Govts worldwide have stolen and wasted money beyond the capacity of taxpayers to make up the difference. See how that works?
Waste? Very Marxist in tone. See, for example, underconsumptionism! Nice to see you broadening your horizons
The Financial Services Modernization Act repealed the central provisions of the Glass Steagall Act which had to do with the ability of depository institutions to engage in investment banking, securities brokerage, etc. In other words, the repeal of those provisions allowed depository institutions to diversify their activities. This is not a matter of debate. It is all outlined in the Financial Services Modernization Act. And as I have stated, the institutions which were most diversified (the ones which took advantage of this deregulation) were the ones who made it through the crisis in relatively good shape (example - Goldman Sachs and JP Morgan) and the ones who did not (Lehman, Bear Stearns) went under or had to be bailed out. What created institutions that were "too big to fail" was not CDS or CDO or MBS. It was the massive barriers to entry erected by regulations which increased the cost for new startup firms (this was mostly due to regulatory capital requirements, but also due to technological requirements for assessing risk using methods mandated by regulators, etc.) An asset backed security (or a pool of asset backed securities such as a CDO) can be backed by different kinds of loans - commercial real estate loans, automobile loans, credit card loans, etc. There have been asset backed securities and CDOs in these markets for decades and there hasn't been any bubble or signs of instability as a result. What do all of these have in common? They are lightly regulated by government (if at all). So to claim that asset backed securities are responsible for the crisis is just incorrect. There doesn't need to be separation between these intruments and retail banking. There simply needs to be less government intervention in markets which distorts the process of the determination of creditworthiness.
I do not claim that at all. It is not like this is the first time Banks have failed due to speculation on overly risky assets with depositor money. This happened numerous times over the past 4 centuries. That is why such laws were put in place to begin with. I am not talking about investment banks .. those are a different breed .. hence why I used the term Retail institutions. I am totally in favor of free and fair markets in general. I could care a less if a retail bank wants to sell mortgages off to be securitized. That these securities were peddled off as "AAA" is outright fraud. What I am not if favor of is banks investing in such risky assets with leveraged depositor money. Banks are given leveraged money to make loans to stimulate the economy .. not to gamble with. The ratings agencies all should have been shuttered and replaced something that makes sense.
Our major problem in this country is our lack of understanding of what causes these crises - when I say "our" I am referring not only to the public at large, but to our policymakers as well. This has led to things like the New Deal, and most recently to the Dodd and Frank Act. The New Deal has had widespread consequences not only in terms of economic policy, but judicially as well. We've moved away from Lochner-era jurisprudence where our natural rights - such as our right to contract - were protected, and the Congress did not engage in activities that fell outside of the powers enumerated in the Constitution. But I digress. You mentioned the high leverage ratios of banks leading up to the discussion. Do you have any idea why banks (actually, it's not just banks, most companies do this nowadays) prefer financing their activities with debt? Perhaps you might want to consult the US Federal Tax code. There are huge tax incentives for debt financing which makes debt cheaper, and thus more profitable for companies. This has nothing to do with deregulation, and everything to do with the unintended consequences of government intervention. The same tactic was used leading up the the Iraq War - IE create the illusion that Muslim extermists wanted to kills us because of our freedom and they needed to be stopped because of their acquisition of WMD, when in reality the 9/11 attacks were an unintended consequence of our interventionism in the Middle East for decades and they had not acquired WMD.
To be honest I had not considered the tax considerations and in general I agree that free and fair markets are the best way to go. This is not the only consideration however. Just like with monopoly laws, price fixing, and so forth. Unbridaled capitalism can be just as destructive as the other extreme. There must be some protections put in place. The bank failures in the 1800's had little to do with tax benefits through debt financing. Many had banks taking on speculative risk and leveraged risk under the guise of stable insurance which had the appearance of mitigating this risk. This "appearance" of risk mitigation was one of the primary causes of failure in the crash of 2008 and many others. Banks and financial institutions from all over the world were invested heavily in the mortgage backed securities market because 1) they paid a high interest rate and 2) The risk was mitigated by purchase of swaps. There is no way that the Fed Heds did not know that the bubble they were creating would not lead to a massive financial collapse. There were many that knew that the mortgage backed securities market contained garbage. The idea that you could buy swaps on this garbage for a fraction of a penny on the dollar was absurd. Banks made tremendous money selling swaps when the markets were good but when the tide turned (as all evenutally do) the banks were on the hook to pay out the insurance. Because these swaps were not regulated a bank could sell more swaps than the value of the mortage backed security. For example, suppose a MBS consisted of one house worth $100,000. The bank could turn around and sell 5 swaps on that one house for 1000 dollars each. This is great and earns the bank $5000. The problem is that if the MBS defaults the bank is non the hook for 5 x $100,000 or 5 x what the assets backing the MBS were worth. Unfortunately the house value dropped to 50,000 so in reality the Swaps turned out to be worth 10 times the value of the assets backing the MBS. Had they let the MBS market go under any bank selling swaps would have gone under and most banks invested in MBS's would have gone under. It was obvious that this paper was not Triple AAA and retail banks should never have been exposed the way they were. This has happened numerous times in the past and there is no way that Bernake, of all people, did not know the endgame prior to moving P-K4 (well perhaps not the first move but for sure in the first few opening moves). There were many on the street who knew that sub prime garbage was being dressed up as Triple A beef and that insurance and other financial instruments were being sold on that garbage which had a value many times higher than the assets backing the MBS (even if these assets were fully valued). It was Buffet who called it financial Weapons of Mass Destruction.
