United States Heading towards a Depression?

I have yet to see you give a real life answer to any issue anyone has broached on your claims and representations. I have and will continue to discuss real life situations, consequences with regrard to Sarbanes Oxley (Stox) which involves regulation following a slew of significant examples of dramatic corporate fraud wherein the executives of large publicly held companies dramatically misrepresented their financial results and defrauded stock holders of ENORMOUS sums of money. Some of the stockholders in those cases represented employees of the companies.

Fraud and theft are fraud and theft. Your general attacks on this specific legislation suggest that you simply approve of theft and fraud when it has been wrapped up in the veil of business...and thus should be free of policing once it falls under the "Guerilla interpretation of the MARKET"

Recall, just two of the worst cases, WorldCom and Enron, resulted in a meltdown, in aggregate value from their market peaks to bankruptcy of approximately $190 billion. That is more than the cost of one year of war in Iraq, More than the vast majority of government programs. It is an astonishing number representing fraud at its largest level.

You would suggest that this fraud be allowed to continue to operate.



Here is how you responded to this series of comments by me.

Of course its a valid argument. Since SOX was instituted we haven't had any examples of this type of fraud.

That is called a SOLUTION. That is real life example. In the Guerilla world of Guerilla's endless proclamations on all things in life with answers from the book of libertarianism....you don't think its valid.

I suggest you enter the real world.

....more Guerilla talk. Nothing substitive.

This is gibberish. Instead of dealing with the real world this is hypothetical nonsense.

The US economic system includes opportunities for totally uninvolved individuals to invest in capitalism by buying shares of stock. Stock is valued via complex financial analyses based on an incredible array of factors. An entire world of specialists have evolved to deal with this industry and they are utilized world wide. In that it deals with money, massive amounts of money, and is complex and subject to manipulation and fraud it merits regulation to protect the rights of investors and protect this element of the US and world economic system.

This system of opening equity opportunities to a huge world actually strengthens capitalism everywhere, creating greater opportunities for access to investment capital, and an opportunity for rewarding those who do best in the market. One would think you would applaud mechanism's that enhance and improve its efficiency and accuracy.

More non substitive points by you. (btw I love all the ad hominems and strawmen's and other nifty phrases. Aren't you a clever theorist)

AND SO WILL I

I'll make it simple for you Guerilla, rather than get into a stupid discussion of semantics. During this decade, more specifically since Bush has been in office, an enormous number of regulations are simply not being enforced. They range from financial overviews to environmental oversight, to other areas. Businesses are freer to do what they wish independant of government oversight.

Guerilla, rather than getting into one of your endless discussions of the FED, one might hope you could stick to the topic of Regulation on a financial matter that represents the teeniest of costs, yet has a dramatic positive impact.

More ad homs and strawmen. Nothing at all relative to curbing massive corporate fraud, protecting investors and nothing about protecting the integrity of the financing system that actually enhances business and what you like to call capitalism.

....ah but you do, quite regularly....

okay...so how in the real world are you going to deal with enormous corporate theft that potentially involves 100's of thousands

Hm...I've talked about facts...and you have ad homed and strawmaned us to death.

Finally, after all those ad homs and strawmans, I was getting ready to puke.

I'll reference from here http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act

Point 1 - Regulation hurts competition (http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act#Analyzing_the_cost-benefits_of_Sarbanes-Oxley)

Foley & Lardner Survey (2007): This annual study focused on changes in the total costs of being a U.S. public company, which were significantly affected by SOX. Such costs include external auditor fees, directors and officers (D&O) insurance, board compensation, lost productivity, and legal costs. Each of these cost categories increased significantly between FY2001-FY2006. Nearly 70% of survey respondents indicated public companies with revenues under $250 million should be exempt from SOX Section 404.​

Btw, for those following along, higher total costs, are a barrier to entry. The higher the cost of entry, the less competition you have. Keeps the big boys fat and rich, and keeps the small guys out of the market.

