Wall Street, the Economy, and Responsibility

[Jude]

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/01/AR2010050100252.html?wprss=rss_business

I was reading this article and thinking to myself about the mess that America finds itself in, and the typical explanations given for how we got here.  The left and center like to blame business and the right, as always, has focused its anger on government.  In general, I'd say, a shaky consensus seems to have formed that Wall Street is mostly to blame for the risky derivatives and financial products that they employed which exacerbated the housing bubble.  There seems to be an exceptional amount of anger directed at the banks which took bailout funds, with most people feeling that it shouldn't have happened despite the fact that a large portion of the TARP funds have been repaid.  Then there was the outrage over the bonuses, and more recently I heard on the radio an anti-bank jingo paid for/created by AARP.

Don't get me wrong, Wall Street certainly has made some missteps, but the more I think about it, the more I wonder if the sentiment is really fair.  Ever since Ronald Reagan, the trend of deregulation has been paving the way for all of this to happen.  There have been several legal initiatives encouraging banks to lend to risky demographics in the name of evening the distribution of wealth.  The housing bubble was a product of consumerist, ownership culture with a perversion of the American Dream focused on material standards endorsed by presidents left and right.  Then there's the people who actually defaulted on their sub-prime mortgages who entered into financial contracts that they failed to uphold.  Finally, throughout all of this, the American people have voted (both with their dollars and their ballots) into power each and every individual responsible.

If you blame the government, who elected the representatives that made those policies?  If you blame the businesses, who patronized those banks as opposed to local credit unions and smaller entities?  I'm not saying that we are solely responsible, but for a lot of it, aren't we?  Yet the American people are the one group which has escaped blame because no one has the balls to hold them accountable for their failings because of the political and financial backlash that would follow.

This is the problem with populism.  It results in the masses being told what they want to hear and not the truth, and lies are not productive.

[OldSchoolGamer]

Inasmuch as all that ails America economically can be summed up succinctly and neatly, the chart here does so nicely:

http://www.eoionline.org/images/constantcontact/wpr/2009/fig1_ProdWages.jpg

The biggest problem we have economy-wise is that the substantial productivity gains realized in the past four decades have not been equitably distributed to the working class.  Workers are producing more and more, while their pay remains flat or even declines.

Until this is corrected, I really don't see much hope in regaining prosperity or stability in this country.

[Callie Del Noire]

Me? I think that Deregulation over the last 30 or so years has set up a growing trend of crappy short term get rich business practices. The best non-current example I can think of would be the deregulation of the American Airline industry.

They deregulated the industry and in rapid time men like Frank Lorenzo (once called the 'most hated man in America' by Barbara Walters) KILLED the big airlines that had been part of the American business for decades. In less than 18 years, he robbed, raped and pillage the 'Big 5' American domestic airlines AND TWA.

He broke unions, soured business enviroments and did all he could to feed his bottom line. One airline he got control of, he sold the aircraft to another business, and then LEASED them back to airline. Making money both ways.

This isn't an isolated example, it's been like this more and more as more deregulation has been pushed through congress. It is easier for people to come in a buy a company and sell off it's assetts than to sit around and make a long term investment in it. A LOT of guys are looking for the 'NOW' payoff.

A lot of folks are looking for quickly making a buck and not looking at the long road payout. Which is why our blue collar industry is crap now. (And fyi.. I DESPISE NAFTA)

[Torch]

Then there's the people who actually defaulted on their sub-prime mortgages who entered into financial contracts that they failed to uphold. 

Is anyone really surprised by this? Of course if you allow 100% financing on a home, and that home doesn't appreciate, you are going to be living in a dwelling that is worth far less than you owe. It's basic math. Do people even look at amortization tables when they apply for a mortgage? Do they realize how much interest they will be paying over the life of the loan? I swear I think some folks just skim over those numbers and sign wherever they are told to sign. Mr. Torch and I have bought and sold five homes since we've been married, and we've never, ever put down less than 20%.

A perfect example of how people need to be protected from their own stupidity is in the state of Texas, where cash out refinancing by law can't total more than 80% of the home's value. No 100% financing is allowed. Because of that, the sub-prime default rate is less than 19%, lower than any state except Alaska. And for all mortgage borrowers, less than 6% are in or near foreclosure whereas the national average is 10%. Something to think about.

