Ugh, I hate it when people do things like Exhibit 4 [0] - the size and coloration of the boxes does not match the numbers for the bottom two figures (with the lower-right quadrant in both being displayed as larger than the upper-right, despite having a lower number).
Lies, damned lies, statistics and misleading figures.
Mutually Exclusive & Comprehensively Exhaustive. It's how to do bullet points according to McKinsey. They had to invent it in the 1960s because apparently by the 1960s no one at McKinsey was yet, you know, aware of the existence of centuries' worth of literature on formal logic. So they reinvented the wheel as far as that particular cultural achievement was concerened. Or the first millionth of it, to be more precise, and left it at that, because the rest of it would have no longer fit onto a single PowerPoint slide.
Alternatively, this is just some guy asserting that everyone at McKinsey thinks they invented a brand new concept, when in fact, it’s just a heuristic they teach people to communicate more effectively, because communication is hard.
Edit: I cannot reply to the below, but I will say, that’s a pretty contrived justification for your view.
Communication is hard. Few things done at a corporate scale are easy to implement. People like to point at big consulting firms and say “I could have done that” or “they could have just asked me” but that’s really just a fraction of it.
Former employee of former McKinsey employees. Grandparent point stands: McKinsey seems to offer little to no value that isn't already known and easy to communicate.
I will say though that McKinsey alums I know seem to be better at playing corporate politics than the average, which can be a skill when married with technical acumen.
“Playing politics” is is largely empathy and communication skills. Giving people what they want is actually not intuitive because, again, people are generally bad at communicating what they want. It’s common to hear people maligned for being “political players” but I’ll be honest; if you’re bad at office politics, it generally implies you don’t have people’s confidence, trust, and friendship- often because you’re fixated on the idea that work should stand for itself and not recognizing the massive importance that is working with others.
Being a dick with your influence is a different concept
Being a dick in influence is what I observe more often from my (biased, certainly) sample of McKinsey alum. We both agree that salability of work product is an important and underutilized skill.
And if you're a bank, guess who is conveniently standing by ready to fix it for you with an army of $2000 an hour consultants? McKinsey.
Same exact scam as the shady mechanic who wants charge you $400 to flush your transmission fluid and convinces you that your car will surely blow up if you don't do it.
The difference is that in most cases, the shady mechanic is not somebody you already know from college, or from golf or your national frat society.
McKinsey gets paid ungodly sums in part because they are the archetype of the old boy's club. Their new hires usually come only from top business schools, and likely already have several years under their belt at the types of companies McKinsey gets business from. In addition to that, most banks already have several ex-McKinsey people on staff anyway.
Boston Consulting Group are in the same tier. Back in college, BCG and McKinsey were the holy grail of employers for pretty much all Econ/Finance students who didn't want to go the IB route.
Most people leave McKinsey willingly for greener pastures, not because they were not considered partner material and were forced out. People join consulting mostly for the exit opportunities, not because they strive to be lifers there
There's a lot of setup that goes into encouraging people to leave. Management works hard to make sure that people have greener pastures to go to. The people leaving don't see that side of it. If a partner encourages a client to hire Susie, and Susie leaves for the client, Susie might not ever know that a partner helped create that opportunity.
A friend of mine who used to work in management at Ernst & Young told me a bit about how this game is played. You need a strategy for getting people out that maintains the relationship, and offering backdoor bribes to lure people away is one way they do that.
I'm sure this happens, but the implied idea that McKinsey only keeps the best and only loses the people they intend to lose, is hilarious. Consulting sucks in many ways, even if you're consulting for McKinsey.
They don't have to be formally forced out, just realize that they're not likely to win the competition to be partner and move to other companies out of self-interest.
Thankfully we don't have tattoos in our foreheads advertising what other people think of us :).
I'm sure some arrogant ass somewhere is telling themselves that the great ones become partners at McKinsey & the washouts become CEO of Google. Kind if like that quote "Anyone can aspire to be President of the United States, but few have any hope of becoming president of the Bohemian Club." [1]
My experience has been that the vast majority of McKinsey and BCG consultants have absolutely no real world experience. My company has been hiring these people for internal roles in droves and it's hilarious (and depressing) to watch how useless they are when they can't just leave after dropping some nice sounding but useless solution on someones desk.
