EPTawaiting the last parts now
The Goddamn Economy: A Civilized Version - Page 2
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PanoRaMa
United States5069 Posts
awaiting the last parts now | ||
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BloodyC0bbler
Canada7875 Posts
On October 01 2008 05:50 ahrara_ wrote: I should probably put a stronger disclaimer about my background knowledge here... deregulation in general had a lot to do with it, it wasn't just one act, some of it was just financial *innovation* that regulation couldn't have accounted for, some of it started happening more recently, etc. etc. what I'm trying to say is just don't cite me on your essays, although if you need primary sources I can try to find them.  man im a cook, i wont ever be writing an essay on this hahaha.What i should have said was, that meeting allowed for a process to get much worse than it already had, hense one meeting basically spearheaded the process. More causes yes, but that was defffff a big one. | ||
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Ecael
United States6703 Posts
On October 01 2008 05:34 VIB wrote: Not sure I understand what you mean. How does "bank failures effect them negatively"? Only because others are losing their jobs? Wouldn't the line of thought here be "if it makes me $20 billion myself how do I care if 20k others lose their jobs"? Because the 20k other people losing their jobs will come back to bite you in the ass. It isn't just a clear cut "That's his company, not mine". Rather, everything is interconnected, and the failure of the likes of AIG could easily have caused another round of writing down that eats up more investor confidence. That's how Merrill and Lehman died, and people know that's what would've happened, and even worse, they don't know who it would happen to. The acts by investors and those people with money at stake are highly irrational, taking the bank run of that Hong Kong bank as an example. Some text message warnings of unknown nature at a time like this set off a massive bank run on a large bank, the health of which didn't appear to be as dire as many others. No, if you are smart, you don't want to play Russian roulette at a time like this, you make your sure bets. As for the Freddie and Fannie situation, from the things that I have read up, it isn't so much government pressure as the executives themselves taking on such risky methods of boosting revenue. At that, they started buying into the subprime securities as a way of generating more revenue, even though by mandate they should not have exposure in such areas. To make that clear, if there were government pressure for their actions, then I read nothing about that. However, Freddie's venture into the subprime area began after their books were found to be faulty in...2004~5 iirc, with Fannie following suit afterwards, which is then coupled with a huge revenue boost of both companies as the housing boom hits a peak. To me, that seems more of an indication of the companies acting on their own rather than the government, which has nothing to be gained from the way those two companies racked up profits. A trigger might be governmental pressure to allow housing to more, but that should not have generated as huge an impact as that. No, when the two companies are purchasing securities issued by each other, there is definitely something amiss that goes beyond just government pressure. | ||
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tec27
United States3695 Posts
On October 01 2008 05:53 ahrara_ wrote: I'm pretty sure I covered this under Fannie Mae/Freddie Mac, although not with detail. I would argue that deregulation contributed, but that deregulation of mae/mac contributed more. My background knowledge on the two companies is poor, so if you can fill me in that'd be cool. I could add it it to the post under a spoiler, just make sure it's well written. I'm trying to stay politically neutral, but I have my biases. CTStalker: I was pissed off and wanted to be inappropriate just for the sake of being inappropriate. You might be trying to stay politically neutral, but you're only neutral between the Republicans and Democrats. You're very, very firmly on the side of government controlling the lives and actions of everything and everyone. Mephisto is quite right, and because he's right about that, it invalidates a large part of your argument for more regulation. Fannie and Freddie were greedy, but greed is a necessary, integral part of a free market. Its what keeps things healthy and moving. The problem is when you introduce governmental interference, through regulation, pressure, favors, backings, etc. That interferes with the risk companies normally feel towards making bad investments that normally prevents them from making them, and results in horrible events like these. So obviously any solution presented should not result in the government being further intertwined in the market, as that will only further distort prices and risk. The proper course of action is to let the market correct itself, survive the downturn for a year, and seek to regulate government (not businesses) more so this doesn't happen again. | ||
FakeSteve[TPR]
Valhalla18444 Posts
ahrara you're my favourite registered 2008 poster | ||
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randombum
United States2378 Posts
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jgad
Canada899 Posts
On October 01 2008 05:18 HnR)hT wrote: Yes, because banks just love to lose money when mortages default. In fact, banks were *pressured* by the government to lend to mainly minorities who can't pay back their loans. Both parties supported this. The idea was to "help" blacks (and hispanics) catch up in home ownership with whites. Banks have been getting accused of racism for not lending enough to minorities, who were disproportionately liable to default even for the same income level. Banks aren't free of blame; they went along with this because of greed, and because they assumed the taxpayer would bail them out if something goes wrong. But it's not as simple as "lack of government regulation caused the crisis". I agree completely. I would go so far as to say that the Federal Reserve itself produces probably the greatest moral hazard of all - it was their ability to generate credit with impunity that lubricated the selling of these mortgage derivatives and cushioned those who stood to profit from risk. The problem isn't that free markets need regulation, it's that they actively *don't* need regulation - to the point that regulation essentially generates what Rothbard would call "violent transactions". The excess of credit and the massive profits created by these securities were motivation enough for firms to threaten or even fire traders who steered clear of these toxic instruments - this because, at the time, those instruments were making the money and if you didn't play the risk game you weren't making money either. So all down the line people are coerced into engaging in transactions they would otherwise not have rationally engaged in. One can speak of asymmetry in information, but this was certainly not the case here - nobody buying or selling mortgage derivatives with billions and trillions on the line is not going to know what was going on. Everyone knew. Everyone knew they were bad. Everyone traded them anyway because that's what everyone else was doing - and they were all doing it because of loose and fundamentally destabilising fiscal policy from the Fed. | ||
