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Capitalism - Communism Scale





Dennise
If one considers a government style continuum marked on one end by... say pure capitalism and on the other end by say pure communism; what might be a reasonable metric to gauge where interim government styles lie (no pun intended)?

One metric might be the amount of government spending compared to total GDP .... as a percent. Then - on such a scale - the U.S. would be about 20. This is of course an over simplification intended to provoke some thought.

Any other ideas about such a metric?
Bikerman
You would have to include public share ownership as an important metric. The whole idea of a socialist/communist economy is control of the means of production by the workers. This could possibly be measured by a function of {distribution of shares amongst the population, % of total shares in public ownership vs those held by corporations}
Dennise
Some good ideas there.

I know it's not simple, but attempts at such a quantitative metric surely must exist.

One tires of hearing people throwing political terms around, especially socialism, that have so many differing interpretations.
Hello_World
Dennise wrote:
Quote:
One tires of hearing people throwing political terms around, especially socialism, that have so many differing interpretations.


Yeahhhhh....

I'd just like to see people stop using 'socialist' and 'communist' as simple euthanisms for 'dictatorship', even when the actions of the person being accused are clearly capitalist orientated.

It's just wrong and makes them look pretty stupid, but annoying just the same.
ocalhoun
Hello_World wrote:
Dennise wrote:
Quote:
One tires of hearing people throwing political terms around, especially socialism, that have so many differing interpretations.


Yeahhhhh....

I'd just like to see people stop using 'socialist' and 'communist' as simple euthanisms for 'dictatorship', even when the actions of the person being accused are clearly capitalist orientated.

It's just wrong and makes them look pretty stupid, but annoying just the same.


It would help alleviate that connection if there were a few well known democratic communist states.
gandalfthegrey
Capitalism and Communism is a false dichotomy.

Corruption and greed exist in both systems. In America, we had the recent sub-prime mortgage crisis, numerous corporate scandals and huge government bail-outs because of this greed and incompetency. In communist countries, you have corruption and nepotism within the 'co-operatives' or state corporations, corruption amongst government officials and scandals over product and building safety.

Good people living under both systems must work to ensure safeguards are in place to prevent such.

The other issue I am worried about though here is the ideologues - those who blindly, ignorantly and faithful believe in these systems wholeheartedly and would be willing to lie, cheat, steal, fight and die for their believes.

I don't doubt that there are those within so-called Communist China, we would love to destroy the American economy. China is in the position to destroy America. If a fanatic were to get into a position of power, America is doomed to suffer a similar faith that befell the U.S.S.R. after communism collapsed there.
Hello_World
@ocalhoun

yes, yes, I understand your point. But it matters not.

Socialism does not imply dictatorship, it is an economic theory.

Whilst it is true they seem to often go hand in hand, one does not equal the other.

If people mean 'dictator-like', they should say that, not sound like uneducated fools.

It is annoying, because it is just yet another technique the powers that be push us towards apathy rather than investigating things for ourselves.

@gandalfthegrey

yes, and I don't doubt there are people in America that would love to see China fall too. Luckily for China and Latin America, USA's efforts are focused elsewhere.
ocalhoun
gandalfthegrey wrote:
Capitalism and Communism is a false dichotomy.

Corruption and greed exist in both systems.

Yes, there's corruption and greed in both... that doesn't make them the same though.

They are fundamentally different ways of organizing an economy. -- Though we have yet to really see either in a truly pure form; they are nearly always mixed to some degree.



...And of course, either of them can be ruined by corrupt politics.
Da Rossa
@Biker:

Quote:
The whole idea of a socialist/communist economy is control of the means of production by the workers


But isn't that just in theory? Isn't it likely the leader(s) of a communist society attract to themselves the reins of power under the pretext of "representing the class of workers"?
ocalhoun
Da Rossa wrote:
@Biker:

Quote:
The whole idea of a socialist/communist economy is control of the means of production by the workers


But isn't that just in theory?


It is... in theory.
That's something that both capitalism and communism have in common -- they both differ greatly between theory and practice.


