Bailout bill

[DoTheFandango]

So you send me to a link, what is that supposed to teach me?

Thanks for Congressman Ron Paul's take on it, but I'm going to just as carefully listen to Senator Chris Dodd's take on it. The two are equals are my playing field -- and I understand the fact that "Ron Paul is unbiased and doesn't run on the dollar of a lobbyist" or whatever this Revolution speaks of, but libertarian values are some that I just can't bite into without wondering to myself if I really believe in them anyhow.

Maybe the wound may heal by itself, maybe it was better to let the free market roam and fail or whatnot. I don't know. I don't understand how Mr. Paul knows one way, or how Mr. Dodd knows the other, or how anyone knows anything at this point! No one cites sources, no one can unilaterally predict what will happen, I'm not even sure what the fuck is actually happening.

[Jerome Scuggs]

DTF: not sure if you caught this, but that was Ron Paul - from July. Perhaps you should go read the things Dodd was saying - In July.

Maybe, just maybe, stop listening to people? Listen to yourself? Do you think you're the only human alive who doesn't know things? We all fear the uncertain. Why are you waiting on someone else to come up with the answer? Why are you waiting on someone to say something that will, in one sitting, sum up every problem and lay out every solution?

So I've sent you a link - what is that supposed to teach you? Well, if you are going to say that - then it can teach you nothing. Because you're obviously not interested in learning. You're interested in immediate satisfaction with no concern for rigorously examining that which you see.

I've posted links. I've written paragraphs. I've read as much about what I believe to be true, as much as I read into opposing views. I've been doing it before most people even thought things would go bad. And now we're here - and, what?

I started learning about economics my freshman year in high school. I still don't know everything. Six years ago, I took a wild stab in the dark, said "hey, maybe capitalism is a good idea". I caught alot of shit, but I didn't give up, or stop. If someone said something that contradicted what I believed - then I figured it out. I've changed my beliefs many times. I've had to concede and revise many positions.

But what I've never done, is ignored someone's opinion while claiming there's nothing to learn.

If you want to learn, why don't you ask questions? If you don't believe Ron Paul - then question his beliefs!

Don't fucking wait. The only person who can truly teach you, is you. The only way you will ever understand is if you make sense of it. Are you waiting for someone to magically say everything that you've ever thought, and nothing you haven't?

I've learned things from Ayn Rand, but I'm not an Objectivist. My freshman year of college, I read up on, and was deeply enamored with, the policies and writings of Milton Friedman - who I now disagree with on fundamental levels.

The only economic policy I advocate is Jerome-onomics. The only political system I advocate is Snowcialism.

Do you need statistics? Do you need evidence? Maybe what you need is a perspective.

[Epinephrine]

Jerome is correct in that the market should be just allowed to correct itself, because in the end the cause of this mess was the fact that capitalism ran wild when companies (more specifically executives of companies) felt they could make a ton of money by giving loans to people who didn't deserve loans and then selling off the risk to someone else who then believed that they could sell it to someone else yet again and make them the fool.

In the end, everyone - from people who didn't deserve loans, to home speculators, to corporate executives - got too greedy, and the entire bubble was unsustainable. So if the thing just runs itself, eventually we'll get back to 'normal' valuations of things.

The only problem with letting things sort themselves out of course is that in the meantime, in the few years it will take for this to happen, millions will be made homeless, millions more retirees and soon to be retirees will see their savings evaporate, and millions more will lose their jobs not because whatever industry they were working in was actually badly run, but because market panic conditions dried up capital flows which made even very solid businesses shut down because of the lack of capital. If you actually don't care about this happening at all, then by all means letting the thing sort itself out is the best choice.

Personally for me, I would go for bailing out individual mortgage holders and changing the bankruptcy laws to help them out. There is no perfect solution to this mess, and I think it's more effective to get to the root of the problem and bail out the people at the root (people defaulting on their mortgages) rather than bailing out the other end of the system which is the credit markets drying up as a result of bad deals related to defaulted mortgages. That would probably be more effective, but then again I'm not an economist, so I'm just taking Paul Krugman's word for it.