[Asuras]

the risky derivatives and financial products that they employed which exacerbated the housing bubble

Personally, I think the derivatives get too much criticism. The main instrument people talk about is the CMOs, the collateralized mortgage obligations, which we've had for a quarter-century now. These are just a way for people to resell mortgages; this is good since it gives banks the flexibility to sell mortgages if they need to. That actually makes the financial system more stable since (for instance) a bank in financial straits has the option to sell off its mortgages to dig its way out of the hole it's in...otherwise it's stuck with them.

The issue wasn't the derivatives, or really how risky they were, just that sometimes these CMOs were much riskier than the people who bought them thought they were. Often times they were peddled as high-grade debt when in fact they weren't, sometimes out of outright fraud. But that's a separate issue from the derivatives themselves.

Me? I think that Deregulation over the last 30 or so years has set up a growing trend of crappy short term get rich business practices. The best non-current example I can think of would be the deregulation of the American Airline industry.

They deregulated the industry and in rapid time men like Frank Lorenzo (once called the 'most hated man in America' by Barbara Walters) KILLED the big airlines that had been part of the American business for decades. In less than 18 years, he robbed, raped and pillage the 'Big 5' American domestic airlines AND TWA.

He broke unions, soured business enviroments and did all he could to feed his bottom line. One airline he got control of, he sold the aircraft to another business, and then LEASED them back to airline. Making money both ways.

This thing about stripping a business of its assets and selling it...I mean, the only reason a company would do that is if the business, to begin with, isn't competitive. I.e., it's losing money, i.e., it's an unsuccessful business. Otherwise the thing to do would not be to dismantle the business and sell off all the assets but to sell the company itself - intact - because if it is a successful, competitive business the company will be worth more than the sum of all the airplanes and what not.

But that's just it - the airlines were not successful, competitive businesses. They were losing money, and they were losing money because prior to deregulation they'd been propped up by the government. Who paid? Consumers - prices have fallen by almost half since deregulation. So the question is do you want to pay twice as much for airplane tickets?

And this is true of a lot of labor-intensive (i.e., "blue collar") industries in America that have suffered since deregulation and NAFTA and so on. These businesses were uncompetitive, either (in the case of airlines) because the government had been propping them up for years - at the expense of the American consumer - or because they were uncompetitive with foreigners after trade was freed up.

Deregulation and free trade have made this country more efficient and competitive. And yet, I agree, working class Americans have suffered heavily. They have not really reaped the benefits of deregulation and free trade. Those benefits have mainly floated to the top. Inequality is a terrible problem and this has been an unintended side effect of deregulation and free trade.

But I do not think that the solution is to re-regulate and close off trade. If the problem is inequality, attack inequality directly. Raise income taxes. Institute a wealth tax. Give more scholarships to blue-collar Americans. That will make this country more equal - and these benefits will start going to middle and working class Americans. And it will preserve the benefits of deregulation and free trade.

[Callie Del Noire]

This thing about stripping a business of its assets and selling it...I mean, the only reason a company would do that is if the business, to begin with, isn't competitive. I.e., it's losing money, i.e., it's an unsuccessful business. Otherwise the thing to do would not be to dismantle the business and sell off all the assets but to sell the company itself - intact - because if it is a successful, competitive business the company will be worth more than the sum of all the airplanes and what not.

Really? When Cannon Mills went belly up (thank you NAFTA ) in my folk's home town of Kannapolis NC I learned a bit about this. How much does a company make a year in profit, compared to the MILLIONS it has in real eastate, facilities, equipment and material on hand?

Long term, yeah you're right.. you will make more off keeping the company and raking in profit. Short term? You leverage a buy out for 100 million or so and sell off the assets for 120 million or so? You've got 20% on your return in a short period of time. Easy money to a corporate raider type. Maybe more depending on how much of YOUR money is used.

That was one of the tricks Frank Lorenzo did selling off and then leasing the planes back to his own airline. He pocketed the money and someone PAID him for the right to charge his airline a lease on planes that had been their own.

[Asuras]

Really? When Cannon Mills went belly up (thank you NAFTA ) in my folk's home town of Kannapolis NC I learned a bit about this. How much does a company make a year in profit, compared to the MILLIONS it has in real eastate, facilities, equipment and material on hand?

Long term, yeah you're right.. you will make more off keeping the company and raking in profit. Short term? You leverage a buy out for 100 million or so and sell off the assets for 120 million or so? You've got 20% on your return in a short period of time. Easy money to a corporate raider type. Maybe more depending on how much of YOUR money is used.

Ask yourself this - if a company has assets worth $120 million, why would the company's shareholders let the company be sold for $100 million?

