Nobody Cares: PRS

Innula Zenovka

Nasty Brit
VVO Supporter 🍦🎈👾❤
Joined
Sep 20, 2018
Messages
3,137
SLU Posts
18459
The rich are getting free money because capitalism is broken, says billionaire hedge fund founder

I don't want to quote this because for one it's not tremendously long and for another you really need to read all of it, because it's a concise explanation by an actual billionaire capitalist that is more useful than a simple "capitalism is bad, mmkay", and also can't be dismissed as a "lazy poor" just being bitter.
I don't quite follow that argument, I'm afraid. The article says

For those who are, “money is free” – thanks to central banks which are “pushing money on investors”. However, this isn’t driving up inflation or growth because investors are investing the money rather than spending it.

“As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish,” he said.
What's wrong with people investing their money, or with banks and investment funds investing money on their behalf?

Generally, when I read that companies are investing so much in opening a new plant nearby or that existing manufacturers are investing in new product lines, then I take that to be good news.

I thought that was generally supposed to be a good thing, or is the argument that the investments go primarily into various short-term financial derivatives and never actually gets turned into anything other than more cash?

The whole article left me suspecting that, in trying to simplify the actual line of argument, the reporter had missed out a couple of important steps.
 

Dakota Tebaldi

Well-known member
VVO Supporter 🍦🎈👾❤
Joined
Sep 19, 2018
Messages
2,495
Location
Gulf Coast, USA
Joined SLU
02-22-2008
SLU Posts
16791
I guess "investing" might be maybe a too-general term, because you have a good point. Perhaps he's implying that too much of the investing is in securities; or companies/industries that sit on the growth or just pass it as dividends to shareholders. He definitely seems to be implying "investing" of a type that isn't being turned into working capital.
 

Brenda Archer

Well-known member
Joined
Sep 21, 2018
Messages
1,271
Location
Arizona
SL Rez
2005
Joined SLU
Sept 2007
SLU Posts
12005
I don't quite follow that argument, I'm afraid. The article says



What's wrong with people investing their money, or with banks and investment funds investing money on their behalf?

Generally, when I read that companies are investing so much in opening a new plant nearby or that existing manufacturers are investing in new product lines, then I take that to be good news.

I thought that was generally supposed to be a good thing, or is the argument that the investments go primarily into various short-term financial derivatives and never actually gets turned into anything other than more cash?

The whole article left me suspecting that, in trying to simplify the actual line of argument, the reporter had missed out a couple of important steps.
There are a lot of people who are basically locked out of this economy by not being considered credit worthy. They might not have “done anything wrong,” just be poor or living paycheck to paycheck.

My generation grew up on the idea you needed to have a credit rating to have essentials like an apartment. That’s gone for me due to the high cost of cancer and its sequelae. I think a lot of individuals and families with an elderly, sick or disabled person are in the same boat.

Basically, to be a real citizen in American capitalism, you have to be in the ten percent.

Investment used to be within the reach of any landholder, but most people are now in precarious straits. They might have a retirement fund managed by someone else. Anything more than receiving and spending a paycheck is off most people’s radar. Investment is for “them.” It’s the sad ending of something that used to work.
 

Innula Zenovka

Nasty Brit
VVO Supporter 🍦🎈👾❤
Joined
Sep 20, 2018
Messages
3,137
SLU Posts
18459
I guess "investing" might be maybe a too-general term, because you have a good point. Perhaps he's implying that too much of the investing is in securities; or companies/industries that sit on the growth or just pass it as dividends to shareholders. He definitely seems to be implying "investing" of a type that isn't being turned into working capital.
Yes, but even then, funds invested will generally end up in someone's bank account or some other fund that makes it available to be lent to someone -- which is what investment is.

It's not as if the money ends up as part of a pile of $100 bills and gold ingots like the one Scrooge McDuck's vault, just sitting there.

There are a lot of people who are basically locked out of this economy by not being considered credit worthy. They might not have “done anything wrong,” just be poor or living paycheck to paycheck.

My generation grew up on the idea you needed to have a credit rating to have essentials like an apartment. That’s gone for me due to the high cost of cancer and its sequelae. I think a lot of individuals and families with an elderly, sick or disabled person are in the same boat.

Basically, to be a real citizen in American capitalism, you have to be in the ten percent.

Investment used to be within the reach of any landholder, but most people are now in precarious straits. They might have a retirement fund managed by someone else. Anything more than receiving and spending a paycheck is off most people’s radar. Investment is for “them.” It’s the sad ending of something that used to work.
I agree, but I don't think that's what he was talking about.

He seemed to be complaining that people who have access to credit don't use that credit in the right way, and I think the people he was talking about were people wanting to borrow large amounts of money to invest rather than ordinary citizens wanting to borrow money for discretionary purchases -- the billionaires, he seemed to be saying, were borrowing cheap money and investing it in the wrong things, and I'm wondering what he thought they should be doing with it that they aren't.
 