[Jerome Scuggs]

Jerome is correct in that the market should be just allowed to correct itself, because in the end the cause of this mess was the fact that capitalism ran wild when companies (more specifically executives of companies) felt they could make a ton of money by giving loans to people who didn't deserve loans and then selling off the risk to someone else who then believed that they could sell it to someone else yet again and make them the fool.

I read an article in the NYT a few days ago, where someone points out this type of market failure. He uses a metaphor to show how competition leads to a "race to the bottom".

Suppose you have athletes who compete. Now, suppose one athlete discovers that by using steroids, he can do better in competitions - even though there poses a small risk of undesirable consequences in the future. He takes steroids, and does better - and so his competitors begin using steroids... of course, in the end, all the athletes have strokes and die.

Such a metaphor explains the dangers of competition in an unregulated market.

Of course, the article neglected to mention something: in this case, the "steroids" - mortgage backed securities - did not originate in the unregulated market, but from the government.

So, let's modify the metaphor: Let's now suppose that the athlete's manager had to pay back some loans. Short on money, he has a thought: if he could place a large bet on a sports competition, he could pay off his debts. But how could he guarantee a return? Why, by giving his own athlete steroids. Suppose the athlete has doubts: won't this be potentially risky? The manager replies by saying, of course not - you have my assurances and full backing!

Of course the companies would jump on the mortgage-backed securities - the government assured them that they would be guaranteed by the government.

The NYT article didn't mention that Fannie Mae - created by the government - was the firm that began creating these types of risky loans (In fact, the article doesn't mention "Fannie Mae" at all.) The article didn't mention that it was the government that pledged complete backing - thus removing the dis-incentive of risk. Much like fractional-reserve banking, mortgage-backed securities did not originate as a viable market tool, but as a government creation.

Yes - companies took a bad idea and ran wild. But you're still missing a key question: where did the bad idea come from?

[kthx]

That answer is simple, liberals who make business decisions based on fairness instead of credit reports.

[Epinephrine]

Yes - companies took a bad idea and ran wild. But you're still missing a key question: where did the bad idea come from?

The problem with your analysis presupposes a culprit (which is always in your view government) and assumes no one else is at fault. When seen from this way, anything could be argued as such. i.e. the actions of a murderer could be attributed to bad public schools, which of course is funded by government.

The fact is, Fannie and Freddie have existed for decades, and their backing of mortgages have also existed for decades, yet these problems never materialized in the past.

Seen another way, the current problems began more recently, as recently as 1999. In that time, Clinton decided to sign a bill where the 70 years old idea of separating commercial banks and investment banks was repealed. Suddenly commercial banks were infringing on the territory of the investment banks. This also coincided with the Bush administration and Alan Greenspan's idea that he shouldn't be regulating anything and ignoring a housing bubble by lowering interest rates to fund speculation. The rules for Freddie and Fannie were also changed and warning signs were ignored at the end of the 90s thus allowing this to happen.

As commercial banks encroached onto their territory, investment banks decided that they would start selling ever more exotic financial instruments to seek higher returns. With new mathematical models and computer analysis, investment banks were able to invent ever more complex securities, including the now famous mortgaged back securities. As investment banks were allowed by lax regulation to have very few reserves vs. debts, they used the power of ever increasing leverage to make ever more profits. This was a natural reaction of the financial industry on lax oversight, because there was no specific regulator looking over the investment banks, and because they in fact operated with very few rules, they were able to continuously leverage bad loans (funded by low interest rates, and a denial of any housing bubble by the powers that be) until they reached the current point, where many finance companies had no where enough money to actually pay back their loans, where insurance companies had no where enough money to pay back insurance on bad loans, and where it all came tumbling down like a house of cards.