Yeah. But they speak a language that more people should be familiar with. I've been part of organizations where the consultants roll in and hand-wave together a plan of action with statistics and proof. It's almost impossible to up against that unless you're prepared. More people need to know how to deal with it.
It's still an old boys club, but it's more revolving door now. You flip between industry and consulting. Each move you bring a few with you who reward you later.
Just watch _House of Lies_. Marty Kaan and Associates will kick the ass of your McKinsey folks.
This fantastic show really gets at what consultants are doing. It was based on a book by a real management consultant. They all have their MBAs from the good schools. You go to a company, figure out what the ceo wants you to decide and is paying you to 'investigate', and then support them with a complicated opinion with numbers and accounting details (that a lot of people aren't going to investigate too carefully or refute). Offer 80% of what they need at that time, and a continuing contract to figure out the rest.
Dad worked at a bank (just below CEO). He once said that McKinsey was most useful when you wanted to kill a project diplomatically, and make sure it would stay put. Have McKinsey come in, make the recommendation that X project was no good, and kiss it goodbye with McKinsey absorbing the blame. Other way around was to give projects some extra push and credibility.
We came up with a product internally. So our CEO hired a top-tier consulting company to sell our own idea back to us. That process cost millions.
But they do make real slick presentations and they have higher status than internal staff, and the CEO can say that a top-tier consulting firm recommended we do x, y and z... Blame insurance is right.
Once you hit a certain scale, e.g. where CEO is so stratospherically above rank-and-file in social status that it's not appropriate to speak directly anymore, consultants can act as a social buffer. Among other things they can launder recommendations from regular staff to management and put that objective shine on them.
The downside is that we know for a fact (when they accidentally published an android app to the playstore, I reversed it and it was our code) that collateral, research and demos that we paid for got sold to others.
Everyone should watch the series House of Lies, that completely supports this description ;-) It's the most enjoyable and subversive show about the world of business ever.
I guess the main thing I missed in my pithy assessment was the way they'll update you on "industry best practices" (=your competitor's processes that are working better than yours). So they're also a kind of mix of corporate spies and governance R&D mutual aid program.
actual mckinsey employee. no, other posters don't know what they're talking about. Fees will vary, but that's way, way too high except for perhaps the senior partners (who wouldn't be there most of the time anyway). ffs
Much, possibly most, of the economic value in a downturn comes from weeding out the weaker companies -- through bankruptcy, acquisition, or restructuring/pivoting.
I well remember the "dot com" crash. It wiped out tons of companies that had no business existing (pardon the pun).
(Of course when it comes to banking, that can be a bit of a special case as we've witnessed multiple times.)
And yes, downturns are hard on people, and this is why a social safety net is invaluable. Gives them time to find a new job, or retool their skills, or otherwise adjust. And I don't pretend that's easy either.
Once again completing the cycle of moral hazards in the name of reducing the "impact" of rescissions in the short-term. The only metric that apparently matters.
In the last recession, unemployment in the US reached 10%. How big does unemployment have to reach before you take the quotes away from "impact"? 15%? 20%? Unemployment in Spain reached as high as 26% because Spain was unable to reduce the impact.
The unemployment rate is the short term metric which is exactly what I’m taking about.
A long term perspective means preventing future recessions too, not just fixing the short term problems. Creating new moral hazards, negative incentives, behaviour and careers which would have been tarnished and discredited normally are allowed to continue, often with the same people and companies.
If we were serious about preventing recessions our policies should not only be measured in how they deal with the fallouts but also addressing the things that cause it in the first place, and balancing what’s lost by not letting the markets naturally correct themselves.
We've had recessions for the entire history of capitalism, under a large number of legal regimes. We had recessions back when banking was much more tightly regulated. We had recessions under laissez-faire. Recessions are endemic to the system. Our choices are either "combat unemployment" or get ready for socialism to finally win the war of ideas.
"Investment banks" were only colloquially banks. They were not members of the Federal Reserve, not regulated by the Office of the Comptroller of the Currency, and not FDIC insured. Survivors became banks after the crisis, but in their place we now have lots of hedge funds, private equity funds, etc. that have grown large to do similar financial operations without bank regulation.
Lehman was a pure investment bank and therefore the government refused to bail them out - they did not want to be the lender of last resort to an entity they could not regulate strongly.
Once everyone saw this almost all of them converted to “commercial banks,” even Goldman, in order to receive bailouts.
