Sunday, October 15, 2017

Excess Global Capital

I read an article today, Goldman To Lend to House Flippers by Liz Hoffman and Peter Rudegeair, in the Friday, October 13, 2017 Wall Street Journal.  This article said that Goldman Sachs Group is investing in house flipping by acquiring Genesis Capital, "a closely held Los Angeles firm that backs investors seeking to buy, spruce up and quickly sell homes."

We need to be able to read between the lines.  When Goldman stoops to investing in house flipping, we can read between the lines and say, "Goldman is having trouble finding good investments."  Then we might say, "maybe Goldman has more money than it knows what to do with."

It has been my contention for years that there is too much money floating around the world.  But I did not reach this conclusion on my own.  Niall Ferguson in The Ascent of Money wrote, "The volume of derivatives - contracts derived from  securities, such  as  interest  rate  swaps  or  credit  default swaps (CDS) - has grown even faster, so that by the end of 2007 the notional value of all 'over-the-counter' derivatives (excluding those traded on public exchanges) was just under $600 trillion."  I recall seeing his video version of this book saying there is more money in derivatives than in the capitalization of all companies on the U.S. stock market.

Investopedia defines "capital surplus" as "equity which cannot otherwise be classified as capital stock or retained earnings. It's usually created from a stock issued at a premium over par value."  This is not what I mean by excess global capital.  I mean that money available for investment exceeds the value of all businesses, of all corporate property.

Here is a quote from the Bain Report, November 14, 2012:  By 2010, global capital had swollen to some $600 trillion, tripling over the past two decades. Today, total financial assets are nearly 10 times the value of the global output of all goods and services.  The article is A world awash in money by Karen Harris, Andrew Schwedel and Austin Kim. 

A couple of questions arise naturally.  (1)  How did it happen that too much money came into existence? (2)  Does this mean that world governments have lost control over their money supply?  (3) And what dangers to the world economy lurk in the background, waiting to wreck our lives?  You might profit from reading the Bain Report on excess global capital.

Wikipedia has an article, Global saving glut, saying 'Ben Bernanke expressed concern about the "significant increase in the global supply of saving" and its implications for monetary policies, particularly in the United States.'  Corporations holding onto their money instead of investing it is not what I am concerned about.  That is certainly a topic worthy of consideration, but corporations make money by selling products and services.  Saying corporations do not always know what they are doing is not a surprise, that is the human condition.  I am concerned about financial firms making money out of thin air, sort of like Bitcoin.  It seems to me that governments losing control over their money supply is a dangerous circumstance.  If you and I do not understand these issues, we can be sure our representatives in Congress do not understand them either.

I believe it is important for us to better understand these financial issues because we depend on money to pay our bills.  If our money is destroyed, we are in incalculable trouble.


I have touched on this topic before.
Global Surplus Capital August 9, 2012
The Cause of the Crash of 2008 and the New Business Project August 5, 2012

Monday, September 4, 2017

Financial Thinking and Bitcoin Valuation

There is a fabulous article by Andy Kessler, "The Bitcoin Valuation Bubble," that came out in the August 28, 2017 Wall Street Journal.  Within this article you get two views of valuations for Bitcoin.  In one case Mr. Kessler models Bitcoin as a competitor to credit cards and he derives a value of $100 per Bitcoin.  Then he models Bitcoin as a software service and, using Salesforce as a comparison, he derives a value of $300 per Bitcoin.  Today a Bitcoin is selling for $4485.51, which is why Bitcoin looks like a bubble.

I recommend Mr. Kessler's article, also available on his own website, as an exposition on financial thinking.  I had to think hard on whether to refer to his thoughts as financial analysis, economic analysis, or accounting valuation.  I think it is best described as financial analysis.  Mr. Kessler started as an electrical engineer, which might be why his analysis seems so logical.

We in America need to think more astutely about economics and finance.  Mr. Kessler's article is a great starting point.


Tuesday, July 4, 2017

Is the Press Our Enemy?

The last time I watched CBS news, which was a while ago, they advertised as providing "Real News."  That was a response to the charge of "fake news" leveled at the press.  But the news media has not responded to charge of being the enemy of the American people. That was a flamboyant charge, but it is reasonable to ask, "Does the American press harm America?"

Walter Lippmann

Walter Lippmann is considered the foremost journalist in American history.  He was a Harvard graduate, a confidant of President Woodrow Wilson, and Mr. Lippmann said the press is a threat.

Walter Lippmann in his book Liberty and the News (1920) said "the health of society depends upon the quality of the information it receives," [p. 47] Lippmann spoke against activist journalists and advocacy journalism, saying, "the reporter ... ought not be serving a cause, no matter how good. In his professional activity it is no business of his whose ox is gored." [p.52] Then he says, "there is need for disinterested reporting ." [p.52]

As far back as 1920 people were frustrated by the poor quality of news reporting:  "There is everywhere an increasingly angry disillusionment about the press, a growing sense of being baffled and misled," [p. 45] Walter Lippmann said.

Later, in 1922, Mr. Lippmann expanded his thoughts in what is perhaps his most important book, Public Opinion, in which he describes journalism as a weakness in our democracy, the role of the press in either serving our democracy or threatening our democracy, and then he presents a plan for a professional and objective news corps.  It is a shame the profession of journalism has undergone "professional collapse," to quote the journalist Sidney Blumenthal, a former aide to Bill Clinton and advisor to Hillary Clinton.  Many believe the U.S. news media is untrustworthy, people on the left and people on the right.