Joined
Sep 19, 2018
Messages
1,338
Location
NJ near Philly
SL Rez
2003
SLU Posts
4494
A friend of mine's home is in Kentucky and she is into politics. Given that, I trust her perspective on the governor's race down there. She wrote on Facebook

Sharing this again. This is one of the best analysis I’ve read to date. Better than the New York Times or any other major magazine
She shared the following from Shannon Hill written on November 6th. I would provide a link but it seems to only be on facebook.

I want to humbly offer a little perspective on this election. I've seen some liberals gloating and some going as far as saying it's indicative of some sort of "movement". At the same time, I've seen some conservatives lamenting the loss of the governor's race and going so far as to say that now we will be some sort of sanctuary state, hell-bent on killing babies, and worrying about our gun rights being infringed. I really can't fathom how either view rationally finds even the slightest foothold but if you fall in either of these two camps I'm here to offer a different way of looking at it.
First, to the liberals, I don't know if you noticed but the Republicans swept all of the down ballot races. Not by a little but by landslide amounts in pretty much every instance. It wasn't even close. If Beshear winning is indicative of any kind of "movement" it's one of the most anemic movements I've ever seen. This was not a vote for Beshear, it was a vote against Bevin, the worst and most divisive governor our state has ever seen. Yes, kudos on a little higher turnout but all this vote for governor was indicative of is that barely, by the skin of our teeth, there was just enough Kentuckians with enough sense to get rid of an awful governor who wanted to forever alter for the worse our education system. Thanks to democrats, republicans, and also notably, the libertarian candidate John Hicks and the 28,442 people who decided to vote for him instead of voting Bevin.
And just one more thing, give these Republican voters some credit, can you imagine going into that voting booth and voting for all Republicans on a ticket and not voting for your head of the ticket, the governor? That's exactly what many of them did and that must have been difficult to do, especially considering these are many of the same people who voted for Trump but yet felt Bevin was bad for them, bad for our teachers, and bad for our state. I find it amazing.
To you conservatives, not only did your candidates win all of the down ballot races, Republicans still hold super majorities in the State House and Senate meaning they have the power to override any veto Beshear might offer. The Republican party still has a strangle hold on our state government.
There will be no ritualistic baby killing by the governor in Frankfort.
The state is not going to be overrun with undocumented immigrants. There will be no sanctuary cities.
Nobody in this state is coming for your guns, any of them.
And by the way, you will also go on about your lives largely unaffectived by our state's small LBGTQ community.
Electing Andy Beshear in Kentucky will change very little here. If he has an agenda at all he'll not likely to be able to advance it much. However, doing so has protected our state employee and teacher pensions and hopefully leads to much less divisiveness and maybe a little bit of cooperation between our legislature and our governor to work together to better our state for all of our sakes.
On a side note, I'm proud of Boyd County for being one of 24 counties that went blue and for helping to make the rational decision to boot this terrible governor out of Frankfort. For the first time, in a long time, I felt my vote really meant something.
I would also like to point out the total votes from Greenup and Boyd counties. Our two counties are as intertwined and mutually dependent on each other as about any two counties in our state. Greenup county went for Bevin while Boyd County went to Beshear. If you total the votes from both counties together Beshear won the two by a mere 4 votes. It really shows how divided we are locally as the state totals show our division through the Commonwealth. I truly believe getting rid of Bevin was in all of our best interest, his divisiveness is just a bridge too far. I really hope with him gone we can work to find common ground and work together to make our communities and state a better place for all of us.
 

Dakota Tebaldi

Well-known member
VVO Supporter 🍦🎈👾❤
Joined
Sep 19, 2018
Messages
2,495
Location
Gulf Coast, USA
Joined SLU
02-22-2008
SLU Posts
16791
Yes, but even then, funds invested will generally end up in someone's bank account or some other fund that makes it available to be lent to someone -- which is what investment is.

It's not as if the money ends up as part of a pile of $100 bills and gold ingots like the one Scrooge McDuck's vault, just sitting there.
....except when it does. Okay, so it's not physical piles of money, it's numbers in various bank accounts; but money "just sitting there" and not being spent on anything at all is exactly how you get mega-billionaires.
 
  • 1Agree
Reactions: Brenda Archer

Innula Zenovka

Nasty Brit
VVO Supporter 🍦🎈👾❤
Joined
Sep 20, 2018
Messages
3,137
SLU Posts
18459
....except when it does. Okay, so it's not physical piles of money, it's numbers in various bank accounts; but money "just sitting there" and not being spent on anything at all is exactly how you get mega-billionaires.
No, that's not how fractional reserve banking works. I don't pretend to understand banking particularly well but even I know that the money held on account is used to underwrite loans based on a multiple of the bank's deposits.

I think he may mean that the billionaires and other corporate investors take advantage of low base interest rates to recycle and arbitrage loans through the system until, by the time the funds reach the retail market (i.e. business or personal customers who actually want to borrow money to do something with it) they're paying high interest rates, but I'm by no means sure that's what he's saying.
 
  • 1Thanks
Reactions: Jolene Benoir

Brenda Archer

Well-known member
Joined
Sep 21, 2018
Messages
1,271
Location
Arizona
SL Rez
2005
Joined SLU
Sept 2007
SLU Posts
12005
Yes, but even then, funds invested will generally end up in someone's bank account or some other fund that makes it available to be lent to someone -- which is what investment is.

