Constitution Day

P.S. Your point about having these things in my portfolio is probably true. Fortunately I don't have much in my portfolio. My investments are primarily in family and work. I realized several years ago that there is far too much political risk in things like the stock market and Social Security for me to place any great degree of trust in them.

Muirgeo,

I don't disagree that the politicians are deeply involved in Wall Street - nor do I disagree that the involvement is a problem. But whose idea was it to involve politicians in Wall Street by proclaiming the activities of the financial markets to be in the "public" interest? The politicians of course. It seems we're going to be spending some time placing blame. So let's place it where it belongs - on the political class.

How does that grab ya'?

Posted by: Methinks

Just more of the same. You've got nothing to offer but name calling and now threats. You can dish out the name calling but you sure can't take. Yep you definitely fit my impression of the typical Wall Street persona. A steaming bag of crap as worthless as the pieces of paper you push... just a notch below a bank-robber who is at least honest about his intentions and doesn't steal near as much.

Now shut the hell up and don't bother replying to my post in the future if you can't act like an adult.

Apply the concept to the conversation above and it is easily seen that, if you don't like derivatives, don't buy them.

Posted by: Randy

Randy,

When the Wall Street Cowboys finally got the Glass-Steagall Act repealed after 8 or 9 intensive lobbing efforts...THEN derivatives were made able to infect the public treasury. They would never have survived in the private free market in their current forms. For that the Wall Street Socialist needed Uncle Sam to help them with their evil scheme. After Wall Street got its way into federal funds and loans it gambled big with them and turned them into derivatives. Once the Wall Street Cowboys got THEIR way you HAD NO CHOICE but to purchase their derivatives and all other sorts of toxic Wall Street Frankenstien creations. You now hold this crap in YOUR portfolio.

That's way too much logic for the government Randy. They just forced you and me to insure credit default swaps, Comrade. From each according to his ability to each according to his need. Remember that. AIG needs a bailout and you and I can be conscripted to pay for it. Somebody ought to just hand Paulson and Bernanke a hammer and sickle already. First Hank can whack us over the head with the hammer and then Ben can slice it off with the sickle.

"...the faulty notion of allowing markets to regulate themselves.

I've been thinking about the term "publicly traded corporation"? Specifically, what is "public" about a "publicly" traded corporation? Nothing. Nothing at all. Buying stock in a corporation is an entirely individual choice. The use of the word "public" is just an excuse for the politicians to stick there their collective nose in where it doesn't belong. Apply the concept to the conversation above and it is easily seen that, if you don't like derivatives, don't buy them.

Well, Muirdiot, obese jackasses like you are responsible for driving up the cost of health care. Let's kill all of you first, so as you don't infect our health care system anymore, and then we can turn our attention to derivatives. How does that grab ya'?

All you have to do is be a US citizen and these things have infected your portfolio through the feds new asset balance sheet filled with these toxic pieces of paper. I'm sick of name calling fools telling me how these are useful products. Water is useful but it often causes people to drown. These products are responsible for the worlds largest fraud and heist of money out of the productive economy. The only useful thing they've done is conclusively show the world (again) the faulty notion of allowing markets to regulate themselves.

I have no fundamental problem with derivatives (or a craps game for that matter), and I don't think Muirgeo does either.

When I buy a life insurance policy, I don't expect to buy default swaps on an options trader's leverage in the bargain. When I learn that my insurance company is on the brink of bankruptcy because it has "invested" reserves securing my life insurance payout or my annuity payment in highly risky default swaps that turned out to be worthless, where does that leave me? "You should have chosen a different insurance company" isn't very comforting.

Muirgeo,

Do you know what derivatives are? Are you familiar with Swaps, Options, Futures? For the most part, they are used as a hedging strategy. They act as a form of "insurance" on investments to off-set or mitigate some potential risks.

Derivatives are all based on, or derived from, an underlying value. I'll grant you that some of them have been less than spectacular. I've used currency swaps to hedge against dollar drops. Not all of them are infinitesimally complex. The term 'Derivatives' covers a very wide and pliable market.

Not to stoke your fires, but you should pick up a book called "FIASCO" by Frank Partno, a former derivatives guy. If memory serves, his predictions on the Japanese market crashing were wrong. But it's a fun and fast read that covers many of the dumb things financial services companies have done. I think this would just add more fuel to your fire even if I don't agree with you. If anything, it is a decent primer to understanding derivatives for the non financial folks.

Brad,

Thanks for the recommend on the book. I'll look for it. I can't really disagree with any of your points, especially the dates you listed.

Your childish habit of wanting destroy everything and anything you don't understand (which is pretty everything) simply because you can't comprehend it is not a convincing argument for anything but sending you to the naughty chair until you learn to behave.

