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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: FreedomForAll who wrote (108821)	6/21/2010 8:21:19 PM
From: arun gera	1 Recommendation Read Replies (1) \| Respond to of 110194

>The current system does not have this, and in addition it wastes capital rewarding people who do nothing (bankers), instead of rewarding producers and innovators.> The current financial system is an electronic promise management system that has a way to aggregate promises (money) that provides a lot of resources to producers and innovators. Note that although the VCs get a very small investment pool compared to the money supply, in 1990s the VCs had too much money and they funded unworthy dotcoms. Traditional banking used to prefer to make money by lending to companies and public organizations that held some kind of monopoly over a market (Think Ma Bell before breakup, airlines before free market, utilities, municipalities, federal government, Freddie Mac, Big Car companies). Demand was slowly satisfied by these behemoths and everyone led a relatively stable personal and business life (people employed in various levels of government and military still do). By going through the route of more competition in these industries, the stable world was destroyed by the forces of competition. I don't know why that was initiated. Maybe the older system became too sclerotic. It was good for the consumer, who got more and more consumer goods for less (more air travel, more telecommunication services, more computers, more cars). However, it was bad for labor...and good for surviving industry leaders (till they perished in the next round of innovation or by risking too much to stay ahead). In this riskier world, the risks for individuals and companies became greater. There was big difference in compensations between winners and losers. This difference was bridged by more and more lending (promise management). The biggest winners were those who worked for the promise managers (Wall Street), big winners were those who worked for the winning companies with natural economy of scale (Microsoft, Intel, Google, Pharmas, Media companies), who basically rewarded their employees at the expense of shareholders by printing stock options, the slight gainers were those who worked in the government and utilities. There were of course temporary winners (for example IT staff from 1995 to 2001 who have lost the advantage pretty much by 2010; construction and mortgage industry from 1997 to 2007). What I am trying to say is that free market competition, although limited to very few industries, has already weakened the bargaining power of the have nots, that they are unable to pay back without more borrowing power being granted to them. Perhaps, the only way to go back to a fairer system is for the haves (lenders) to lose a big portion of their promises (their assets sitting numerically in the forms of stocks, bonds, etc.). A deflation will ensue. Housing will get cheaper and the remaining wages can go into consumption to begin the next round of growth. This will take away the huge advantage the winners have gained, some winners will end up with the losers, but overall the middle class will survive. -Arun