There's only one reason that would happen - if the company was saddled with so much debt and so completely unprofitable that the company as a whole was worth less than its book value. i.e., the company is unsuccessful and uncompetitive. The firm that buys out such a company and sells off its assets is doing a service to the country in putting those assets to more productive uses.

I realize that that means tragedies for people, that it means people are unemployed, and it isn't their fault. I realize that it destroys communities, but any other answer means that we're subsidizing - that we're making the American people pay - for industries that shouldn't exist, when they could be doing more productive things. Is this unjust? Yes. Do they deserve compensation? Yes, but not in the form of "Let's keep them in jobs we don't need."

[Callie Del Noire]

Ask yourself this - if a company has assets worth $120 million, why would the company's shareholders let the company be sold for $100 million?

There's only one reason that would happen - if the company was saddled with so much debt and so completely unprofitable that the company as a whole was worth less than its book value. i.e., the company is unsuccessful and uncompetitive. The firm that buys out such a company and sells off its assets is doing a service to the country in putting those assets to more productive uses.

I realize that that means tragedies for people, that it means people are unemployed, and it isn't their fault. I realize that it destroys communities, but any other answer means that we're subsidizing - that we're making the American people pay - for industries that shouldn't exist, when they could be doing more productive things. Is this unjust? Yes. Do they deserve compensation? Yes, but not in the form of "Let's keep them in jobs we don't need."

Stock manipulation comes to mind. If they can lower the price to the point they take over for less than the full capital value of the company. Then you swoop in and take over.

[Vekseid]

Ask yourself this - if a company has assets worth $120 million, why would the company's shareholders let the company be sold for $100 million?

There's only one reason that would happen - if the company was saddled with so much debt and so completely unprofitable that the company as a whole was worth less than its book value. i.e., the company is unsuccessful and uncompetitive. The firm that buys out such a company and sells off its assets is doing a service to the country in putting those assets to more productive uses.

I realize that that means tragedies for people, that it means people are unemployed, and it isn't their fault. I realize that it destroys communities, but any other answer means that we're subsidizing - that we're making the American people pay - for industries that shouldn't exist, when they could be doing more productive things. Is this unjust? Yes. Do they deserve compensation? Yes, but not in the form of "Let's keep them in jobs we don't need."

Probably for the same sort of reason Elliott Associates made a bid for Novell at 2 billion (when it's worth closer to 2.8) - not everyone is going to have a clear understanding of their value and stupid people end up with money quite often, and sometimes they will accept deals like that.

Other times, they didn't take the company private in the process, and are now quietly paying out for shareholder lawsuits. It's all well and good that they're paying out billions in damages, but that only restores the shareholders - not the disrupted employees. The damages haven't yet caught up with the scope of the crime.

[Asuras]

Stock manipulation comes to mind. If they can lower the price to the point they take over for less than the full capital value of the company. Then you swoop in and take over.

First, that only has any meaning for publicly traded companies. You can't manipulate the price of a privately held company.

Second, it's illegal and would be damned obvious, but I'll entertain the possibility anyway.

Third, although it's probably possible for a large enough firm to drive down the price of a stock by shorting it, other firms would buy the stock because it's very cheap.

Fourth, you have to -buy- the stock to acquire the company. Buying so much of the stock that you acquire the company is inherently going to drive the price into the stratosphere which would seem to make this strategy kind of ridiculous.

Probably for the same sort of reason Elliott Associates made a bid for Novell at 2 billion (when it's worth closer to 2.8) - not everyone is going to have a clear understanding of their value and stupid people end up with money quite often, and sometimes they will accept deals like that.

People will have different opinions about the value of the company, right...but for the management to be so stupid that they think the company is worth less than its book value, but some other company to see this opportunity strikes me as unlikely (even though there are morons in management). If this does happen, the company is surely fucked anyway for having such idiots.

And if it were to happen, presumably the buyer (clever enough to see this opportunity in spite of the morons originally in charge) would be clever enough to resell the company for what it's actually worth rather than just sell off the assets.

And even if it's -still- plausible, we're talking about deregulation and free trade and if this really is an issue going back to price controls and protectionism is not the well-tailored solution.

[Vekseid]

People will have different opinions about the value of the company, right...but for the management to be so stupid that they think the company is worth less than its book value, but some other company to see this opportunity strikes me as unlikely (even though there are morons in management). If this does happen, the company is surely fucked anyway for having such idiots.

And if it were to happen, presumably the buyer (clever enough to see this opportunity in spite of the morons originally in charge) would be clever enough to resell the company for what it's actually worth rather than just sell off the assets.