Point 2 - Regulation (total costs) hurt small business more than large business (http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act#SOX_404_and_smaller_public_companies)

The cost of complying with SOX 404 impacts smaller companies disproportionately, as there is a significant fixed cost involved in completing the assessment. For example, during 2004 U.S. companies with revenues exceeding $5 billion spent .06% of revenue on SOX compliance, while companies with less than $100 million in revenue spent 2.55%.[23]​

So we go back to Earl's 0.36%. If you are a big company, with massive overhead and capital capacity for management, you pay 6/100 of a percent. Or $6 on every $10,000. A small company, a startup or a independent firm, pays $255 on every $10,000. For those of you arithmetically challenged, the cost to small business is over 40 times greater for section 404 compliance. So while the average may be $40 on every $10,000, the little guys are paying 6 times that.

Of course, most regulation is written by lobbyists and corporations, politicians merely introduce it, and rarely are experts on the legislation that bears their own name. Now with the small firms paying 40 times as much in compliance costs, who do you think paid for the legislation to be written? Big business, or small business? [/quote]

1. You got part of it wrong Guerilla. Not surprising it has to do with facts. Big companies spend $36.00 on every $10,000 of revenues.

2. Smaller publicly owned companies are paying far more for compliance. I wouldn't call them small. I believe they are companies with $1 billion in revenues or less.

CRAFT A WORKING SOLUTION. That is exactly what the SEC has been addressing. Keep regulation in place to protect against fraud, and structure the regulations in a way to make them less costly for smaller publicly held companies. That is a very doable activity for experts on financial audits especially with a history wherein each case of fraud represented hiding of expenses through a variety of mechanisms and compliance by accounting firms in not pursuing audits on these very critical issues in a responsable way.

Your solution, which is to void such regulation returns us to a financial jungle wherein any business can aggressively manipulate financials, misrepresent its operations, enable the business heads of each of those businesses (which happened in each case of the companies that were the impetus for STOX) to enrich themselves at the expense of investors....and ultimately run the producing assets into the ground through financial mismanagement.

Nice dealing with you, Guerilla. You should spend some time actually following real facts.

Having discussed this issue, I'm going to return to the meat of the argument.

STOX as it is currently operating with larger companies has been an incredibly effective tool at eliminating corporate fraud that exploded in the late 1990's and early 2000's, each representing a dramatic misrepresentation of financials, and representing corporate bosses enriching themselves while investors and the capitol markets lost hundreds of billions of equity.

STOX, which has been under review and management is evaluating how to keep expenses minimal for smaller publicly held companies, while affording the same protections.

Less than a penny (in fact about 1/3 of a penny on a dollar is not an impediment to free trade or business as the theorists like to shout. It is an incredible small cost, an uttlerly minute element of overhead, to protect the effective flow of markets.

 

So my question to you then Earl is this.

What regulations specifically has not been enforced, and how were those regulations enforced under Clinton 42 or Bush 41 etc? Feel free to provide just the name of the legislation that was not enforced, I don't need the Dept. or year specifically.

The reason I ask, is that it is the crux of your argument, and while everyone knows I am no fan of GWB, I don't believe we are well served by attributing false charges to him.

So please, list the legislation or rules you feel have not been enforced under his administration.

 

With the price of fuel dropping the past few weeks the GNP started to grow. If fuel prices continue to fall the economy will make a recovery.

 

No.


-------------


August 27, 2008
The Financial End Game
Posted by Lew Rockwell at August 27, 2008 10:07 PM

"This story," writes Robert Blumen, "indicates the corner into which the crisis has painted the Fed. If they let the GSEs fail, foreign creditors will take significant losses, but if they print enough money to bail them out, they risk a (further) collapse in the dollar. This is the end game and there's no way out."


--------

I don't think people understand how deep the problem goes. The system is fundamentally cancerous. It's not a question of if, but when.


.

 

yes, if the price of fuel continue to fall the economy will begin to flourish.

 

This is incorrect.

If you would like me to explain why, let me know.

 

People are still getting rich in the US

 

lol, if only it was that easy.

In other news Fannie's CFO, CBO, and CRO all took a hike. It is never good when CFO's take off, look at LEH since.

 

That's true, however not for the reasons you stated.

When the money supply doubles in a decade, a lot of five-hundred-thousand-aires are now millionaires.

Fiat money is not a measure of wealth. The government pays just as much to print a $100 bill as a $10 bill.

 

Wrong again Guerilla. That is the Crux of your argument. You addiitionally like to claim that All regulation is bad, that the government is always wrong. More deeply when you attack government you limit it to the US government.