See, the problem is, investment banks were repackaging loans into such exotic packages which almost no one understood (aside from those who probably didn't care because they could get their money and run with it no matter what happened in the end) that normal banks were tricked into believing that they had very little risk in giving out crappy loans.

So in the end, decades of Fannie and Freddie existing didn't give us any problems until a few things happened. First of all, the rules were relaxed and less regulation was given to all and so those who could, ran wild, got their profits and damned everyone else. Second of all, new ideas and technologies allowed risk to be so hidden that banks were making bad loans left right and centre with the belief that they had passed the risk onto someone else. Third of all, warning signs were ignored (probably willfully as per the belief that less regulation = market will sort things out for the better goodness) and problems were not fixed earlier even when many saw the folly of such subprime loaning, and the exotic securities.

Certainly with better rules and more oversight, they would have never been allowed to go so far (i.e. in Canada there has not been a similar crisis because by large we dont' allow such subprime mortgages to exist in the first place). In fact, the financial health of normal banks has always been a lot better than the investment banks, except for those banks which have now been pulled down because of the crisis. In the end, the banks were given a lot of leeway, and those that could run with it ran with it. The people at the top of these corporations could care less what happens to the economy, all they cared about was their own paydays, and their own bonuses. This is of course to be expected, because greed is one of mankind's most base urges.

Knowing this, we need to do a better job at stopping excesses before they happen, and stemming problems before they get bad, rather then letting these things get worse and worse until the whole thing collapses and the entire economy is put at risk.

[Capital Knockers]

fuck it im not getting involved in this one

k - just a lil bit.

This is what happens to a country that displays willful ignorance to live some bullshit lifestyle of excess called 'The American Dream'. America is getting exactly what it deserves, and I wish this bailout bill didn't pass. Squeezer, you'd better believe that people need to suffer and pay. Obviously nothing else is getting people to really get out there and dig for information, or try to make a difference in their country.

Don't get me wrong, hell of alot of chill/informed Americans out there - but damn are you guys outnumbered by fools.

[kthx]

Better hope America doesn't get economically destroyed, because I doubt Canada is going to stop Russia or China from going on a rampage.

Besides you completely misunderstand what the American Dream is, perhaps because you are Canadian, is there a Canadian dream btw.. two hockey sticks on every wall and a bottle of maple syrup in every pantry or something? The American Dream isn't a life of excess it is basically saying "if you come to America and work hard, you will eventually be able to buy a piece of America for your very own" unfortunately in this days America, that is full of groups who feel the need to pay back minorities for their years of slavery or whatever it may be, people who don't work hard are given houses, which they can't pay for.

[Jerome Scuggs]

The problem with your analysis presupposes a culprit (which is always in your view government) and assumes no one else is at fault.

Yes, and no. My analysis presupposes axioms from which my view of government is also derived. But that does not make them mutually exclusive or fundamentally contradictory. Government public schooling can be argued in that context - just because it wasn't the specific, main cause that leads a particular individual to commit murder doesn't mean it's invalidated. By that logic, you could argue that "mental illness" isn't a contributing factor - he's been mentally ill for so long, why hadn't he committed murder before?

The fact is, Fannie and Freddie have existed for decades, and their backing of mortgages have also existed for decades, yet these problems never materialized in the past.

Which brings me to this point. Your presupposition is that events and actions cease to have consequences after a specific period of time.

Now, I also believe that the Federal Reserve is a bad institution. I derive it from the same axioms that I'm deriving my economic analysis and political analysis.

Consider the Fed's actions. What happens when the Federal Reserve lowers interest rates?


Notice how mortgage rates generally follow the Federal Reserve interest rates - not actual market supply and demand.


And what is the result?


Now, throw Fannie Mae back in the mix. Yeah, mortgage backed securities have been around. But what changes? Federal intervention causing a MBS-purchasing bubble.

And, to provide an even more specific causal link: in 1995, the government began offering Fannie Mae credit for purchasing subprime mortgages.

