The actual capitalism and the future of it ?

[skag]

I'm not very good in economics and finance, so i'm not really able to build a real good opinion.

Lately, for me, the world is going mad.
I thought that from the crisis we would have learned somethings, but it doesn't really seems it's actually the case.

Let's take the example of petroleum industries. I was having a look at a big USA company european-refinery profit. We were speaking here of few billions profit (5billions, which is huge, just for one refinery). therefore, petroleum industry closes jobs anyway, and kick people out.

So the reason is obviously not "we are loosing money", but it's a "we can make more money".

The difference is very important. Before, companies were kicking people out because otherwise it would fail. Now it's not even more the case, they kick people out for the maximisation of profit.

As I am enough aware of the industrial sector, I can tell you that economy of industries was most of all based on production, amount of unity sold, cost of production etc. That was a real competition, where best manufacturers, researchers & developpers, producer, marketing politics etc were winning the economical contest against the other industries

Now, economy of industries is only based on the auctioneer and the dividend, once more the maximisation of profit. And that is, in my opinion very very bad.
Capitalism, was based on the growth of countries with the economical development and evolution of the companies. Where the stronger, and the most efficiently one was winning. This competition, like Darwin competition, was leading to a development of the countries thanks to this real companies-contest.

This doctrine is far from being the actual doctrine, where even a regression that leads to a maximisation of profit is made. Closing a refinery, that makes anyway profit, because selling it to someone else would represent even more money is a "regression" in itself, doctrinally speaking.

We just saw where an economic overheat can lead. Banks created virtual money, the subprimes. Banks were using, and investing this "virtual money" created with the money they gave to poor people that was not able to in fact give money back. As in fact this money was not "physically" existing, but was only existing on sheets, one day ... kaboom, actual crisis.
This strategy would have never been adopted few years ago, as it's a thousand times too much risked and "financial-ethically" very very bad, investing and using money you do not have in HUGE amounts is per definition "financial-ethically" one of the worst thing a bank can do. We are speaking about huge amonts obviously. Banks always made that (investing money of the customer debts), but never in a so big scale.
But what is important now, is once more the immediate maximisation of profit, and the creation of the best balance sheet for the satisfaction of the auctioneer, and for having the greatest dividend possible.

Nowadays, while we are getting a little bit our head out of the , we are doing exactly the same things.

IMO, behaving like that for other years, + petroleum collapse + energy problem + development of huge countries (that develop in a bad manner) will lead to a catastroph


I'm then asking your opinion. And if you are very good in economics and finance, to explain a little better what's going on.

[Thorn777]

Speculation ahead:

I certainly agree.

Sometimes its good to look back and see how we did things in the past. Its certainly not sustainable, this way of today, and if you haven't felt the pain already, you will damn sure feel it in the future.

But people in the west are to divided nationally and internationally, so I'm afraid we will only get what we deserve, and that is a chosen few running with the globe, supported by our elected rule.

[Legionem Insanis]

I've been reading "A Colosal Failure of Common Sense" on the collapse of the Lehman Brothers firm.
A very good read and I highly recommend it.
The reckless spending of the top management and how they completely dismissed the warnings
from the troops on the front line is utterly shocking.

More accountability and transparency is needed for sure.

[Viking Prince]

Your topic is fairly broad, so I am not going to write a textbook in response. I will try and take a stab at a few points. I hope that this will help.

I'm not very good in economics and finance, so i'm not really able to build a real good opinion.

Lately, for me, the world is going mad.
I thought that from the crisis we would have learned somethings, but it doesn't really seems it's actually the case.

Spoiler Alert, click show to read: 

Let's take the example of petroleum industries. I was having a look at a big USA company european-refinery profit. We were speaking here of few billions profit (5billions, which is huge, just for one refinery). therefore, petroleum industry closes jobs anyway, and kick people out.

So the reason is obviously not "we are loosing money", but it's a "we can make more money".

The difference is very important. Before, companies were kicking people out because otherwise it would fail. Now it's not even more the case, they kick people out for the maximisation of profit.

As I am enough aware of the industrial sector, I can tell you that economy of industries was most of all based on production, amount of unity sold, cost of production etc. That was a real competition, where best manufacturers, researchers & developpers, producer, marketing politics etc were winning the economical contest against the other industries

Now, economy of industries is only based on the auctioneer and the dividend, once more the maximisation of profit. And that is, in my opinion very very bad.
Capitalism, was based on the growth of countries with the economical development and evolution of the companies. Where the stronger, and the most efficiently one was winning. This competition, like Darwin competition, was leading to a development of the countries thanks to this real companies-contest.

