Capitalism's Fundamental Flaw • Hacker News Board

Re: Capitalism's Fundamental Flaw

#61

Post by chrischen » Fri, Nov 06, 2009, 6:23 PM UTC

megamark16 wrote: post #45

kansando wrote: post #37

Earlier quoted context omitted.

Right. And allow the economy to go into a long-term depression with 25%+ unemployment. A government "for the people" does not have a choice in this matter. The real problem is that bankers/speculators have so much power on the outcome for people who are not at all related to the industry.

The point isn't whether or not the government should have intervened, the point is that because they did we can't blame Capitalism for the outcome of that specific action. A purely capitalist market would have let the financial crisis run is course, right or wrong. At least, that's how I see it.

The thing is the US isn't purely capitalist.

Re: Capitalism's Fundamental Flaw

#62

Post by danteembermage » Fri, Nov 06, 2009, 6:25 PM UTC

KirinDave wrote: post #44

moron4hire wrote: post #34

"The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees" So presumes the author that the people who are ostensibly receiving "billions" in bonuses are the same people who pushed this over-leveraging scam. All bankers are equal, none managed wisely. "And thus, we lose Berkeley Ph.Ds in nuclear physics to hedge funds and…

So you're arguing that an accounting trick to statistically suppress risk and get a few more million people into homes that they ended up having taken away from them is fundamentally the same level of contribution to society as people inventing the Internet, the Telephone, Chemotherapy, Relativity, etc.? You, sir, have an interesting outlook on life. But hey I guess a few high-risk buyers got to hang out in someone e…

I think his point is that, traditionally lending was a very local matter with local banks and local capital issues. If Norwegian pension funds want to fund a mortgage for a home in Paducah, KY, without some kind of securitization they're stuck earnings treasury rates and the home loan is charging the interest rate demanded by Paducah capitalists whether its higher than the Norwegian's rate are not.

The point is, there are gains from trade to be had from securitizing mortgages, the trick is to design them so that the information asymmetry costs don't outweigh the benefits. Maybe that's impossible and mortgage derivatives will always be value destroying but I doubt it.

Re: Capitalism's Fundamental Flaw

#63

Post by moron4hire » Fri, Nov 06, 2009, 6:26 PM UTC

sethg wrote: post #53

moron4hire wrote: post #36

Earlier quoted context omitted.

"Hard to counterfeit" is the key point there. The difference between gold and dollars is that dollars are very, very easy to counterfeit. Just get Congress to order more from the Treasury!

Expansion of the money supply is not "counterfeit" money, although there are circumstances where it is a bad idea. Counterfeiting is when a private citizen decides to, as it were, expand the money supply with his or her own printing press.

Why should we treat the action of the government differently from the same actions of citizens? Wouldn't it be wrong for a government to murder people with no provocation? Wouldn't it be wrong for a government to kidnap people and hold them captive in a secret location? Why then is it fine for the government to debase the currency, and therefore destroy the value of any accounts held in that currency?

This is the current global strategy to the debt crisis: inflate it away. If we (we being the government and central banks as a colluding entity) inflate the dollar 100:1, then the "toxic" debts are only 1% as bad as they were before. And we get to keep the houses we evicted everyone from, and sell it back for the new, inflated valuation.

Re: Capitalism's Fundamental Flaw

#64

Post by KirinDave » Fri, Nov 06, 2009, 6:28 PM UTC

steveplace wrote: post #48

KirinDave wrote: post #43

Earlier quoted context omitted.

I wouldn't say that was the main thrust of the article, by any means. You take one sub-point amongst a set of much larger and more important points and mine it out and claim that yet again, government intervention has proven useless. Her main points, for those who will tl;dr the article and take your post for granted: 1. People do not always act in ways that are inherently good, either in an ethical sense or in a sen…

The current system rewards people who can amass capital and take risks with it more than people who actually create that capital in the first place. The origin of this system was not created through free-market-capitalist methods. scientists and engineers who make the world a better place and invent new technology that can revolutionize markets are not proportionally rewarded for this change, But the men and women wh…

> The origin of this system was not created through free-market-capitalist methods.

Is that relevant?

> But the men and women who take on risk to pay them are rewarded.

Yes, but that's the interesting part. The actual exceptional people are, almost invariably, the scientists and doctors, and engineers who possess unique backgrounds, education, and frequently unique cognitive abilities. Many people have invested large sums of money to gain the unique education that allows them to purse. And then suddenly any speculator is considered to have "taken risk" by funding these people? And they get the lion's share of the reward, while it may take years just for the actual inventor to pay back the loans. Meanwhile the funder could be "anyone with money" and now they simply have more money.

Sometimes people who like capitalism talk about a Meritocracy, but that word is deceptive in this case because it's a meritocracy of products, not a meritocracy of people.

Re: Capitalism's Fundamental Flaw

#65

Post by chrischen » Fri, Nov 06, 2009, 6:29 PM UTC

megamark16 wrote: post #49

viggity wrote: post #23

Earlier quoted context omitted.

Greed would be tempered a lot more by risk if the government didn't save anyone.

I think that is what richcollins is saying. What I took away from that article, although I don't think it is quite what the author had in mind, is that Capitalism is flaw by the fact that our government does not allow/force us be purely capitalistic. The safety nets open the doors for greater risk, which require bigger safety nets.

Humans aren't angels. Just as we need laws to protect us from killing each other or stealing we need laws to protect us from ourselves in the economy.