A big picture forms.

Clinton decided to sign a bill where the 70 years old idea of separating commercial banks and investment banks was repealed. This also coincided with the Bush administration and Alan Greenspan's idea that he shouldn't be regulating anything and ignoring a housing bubble by lowering interest rates to fund speculation. The rules for Freddie and Fannie were also changed and warning signs were ignored at the end of the 90s thus allowing this to happen.

From the big picture, you see inconsistencies with your timeframe and the numbers. Not to mention - is Greenspan's control of the interest rates, still not government intervention? Are interest rates decided by the free market?

Rates fall during the 2000's. Remember my discussion on the business cycle? Greenspan, in order to stave off that recessionary period, embarked on a rate-cut session... unknowingly stimulating the purchase of risky mortgages - as long as rates fell it would have been safe.

As commercial banks encroached onto their territory, investment banks decided that they would start selling ever more exotic financial instruments to seek higher returns. With new mathematical models and computer analysis, investment banks were able to invent ever more complex securities, including the now famous mortgaged back securities.

Mortgage-backed securities have been around since before computers - they were created in 1938.

As investment banks were allowed by lax regulation to have very few reserves vs. debts

"lax regulation"? That behavior is impossible in a free market. That policy is the entire concept behind fractional-reserve banking. The government sets what it believes is a "reasonable" reserve/debt ratio. What is the ideal ratio?

they used the power of ever increasing leverage to make ever more profits. This was a natural reaction of the financial industry on lax oversight, because there was no specific regulator looking over the investment banks, and because they in fact operated with very few rules, they were able to continuously leverage bad loans (funded by low interest rates, and a denial of any housing bubble by the powers that be) until they reached the current point, where many finance companies had no where enough money to actually pay back their loans, where insurance companies had no where enough money to pay back insurance on bad loans, and where it all came tumbling down like a house of cards.

Now we get to where blame can be placed on the unregulated finance markets. They placed too much of a gamble on the risks - and did it in expectation of higher profits.

But you said it yourself - there was a denial of a housing bubble by the powers that be. So... do you expect the businesses to disobey? Especially when Fannie Mae - a government-sponsored enterprise - spearheads the purchasing of these securities, and reaps a profit?

If the government is more adept at managing the market than the market - then why would businesses have any cause to disobey?

Well, I'll give Wall Street one thing - at least they learn fast.

See, the problem is, investment banks were repackaging loans into such exotic packages which almost no one understood (aside from those who probably didn't care because they could get their money and run with it no matter what happened in the end) that normal banks were tricked into believing that they had very little risk in giving out crappy loans.

In my other thread, I mention an NYT article discussing Clinton's plan. I mentioned how even in 1999, wrote about the potential problem, but what did they say? That if Fannie/Freddie failed, they would be bailed out.

Not bankrupted. Not wiped out. Bailed out. As in - no matter how bad the potential loss, the government would intervene. Maybe that's why they didn't consider the implications of Clinton's plan in the article too seriously.

Fannie Mae - created as a result of the Great Depression and FDR's New Deal - where he vowed to never let such a failure happen again. This is why a Nobel laureate criticizes Clinton's 1999 decision and Greenspan criticizes Fannie Mae.

So in the end, decades of Fannie and Freddie existing didn't give us any problems until a few things happened. First of all, the rules were relaxed and less regulation was given to all and so those who could, ran wild, got their profits and damned everyone else. Second of all, new ideas and technologies allowed risk to be so hidden that banks were making bad loans left right and centre with the belief that they had passed the risk onto someone else. Third of all, warning signs were ignored (probably willfully as per the belief that less regulation = market will sort things out for the better goodness) and problems were not fixed earlier even when many saw the folly of such subprime loaning, and the exotic securities.

Can you blame the failures on the market? It is true that a free market will fix itself. But the only catch is, the idea that the free market will fix itself doesn't work when there is not a free market.