This doctrine is far from being the actual doctrine, where even a regression that leads to a maximisation of profit is made. Closing a refinery, that makes anyway profit, because selling it to someone else would represent even more money is a "regression" in itself, doctrinally speaking.

We just saw where an economic overheat can lead. Banks created virtual money, the subprimes. Banks were using, and investing this "virtual money" created with the money they gave to poor people that was not able to in fact give money back. As in fact this money was not "physically" existing, but was only existing on sheets, one day ... kaboom, actual crisis.
This strategy would have never been adopted few years ago, as it's a thousand times too much risked and "financial-ethically" very very bad, investing and using money you do not have in HUGE amounts is per definition "financial-ethically" one of the worst thing a bank can do. We are speaking about huge amonts obviously. Banks always made that (investing money of the customer debts), but never in a so big scale.
But what is important now, is once more the immediate maximisation of profit, and the creation of the best balance sheet for the satisfaction of the auctioneer, and for having the greatest dividend possible.

Nowadays, while we are getting a little bit our head out of the , we are doing exactly the same things.

IMO, behaving like that for other years, + petroleum collapse + energy problem + development of huge countries (that develop in a bad manner) will lead to a catastroph


I'm then asking your opinion. And if you are very good in economics and finance, to explain a little better what's going on.

This can indeed be confusing since there are so many factors at play. Remember that a company is not making money in isolation, but in competition with other firms. A process that was making money last year may not when a new process or method is introduced.

For example -- an oil refinery can adopt a new valve that has a longer life span before failure. This means less upkeep and thus fewer labor hours in repair and replacement which translates into less down time. The result is fewer labor hours. But such an improvment is not in isolation since the other refineries will also adopt the new valve improvements.

A company that does not adopt will find itself keeping labor costs where they were. Since refining is somewhat a commodity priced business where the price charged to perform an operation is competitive -- higher relative operation costs translate into lower profit and perhaps even run at a loss. Eventually the refinery would thus be forced to shut down. The effect is that all the companies are indeed making a profit that remain, but each and every company attempts to improve or will eventually drop out of the business. The effect is higher productivity and usually fewer jobs attached to each refinery.

I began work in the 1970's when the personal computer was coming into businesses. This meant that companies were able to shed huge numbers within acounting, engineering, personel, treasury, etc. The company may be a manufacturing company, but jobs were still being shed in the "information" side of things. Smaller firms even began to outsource many jobs since the improved productivity meant that the paper processing was not efficient to perform in house. Key punch operators, typists, input coding clerks were becoming obsolete as these tasks became automated. Now the companies were making money, but still jobs were being cut as the tasks become automated.

You made some comments about the banking problems. It is not clear what the real causes were, but there are some culprit issues. Transparency is one issue. The newer instruments were hard to understand. In some cases people thought they understood the deriviative componants, but they were in error and then the investments lost liquidity. This loss of liquidity was a key. There was and is an increasing demand for liquid and safe investment opportunities to park resources until needed for riskier and less liquid investments (factories, mines, etc.). There was also a need to This meant a bidding up of safe investments -- an asset bubble.

An interesting comment on this:

Spoiler Alert, click show to read: 

Pierre-Olivier Gourinchas, University of California at Berkeley:
How did subprime bust trigger a financial tsunami? “Three factors ensured that the collapse in what was a minor segment of the U.S. financial markets turned into a global financial conflagration. First, profound structural changes in the banking system, with the emergence of the ‘originate-and-distribute’ model, coupled with an increased securitization of credit instruments, led to a decline in lending standards and a general inability to re-price complex financial products when liquidity dried-up. This lowered dramatically confidence between financial intermediaries, severely disrupting interbank markets and the flow of credit. Second, banks relied increasingly on short-term financing –either directly or through off-balance-sheet vehicles— exposing themselves to significant funding risk. Lastly, increased financial globalization and the strong appetite of foreign –especially European– financial institutions for U.S. structured credit instruments quickly propagated the crisis to Europe and the rest of the World.”
Was Fed monetary policy a cause? Neither “U.S. monetary policy in the years leading to the crisis” or “the growing external deficits of the United States, the so called ‘Global Imbalances’” explains the crisis. “The fundamental disequilibrium at the root of the crisis, both in the U.S. and the global economy lies elsewhere: in the imbalance between the global demand for safe and liquid debt instruments –both within and outside the U.S.—and the limited supply of this asset.” Read full remarks.