(The main flaw that I think you might be referring to is the 'temporary dictatorship' during the transition to pure communism... Which has historically shown to be a truly horrible idea.
Power needs to go to the people, AND it needs to do so directly and immediately.)
Da Rossa
That's it! A system cannot be driven by itself. Human history has proven that this is a unicorn fairy tale. Better stick with a capitalist democracy with all its flaws than to hand over the power to a small group of "enlightened" to rule you.
ocalhoun
Da Rossa wrote:
Better stick with a capitalist democracy with all its flaws than to hand over the power to a small group of "enlightened" to rule you.


...But capitalist democracy does hand over rule to a small group of 'enlightened'*...

The only acceptable way is to allow each person to rule only his own self, and no other.



*AKA 'wealthy'... Sure, there are elected representatives... but they answer to a higher authority, and not 'the people' either -- they answer primarily to their wealthy sponsors. At least in the US, the very wealthy and the directors of large corporations are the real rulers.
Da Rossa
Quote:
...But capitalist democracy does hand over rule to a small group of 'enlightened'*...

The only acceptable way is to allow each person to rule only his own self, and no other.

I understand there are power groups. But, besides the elections that are supposed to rotate the governments, which are not a good argument since they're sponsored by powerful corporations, there is the possibility to rotate not the elected representatives, but the "actual power factors". The influential groups may vary over time. So there is, at least, a leap of hope.

The 'enlighted' that rule you in a capitalist democracy will be more economic-oriented and should not, at least in theory, command all aspects of your life.
ocalhoun
Da Rossa wrote:

I understand there are power groups. But, besides the elections that are supposed to rotate the governments, which are not a good argument since they're sponsored by powerful corporations, there is the possibility to rotate not the elected representatives, but the "actual power factors". The influential groups may vary over time. So there is, at least, a leap of hope.

The 'enlighted' that rule you in a capitalist democracy will be more economic-oriented and should not, at least in theory, command all aspects of your life.

Still doesn't sound like a very good argument for 'rule by wealth'.
They still can (and do) ruin plenty of lives with purely economic-oriented motivations.
Da Rossa
Quote:

Still doesn't sound like a very good argument for 'rule by wealth'.
They still can (and do) ruin plenty of lives with purely economic-oriented motivations.


They could. But would they? I'm in the absolute abstract field thinking this, I realise I'm being veeery simplistic. But let's say we have a "group of wealthy" in position to "rule" the society. Why would they have the interest of ruining? They'd lose legitimacy, or their own business model could deteriorate in that case, couldn't they?

Besides, I don't think a economic-power-oriented group would decimate all freedom. They could make pressure for us to adopt certain habits or buy some sort of goods which would be their interest. But this, by definition, doesn't eliminate variety, does it?
ocalhoun
Da Rossa wrote:

Besides, I don't think a economic-power-oriented group would decimate all freedom. They could make pressure for us to adopt certain habits or buy some sort of goods which would be their interest. But this, by definition, doesn't eliminate variety, does it?

It does reduce variety though...

However, some of the worst ways they ruin lives are:
-Promoting a system of 'wage slavery' -- to paraphrase tyler durden, "[using] advertising to make them work jobs they hate so they can buy things they don't need."
-Sacrificing macroeconomic stability for short term profit. (Profitable for them (personally, in the short term), but often ruinous to many individuals.)
-Ruining the environment. (For their own profit, but often to the detriment of individuals.)
-Pushing for legislation that raises their profits, but may harm individuals as a side effect (ie, war on drugs, highly unsatisfactory immigration issues, 'free' trade)

To a purely profit-oriented leader, people are just another resource to be exploited, and it doesn't matter at all if they suffer from this exploitation.
While that doesn't necessarily lead to total loss of freedom, it doesn't encourage freedom either -- it encourages people to become mindless gears in the great economic machine... to be used, abused, or discarded depending on how useful they happen to be at the moment.
deanhills
Da Rossa wrote:
Besides, I don't think a economic-power-oriented group would decimate all freedom.
I don't think they are interested in anybody else's freedom. Only in their own power. To control where the money goes.

