What In The Heck is Jim Rogers Smoking!
Jim Rogers recommends:
"The way to solve this problem is to let people go bankrupt," Rogers said.
"Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years."
Is this man insane? Here is why Jim Rogers in my opinion is talking garbage.
His theory is that in a free market economy the strong survive and the weak collapse. Fair enough, no arguments there. But there is a really big problem in his thinking.
Look at the car industry. Right now there is quite a bit of suffering going on. Now imagine one of the car makers were to go bankrupt. I don’t care which one, as it could be Toyota for all I know. The point is that one of them goes bankrupt, what happens? Well, the people working for the bankrupt company have problems, the suppliers have problems and there are some innocent bystanders that have problems.
Though with the collapse of the company room is made for competitors to scoop up business, create jobs and create a stronger car eco-system. This is the free market and what Jim is promoting. I agree with this completely.
But there is a serious flaw in his thinking. Imagine for the moment that instead of a car maker going bankrupt, the steel producers hit hard times. Remember there are only a dozen steel producers on this planet. Imagine that all steel producers have problems and with Jim’s attitude half should go bankrupt. What then? What would be the ramifications of that on our economy? It would be chaos! Sheer chaos!
It would imply an economic collapse because our economy relies on steel. I bet where you are sitting and reading this blog entry you could point out at least a dozen products that rely on steel. If you say, "hey I have plastic and it does not need steel" I reply, "how do you think that plastic was moulded? Steel moulds!"
The financial industry is like the steel industry in that it is a core part of our economy. And thus saying that the free market should take care of it all is like saying, "hey let’s stop using steel until we figure out who is strong and should survive." Those companies that consumer steel, which is basically the entire economy can’t sit around and ask everybody to go on vacation. Those companies have to keep moving and keep producing.
Thus Jim Roger’s assertion that we should let the industry figure itself out is ludicrous since what are the dependent companies supposed to do in the mean time? Play canasta? Drink lemonade and sit on the veranda while watching the sun set?
Of course one could raise the argument on why we are in this situation to begin with. And why there was not a better regulation. All good discussion points, but right now we need to figure out how to get credit flowing again, or "getting steel to be produced again."
(No Ratings Yet)
Loading ...
When Jim Rogers speaks — you need to shut your young mouth and listen. You’ll be an also ran in a year or two and he’s been banging out phenomenal returns for almost 40 years. Translation, shut up, young punk
Wow, this makes absolutely no sense whatsoever. At least give me a reason why I am wrong.
To say, “oh he did so well and thus I must shut up” is completely ludicrous.
I do respect certain individuals like Warren Buffet because they don’t make their words a cause. For example Warren knows that the US is up shit’s creek. But does he move away? He stays put in America. When the entire world is yelling “fire fire fire” what does Warren do? He invests. Warren is an optimist and somebody who likes the see the brighter side of things.
On the other Jim Rogers is preaching and is CONVINCED of Armageddon. He has literally boxed himself into a corner on pessimisim and negativity. When you do that you don’t know when to stop and turn. That is why I don’t appreciate Jim Roger’s comments.
While Warren gives solutions and tries to help, Jim says, “let it burn to the ground and start over” Gee that is pretty damm helpful (NOT!)
Christian,
You seem to be quite passionate about this and I enjoyed reading your comment and Jim Rogers comments. Both made me think.
When you mentioned that if the steel companies collapsed it could be disastrous for the economy and the world right? Also, that the financial institutions are as important, and possibly more important than the steel companies correct? But if half the steel companies went bankrupt, would that mean that half the steel went away too? Wouldn’t the strong steel manufacturers buy up the bankrupt steel mills and continue to supply the world steel at a higher price? I believe we are seeing similar things in the financial world when the I-banks assets are getting bought up by the remaining players.
Thanks again for making me think.
Keep well.
Matt:
Normally I would say, yes the strong would buy the weak. BUT there are situations where this does not come to pass.
http://www.encyclopedia.chicagohistory.org/pages/653.html
During the 1970s and 1980s, the U.S. steel industry suffered a sudden collapse that threw thousands out of work. U.S. Steel and other American steel companies that still depended upon large numbers of older, inefficient plants failed to withstand the combination of a decline in demand and the rise of international competition in the 1970s. The sudden decline of American steel stunned the employees of mills across the Chicago area. Between 1979 and 1986, about 16,000 Chicago-area steelworkers lost their jobs. Wisconsin Steel closed abruptly in 1980 after attempts at a financial bailout failed. South Works endured a prolonged shutdown before closing its doors in 1992. Inland Steel cut thousands of workers. Republic Steel dismissed half its employees. In 1984, it merged with LTV Steel, which declared bankruptcy in 1986. The closures left many steelworkers without jobs or health care and decimated communities in northwest Indiana and the Calumet district.
