An Austrian economic perspective.

[dre]

If you remember the S & L scandal of the eighties you know the financial system hadn't changed that much.

They were trying to sell off credit - packaged debt - not real wealth. The 60 trillion dollars was credit. Where does credit come from????????? It's extended from banks - banks following the lead and policy of the central bank and the encouraging policies of government. Investors make loans, or extend credit, on real savings and wealth not out of thin air. Only banks create credit out of thin air.

Again this is just objectively false. With even 10 minutes of research you could go and follow some of that money around. It was raised by selling stocks and bonds not "created by banks". Thats just a simplistic libertarian slogan youve swallowed hook line and sinker.

Of course the blame is with the market and Wall street, right!!! There isn't a shortage of politicians or economists that wish to foist off all responsibility.

Politicians werent the ones making all these loans... look at the sub prime top 25 list I posted again. Then read about how they were funded. Politicians failed as regulators, but they werent the ones loaning 400 thousand dollars to minimum wage workers to buy fancy homes. It was private companies loaning out money they had raised selling stocks and bonds to investors.

A credit default swap is a form of insurance against loan defaults. That is - defaults on "credit".

Why you even mention it is bit of a puzzle.

No its not a puzzle at all, and you wont find a single economist on earth that doesnt mention that when theyre talking about the 2008 recession. Those swaps, combined with derivatives competely changed the way risk was viewed managed in the financial system. Youre apparently the only one on earth that doesnt know this.

"Mortgage backed securities", meaning debt extended to mortgage holders? Credit? Who created and extended that credit for the mortgages in the first place? Mortgage companies cannot create credit out of thin air and investors would definitely not supply the capital for risky mortgages.

They DID supply the money... Those thrifts, trusts and mortgage companies were getting their money from selling stocks and bonds to investors.

This fact that you would even try to deny that investors were backing all of those loans is literally laughable. Like I said 10 minutes of honest research would empty your head of a lot of this bogus crap.

"Credit" was trying to be dumped and sold to investors. You seem to be implying investors buy these repackaged mortgages for their face value and are "dumping" their money on the market. Sure, sure. That's what happened. Investors all got together and decided to dump their trillions on the market.

Yes thats not even questionable. Thats exactly what happened... the market for these securities was huge and investors all around the world were buying them by the shitload. Again... we dont have to argue about this because nobody on earth besides you would deny it. Its an objective fact that investors were buying trillions of dollars worth of securities and funding private mortgage companies like CountryWide, or New Century.

Your list of companies that held mortgages (mortgages being extended credit) were trying to dump those mortgages on the market.

Ok... at least you finally get THAT part

Where do mortgage companies get their loans? From the banks.

The definition of a mortgage company is a company that borrows from the banks, lends to the consumer, and then sells the mortgages to investors.

Again thats just objectively and verifiably false. Thrifts, trusts, and mortgage companies like Countrywide got their money from PRIVATE INVESTORS. They didnt borrow the funds they loaned out from banks. How can you even say any of this shit with a straight face? When the facts youre denying can be checked in under 10 minutes. Read about some the litigation, or the 600 hundred million dollar lawsuit against countrywide by the same private investors you claim dont exist.

And your defination of a mortgage company is completely wrong. All those big subprime players were direct lenders. They didnt borrow the money they lent out from any bank. They took money from investors, and loaned it out.

There is no shortage of people, especially politicians and short-sighted econometrists, who will defer responsibility of an economic downfall to the market. You can quote whomever you like.

If you wish to believe that everyone on Wall Street and homeowners and banks were working with real savings that were dumped on the market then go ahead. Real wealth and savings, will not be dumped on a market nor will the market try and dump real wealth.

I believe that simply because its an undisputable fact and matter of record. Wealth and savings are invested in the realestate market, and in mortgage companies all the time. Thats how mortgage companies work. In this case we actually have a record of all these private investors piling onto the realestate market, speculating on realestate, and purchasing derivatives. Why would you even argue that point? Youre just wasting your own time and mine with this nonsense.

Edited March 21, 2011 by dre

[Pliny]

I believe that simply because its an undisputable fact and matter of record. Wealth and savings are invested in the realestate market, and in mortgage companies all the time. Thats how mortgage companies work. In this case we actually have a record of all these private investors piling onto the realestate market, speculating on realestate, and purchasing derivatives. Why would you even argue that point? Youre just wasting your own time and mine with this nonsense.