The exception is Jefferies, leaving them as the only bank on Wall Street with a balance sheet that lends over 6x ebitda.
In industry speak “bank” refers to institutions taking deposits and lending to a single entity — retail and commercial banks, not investment banks, etc
Side note: AIG managed to get regulatory treatment as a bank via OTS by having a tiny tiny tiny retail banking operation called AIG Bank. OTS ended up being the primary regulatory of the overall entity!
Not that I disagree. Its same pattern: half of the universities, most of liberal art colleges, 60% of IT companies, 70% of private Doctor practices and so on are too weak to survive next shock. The only sad part I see is nasty businesses like McKinsey is not fitting in any pattern of failure.
I don't agree on the private doctor practice. Source, married a dr
Worst, worst case, the ~15k/yr in rent, ins, and software put a dent in profits, but if each visit is min 75$, you can figure out how hard it is to break even. Upper revenue is 200k+/yr
Not to get too bogged down with details, but this winter she is looking to change EMR systems. The current one is the most expensive/established EMR for her field.
Rent is 12,000 dollars of expenses. EMR is almost trivial.
Sure, same is true for software startups. Trade long hours and slightly above market pay for a lump sum payment and predictable patient load? The increasing complexity of interacting with health insurance providers and diagnostic labs has something to do with it, also. Why wouldn't a lot of them do that?
I think we'd be better off with a bunch of small private colleges going under. The weaker yet still expensive and shrinking enrollment private colleges are dying slowly. They are just soaking up resources that could go other places.
One example is Cottey College, a small college in Missouri that is trying to get one of my relatives to go there. Down to below 300 students and shrinking fast.
Not an expert but the processing cost of insurance is supposedly very high. Question: how high compared is the cost of processing insurance on some meaningful basis?
McKinsey, the ultimate power point company. They also nobody got fired for hiring them. I could not believe this reasoning but it exists. We tried to solve problem X but even McKinsey failed. This problem is declared unsolvable now.
McKinsey & Accenture could do with some anti trust investigation at this point, they have too much of the outsourced brain work and strategy of important western firms executed in a cookie cutter way that then exploits the inside knowledge for future projects. This banking prediction is an example of this type of thinking. McKinsey are the problem not the solution
Serious question: could you cite some Accenture projects with serious brain work? They are typically in the systems integration category while MBB (McKinsey Bain BCG) get the prestigious work.
I meant Accenture in the context of executing McK (& BB) projects in a closed loop. MBB & Deloitte are pretty short on 'serious brain work' and long on copy and paste of their own and others work in my recent experience
Depending on how you regard the Federal Reserve, it's already happening. The Fed has been making massive loans to banks that are unable to get overnight loans from other banks based on their portfolios. [1]
The amount and duration reporting has been. Originally it was $53 billion planned for a few weeks [2], and now it's over $128 billion [3], lasting into next year.
If nobody is willing/able to lend dollars overnight secured by borrowers' treasury notes as collateral, and the Fed steps in to lend, the problem is either there's not enough dollars around to lend or people don't trust the collateral.
Since treasury notes are trading at normal interest rates in the overall market, it seems pretty clear it's a liquidity issue. The potential lenders in that market don't have enough dollars to lend (in part due to post-2008 regulations and post-2008 behavioral changes by those lenders).
If it were easy to become a lender in the overnight market, you would see people swooping in to make nearly risk free loans for 8% (apr) overnight. The swooping would rather rapidly lower the interest rates back to near normal. The Fed has authority and ability to swoop in, and a desire to keep the interests low, so there you go.
I am going to agree with sentiments posted by others. This has nothing to do with bailouts.
I have not read the report though having read the article one thing is clear all the solutions mentioned in the article are services provided by Mckinsey. So rather than being about a bailout it is positioning their services
That's a cynical, conspiratorial, and woefully uninformed take on this.
On the most basic level, what you're suggesting doesn't make sense: "getting ready for a bailout" doesn't imply any real action any government would take.
If anything, being warned about financial instability will lead to an increase in requirements for banks: capital requirements might increase, M&A might become harder, etc.
But those are the sort of changes banks would tend to hate, because they necessarily reduce their opportunities to make money.
So I believe you're reacting to seeing "McKinsey", and it triggers you into running your conspiracy-themed sentence-generation Markov chain. In the process, it reveals that "government" and "finance" figure large as sinister agents in your belief system.