Around the 1980’s there was a great upheaval in the raw materials industry. It was not just the steel industry, but also nickel, copper, etc. The reason was that we were in a period of transition from the old smelters to the new smelters. As a result none of the steel makers were strong enough to actually buy the weaker. It was a situation where companies just wanted to survive.
And here is the paradox. There is a need of the product, but the producers on the whole are so unhealthy that they themselves are struggling to survive. The reasons for this predicament is irrelevant. The point is that the sector is dying. As a result there is no buying of the competitor. There is only survival.
The free market in this case did do what Jim Rogers said would happen. BUT only two decades later around the 2000’s. At that time the steel sector was strong enough. But the price is that entire communities were decimated, and they never recovered.
Now take this and apply it to the financial world. The financial institutions are not strong enough to survive on their own. And unlike the steel industry there is a very strong interdependency between competitors. Thus one financial institution that seemed strong could be taken down several notches by a competitor.
If you look at those that took over other financial corporations it was only because the Fed stepped in, in one form or another. Look at what happened to Lehmans. Lehmans was allowed to fail and right after that the entire market plunged. Imagine the carnage that would have resulted if the central banks would have let more banks fail without any safe guards.
The entire system would collapse, just like those steel makers that collapsed. Though unlike the steel makers where a number of communities were affected in this scenario the entire globe would be affected.
So yes in the end the free market will show who is the stronger one. BUT the price would be an entire economy.
We did recover from the Great Depression, but I ask you, do you want to live through it? If you can’t fathom what the Great Depression was like then read John Steinbeck and in particular “The Grapes of Wrath”. John Steinbeck in my opinion is an individual who represents the pysche of the Great Depression and the years thereafter.
Me, I don’t want to live through another Great Depression because it would have pulled down the entire world for decades!
Unlike the first poster who thought I was young. I am not I am 40 years old. But let me tell you something that has stuck in my mind for two decades.
I studied mechanical engineering at Waterloo (grad 92) in their COOP program. For one workterm I lived in a coop, and in that building there was an older gentleman. He seemed to be there for ages. I asked him once why he lived there.
He looked at me and sighed. He said, “I used to be very well off. I used to have several car dealerships, and a couple of companies. Heck I used to drive multiple Cadillacs. And then the recession of 1982 hit. First it was my car dealerships, but then as things deepened my companies were forced to be sold off. And then I was left with nothing.”
The man seemed broken emotionally, and we were entering the 92 recession where 2/3 of my engineering class were without jobs after graduation. Most folks have forgotten how hard these times were on regular people. We have had a very long bull run.
Though if we were to let things be, the 80’s and 90’s would have been a warmup…
Sorry for rambling here, but while a depression would not deeply affect my wife and I, I am truly worried for our society.
Thanks for the ramble. I find when people ramble about things they are moved by, they often say some interesting things.
I too didn’t know you were 40. Nice to hear you’re from Waterloo area. I went to Laurier and graduated a couple years after you (’99).
The recessions you mentioned were tough. I was very fortunate that I missed them, in the sense that I was still in school during and came into the job market during a good time. I remember the difficulty for so many talented grads had in getting jobs during the 90s.
As for your comments on the steel industry and economic impact of a massive recession, you’ve done a lot of research and have some first hand, painful, memories of what occurred. I was thinking more about the topic today and the point I forgot to make you hit home in your rant: if the financial industry/ steel industry were to go under, lose half the players and have the other half buy them out, it would be extremely painful for thousands of people. Football stadiums jam-packed full of people would be out of work because of such a fall-out. That would be devastating to communities.
From a cold economic point of view, I agree with Jim Rogers, that the stronger players would buy out the good assets of the weaker ones, the supply of money or steel would be enough and if not (like oil) they’d simply jack up the price to increase their profits. From a caring, love-thy-neighbour point of view, I think such a loss, tens of thousands of people with no work, would be too devastating.
Keep well and keep writing.
I’m with Jim Rogers on this one, and not because of who he is, but because it’s what I believe.
If people are still buying steel somewhere in the world, than not everyone would go out of business and there would still be supply available. The stronger players would buy assets from the weaker ones - Yes, there would be a lag time when supply would be tight while the economy first starts to recover, but it would catch up with demand… You’re also forgetting something - Why is one company able to survive and another not? It’s cost structure could be lower due to differing labour rates, currency differentials, or it may be a well structured company with less debt and more efficient steel plants… Almost any company can do well when times are good - but when times start to slow, the real test occurs. There is a reason why one company survives and another fails - economics. You can’t cheat economics - you can delay it a while.