I really don't think that the United States has a system where people have total freedom as they are too much dependent on earning a living where most of the financial resources are concentrated in the hands of a very small group of wealthy individuals. The financial crash at end of 2008 is a very great example of this where the large Banks from the eighties through to 2008 had managed to completely get rid of legislation that was there to protect people who put their money in the bank. So much so that the Banks are in the business of selling junk investments to people. Not only did those big Banks get away with it, but they also got baled out when all of it collapsed.
Da Rossa
Let me put some things, but I'm not sure whether this is the most appropriate way to discuss something like this subject:

Quote:

However, some of the worst ways they ruin lives are:
-Promoting a system of 'wage slavery' -- to paraphrase tyler durden, "[using] advertising to make them work jobs they hate so they can buy things they don't need."


I'm unaware of that author, so I'm analysing out of context. "jobs they hate" is something necessary since goods are limited on Earth, while needs are unlimited. There are not enough good jobs. Someone will eventually hate theirs!

"so they can buy things they don't need.": This can be circumvented. People do learn what is relevant and what is pure mint rubish. There is pressure and subliminar messages to acquire some unuseful trash, but the individual still has its freedom not to get what they don't want.

Quote:
-Sacrificing macroeconomic stability for short term profit. (Profitable for them (personally, in the short term), but often ruinous to many individuals.)


This could happen also, in theory. But do you feel the US has a history of "unstabilities" for sticking with this system? Did France, Germany, England, and even China? Something appears to be empírically incomplete.

Quote:
-Ruining the environment. (For their own profit, but often to the detriment of individuals.)


True. But like I said, there is no pure capitalism and no pure communism, thanks God. There is no pure liberalism and lack for the social benefit. Most people and companies are absorbing the environmental education. Not all of them put in the first place.

Quote:
-Pushing for legislation that raises their profits, but may harm individuals as a side effect (ie, war on drugs, highly unsatisfactory immigration issues, 'free' trade)


I'd ask you to be more specific on that.

Quote:

To a purely profit-oriented leader, people are just another resource to be exploited, and it doesn't matter at all if they suffer from this exploitation.


Yes, if put in that terms. But you'll see no "purely profit-oriented leader". That's for the ones sponsoring the leaders, not only in election time, but in the meantime. Economics are not the full material needed to be elected and stay in command with legitimacy. A leader cannot, by definition, be purely economic-minded.

Quote:
While that doesn't necessarily lead to total loss of freedom, it doesn't encourage freedom either -- it encourages people to become mindless gears in the great economic machine... to be used, abused, or discarded depending on how useful they happen to be at the moment.


Well, you're being so theoretical in that. "encourages people to become mindless gears in the economic machine"? you're probably talking how things were with the assembly-workers in the 18th century, when they worked 18 hours a day, with no holiday etc. Today, it's not the force what matters, but the intelect and creativity. People are less expendable today; now they bring in their own abilities which are more and more unique. And this is good!

@dean
Quote:
I don't think they are interested in anybody else's freedom

True, they are not. They are not interested in making their lives worse either. They need active, unstressed, unwasted people available.

Junk investments: face them like a general junk product. Why buying it?
ocalhoun
Da Rossa wrote:

I'm unaware of that author, so I'm analysing out of context. "jobs they hate" is something necessary since goods are limited on Earth, while needs are unlimited. There are not enough good jobs. Someone will eventually hate theirs!

"so they can buy things they don't need.": This can be circumvented. People do learn what is relevant and what is pure mint rubish. There is pressure and subliminar messages to acquire some unuseful trash, but the individual still has its freedom not to get what they don't want.

