You sure are willing to confuse "should" with "actually is", here. And it's only your definition of "should" at that, not the actual legal definition of say, the responsibility of a fiduciary, which is to generate the best risk-adjusted return possible for the client's money, given the best *available* information.
Corporations are legally people. Try and untangle that one (we should, I agree, but...). Their officers and workers are protected by law from most penalties and suits - else no one would ever start one, it's risky.
Companies often vanish because of what's on a sheet of paper, if that paper is their balance sheet. It's astonishing that when credit froze up, companies you'd think were the most profitable rackets on earth all needed emergency funds just to make payroll
that week. Verizon, McDonalds, Disney...General Electric...very good "investments in solid companies" that almost went poof. Like Bear Stearns and Lehman brothers actually did in one day. The Fed had to be sued to release that information, and the list was 10's of thousands of "solid" companies, many redacted for "national security reasons".
The day before they went, Lehman's bonds (debt to investors) was trading at 98c on the dollar. The next day, it was down to 2c on the dollar. Go see that Kyle Bass video and learn some things.
As your ECB guy Junckers says - when times are tough, governments and central bankers must tell lies - or be accused of being pro-cyclical and making things worse.
The biggest issue here was the sale of something a lot like insurance by companies not able to pay out if a whole bunch of payout was required. This was legal, which shouldn't have been (there's that word again, but should and are mean really different things). This insurance - bundled with very risky investments - allowed those to be rated highly (low risk) (the ratings agencies are a big part of the failures here - and our government and yours has initiated legal action against two ratings agencies, but not for over-rating these bad investments, but for
downgrading the governments themselves, which richly deserved the downgrades. S&P and Egan Jones are the "culprits" in telling the truth here. Get it yet?), and sold to people who had rules about taking risks despite the risk on the underlying instrument.
For the companies selling this insurance, it seemed like "money for nothing" as they didn't expect say, home prices to ever go down en masse. But they did. Classic "blowoff top" any trader knows well. There are two keys here, CDO's (collateralized debt obligations) which are essentially groups of mortgages or other debt bundled and changed into interest paying bonds, and CDS, or Credit Default Swaps, which are the aforementioned "insurance" but due to a missing law about this - not regulated as insurance, and in fact, a lot of both of those weren't traded openly, but "man to man" with no records or transparency - which is still the case. Attempts to change that law have been voted down by people owned by the banking system - your and our politicians. Our so-called financial reform after that lobbyist-driven watering down is actually a relaxation on what existed already! They're so corrupt it's crazy and no longer even attempting to hide it. Unlike say, life insurance, I can even buy a CDS on some risk I don't even own. Think what your life expectancy would be if everyone could buy life insurance on you without your knowledge or consent...
So, here's the setup. Banks can sell a mortgage to a CDO bundler within minutes of making the loan, and at a guaranteed profit. This shouldn't be possible FWIW, but it's possible and legal. So, the bank no longer has any reason whatever to care if it'll ever be paid - they got the money and ran already. Of course, a lot of people who shouldn't have took out loans, since the banks no longer cared, and people always are greedy and shortsighted. Had there been loan standards enforced, the rest of the system would probably have been fine - so who is to blame here? There seems plenty go around, from the greedy investors who wanted as much of this high paying low risk investment as they could get, to the banks facilitating it - to people taking loans there was no way they could pay back. I know one such person who did it on purpose, figuring it was their once chance to have a nice life for a couple years, and it was better than being dirt poor their entire life.
Some one misused the definition of "diversification" to set up a system where one of these CDO bonds was actually tiny bits of thousands of mortgages - not all of even one, for "safety". Since people used to always pay for their homes (and could because they wouldn't be granted a loan otherwise) these were considered safer than safe - AAA ratings. Solid investments by all the rules, in other words. Some that were only AA rated, had CDS added to them to "guarantee" they'd pay off even if there were some defaults. The investment houses had no obvious reason to not sell insurance against something that never happened - they didn't realize that "too good to be true" always is, like I do. Further, once you match up a CDO with a CDS (which makes it more expensive), it's STILL the highest paying lowest risk thing out there - and people with fiduciary responsibilities would be fired - or jailed - if they refused to consider investing clients money in the best stuff out there - or they'd simply lose all their clients. It's a competitive world. And no one can surely predict the future, so there will always be times you lose money in investing (in nominal terms, much less real value terms). You can't say that shouldn't be possible, it's the very nature of capitalism. Which is bad, but not as bad as everything else ever tried.
