US youth needs class, not generational, war


Cross-post from Naked Capitalism is a riposte to Stanley Druckenmiller’s advice that the young declare war on baby-boomers.

I pointedly avoid New York Times columnist Thomas Friedman; you can glean everything you need to know about him from the official Thomas Friedman Op/Ed Generator or some of Matt Taibbi’s lambastings (see herehere, and here for examples).

So without attempting to wade too deeply into the goo of Friedman’s latest column, let’s limit ourselves to the the fact that Friedman is running PR for former Soros Fund Management lead investor Stan Druckenmiller. The column also serves to illustrate how Serious People like Friedman were ready to jump on the deficit cutting bandwagon once the shutdown/debt ceiling drama was put to rest for a bit.

Druckemiller’s latest cause is to foment generational warfare. He’s going to college campuses and telling students that things suck (which they know full well) and they need to go after Boomers who are gonna get too much in entitlements if things don’t change. Now from what I can infer, the presentation is sophisticated, since Druckenmiller throws other big Federal spending items into the mix, like defense. But the fact that he depicts tax rates as a problem is a major tell.

Curiously, for someone who says he’s a friend of Druckenmiller, Friedman is remarkably circumspect about Druckemniller’s political history. Druckemniller has not only been one of two or three biggest Republican donors for the better part of two decades, he’s been firmly aligned with the aggressive “shrink government/cut taxes” effort, back to being a strong ally of Newt Gingrich. For Druckemmiller to point at Boomers and act as if he’s part of the solution, as opposed to one of the long-standing proponents of tax cuts, which among other things were one of the big causes in the rise in government debt levels under George Bush, is remarkably disingenuous.

Similarly, Friedman mentions in passing Druckenmiller’s successful bet against subprime as a reason to take him seriously. As we discussed in ECONNED at length, the supbrime shorts, most importantly Magnetar, were what turned what would have been a S&L level housing crisis into a global financial meltdown. The use of credit default swaps on subprime mortgages created exposures that have been estimated at 5-6 times that of the value of mortgages. The synthetic side bets were a multiple of the real economy borrowings. As we explained in 2010:

The current number one non-fiction best seller, Michael Lewis’ The Big Short: Inside the Doomsday Machine…Lewis’ tale is neat, plausible to a mass market audience fed a steady diet of subprime markets stupidity and greed, and incomplete in critical ways that render his account fundamentally misleading….

Lewis repeatedly and incorrectly charges that no one on Wall Street, save his merry band of shorts, understood what was happening, because everyone blindly relied on ratings and failed to make their own assessment. By implication, the entire mortgage industry ignored the housing bubble and the frothiness of the subprime market. This is simply false (although with Bernanke and the persistently cheerleading US business media largely missing this story at the time, the “whocouldanode” defense is treated more seriously than it should be). Many people in the credit markets were aware that the risks were increasing in the subprime and residential real estate markets. Every mortgage industry conference during this period had panels on this topic, every credit committee considered it throughout 2005-07…

Lewis completely ignores the most vital player, the one who was on the other side of the subprime short bets. The notion that “it’s a CDO” is daunting enough to stop the non-financial reader in his tracks. The author is remarkably uncurious about who the end investors were for CDOs.

Listen up. Who really was on the other side of the shorts’ trades is the important question. And the section in which Lewis finally gets around to that (more than halfway thought the book, reader sympathies to his key actors now firmly established) hides the fundamental flaw in his narrative in plain sight:

…whenever Eisman sets out to explain the origins of the subprime crisis, he’d start with his dinner with Wing Chau [a CDO manager]. Only now did he fully appreciate the central importance of the so-called mezzanine CDO – the CDO composed mainly of BBB rated subprime mortgage bonds – and its synthetic component, the CDO composed entirely of credit default swaps on triple-B rated subprime mortgage bonds. “You have to understand this,” he says. “This was the engine of doom.”…

All by himself, Chau generated vast demand for the riskiest slices of subprime mortgage bonds. This demand had led inevitably to the supply of new home loans, as material for the bonds.