^.^ Tyler Durden is a character in the movie, fight club. I highly recommend seeing it. Despite the title, it's about a lot more than just people fighting.
Needs are not unlimited. Wants are unlimited... But I see no reason why people should be unhappy for a huge portion of their lives just to satisfy wants. (And all too often, not even their wants... part of it goes to satisfying the wants of the rich, most of the rest goes to satisfying what the rich tell them (through advertising) that their wants are.)
Sure, it can be circumvented by some; the ones who wake up and realize what's going on... The problem is, so few people do, and they continue to get stuck in that cycle. I'm convinced that the highly materialistic culture in the US is not an accident. Advertisers have become extremely proficient at psychologically manipulating people.
Quote:

Quote:
-Sacrificing macroeconomic stability for short term profit. (Profitable for them (personally, in the short term), but often ruinous to many individuals.)


This could happen also, in theory. But do you feel the US has a history of "unstabilities" for sticking with this system? Did France, Germany, England, and even China? Something appears to be empírically incomplete.

Ever hear of the boom-and-bust cycle? ... The latest incarnation of which is the current recession?
The current recession is a perfect example, as it was caused by corporations (primarily banks) sacrificing long-term stability for short-term profit.
(And lobbying to have laws removed so that they could do so more effectively.)
Quote:

Quote:
-Ruining the environment. (For their own profit, but often to the detriment of individuals.)


True. But like I said, there is no pure capitalism and no pure communism, thanks God. There is no pure liberalism and lack for the social benefit. Most people and companies are absorbing the environmental education. Not all of them put in the first place.

True, we are at least not in a purely capitalist-rule country. We do still have the EPA and various environmental protections...
These laws keep getting more eroded though, and the penalties for ignoring them keep getting more toothless.
That's because the balance of power is far too much towards the profit-oriented.
Quote:

Quote:
-Pushing for legislation that raises their profits, but may harm individuals as a side effect (ie, war on drugs, highly unsatisfactory immigration issues, 'free' trade)


I'd ask you to be more specific on that.

Well, let's start with the war on drugs.
Ever wondered why alcohol is legal while marijuana is not? If anything, alcohol is the more dangerous drug. Both were banned at the same time; the alcohol ban was removed, but not the marijuana ban... why?
Alcohol is more profitable. Simple.
Now, the problem has been compounded by companies finding ways to profit from the war on drugs, and getting a vested interest in keeping it going. (Police department supplies, privately run prisons, bail bonds, et cetera... anybody who profits from law enforcement has an interest in keeping arrests high -- and promoting the war on drugs is a great way to do so.)

On to immigration issues...
Companies like having cheap illegal immigrant labor.
They can't let the immigrants be stopped at the border or deported; they would lose that labor source.
They can't let the immigrants become legal citizens; then they'd have to pay minimum wage and employer tax contributions: the labor would no longer be cheap.
They can't let legal immigration be quick and easy... then they would all immigrate legally, and they'd lose the cheap labor source.
Hence, the illegal immigration problem remains unsolved.

'Free trade' agreements are simplest. They are often explicitly drafted to help corporations, including -- and especially -- the ones that export labor overseas.
Quote:

Yes, if put in that terms. But you'll see no "purely profit-oriented leader". That's for the ones sponsoring the leaders, not only in election time, but in the meantime. Economics are not the full material needed to be elected and stay in command with legitimacy. A leader cannot, by definition, be purely economic-minded.

Ah, you're still confusing politicians with leaders...
The politicians are primarily just puppets. The rich are the real leaders.
(And thanks to the locked-in two party system, they don't need to worry about non-puppet politicians ever gaining power.)
(And thanks to the media corporations -- also controlled by the rich -- most of the public can be kept safely ignoring that problem.)
Quote:

Well, you're being so theoretical in that. "encourages people to become mindless gears in the economic machine"? you're probably talking how things were with the assembly-workers in the 18th century, when they worked 18 hours a day, with no holiday etc. Today, it's not the force what matters, but the intelect and creativity. People are less expendable today; now they bring in their own abilities which are more and more unique. And this is good!

Yeah... they just do that to people in China now.
Without vigilance though, the protections that prevent that here can be eroded away.

You can already see that a little in the political/economic theory that minimum wage increases cause inflation. Price increases of all other kinds are mainly ignored as causes... but as soon as someone suggests increasing the minimum wage (AKA price of labor), many politicians will shoot it down 'because that just causes inflation'.
Quote:

Junk investments: face them like a general junk product. Why buying it?