Well, Novell's case is somewhat apt. It's still generating revenue, has one billion in cash on hand, 1.8 billion in assets, but it's struggling to stay relevant. A rather great deal of its liabilities are basically various attempts at becoming relevant again - its value as a single, monolithic entity as is certainly questionable.

Buy the company, pocket the cash, cut out all the exploratory crap it's doing and sell of the individual units - Netware licensing, Unix copyrights, etc. and let the husk fall into bankruptcy. The ability to let a corporate husk fall into bankruptcy like that while pocketing insane bonuses ought to be fraud.

[Callie Del Noire]

Well, Novell's case is somewhat apt. It's still generating revenue, has one billion in cash on hand, 1.8 billion in assets, but it's struggling to stay relevant. A rather great deal of its liabilities are basically various attempts at becoming relevant again - its value as a single, monolithic entity as is certainly questionable.

Buy the company, pocket the cash, cut out all the exploratory crap it's doing and sell of the individual units - Netware licensing, Unix copyrights, etc. and let the husk fall into bankruptcy. The ability to let a corporate husk fall into bankruptcy like that while pocketing insane bonuses ought to be fraud.

But it is the practice of the day now. Corporate Raiding has been a practice since the 80s, and  like the character in the movie said.. 'Greed is Good'.

A lot of financiers see their goal these days is to MAKE MONEY. PERIOD. Not to build business, sell a product or grow a company into something. Simply.. to line their pockets.

[cere]

But it is the practice of the day now. Corporate Raiding has been a practice since the 80s, and  like the character in the movie said.. 'Greed is Good'.

That was Gordon Gekko in Wall Street.

A lot of financiers see their goal these days is to MAKE MONEY. PERIOD. Not to build business, sell a product or grow a company into something. Simply.. to line their pockets.

Asset stripping began in the 70's and still goes on today.  A book that comes to mind was 'Barbarians at the Gates' a phenomenal eye-opener that provides insights on the KKR Leveraged Buy Out (LBO) of RJR Nabisco.  The amount of debt raised to buy out Nabisco was unheard of at the time.  Nowadays, those numbers seem like chicken shit compared to government indebtedness. The problem is that governments are starting to sell of assets, like essential service utilities, to the highest bidder. These utility sales gain a short term liquidity but provide a long term head-ache when the owners fail to maintain asset currency and eventually services fail. They then hold the country to ransom, remember that these are essential services, by upping prices to pay for asset replenishment and the governments do nothing but accept the situation and watch the inflation bar rise like a Saturn rocket.  This is a major ailment that will yet come to bite us all.

Secondly, how many times have you heard the boss tell everyone that 'we have to cut costs'? Well the law of diminishing returns suggests that as we keep on reducing costs, the measures we take will yield fewer savings. Now you don't have to be a Nobel prizewinner to know that we have well and truly passed the point of cost reduction sustainability.  Organisation CEOs are measured on ROI and Cost/Revenue ratios, amongst other things.  Well let's face it, any fool can reduce costs...sack that team over there...but sustainability is the key. My point here now is that Governments are not measured on sustainability. Their day in the sun terminates with a salary for life handshake after 5 years in office in many countries. How's that for a 'get out while the going is good' card?

The answer is to make government accountable...personally.  Only allow members a seat if they can show that they have the qualifications for the portfolio. They are running a multi-multi-billion dollar business and can turn it into a house of cards within ten years and we can't risk that. Give them the resources they need to run the country...it has to be cheap compared to the clean up bill if they blow it!

And btw...financial derivatives are still out there and bloody dangerous.  The main failing is that no-one monitors the underlying risk to the level and frequency needed, plus they cannot be priced accurately...even managed funds have pricing issues themselves so how can a compounded product like a derivative stand up?

End of rant.  Apologies to all.
C

[Asuras]

Well, Novell's case is somewhat apt. It's still generating revenue, has one billion in cash on hand, 1.8 billion in assets, but it's struggling to stay relevant. A rather great deal of its liabilities are basically various attempts at becoming relevant again - its value as a single, monolithic entity as is certainly questionable.

I'm going to read between the lines here (not being an expert on Novell) and guess that "struggling to stay relevant" means "stagnant," "not innovative," "few growth prospects..."

Buy the company, pocket the cash, cut out all the exploratory crap it's doing and sell of the individual units - Netware licensing, Unix copyrights, etc. and let the husk fall into bankruptcy. The ability to let a corporate husk fall into bankruptcy like that while pocketing insane bonuses ought to be fraud.