I know that some government actions work dramatically well. I know some don't.

An example of one that works extremely well to date is Sarbanes Oxley (STOX).

After several episodes in the late 1990's and early 2000's highlighted by the collapse of Enron, STOX was enacted to tighten the restrictions on reporting financials of publicly owned companies.

As of the latest data we see that the cost of STOX on large companies (surveyed at having revenues of in excess of $4 billion) is less than 1 cent on the dollar. In fact it was about 1/3 of 1 cent on the dollar. In the prior year the research found that the costs were slightly in excess of .4 of a penny on the dollar.

Other research found that the costs of STOX were far more expensive for companies averaging about $1 billion in revenues. The SEC is exploring how to maintain STOX and drive down regulatory costs on these large, but relatively smaller companies.

Suppose there were no actions taken to rid the stock market of enormous forces of fraud.

As reported earlier, only two of the companies that dramatically misrepresented their financials, WorldCom, and Enron, saw an aggregate meltdown of total Market value from peak to bottom of $190 billion dollars. That is a lot of money and a lot of value.

Put it in perspective, in 2004 the FED published its annual survey of 50,000 families taken every 3 years. It published that the average net worth of American families was about $93,000. That isn't enormous.

Round it up to $100,000. Wiping out $190 billion in worth is equivalent to wiping out the net worth of 1,900,000 American families.

That is enormous. Take the families and multiply the number by 3 (a very rough estimate of average household size). You get a hypothetically impacted population of 5,700,000 people.

In other words the total devastation of market net worth would essentially have wiped out all the assets of the entire population of states such as (all with populations of less than 5.7 million people).

Alabama, Arkansas, Colorado, Connecticut, Idaho, Hawaii, Iowa....etc., etc.

It was a loss of gargantuan proportions.

By example at the beginning of this year it was reported that there were 1 million homes in foreclosure--theoretically impacting 1 million families. It was reported as an unprecidented DISASTER. Assume most of the families who were foreclosed on had most of their assets tied up in estimated home values.

The total market loss of these 2 companies alone was TWICE as bad.

The companies were traded on the stock market.

AHHHHH! MARKETS. THEY ARE WONDERFUL. NEVER TOUCH THEM. KEEP THE GOVERNMENT OUT OF THEM. THE GOVERNMENT ALWAYS SCREWS THEM UP.

I seem to remember one poster here continuously making that claim.

Now belief in markets stems from economics, a social science, and the theory of markets is derived in the concept of a "Perfect Market". A perfect market is defined as one in with certain attributes including a) all items are fungible, and b) there is perfect information available to all participants within the market.

No markets are perfect. Fungibility assumes every item being bought and sold is exactly the same. Obviously real estate isn't fungible. Stock Shares of a tech stock are different than stock shares of retail company. Oil produced in Venezuela is different than oil produced in Saudi Arabia (It is heavier and requires more refining), etc.

More critically is the issue of having equal information.

In the stock market I don't expect to know as much as the Chief Executive Officer (CEO) and definitely not the Chief Financial Officer (CFO). In order for the stock market to work I expect reasonable amounts of information. I also expect that all companies will be playing on equal playing field insofar as how financials are reported. In fact one of the essential theories that describe how stock markets work and reflect pricing is based upon the free availability of information. This is directly related to the theory of perfect markets of which a basic standard is the availability of all information available to all those involved in the market.

This is as basic and fundamental as it comes.

Pre STOX that was not the case. In fact a trend had a occurred. After years of trials it appears principal operating officers and financial operating officers of companies and external auditors were acting in ways to promote widespread fraud. In fact the major international CPA firm of Anderson (formerly Arthur Anderson) collapsed because of these episodes.

Had nobody stepped in to correct the malfunctions of the market, I believe the American stock market would have or could have collapsed followed by collapses in overseas markets.

Essentially investor belief in markets that honestly provided information about privately held businesses would no longer be believable.

If you want to consider markets as important, consider that one source currently estimates that world wide equity markets reflect in excess of $50 trillion. That is huge.

STOX was enacted. Since that time there have been no instances of fraud as practiced by the businesses that instigated STOX.