99% of mortgages are loans created out of thin air.

Edited March 21, 2011 by Pliny

[Michael Hardner]

Precisely.

99% of mortgages are loans created out of thin air.

Wait a second - why do you care ? Doesn't restricting the bank's credit granting practice constitute a private practice that government should stay out of ?

Edited March 21, 2011 by Michael Hardner

[dre]

99% of mortgages are loans created out of thin air.

Repeating the same slogan thousands of times doesnt make it true. Go a read about the big subprime players on that list and learn about how they operated. Your last post shows a total lack of understanding of how these institutions work. Youre just flat out wrong.

Again the glut of money that got dumped into the financial system didnt come from monetary expansion. In fact banks prior the crisis were actually increasing reserves.

The money came from global investors. 70 TRILLION dollars in world-wide fixed income investments.

In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. This pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with the MBS and CDO, which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.[25]

The CDO in particular enabled financial institutions to obtain investor funds to finance subprime and other lending, extending or increasing the housing bubble and generating large fees. A CDO essentially places cash payments from multiple mortgages or other debt obligations into a single pool, from which the cash is allocated to specific securities in a priority sequence. Those securities obtaining cash first received investment-grade ratings from rating agencies. Lower priority securities received cash thereafter, with lower credit ratings but theoretically a higher rate of return on the amount invested.[26][27]

USA households, on the other hand, used funds borrowed from foreigners to finance consumption or to bid up the prices of housing and financial assets. Financial institutions invested foreign funds in mortgage-backed securities

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010

If you want a more basic explanation of why these bubbles happen read about "tulipmania". One of the first recorded asset bubbles in the 1600's (a long long time before fiat currency or the fed). The price of a single tulip bulb grew to 10 times the annual salary of a skilled worker.

[Pliny]

Repeating the same slogan thousands of times doesnt make it true. Go a read about the big subprime players on that list and learn about how they operated. Your last post shows a total lack of understanding of how these institutions work. Youre just flat out wrong.

Again the glut of money that got dumped into the financial system didnt come from monetary expansion. In fact banks prior the crisis were actually increasing reserves.

The money came from global investors. 70 TRILLION dollars in world-wide fixed income investments.

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010

If you want a more basic explanation of why these bubbles happen read about "tulipmania". One of the first recorded asset bubbles in the 1600's (a long long time before fiat currency or the fed). The price of a single tulip bulb grew to 10 times the annual salary of a skilled worker.

Well, it is rather senseless to continue going in circles.

This all started as a statement that the creation of money is one of the few things that can affect the macro-economy. Your argument, as I see it, has been that all the money currently in existence is a representation of real wealth. It is a combination of real savings and value of all extant goods that exist and there can't be any more or any less than that. All credit extended by central banks, to commerical banks and governments and subsequently to consumers only exists because it represents someone else's savings and/or real wealth. In other words there is no money creation at all.

Now I know you will just counter with, "I never said any such thing"

however, if you look at it, it is the implication of your argument.

My side of the argument is that "money" is being created more quickly than the production of real wealth, and that the monetization of debt is what brought about the economic boom and consequent bust. The "money" is created by government and consumer borrowing and through the interest generated by that borrowing.

That is the simplicity of it. Introducing the complexities of the market and financial wheeling and dealing with credit default swaps and CDO's are all subsequent to the creation of "money" which is on the other side of the balance sheet a creation of debt.

Basically, what has to happen is that the creation of all that money will be a claim on the future production of wealth but if that production fails to materialize then the money will have to be devalued - inflation will have to occur. All of the things that occur, monetizing debt, selling debt, repackaging debt, whatever is done with it, are subsequent to the creation of the debt. In your argument, it appears to me that you count this debt as being money. Because that paper is in the economy in some form or another, bonds or derivatives, CDO's you count it all as money. No one is in debt it seems as long as their balance sheet shows in the black. All the banks and the central banks included and investors that bought the debt all show assets on their balance sheets. Consumers with balances in the red are the only ones that owe anything and that isn't very much because all their debt, mortgages included, show up as assets on someone else's balance sheet.

Funny you should mention Tulipmania.