Yves here. It wasn’t all by himself, as we will see soon:

….the sorts of investors who handed money to Wing Chau, and thus bought the triple A rated traches of CDOs – German banks, Taiwanese insurance companies, Japanese farmer’s unions, European pension funds, and in general, entities more or less required to invest in AAA rated bonds -did precisely so because they were supposed to be foolproof, impervious to losses, and unnecessary to monitor of think about very much.

Yves again. Note that these are the international equivalent of widows and orphans, but because they are exotic, presumably elicit less sympathy. But as we will discuss soon, by this point in the tale, January 2007, that list of prototypical chumps was out of date, which has further implications for the real significance of this trade.

Starting in mid-2005, when the creation of a standardized credit default swap on mortgages made it feasible to take large subprime short positions, a system quickly developed that overrode the normal checks and balances of the market and allowed the unscrupulous to 1. Profit from making bad loans, and 2. Force the creation of more bad loans, which would both increase their profits and make it more likely that their bet would be successful…

The subprime market would have died a much earlier, much less costly death absent the actions of the men Lewis celebrates. They didn’t simply keep the market going well past its sell-by date, they were the moving force behind otherwise inexplicable, superheated demand for the very worst sort of mortgages. His “heroes” were aggressively trying to find toxic waste to wager against. But unlike short positions in heavily-regulated equity markets, these wagers, the credit default swaps, had real economy effects. The use of CDOs masked the nature of their wagers and brought unwitting BBB protection sellers to the table, which lowered CDS spreads (and as in corporate bond markets, CDS dictate, via arbitrage, interest rates for bond issues) and pushed down the interest rates on the cash bonds backed by those same loans, which in turn made it perversely attractive for lenders to generate mortgages with the worst characteristics. And it isn’t surprising that weak-credit borrowers were enticed by this once in a lifetime “opportunity”.

Back to the current post. So why are the young people Druckeniller trying to incite against their elders in such terrible shape? There’s an immediate factor and a longer-term trend. The immediate one is the aftermath of the global financial crisis, which has produced disastrously high levels of unemployment for the young, particularly college graduates. And Druckemmiller doesn’t bear some vague general guilt as a member of the financial services industry that emerged more powerful as a result of this event; he actually bears considerably more responsibility than most by having taken out huge bets against subprime that drove demand to the worst sort of mortgages and had way too many fragile, levered, critically positioned financial institutions on the wrong side of the trade. For instance, on of the parties on the other side of Druckenmiller-style bets were monolines. When they went seen as being at risk, the auction rate securities market froze because monolines were also guarantors of municipal bonds, and everyone knew this short-term muni paper would fall in value as the monolines were downgraded. The result was that interest rates jumped to the parties that had issued this paper, helping to wreck the budgets of cities and transit authorities. That’s only one example of the many sorts of collateral damage that resulted from the remarkably lucrative subprime short bet.

And if you widen the frame, this country has been through a protracted and successful campaign to revise the social contract to favor capital over labor. You can see its success in the accelerating rise in income inequality, the lack of economic mobility, and the huge corporate profit share. Warren Buffet claimed that a level of over 6% of GDP wasn’t sustainable; depending on how you measure it, it’s currently at over 10%, some peg it as high as 12%. That rise in corporate profit share has come at the expense of employment and wage growth. The policy shift started under Carter, but the old model of having companies share the benefit of productivity gains and basing overall prosperity on wage growth was abandoned in the Reagan/Thatcher era for one that favored asset price growth and used rising levels of consumer leverage to mask stagnant wages. Druckenmiller was a huge backer of the politicians that promoted those programs. Yet he has the temerity to try to turn young people against ordinary folks in their 50s and 60s, most of which who never had any political influence, when he was a major sponsor of the very policies that have helped impoverish American youth. Perhaps Druckenmiller is making such an aggressive and public disinformation tour because he knows that if young people were to turn on the old, he’d be one of the most deserving targets for their vengeance.


Houses and Holes
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  1. “. . . this country has been through a protracted and successful campaign to revise the social contract to favor capital over labor.”

    It’s not just “this country” (i.e. the US). It is the entire world.