I'd call that a GREAT FIX.

STOX was enacted in 2002. Since then the costs and impacts of STOX are measured. Most recent analyses of the costs find that the impact on larger publicly held companies is extraordinarily minimal. Impacts on relatively smaller publicly held companies is greater. The SEC is acting to maintain the protections afforded by STOX but to reduce the regulatory expenses for the smaller companies.

Meanwhile the markets that carry somewhere to the tune of $50 trillion in equity value operate with the belief that information available about those companies is (in my words) reasonably reliable.

As you attack American government all the time, all regulation, specific legislation such as STOX and lump them under an extraordinary attack of scorn and half truths about how things work, you open the door on destroying that which you claim you support....the market.

Its ultimately mindless and stupid, if not part of an effort to spread an agenda to destroy that which works well for hundreds of millions. Similarly those that parrot an endless volume of trivia about ultra right wing economics are simply parroting the emotional pitches of business interests that wish to remove all limits on their ability to do anything they wish anytime including ripping off every person they can get their hands on.

Now there are other specific regulations that libertarians attack that have provided similarly advantageous results. But describing the scenarios would take a lot of time.

Now on to your agenda. It will take me some time to aggregate the full volume of laws which have been diminished under the Bush administration. I can certainly provide it, but it will take time.

I'm sure this was all new to you Guerilla. When you stick your head in the sand only reading the commentary of political radicals you have a hard time understanding reality.

 

Earl, you started with a strawman, and ended with an Ad Hominem. In between, not much productive got done. I'm trying to take the high road in this discussion, but it seems we're headed in the opposite direction.

I don't think there is a lot to be gained between the two of us debating further. Sorry for any duress I have caused.

 

I find it astounding that someone who can write endlessly about efficiency and markets can't see a real market in operation and can't see that which saves that market and enables it to run more efficiently.

The grand theft from a number of businesses that were the reasons behind the creation of STOX not only resulted in stealing from tens of thousands of individuals and investors within those businesses....but the actions of these businesses threatened to destroy the very basis on which these markets would operate.

If public companies could get away with dramatically misrepresenting their accounting or the individuals within these companies could take hundreds of millions of dollars (investor dollars) and move them into their own private funds....then the equity markets (the stock market) would be unable to operate.

The largest value market in the world (in excess of $50 trillion) would collapse. Who could trust in equity investing?

When one speaks of efficiency, the smooth operations of the equity markets provide the least expensive form of financing for businesses.

If a company does well within the stock markets and its stock grows, that company can use that stock for buying other companies or expanding in any form of investment opportunity. It is the most efficient way to grow, expand, take advantage of opportunities. It literally defines the essence of economic growth by private businesses.

Upon its enactment the criminal behavior of this sort ended. At least for the 6 years since its enactment.

STOX is incredibly cheap. It costs the competitive large companies approximately 1/3 of a penny on each dollar of revenues. It is a teeny tiny overhead item.

Smaller companies (not small mind you--they have about $1 billion in revenues face higher costs in meeting the requirements of STOX. The SEC is working to reduce those costs. Still those costs are negligible for a company in the $1 billion range.

These costs don't restrict companies. Any competent motivated manager could shave irrelevant overhead to balance against these costs.

BTW, this reminds me...when you are speaking of costs that can impact a company, one of the companies whose gross actions of theft in misrepresenting expenses, Worldcom, was under reporting annual expenses to the tune of $2-3 billion/year.

Assume profits were overstated by less than $2 billion...say by $1.5 billion. Assume the market was valueing the stock at about 14 times earnings-(the very long term Price to Earnings ratio on American stocks--over decades).....(those are extremely conservative numbers). Then Worldcom's gross misrepresentation (crime) was over valuing the company by about $21 billion each year this took place.

That is grand theft.

WorldCom is also an example of how the rising prices of a stock are the least expensive, most efficient mechanism for financing and growth. WorldCom grew from a tiny company, albeit one with a high stock value attached to it. It primarily grew by acquistion, funding virtually all (or actually all) of the growth through stock acquistions. It became a large company by using its very high priced stock to purchase the far far far larger MCI. After that acquisition by far the largest part of its real revenues and costs were associated with MCI.