[blackliberator]

Capitalism is European exploitation of trade,labor, and resources worldwide.

[Viking Prince]

Capitalism is European exploitation of trade,labor, and resources worldwide.

Capitalism =/= exploitation in a negative sense. It is also not a term owned by Europeans. But then you were probably trolling and not wishing to actualy put up more than a one liner to explain your position.

[Norman Bum]

Capitalism =/= exploitation in a negative sense. It is also not a term owned by Europeans. But then you were probably trolling and not wishing to actualy put up more than a one liner to explain your position.

You must realize, that the current state of Capitalism in the U.S. + Europe would not exist today were it not for the exploitation of cheap resources and labor from other "less fortunate" countries. Do some studying on corporations and their international involvements with South America, Africa, and China. Is it ethical for a corporation to do things in other countries which are illegal in its home country?

You can start with Coffee Beans production, or if you want to get really into it, Natural-Water Privatization.

[Viking Prince]

You must realize, that the current state of Capitalism in the U.S. + Europe would not exist today were it not for the exploitation of cheap resources and labor from other "less fortunate" countries. Do some studying on corporations and their international involvements with South America, Africa, and China. Is it ethical for a corporation to do things in other countries which are illegal in its home country?

You can start with Coffee Beans production, or if you want to get really into it, Natural-Water Privatization.

Yes, let's start on fair trade coffee production and how this is helping families in Central America to educate their children. Are you aware that fair trade coffee does not use child labor? This means that family plots cannot be used unless the children are not 'exploited' with parttime work while also attending school. To still utilize the farm -- workers need to be hired which lowers the family income. this often means the children then go to work fulltime in other areas rather than attend school since the first goal of any parent is to feed, clothe and house the family. Education can come only when the bellies are full. I could go into this much more, but that is enough for now.

All manufacturing and all business for that matter seeks out the lowest cost inputs. This is not a model exclusive to the Europeans (+USA as you put it). It was not a model exclusive to the industrial revolution based in Europe and North America either. It certainly predates capitalism. Capitalism is the use of capital accumulation (machines, assembly lines, mass production, etc.) through the use of joint stock corporations and other business arangments. This allowed the masses to afford products and services that originally were only available to the wealthy.

[Snoopy]

The biggest problem with capitalism is that it comes in loads of forms (Since the fall of the Soviet Union, every country in the world is at least more Capitalist then they are Communist), and a lot of them have major flaws, leading to people saying that capitalism is bad. The really odd thing is that there really aren't many examples of especially capitalist countries around, since governments like to stick their hands in the corporate pie.

Things could go two main ways: Either people assume Capitalism has "failed" and go farther left (like the Nazis and New Dealers did in the 30s), or they assume they need to loosen control of the market (in which case we get to see whether laissez-faire capitalism actually works)

[Koelkastmagneet]

Capitalism is European exploitation of trade,labor, and resources worldwide.

I thought I wouldn't have to deal with these kind of ridiculous statements anymore after I figured out that trying to debate something on youtube is futile.

[Big War Bird]

Capitalism is European exploitation of trade,labor, and resources worldwide.

To which I say, "no duh," and "tis how it should be."

[Big War Bird]

Let's take the example of petroleum industries. I was having a look at a big USA company european-refinery profit. We were speaking here of few billions profit (5billions, which is huge, just for one refinery). therefore, petroleum industry closes jobs anyway, and kick people out.

On what basis do you think 5 billion is a huge profit? What is the profit margin? Do you know what a profit margin is?

[roy34543]

Well first, one of the main ideas of capitalism is that wealth doesnt really disappear, So get it into your head that if a refinery fires people it doesnt matter, because they will be rehired somewhere else assuming the industry they work in is still profitable (if its not, they may have to go to retrainining)
Its inefficiency that does matter, that means if I hire 500 people and make them not work at all , thats a "real" waste.
To be honest though if a petroleum factory is firing people recently its more probably because it seems that "cutting back" is in vogue these days (for everyone, not just companies)

As to another part of your post, It seems to be complaining about banks giving mortgages practically for free, Im not sure its entirely fair to blame banks for this though, because it was government legaslated in order to give poor people homes (in theory)
Or are you complaining about "quantitive easing" (Which is a government euphanism for creating money from thin air) because thats a whole other story.

As to the oil/energy collapse, well we have a good 90 years of oil left in theory, probably more like 40-50 in practice, but still we can only hope its enough.

Sorry if I couldnt answer some of your questions properly or didnt understand what you mean, its somewhat difficult to understand your post.