    Taking the longer view, we can see that the modern era (from the mid 18th century to the late 20th century) was an historical anomaly.

    The modern ideals of “individual rights” and “all people being born equal” were just that: modern!! They arose out of very specific technological and economic conditions.

    Those were conditions in which an evolutionary advantage (and that includes economic and military advantage) could be obtained by training individuals to very high levels of skill. Having invested such a vast amount in individuals, Rulers “valued” those individuals. Conversely, those individuals had significant bargaining power relative to those who would rule them.

    The dependence of Rulers on their highly trained subjects rose to unprecedented levels in the 20th century. Rulers were utterly dependent on large numbers of subjects trained to operate the highly complex – but not completely automated – machinery of the modern industrial state.

    It was in response to that very specific – and historically anomalous – set of conditions that the quintessential 20th century ideals of Equality and Democracy arose.

    And the people of the most technologically advanced countries benefited the most.

    But there was never any universal law to say that such ideals would carry on when the technological and economic environment changed. That was the naive “progressivism” of the 20th century: the naive view that things were somehow destined to go on getting better and better for everyone.

    We are now entering a new era – also unprecedented in human history – in which automation and robotics are making the vast bulk of the human race redundant. Not just unemployed, but “redundant” – not needed any more by their Rulers.

    And already we are seeing the effects, both economic and political. While the wealthy minority become ever richer, median wages in developed countries like the US have remained unchanged for more than a decade. These are the people who are simply no longer needed.

    In the political arena, the 20th century ideals are being wound back. Some might trace the beginnings of this reversal to May 1979, and to what historians might one day call “The Great Conservative Counter-Revolution” which began in Britain and rapidly spread worldwide.

    Couched originally in terms of promoting “economic efficiency” this revolution quickly transformed into a platform of undisguised elitism and privilege. The hallmark policy of “privatisation” – originally trumpeted as promoting competition and efficiency – quickly became nothing more than a pretext for awarding private monopolies and tax farming concessions (like road tolls) to favourites of the government.

    It is a reversion to seventeenth century economic policy.

    Meanwhile individuals in the most “advanced” countries are told they must work harder and longer – all in the name of being “competitive” – but they’re not paid any more. The most powerful players are protected by government “bail-outs” – paid for by taxpayers – to ensure they never suffer any losses.

    The gains go to the rich and the Mates of the Rulers . . . just as they have throughout most of human history. That has been the “natural” order of things for most of human history.

    And all the while the living environment for workers in the developed countries is being degraded by overcrowding: more and more new workers are brought in to the developed countries to ensure that wages are kept down and to maximise profits. Rulers and the plutocrats, tucked away in their walled villas bear none of the social costs . . .

    . . . just as they have throughout most of human history. Historically, that has been the “natural” order of things.

    Had true Democracy ever been able to take root, it might have been possible for the subjects to keep the Rulers under control. But it never did. The system of purely elective government (“government-by-politician” which – in a triumph of Orwellian language – we are required to call “representative liberal democracy”) has degenerated into a duopoly of self-serving politicians working hand-in-glove with their plutocrat Mates.

    Psychological experiments have shown time and again that homo sapiens is an irrationally optimistic species. Over-optimism is a winning evolutionary trait for the species, although not for individual members of the species. For the species as a whole it is advantageous for the vast majority of individuals to beat themselves to death trying to compete in the irrational belief that they will be the winners of the competition.

    For a time it did indeed appear that most individuals could “win”. It is now beginning to appear that that was nothing but a brief historical anomaly.

    But – being an irrationally over-optimistic species – most homo sapiens will find this thought too dreadful to contemplate.

    And even I – being an irrationally over-optimistic human being – still cling to the hope that this will prove to be self-defeating prophesy.

    • SM,

      nice writing… I agree with you that the ruling class always wants to subdue and control the objects… from the pre-historical, the feudal times and till now.

      The only saving grace in our time is that the people can get educated and be more informed so that it is not that easy for the ruling class to subdue and control. One of the common symptom of failed states in Africa or Asia in the past is the poor/non-existant level of government spending in public education i.e. it is easier to fool the ignorant people than the educated one.