I love this idea of words which have negative(or positive) connotations in someones belief systems triggering theme based sentence generation via markov chains. I feel like this is a bizarrely insightful take on how people actually think and respond to things.
The conversation around bank bailouts involves more money than the wealth of entire countries flowing through the financial system like a leviathan; so deep that we paddlers in the oceans of finance barely see the shadow.
It is an excellent time to be cynical; and a great time to recognise that if anyone were ever to be tempted to conspiracy this is the sort of value that would tempt them.
The woefully uninformed I'm not going to quibble on because agree with you on that point.
I know you're being tongue-in-cheek, but in theory, are governments even capable of doing another bailout?
My understanding is that public debt in most Western countries (not sure about China/India) is through the roof. Other than printing money and risking a cataclysmic devaluation, what can be done?
The problem was never with banks failing, it was with some of them being "too big to fail". This news therefore doesn't mean attempts to prevent another 2008-like crisis have been unsuccessful.
Also, let's the remember the last bailout was a somewhat underrated success: " TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.".
Apart from that, public debt is up considerably in the US (mostly due to tax cuts) but rather flat in the EU. Nothing would preclude another bailout of the same magnitude as the last one.
But that's a somewhat silly question. Because if there's one thing we can be sure of, it's that the next crisis will be different than the last one.
Italy going bankrupt is a far more imminent danger than private banks, and one that would be too big to contain, for example.
> Italy going bankrupt is a far more imminent danger than private banks, and one that would be too big to contain, for example.
people don't realize how much italian debt is around, i.e. if you own an EMU sovereign bond ETF it will >30% italian debt. If you own a global government bonds fund, it will be 7-8% italian debt.
Yet, total bankruptcy seems unlikely, if anything I guess we'd see some restructuring and a loss of 10-20% which would be bad, but could be bearable for some operators.
From the bank shareholder's perspective the bailout was a stunning success. For the rest of us debtors, for those who greased the runways for the shareholders with their lost homes and lost savings that went to paying off debts in disinflationary dollars when stimulus and reasonable inflation would have made paying debts off easier, it remains an ongoing disaster.
>For the rest of us debtors...it remains an ongoing disaster
Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, since the profits the Fed saw from the bailouts were, by law, handed over to Treasury (except for statutory operating expenses), offsetting taxes.
>those who greased the runways for the shareholders with their lost homes
Most of those those losing homes did so by taking loans they could not pay, and the ripples were felt by those not taking such loans, in their retirement funds. Those who left those funds alone recovered the value and then some after the recession. Those who did not, or could not, did lose value.
But don't just blame bankers. Also blame borrowers defaulting.
The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Every house that used to be $200K and is now $500K is part of the price people are paying for how the crisis was managed.
> But don't just blame bankers. Also blame borrowers defaulting.
The core function of a bank is to evaluate risk. Being able to do so correctly enables the bank to make loans at a profit. Being unable to do so means that the people involved should go do something else. Debtors have been defaulting for millennia, it's a well-understood process. The financialization and securitization of housing was the creation of bankers, not borrowers.
>The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion.
Taxpayers don't pay interest on Fed assets. You have a fundamental misunderstanding of how monetary policy works. What makes you think your statement true? Did you read it in a explanation of how the Fed works, or did you make it up?
>The financialization and securitization of housing was the creation of bankers, not borrowers.
This is shortsighted and incorrect. If borrowers didn't default, there would be no crisis. Many were expecting housing to rise forever and were taking out second mortgages as piggy banks, then got in trouble when prices didn't increase forever. High risk borrowers could keep refinancing at higher and higher prices since house prices were climbing. When the prices stopped climbing, this process stopped.
>Debtors have been defaulting for millennia, it's a well-understood process.
And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers?
with what I said; 'they pay interest on a loan enabled by that 2T+ expansion' (of Fed assets.) The Fed bought ~1.5-2T of MBS, turning bad loans that would never be repaid - credit that simply never should have been issued - into bank reserves. Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid.
> When the prices stopped climbing, this process stopped.
The price climb - and the influx of less able borrowers - was primarily enabled by securitization.
> And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers?
Borrowers can only exist if they've borrowed from lenders. Hence my point about lenders needing to evaluate risk to continue to be lenders.
>Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid
Banks don't need those assets to make loans. Banks can make loans whenever and where ever they want, and can simply borrow from the Fed. This is the point of short-term interest rates - banks can lend past reserve requirements whenever they find a decent loan to make. It's the difference between exogenous and endogenous theories of money, and modern economies with central banks usually work this way to allow the market to decide how much money is needed, not how much reserves a bank can obtain because a central bank absorbed assets.
And most loans rate people get are tied pretty directly to Fed rates, not bank reserves. This is again due to endogenous money creation - demand creates money, not reserves. So the Fed and banks having 0 reserves or having 100 trillion reserves is nearly irrelevant - it is interest rates that matter, and those are set directly by the Fed board.
Also, if you recall, the banks were famously not giving loans after the bailouts, despite having the capital to do so [4]. I guess that also doesn't help your claims.
>they pay interest on a loan enabled by that 2T+ expansion
If you're going that far afield, then it's simple to point out what financial trouble they would be in if the Fed didn't make those loans. People would likely be far worse, in which case it makes the argument for those loans even stronger.
It would be interesting to check even correlation between Fed balance and interest rates.
Here's [1] an IGM Forum economist poll of most of the country's top economists on whether or not the bailouts improved unemployment. I'd guess being unemployed is worse than claimed interest rate hikes.
Here's [2] their answer to the question: "the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs" - resulting in strong support with certainty (especially considering the types of questions these polls ask - check other questions).
So there's not much real argument on the bailouts being beneficial.
Now that the Fed is selling off MBS [3], shouldn't that cause the reverse of what you claim absorbing them did? Because those effects are not see in the markets. Maybe your effects did not happen?
I'm sorry to come back to this so late, but I've been otherwise occupied, and I think the topic really matters. I agree with the GP that the bailouts were a success for the banks and an 'ongoing disaster' for many others.
> Banks don't need those assets to make loans.
I agree with you on the endogenous theory of money (cf. Steve Keen), and understand that banks aren't constrained by 'loanable funds.' I was meaning capital and regulatory reserves, and mentioneing them only to acknowledge that not every dollar of the Fed's money creation went to asset price inflation. Just most of them.
> So the Fed and banks having 0 reserves or having 100 trillion reserves is nearly irrelevant - it is interest rates that matter, and those are set directly by the Fed board.
This is where I think you err. Once a bank's minimum capital requirements are met, its managers are going to look for maximizing returns on the capital available to them. To say that that will not have effects on the economy at large doesn't make sense to me.
> Also, if you recall, the banks were famously not giving loans after the bailouts, despite having the capital to do so [4]. I guess that also doesn't help your claims.
How so?
Here are the chief claims I've made:
> The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion.
> The core function of a bank is to evaluate risk.
> Debtors have been defaulting for millennia, it's a well-understood process.
> The financialization and securitization of housing was the creation of bankers, not borrowers.
I don't see how any of these are contradicted by the data in the St. Louis Fed 'Bank Lending During Recessions' article you linked. The entire investment world recognised that they'd underpriced risk for years, and there was a correction.
> If you're going that far afield,
I don't think this is far afield at all; I think it's critical to consider the effects of additional capital, in the form of debt, on the real economy.
> then it's simple to point out what financial trouble they would be in if the Fed didn't make those loans. People would likely be far worse, in which case it makes the argument for those loans even stronger.
Which people? The banks, yes. A creditor's assets are someone else's debts, so larger debts are good for banks. Generally borrower's situations are improved by brrowing less, at lower interest rates for a given asset.
> Here's [1] an IGM Forum economist poll of most of the country's top economists on whether or not the bailouts improved unemployment. I'd guess being unemployed is worse than claimed interest rate hikes.
Here are my favorite comments from the economists in that poll:
> There were much better policies, but what was done was better than nothing, give the bad policies that preceded.
> The question presumes Paulson’s forced alternative. If the only choice is between evil and Armageddon, evil might look ok.
From experience, being unemployed is terrible. Avoiding it on a mass scale is crucial. But avoiding unemployment is a pretty narrow question compared to the entire picture. Wages (real, median) have pretty much stagnated while housing (both a necessity and an asset) has inflated above historical norms (see Robert Shiller's chart from 1890-2005, and the Case-Shiller indexes.) That puts pressure on employed people that the poll question leaves out of consideration.
> Here's [2] their answer to the question: "the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs" - resulting in strong support with certainty (especially considering the types of questions these polls ask - check other questions).