Part of the lowering of our loan standards was mandated by the government, with the idea of giving our poorer minorities a better shot at home ownership - a stake in the system seemed a good idea at the time (and still is, but it has to be earned to be real). Most of this mandated loosening was done by our "left" though there's plenty blame to go around - when it comes to corruption and regulatory capture, there's no political party loyalty. Once fannie and freddie started making chancy loans, everyone else had to, or lose market share - letting one guy (in this case government agencies) do it means everyone else MUST do it or just go out of business, which of course, results in malfeasance suits for corporate leaders that can pierce the "corporate veil" - and no one wants to go to jail or lose a billion dollar suit just because they refused to pick what was universally considered to be low hanging fruit.
Now, I'm using home mortgages as the example, but this extended to all sorts of other loans.
Further, once you've got something "good" and further have "insured it" it becomes usable as collateral - thereby creating the possibility of leverage. (eg you can then borrow the money you spent to buy thing 1 and use it to buy a thing2, and wash/rinse/repeat until for every dollar you've put in, you've bought 100 worth of investments) Leverage gained this way and others has resulted in banks "assets" being many times the size of the GDP of the country they are in - too big to bail, in other words. Iceland was smart, with trillions of dollars of liabilities they let the banks fail, and now are doing better than almost anyone else after a short period of being pariahs in the business for not bailing out their banks (which by extension meant bailing out other banks theres owed money to). Luckily, that didn't take down the system like dominoes, quite, but you're paying for it one way or another, as am I.
The stealth bailout going on now works like this. Banks can borrow from the central banks for zilch (here, it's .25%) if they have "collateral". Often, this collateral is either something like a CDO and a CDS to insure it, or sovereign debt of the country, which obviously pays a lot more. That's called a carry trade (or a circle jerk, depending on your mood). In fact, LTRO was precisely that, and we're doing the same here all the time under no particular name. When our banks decided not to always buy our gov debt, but instead speculate in commodities (far higher return), to keep our country from ending up like Greece or Spain etc (the PIIGS), our fed started buying our bonds directly - in effect, printing money to buy our government debt, which is why the interest rates are so low here on that. If allowed to rise even one percent, our entire tax intake wouldn't even cover the INTEREST on all that, much less any government spending whatever - it's that bad. Our government cooks the books to make our debt/gdp ratio look like it's only 100% or so, but it's actually about 10 times worse if you cost in our social security and medical benefits and other "unfunded mandates" - our govenment long ago spent every penny of our social security "fund" and medicare tax on other stuff, they are just filing cabinets full of IOU's - and that's not even counted against our debt to get to 100% of GDP. And that's just the federal government. California has more debt than some european countries - all by itself, and has only about 10% of the money they should have in their pension funds on top of that.
You're naive about "clawing back the stolen money". In many cases, it never actually existed - and it wasn't stolen, it was just misspent. You need to study up on money as debt. Through the above loopholes, money was effectively created out of thin air by these practices - and never having been more than bits, when it went poof, it was gone as if it never was. There's nothing to recover. When everyone's home prices went up, value (fake?) was created, effectively creating money. When they went down - money went poof. Many trillions. It's not there to recover. That doesn't mean I disagree that many should go to jail, but the problem is "For what?" as
they did nothing illegal - just immoral and stupid, at worst. Best laws money could buy ensured that! And we still have those laws worldwide. Part of the problem here is this is all well above the authority of any one government. The US has made a number of dodgy practices illegal -
so now, they are all done in London instead. The UK refused to sign on to quite a few reforms a few months back, calling "sovereignty", so all the wrong-doing simply moved there (which is where a lot of it began, there are few or no innocents among governments here).