There is a a fundamental economic explanation for it and once again it is an influx of "new money".

tulipmania

But what made this episode unique was that the government policy did

not expand the supply of money through fractional reserve banking which is

the modern tool. Actually, it was quite the opposite. As kings throughout

Europe debased their currencies, through clipping, sweating or by decree, the

Dutch provided a sound money policy which called for money to be backed

one hundred per cent by specie. This policy, combined with the occasional

THE DUTCH MONETARY ENVIRONMENT DURING TULIPMANIA 11

seizure of bullion and coin from Spanish ships on the high seas, served to

attract coin and bullion from throughout the world.

The end result was a large increase in the supply of coin and bullion in

1630s Amsterdam. Free coinage laws then served to create more money from

this increased supply of coin and bullion, than what the market demanded.

This acute increase in the supply of money served to foster an atmosphere

that was ripe for speculation and malinvestment, which manifested itself in

the intense trading of tulips.

[Pliny]

Wait a second - why do you care ? Doesn't restricting the bank's credit granting practice constitute a private practice that government should stay out of ?

Essentially, yes.

The bank you choose to bank with probably has something to do with proximity to your house, hours of operation, personally knowing someone at the branch, your father banked there or you like the color green better than the colors blue or orange. You more than likely know nothing of it's credit granting practices because the government looks after that for you and it should be standard from bank to bank. Right? Shouldn't it be? You don't want to look like an idiot or become completely bored when the Bank manager starts talking about his credit granting practices. Who needs to know what banks do? It's a place where you can cash your checks, get a loan, and they will even advise you what to invest your money in - that's what they do. Sheesh! And besides, in Canada they never go broke.

[maple_leafs182]

Wait a second - why do you care ? Doesn't restricting the bank's credit granting practice constitute a private practice that government should stay out of ?

It does matter. When banks expand the money supply threw fractional reserve banking, this devalues the dollar. All the dollars you have now have less purchasing power then they did ten years ago. Having policies that essentially rob the people of there wealth should be illegal.

Creating money out of nothing is technically counter-fitting, if you or I did this, we would be charged with a crime yet it is legal for banks to do this. In my opinion if ordinary citizens cannot do something, then banks or the government should not be able to do it either.

What I think Pliny is saying and correct me if I am wrong is that most the money that was invested in the mortgage market was created through fractional banking and easy credit. Foreigners would not of been able to invest in ABS's if there had not been low interest rates or cheap credit in order to create that money in the first place.

[dre]

It does matter. When banks expand the money supply threw fractional reserve banking, this devalues the dollar. All the dollars you have now have less purchasing power then they did ten years ago. Having policies that essentially rob the people of there wealth should be illegal.

Creating money out of nothing is technically counter-fitting, if you or I did this, we would be charged with a crime yet it is legal for banks to do this. In my opinion if ordinary citizens cannot do something, then banks or the government should not be able to do it either.

What I think Pliny is saying and correct me if I am wrong is that most the money that was invested in the mortgage market was created through fractional banking and easy credit. Foreigners would not of been able to invest in ABS's if there had not been low interest rates or cheap credit in order to create that money in the first place.

Foreigners would not of been able to invest in ABS's if there had not been low interest rates or cheap credit in order to create that money in the first place.

Sure they would have. The money came from countries with large trade surpluses, and countries that are rich in commodities like oil, had inordinately high personal savings rates. Those entities are going to accumulate money in any economic environment thats based on any unit of economic account (dollars, gold, bearclaws, pebbles, etc).

And youre always going to have asset bubbles, which are the betting up of prices by exhuberant buyers and speculators. Like I said most of the asset bubbles in history happened a long time before the federal reserve system or fiat currency was ever invented.

Now... the reality is that certain the reserve banking system has a big impact on our economic environment (both positive and negative), and pliny has decided this is the personal economic boogey-man of choice, and he blames literally everything on that. And you could make a case that we should re-evaluate that system... but the subprime meltdown was caused by a number of very well documented and well understood conditions, objects, and behaviors by actors in the economy. To simply blame reserve banking when he clearly hasnt even spent 10 minutes of his time researching what actually happened, where the money came from, and what instruments allowed that influx of foreign money into the realestate market is just intellectually lazy.

When banks expand the money supply threw fractional reserve banking, this devalues the dollar.

Not necessarily. Inflation only happens if the money supply grows faster than the economy. In most western nations there IS inflationary monetary policy, but its relatively steady and predictable. The thing is youre going to have huge problems with any alternative you propose so you really gotta think these things through. Like your suggestion that banks should have a 100% reserve rate... if that was our system for the last hundred years we would not even have television sets or telephones yet. You would be taking the banks completely out of the money lending picture leaving buyers with nowhere else to get loans but the exact same private lenders that flooded the market with subprime.