First, I note that the number of economists who strongly agree is outnumbered by the group who are uncertain or disagree.
> Now that the Fed is selling off MBS [3], shouldn't that cause the reverse of what you claim absorbing them did? Because those effects are not see in the markets. Maybe your effects did not happen?
There's been a ~10% decline after a ~400% increase. How much of an effect would you expect to see?
Lastly, my favorite comment from the second pol:
> Not compared to an ideal policy of an orderly reorganization imposing losses on creditors according to seniority. But better than chaotic.
He sort of sounds like Bagehot, "“Lend without limit, to solvent firms, against good collateral, at 'high rates". The choice that was made was to lend without limit to the largest firms against all collateral at low rates. That choice has consequences as well as benefits, and I would urge you to seriously consider both.
>This is where I think you err. Once a bank's minimum capital requirements are met, its managers are going to look for maximizing returns on the capital available to them. To say that that will not have effects on the economy at large doesn't make sense to me.
How did I err? Banks have unlimited capital available, borrowable at Fed rates. It does have an effect on the economy - it lets the economy grow at rates demanded by commerce instead of being constrained by too little capital or by being overflooded with capital.
But the fact remains banks getting assets bought by the Fed has almost zero effect on loans, which was your claim. This is empirically true as I demonstrated, and have given the theoretical reasons for.
>Here are my favorite comments from the economists in that poll:
Yes, you can post-select the side you want to be true. Now take the entire post instead of cherry-picking the answer you believe. It's not worth providing evidence of complex things with nuance to someone who has chosen their side and post selects the parts they like. So stop being dishonest with the evidence.
>Wages (real, median) have pretty much stagnated
Wages are a tiny part of total remunereation or of cost to employ. Fortunately BLS tracks both those variables - then the fact is that total remuneration has increased due to perks and legal requirements (go check the data), and cost to employ has gone up (due again to legislation requireing more cost per employee that is now paid by employers yet benefits the employee). BLS tracks all these - wages is far too simplistic.
Also, demographics have changed - a younger workforce is earlier in a career, and gets paid less, yet can still make more at each point in a career than previously. This is also a true effect and can be teased out of Census data.
Also, median wages now includes women and minorities, who have seen tremendous growth in their median wages for decades. The only class that has lost some is white men, and even there the losses are not very large.
So the "flat wages" is far from the truth on the quality of life gains people have seen. I doubt many would like to live at the equivalent wage in 1980 compared to now.
>while housing (both a necessity and an asset) has inflated above historical norms (see Robert Shiller's chart from 1890-2005, and the Case-Shiller indexes.)
Case-Schiller ignores (among other things) that the size of houses has increased. Not even factoring in quality increases like better insulated, lower cost to maintain, safer, when you simply factor in cost per square foot the values are remarkably flat for decades. [1]
The increase in size is mostly because people want and can afford bigger houses than in the past.
In short, your wage and housing views are too simplistic and ignore important nuances that reverse the evidence for the position you're taking. In both cases you're moving too many variables to make the claims you're making, and by holding important variables constant you get the opposite conclusions, ones which are the correct measurement regarding quality of life improvements.
>Lastly, my favorite comment from the second pol:
If you've chosen your answer the the point of not reading all new data with equivalent belief, then I see how you've reached your current world view. The comments you pick from so many while ignoring the totality or central points of the polls shows tremendous bias in your ability to absorb well sourced data. As such it's not worth it to continue if you treat this like climate deniers. Every complex system will have uncertainty - but the uncertainty is not the central feature of this one.
>First, I note that the number of economists who strongly agree is outnumbered by the group who are uncertain or disagree.
This precisely shows me you're dishonest. Why pick those categories while ignoring the "agree" one? To make the result not be what it is? For anyone reading this far, here are the results:
Strongly agree 10%, Agree 49%, uncertain 13%, disagree 13%, strongly disagree 0%, no opinion 0%.
That you cite those two cases while ignoring so many counter to what you want to be true is dishonest and misleading at best.
With this level of intellectual dishonesty there is no reason to continue. It's not worth trying to deliver good evidence when you're clearly going to misread and selectively cite it.
> This precisely shows me you're dishonest. Why pick those categories while ignoring the "agree" one?
Because it shows evidence of dissent in the community of economists polled. I am happy to admit all of the specifics into the discussion. I am adamantly opposed to painting over the real disagreements in the economics community, because I think it's important.