Noam Chomsky 

Conservatives complain steadily about liberal bias in the press, but the far left also notices the press is untrustworthy. Dr. Noam Chomsky, a stalwart of the left, excoriated the press in a book, Manufacturing Consent, published 15 years ago. There is an excellent documentary with a similar title, Manufacturing Consent: Noam Chomsky and the Media.  I recommend the movie; it is good and it is inexpensive.  I suggest you watch it up to the intermission.  The second half of the movie is a paean to Noam Chomsky.  ("Manufacturing consent" is a term created by Walter Lippmann.) This documentary, Manufacturing Consent, is also available for free -- full length -- on YouTube.

Election Manipulation

Perhaps the greatest attack the media has launched against our democracy was their manipulation of the 2016 Presidential election.  In the first Democratic Party debate the moderator Anderson Cooper would not let candidate Senator Jim Webb speak.  Senator Webb could see the Democratic primary election was rigged towards Hillary Clinton and he dropped out.  In my opinion, Senator Webb might have been an excellent candidate for the Democrats, but the media boxed him out of the Democratic primary.

The media bent over backwards to help Donald Trump do well in the Republican primaries, thinking the Billy Bush interview they saved  to ambush Donald Trump as the Republican Candidate for president would destroy his chances in the Presidential election.  The Billy Bush interview gambit did not work, and Donald Trump is now President of the United States.

We should have had an election free of media manipulation.  The Democratic Party and the liberal media are running an anti-Russian propaganda campaign, but the real manipulation in the U.S. election was by the liberal media and the Democratic National Committee, as proved by Wikileaks.  They are furious, however, that their manipulations backfired.  Walter Lippmann worried about the press manufacturing consent, but the media manipulation during the 2016 election exceeded anything Walter Lippmann might have imagined, and anything any foreign power might ever hope to pull off.

What Can We Do?

To maintain our republic I think we should quit watching network news.  I believe the most trustworthy newspaper in America is the Wall Street Journal.  I suggest a subscription to the Wall Street Journal.  And I suggest looking at the print edition in addition to the online edition.  The front pages  of all national newspapers are scrubbed by management so it approaches propaganda.  Lippmann wrote, "... the most destructive form of untruth is sophistry and propaganda by those whose profession it is to report the news.  The news columns are common carriers.  When those who control them arrogate to themselves the right to determine by their own consciences what shall be reported and for what purpose, democracy is unworkable." [pp. 5-6]

Then Walter Lippmann goes on to say, "In so far as those who purvey the news make of their own beliefs a higher law than truth , they are attacking the foundations of our constitutional system." [p. 7]

The inner pages of the print edition will have articles that can impact your life or help you understand the world.  It is in the inner pages where you can find the truth.  But you must read the print edition to get past the thought police who control what you see on your iPhone or iPad.

Noam Chomsky said, "Citizens of the democratic societies should undertake a course of intellectual self defense to protect themselves from manipulation and control, and to lay the basis for meaningful democracy.

We need to communicate among ourselves with blogs and social media.  Our political meetings bring speakers to us.  Documentaries are informative.  Sometimes the foreign press is more accurate than the American press, but there is bias there as well.  I feel like Diogenes with his lamp, looking for an honest man.  We need to read to be informed, but we need to understand the bias within our reading material. James Fallows, a writer for The Atlantic magazine,  was President Jimmy Carter's speech writer, so we can understand that our impression of The Atlantic magazine as a left leaning periodical is an accurate assessment. Publications, editors, and writers all come with their own baggage, so we have to sift through the muddy waters of bias, looking for the gold nuggets of meaningful truth.

Contacting our Representatives

Since public universities have journalism programs, it seems right that our state legislature mandates the teaching of Lippmann's concerns.  When you pay the salary, you can demand quality work.  The Society of Professional Journalists does not mention "objectivity" in their Code of Ethics.  They mention fairness, but fairness might mean something different to a Communist than to you or me. If our taxes educate journalists, they should learn that objectivity and truthfulness are important, that journalism is not advocacy.  I have included below a sample email that I have sent to my Texas legislators.  If the press is a threat to our democracy, we should do something about it.


Walter Lippmann warned us about a manipulative press almost a hundred years ago.  He wrote two books on this topic, not just one book.  Fifteen years ago Noam Chomsky warned us that the press is untrustworthy, singling out the New York Times for its misdeeds.  Calling the press an enemy is a bit flamboyant, but there is no doubt the media is a threat to our democracy.


Copyright © 2017 Robert Canright all rights reserved

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This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.

References:  The Walter Lippmann quotes are from Liberty and the News by Walter Lippmann, New Jersey: Princeton University Press, 2008. ISBN 978-0-691-13480-2.  I recommend this edition and this book.  It is less than 100 pages long, including an informative Forward and a thoughtful Afterword.
The Noam Chomsky quote is from  Necessary Illusions: Thought Control in Democratic Societies, as reported here.
The best book on journalism I have seen is  The Elements of Journalism: What Newspeople Should Know and the Public Should Expect by Bill Kovach & Tom Rosenstiel.  The authors mention Lippmann a fair bit, but convey a superficial view of Lippmann's work.

Sample email to your representative:
Dear Representative,
Please consider legislation to mandate the teaching of objective reporting at Journalism programs at state funded colleges.  Additionally, the threat to our democracy by biased reporting, as discussed by Walter Lippmann in his book "Liberty and the News," needs to be made clear to journalism students.
Thank you
Your Name