Dont be too quick to judge the 1%

[dre]

Here's one, if they want money they can go into bankruptcy like status. That means they can gut executive salaries and tear up management's contracts, and pay them a pittance for optics sake. Then there is closing the tax loopholes of those bailed out banks, etc. Etc.

Youre always going to have bailouts because the governments financial apparatus is so cozy with big financial firms. And the reality is that under the current system theres really not too many options available. You dump mountains of money into the system and try to keep it solvent.

People try to avoid as much short term pain as possible at all costs even if it guarantees more long term pain.

History will show us whether it was smart or not. The bailouts probably prevented the collapse of most of the financial industry, and thousands of other companies with it... it keeps the status quo going for a little while longer. But in the long term, it might have made more sense to just let the house of cards come crumbling down and start over. The bailouts probably prevented a much deeper recession, but they kept most of the bad actors and bad practices in place.

[dre]

Back to that 16 trillion dollars...

I wonder if Americans have noticed... That the US just lent 16 Trillion dollars... to the same folks it owes its 16 Trillion national debt to

Edited November 22, 2011 by dre

[blueblood]

Youre always going to have bailouts because the governments financial apparatus is so cozy with big financial firms. And the reality is that under the current system theres really not too many options available. You dump mountains of money into the system and try to keep it solvent.

People try to avoid as much short term pain as possible at all costs even if it guarantees more long term pain.

History will show us whether it was smart or not. The bailouts probably prevented the collapse of most of the financial industry, and thousands of other companies with it... it keeps the status quo going for a little while longer. But in the long term, it might have made more sense to just let the house of cards come crumbling down and start over. The bailouts probably prevented a much deeper recession, but they kept most of the bad actors and bad practices in place.

That will be debated, however I think it will go down as a "success" like fdr's new deal.

One has to wonder if letting those banks fail would have been as big a disaster as some were making it out to be. Sure there would have been pain, but death... That will be one of the greatest mysteries of our time.

[dre]

Yes - there needs to be away to make executives pay a heavy price personally without requiring that they be convicted of a criminal offense because the bar to prove criminal intent is pretty high. Sure some executives will argue that it was not their fault but when banks fail millions of people who are not at fault pay a huge price. It is only fair to expect executives to share the pain.

But you just said we dont need regulation... and thats exactly what any provisions in the law to punish those executives would be. And you sure as hell arent going to get the majority of corporations to voluntarily write these things into their corporate charters.

[dre]

That will be debated, however I think it will go down as a "success" like fdr's new deal.

One has to wonder if letting those banks fail would have been as big a disaster as some were making it out to be. Sure there would have been pain, but death... That will be one of the greatest mysteries of our time.

Hahahaha. Thats the beauty of economics. Nobody is ever wrong. If the economy tanks now the keynesians will credit their policies for it not tanking as badly as it would have without all their "help". Great success!!!. If the economy recovers... Great success!!!

I notice youve made a few posts about Peter Schiff. Have you listened to what hes said about "taking your economic medicine"? Recessions and depressions are important and necessary economic events. They make us feel pain for bad decisions, and voting for bad policies, and they create the political capital required to fix problems.

Edited November 22, 2011 by dre

[TimG]

But you just said we dont need regulation.

I have consistently said the banking system needs regulations and the regulations should have prevented the 2008 meltdown.

[bush_cheney2004]

I wonder if Americans have noticed... That the US just lent 16 Trillion dollars... to the same folks it owes its 16 Trillion national debt to

Nope...we pay worried Canadians to keep an eye on such things.

[dre]

Nope...we pay worried Canadians to keep an eye on such things.

No "Debt Free!" party?

[dre]

I have consistently said the banking system needs regulations and the regulations should have prevented the 2008 meltdown.

How were banking regulations going to prevent the meltdown when almost all the toxic paper came from either investment banks or mortgage companies, none of which are subject to banking regulations? Commercial FDIC regulated banks were actually the most responsible players in the whole mess. They arent even allowed to make sub prime loans.

The role that the commercial banking system had in this mess was way upstream. They created the huge abundance of money required to fuel such a large asset bubble. So how do you regulate it? Raise the overnight rate? Cant do that because youre still trying to recover from the LAST bubble. Raise reserve rates? Same problem.