> That you cite those two cases while ignoring so many counter to what you want to be true is dishonest and misleading at best.
On the other hand, you seem to think that I should accept the top-level conclusion you want me to accept without any reference on your part to the real disagreement present in the polls.
I don't think 'dishonest' is a fair characterization of my attempt to point out that you are presenting your favorite side of the argument without considering the dissent.
> How did I err? Banks have unlimited capital available, borrowable at Fed rates. It does have an effect on the economy - it lets the economy grow at rates demanded by commerce instead of being constrained by too little capital or by being overflooded with capital.
Please clarify here: what would 'over-flooded with capital' look like?
True, looking forward to blaming a lot of US students for wanting education.
While I do think borrowers are partly responsible, I also think there was a strong incentive for lenders to spread loans like candy and they probably de-emphasized the risks.
So the correct strategy would have been to take even larger loans and probably bury the money somewhere.
>True, looking forward to blaming a lot of US students for wanting education.
Some perspective:
Under 40% of people get any college at all. Of those, 30% of students graduate with no debt. The remaining average $30k in debt. This is not much debt compared to other things they will buy in life.
Avg starting salary for a college grad is $50k.
Avg new car price is $35k. Some people buy many cars in a lifetime. Median home listing is $279k. ~65% of US is homeowners.
Forgive my ignorance, but wasn't the subprime crisis so scandalous precisely because bankers were recklessly pushing mortgages on people who couldn't pay?
There is actually a good business in providing mortgages to people who have income, jobs or assets, but who can't/won't provide documentation because of their legal status or the nature of their job/assets. They are actually good credit risks because they don't want any of the attention caused by debt collection and/or bankruptcy proceedings.
But some mortgage brokers took it way to far to people who simply did not have those things.
I hope it does not come as a surprise if I tell you that printing money has already been, since a long time and in great quantities, taking place. The cataclysmic devaluation part is the one they are working on postponing.
We had a big increase in the money supply after the financial crisis, and yet inflation remains stubbornly low. At some point one needs to recognize that there is more in heaven and earth, Horatio, than dreamt of in your philosophy.
If you acknowledge that there was a big increase in money supply, then there is nothing more needed to conclude that there IS inflation. Whether acknowledged by official narratives or hidden, does not matter: it is still there and cannot remain hidden forever.
But can you explain why practically all Central Banks are recently worried about high asset prices? Are high asset prices the sign of a stubbornly low inflation, in your opinion?
> Other than printing money and risking a cataclysmic devaluation
The US government would need to print an insane amount of money to have a tangible devaluation impact. Even more so when the money creation is intended to offset deflationary pressures due to a economic contraction.
Considering the GDP of the US is ~$20 trillion, I bet we're probably talking about $2-4 trillion of printed money, in addition to deflation offsets, over the course of a year before the noticeable market inflation occurs. That would be like spending the entire annual budget of the US military five times over.
Granted, overnight loans are not permanent injections of money. But it serves as a reminder that there is no speed limit on the virtual printing press of the fed.
They are capable. Developed countries are still below the upper limit of what they could borrow. You can see this in the fact that long-term interest rates are so low. If people were running out of patience for government borrowing you would see long-run rates spiking. While debt levels are high, they are not unprecendented. US debt/GDP is 105%, which is far below Japan at 220%.
It’s blowing up the cost of many equities as borrowing has been so cheap for so long.
I live in a boring small city with awful schools and mediocre economy. My house value went up in real dollars about 3x from 1999-2018z The apartment complex that I rented from in 1998 is about 2x more expensive in real terms since that time.
The supply of capital is inflating real property values even without growth in demand. Given that most consumer product manufacturing has completed its move offshore, I’d expect increasing consumer prices as there isn’t much room left to shrink by lowering labor costs.
You're describing the effects of QE (not in its original sense, but the way it has been implemented) and I couldn't agree more. But this is very different from a central bank taking over bad assets after a catastrophic collapse of the private banking sector.
It amazes me how long and how slowly the value of our money can be eroded without casing a hard crash. This has been going on for over 100 years in the US. Money used to pay things used to be gold, then fully gold backed, then partially gold backed, then no gold but security backed, then securities are diluted more and more. The next logical steps would be that the central banks buy up the bankrupt economy and introduce social credit as currency which is backed by surveillance.