Take the actual costs of SOX as reported in the survey of bigger companies and smaller companies. Its about $1-3/4 million/year per company.

It costs companies an extra amount--less than a penny on a dollar of revenues to maintain the integrity of the markets.

It keeps the markets alive. It drives the efficiencies that markets create.

Somehow, with all your theoretical writing on markets and efficiencies, you can't see how STOX improves markets.

But of course you respond with more commentary about strawmen and ad hominems.

If you could actually see how markets work, I might give your theoretical writings some credibility. Instead you mindlessly seem to repeat theories that don't pan out in real life, or alternatively attack legislation that actually improves the operations of markets.

Its a shame.

In this thread, essentially about a huge financial crisis creating a recessionary environment or a recession (however one wants to describe it) and threatening a depression....I actually can't see a better way to move into an actual destroy all economics depression than destroying the very validity upon which the stock markets work.

It appears that Sarbanes Oxley eliminated that possibility. It certainly stopped a type of corporate fraud that was repeating itself far too often during the late 1990's and early 2000's.

 

Earl, as I said, the character attacks are unnecessary to a good debate. I've already pointed out that you have contradicted yourself, at least twice, and when making attacks on my supposed ideology, you don't know enough about the ideology you are criticizing to actually make a valid point.

Which is fine. I don't have a problem with not discussing this with you. I think it may be an enormous waste of both of our times. Someone who comments on the FED, but doesn't know what the FRB requirement is or how debt gets monetized and then attacks me personally for my supposed lack of knowledge is simply (for lack of a better word) trolling.

If you want to discuss strictly on source, fact and merit, I would be interested. But your snide comments and backhanded statements just show that this discussion is occurring on two different levels and I don't think they are compatible.

I wish you luck with all of your business and financial projects. And a good evening. Take care.

PS, it's SOX, not STOX. SOX.

 

Even if fuel went to .00001 a gallon - we are still severely fucked. Pardon my use of language.

 

I anticipated that you would drop out of the conversation, Guerilla. I am aware you don't have knowledge about real life facts.

You have excellent rhetorical understanding of theory, which typically ignores real life facts. Its reliance on a theory which regularly faces problems when it is contradicted by real life, only to fall back on theory.....and or endlessly discuss Central Banking issues such as you do when confronted with issues that haven't the slightest relationship to real facts is quite sad.

I enjoy how you use the argument that you contradicted my arguments twice. When you interpreted a point in a way that I never meant....I reiterated and rearticulated my point.

But you are walking away.

BTW, I find it interesting, that in an example where government regulation is the critical element that secures the more efficient flow of free markets, you leave the argument.

I suppose that indicates that your agenda leans far more toward attacking governments then creating an environment where markets and the economy can flourish.

Oh....and btw....It is SOX. Good find.

 

Not to worry. After last nights speech, I am convinced rolleyes Obama will fix everything.

 

LOL. So a speech wherein he had answers on everything convinced you that you should support him. How many of his bumper stickers and buttons are you buying, Mia, 50, 100, 1,000? I'm sure the Obama team will appreciate your support.

 

If you meant to drive me off with character attacks, you have succeeded. Even in this follow up, you continue to attack me personally, instead of addressing what I have written. Instead of countering my points with your facts or information, you choose to appeal to emotionalism and anecdotal rhetoric.

I really don't care. Anyone with any cognitive skills will read our last few posts to each other, and know who holds contradictory positions, while misnaming regulation, etc. You look foolish every time you attack me personally instead of attacking my argument.

I've tried to end this on good terms, but you insist on continuing to take petty cheap shots. It's all good. I was never going to get you to reconsider your positions anyway.

 

Apparently sarcasm does not translate simply by way of a smiley eye rolling icon...

Obama finally defined "CHANGE" last night. It is a socialist code word meaning "the systematic redistribution of wealth".

Essentially the solution to all our problems is to take money from Jer and give it to people that refuse to earn it themselves.

If you really want some Obama paraphernalia, get some of these:

http://www.slick.com/new_bills.asp

 

I was kidding you, Jeremy. I know where you stand.

I did like that sentence about hitting up Jer for big bucks.

btw....I got a charity called....My deep pockets. If you want to make a contribution....I'll gladly appreciate your deep convictions and heartfelt efforts.