Stimulating the realestate market was the whole plan to get us out of the .COM recession. It created a huge ammount of jobs, and spawned a whole new trend towards speculation. We had 20 different "flip this house" reality shows, and every single person that wasnt in prison was trying to cash in on the realestate boom.

How can you regulate against creating a bubble when your WHOLE PLAN is to create a bubble? They WANTED fast growth in the realestate sector. And who decides? Half of our "great economic minds" thought it was completely normal for housing prices to double between 2007 and 2003.

Edited November 22, 2011 by dre

[TimG]

They created the huge abundance of money required to fuel such a large asset bubble. So how do you regulate it?

The issuing of loans for purchase of housing can be regulated no matter who offers the mortgages. The first step would be to require that banks hold on to their loans. The trouble is this means Democratic politicians won't be able to bully banks into lending to unqualified buyers because of their ethnicity. That is actually why these CDOs started - banks wanted to get politically directed bad loans off their books. Of course, once the monster was created it took on a life of its own.

[blueblood]

The issuing of loans for purchase of housing can be regulated no matter who offers the mortgages. The first step would be to require that banks hold on to their loans. The trouble is this means Democratic politicians won't be able to bully banks into lending to unqualified buyers because of their ethnicity. That is actually why these CDOs started - banks wanted to get politically directed bad loans off their books. Of course, once the monster was created it took on a life of its own.

Or you don't set the interest rate to 1% in 2001 and try and inflate your way out of a recession. The higher interest rate would be a far more efficient regulator.

[TimG]

Or you don't set the interest rate to 1% in 2001 and try and inflate your way out of a recession. The higher interest rate would be a far more efficient regulator.

To be fair the WTC bombing really shocked the US. It was uncharted territory and the Fed had no history to go on. That said, they did have a inflation target and as long as they were under it there was no need to raise rates.

[dre]

The issuing of loans for purchase of housing can be regulated no matter who offers the mortgages. The first step would be to require that banks hold on to their loans. The trouble is this means Democratic politicians won't be able to bully banks into lending to unqualified buyers because of their ethnicity. That is actually why these CDOs started - banks wanted to get politically directed bad loans off their books. Of course, once the monster was created it took on a life of its own.

The first step would be to require that banks hold on to their loans

Have fun getting that law passed. The concept of securitization isnt a banking trick its a fundamental part of capitalism... the idea that a contract can be purchased by a third party.

Really what you would be doing there is drastically shrinking the financial services industry and closing down a big profitable part of the casino. Because packaging up contracts into securities is a huge part of what they do. Im not saying its a bad idea but its the kind of thing that gets labeled "socialism" in the current environment.

The trouble is this means Democratic politicians won't be able to bully banks into lending to unqualified buyers because of their ethnicity.

That just flat out did not happen. This is pure low-test partisan tripe. FDIC banks subject to the CRA were not the ones making all the risky loans. Lenders subject to the CRA and FDIC regulations had LOWER forclosure rates... not higher. Those loans were made because at the time it was profitable business activity.

That is actually why these CDOs started - banks wanted to get politically directed bad loans off their books. Of course, once the monster was created it took on a life of its own.

No, banks held only a tiny percentage of the bad debt, and. The vast majority of the bad loans were made by private lenders, mortgage companies, thrifts, and realestate trusts. Companies like Country Wide, New Century Financial, Wells Fargo etc. They could do pretty much whatever they felt like prior to the meltdown, and they can still do whatever they feel like doing now. Next time theres an asset bubble they will pile back on. Wait and see.

[dre]

Or you don't set the interest rate to 1% in 2001 and try and inflate your way out of a recession.

But thats the only solution to every problem in Keynesian economics. "Inflate your way out of the recession". Thats exactly what the bailouts were and this 16 trillion dollar global rescue package. And thats exactly why the realestate bubble formed in the first place. The business cycle isnt an accident its how our system works.

OF COURSE they are going to lower interest rates during a recession. They are trying to encourage transactions by creating more credit. That how you avoid having to take unpleasant medicine.

[blueblood]

To be fair the WTC bombing really shocked the US. It was uncharted territory and the Fed had no history to go on. That said, they did have a inflation target and as long as they were under it there was no need to raise rates.

