The reality is bubbles are caused because of banking, not some sinister motive of banking. You deposit money in a bank. To you are just putting your money somewhere safe, to be used later at atms or to spend. To the banker they use the deposits to loan out money to other people. They have the moral hazard of loaning out money that is not theirs. This loaned money hits another bank, to that bank the deposits is as real as the first depositor because they are. The next bank loans out this money creating a massive daisy chain of loans and deposits.

As one loans fails, and a combination of bank runs, the bank fails and all banks will fail. Except banks that kept massive reserves. The Federal Reserve was created for this purpose. The problem is the solution involves a fraud. A fraud that they must print money stealing from savers in an inflation tax to fix the system. You don't need this fraud, you need full reserve banking.

Full reserve banking is when you deposit money in a bank, the bank has no legal right to loan your money out. So your money sits at a bank, you have to option to invest in a reit or a shadow bank like a credit card company. However, unlike a bank it is your money. You invest in a shadow bank and your shadow bank mutual fund, might make a lot of bad investments. Your shadow bank may rise 10% a year and then drop 30% a year in a bubble. However, the shareholders of the shadow bank take the loss and not the public. Definitely not the elderly and savers that keep their money in a bank.

So does the economy grow slower without the banks making loans? The reality it is the opposite the economy grows at double or even triple the rate of a fractional reserve system. The reason is simple there is no moral hazard, the money is loaned by people that actually want to loan it. They get the rewards and the losses. The people with money at the banks get to spend their money as if they earned it yesterday.

Ron Paul makes the mistake that he blames the business cycle on the interest rate banks charge. Banks can only loan the money out at which depositors are willing to lend it. Yes, the federal reserve can pump a ton of money in and did, but that is the cause of the congress, the federal government, and specially presidents Ford, Reagan, Bush II, and Obama that had no desire to balance the budget, and not necessarily the Federal Reserve bank.

STEEEEEEEEEEEEEEEEEELHOUSE!

he, like most others critical of PE, are completely ignoring how making a company more efficient is good for people, especially poor people. if you dont like efficiency move to north korea.

You gave a good explanation of why fractional reserve banking is bad, but your solution is shortsighted. Full reserve banking shares a common immorality with fractional reserve banking -- you have to make laws to prevent voluntarily behavior you deem unwise. If someone wants to voluntarily deposit their money to a bank that lends their deposits out, you have no right to interfere. Stop using coercion to solve problems.

firing people = making a company more efficient ALL THE TIME

and it is ALWAYS good for poor people

and if you don't like it GET OUT

obviously im talking on average. firing or hiring, whatever, its irrelevant (although you like to ignore the hiring, nice). what's relevant is that bain capital isn't making money (on average, clearly) if they don't make the companies more efficient.

From everything I have read, one of Bain's main strategies was paying itself a ton of money for consulting, while taking out lots of loans, refusing to update equipment, ignoring safety, and firing employees. Then it would try to sell the company off, and if that failed, it went bankrupt, and they walked away with all the consulting money.

we need another glass steagal to separate consulting and PE. BOOM FIXED

I wonder if people would still feel the need for all these regulations if companies didn't act like evil incarnate in the absence of them. (and many times while they exist)

If you change the name of a common bank today to hedge fund and drop the FDIC insurance I agree with you. Thus, instead of Bank of America you have Hedge Fund of America, with the disclaimer if we make loans and bets in massively overvalued assets and lose you take the losses. The name bank should be reserved for people think it is a place to safely place your money for checking accounts and future use.

Hedge Funds will still exist becasue they have no fees. They may even become dominant, but when the s hits the f, no FDIC insurance. This will even be better than today, because depositors would understand that at times they may lose money in the hedge fund, thus no bank runs. But, the reality these hedge funds, shadow banks, and current banking without FDIC insurance are all the same.

How is that relevant? No one is debating whether Bain made money or not by firing people. The issue is that new people hired minus people fired is an easily calculated statistic, and when it comes out negative saying that you're a job creator is somewhat lying.

Romney: I made $400 playing poker
Krugman: well you actually also lost $1000 so its more like you lost $600 total.
Romney's fan club: Krugtard you fail to mention that sometimes people make money playing poker.

This is incorrect and the zero sum poker analogy doesn't apply. Bain could have fired 10x as many people as they hired and society could still be better off. It is good that companies are able to more with less. This frees up resources to go on to create new things making us all richer.

maxtower, you stole those last two sentences from John Stossel didn't you. =)

The only thing I don't like about private equity is say I own a stock Pre-paid legal. I love the stock and it is very low in price. Then these private equity come along and buy the company directly from management at a price I consider to be unfair. Yet the CEO has the legal right to sell my shares to this firm. They take the company private. Then in a couple years the firm issues a new ipo like BK.

http://mlmnewssite.com/sold-prepaid-...-private-firm/

The buyout price was close to p/e of 10. It is B.S. they have no right to buy, because if they tried to buy in the open market, the price would quickly rise. I agree once they get 51% they effectively run the company, but it should still be listed. People should still be able to buy stock in it. I wonder what the corporate income tax is now at the firm. as soon as they take it private, they have no incentive to earn a profit and pay income taxes.

Oh yes, Romney's 4th home and 1000 people with lower incomes makes it all better. Besides, most of them probably weren't all that smart, maybe not even white. Financial gamblers and cronies are gods plan for the elect. Heil profit.

excellent job at ignoring the last two sentences you quoted.

Instead of addressing the fact that he is right you became emotional. The fact that max tower is right here isn't even under debate quite frankly

The debate isn't about the health of society or whether the company is more efficient, its about job creation. When a candidate fires more people than he hires, then claims he's a job creator, is he being misleading? Yes or no? All Krugman is saying is that he is, and it should be an extremely obvious and uncontroversial fact, yet people are claiming its invalid somehow cuz Krugman isn't buttering up Romney's company for him.

Yes, its not a zero sum game but its not an everybody wins game either. A company can fire people:
making it beneficial to society as a whole but terrible for the unemployed
making it worse for society as a whole but beneficial to shareholders
without making the company more efficient at all

All of the above is especially evident when the company goes under.

Krugman trolls it up too much to take quotes from him out of context like this.

Krugman is my favorite real world troll atm.

He's right in that sometimes firing people makes a company more efficient, he's wrong in that this applies any way to Krugman's article.

Yes, nothing says "100%, purely undebatable fact" like the word "could."

I doubt many companies go under as a result of firing some people. Usually they are firing people to prevent going under. You are of course correct that sometimes firing may not have been the best option. However, on average, it's pretty obvious that firing people is necessary for a healthy society.

I wasn't trying to argue whether or not Romney is a direct job creator. I am trying to argue that companies like Bain are good for capitalism. Capitalism is better than most alternatives for a society's labor force and Krugman is silly for writing such an article. I am pretty confident he doesn't even disagree with me. He just wants to score some points with the political crowd by saying, "Bain fires people so Romney can't be a job creator. Yay!"

Bump

krugman in a nutshell

http://fivethirtyeight.com/datalab/f...hange-of-tone/

Really odd classifications for 1/22/13 and 8/5/13