Economics

I cannot pretend to know much about economics (or investment, the subject of my last post), but this piece of news is stunning.  The Nobel Prize was just given to a Princeton Economist for his contribution to our understanding of the global economy.  This same economist, Paul Krugman, is a vocal critic of the Bush administration and, specifically, of McCain (http://krugman.blogs.nytimes.com/2008/09/19/mccain-on-banking-and-health/).

It is this sort of thinking (and journalism) that we so desperately need more of.  We nearly GAVE a 700 Billion dollar bonus/free-ride to the jackasses that lied and cheated their way in to this mess so they could continue with business as usual.  I find it comical that these same bankers are now claiming that it is a bad idea to buy an equity stake in their business instead of just giving them the money.  And their reasons for why this is a bad idea:

1. It will make the market think they are in trouble.  (To which I apply the age old rhetorical device, Duh.)
2. It will "nationalize" the American bank system.  (If by nationalize they mean give to the people that are saving their pitiful arses the same deal that any VC would demand, then, yup, nationalize.)
3. They'd rather just have the money with no strings attached. (So, I haven't heard anyone actually say this.  Just reading between the lines a bit.)

clipped from ap.google.com Columnist Paul Krugman wins Nobel economics prize By  KARL RITTER and MATT MOORE  –  1 hour ago He has come out forcefully against John McCain during the economic meltdown, saying the Republican candidate is "more frightening now than he was a few weeks ago" and earlier that the GOP has become "the party of stupid." Whereas U.S. Treasury Secretary Henry Paulson rejected a "sort of temporary part-nationalization" involving governments giving financial institutions more money in return for a share of ownership, the British government "went straight to the heart of the problem ... with stunning speed." Krugman said the major European economies have "in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts." "And whaddya know," Krugman continued, "Mr. Paulson — after arguably wasting several precious weeks — has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities."

He praises the rapid British effort to buy equity an equity stake in their banking system and rails against Paulson who initially wanted to spend tax payer money to buy toxic assets.  Paulson has since come around to understand that giving taxpayers an equity stake in our country's banks, the same one's that our money is rescuing, is a good thing.

I have to admit that I am not massively confident that our government will competently manage our new investment in a handful of failing banks.

So, why do I care.  Well, aside from the obvous reasons, I have recently become interested/aware in the extent that our global economy's foundation is based a game.  Again, I don't truly know what I am talking about, I have the information I have from what I could find on TV, Radio and the Internet (a subject for another post) but things like Credit Default Swaps and Futures trading are equating real money to imaginary value.  I learned that banks have performed legal chicanery to become oil companies just so they can trade in oil futures in a massively unregulated way.  And CDS's are pure gambling, taking out (or selling) insurance against something that you don't own, something in which you have NO stake other than the same stake that a gambler has on red vs. black.

So, why do I care.  It helps me understand even better why the paradigm of social investment is so critical.  It's like retro-investing.  Investing in an entrepreneur because he has a good idea and the capacity to effectively execute against that idea and therfore create return.  A freakin crazy idea that may just work.