets will produce a self-regulating system. Nothing could be further from the truth. Firstly, there is no such thing as a free market. All markets are based on property rights which set the framework for the market. The market will behave differently depending on what rights are recognised. A good example is carbon trading. It works by restricting the right to pollute and therefore creating a market for carbon credits. Without the "distortion" of restricting rights in the first place, the market would not exist.
It's easy to see that there is no such thing as a free market. All markets are the product of their environment. When those in charge of the markets forget this they are doomed to fail.
Sunday, August 31, 2008
Bag Searchs
Have you ever had your bag searched at the supermarket? I bet you have. Have you ever refused? A woman in front of me refused today and was told by the check out chick that the supermarket (Aldi's) had a legal right to search people's bags. I was flabbergasted. I don't think the girl was lying, she was just repeating what Aldi's had told her-a blatant lie. If you are in doubt of your rights check out the consumer affairs website.
This raises the question of what else they are lying about. Are they telling their staff they are legally obliged to work free overtime? That if a customer breaks something it comes out of their pay? Where does it end. Truth is the first casualty of war and it seems that Aldi's regard the supermarket business as a war on their employees and customers.
The Sydney Morning Herald posted a funny photo on this topic a few years ago. I wonder when Aldi's will be placing storm troopers at the checkout?
This raises the question of what else they are lying about. Are they telling their staff they are legally obliged to work free overtime? That if a customer breaks something it comes out of their pay? Where does it end. Truth is the first casualty of war and it seems that Aldi's regard the supermarket business as a war on their employees and customers.
The Sydney Morning Herald posted a funny photo on this topic a few years ago. I wonder when Aldi's will be placing storm troopers at the checkout?
drugs
Drug laws have been off the radar a little bit lately. There appears to be no debate in the mainstream media about what drugs should be legal/illegal etc.
The main drug in the news these days seems to be ice or crystal methamphetamine. We are told how dangerous it is and how instantly addictive it is. What we are not told is that it's the same drug that is prescribed to children for ADHD. It's also given to military pilots to keep them awake and alert during long missions. If it's so dangerous why is it given to children and people operating dangerous machinery? The answer, of course, is that it's nowhere near as dangerous as the press would have us believe. In large doses it can cause psychosis but this requires a huge dose that no sane person would take. Read more about it on Wikipedia.
So why is it illegal? In Australia even doctors cannot prescribe it unless they are psychiatrists or pediatricians. The answer I suspect is that police forces are given huge budgets for the "war on drugs". If it is not illegal they lose their budget. Therefore it is worth them mounting campaigns to keep it illegal. The major drug companies don't care because the patent ran out years ago. Therefore there is no money in it for them. Meanwhile, the public pays millions of dollars for unnecessary law enforcement, those who use the drug get no meaningful medical treatment and those who could benefit medically from the drug are denied it.
The main drug in the news these days seems to be ice or crystal methamphetamine. We are told how dangerous it is and how instantly addictive it is. What we are not told is that it's the same drug that is prescribed to children for ADHD. It's also given to military pilots to keep them awake and alert during long missions. If it's so dangerous why is it given to children and people operating dangerous machinery? The answer, of course, is that it's nowhere near as dangerous as the press would have us believe. In large doses it can cause psychosis but this requires a huge dose that no sane person would take. Read more about it on Wikipedia.
So why is it illegal? In Australia even doctors cannot prescribe it unless they are psychiatrists or pediatricians. The answer I suspect is that police forces are given huge budgets for the "war on drugs". If it is not illegal they lose their budget. Therefore it is worth them mounting campaigns to keep it illegal. The major drug companies don't care because the patent ran out years ago. Therefore there is no money in it for them. Meanwhile, the public pays millions of dollars for unnecessary law enforcement, those who use the drug get no meaningful medical treatment and those who could benefit medically from the drug are denied it.
Saturday, August 30, 2008
Economists
I should have been an economist. I'm sure you have noticed that they never agree with each other but have you noticed that they are never right.
Economists claim that economics is a science. Let's think about that. Physics is a science. Using the laws of physics I can predict the motion of the earth around the sun. If the laws failed to do this we would call physics (or at least that law) a failure. If economics is a science it should be able to do the same thing. It should be able to predict the price of oil tomorrow. Whoops, it can't. It can only predict what has already happened. Is this science? I don't think so-unless gambling is now a science as well.
So, next time an economist starts talking just remember that he actually knows less than your bookie. Both professions making lots of money out of the gamblers.
Economists claim that economics is a science. Let's think about that. Physics is a science. Using the laws of physics I can predict the motion of the earth around the sun. If the laws failed to do this we would call physics (or at least that law) a failure. If economics is a science it should be able to do the same thing. It should be able to predict the price of oil tomorrow. Whoops, it can't. It can only predict what has already happened. Is this science? I don't think so-unless gambling is now a science as well.
So, next time an economist starts talking just remember that he actually knows less than your bookie. Both professions making lots of money out of the gamblers.
Wednesday, August 20, 2008
Mega Projects
Melbourne's public transport is in the news again. The trains and trams are crowded because of years of neglect by government and penny pinching by connex.
Of course the government are not planning to do anything about it-just talk. To encourage the talk they commissioned Sir Rod Eddington to do some talking. No doubt his "report" cost the taxpayer many millions. His solution? Give massive government subsidies to mega expensive tunnel projects to be built, owned and run by the private sector. No doubt the CEOs of the big building companies are rubbing their hands together in glee.
The problem is that these projects are white elephants. They will not fix the problem and will probably make it worse. They are simply a way to transfer your taxes to the pockets of the rich.
Of course the government are not planning to do anything about it-just talk. To encourage the talk they commissioned Sir Rod Eddington to do some talking. No doubt his "report" cost the taxpayer many millions. His solution? Give massive government subsidies to mega expensive tunnel projects to be built, owned and run by the private sector. No doubt the CEOs of the big building companies are rubbing their hands together in glee.
The problem is that these projects are white elephants. They will not fix the problem and will probably make it worse. They are simply a way to transfer your taxes to the pockets of the rich.
Tuesday, August 19, 2008
Why is the government so intent on overpopulating the country? Who benefits?
In the short term the government benefits. Immigrants arrive in Australia with assets which they bring to Australia. They have already spent large sums of money to immigrate. For example the application fee for a permanent visa is over $2,000.
When they arrive people need a house. The Federal government collects significant indirect taxes from this transaction. The states collect thousands of dollars in stamp duty. Then the house needs furnishing, the Commonwealth takes 10% of these costs as well.
This is just the start. Can anybody think of more?
In the short term the government benefits. Immigrants arrive in Australia with assets which they bring to Australia. They have already spent large sums of money to immigrate. For example the application fee for a permanent visa is over $2,000.
When they arrive people need a house. The Federal government collects significant indirect taxes from this transaction. The states collect thousands of dollars in stamp duty. Then the house needs furnishing, the Commonwealth takes 10% of these costs as well.
This is just the start. Can anybody think of more?
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