      • Deo,

        I once worked in Market Research, not the Rate this from 1 to 10…, Strongly Agree – Disagree… type of questionnaire building marketing. Rather, the type more bent toward pscho-analsys, neural activity mapping, brain compartments, consious / sub-consious reaction to words, sentences, colours, images, brands, products,…

        It is quite expensive technology and techniques, affordable by those with heaps of money. Such services are used by big companies, and (don’t say conspiracy theorist please!) political organisations.

        It is a very interesting field, if you ever want to read about it, or see a few YouTube docos on it. Look into Walter Lipmann, Edward Bernays, Goebbels, you’ll find more as you go.

        You’ll quickly know what Socrates meant when he stated, in a Democracy, it is the wise that rule, not the majority. The wise being the aristocracy, upper class, rich, ruling class.

        I’d say the ruling class always has one (or two) over the rest.

        …it is easier to fool the ignorant people than the educated one.

        Solely from my experience, it has been the educated that have tried very hard to convince me of, Shapeshifting Reptilian Ruling Class, Aliens, UFOs, Illuminati, Omni-potent Freemasonry, …etc.

        Just in case you think the educated are smart, Pilots, Dentists, Doctors, Highcourt Judges, have been hoodwinked by Real Estate Agents and Financial Advisors.

        Its’ a world were you just don’t know.

    • Stephan, it is well written and true with one correction:

      At the beginning of the last century an utopian alternative appeared – Soviet Union. It presence together with the half of European countries under its rules, had huge impact on social ideas and human rights fights in the West. The collapse of this utopian system killed the only competitor, although utopian, to the developed capitalist system. This fact alone is enough to cause the greatest changes we are experiencing in our societies. There is no other alternative anymore and the pure essence of our economic system based on ever growing capital and profits is what we get today. Democracy has always been an illusion.

      • Democracy is an illusion, but consumption is real. You can always rely on the great majority’s proclivity to increase their own consumption. A political system need function only to maintain the freedom of people to consume, and the accordant ability of capital and producers to nurture and meet that demand. Everything else is window dressing. The illusion of powerfulness is maintained by avoiding examination of the externalities our consumption choices create. But as a collective we have to pay the true price of things eventually – we can only argue and cajole and rationalise and squirm our way out of paying that price for so long. Someone always has to pay.

        Charles M Schulz, “A Charlie Brown Christmas”

    • Yet the standard of living in the west still remains stubbornly high – our lives are luxuries of freedom and opportunity by any historical standard.

      Robotics most likely will increase the relative inequality of people, the dream of equality (it ever was just a dream), thus will still remain as the most pronounced limit on human happiness.

      And there’s the thing, western democracy has provided ever greater living standards but the malaise of facing our own limitations as to success, and the challenges of envy and relative position, has never been addressed at a social level.

      An alternative take is that robotics and the new age of finessed automation promises ever greater freedom for individuals, but to take this freedom every person must stare down the inequality to those that most profit from the changes. In essence we must do what the wealthy west has struggled for centuries now to do and that is hold our self esteem in the face of highly visible inequality.

      Happiness is just a philosophic adjustment away…

  2. Yes Druckemmiller was indeed a big part of the GFC, but then what prominent participant of finance wasn’t? To try to discredit the message, a message that was already well and truly out there, by questioning but one of the messengers motivation is both disingenuous and lazy (although the rest of the analysis on income vs capital is a better attempt).

    No doubt Druckemmiller is out there buying bonds in companies who will outright benefit from cutting boomer entitlements, but that doesn’t change the fact that they are excessive and gouging in their own right.

    Agree that there should also be a parallel discussion going on as to what sort of future we want to move towards, and addressing the imbalance in growth of income of Capital vs Labour, which is indeed the root cause of many of the problems our current economic set up is suffering from.