Posted by: Methinks

Wow, well it's too bad all these major investment firms didn't consult with you because you apparently could have saved their collective asses and the rest of the worlds as well. Superwoman why didn't you jump into a near by phone booth and save the rest of the world with your great intelligence of the price of pieces of paper before it collapsed in on itself?

As each day goes by and more and more economic laureates and esteemed others confirm the danger of these financial cowboys and their toxic products it is you who looks like a blithering idiot trying to defend the indefensible..... maybe we should start with your early childhood. Was it a hard time for you? Tell me what happened way back then when you were a wee little girl....

Daniel,

In modern Constitution Day discussions? Does anyone actually have those? I'd say that perhaps history professors and libertarians might discuss these arguments, but the average citizen doesn't know what an anti-Federalist is. Heck, the average citizen has never read the Constitution and doesn't care about Constitution Day.

brotio,

A few things... First, I recommend Randy Barnett's book "Restoring the Lost Constitution". We were well on our way to eviscerating the controls against the growth of government within the Constitution long before the 16th and 17th Amendment.

Second, Madison's original plan called for the Senate to be popularly elected and apportioned by population just like the House, and I'm sure Hamilton would have taken any revenue-raising method he could get his hands on, so I doubt he would have balked at an income tax.

Third, I do agree that the 16th and 17th Amendment accelerated the growth of government. The Constitution itself was a departure from the spirit of the Revolution, and we've been accelerating away from small government ever since 1787. The 17th Amendment was a big part of that (by removing the State Legislatures check on federal power), and withholding plus the 16th Amendment gave them the funding to make use of that power.

Last, let's go one step farther. Being an economics blog, I'd say 1913, 1933, and 1971 were all watershed dates in the growth of government, as all signified departures from sound money.

Thanks for the explanation. Rather embarrassing that I missed the point the first time. Montana's orange industry doesn't need protection from California because Montana's orange industry is non-existent. Florida's orange-growers, on the other hand, may well want protection against California producers; the fact that they haven't gotten it is a testament to the Constitution's success.

Who the hell has any idea of The Price of Anything? - unmitigated moron

I do, Muirdiot. Your inability to wrap your mind around the simplest of calculations doesn't prevent other people with a modicum of intelligence from figuring out the value of things. Your childish habit of wanting destroy everything and anything you don't understand (which is pretty everything) simply because you can't comprehend it is not a convincing argument for anything but sending you to the naughty chair until you learn to behave.

"You may celebrate the free trade ensured by the commerce clause, but I'm more concerned with the giant leviathan centered in Washington DC that the Constitution made possible." - Brad Warbiany

Brad,


How much importance do you give to the Sixteenth and Seventeenth Amendments for the creation of our Federal leviathan? I know that doesn't negate your argument, because the framers made the document amendable, but it seems to me that the Federal Gummint was fairly unobtrusive before the two Evils were ratified.

Interesting point by the previous poster. I wonder if the specific arguments of the anti-Federalists ever make it into Constitution day discussions?

"I find it hard to believe that you don't understand this after all this time of reading this post (and I'm assuming many other economics blogs). So are you being deliberately obtuse?" - Ken

Ken,


Don't find it so hard to believe.

Don,

I understand your point, but could this not have been something enacted as an amendment to the Articles of Confederation? If I remember my history correctly (and I do, because I've just completed this section of John Ferling's "A Leap In The Dark"), the drafters of the Constitution were sent to amend the Articles, not create a new Constitution.

You may celebrate the free trade ensured by the commerce clause, but I'm more concerned with the giant leviathan centered in Washington DC that the Constitution made possible.

Here's to the anti-Federalists!

I find it hard to believe that you don't understand this after all this time of reading this post (and I'm assuming many other economics blogs). So are you being deliberately obtuse?

Posted by: Ken

Ken,

I find it hard to believe you are making the arguments you make in favor of these pieces of paper as the modern worlds market collapses all around them. No I was not smart enough to see them for what they were. They invaded my personal indexed fund portfolios, they dropped 9 or at least mis-priced) the prices of houses in my neighborhood and they are charging me in taxes for their infestation of the public treasury. No doubt I don't feel too stupid as I have good company amonsgt me with some of the wisest on Wall Street and those running the fed also being too stupid to these pieces of paper for what they were (still are).

"By the time you figure out the piece of paper they sold you is worthless they are off with your money." -muirgeo

Why is it that you constantly fall for this basic economic fallacy- that if nothing physical is created, then no value was added? Trading these pieces of paper hundreds of times is what gives you the value of something.

People value the same thing differently (the same person even values the same thing differently at different times), but consumers want to make sure that even though they value something at $X, they would prefer to pay $Y, X>Y. Similarly, producers would be willing to sell at $U, but if they could sell at $V, V>U, all the better. So these trading markets are used to aggregate this information to see what the average person is willing to buy at and what the average seller is willing to sell at. The information transfered through the system is the value created by the trading of these pieces of paper.