Yeah, it usually is fraud and at any rate creditors have certain rights too. The Enron guys were prosecuted for that (among other things).

A lot of financiers see their goal these days is to MAKE MONEY. PERIOD. Not to build business, sell a product or grow a company into something. Simply.. to line their pockets.

That's not necessarily bad. There is a reason that they get paid for this, and I'm trying to communicate that reason to you: the financier - you're right - probably doesn't give a flying fuck about building a business out of the company if he's buying it to dismantle it. But the reason he's making money dismantling it is because he's freeing up the company's resources to be used in other businesses for better purposes. Do you see the value in that?

Nowadays, those numbers seem like chicken shit compared to government indebtedness.

Government indebtedness is overrated. The debt levels by the federal government relative to GDP is the same as it was in the 80s.

The problem is that governments are starting to sell of assets, like essential service utilities, to the highest bidder. These utility sales gain a short term liquidity but provide a long term head-ache when the owners fail to maintain asset currency and eventually services fail. They then hold the country to ransom, remember that these are essential services, by upping prices to pay for asset replenishment and the governments do nothing but accept the situation and watch the inflation bar rise like a Saturn rocket.  This is a major ailment that will yet come to bite us all.

The whole point of deregulating utilities is to make it so that one utility can't hold the entire system for ransom, whether it's a government utility or a private one, because people can choose to go to another utility - which is exactly why utilities will be under competitive pressure to invest. If this is not the case, the government did not deregulate properly.

Secondly, how many times have you heard the boss tell everyone that 'we have to cut costs'? Well the law of diminishing returns suggests that as we keep on reducing costs, the measures we take will yield fewer savings. Now you don't have to be a Nobel prizewinner to know that we have well and truly passed the point of cost reduction sustainability.  Organisation CEOs are measured on ROI and Cost/Revenue ratios, amongst other things.  Well let's face it, any fool can reduce costs...sack that team over there...but sustainability is the key.

CEOs are (usually) paid based on the value of the company's stock directly or indirectly. If they cut costs so aggressively that future profits (which is what the price of the stock is based on) falls...well, they end up suffering because analysts are going to see this and start selling the stock because they recognize that the company's going straight to hell.

And btw...financial derivatives are still out there and bloody dangerous.  The main failing is that no-one monitors the underlying risk to the level and frequency needed, plus they cannot be priced accurately...even managed funds have pricing issues themselves so how can a compounded product like a derivative stand up?

My turn to rant:

"Financial derivatives" includes a very broad class of financial instruments. Most of them (like basic options, forwards/futures, and swaps) are not hard to understand or hard to value. When people talk about the ones that are "hard to value" they're probably talking about "collateralized mortgage obligations" which were the securities with which mortgages (subprime and otherwise) were packaged and sold off to banks...and also muncipalities.

I don't think the CMO's were hard to value. The value is derived (hence "financial derivative") from the underlying securities. The thing people misunderstood was not the derivative but the underlying market - there was a bubble in housing, and people were mistaken in thinking which way housing prices would go. That's not new - bubbles and "irrational exuberance" can happen without derivatives - but it will make you misprice the derivatives, but it's not because of the derivatives.

And I also know that from time to time derivatives have been used to perpetrate fraud, where complex financial instruments have been used to hide the underlying risk. Well...that's fraud, but I think that's a separate issue from "financial derivatives."

(ps my job basically exists because of stock options so you will pardon my self interest in this matter)

[Callie Del Noire]

That's not necessarily bad. There is a reason that they get paid for this, and I'm trying to communicate that reason to you: the financier - you're right - probably doesn't give a flying fuck about building a business out of the company if he's buying it to dismantle it. But the reason he's making money dismantling it is because he's freeing up the company's resources to be used in other businesses for better purposes. Do you see the value in that?

Okay.. if that is the case.. WHY do it to healthy companies? Cannon Mills had value and was... relevant? It was a solid company till the foolishness that was NAFTA killed it by outsourcing good paying jobs to Mexico (and points south) and before you say anything.. NAFTA has ruined the mexican economy as much as it has the US blue collar market.

All it takes is a company willing to come in and exploit the market down there.

Kannapolis NC is one of DOZENS of textile towns through the south that all but blew away after NAFTA. It was a company town that was strong enough that it ran THROUGH the depression.. 2 ..3 days a week but STILL. It was healthy and growing..

Then NAFTA castrated the economy there.

Why?

Because some putz with a Masters in Business Atrocities decided it was better to  HIS quarterly bonuses to move out of the area rather than work things through.