Again, if you're going to deride asset backed securities (mortgage backed securities in this case) and credit default swaps, you can't put the blame on the market. The massive growth in the market for these instruments (mainly CDS) was fueled by government regulated capital adequacy rules. Banks used them to engage in balance sheet arbitrage. Financial engineers eventually found other uses for them (managing credit risk) and eventually speculators found that they could earn huge profits if they correctly identified the triggering of credit events in which the reference entity would default. Instead of looking at what was responsible for their growth, you simply want to regulate them. Ok. But rest assured, the market would (and has) develop other complex instruments to combat any attempt by government to regulate it. Complex instruments which could have other (possibly more dire) unintended consequences if used by institutions or individuals who do not properly understand them. I have no problem with either of these instruments and as we both know, they were not responsible for the crisis. You agreed with me that the fundamentals - low interest rates, the increase in levels of debt, the frequency of the use of risky mortgage contracts (ARMs), etc - were responsible for the bubble. All of these things were a direct result of the policy of the government to increase homeownership by giving people an opportunity to purcahse a home who would otherwise not have an opportuntiy. This was done by mandating that banks were not to discriminate against borrowers based on race or neighborhood of residence (specifically, people from low income neighborhoods.) It shouldn't be a surprise to anyone that there is a high correlation between residing in a low income neighborhood and default - so to disallow lenders to "discriminate" was asinine in that regard. Banks directly regulated by the CRA then started lending to these people, and other banks started doing the same so as to not lose any significant market share. Fannie Mae (government sponsored enterprise) then started securitizing these mortgages in the form of MBS and Freddie Mac (government sponsored enterprise) purchased these products from the secondary market and sold them to investors. I don't see where deregulation or lack of regulation comes into play. Financial institutions (including retail banks) use the same products you claim retail banks should not have been exposed to with commercial real estate loans, auto loans, credit card loans, etc, (all of which are very lightly regulated, if at all) as the underlying debt, yet these things have never experienced the volatility that products based on residential real estate have.
Ok, please at least read this. I at first ask Rev a simple question, the following: if by printing loads of money isn't a worry for inflation, why do we pay any taxes at all? Why don't we just print all of the money the US government needs to cover its bills and have the fed buy the bonds. His answer: You wanna try some MV=PT monetarism? Go ahead! Its dead stuff, so bring it back to life. My answer: Rev, you still believe in the printed money can save anything policy, and you just proved it. Unfortunately, we will find out that it can't. That's reality. You can take your equations and shove them you know where, because they were almost entirely based on real money, not fiat. And even if they were based on fiat money, you can change those rules just as fast as you can change a printing press.
And that's the problem with the right wing approach. It isn't based on economic study. The consequences can be horrenous, as illustrated by the disastrous monetariest experiment coerced on the British economy
Ok Rev, I would like a blanket statement from you on how you fix our impending doom. What is your fix for the current situation. The US will approach 16 trillion in debt soon, we are still at fabricated 8.1 percent unemployment rate, we have unpayable liabilities that include on a Federal level social security and Medicare and at state levels Medicaid. Our biggest buyer of our debt is the Fed. We've injected trillions of dollars into the economy since 2008/9 and the government can keep raising the debt ceiling as they see fit. Interest levels are at 0 and the Fed knows they can't raise this because it will harm banks severely and raise our debt bigtime. Our so called growth over the past say the last 20 for sure has all been fabricated by creating bubbles. We are now in the debt bubble and currency bubble. What happens if the US dollar no longer remains the world reserve currency? Only reason it is is because of oil. Do you believe in austerity for anything, or just keep printing to "create growth"? Do we just keep printing money and kicking the can down the road, at some point that road has to end, or do you think that road goes forever? Whatever happened to this basic equation: Profit=Revenue-cost.