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ahrara_
Afghanistan1715 Posts
On October 01 2008 06:35 tec27 wrote: You might be trying to stay politically neutral, but you're only neutral between the Republicans and Democrats. You're very, very firmly on the side of government controlling the lives and actions of everything and everyone. Mephisto is quite right, and because he's right about that, it invalidates a large part of your argument for more regulation. Fannie and Freddie were greedy, but greed is a necessary, integral part of a free market. Its what keeps things healthy and moving. The problem is when you introduce governmental interference, through regulation, pressure, favors, backings, etc. That interferes with the risk companies normally feel towards making bad investments that normally prevents them from making them, and results in horrible events like these. So obviously any solution presented should not result in the government being further intertwined in the market, as that will only further distort prices and risk. The proper course of action is to let the market correct itself, survive the downturn for a year, and seek to regulate government (not businesses) more so this doesn't happen again. ok, you may be right about this. as far as the background goes and what's actually happening and why, I think I'm still neutral. I'll try to distinguish the facts and my personal advocacies more later on. thanks fakesteve =) | ||
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dronebabo
10866 Posts
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theonemephisto
United States409 Posts
On October 01 2008 05:53 ahrara_ wrote:I'm pretty sure I covered this under Fannie Mae/Freddie Mac, although not with detail. I would argue that deregulation contributed, but that deregulation of mae/mac contributed more. My background knowledge on the two companies is poor, so if you can fill me in that'd be cool. I could add it it to the post under a spoiler, just make sure it's well written. Well, how I understand it: Fannie Mae and Freddie Mac were originally both created by the government as government agencies, but were later partially privatized, resulting in them being called Government Sponsored Enterprises, or GSEs. Their purpose was to use their large supply of capital to buy mortgages off of the market, repackage them into securities and other derivatives, and then sell them to other firms. However, even though they are partially privatized, they still retain a lot of government control and influence. They're regulated by Department of Housing and Urban Development (I think this started in the early 90s) and are chartered by Congress. Since HUD has become their regulator, they have had yearly goals; they're supposed to buy a certain amount of "affordable" loans (read: low-down-payment loans to low-income families). Of course, this sounds good, as everyone wants low-income families to have housing right? However, the fact is that many people simply can't afford housing, and the government mandate for Fannie and Freddie to buy these bad loans has made them viable for banks to offer (especially considering how large Fannie and Freddie are, they buy something like 40% of mortgages created each year). And to encourage even more of these subprime loans, Congress also passed a law giving tax credits to Fannie and Freddie when they bought subprime securities, further increasing the demand for them. So these government mandates and incentives greatly increased the amount of bad loans the Fannie and Freddie bought. What allowed other banks and investment firms to buy these repackaged securities from F&F was the implicit government guarantee behind them, basically, since the government had so much stake in F&F, people assumed that the government wouldn't let them fail or let their liabilities disappear (which was obviously true), creating a moral hazard situation where people disregard risk because there is no downside to failing. So government regulation and interference with Fannie Mae and Freddie Mac contributed to the creation of the bubble, and the implicit government guarantee behind the securities allowed it to spread. Of course, this isn't the only reason, but there are also many other government regulations that have helped create this crisis. The Community Reinvestment Act, which was substantially strengthened in 1995, mandated that banks make a certain amount of loans to low-income families, again creating a misallocation of resources into the housing market. There was also a recent act that reduced the capital gains taxes that people had to pay on homes substantially, but I can't find a source atm. I'm not clearing investors of all blame, sure, they acted greedy, ignored risks, and took advantage of new derivatives and the market situation. But I'm saying that fundamentally, the problem was with too much government regulation and interference, not too little. More government regulation probably could've delayed this problem, but it would've only been a short-term fix to the underlying problems introduced by the government itself. tl;dr, Government mandates for affordable housing loans to low-interest families and it's control over the Government Sponsored Enterprises of Fannie Mae and Freddie Mac created the underlying driving force for the creation and subsequent popping of this bubble. | ||
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Phrujbaz
Netherlands512 Posts
http://daviddfriedman.blogspot.com/2008/09/current-financial-mess.html http://daviddfriedman.blogspot.com/2008/09/regulation-too-much-or-too-little.html Edit: For some reason I missed theonemephisto's post. Apparently he would agree. | ||
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oneofthem
Cayman Islands24199 Posts