What I meant about insurance going away is that it simply wasn't able to be paid out when the insured-against event happened. AIG was the poster child for that one - but there are quite a lot more. They're a huge "regular" insurance company, who got into the CDS selling business at the prodding of Goldman Sachs, and thought they knew their business. But since this wasn't insurance as the law defines it, but a new "financial innovation" they didn't have to have backing assets enough to guarantee their ability to pay out. They "should" have known better, being in the business, that there can be cascading failures that are "fat risk tails". But they needed the money...it went to costs, payrolls and so on - there's nothing there to claw back. As it turns out, Goldman and their customers were prime buyers of this, so when the gov wrote a huge bailout check to AIG, they pretty much just signed it over to Goldman (who are one of the firms that made most of the money that was made from the crash). Just doing gods work (their own words) those guys.
Without getting into to much detail (have you read my other writings in this forum?) there are a ton of "solid companies" that would go out of business overnight if they lost their insurance CDS's or the ability to have them covering their own debt. No one would loan them money without it, and they need money to survive - rolling debt endlessly is a worldwide phenomenon, and there are very few companies that can actually survive on what their cash flow is - which shouldn't be, but is what is. So everyone investing in
anything gets hosed, as one going down drags down the others, and you have a non-virtuous spiral down.
Which hurts everyone who works for a living, for starters, as they either lose their own jobs, or lose the incomes they generated off people who used to have jobs, so they go out of business too. You see this in countries with high unemployment already - it's a vicious circle. A consumer facing company depends on people having jobs to buy their stuff. When enough people lose their jobs, that outfit lays people off, as they don't need them to handle the reduced production demands. Then there are even fewer people to create demand,,,, and down we all go, innocent or not. Right or wrong, it's how the system is set up and how things really work these days - and there's truly no obvious way to change it all over (it'd have to be simultaneous and worldwide, which feeds into that new world order crap, which, if achieved, would result in a world dictatorship even if initially got going for good reasons; competition among governments is GOOD that way).
Don't you think if there was a simple solution, that someone would be shouting it from the rooftops? Or charging a huge consulting fee to reveal it? As you dig deep into the real data and details, you find there really isn't one here. We've already spent the money on junk and it's gone even if it was real money in the first place, and by now, it's not even in the hands of the guys we spent it with - there's nothing to get back, the world as a whole is worse than bankrupt. You can't claw back money from someone who doesn't have it!
No, your house wouldn't evaporate, but society required to keep it there - from power, fire companies, police, defense, farming, and such, yup, that can go poof, and without that, your home is not worth much - you can starve to death in it just fine, but not live.
I'm far better off than most in this, as I owned my home debt free, obviously didn't lose my skills and tools, and so on. But if I needed a job, it'd be pretty tough right now. Our unemployment is stated as about 9%, but to get that "good" a number, they are only counting as unemployed those who are collecting government unemployment checks - and calling about 50 million people who have "left the workforce" as not part of that. The real number is more like 20% if you take informal surveys.
No, fund managers cannot see where all the money they invest goes. If they did that, they'd be running those companies themselves (who won't reveal that info anyway, and they don't even
know what they'll spend it on until they do), and that's not their job. The whole system
is and must be based on trust that the borrower will use the borrowed money wisely (which is what all investment really is - loans given to people in the hope they'll grow enough to pay it back with interest).
But I can't answer a bunch of questions all based on your idea of "should" here - because it's purely not how things actually are, for better or worse. I can only work with reality as best as I can figure it out. And while we might largely agree on what "should" means - we don't completely agree, as we are coming from a different perspective and different specializations here - with different knowledge levels of how it actually is out there - and why it got to be this way.
The reality is that everyone's pension is invested in something. The reality is that pension funds are all allowed to
not have all the money they need to meet commitments if they claim that it will be there in time to pay, via investing what they did put in wisely and profitably. And most government and private pensions have less than 25% of the money they "should" have in them now, even assuming as they do that they can make an 8% return - which used to be true in some sense, though not in "real value after inflation" which of course every government falsely reports, ours among the very best at telling lies about this.