Impending doom? There isn't one. The trouble with the non-economic emotionalism is that it fails to appreciate how capitalism, despite its tendency towards crisis, has multiple means to ensure the reproduction of capitalist profit.
Again, you try to dodge the actual conversation of when fiat money no longer fills the bill. Apparently, printed money is your solution. Just need to get it in a simple yes or no format. Thanks.
Try not to make stuff up as its an ugly tactic. I but acknowledge the ability of capitalism to maintain profit and the crackpot non-economic ponce that ignores that reality. Those against capitalism almost always have a better understanding of capitalism than the laptop right wingers dreaming of a cultist utopia
I'm not making anything up. The fact of the matter is, it took printed money to grow this economy over the past decade. It was escalated in 2008-09 and has been continued even further by this administration. Printed money leads to bubbles, as we already saw with housing. The next bubble is the debt bubble. The US govt can only print so much money to stimulate the economy before it causes some stirs. The US dollar is currently the world reserve currency. IF and when that goes by the wayside, the US economy tanks. 16 trillion dollar debt= unpayable. With trillion dollar deficits every year, it only adds to the tole, without even including our current liabilities (i.e. social security and Medicare). There is only so much printing the fed can do. Capitalism at its core is the best method. When govt and politics get involved, it kills it. Europe is taking SOME austerity measures, and its not being accepted very well. As expected, they are in recession. That is what will happen when govt money and fiat money is taken out of the system or at very least, not injected into the system. It's going to hurt initially because growth is no longer being fabricated by fake money. It's a form of a shock to the fake system that currently exists, and is apparently not one the US is willing to take anytime soon. Romney won't take it, and if Obama gets reelected, it will be worse. Capitalism at its purist form, is the best system. When govt intervenes, as it increasingly has over the past century plus, is when it starts to fail. I.E., progressivism.
Golly, its like Friedman never existed. When did the right wing decide to throw away monetarism and rational expectations? Must have been dozing
This article encapsulates all of our economic crisis's at once. The week that Europe stopped pretending The euro has essentially broken down as a viable economic and political undertaking. The latest rush of events reeks of impending denouement. On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world. Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project. "Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced," he said.
Austerity, on a large scale, like across the EU and the US, will not bring about a new age of economic growth after a short period of economic adjustment as the excess spending of governments is wrung from the economy. It is entirely more likely that such an adjustment will end up destroying the accumulated wealth of the middle class and sinking nations into high unemployment and shrinking economies with no end in sight as it has in Ireland, Spain, Portugal, Greece, et al. There is some question as to how far these economies will sink. Applied at the scale you envision there is some question as to how much wealth will survive and whether or not it will be enough to restart economies or if the world will devolve back to feudalism, where the limited wealth of the world was hoarded by the few.
And if money printing worldwide and debt accumulation continue? Nothing happens, it just goes on and on? Again, I will bring up the question, if printing money is the answer, why does anybody pay any taxes? Just print the (*)(*)(*)(*) money already and let people keep their money and spend it.
Capitalism will not work across world boundaries (countries) because one country has no concern for the good of mankind or the environment while the other does. The unconcerned countries allow children and poor people to work endless hours with no protections. Should this be rewarded? Until all countries abide by the same principles, the most caring will be defeated by the uncaring due to the money they save by treating human beings as cattle and the environment as a trash dump. Unless all contries abide by the same standards, only tariffs will level the playing field so the most responsible and caring will recieve the greater benefit instead of the worst. Tariffs will be a cost (tax) incurred by the uncaring for not caring.
"Austerity" is a misnomer. There is no "austerity" taking place in any modern western nation at present. By the way, what are you basing this fear-mongering on, exactly? You realize that Feudalism on a large scale requires a strong central government in order to work, right? There is a reason the lords pledged fealty to the king.
I know folk like to live in a bubble but we can't ignore the importance3 of 'austerity' for economic policy (and enforcing irrational 'choice')
Well, our governments like to live on bubbles, that's all our economies are based on anymore. The debt bubble is the one we are in now. Here's to 30 trillion as debt doesn't matter apparently.
Well, our governments like to live on bubbles, that's all our economies are based on anymore. The debt bubble is the one we are in now. Here's to 30 trillion as debt doesn't matter apparently.
Granny warnin' ya'll... ... the next financial crisis gonna make... ... the last one look like a cake-walk.