Complaining about fiat currency is also a useless excersize unless you understand why its there. Nobody sat down and decided fiat currency was a "good idea". It happened defacto when the largest economy in the world went belly up, and shit-canned a global agreement that bound currency to gold. Nobody really had any choice in the matter, and the US didnt really have any choice either. Inflationary monetary policy is there to devalue all that debt, and stave off bankruptcy.

If either of you have a substantive alternative that is actually possible to achieve, that takes into account all these factors Id love to hear it, but you dont so far. You have a boogeyman that youre ideologically predisposed to blaming things on, but not much else.

[maple_leafs182]

http://images.tribe.net/tribe/upload/photo/013/e00/013e009e-f1eb-4021-8884-b13e7f477588

Look at how much the purchasing power of the US dollar has fallen since the Federal Reserve Act was passed.

To say we would not have televisions or telephones is absurd. Why would having easy access to money increase innovation. Having a smaller pool of money to chase would increase the need for firms to create innovative products in order to attract consumers.

If there was 100% reserve banking, banks would not have to be entirely out of the lending picture, instead of them making loans based on the amount of dollars they have in demand deposits, they can make loans based on term deposits, money the depositor would not be able to touch for a certain period of time.

As I said, I agree, ABS's were a large part of the equation, but so was the Fed lowering interest rates after the dot-com bubble burst.

What is your opinion of the economy now, do you believe QE1 and QE2 will save the economy.

Edited March 23, 2011 by maple_leafs182

[Pliny]

What I think Pliny is saying and correct me if I am wrong is that most the money that was invested in the mortgage market was created through fractional banking and easy credit.

Correct. What investor is going to approve investments in NINJA and sub-prime loans?

The loans were created first bought by Wall Street. Wall street re-packaged them in derivatives, mortgage backed securities and sold them to investors. Fannie and Freddie bought a great percentage of the subprime market. I notice several of the former senior executives have come under fire for "misrepresenting" the financial positon of Fannie and Freddie during the period. If it were Wall Street it would not be called "misrepresenting" it would be called what it is - fraud.

[dre]

Correct. What investor is going to approve investments in NINJA and sub-prime loans?

The loans were created first bought by Wall Street. Wall street re-packaged them in derivatives, mortgage backed securities and sold them to investors. Fannie and Freddie bought a great percentage of the subprime market. I notice several of the former senior executives have come under fire for "misrepresenting" the financial positon of Fannie and Freddie during the period. If it were Wall Street it would not be called "misrepresenting" it would be called what it is - fraud.

Fannie and Freddie bought a great percentage of the subprime market

Not really. They held only a small percentage of those loans and that percentage was actually falling. The vast majority of these securities were bought and sold through investment banks.

Now that youve trotted out the two most common red herrings (fiat money, and Fannie and Freddy), youre ready to move onto red herring number 3! The community reinvestment act. Another favorite boogeyman for folks like you, but equally bogus.

What investor is going to approve investments in NINJA and sub-prime loans?

Holy jesus christ

[Michael Hardner]

Correct. What investor is going to approve investments in NINJA and sub-prime loans?

The loans were created first bought by Wall Street. Wall street re-packaged them in derivatives, mortgage backed securities and sold them to investors. Fannie and Freddie bought a great percentage of the subprime market. I notice several of the former senior executives have come under fire for "misrepresenting" the financial positon of Fannie and Freddie during the period. If it were Wall Street it would not be called "misrepresenting" it would be called what it is - fraud.

Aren't you pinning this all on Fannie and Freddie with this ? There are a lot of people, it seems, who had a sense of what was going on, who got away with their buyout packages, and bad reputations intact.

[dre]

Aren't you pinning this all on Fannie and Freddie with this ? There are a lot of people, it seems, who had a sense of what was going on, who got away with their buyout packages, and bad reputations intact.

Not to mention Fannie and Freddy were only involved in a small percentage of these loans, and their share of lending to low income families actually FELL from 2004 to 2006. And in 2005 and 2006 when subprime was really at its peak, the vast majority of securitation was handled by investment banks.

Still though... Fannie and Freddy are part of the problem, which was the securitization and over subsidization of the US housing market. They were just a relatively small part.