Because they were fraudulently rated as 'AAA', when really they should have been rated as 'B'.

Don't be distracted into thinking that was the sole cause of the recession though.
The potential for the recession was built when banks got legislation removed to allow them to be more highly leveraged (ie, borrow more in relation to their assets). Due to that, instead of being able to survive a loss of, say 25% of their assets, they would now become insolvent by losing only 5% or 10% of their assets.
Then, along comes an unexpected dip in real estate prices... (Of course it was unexpected; after all, we've heard it being preached for decades that real estate never drops in value; it only goes up.)
Suddenly, more mortgages are defaulting than expected... which causes an unexpectedly high asset loss at banks. Then, banks are getting perilously close to that 5 or 10 percent loss that will make them insolvent (bankrupt). Worried about this situation, they scrutinize their books... and discover that they've been buying supposedly AAA mortgage securities that should have been rated B... which means that they're likely to get a LOT more losses than they expected.
In a panic to improve this situation, they cut down on new lending... which backfires: it causes a slowdown in the whole economy, which causes layoffs, which causes more mortgage defaults, which causes more losses at banks... and the downward spiral continues.
As some banks teeter perilously close to bankruptcy... the securities and exchange market (SEC) comes into play.
In this market, many companies purchase and sell guarantees that basically say, "if company X goes bankrupt, we'll pay you money to offset your investment loss."
Nearly all the large corporations participated in this market -- especially banks.
After a while, it grew to such a complicated web of interdependency that any major bankruptcy could cause a chain reaction, as other companies are unable to pay the guarantees they made... which makes them bankrupt... which starts another wave of securities payoffs... which causes more to go bankrupt.
It would be like a virulently spreading disease, and thanks to the extreme interconnectedness of that market, this disease would be sure to spread to all the major corporations.
(Which explains the 'too big to fail' doctrine; they're not actually to big to fail... They're too interconnected to fail, since allowing one to fail means they all fail.)
This, of course, makes the banks even more nervous...

So, to summarize, profit-oriented instability provided the potential for a crash. Unexpected mortgage defaults provided the trigger to release that potential... But the potential was still there; even without the mortgage defaults, eventually something would have come along to cause unexpected losses to banks, which would lead to a very similar chain of events.


(Limiting the leveraging of banks was one of the innovations in legislation developed after a previous crash... But the rich (being in power) were able to get that legislation removed, which for a short time led to great profits... but at the cost of instability. And now, many suffer so that they could have a short-term profit.)
Da Rossa
Quote:
^.^ Tyler Durden is a character in the movie, fight club. I highly recommend seeing it. Despite the title, it's about a lot more than just people fighting.


Duh! LOL I had forgotten the character's surname. Just remembered about "Tyler". And it's been 12 years since I last watched that movie! I'll go after a copy to rewatch it.

Quote:
Needs are not unlimited. Wants are unlimited... But I see no reason why people should be unhappy for a huge portion of their lives just to satisfy wants.


I think we're not actually disagreeing. This appears to be semantic. Needs are unlimited by the single fact that they're renewable: the need for water, for instance. Its cyclical. That's why I said the needs are unlimited. But give a closer look to "satisfy wants". Don't you agree that the 'wants' to get material goods are not exactly the top priority for individuals? We can acquire something... tomorrow we can get a new something more expensive... but no one sticks a car poster in their bedrooms to say: this is my life objective. That could be a short or middle term goal. In the end, the humans, when they get time to think about life, they think more about being and less about having.

Quote:

Ever hear of the boom-and-bust cycle? ... The latest incarnation of which is the current recession?
The current recession is a perfect example, as it was caused by corporations (primarily banks) sacrificing long-term stability for short-term profit.
(And lobbying to have laws removed so that they could do so more effectively.)