Sorry, I drove through Kannapolis a couple months back and it was gone. The town I knew is gone. And it about drives me nuts that some of the folks who work in Washington said NAFTA would only eliminate 'a few low paying blue collar jobs'.

My big question is.. If you KILL the industry here.. where are you going to get John Q Public to make money to buy your goods and services?

[Asuras]

Okay.. if that is the case.. WHY do it to healthy companies? Cannon Mills had value and was... relevant? It was a solid company till the foolishness that was NAFTA killed it by outsourcing good paying jobs to Mexico (and points south) and before you say anything.. NAFTA has ruined the mexican economy as much as it has the US blue collar market.

Cannon Mills was a textile company. The Mexicans can produce textiles more cheaply than we can. Americans ought to be doing more productive things than making T-shirts. So...no, Cannon Mills was not a "solid company." They were in the business of something that is too expensive to do in America. That is, Americans shouldn't be doing it.

And how has the Mexican economy been fucked up by NAFTA?

My big question is.. If you KILL the industry here.. where are you going to get John Q Public to make money to buy your goods and services? 

Well, hopefully John Q Public will find a better job, one that Americans should actually be doing. And as I've said I'm -completely- sympathetic to the reality that people have been fucked over in this and deserve better than they've gotten, but...again the answer is not to keep them in jobs we don't need. The answer is to get them into better jobs.

And that to some extent has happened, to answer your question - I mean, we produce $15 trillion worth of goods and services in this country...produced, and sold. Primarily to Americans in fact...which says something about the textile industry and others which have suffered since NAFTA and deregulation.

[Ket]

Well, hopefully John Q Public will find a better job, one that Americans should actually be doing.

So we outsource the 'cheap labor' positions to another country, taking jobs out of American hands.

So then, who does the small jobs in America? Who makes the t-shirts? Who rings you up at a store? Who serves you when you are at a restaurant? And if you eliminate the small jobs that 'a Mexican will do cheaper' how do you pay to upgrade the American labor force in terms of education so they are capable of doing the better jobs? 

And what if a person doesn't want something else? What if a person is completely content being a waitress or a cashier or a t-shirt maker? Should they be forced to do something else simply because other nations should take on the cheap jobs and Americans should all have high paying jobs?

[OldSchoolGamer]

The people who came up with NAFTA don't care if it crashes the American economy.  That's what blowing bubbles is all about.  Just invent nonsense like collateralized debt obligations, and tell the kiddies around the Monopoly board that it's actually worth something.

[Zakharra]

So we outsource the 'cheap labor' positions to another country, taking jobs out of American hands.

So then, who does the small jobs in America? Who makes the t-shirts? Who rings you up at a store? Who serves you when you are at a restaurant? And if you eliminate the small jobs that 'a Mexican will do cheaper' how do you pay to upgrade the American labor force in terms of education so they are capable of doing the better jobs?

  The small jobs (service industry) has to be done in country. You can't really outsource cashiers and cleaning people. Those jobs have to be done by people that live in the country. It's not necessarily the company's job to retrain it's former workforce either if the company is going out of business or moving to another location.

And what if a person doesn't want something else? What if a person is completely content being a waitress or a cashier or a t-shirt maker? Should they be forced to do something else simply because other nations should take on the cheap jobs and Americans should all have high paying jobs?

Then that person is the one at fault. Sometimes jobs go away. The technology changes and some jobs become obsolete. The person can either find another job that they want to do at the same level or find a different one.  If that means they might have to move, then there is a quandery. They could possibly get a decent job is they moved, but if they are unwilling, then it is ONLY that person's fault they don't have a job.

[OldSchoolGamer]

Well, hopefully John Q Public will find a better job, one that Americans should actually be doing. And as I've said I'm -completely- sympathetic to the reality that people have been fucked over in this and deserve better than they've gotten, but...again the answer is not to keep them in jobs we don't need. The answer is to get them into better jobs.

And that to some extent has happened, to answer your question - I mean, we produce $15 trillion worth of goods and services in this country...produced, and sold. Primarily to Americans in fact...which says something about the textile industry and others which have suffered since NAFTA and deregulation.

Don't get me wrong...I'm all in favor of technological innovation and even the "creative destruction" that is inherent in a free market economy.  But, there's a caveat.  The jobs that are created must, overall, but as numerous and as well-paying as the jobs that are destroyed.  We can't--in the long run--keep losing manufacturing jobs that pay $16 to $30 an hour, and have them replaced by service jobs that pay $8 to $13 an hour.  Not and maintain our economic power and standard of living.  But that's exactly what's been happening, and it's why we have a wheel in the ditch today.