Less regulation is still regulation. This is why I am an anarchist. I actually discussed this earlier today. Removing regulation doesn't somehow hide the problems that have spawned from years and years of piled on regulations - the necessary result of a flawed central bank. Karl Marx was right about one thing: a centralized bank destroys the market. It is a government-imposed system that required regulation for inherent flaws.

So you also mention new ideas - What new ideas? What technologies? And how do they provide a more internal implication to this - I thought it was Clinton removing that law that "suddenly" caused banks to jump in to the market? So, is it Clinton - or the technology/ideas? By your logic, it can be one or the other. But if it's both - then why? Why are those two factors more significant than my analysis?

Certainly with better rules and more oversight, they would have never been allowed to go so far (i.e. in Canada there has not been a similar crisis because by large we dont' allow such subprime mortgages to exist in the first place).

How are your loans made? Do you just not give out loans to risky borrowers?

Because neither did we, until governments intervened. From the Community Reinvestment Act to the Civil Rights Act, banks were forced to use less and less discretion when calculating risks and adjusting the terms of the loans accordingly. (And before anyone takes that the wrong way - the Civil Rights Act wouldn't be necessary in a free market; as it stands the Civil Rights Act was a great thing - it's always nice to see governments give human rights, as opposed to the usual.)

The people at the top of these corporations could care less what happens to the economy, all they cared about was their own paydays, and their own bonuses. This is of course to be expected, because greed is one of mankind's most base urges.

How does government avoid this innate human trait? How is giving such arbitrary, coercive power to such selfish men better?

Yeah, government intervention is necessary. Thus, the government gives an ex-Goldman Sachs executive control of the finance industry, a couple hundred billion, and new authority - and he hires an ex-Goldman Sachs employee to head his newly created "Office of Economic Stability" (i am serious), who then proceed to bail out Goldman Sachs.

Maybe I'm just seeing things from a government-is-bad point of view.

[Summa]

Well, I don't necessarily like the bailout bill. Bail out those who preyed on the weak of mind and dug us into this mess with bad investments, so they can do it all over again? Hm. And the shitty part is that those in the lower and middle class can't do anything because they are for the most part wage slaves or in debt to these companies. We should seriously just change a lot of the job titles of "employee" to slave and "employer" to master because thats the state our economy has been reduced to. In the end, companies that dug us into this mess are in essence being rewarded instead of feeling the consequences. Oh well, as long as we continue to have a subpar education due to a combination of lack of incentive to become a teacher thus less quality teachers, teaching to the test, the suppression of creativity, and the white noise of mainstream music/tv; and we continue to perpetuate this lack of common sense and our shitty instant gratification mentality we will most likely stumble into the same hole again.

Moral of this rant: The people who got us into this mess got paid off in the end, and the majority of the people can't do a thing about it. So we should all screw over the little guy because you will get rewarded by the government, and if you're the little guy.....tough shit you're a slave to the man.

[Capital Knockers]

Call me naive, but I can't get over one simply blinding fact. These people fucked up, and we're giving them more money. ALOT more money. Honestly wtf, let the companies die, let the world market fuck up. Let it all go to hell in a handbasket. Once these companies don't all have their fucking money to hide behind, they might have to take the everyday person a little more seriously. I still can't believe this is even happening, it honestly makes me sick. To see such fucking stupidity from the self-proclaimed greatest country in the world. It's all a product of laziness plain and simple. Not enough people look past CNN for their information, so bills get passed. Stupid, greedy people get into power. People can blame the government, the market, Clinton, whatever the fuck you want, blame canada that works too.

Until things get bad enough for the average person to give an actual shit about the state of their country, things are just going to keep getting worse. It's the American citizen who's to blame for all of this. Too many people in that country just listen to the news, and all the USA ROCKS bs and don't actually look at how fucking horrible your country is actually doing right now. I really wish I could go down to the states, and personally beat the living fucking stupid outta the redneck shit-for-brain, fatass brainwashed idiots.