    Unfortunately the inescapable fact is that the leaders, such as Drukenmiller, Thatcher and Regan, emerged under the boomers watch. They did so by appealing to the values and principals that boomers took to as their own. You can’t have one conversation about seeking a resolution to the rent seeking parasitic behaviour that so describes the pursuit of many of the economic policies rolled out under the boomer watch, without also having a simulations discussion on how the costs of resolving or unwinding these insidious effects on the economy, and who will pay for them.

    Those who would argue that the boomers are blameless and would prefer that the specific fault of where we are now should be broken down and categorised against a specific group, say the neo-conservative grouping of white males born in the summer of 1952, who all once drove Chevy’s, are the same group who are happy to turn around and then claim collective credit for all the ‘cultural’ achievements that the boomers also achieved. You can’t take the good without also accepting the bad.

    Assigning blame and then moving on is an important part of recognising and resolving a problem, otherwise how are we collectively going to learn from our mistakes? What ‘buy in’ are those who have most benefited from the rent seeking policies going to be compelled to tolerate when they don’t even recognise there actions to have been part of the problem?

    This has been half the problem with the GFC – there was no official investigation and assignment of blame, very few persecutions, and most of the people whose policies and actions helped bring about the conditions to make the GFC possible, are still in positions of influence and directing economic outcomes.

    Once blame is assigned, the next step is to deal with it maturity and assign the costs both in terms of the culpability of those involved and their capacity to pay. Unfortunately if your a boomer, both boxes will collectively be ticked against your generation – the problems arose under your watch, and at the end of the day, that is where all the money now resides.

    • Bullshit.

      This guy is one of a clique who made most of, if not all of his mates fabulously wealthy, and the rest of the world commensurately poorer.

      He is then pointing at ordinary mums and dads of the boomer generation and saying: “Look! Over there! A great big distracting thing!” in hopes of creating a nice little war between generations from which he can extract further profit to the detriment of those same generations.

      Try not to be so blinkered in your hate for your parents’ generation. If they did something to you personally, deal with them direct.

      • Try not to be so blinkered with the view that your generation is as pure and the driven snow, and nothing but rainbows and moon drops were the only seeds your generation ever sowed.

        To my mind and many others, a large percentage of the blame for where we are today collectively lies with the boomer generation and the values and attitudes they elected to impart into the economy.

        Now as I said, apportioning blame is an important part of dispute resolution and ultimately how the costs of rectifying the situation should be divided.

        But to misquote Shakespeare “The man doth protest too much, methinks” whenever the questioning of apportioning blame and ergo who should bare the costs arises, up you pop, saying:

        “It wasn’t me or all my fellow innocent boomer cohorts who got us here.”

        At best you appear to lack the ability to perceive that a large percentage of your generations wealth wasn’t derived from hard work, but from the policies of confiscating from the future.

        At worst you can appreciate that yes, the policies rolled out were geared to your benefit at the expense of everyone else, but since you worked hard within the system that was in operation at the time (and which you had control over), you are neve-the-less entitled to them, and then start throwing about nice catch phrases that like politics of envy and confiscation.

        Yes it may be a bit like blaming the Germans for WW2, not every German was a Nazi, but at one point the majority of Germans elected them. The difference between many of the attitude of the boomers (yourself included) and the Germans, is that at least they’ve got the good grace to be embarrassed about it. Nothing but chutzpah and denial from yourself though.

      • Steps in elder/spouse/partner abuse:

        1. Put up a partly plausible reason why they might be at fault for something. Criticise. Check.

        2. Ignore anything positive they may have done. Check.

        3. Abuse or punish them for what they ‘deserve’. Check.

        4. If called on it, tell everybody that you are applying ‘tough love’ or were doing it ‘for the good of everyone’. Check.

        There’s a pattern in what you are doing, and it is as obvious as hell to anyone who has had anything to do with workplace bullying.

        Just to make the point. You claim that I am saying the boomers are as white as the driven snow. I say no such thing. However, such verballing by abusers is standard practice.

        The next giveaway is that this thread is about looking at those who can actually by document and recorded conversation be linked to the GFC and many of the problems faced by XYers. However, you just wave that airily aside and pounce back on Boomers and with what as evidence? Documents of a conspiracy? Records showing that groups of your generation’s parents having meetings designed to screw you all over?