[Callie Del Noire]

Cannon Mills was a textile company. The Mexicans can produce textiles more cheaply than we can. Americans ought to be doing more productive things than making T-shirts. So...no, Cannon Mills was not a "solid company." They were in the business of something that is too expensive to do in America. That is, Americans shouldn't be doing it.

T-shirts?

Cannon mills, along with Burlington and all the other 'cheap' textile mills that went belly up  made a HELL of a lot more than t-shirts dudes.

Kevlar, carpets, towels, and a TON of clothing items. Upholstery. All sorts of things.

And if.. shipping those jobs was for 'better prices..'

Gee.. I'm paying more for the guality stuff that Cannon/Hillcrest made in Kannopolis..
  So that must not have been it.

Innovation in production?
  Nope.. that hasn't moved forward any since then.. (My Dad was a QA rep for Levi Strauss in Central South America).
  So that was not it.

'Green' Technology
  Nope.. again the old man was less than impressed with the 'clean techniques' of the mills. In fact a lot of the facilities were
  downright dangerous and below our standards (but hey! It's isn't in the US right?)

Reduced Prices?
  Sure as hell haven't seen that one.

And here is a big point you've seemed to missed in your 'we're better off without it' outlook

1 dollar EARNED in the mills went through the local economy at LEAST four to five TIMES before leaving the county. That is jobs like Law Enforcement, Service Industry (Resturants, Grocery Stores, ect), Medical (doctors) and so on. Not all of them are 'low paying blue collar jobs' and now.. they are gone too.. because no Mill equals NO ECONOMY.

BUT you're right.. the guys who own the companies got their share, and got to move on to the next carcass to pick over. Jolly good.

Also since the Americans were 'liberated' from these jobs, what have the follow up 'reinvestment' in the community for new industry done. Oh that's right.. THERE WASN'T ANY.  Most of the folks that bailed on US mills LEFT the communities high in dry. (Just like they did with the Rust Belt Steel mills and such.. )

So, you're saying it's better for America as a whole for the companies to roll up and leave the country. Not really. It's more PROFITABLE in the short run to cut and leave. Less work, thought and effort for the men on top. After all, they aren't losing their income and money is money for them.

Don't say that it's better for Americans.

[Jude]

  The small jobs (service industry) has to be done in country. You can't really outsource cashiers and cleaning people. Those jobs have to be done by people that live in the country. It's not necessarily the company's job to retrain it's former workforce either if the company is going out of business or moving to another location.

Technology will make some of those jobs obsolete.  Cashiers will certainly go by the way side one we start using all digital currency.  Don't need a 17 year old college dropout to swipe a credit stick for you.  You're already starting to see this when it comes to self-checkout lines.  And they do have cleaning robots.  But you kind of addressed that in the rest of your post

Then that person is the one at fault. Sometimes jobs go away. The technology changes and some jobs become obsolete. The person can either find another job that they want to do at the same level or find a different one.  If that means they might have to move, then there is a quandery. They could possibly get a decent job is they moved, but if they are unwilling, then it is ONLY that person's fault they don't have a job.

You assume that they can afford to move.  If you don't have a job, you're probably pretty bad off.  Switching to a different location takes time and money, you can't hitch-hike your way to California and even if you could, what're you going to do in terms of getting a permanent residence and guaranteeing there'll be a job there for you?  You may just find yourself unemployed in a city you don't know, far away from everyone you love.

[Asuras]

So then, who does the small jobs in America? Who makes the t-shirts? Who rings you up at a store? Who serves you when you are at a restaurant?

Well, bluntly...Mexicans.

And if you eliminate the small jobs that 'a Mexican will do cheaper' how do you pay to upgrade the American labor force in terms of education so they are capable of doing the better jobs?

Right. And I said that we should invest much, much more heavily in educating Americans (i.e., "upgrading the labor force" than we do now).

And what if a person doesn't want something else? What if a person is completely content being a waitress or a cashier or a t-shirt maker? Should they be forced to do something else simply because other nations should take on the cheap jobs and Americans should all have high paying jobs?

Yes.

I mean, this is what particularly disgusts me about protectionism: the notion that Americans should be entitled by birthright to a better standard of living than people who are willing to work at least as hard as they do.

The people who came up with NAFTA don't care if it crashes the American economy.  That's what blowing bubbles is all about.  Just invent nonsense like collateralized debt obligations, and tell the kiddies around the Monopoly board that it's actually worth something.