It's not as if the money ends up as part of a pile of $100 bills and gold ingots like the one Scrooge McDuck's vault, just sitting there.


I agree, but I don't think that's what he was talking about.

He seemed to be complaining that people who have access to credit don't use that credit in the right way, and I think the people he was talking about were people wanting to borrow large amounts of money to invest rather than ordinary citizens wanting to borrow money for discretionary purchases -- the billionaires, he seemed to be saying, were borrowing cheap money and investing it in the wrong things, and I'm wondering what he thought they should be doing with it that they aren't.
Thanks. There’s certainly a lot of money chasing bubbles rather than doing anything concrete. But I’m not in a position to really know. I just see the damage when the bubble bursts and some corporations get bailed out again, while social services and infrastructure on the ground get defunded and decay, and production seems to be in decline.

A few wealthy people are pointing out this is not sustainable - and even worse, is all that high-end money even *real* if it doesn’t match up to something productive in the economy? I am no expert, but I think we’re on the brink of something like a devaluation of this useless money.

A lot of people are de facto living through what looks like a depression - shuttered production and falling standards of living - could this be the true economy, and not the numbers propped up by cheap borrowing and speculation?
 

danielravennest

Active member
Joined
Sep 21, 2018
Messages
1,100
SLU Posts
9073
....except when it does. Okay, so it's not physical piles of money, it's numbers in various bank accounts; but money "just sitting there" and not being spent on anything at all is exactly how you get mega-billionaires.
There's a limit on how much you can spend on yourself and have it make any difference. Like you can only eat so much, even if it is very nice and expensive food. Larry Ellison bought 98% of the island of Lanai, one of the Hawaiian Islands (the other 2% is owned by other people and wasn't available to buy). But he doesn't actually spend a lot of time there, because he can only be in one place at a time, and most of it is spent running Oracle. So how much difference does it make to his life that he owns it, rather than visit some other tropical island, which is what most people do?

So I view wealth beyond what you can actually use for yourself (and family and friends) as a caretaker position. For one reason or another you have been given the ability to manage those assets, which can be done wisely or poorly. If you do it poorly (see Donald Trump and his investment history), it will be reallocated to someone else to manage, hopefully better.
 
  • 1Thanks
Reactions: Brenda Archer

danielravennest

Active member
Joined
Sep 21, 2018
Messages
1,100
SLU Posts
9073
No, that's not how fractional reserve banking works. I don't pretend to understand banking particularly well but even I know that the money held on account is used to underwrite loans based on a multiple of the bank's deposits.
Fractional reserve banking is intended to prevent bank failures. A typical number in the US is 12% of their total assets must be kept as a reserve. Reserves are "safe assets", such as cash, deposits at the Federal Reserve Bank, or property owned by the bank (like the branch buildings). The remainder can be loaned out. Since some borrowers fail to pay back their loans, the reserve is a buffer for recessions and other bad circumstances. In normal times, the interest charged on good loans covers the losses from bad loans, and doesn't eat into the reserves.

The bank's total assets include their own assets, plus deposits by customers. Those customers show a balance on their accounts. If I take out a personal loan, those customers don't see a decrease in their account balances. Rather, the bank has converted some of their assets to a different kind, that of the money I owe them in the future. If I go and take the loan check and deposit it in a different bank, now that bank shows an increase in customer deposits, and thus total assets, while the lending bank doesn't show a decrease. Repeat this process multiple times, reserving 12% at each step, and the banking system as a whole has multiplied an original deposit by 100/12 = 8 1/3 times. This multiplier effect is how loans create more money in the economic system.

Notably the Federal Reserve itself only has a reserve ratio of 1.6%. They can get away with this because they can create money "by magic" - buying securities from member banks, mostly Treasury bonds, and crediting those banks with deposit balances with them. They didn't "have" the money to buy the bonds with, they created it on the spot in the process of buying them. But the banks can now go make more loans, because those deposits with the FED count as reserves.
 

Dakota Tebaldi

Well-known member
VVO Supporter 🍦🎈👾❤
Joined
Sep 19, 2018
Messages
2,495
Location
Gulf Coast, USA
Joined SLU
02-22-2008
SLU Posts
16791
No, that's not how fractional reserve banking works. I don't pretend to understand banking particularly well but even I know that the money held on account is used to underwrite loans based on a multiple of the bank's deposits.
Sure the bank is able to extend credit to an amount that's informed by how much money is on account there - but that's the bank doing that, not the billionaire. No matter how much credit the bank has extended through however many active loans, the billionaire can withdraw the entire balance of their account at any time. That is not the same situation at all as the billionaire investing her own money directly to a lender as working capital. That money is actually gone until it's paid back. If it's never paid back, it's gone forever as far as that billionaire is concerned.
 
  • 1Agree
Reactions: Brenda Archer

Innula Zenovka

Nasty Brit
VVO Supporter 🍦🎈👾❤
Joined
Sep 20, 2018
Messages
3,137
SLU Posts
18459