Right, because everything was so much better when you could, for no particularly good reason, relate money to a marginally useful-to-jewellers-and-dentists soft metal. I suppose I shouldn't expect economic literacy on Hacker News, but the twist on the standard goldbug narrative ("social credit backed by surveillance") is at least original, if nutty.
I did not say that gold backed currency is better for everybody. I'm just amazed at the time span over which the dilution is happening. And I don't think that anybody can deny that our money is slowly losing its purchasing power.
it is slowly losing purchasing power. That's called inflation and nobody denies it or is surprised by it.
In fact what people are generally surprised about is how little inflation is has occurred in the USA compared to how much money has been pumped into the system via QE.
Mainstream economic opinion is not particularly concerned by the fact that our money is slowly losing its purchasing power.
There's a general consensus that a small amount of inflation is useful, although the reasons are pretty cynical (i.e. wage flexibility -> "it's easier to give someone a 0% raise under conditions of 2% inflation than it is to give someone of -2% pay cut under conditions of 0% inflation").
You might make the argument that making it psychologically easier for employers to hand out small 'in-real-terms' pay cuts is wrong in itself, of course, but that's another discussion.
Your "next logical step" isn't logical in any sense of the word. You're just recounting a few steps of history (that actually went along with increased stability of the financial system) and then suddenly suggesting it's a preamble to some scenario that's currently en vogue among the paranoid.
"backed by surveillance" simply does not mean anything. At least not in the sense of "backed by" as used in those other cases.
In the UK in recent years there has been a big increase in lease-to-buy deals where the consumer can return the car and walk away. The car finance companies seem to be in the riskiest position.
You're honestly not wrong; I've spent a lot of time working in the industry and consulting companies (specifically McKinsey, but all the audit firms are involved too) are the back channel for much of the high-level corruption in the world.
We can always make more money if we really want to. The economy might run out of oil, sand, gold, land, and willpower but it will never run out of money until the central banks stop the money supply or politicians cause a hard fault.
No wonder you are hiding behind a throwaway, as you clearly don’t know what you’re talking about and are just posting mindless drivel. If you want to know the outcome of “we can always make more money” attitudes, look no further than Zimbabwe. In ~2007 they had a 50 cent paper note. ~6 months later a common paper note was $10,000,000,000. Just a short while after that, paper notes were being printed in one hundred trillion dollar increments. What could you buy with that $100T note? Basically not even something from a vending machine (aka worth less than 1 USD in value).
Source:
I have all the above paper notes from Zimbabwe and have read about the economic policies that led to the collapse of the currency.
I did not say that a bank can make everybody rich by printing money just that there is no limit to the money that the banks can print, as is evidenced by Zimbabwe. They ran out of everything else but not money. We are basically expressing the same thing from different viewpoints.
If Zimbabwe is your example that shows that you're correct, it also shows that your point is completely irrelevant in the real world. So they didn't run out of money. That did them no good whatsoever.
Actually, wrong again. They did run out of “money” and tried to mask that by continuing to print currency. “Currency” is a physical thing, it’s essentially a promissory note. “Money” is an intangible thing, essentially a stored value. Currency that is worth nothing isn’t “money” as the promise printed on it has no stored value.
If the US really ran out of resources, I wouldn't count it out. In the mean time, it's more like we prop up dictators who agree to sell oil exclusively in our currency (see Saudi Arabia) and invade every country small enough to push around that tries to sell oil in anything but US dollars (see Saddam being in talks with France, or Gaddafi planning to sell oil in the gold dinar). Since the whole world has to buy oil, the whole world has to have dollars. Then we print more US dollars, devaluing the existing US dollars in global circulation and effectively stealing wealth from the rest of the world for the benefit of our banking system. Yeah, we also give sweet contracts to Haliburton so that they can pillage third-world oil fields in the middle of our wars and there is some immediate benefit from that as well, but I'm betting that propping up the petrodollar is the most important way that we're leveraging the military for economic ends.
Sure. But ultimately, debt is meaningless unless collected. In a scenario of global economic collapse, anyone who wants to collect their debt (if it even means anything anymore) from the US would have to go through the US military first.
https://www.mckinsey.com/industries/financial-services/our-i...
Broadly it seems to be less extreme than Bloomberg’s summary and more nuanced to particular conditions.
I like how exhibit 6 is rotated to encourage reading it from either direction. Haven’t seen that before in charts.