A CDO is -just- a way of reselling debt and adjusting the risk that the buyers receive. If I divide a pool of mortgages into two tranches and sell the securities off, all I'm doing is giving a larger share of the risk (and a larger share of the returns) to one side, and a smaller share of the risk and a smaller share of returns to the other. With multiple tranches, it's just more fine-grained division of the risk and returns.

Tell me how this is nonsense or Monopoly money please.

We can't--in the long run--keep losing manufacturing jobs that pay $16 to $30 an hour, and have them replaced by service jobs that pay $8 to $13 an hour

If that were the case the US GDP would have been falling over the last 30 years - which it hasn't, in fact it's been growing robustly. We've lost textile mills and steel mills and so on but we've gained more in other areas to compensate. The fact that those earnings haven't been equitably distributed is a related but not identical issue.

Reduced Prices?
  Sure as hell haven't seen that one.

o rly

1 dollar EARNED in the mills went through the local economy at LEAST four to five TIMES before leaving the county. That is jobs like Law Enforcement, Service Industry (Resturants, Grocery Stores, ect), Medical (doctors) and so on. Not all of them are 'low paying blue collar jobs' and now.. they are gone too.. because no Mill equals NO ECONOMY.

And my point is that you should be getting into better jobs, which pay more, which will support your communities. If that isn't happening it's because the US doesn't invest enough in education and trade adjustment.

Also since the Americans were 'liberated' from these jobs, what have the follow up 'reinvestment' in the community for new industry done. Oh that's right.. THERE WASN'T ANY.  Most of the folks that bailed on US mills LEFT the communities high in dry. (Just like they did with the Rust Belt Steel mills and such.. )

If they sold it to someone, someone bought it. They made their money from someone. What did they do with it?

Now, this may surprise you, but it costs money to keep all these businesses in business. All these expensive steel mills and textile mills need a continuous stream of money to keep them operating and that money comes from American finance.

When we closed down steel mills, we opened up semiconductor plants. Money which had been sucked into inefficient, expensive textile mills was now being sent to engineers to produce the world's best technology. And that's exactly why the US economy has in fact done well since deregulation - investment has flowed into growth industries, not stagnant industries.

[Ket]

Well, bluntly...Mexicans.

Sitting there repeating over and over again that Mexicans should perform the cheap labor sounds like you are highly prejudiced against them as a people. Does that mean that a Mexican who immigrates here legally should only be allowed to work at Taco Bell (or related)?

Right. And I said that we should invest much, much more heavily in educating Americans (i.e., "upgrading the labor force" than we do now).

But how would you fund it?  You've said now that we should invest more in education. Currently, many people are unable to obtain grants, loans and federal financial aid, simply because the money isn't there. Are you willing to pay out of your pocket to send the girl who bags my groceries to school? Not only that, but if everyone in America is trained to be only a white collar worker, where are all these jobs supposed to come from?  They don't just materialize out of thin air you know, if they did, our current problem of people with college educations unable to even obtain a job a McDonald's would be non-existent.

Yes.

I mean, this is what particularly disgusts me about protectionism: the notion that Americans should be entitled by birthright to a better standard of living than people who are willing to work at least as hard as they do.

So, there's a new regulation out. You love you job in the financial industry, but sorry, everyone in the country must now become a farmer. Or an advertiser. Or a lawyer. Or so on and so forth. So even though you love your job, it's what you've always wanted to do all your life, you are now going to be pushed out of said job because it's not allowed anymore.

How does that make you feel?

Just because you had the means to go to college, obtain a degree and get the job you have, doesn't mean that others want that situation. While they may want or have the education, they may be perfectly content in their current job field, even if it doesn't provide them with every luxury in life.

[Jude]

You can't blame the US for the fact that people who want to do manufacturing jobs can no longer make a living on it; it's part of the global economy.  That's just the way things are.  It would be wrong to tell people that they can't do those jobs and make a poor wage doing them if that's what they want to do with their life, I agree, but it's equally as wrong to say we need government intervention in order to keep those poor jobs here.  If you want to work a crappy job and get paid less than educated people, go for it, but education is the only thing that we can do better than the third world if we fix things.  Our minds, resources, and ingenuity are all we have.

Having said that, I do disagree with you in one place Asuras.  I don't see how you can claim that deregulation led to tech sector investment.  The tech sector growth that we saw was rooted in the creation of ARPANET and the evolution of computing.  The 90s just happened to be the decade that got to reap the benefits of many years before.

ARPANET and the evolution of the computer most certainly started before Reagan, and I can't really see any relationship between it and deregulation.