        That waving away of present discussion involving documentary evidence in favour of your attack on your parents using smoke and mirrors is pretty clear evidence of what is going on in your mind.

        LOL. Transparent as.

        It certainly goes nowhere to addressing the problems of high housing costs.

      • So being unable to silence me with your reason your trying to beat me with a label? Pathetic.

        Funny how when I post a banal opinion on some other unrelated topic 5 seconds later you pop up with a borderline offensive comment designed to provoke a reaction – you do realise internet stalking is a form of bullying as well?

        Ah no, but it is different for you, you’ve had experience at work place bullying (as the victim or perpetrator is not clearly evident), and are dedicated to rooting out injustices wherever you find them – ironic when you consider much of our discourse as been centred around whether the boomer demographic is responsible for any injustices.

        Now at the 11th hour you announce that you don’t believe the boomers are as pure as the driven snow, after previously working yourself into a lather any suggestion to the contrary (and you say there is a pattern to my postings?)

        Is this all just haggle hour for you? “I never said the boomers are as pure as the driven snow, there is a 2% culpability factor here, so any impingement on my lifestyle should be limited to no more than 2%”

        Yes, yes I am putting words into your mouth this time, but hey, why not and actually come out and say just how much blame lies with the boomers and consequently just how much of a reduction in your living standards you would be prepared to accept in order to right, say, return our over inflated property market to say 3-4 times median salary? (feel free to include the documentation and referencing in your own reply that you demand of my opinion in order to render it credible).

        This is after all the ultimate end point as to discussions of rectifying our grotesquely priced housing market, who bares the cost and to what degree.

  3. The real war is against bankers and politicians who are serving the interests of criminals in the finance sector.

    • The real war is against the global ruler – the financial capital, which sucks the real economy blood until it would leave it lifeless.

    • Agree. H&H has missed this:

      “….And if you widen the frame, this country has been through a protracted and successful campaign to revise the social contract to favor capital over labor. You can see its success in the accelerating rise in income inequality, the lack of economic mobility, and the huge corporate profit share. Warren Buffet claimed that a level of over 6% of GDP wasn’t sustainable; depending on how you measure it, it’s currently at over 10%, some peg it as high as 12%.

      That rise in corporate profit share has come at the expense of employment and wage growth. The policy shift started under Carter, but the old model of having companies share the benefit of productivity gains and basing overall prosperity on wage growth was abandoned in the Reagan/Thatcher era….”

      This confuses productive capital and the employers of labour, with the finance, property and other rentier sectors.

      We need analyses that differentiate between the two. Henry George more than a century ago lamented that the political representatives of “labour” spent all their time attacking the employers of labour when in fact the mutual interest of them both was to guard against the rentier sector – which no-one was doing.

      I am not convinced of which political actors bear the most responsibility for the current “rentiers paradise” economy in most countries; no-one anywhere except NZ is making any noises about ending the out-of-control property rentier racket, for example. I see no evidence that parties of the Left/Labour anywhere in the world have any useful solutions to offer, or even that any of them understand the problems. They are even greater suckers for bailouts and “enrich the bankers” policies and related moral hazards, than the Tories.

  4. SM. You are correct and thank you for a well written simplification of the situation.
    For my 5c worth I say the next innovation is the use of money as an engineering tool.
    The knowledge base has advanced over the last decade, with the internet now allowing those who desire to monitor, can witness the flows of money and the applications of money.
    In a crude example, by economic sanctions of one nation to cause pain to another, to a fine example of high speed share trading and dark pools, where machines are directly, invisibly, fleecing those who trade money.
    Society has advanced in the last 3 decades from those who need to labour to generate money, to those who can directly use or trade money to make money.
    This latter method of generation of wealth directly appeals to the core animal instinct in a human (to be the alpha animal) and as a witness to the recent corruption enquiry is reputed to have stated,”tell me the shortest distance to the money”.
    Those who have graduated to the money changing industries clearly advance by directly applying knowledge and skills better that those in the service industries or mining industries for example, where some of your income is derived from just turning up to work.
    Unfortunately the younger generation has not learnt this, and even if they could see the shortest distance to the money, they would not have the knowledge, network and discipline to get access to the “gang who runs this money changing facility”
    As BT points out, the wise, aristocracy, keep this knowledge, network and discipline to themselves. (even Socrates 3000 years ago twigged to that)
    As a illustration, how many of the general public peruse this site, and learn from the knowledge discussed.
    The general public are their own worst enemy.
    It is not easy to get on to and stay on the ladder out of the mire, and that is how the aristocracy wish it. Me too.WW