2012 (not saying i believe it) is coming people - and whether you think all that shit is true or not, all I have to say is this. How great a job is the world doing of arguing it? I think it's about time for a little divine intervention to rid the world of this bullshit.

Honestly, Americans, help your god damn country. Get out there, with a sign, some homemade newspapers - whatever. Just do something other than eat Mcdonalds and watch people on TV rant and rave about how America is the best country in the world.

(yes this is a rant, and it isn't really directed specifically at anyone on here.. aside from the paradise type people that are as stupid and blind as I've mentioned)

[Zerzera]

By blaming the bankers you are denying that the Americans (on average) have been living beyond their means for quite some time. It's in our nature to point at others, but you have to wonder why banks were forced to take higher risks to assure liquidity. You can't loan out money when people want to loan more than is being put in the banks that's needed to secure it.
Of course the government supported this Jerome, they are the representatives of the people. They are there to make their people happy. As long as they are the worlds consumers the government could get as much money in loans from the producing countries. If you want to keep up this living standard you will have to let your government do anything to keep you all being the consumers. Even if it takes that much money. You have to keep buying stuff or you might not be able to afford the things you took for granted.

[kthx]

Well cap, I agree that the bailout was fucking stupid, and that a lot of dipshits in America live beyond their means but it doesn't really mean that America is failing. My only problem is that if we are going to be switching over to communism I would much rather be voting for Putin than for Obama. At least then I would know that our military would remain strong and that I wouldn't be told "sharing wealth isn't communism."

I do what I can to say no to these things, I signed online petitions, called and emailed my representatives, my senators, but they completely ignored us, so what we have to do as Americans is vote these guys out next election, anyone who voted yes, now that still might not mean much of anything because the replacements could be just as bad, but that is the only message the American people can send now.

[Fluffz]

it may not be a skyrocketing investment, but they have a point: an ounce of gold will always be worth an ounce of gold.

GL finding somone who buys gold during hyperinflation in a global market. Sure, if you have a million to spare buy some gold, you can always sell it for a kickstart after markets are stable again. But be aware that your gold in some swiss depot wont make you happy if its cost is the reason you cant afford your daily food. So if you dont have a million to spare i would suggest to increase the stock of canned food in your basement, hope markets dont crash and buy something in between stocks and inflation bonds, depending on how stong your faith is.

[Capital Knockers]

Well cap, I agree that the bailout was fucking stupid, and that a lot of dipshits in America live beyond their means but it doesn't really mean that America is failing. My only problem is that if we are going to be switching over to communism I would much rather be voting for Putin than for Obama. At least then I would know that our military would remain strong and that I wouldn't be told "sharing wealth isn't communism."

I do what I can to say no to these things, I signed online petitions, called and emailed my representatives, my senators, but they completely ignored us, so what we have to do as Americans is vote these guys out next election, anyone who voted yes, now that still might not mean much of anything because the replacements could be just as bad, but that is the only message the American people can send now.

Gotta say, that rant of mine was a jumbled mess. Looks like a forums post I would of made 3 years ago.. cept TK hasn't come on to smash it to bits with one line yet. I really have no problem with alot of Americans. Even though I disagree with you alot, I can respect that you stand up for what you believe, do some research, and try to be properly informed and act on that information. That was basically the point I was trying to make: Too many people in America sit on their couches and bitch, or come online here and just go on about their kick ass military, or how Bush is saving the world from terrorism and we're ungrateful. Get the flying fuck off your computer, your economy has been fucking up for years while the government denied any problems. Just like there were warnings before 9/11, yet nothing was done. The people that sit at home and do nothing NEED to get out there, get real information, and act on it. Now. Not later, right fucking now. Until those lazy people actually wake up and do something, the people that are currently trying to do what they can just don't have the numbers.

How bad does it have to get for some real civil action to take place?