[k995]

Well first, one of the main ideas of capitalism is that wealth doesnt really disappear, So get it into your head that if a refinery fires people it doesnt matter, because they will be rehired somewhere else assuming the industry they work in is still profitable (if its not, they may have to go to retrainining)

Thats quit naive, the other people just have to work harder is the more likely result.

And a lot of the current wealth is created trough financiel schemes, and are more based on confidence then reality. Once that confidence dries up wealth is destroyed.

As to another part of your post, It seems to be complaining about banks giving mortgages practically for free, Im not sure its entirely fair to blame banks for this though, because it was government legaslated in order to give poor people homes (in theory)
Or are you complaining about "quantitive easing" (Which is a government euphanism for creating money from thin air) because thats a whole other story.

You are of course forgetting those bank have been lobying and have enough people in gouv to be able to influence it. Add to that that bank plainy broke the law by giving loans to people who never qualified even with the relaxed regulations.

Yes gouv is also to blame, as are the people taking out the loans, but the banks are the most responsable for this mess.

[Denny Crane!]

I've read some hugely interesting anti capitalist literature of late and yet none of it blames the industries exclusively. That would be foolish, the problems result from an inherently unstable system of inflation and contraction. Can you blame the companies who exist within an unstable system for reactionary shortsighted actions that are influenced in part by bad management, nepotism and corruption within that system and in part by the forces within the system. Yes of course you can, just don't forget the environment in which they exist and that there are weakness in it.

[roy34543]

Thats quit naive, the other people just have to work harder is the more likely result.

And a lot of the current wealth is created trough financiel schemes, and are more based on confidence then reality. Once that confidence dries up wealth is destroyed

Naive? thats the theory. I guess it will be different for most individuals, but thats the rough idea of where it should be going.
And as for wealth being created based on confidence, well thats true for paper-wealth, but were also at one of the most productive times ever for material wealth (As people say, in almost every house in the US theres at least one car and TV, and in europe its probably similar, and in most other rich countries too) Paper wealth has been based on condifence ever since countries left the gold standard. The upside is that we have an efficient and mobile system of wealth transfers and we can build buissnesses quickly, the downside is that the wealth can be volatile.
it has its ups and downs.

You are of course forgetting those bank have been lobying and have enough people in gouv to be able to influence it. Add to that that bank plainy broke the law by giving loans to people who never qualified even with the relaxed regulations.

Some banks might have lobbies, not all of them. Theyre not a single entity or even a very representitive one of the whole (like say, Unions)
And its not breaking the law to give loans to people who dont qualify, Its just an immensely risky idea. Its the banks money, theyre a private entity, they can lend it to whoever they want to.

Yes gouv is also to blame, as are the people taking out the loans, but the banks are the most responsable for this mess.

Well theres fannie mea and fannie mac , anything they have their hands in is directly to the blame of th egovernment most likely, and the people taking the loans are always the cause, the banks are complicit at best, we would have a lot less problems if some people didnt act so stupid, but thats another story.
The banks are maybe irresponsible, but the whole reason for the recession is complex, I wouldnt really put the blame squarely on the banks.

[k995]

Naive? thats the theory. I guess it will be different for most individuals, but thats the rough idea of where it should be going.

Thats like saying communism in theory works too. Everybody making the same everybody doing what he wants for the greater good.

And as for wealth being created based on confidence, well thats true for paper-wealth, but were also at one of the most productive times ever for material wealth (As people say, in almost every house in the US theres at least one car and TV, and in europe its probably similar, and in most other rich countries too) Paper wealth has been based on condifence ever since countries left the gold standard. The upside is that we have an efficient and mobile system of wealth transfers and we can build buissnesses quickly, the downside is that the wealth can be volatile.
it has its ups and downs.

Of course this means the whole system can come tumbling down.

Some banks might have lobbies, not all of them. Theyre not a single entity or even a very representitive one of the whole (like say, Unions)

You are very naive.

http://www.opensecrets.org/pres08/select.php?ind=F03

Try banks and investors or hedge funds. Just in the preliminary they spend the most money of all sectors.

How many people of goldman sachs or other banks have top positions

...

Anyone thinking banks and other such funds dont have a large vested intrest is gouv, is naieve or ignorant.

And its not breaking the law to give loans to people who dont qualify, Its just an immensely risky idea. Its the banks money, theyre a private entity, they can lend it to whoever they want to.

It is, the USa has rules who can get a loan to make sure people who cant afford it get them. They lessened those rules and the banks eventually ignored them or docktered the applications.