[maple_leafs182]

Dre, you realize not every economist agrees with you, many point the blame at the federal reserve.

What do you think will happen in the future to the US economy?

[dre]

Dre, you realize not every economist agrees with you, many point the blame at the federal reserve.

What do you think will happen in the future to the US economy?

The US dollar will continue to collapse, and within the next decade or two it will be replaced as the current economic unit of account. The US trade defecit will equalize and Americans will import less stuff, and make more things for themselves. There wont be a "fiat currency" anymore and the US will no longer be able to force the rest of the world to pay its bills. There will clearly be some major unrest and upheaval, and probably a bunch more big economis crisis but in the end the US economy will be fine, it just wont be completely dominant like before.

Thats really about it.

[maple_leafs182]

The US dollar will continue to collapse, and within the next decade or two it will be replaced as the current economic unit of account. The US trade defecit will equalize and Americans will import less stuff, and make more things for themselves. There wont be a "fiat currency" anymore and the US will no longer be able to force the rest of the world to pay its bills. There will clearly be some major unrest and upheaval, and probably a bunch more big economis crisis but in the end the US economy will be fine, it just wont be completely dominant like before.

Thats really about it.

I agree with most of that.

This is why I have been buying silver and been encouraging people on this forum to buy silver since it was at $16.50 an ounce. It is a good hedge against the US dollar collapsing, it has nothing to do with making money, it is all about preserving your wealth.

One thing I disagree with you is on how much impact monetary policy has on the overall economy.

You keep saying the Fed is some kind of boogyman, it is not that. I just disagree with Keynesian economics and Keynesian monetary policies. You say the dollar is going to collapse, it is because of Keynesian policies the US dollar will collapse, it is the expansion of the money supply that is bringing the dollar down. This is why I am against central banks, their policies have the potential to bring nations crashing down.

I also think the US won't be fine, I think it will suffer a severe depression along with the rest of the world. I also think we might be setting the stage for World War III.

[Michael Hardner]

Still waiting on Pliny's response...

[Oleg Bach]

gOOD luCk

[Pliny]

Aren't you pinning this all on Fannie and Freddie with this ? There are a lot of people, it seems, who had a sense of what was going on, who got away with their buyout packages, and bad reputations intact.

No. Fannie and Freddie were just accomplices buying up some of the mortgage debt created by the banks and then repackaged and sold by Wall Street.

On Wall Street they did know what was going on. They knew full well the risk in these subprime mortgages but as long as Fannie and Freddie were buying some of them up and Barney Franks was telling everybody that Fannie and Freddie were healthy they just continued to package them up and say hey look - Fannie and Freddie are buying these things - and there is enough to go around for everyone, essentially acting as a government guarantee of security.

But really, it is the creation of the credit in subprime mortgages and low interest that drove the beast. The Keynesian tools that enabled the whole thing to overheat. Government's nod of approval, it's policy of a home for every American, created what Greenspan coined "irrational exuberance" basically, the moral hazard that had Wall street abandon a century of economic prudence to ride the wave. Don't get me wrong Wall Street supplied the energy necessary to foment the frenzy.

Low interest rates were a central bank policy in a lot of countries. Ireland, Portugal, Spain and even Canada. Canada fared a lot better because you still couldn't get a mortgage without a job. They didn't drop the qualifications for acquiring a mortgage but many more people could qualify and afford them as long as the interest rates remain low and that drove our housing boom.

There isn't a shortage of economists that will blame the market for the mayhem but they don't look at what enabled it in the first place. Easy credit and low interest rates.

dre seems to understand what fractional reserve banking is but the implication in his argument is that it didn't really exist in this case and real savings from Wall Street backed the mortgage creation and the housing boom. Wall Street was definitely a player but the enabler was the central bank and government monetary and social policy.

The "inflation" of housing prices could not have occurred if the credit had not been there to back the increase in, not real, but monetary "wealth". The list of companies that dre supplied were the creators of that monetary paper "wealth" and someone held the loan it was created from. That is the sequence. Real savings dumped on Wall Street and repackaged as risky mortgages is what dre would have us believe.

Edited March 25, 2011 by Pliny

[Michael Hardner]

ople could qualify and afford them as long as the interest rates remain low and that drove our housing boom.

There isn't a shortage of economists that will blame the market for the mayhem but they don't look at what enabled it in the first place. Easy credit and low interest rates.