Yes, yes! But did this hurt the country essentially, or did it destroy the institutions, the people's beliefs, hearts, opinions, dogmas, habits? Or did it prove the capitalist system unefficient? I know it's not perfect! But did it even bring the Country as a whole to the black hole? Near it, but the system flaw that can bring a Country near the cataclysm also comes along with the advantage to recover. Think of Europe while being helped by the US after WW2.

Quote:
That's because the balance of power is far too much towards the profit-oriented.


By this time. Don't worry, that WILL change. The only possibility this orientation of environmental-law-enforcement-getting-stricter does not prevail is the Planet becoming less threatened as a whole. That's a little difficult right now. Right now.

Quote:
Now, the problem has been compounded by companies finding ways to profit from the war on drugs, and getting a vested interest in keeping it going. (Police department supplies, privately run prisons, bail bonds, et cetera... anybody who profits from law enforcement has an interest in keeping arrests high -- and promoting the war on drugs is a great way to do so.)


Now I see it. And this is a problem the US has, IMHO. Here in Brazil, privately-run prisons are out of question... and the states do not rule about Criminal Law. The Criminal Law in here is national, and this thing of enforcing war on drugs so more people gets arrested, so the company running the prison gets more revenue wouldn't apply.

Quote:
They can't let the immigrants be stopped at the border or deported; they would lose that labor source.
They can't let the immigrants become legal citizens; then they'd have to pay minimum wage and employer tax contributions: the labor would no longer be cheap.
They can't let legal immigration be quick and easy... then they would all immigrate legally, and they'd lose the cheap labor source.
Hence, the illegal immigration problem remains unsolved.


True, I was about to ask you what's your idea about this, then. I thought about this and I realise the is no simple solution. A political sacrifice would have to be made. No one wants to be the first.

Quote:
Ah, you're still confusing politicians with leaders...
The politicians are primarily just puppets. The rich are the real leaders.
(And thanks to the locked-in two party system, they don't need to worry about non-puppet politicians ever gaining power.)
(And thanks to the media corporations -- also controlled by the rich -- most of the public can be kept safely ignoring that problem.)


Unfortunately you're right Sad

Quote:
Yeah... they just do that to people in China now.
Without vigilance though, the protections that prevent that here can be eroded away.


I forgot to make the exception about China. Shame on me. Trust me, I was talking about western coutries.

Quote:
Because they were fraudulently rated as 'AAA', when really they should have been rated as 'B'.


I agree. Why does this rating agencies exist after all? I haven't heard of them before Standard & Poor's downgraded the US. The Brazilian media made a noise off it. They seem artificial.

Quote:
(Of course it was unexpected; after all, we've heard it being preached for decades that real estate never drops in value; it only goes up.)


Yep. And, today, young real estate brokers are bugging me with 30% profit a year when I acquire an apartment. I asked "until when?", and they shut up.

Quote:
In a panic to improve this situation, they cut down on new lending... which backfires: it causes a slowdown in the whole economy, which causes layoffs, which causes more mortgage defaults, which causes more losses at banks... and the downward spiral continues.


Sorry but you're reaching my boundaries. My technical vocabulary is limited. Specially when comes to specifics in Economics, which I find difficult even in my native language. Sad I can't keep up.

Quote:
As some banks teeter perilously close to bankruptcy... the securities and exchange market (SEC) comes into play.
In this market, many companies purchase and sell guarantees that basically say, "if company X goes bankrupt, we'll pay you money to offset your investment loss."
Nearly all the large corporations participated in this market -- especially banks.
After a while, it grew to such a complicated web of interdependency that any major bankruptcy could cause a chain reaction, as other companies are unable to pay the guarantees they made... which makes them bankrupt... which starts another wave of securities payoffs... which causes more to go bankrupt.


I regained the gist. But as of now, I'm assuming you're right about your premises.

Quote:

So, to summarize, profit-oriented instability provided the potential for a crash. Unexpected mortgage defaults provided the trigger to release that potential... But the potential was still there; even without the mortgage defaults, eventually something would have come along to cause unexpected losses to banks, which would lead to a very similar chain of events.