I could talk about how past bail-outs didn’t actually help the Great Depression, that the biggest war in the history of man combined with women entering the workforce, followed by a baby boom, brought us out of that one… I could talk about thousands of companies in very important industries that have gone bankrupt and how the world went on… but there is no need. We can agree to disagree.
I did not like the way the bail-out was structured… very little oversight and too much power in one man’s hands to give out money to who he sees fit. Then some of those very same banks that got the bail-out money turned around and gave massive bonuses (average of over $500,000+ per employee, if it had been given out evenly, at just one bank alone! It’s sickening)…
You can’t lend money to people who can’t afford it - it’s just simple math. Not every bank got into these problems… My bank didn’t and it didn’t need a bail-out either. The government is taking away the risk factor and picking winners. No, I don’t want the entire industry to collapse - that would be disastrous - but the bail-out was poorly structured ANYWAYS. The government could have bailed-out homeowners that were in trouble if they were worried about a big collapse - but that would end up helping more than just the Fed Reserve and it’s favourite banks - it would help the investors that bought these sub-prime loans that were already packaged and sold off by the banks… But perhaps people and corporations should be held accountable for their actions?
Like I said, we can agree to disagree; You can’t change my mind on this, just like I suspect we can’t change yours.
[...] Robert in my Jim Rogers and smoke blog entry said. If people are still buying steel somewhere in the world, than not everyone would go out of business and there would still be supply available. The stronger players would buy assets from the weaker ones - Yes, there would be a lag time when supply would be tight while the economy first starts to recover, but it would catch up with demand… You’re also forgetting something - Why is one company able to survive and another not? It’s cost structure could be lower due to differing labour rates, currency differentials, or it may be a well structured company with less debt and more efficient steel plants… Almost any company can do well when times are good - but when times start to slow, the real test occurs. There is a reason why one company survives and another fails - economics. You can’t cheat economics - you can delay it a while. [...]
I wrote a blog entry about this point.
I think there are multiple issues at hand.
Yes accountability is important. BUT as George Soros points out sometimes you have to say, “screw it”
Let’s say that your bank is truly in good shape. Let’s say that we let the other banks fail. How long would your bank that is in good shape remain in good shape? Answer not that long.
Look at the next wave of failures:
1) Goldman Sachs, we would have thought that they would be in good shape.
2) Toyota, we would have thought that they did everything right
3) Nokia…
4) Intel…
These are solid companies with solid earnings and they are starting to hurt. Imagine there were no bail outs? These companies would be hurting even more than they are now.
The real problem we have is that the world is globalized. We are all interconnected. It is an amazing effect of chaos actually.
In previous bubbles there was not as much interconnectedness. But if you follow the markets from the 1600’s onwards and you saw in the “globalization” you saw how the crashes became worse and worse.
I will let you in on something. My wife and I have very little debt, and we are conservative. YET I know that if we both lost our jobs we would be screwed! We might be the “last ones” standing, but we would still fall.
That is the problem…
Not everyone falls and will lose their jobs… the economy doesn’t just stop, ever. You act like everything is going to collapse; Not everything collapses during economic downturns. That said, banking is vital to the way we have structured OUR economy and it is the one industry that would affect EVERY other industry.
Banks need a simple peice of regulation that states something like (you can change the number) you can only get a 30 year fixed mortgage where the monthly payments DO NOT exceed 30% of your family earnings. Banks should be regulated - I consider that to be conservative and prudent. Then, the government wouldn’t have to do bailouts of banks in the future. Banks are a special case since they are the backbone of how the economy operates - Also, we didn’t have any regulations in place to prevent sub-prime/NINJA loans, and so we got ourselves into this mess (we actually had some regulation that PROMOTED sub-prime lending to increase home-ownership rates in America). So, yes, we have to bailout the banks since we let them get into this mess knowing full well that we could never allow them to fail. That doesn’t mean the bailout was structured well or that I was in favour of it - I would have been more likely to be in favour of the bank bailout if it put strict lending legislation on the banks to prevent this mess in the future PLUS more transparecny and oversight on how the bailout was conducted. That was a big issue for me.
I hope we don’t bailout any other industry though!!!! Banks are different since they are the backbone of how our economy functions. Intel, Toyota, Nokia, etc, are NOT vital companies to the entire economy. They are important companies - but anyone of them could collapse and the world wouldn’t end. A competitor would buy their assets or take up their marketshare.
