Inside Job - the movie and the real world

Today I saw a good film, named Inside Job. It is a documentary film and it describes some evidences about the last economic phenomenons - known like a financial crisis - and there is a large point of view about these phenomenons.

I’m agreed with the facts, i.e. I think these were the events, but I strongly disagree with the author’s view. Let me explain why.

My principles are:

Firstly, in this world any gain has a range of risks. Gain without risks doesn’t exist. Even the state bonds have a risk attached, those of the state bankruptcy. More risks, more gains.

Secondly, if I’m not interested in having a better life, then nobody could oblige me to have a better life.

I already demonstrated why the political decisions are not in favor of the majority of the people and this is the steady state of the current society.

The movie briefly explained how the derivatives work and what is the role of CDO’s, CDS’s, and how the financial crisis began and it spread all over the world.

The main dilemma is: should or not states regulate all financial transactions? Is the deregulation a source of hazard in the free market? Could it generate a lot of corruption? Were states wrong in their actions during the last decade?

I have one answer for all these questions: NO.

For example, if I bought a good/ service and I did not care about the attached risks or I did not care about the quality or another features, then I will have big chances to lose my money. After the risks have materialised and I’ve lost my money, to claim that states were wrong because I was very stupid in my decisions it is a very communist mindset. In fact, all consequences of my decisions belong to me, not to the state. It is very simple, it is like the gravity, if you like.

Was something wrong in selling of all those called derivatives? NO. I think if somebody proposes me to buy a piece of paper for $1,000 because it has a very nice form and my neighbour has already bought one, so there is a market for pieces of paper, it all depends on my decision. Therefore, all consequences belong to me, even if I gain a lot of money or I lose it.

In the current global world, the results of the decisions taken by individuals have given legitimacy for using the public money for saving too-big-to-fail banks.

However, the financial crisis was a very normal consequence of decisions of the majority and, as you see, the majority has taken all the consequences and paid for them.

What will be in the future?

The majority doesn’t have a real view of what was happened, and for the short term socialists will gain more political capital. In the long term, new leaders of the world will become only those smart guys who have a lot of money. And this is very normal and very fair.

Concentrate on being positive at all times

The real winners in life cultivate optimism. They have the ability to manufacture their own happiness and drive. No matter what the situation, the successful diva is the chick who will always find a way to put an optimistic spin on it. She knows failure only as an opportunity to grow and learn a new lesson from life.

People who think optimistically see the world as a place packed with endless opportunities, especially in trying times.

Fiscal policy & free market

The fiscal policy is that component of the political intrusion in the real market that caused and will cause many turmoils. The main reason of a bad fiscal management is a political refusal to undertake only those measures that are beneficial for the economy. Let me explain.

The things are more simpler. The public budget has four sources of finance: taxation, borrowings, selling public assets and printing money. First two are more used. Taxation has an immediate effect and borrowings have a delayed effect.

Also, it has two main categories of expenditures: investments and consumption. Only investment expenditures could create value added. For example, a current investment in infrastructure could be a good basis for future economic developments.

Therefore, if incomes are bigger than outcomes, this is a surplus. In the reverse situation, there is a deficit. The efficiency of the public budget depends on the real rate of return for expenditures. More current expenditures without a good return, less money for tomorrow and more debt.

Well, in nowadays the government didn’t cut sufficiently consumption expenditures and it is struggling with a sharply increase in debts. The focus of politicians is on short term - just only before the next elections. And, of course, a balance between current revenues from taxation and social benefits/ salaries for public sector is political very hard to be attained because that could mean a loss in the electors votes.

An increase in taxation, even temporary, is the worst decision that could be taken ever. Why?

Firstly, because it is a pro-cyclical measure and it will increase the public deficits and the rate of unemployment. Secondly, the debt burden will being more expensive.

The good news is, in the current political conditions, only a big failure could determine a real reform. If this will be the case, the benefits on long term will be greater then costs.

PS: Why political decisions are fair? The answer is in the previous article.

An apparent paradox

The paradox is: as a form of communities leadership there is the decision of majority (the dictatorship of majority), and on the other hand, the average IQ of the majority is usually below to the entire population.

The intelligence is the only one that could creates value added and innovation. It is clear that the majority cannot produce enough resources so that they can maintain their current living standards.

The intelligence is grouped in businesses which create enough value added to give them a big power to negotiate, even with states.

There is an apparent paradox - between the dictatorship of the stupid majority and the smart minority - because few political decisions are really in favor of the majority. So this is the normality, the steady state of the society.

In other words, a large mass with a lower rate of IQ cannot govern a smart minority as long as it is dependent on the value added created by that minority, and politicians can only favor the interests of the minority.

In any society most of the benefits from political decisions are direct related with the average IQ of the majority.