I find it hard to believe that you don't understand this after all this time of reading this post (and I'm assuming many other economics blogs). So are you being deliberately obtuse?

Don, there was a free-trade zone before the Constitution. As Jeff Hummel pointed out, "Subsequent accounts [of the Articles of Confederation] have created a false impression of competing trade barriers between various states disrupting the American economy. The prevailing situation was, in fact, almost no tariff restrictions between different states. What actually disturbed American artisans and advocates of more a powerful central government, such as Alexander Hamilton, was that competition among states to attract foreign trade was keeping tariff rates too low to provide much protection or revenue."

We didn't need the Constitution for internal free trade. In fact, the Commerce Clause was concerned not with internal but external trade. The motive was mercantlist. (See "That Mercantilist Commerce Clause," http://tinyurl.com/37d8r2)</p>

By the time you figure out the piece of paper they sold you is worthless they are off with your money.

No one compels you to buy a credit default swap on the leverage of a trader in options on orange futures. If you want no part in it, that's fine with me, and maybe you're smarter than the suckers buying this stuff, but if the the Treasury puts hundreds of billions of dollars of tax dollars into the game, you're in it whether you like it or not.

The problem is not that financiers play with these instruments. The problem is that they don't pay the full freight when they lose their bets.

Come on already! The modern economy is nothing like what Adam Smith or the Founding Fathers could have imagined. From derivatives to quants trading complex pieces of paper that represent mathematical formulas of future orange prices traded in milli-seconds around the world based on complex computer data mining programs unattached to anything representing the real value of an orange sitting on the corner stand....

The Price of Everything???? Who the hell has any idea of The Price of Anything? By the time you figure out the piece of paper they sold you is worthless they are off with your money.

Adam Smiths principles DO NO LONGER APPLY!!!

why is finance centered so much in New York?

My answer is: because it had a good start there.

The Constitution doesn't prevent the Federal government from picking winners among states. It only prevents states regulating trade with other states. Maybe Florida's edge in orange market is all about climate, but why is finance centered so much in New York?

-Steve

He was picking producers that are large in particular states and thus could have large political influence. Since wine is important in California, wine growers could likely effectively lobby the government to tax or restrict lovely low priced pinots from Washington or Oregon. Washington could restrict the import of any apples that weren't Washington apples. Suppose Washinton had a bad year with a low yield, if all apples much come from Washington, prices will rise and producers will do just fine. But if North Carolina has a good year and consumers can import those apples, then prices will be lower and producers will bear more of the brunt of the bad year.

It is unlikely a state like mine, Texas, would embargo wine or apples, because there isn't a large interest group of producers that this would be good for. I think this interpretation is consistent empirically as well. The U.S. has large trade restrictions on agriculture, the French on wine, Japan on autos...

Unfortunetly, the fedral govrnment, via New Deal ag policies, has undertaken protection, on a national scale of the ins (vs the outs). Oranges are but one example, peanuts are another (peanut market orders account for some part of the Carter, as in Jimmy, wealth.

Can we sue the govrnment for carrying out these policies?

The electronics/computer industries are a clearer example, as much of that sprang up well after New Deal.

Steve see Martin's post at 12:20. It was intentional.

Did you intentionally pick examples that are (or seem to me) to be backwards? If so, were you just trying to be funny or were you trying to make a larger point? California is known more for wine that Washington. Washinton is known more for apples than North Carolina, etc.

I think, without a doubt, this is the most overlooked of the Constitution's significant clauses.

Hardly. It's the rationale for the Federalization of practically everything. I guess it has also served its intended purpose, to prevent state governments inhibiting commerce between states. I guess ... I don't really know.

The point is that growing oranges in Idaho is legal, and shipping oranges grown in Idaho to Florida involves no tariff. That few people grow oranges in Idaho is a matter of climate, not state regulation, I suppose. On the other hand, I don't know much about the orange growing business, and this devil is usually in the details.

Dear Tenured Professor says “efforts by state and local governments to protect producers from competition outside of their jurisdictions have largely failed”

Yes, but that could be because it is very difficult for states to internalized how much they pay for the protection of other states. Think about that low income family in Idaho, buying very expensive orange juice, just because in order to keep the cost of mantaining the orange groves in Florida low, while they are being enriched into future malls, you slap a 70% duty, or more, on imported orange juice concentrate.

Living in Michigan, the concept of free trade is hard to sell. So each semester I point out the commerce clause to my American Gov't students, and explain to them that it created the world's first extensive free trade zone.

I think, without a doubt, this is the most overlooked of the Constitution's significant clauses.

Oh, I wish this were true.

http://abcnews.go.com/WNT/story?id=352424&page=1

And, let's not even talk about dairy compacts.