Whatever system we have, however much it naturally encourages innovation, someone will try to manipulate it.

Re: Capitalism's Fundamental Flaw

#66

Post by KirinDave » Fri, Nov 06, 2009, 6:30 PM UTC

danteembermage wrote: post #62

KirinDave wrote: post #44

Earlier quoted context omitted.

So you're arguing that an accounting trick to statistically suppress risk and get a few more million people into homes that they ended up having taken away from them is fundamentally the same level of contribution to society as people inventing the Internet, the Telephone, Chemotherapy, Relativity, etc.? You, sir, have an interesting outlook on life. But hey I guess a few high-risk buyers got to hang out in someone e…

I think his point is that, traditionally lending was a very local matter with local banks and local capital issues. If Norwegian pension funds want to fund a mortgage for a home in Paducah, KY, without some kind of securitization they're stuck earnings treasury rates and the home loan is charging the interest rate demanded by Paducah capitalists whether its higher than the Norwegian's rate are not. The point is, ther…

Sure, but that doesn't change the fact that he's implicitly equating an accounting technique with the Theory of Relativity, the invention of the Internet, etc.

This worldview seems shocking to me. It's hard to imagine that someone can equate a vaccine for polio and a statistical method as equally beneficial to society, especially when one caused such woe and the other eradicated a crippling disease.

Re: Capitalism's Fundamental Flaw

#67

Post by bh23ha » Fri, Nov 06, 2009, 6:33 PM UTC

That's not the flaw of capitalism.

It is a hopefully temporary result of a world wide obsession with financial speculation.

Part of that is specific government policy resulting in financial speculation being more profitable then brick and mortar and bits and bytes businesses. I'm not just talking about the fed, and printing money, but also about trade policy.

The other part is lack of supply. When people can charge 2 and 20 and the 2 even if they suck, that means either there are a lot of people deliberately looking to lose money, or there is a shortage of hedge funds. And while those have exploded in number in recent years, that is not enough.

The government, through Ph.D. programs encourages education, some say this supply side intervention has the uninteded consequence of depressing wages for Ph.Ds. But what if the government strongly encouraged everyone to go into wall street? Politically it would be crazy to try and explain why we're paying for people to become bankers or fund managers. But a flood of talent is perhaps exactly what we need, to even out supply and demand.

Re: Capitalism's Fundamental Flaw

#68

Post by KirinDave » Fri, Nov 06, 2009, 6:34 PM UTC

dantheman wrote: post #51

KirinDave wrote: post #43

Earlier quoted context omitted.

I wouldn't say that was the main thrust of the article, by any means. You take one sub-point amongst a set of much larger and more important points and mine it out and claim that yet again, government intervention has proven useless. Her main points, for those who will tl;dr the article and take your post for granted: 1. People do not always act in ways that are inherently good, either in an ethical sense or in a sen…

Inventing something by itself does not create value, to create value it must solve a problem. If you invent something,self funded it, and then take it to market you will be incredibly rich.

Such as the Theory of Relativity, or inventing the Internet, right?

Too bad reality doesn't reflect your sentiment. Even solving a massive problem may not result in becoming rich. Especially with the way network economics has turned the whole scarcity model upside-down for modern internet-based startups.

Re: Capitalism's Fundamental Flaw

#69

Post by fnid » Fri, Nov 06, 2009, 6:40 PM UTC

dantheman wrote: post #58

fnid wrote: post #14

Earlier quoted context omitted.

I would suggest that it was an elimination of a lot of laws regarding financial transactions and regulation that enabled the recent decline. The removal of these laws enacted to prevent a recurrence of an historical collapse, did in fact bring another collapse, so pragmatically, I would say laws help.

We are more regulated now than we've ever been before. All this talk about deregulation, though real in some cases, often just meant a decline in the rate of new regulation. When there are less regulations people take interest and make sure things work correctly. For instance, when opening a bank account most people don't do much research because they're all FDIC insured -- who cares what the bank does with your mone…

We are not more regulated than ever before, that's just not true. Regulations are being removed and the regulators are more lax. Did you see what Madoff said about the regulator looking at his business? He called him a blow hard.

I also don't think most consumers of banking products are able to determine the solvency of a bank. If the FDIC wasn't there, the account holders would be at greater risk even if they did care.

I don't believe markets reform themselves. The market does what is in the individual best interest, not the interest of the market.

Re: Capitalism's Fundamental Flaw

#70

Post by condor » Fri, Nov 06, 2009, 6:41 PM UTC

gaius wrote: post #40

darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

these bailed out banks want to hand out billions in bonuses to their non-performing employees If I worked for a bank, and I had nothing whatsoever to do with its subprime business, and had made a trading profit (or was in an unrelated function like IT and had fulfilled all my targets) then damn right I'd expect a bonus, and I'd deserve it too. It's interesting to note here in the UK that the 70% taxpayer-owned RBS ha…

Goldman's business was subsidized by the Government, in the form of funding Goldman's transaction partners, so that they could pay Goldman what was owed.

In normal business if my customer goes bankrupt, even if I made the sale and was owed money, I would take a loss on that transaction., and if the loss was large enough it would affect all of my employees, who in turn took the risk of working for me. I took the risk of selling to that customer, I was in the best position to judge their stability, and so would have to deal with the consequences. Goldman didn't have to deal with the consequences of transacting with unstable partners, the Government (in the form of the taxpayers) stepped in to deal with those consequences, and that is why in large part Goldman is able to exist, earn a profit, and pay bonuses.