(Limiting the leveraging of banks was one of the innovations in legislation developed after a previous crash... But the rich (being in power) were able to get that legislation removed, which for a short time led to great profits... but at the cost of instability. And now, many suffer so that they could have a short-term profit.)


I can't comment on that for now. I liked your lecture tough. I'll try remembering it so I can think clearer when I learn more.
ocalhoun
Da Rossa wrote:
That could be a short or middle term goal. In the end, the humans, when they get time to think about life, they think more about being and less about having.

Well, it should be that way... But all too often it isn't, at least in a certain, highly-materialistic culture...
Ask about peoples' goals in this culture, and the majority will give something related to material goods, or some type of career-oriented goal, which ultimately reduces to the ability to purchase more material goods.
As for long-term, whole-life goals... Most of them don't even seem to have any. They spend their whole lives moving from one materialistic milestone to another, without considering where the road as a whole leads.
Quote:

But did it even bring the Country as a whole to the black hole? Near it, but the system flaw that can bring a Country near the cataclysm also comes along with the advantage to recover. Think of Europe while being helped by the US after WW2.

The ability to recover? Perhaps... But I'm not sure we've struck bottom yet.
Unless something is done to cushion the blow, the inevitable collapse of the securities and exchange market will be quite cataclysmic, economically speaking.
So far, bailouts have kept that threat just barely at bay... but the government is running low on funds, so that strategy can't work forever.

And yes, every bust eventually develops back into a boom... But what of the people who lose their livelihoods or savings in the meantime?
If a capitalist system is to work without ruining lives that way, it needs to be tightly regulated to avoid developing instability during booms... The profitability of such booms will be much more moderate, but busts would also be more moderate... and likely rarer.
Slow, steady growth is much better for the 'little people' than boom-and-bust cycles.
Quote:

I agree. Why does this rating agencies exist after all? I haven't heard of them before Standard & Poor's downgraded the US. The Brazilian media made a noise off it. They seem artificial.

They do provide an important function.
In a world where investments can be very complicated and difficult to investigate, they (supposedly) do the investigative work for you, and give you a rating based on how risky the investment is.
(Otherwise, any investor would be overwhelmed by the daunting task of evaluating the risks of different investments all by himself.)
The problem entered into the situation because these rating agencies are funded by the investments they rate... and the rating agencies are private, profit-oriented companies.
Combine those two facts together, and it becomes unsurprising that eventually, a way was found for an investment (mortgage securities in this example) to pay an extra-high fee (bribe) to get a better rating.
deanhills
ocalhoun wrote:
Combine those two facts together, and it becomes unsurprising that eventually, a way was found for an investment (mortgage securities in this example) to pay an extra-high fee (bribe) to get a better rating.
Do you think that practice has completely stopped? As those Banks were bailed out, everything is the same. Those who were poor and in the middle classes before the bubble started are poorer and those who were rich richer. In one big bubble money of the poor and middle class moved right into the bank coffers attached to very lucrative commissions of those who had betrayed their clients. Even the guys who were in management at the time are still there.

I have no confidence in the rating agencies. And am completely suspicious of Big Banks as you must know. I'd say the Banking Industry is in great need of being regulated so that the old separation of Banking Business, Real Estate and Investments could be reinstated. That is the only sure way that investors can be protected. And we can get back our local friendly coop banks where we can deal face to face with our Banker again. Not like now where everything is invisible untransparent complicated and those people making decisions and being paid billions of dollars in commissions and incentives to rob us locked away in ivory towers that no one can get close to.
ocalhoun
deanhills wrote:
ocalhoun wrote:
Combine those two facts together, and it becomes unsurprising that eventually, a way was found for an investment (mortgage securities in this example) to pay an extra-high fee (bribe) to get a better rating.
Do you think that practice has completely stopped?

No. No regulatory changes have been made to prevent it. The agencies may (or may not) have temporarily stopped to protect their reputation, but there is nothing to keep them from starting back up as soon as they think they can get away with it.

Also, some of the savvier investors no longer place full trust in them, and will do their own work to verify the risk if the rating agency's assessment seems dubious.
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