  5. What an interesting theory about blame for the GFC lying with the CDO-short brigade.

    Come on; aren’t the stupid global investors who were on the “long” side, really responsible? The extent to which the “house prices can’t fall” mania still grips Aussies even now, leaves me most unsympathetic with anyone who ends up taken to the cleaners by smarter people.

    And the stupid politicians who allowed massive amounts of bailout money to go into bankrupt finance companies to meet obligations to these counterparties?

    I was fuming on blogs at the time, that this should not happen. But do not underestimate the easy meat that a lefty politician is to the “systemic risk” argument from the guilty men – it suits their ideological belief that rampant free markets will destroy the world, and the voters need to be taught a lesson by way of being put on the hook for it.

    And the finance troughers laugh all the way to the Cayman Islands.

    I was also fuming on blogs, that “systemic risk” was always a bluff, and that the finance sector wide boys jolly well knew that the CORRECT solution would have involved a LOT of pain for THEM. There is probably no limit to the extent of the systemic rip-offs they will devise again and again unless they get a bit of “toughlove”.

    • +1 PB. The right backing their mates for a bailout – ok that’s not new in history, but the stupidity of the left in getting conned by the finance machine means that they really deserve to be consigned to the dustbin.

  6. The other day flaws (and others) suggested the battle lines were between the productive economy and the rent seekers, not between boomers and younger generations.

    This seems to make sense but it is wrong – the problem is that boomers are voting and determining policy as a block that entrenches the economic divide between generations. If it was just rich v poor, or rentseeker v producer, we would not have politicians favouring a block over the other.

    It is boomer v the rest. Some boomers are not part of the problem, but the problem is that most are.

  7. Goodness me! You sound like a bunch of politicians trying to make the other side look like idiots. Both sides are right.

    There are two problems that are decimating government balance sheets:
    1. Record high ratio of corporate profits to GDP, or the inverse of the same problem, Corporates are getting very good at making lots of money and paying very little tax
    2. An unceasing increase in the percentage of government spending to support the elderly cohort.

    You can make the problem an little better by raising taxes on Corporates but that in no way means you don’t have to do something major about 2.

    I can’t see any solution to 2, that doesn’t involve increasing retirement ages and reducing the period when the elderly get free health care.

    My concern is that many democracies with an ever increasing elderly cohort will just not be able to sell any solution to their electorates, and that bankruptcy and nasty political breakdown with parties of the extreme right or left taking power.

    Southern Europe is where I see this playing out first, as their young flee to the Eurozone core and to the Euro-periphery (UK, Skandi) with the Europe’s free movement of people.

    • Yes, while life expectancy has gone up steadily since the introduction of the pension, the qualifying age has not.

      A strategy for increasing pensionable age is pretty much essential, and could probably go to seventy at least.

      The problem is likely to be with people who have had manual occupations all their lives. Even with the retirement age of 65, many of them are simply unable to function. However, someone who has worked at clerical, managerial or professional work all their lives should certainly have to wait till seventy or past that for a pension.

      Similarly, the age for qualification for taking out super should also go up. And the whole lump sum tax free take out should go as well. Why not revert to the pre-costello system whereby there was a discount for money upon which tax was already paid in full, and a 15% discount on tax to account for the 15% input tax. It wasn’t that hard or unfair.

  8. H&H
    I am not sure after rading your piece that you outline any valid reason why the younger generations should not be encouraged to ‘take charge’ . Attacking SD is not the point.
    Unfunded liabilities and rapid growth in ageing costs is.