They have to, they have a vested interest in reporting low inflation, as the truth would get them all the boot - and they'd have to pay cost of living allowances much higher than they do, so they openly cook the books.
If your company had to fully vest your pension on day one - hey, you'd not have a job, they couldn't afford that and you'd never be hired at all. In fact, the huge costs for disability and unemployment insurance, due the day you hire someone here in the US, are the reason that I've never hired anyone as an employee, but only as contractors providing a "service" - and just gave them that money instead of giving it to the state. All were happy with this, except the state, of course.
Example, our BLS uses "hedonics" to compute some of the costs of living. If computers stay the same price, but get twice as fast, they count that as going to half the price, and it cancels inflation elsewhere. As does the value of housing going down - while the things people actually buy, from food to fuel to medical care, are skyrocketing. When they do, they assume you'll eat chicken instead of beef, or start taking a bike to work instead of driving - or stop getting as sick and needing care. And they are open about this total BS. Even though it's quite obvious I can't buy last year's computer at half the price at all - it's not on the shelves, and it's cost isn't just the CPU anyway...or that the cost of living has become the cost of survival. Did you suddenly get more money to spend on food because your house lost value? Not exactly. But that's how they roll the numbers. Open fraud by the government.
No pension fund or other investor can go get the money back, you
must be kidding. If they invest in the wrong stuff, that's the breaks - they lose the money fair and square, and after all, when they invest shrewdly, they keep all the windfall - that's the game, and it's fair. There is no reward without risk, period. Why should there be? That's not fair to
anyone. In fact, trying to reduce risk is what actually caused this - the buying and selling of "insurance" which was supposed to be done only by "the sophisticated and solid" - there's that "should" again. And while you can push risk around, you can't eliminate it, which was how they fooled themselves. There's always risk. Starting a company is risky, it might not succeed - and that might not be anyone's "fault" at all. You need money to do it and that money, no matter where it came from, is at risk. If you fail, and it was your own money, well, that's the breaks. If you borrowed money via the markets - there's no recourse by them to get it back, and assuming you've failed, you don't have it to take back anyway, it went to supplies, paychecks, rents, and so on - and all those guys are completely innocent (we assume) in your failure. This is why the markets exist. Many if not all banks won't lend money to a startup, it's risky. But some people are willing to take a large risk to get a large reward, so they'll buy your stock, or your bonds - and if you fail, that's it for that money, it's been dispersed into the system to largely honest innocent people for services rendered long since. How can that be clawed back? What if someone tried to claw back your last years worth of paychecks because of something dodgy your employer did? You wouldn't have it anyway, right? It's gone - you paid rent, or gave it to the grocer for food you've eaten and so on.
Now, we've created a situation where there IS reward without risk, if you're Too Big To Fail (TBTF). IF you make a ton of money - you keep it. If you lose enough to go out of business, the taxpayers make you whole. That's what occupy wall street would be about if they realized it. Privatize the profits, socialize the losses! However, there's still risk - if you keep doing that everyone becomes poor, even the TBTF.
Printing money doesn't create wealth - you have to create goods and services for that. Yet, here we are.
Start here:
viewtopic.php?f=51&t=328&start=60#p3453And work your way to the present - you'll have much more argument ammo if you do.
Kyle tells it as it is. There's some good dry humor there if you're "in the know". And, that was done last year - everything he's predicted has come to pass...almost. In a slow motion train wreck, it's hard to predict when each individual car jumps off the track, but that's what I attempt to do as a trader, with fair success. I'm doing 20-40% a year gains on my trading, without any of this fancy derivitave stuff or options or leverage, just the old buy low, sell high (or the reverse - short high and then buy low). Nearly all my trades go about a week, more or less, a few for a few months, and a few for a couple of hours. There is zero safe out there to "invest in" right now, and for the foreseeable future. I just play the waves of emotion, the wiggles on it all, usually for a few percent gain per trade on the amount traded.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.