The Wtc bombing was icing on the cake for the dot com bubble popping. Those rates should have rose to help purge out the bad investments and square the books. The fed had 1920-21 to go on where the fed did nothing but let the market set rates accordingly. When savings swelled the banks, the banks lent again. The problem is that politicians don't see the forest for the trees and don't want to take their buckleys when they have to.

[TimG]

Have fun getting that law passed. The concept of securitization isnt a banking trick its a fundamental part of capitalism... the idea that a contract can be purchased by a third party.

Nonsense. Canadian banks had no need of such tricks. In fact, no bank that is interested in making money off the loans themselves needs SDOs. It is purely a trick to get around financial regulations and the government can stop it.

That just flat out did not happen. This is pure low-test partisan tripe.

You need to learn about US banking politics in the 90s.

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

The Clinton administration changed this state of affairs dramatically. Ignoring the sweeping transformation of the banking industry since the CRA was passed, the Clinton Treasury Department's 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A's for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?

Gee. These regulations come into force around the exact same time that banks start using CDOs to get dodgy loans off the books. And you really think there is no connection? I have a bridge to sell you.

BTW - the apologists for Clinton's failures like to point out that many of the loans made in the 2000s were not under this program but that does not absolve Clinton of the responsibility for creating the CDO monster in the first place.

Edited November 22, 2011 by TimG

[dre]

Nonsense. Canadian banks had no need of such tricks. In fact, no bank that is interested in making money off the loans themselves needs SDOs. It is purely a trick to get around financial regulations and the government can stop it.

You need to learn about US banking politics in the 90s.

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

Gee. These regulations come into force around the exact same time that banks start using CDOs to get dodgy loans off the books. And you really think there is no connection? I have a bridge to sell you.

BTW - the apologists for Clinton's failures like to point out that many of the loans made in the 2000s were not under this program but that does not absolve Clinton of the responsibility for creating the CDO monster in the first place.

What regulations? This bullshit has been debunked a million times, and the reality is we know exactly why companies made bad loans. It was profitable. You actually explained this yourself... these mortgage orgionators could move the loans off their books, and make a profit selling them as products. Only 1 of the top 25 sub prime lenders was subject the CRA. Its a complete and total red herring.

And even if these companies WERE subject to the CRA (and they werent) the reality is the CRA does nothing to encourage loans to low income lenders. Lenders are perfectly free to set their own debt maintenance ratios, and their own lending standards. They just arent allowed to blacklist entire communities where they are collecting deposits. If they didnt want to lend in a certain area they can simply close down their branches there.

But go ahead. Show me where the CRA says CountryWide has to lend to low income borrowers

Edited November 22, 2011 by dre

[GostHacked]

The difference is you do not have the dominate school of economists seeking to vilify and personally discredit economists from other schools.

Actually you do. Many went on the tube to go against what Schiff was saying back in the day before the recession and the housing bubble. Calling him crazy, some conspiracy theorist. Hell even Ben Stein (a person I used to respect) went against Schiff and eventually made to look like a fool.

They use reasoned arguments to make their case. This open and professional debate protects against group think.

Ahahahahhahahaha no it does not. If it did, we would not have gotten to this stage where the entire house of economic cards is about to collapse. Those fools should have listened to guys like Schiff and Celente.

[blueblood]

Actually you do. Many went on the tube to go against what Schiff was saying back in the day before the recession and the housing bubble. Calling him crazy, some conspiracy theorist. Hell even Ben Stein (a person I used to respect) went against Schiff and eventually made to look like a fool.

Ahahahahhahahaha no it does not. If it did, we would not have gotten to this stage where the entire house of economic cards is about to collapse. Those fools should have listened to guys like Schiff and Celente.

I'm a schiff fan as well, but there are some things where he might be a bit mistaken such as going back to the gold standard and removing the fed. He's playing the blame game as well when the blame lies on human error, not the system.

To use an analogy that schiff always uses, schiff wants to take away the alcohol, I want party goers to enjoy the alcohol responsibly.

[TimG]

What regulations? This bullshit has been debunked a million times, and the reality is we know exactly why companies made bad loans.

It has not been debunked. All you are doing is covering your ears and screaming 'it ain't true'. What you seem to keep missing is banks got into this business because of government mandated loan targets under the CRA. They had to use CDOs because that was only way to run a profitable business under the new rules. If Clinton had not changed the rules the CDO market would not have existed. Without a CDO market there would be no profit making opportunity for third party companies.