The problem with the economy is it transitioned to a stage where it was financed almost completely on debt. In order for the economy to enjoy “good times” it almost requires consumers to spend debt dollars - not even money they’ve earned - but money they have yet to earn. The good “boom” times were fake - It was nothing more than low interest rates and creative lending that got an entire segment of the population to run out and spend $200,000 to $2 million on homes, all at the same time - all with money they have yet to earn. Any economy that enjoyed that many people spending 30+ years of future earnings was going to see a boom. But it wasn’t real. You know what it did? It masked the problems of competitiveness amongst American corporations… America is no longer competitive and hasn’t been for a LOONNG time… but debt masked the problems, to the point where it is much worse than if it had been dealt with sooner.
Bailouts for other industries (other than banking) won’t ultimately work out. They only delay the inevitable and make it worse in the end. A company MUST be economically competitive and prepared to weather slow-downs in the economy when they come. The real problem with the economy is that America is unsustainable (took on too much debt and hid the problem by spending debt dollars) and many of the corporations aren’t competitive.
Bailouts (of non-banking companies) and stimulus packages adress a symptom, the decreased spending in the economy, rather than on focusing on the real problem. That’s my problem with them. We still haven’t addressed the real problems with the economy.
[...] Robert in my Jim Rogers and smoke blog entry said. If people are still buying steel somewhere in the world, than not everyone would go out of business and there would still be supply available. The stronger players would buy assets from the weaker ones - Yes, there would be a lag time when supply would be tight while the economy first starts to recover, but it would catch up with demand… You’re also forgetting something - Why is one company able to survive and another not? It’s cost structure could be lower due to differing labour rates, currency differentials, or it may be a well structured company with less debt and more efficient steel plants… Almost any company can do well when times are good - but when times start to slow, the real test occurs. There is a reason why one company survives and another fails - economics. You can’t cheat economics - you can delay it a while. [...]
Christian,
Respectfully you really don’t get it. You article is all over the place.
Let me tell you a little story:
Back in the Fall of 2007 when all this trouble was beginning Northern Rock began to look unstable and then it looked like it was going to go broke. As NR began to look like it might collapse many of its depositors withdrew their funds and started putting them in solvent British banks such as Loyd’s TSB, Barclays, and HSBC.
Instead of allowing Northern Rock to fail and liquidating it the British government stepped in and GUARANTEED all of its deposits. So all of the depositors who were fleeing Northern Rock which would have simply been a victim of its own bad business, began getting deposits from all the solvent banks such as HSBC, Barclays, and Loyd’s TSB. The result was that the banks that were doing good business had to pay for the mistakes of the ones doing bad business.
The same story has played out in the United States. When Rogers says that these banks need to fail he isn’t stating his opinion, this isn’t a moral position, it’s a practical position that has been reverberated throughout history.
What is wrong with a recession? What is wrong with some banks that did bad business filling chapter 11 bankruptcy? What is wrong with an auto-maker filling chapter 11bankruptcy?
Did you see the Big 3 going to Washington D.C. hat in hand to request $25 Billion? Their CEOs each flew in BUSINESS JETS that each cost between 20K and 30K, when they could have bought economy tickets for $282 or first class tickets for $880. Instead they wasted close to 90K!!!
The problem here is crony capitalism. Profits are individualized and losses are socialized. We as the taxpayer shouldn’t be subsidizing bad businesses. They should be liquidated and their resources should be reallocated toward more productive pursuits.
Japan tried subsidizing its companies in the 1990s and ended up with zombie corporations and zombie banks. Government BY DEFINITION CANNOT PRODUCT WEALTH, it can only REDISTRIBUTE IT. Let capitalism work, let bad business fail, and stop charging everything to the American taxpayer.
Leave your response!
We're...
Check it Out
Zuuply.com
Get your finance questions answered at Zuuply.com.
CreditCardMenu
Comparing 0% credit cards these days is tricky but this website can help you get a good deal.
VideoCreditScore
Get credit score product reviews and learn why lenders prefer FICO scores.
CreditScoreQuick
Get your free credit report on the web.
Payday Loans UK
Apply today for payday loans in UK and get cash advance within 24 hours.
QuickQuid
Apply for a cash advance from a fully licenced lender.Get instant approval on payday loans.
Bettertrades
Bettertrades is here to provide the best stock market education. Learn about better trades here.
AdvanceLoan
payday loansQuick online cash advances available now, also payday advance loans for bad credit customers.
Categories
Archives
Recent Posts
Most Commented
Most Viewed