Archive for September, 2008

Bailing Out Investors Bad Decisions

Tuesday, September 30th, 2008

The United States is economy is in pretty bad shape right now. The economy is in such poor shape right now that we must hand over at least $700 billion to the Treasury Secretary to purchase bad debt from Wall Street.

The reason many people say we need a bailout is to make up a string of bad decisions made on Wall Street. From what I understand the problem is that Wall Street firms continued to create securities consisting of worthwhile and worthless mortgages that eventually created convoluted securities than no wants any more. If no one continues to buy these securities, banks on Wall Street will lose lots of money, which it feared will create a credit crisis that will mean it will be more difficult for consumers and businesses to borrow money.

I remain unconvinced that this bill is a good idea. $700 billion is a lot of taxpayer money equal roughly the cost of Iraq war to date. The federal government does not have this kind of money to spend over a short period of time due to Congress inclination not to limit spending or raise taxes this bill will probably largely be financed through government spending which will push us further into an economic crisis. Sure the bill may not actually cost $700 billion, some people think the government will actually make money off the bailout but the bailout could alternatively cost more than $700 billion since 700 billion is just a figure basically made up by the Treasury Secretary.

The bailout goes against the way capitalism works. Capitalism is a system of economics based on profit and loss. Traditionally in capitalism, people who are more productive and make a profit are rewarded, the opposite side of the coin is that people have to take losses when they make bad decisions. The people who invested in mortgage securities whose worth is not clear made bad decisions. If you take away the downside of bad decisions, you will just encourage people to engage in riskier decisions without any regard to whether or not they will be profitable; economists call this moral hazard.

The House of Representatives did vote down the bailout yesterday but the bill is not completely dead. It appears as the bill will be reintroduced in the House of Representatives on Thursday after Congress returns from the Jewish holiday.

Update 1:

5 Random Music Links

Tuesday, September 30th, 2008

More Music:

Diplo has produced a remix of John Legend’s “Green Light” featuring Andre 3000 with a 90′s era techno bass mix.

The Knux have released a video for their single “Bang Bang” off of their album Remind Me In 3 Days.
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I found this great video for a song called “Keep It Moving” by underground Chicago rapper Seel Fresh.

The song is off of Seel Fresh‘s sophmore album Street Famous which drops October 28th. “Keep It Moving” is produced by Cee The chef with Cuts by DJ Mental. The video is directed by Brian “TangAble” Evans and features cinematography by James Mulholland.
Link via VidRap.com

Here is a video of Q-Tip performing “Work It Out” as well as “Electric Relaxation” on Jimmy Kimmel’s show. The video is a little grainy but still enjoyable.

Link via Hip-Hop Flavas Blog

People Under The Stairs have a video for The Wiz
off of their new album Fun DMC. I really like People Under The Stairs fun laid back vibe.


People Under The Stairs – The Wiz Video
by golddustmedia

Link via Nah Right

Social Security Is A Disgrace

Tuesday, September 16th, 2008

Earlier this year John McCain said that Social Security is a disgrace. John McCain meant that Social Security benefits may not be there for future generations, but John McCain would be correct to say that Social Security is a disgrace..

Social Securtiy is a disgrace not just because Social Security is a multi-generational Ponzi shceme but also because Social Security increases poverty by giving people a disincentive to save because a belief will be created that the government is saving for them. Edgar K. Browning,Research fellow at the Independent Institute, explains:

While it reduces poverty by providing income to retired persons, it discourages private saving during the working years—ultimately decreasing the private assets people bring to their retirement. The net effect of this is increased poverty among the retired population.

To understand this conclusion, it is important to compare the rate of return on taxes paid that is generated by Social Security to the rate of return people could receive on their private saving. For those retiring in 2008, the average implicit real (inflation-adjusted) rate of return on Social Security taxes paid was slightly below 3 percent—and it is scheduled to decline to under 2 percent in the next forty years. In contrast, if people retiring in 2008 had invested the taxes they paid into Social Security in a balanced portfolio (60 percent stocks and 40 percent bonds), they would have received a return of 5.5 percent.

The difference between a 5.5 percent return and a 3.0 percent return may not sound like much, but in annual returns compounded over a lifetime, this difference has a huge influence on the income available during retirement. In fact, the annual retirement income provided by a 5.5 percent return is double than that provided by the 3.0 percent return of Social Security. Even more compelling, an investment in the stock market averages a 7 percent real return, which would mean an annual income of three times what Social Security provides.

In short, it is likely that we would have fewer poor among the elderly had they been free to invest their taxes in private assets. Once Social Security’s rate of return drops to below 2 percent, it will only continue to aggravate poverty in the future.

While this simple comparison is compelling, it overlooks the huge hidden costs of this system. By reducing the incentive for workers to save privately for their own retirement, we reduce the economy’s saving and investment in productive assets. This means the economy grows more slowly as a result of Social Security and people end up with lower incomes even before they pay their taxes. When this cost is taken into account, the real return from Social Security to those retiring today is actually negative!

And things are only going to get worse. Although Obama assures us, “the underlying [Social Security] system is sound,” economists have emphasized for years that this is not the case. Today, government expenditures on Social Security and its companion retirement program, Medicare, are 7.3 percent of GDP. However, the Boards of Trustees of Social Security and Medicare tell us that figure will rise to 15.2 percent by 2040 if we don’t change the rules for determining benefits.

Ultimately that means we will have to more than double tax rates to pay the benefits Congress has unwisely legislated. Or we will have to cut benefits in half, or some combination. Raising taxes would be disastrous—imagine a 35 percent payroll tax rate (compared to the present 15.3 percent) and higher income tax rates as well. And since Medicare is partially funded by the federal income tax, its rates would have to rise as well.

Neither option is attractive, but cutting benefits is clearly preferable since people would then depend more on private saving. Most economists favor gradually raising the retirement age as the least painful way of cutting benefits. But the longer we wait, the harder it is to implement this option and the more likely we will be forced to accept substantially higher taxes.

The elderly poor, as well as the rest of us, are ill served by politicians who systematically downplay the huge costs of Social Security and delay confronting what is indeed a true crisis.

New Music Stuff

Tuesday, September 9th, 2008

Loud.com has a new video for Talib Kweli and KRS-ONE’s song “The Perfect Beat.” off of Talib Kweli’s Eardrum album.

Wildabeast has a video for his song “iBeast Playlist” off of his upcoming Next Levels mixtape the song is produced by Madlib.
Link via Rock The Dub

Kanye West has finally released his video off of “Good Morning” off of last year’s release Graduation.


Kanye West – Good Morning
by kanyewestofficial

This video seems to have been made a while ago because I remember watching a grainy version copied with a camcorder earlier this year. It is good to see Kanye West putting out more videos for his album even at this late date after release.

TheMeaningOfDope.com posted this video of A Tribe Called Quest performing “Oh My God.”

Great to see A Tribe Called Quest performing at the peak. It is too bad it doesn’t seem like another A Tribe Called Quest album will ever come out.

Obama: Let’s Prop Up Failing Corporations

Monday, September 1st, 2008

Obama has a new ad called “Revitalize” in which the narrator criticizes John McCain for not supporting government loans to the auto manufacturing companies. There is no reason to support loans to car manufacturers who are not able to meet the demands of the manufacturers; American car manufacturers will be able to get loans from private businesses if they deserve them. All these loans would do is to funnel money from taxpayers to big inefficient corporations.