calling an organization a 'government' does not . the basic situation in case of governmetn regulation is still, "guy a tells guy b to do this/not do this." ordinarily, when we are presented with such a situation, we would ask whether guy a's advice or demand is good. that the governmetn is in this case guy a would only be interesting if there are concrete political attributes involved. for instance, if the government is perpetually hostile or corrupt. even so, these normally make the government demands themselves improper. in short, the important thing here is what is being done, not who is ordering whom around. the ideological narrative of a 'private' business world and the 'outsider' public and government is not only paper thin but also a crutch used by people who would not face up to their responsibilities. and no, saying "i am greedy by nature!" is not a good argument to excuse oneself from caring more. in any case, with the way things are, we would of course prefer no government. but there needs to be a corresponding self policing culture that effect the desired regulatory goals. unless the private people do behave well, "private people going about private business" isn't an effective shield against being told what to do. | ||
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Kennigit
Canada19447 Posts
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RoieTRS
United States2569 Posts
Its all history. What everyone wants to know is what's going to happen next, and what can we do? | ||
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tec27
United States3695 Posts
On October 01 2008 07:20 oneofthem wrote: on one hand, the market is portrayed as free individuals doing things, on the other, it is seen as a dynamic with behavioralist rules like "people are greedy." this basic reification leads to a lot of fuzzy moral thinking. suppose we have concluded, from empirical research, that people will lie, does it then mean that we should permit such, or even tolerate it? would you put up the excuse, "it is in my nature to steal" after you've been caught lifting a loli's candy, if so, you are a very brave and silly man indeed! calling an organization a 'government' does not . the basic situation in case of governmetn regulation is still, "guy a tells guy b to do this/not do this." ordinarily, when we are presented with such a situation, we would ask whether guy a's advice or demand is good. that the governmetn is in this case guy a would only be interesting if there are concrete political attributes involved. for instance, if the government is perpetually hostile or corrupt. even so, these normally make the government demands themselves improper. in short, the important thing here is what is being done, not who is ordering whom around. the ideological narrative of a 'private' business world and the 'outsider' public and government is not only paper thin but also a crutch used by people who would not face up to their responsibilities. and no, saying "i am greedy by nature!" is not a good argument to excuse oneself from caring more. in any case, with the way things are, we would of course prefer no government. but there needs to be a corresponding self policing culture that effect the desired regulatory goals. unless the private people do behave well, "private people going about private business" isn't an effective shield against being told what to do. I think you're misunderstanding what 'greed' is in relation to markets. The 'rule' is more that 'people should act in their self-interest', which is then simplified to 'being greedy.' That self-interest, however, can be many things, including things like helping the poor, supporting charities, etc. When you think about it, merely having priorities or plans in your life would result in you acting in your self-interest, and therefore, you can fairly certainly say that applies to everyone. So it doesn't conflict with free individuals making free choices. When the government is telling you to do/not to do something, its quite a lot different than some random guy giving you advice. You can't take the fact that its the government out of the equation, because the government is, in many cases, much more powerful and influential than a regular person. Capitalism and free markets are not excuses for people to be uncaring. Their merely systems that allow large amounts of people to function together and achieve their own self-interests. Like I said, those self-interests can in themselves involve 'caring more'. | ||
Last Romantic
United States20661 Posts
Swenson and Birnbaum are pretty damn cool. | ||
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MetalMarine
United States1559 Posts
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Last Romantic
United States20661 Posts
On October 01 2008 08:04 MetalMarine wrote: Interesting stuff indeed. Hard for me to grasp the whole concept but i get most of it. So what do you guys think will happen as this progresses? It's always better to hear TL.net's point of view than just watching stuff on CNN With the rejection of the bill, the market will continue to implode until it reaches a stable low; then it'll start going back up again. Basically, a recession. It's not necessarily a bad thing - a recession every once in awhile keeps everyone honest. | ||
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jgad
Canada899 Posts
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jgad
Canada899 Posts
Capitalism and free markets are not excuses for people to be uncaring. Their merely systems that allow large amounts of people to function together and achieve their own self-interests. Like I said, those self-interests can in themselves involve 'caring more'. Indeed. Free markets simply mean that anyone is free to exchange with anyone else free of coercion or violence. By this token, so long as there are no imposed restrictions, exchanges will only happen when both parties see a benefit. It's this simple fact - that economics is not a zero-sum game - which allows individuals seeking their own goals to necessarily contribute to the common wealth of those they trade with, regardless of whether it is their intention to or not. (It is this phenomenon, that free exchange is always mutually beneficial, which prompted Smith to say that it was as though an "invisible hand" was at work.) If I have three fish and you have three steaks, we would probably both be happy to exchange one - I would rather have two fish and a steak in place of three fish, you would also rather have two steaks and one fish in place of three steaks. Thus we both walk away with a higher desire fulfilled - we are "wealthier" both than we were before in that we are happier with our situation at present as compared to before the exchange. | ||
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