IOW: you argument that non-CRA entities made most of the bad loans is irrelevant because these entities would not have been able to do that with out a CDO market created by the banks.

They say people who do not understand the past are doomed to repeat it. The collective refusal of many to even acknowledge the role the Democratics played by screwing with the system is a big problem.

Edited November 22, 2011 by TimG

[GostHacked]

I'm a schiff fan as well, but there are some things where he might be a bit mistaken such as going back to the gold standard and removing the fed. He's playing the blame game as well when the blame lies on human error, not the system.

It's not an error. It's on purpose, because of people being greedy.

[TimG]

Actually you do. Many went on the tube to go against what Schiff was saying back in the day before the recession and the housing bubble. Calling him crazy, some conspiracy theorist.

A broken clock is right twice a day. There are ALWAYS people predicting the collapse of the system. When a major incident occurs random chance ensures that a few pundits will end up looking like they were geniuses.

Schiff was dead wrong after the 2002 tech melt down. It should come as no surprise that he lacked credibility when he continued to claim that 'doom is just around the corner': http://en.wikipedia.org/wiki/Peter_Schiff

In a 2002 interview with Southland Today, Schiff predicted that the economic downturn triggered by the bursting of the dot-com stock market bubble would lead to a bear market likely to last "another 5 to 10 years."[37][38] In November 2002, US stock indexes began a bull market uptrend which held steady for five years,[39] until reversing course in 2008, when they began a decline to less than half of their peak 2008 values,[40] followed in 2009 by the Dow climbing 61% from its low point over the following year.[41] After interviewing Schiff in 2009, journalist and finance author Eric Tyson referenced various Schiff predictions during the 2000s and stated that "On all of these counts, Schiff wasn't just wrong but ended up being hugely wrong

If you looking for people who stuck their head in the sand then look at the Democrats in 2003 who refused to support Bush's reforms to Fannie Mae and Freddie Mac which might have reduced the impact of the crisis even if it was not enough to stop it.

Edited November 22, 2011 by TimG

[GostHacked]

A broken clock is right twice a day. There are ALWAYS people predicting the collapse of the system. When a major incident occurs random chance ensures that a few pundits will end up looking like they were geniuses.

The collapse of the system is happening right before your eyes.

Schiff was dead wrong after the 2002 tech melt down. It should come as no surprise that he lacked credibility when he continued to claim that 'doom is just around the corner': http://en.wikipedia.org/wiki/Peter_Schiff

People do get things wrong once in a while, however his track record is better than most.

If you looking for people who stuck their head in the sand then look at the Democratics in 2003 who refused to support Bush's reforms to Fannie Mae and Freddie Mac which might have reduced the impact of the crisis even if it was not enough to stop it.

It's not the Dems fault, no more than it's the Reps fault this time. They are both playing the game, and the average person loses in the end.

But even if that took care of the US's problem, that does not begin to address the problems that we see globally now.

[TimG]

People do get things wrong once in a while, however his track record is better than most.

What are you talking about? Up until 2008 he was dead wrong about everything. He really sounds like a 'broken clock' pundit to me. Preach doom long enough and you will eventually be able to say you are partially right. A pundit that would impress me is one with a track record of predicting market up turns as well as downturns.

It's not the Dems fault, no more than it's the Reps fault this time. They are both playing the game, and the average person loses in the end.

The crisis was a failure of regulation which means blame rests with the politicians. Many people think it was too little regulation when the real issue is a combination of too little and too much regulation. Edited November 22, 2011 by TimG

[GostHacked]

What are you talking about? Up until 2008 he was dead wrong about everything. He really sounds like a 'broken clock' pundit to me. Preach doom long enough and you will eventually be able to say you are partially right. A pundit that would impress me is one with a track record of predicting market up turns as well as downturns.

The pundits out there mostly downplay the severity of any crisis. Just like many are saying there is no financial crisis.

The crisis was a failure of regulation which means blame rests with the politicians. Many people think it was too little regulation when the real issue is a combination of too little and too much regulation.

Well you are now backtracking on your statement that there was too much regulation. Now you say it's both? How do you explain that?