I'm still fighting with a suspicion that you're letting the Free Market off the hook here. Weren't bank failures, bank runs and so on a problem before central banking was established ? We haven't seen a real run on the banks, or a complete failure (unsupported by FDIC, say) since that time.

[dre]

Real savings dumped on Wall Street and repackaged as risky mortgages is what dre would have us believe.

Thats because thats the truth. FOLLOW THE MONEY! SEVENTY TRILLION dollars entered the housing market in this manner. I showed you how to follow that money trail and explained to you exactly how it works. I showed you which institutions were doing all this lending, and I explained to you how they operate. Only one player in the TOP 25 SUB PRIME accepted FDIC insured deposits, and none of these institutions were funded by commercial banks. I also explained to you that commercial banks were actually INCREASING their reserves prior to the meltdown, and I showed you that the vast majority of subprime mortgages were origionated by private lenders. Then I debunked your claim that most of these mortgages were bought by fannie and freddy.

Every single claim I made can be objectively verified if you just did a few minutes worth of honest research. If you dont like my sources you could find your own.

[Pliny]

I'm still fighting with a suspicion that you're letting the Free Market off the hook here. Weren't bank failures, bank runs and so on a problem before central banking was established ? We haven't seen a real run on the banks, or a complete failure (unsupported by FDIC, say) since that time.

I'm letting the free market off the hook? Firstly, what free market? Secondly, were there no bailouts, no tarp money, no quantitative easing, just exactly who is letting the free market off the hook? The foolishness on Wall Street was well rewarded. What needed to happen was free market correction which would have seen a lot of those weasley players gone and badly managed corporations sold off.

Bank failures and bank runs were the problems the central bank was supposed to resolve. Why did they happen? Fractional reserve banking basically. Banks issuing more notes than what they had on deposit in receipts. The central bank, in the interests of banks, wished to continue fractional reserve banking and regulate it, Banks just being warehouses for depositors just weren't profitable enough. Fractional reserve banking allowed for the creation of "money" on paper and with added economic tools of Keynesian theory, such as setting of interest rates the economy fell under control of the central banks.

About six hundred banks in the US failed since 2008, and what do you mean by a complete failure? We, in Canada have a small cartel of banks that are seemingly too big to fail. The economy in Canada will have to completely fail before a bank in Canada goes down. By completely fail I mean a complete collapse and rejection of the Canadian fiat currency by the populace.

Edited March 26, 2011 by Pliny

[Pliny]

Every single claim I made can be objectively verified if you just did a few minutes worth of honest research. If you don't like my sources you could find your own.

All you have done is quoted like minded left wing economists willing to blame the market.

I'll get some real facts for you. Even though you seem to reject them and ignore anything contrary to the fairy tale invented by the government and accountants that like to read what the economy is doing by looking at profit and loss statements and balance sheets. You never mentioned a thing about the actual evidence of the Fed creating money that I presented.

All the things you say happened, were effects that occurred because of monetary policy of the fed and the US Government after the fact.

Edited March 26, 2011 by Pliny

[Michael Hardner]

Bank failures and bank runs were the problems the central bank was supposed to resolve. Why did they happen? Fractional reserve banking basically.

Ok, so bank failures are a good thing, as it's an unregulated market correcting itself. People losing their life savings deserve their loss for being foolish enough to deposit money in a bank whose lending practices they didn't thoroughly review before engaging with them. Is that it ?

About six hundred banks in the US failed since 2008, and what do you mean by a complete failure? We, in Canada have a small cartel of banks that are seemingly too big to fail. The economy in Canada will have to completely fail before a bank in Canada goes down. By completely fail I mean a complete collapse and rejection of the Canadian fiat currency by the populace.

And that would indeed be the final free market victory.

[Bonam]

Ok, so bank failures are a good thing, as it's an unregulated market correcting itself. People losing their life savings deserve their loss for being foolish enough to deposit money in a bank whose lending practices they didn't thoroughly review before engaging with them. Is that it ?

Savings held in bank accounts are insured by the federal government up to $250,000 ($100,000 prior to 2008). People with more money lying around than that should have spent the time to conduct the proper research and hedge their bets by investing in a variety of investments, using multiple banks, etc. And yes, banks that screw up badly enough to go bankrupt should indeed be allowed to fail. Public money should not be used to prop up incompetent, unprofitable, businesses.