44 replies to this topic

[DairyProducts]

Whenever people start up a debate about these schools, I have to refer to this: http://www.huppi.com.../L-ausintro.htm

That's mostly a propaganda piece that completely misstates the actual application of the scientific method and promotes several other distortions of the truth.
The most important difference you need to understand is this: Austrian economics promotes a system where more restrictive economic systems are possible through individual consent. You want to live in a Keynesian commune? Fine, knock yourself out. Government-funded (aka "mainstream") economics, on the other hand, promotes a system where people who want to live under a freer economic system are killed or thrown in prison. Any questions?

I did say the piece was biased against the Austrian school, but I think it drives home the greater point that it's impossible for actual debate to happen between Austrians and other schools of economics. I've never seen a good debate anywhere. If someone can show me one (not a video, that's not a good medium for actual debates) that's a forum or a slew of papers, I'd be glad to read it. (Edit - I just found this - http://mises.org/Com...3841/52586.aspx which I will read.)
Keynesian commune, that's catchy. I never said I believed whole heartily in mainstream economics. I think understanding economics as a whole means studying the different schools of thought and seeing where each school comes up short. I don't claim to know what the 'best' school of thought is because I don't think one exists yet and I'm skeptical of people who claim there is one.

[niner]

It wasn't significant. Read Ritholtz. You do make a good point about the privatization of profit and the socialization of risk. So tell me, do you support doing something about that problem, like breaking up the "too big to fail" banks? I think "too big to fail" is too big period, since by definition they have to get bailed out by the taxpayer unless appropriate legislation is passed to allow safely winding down failing giant banks. I would prefer that they just not be allowed to be so dangerously large.

You started out with government had NOTHING to do with the great recession but now you have adeptly identified a uniquely governmental problem ("too big to fail") that fostered at least part of it. Administration after administration has rescued large institutions from failure - to save the hides of politically connected financiers, buddies in their party, and their contributors (think Savings & Loan bailout, Long Term Capital Management, and now Obama's multiple bailouts). These rescues allowed investment banks (and regular banks) to carry more risk than normal. Even up to the final minutes, Lehman Brother's management expected the government to save them (according to Charlie G's book)

I don't think you understand what "Too Big to Fail" means. It has nothing to do with government corruption or unsavory connections between government and business. What it does mean is that if a TBTF institution fails, it will damage the economy so badly that the government has no choice but to intervene. In other words, the consequences of failure are worse for the country than bailing it out. If the Bush Administration (note, it WASN'T the Obama Administration) hadn't bailed out AIG and the banks, we would probably be sitting in the middle of a crushing depression about now. The fact that Lehman expected such a bailout isn't evidence of fraud, it's evidence that they understood the consequences of their failure. This is why we have to do something to get rid of the concept of TBTF. At present, the Republicans are up to their usual "Death Panel"-type lies, trying to make Americans think that the proposed legislation is going to lead to "Bailouts". It isn't. Unless you call firing management, letting stockholders lose all value, selling off the company, and giving customers a serious haircut a "Bailout".

[niner]

What incestuous relationship between business and government? Government stepped aside and let the private market come close to blowing up the world economy. It was more an abdication of responsibility than an incestuous relationship. I think the political bias of this movie is becoming clear. It is the product of people who don't want government to exist, and don't want any regulation to speak of.

LOL!

What propaganda films have you been watching? I will refrain from commenting on the motivations and specifics of this film, because I have not watched it. I am not sure how a rational person could summarily reject everything within it, without seeing it.

I don't reject "everything in it". I'm pointing out that it is highly biased and misplaces blame. I don't watch propaganda films, which it appears this one is. I have looked into this film, and the vast majority of people involved in it are political ideologues. Anyone who thinks that the IMF or the CRA had a significant role in the recent economic crisis has been listening to the sort of Right Wing propaganda that Righteous Reason seems to prefer. His piece about the IMF is particularly comical, as it predicts the destruction of several economies that became some of the economic success stories of the world after that piece was written. Attempts to blame the financial crisis on the CRA are beyond wrong, they are shameful. That story has been debunked. In fact, Barry Ritholtz has $100,000.00 for anyone who can demonstrate that the CRA was a significant contributor to the crisis.

The CRA all by itself was not the major cause of the crisis, but yeah it sure was a significant contributor, along with all of its very close government relatives. Even beyond all these hugely culpable specific causes working together, there was an entire bail-out philosophy, the entire "altruistic" (read: redistribution) zeitgeist that led to people making their private profits with the implicit understanding that their losses were going to be socialized. Anyway, you really have to see the movie to really get the full context of what is going on.

It wasn't significant. Read Ritholtz. You do make a good point about the privatization of profit and the socialization of risk. So tell me, do you support doing something about that problem, like breaking up the "too big to fail" banks? I think "too big to fail" is too big period, since by definition they have to get bailed out by the taxpayer unless appropriate legislation is passed to allow safely winding down failing giant banks. I would prefer that they just not be allowed to be so dangerously large.

Acorn and the Housing Bubble

By EDWARD PINTO

All agree that the bursting of the housing bubble caused the financial collapse of 2008. Most agree that the housing bubble started in 1997. Less well understood is that this bubble was the result of government policies that lowered mortgage-lending standards to increase home ownership. One of the key players was the controversial liberal advocacy group, Acorn (Association of Community Organizations for Reform Now).

The watershed moment was the 1992 Federal Housing Enterprises Financial Safety and Soundness Act, also known as the GSE Act. To comply with that law's "affordable housing" requirements, Fannie Mae and Freddie Mac would acquire more than $6 trillion of single-family loans over the next 16 years.

Congress's goal was to force these two government-sponsored enterprises (GSEs) to purchase loans that had been originated by banks—loans that were made under the pressure of another federal law, the 1977 Community Reinvestment Act (CRA), to increase lending in low- and moderate-income communities.

From 1977 to 1991, $9 billion in local CRA lending commitments had been announced. CRA lending by large banks increased dramatically after the affordable housing mandate was in place in 1993, growing to $6 trillion today. As Ellen Seidman, director of the federal Office of Thrift Supervision, said in a speech before the Greenlining Institute on Oct. 2, 2001, "Our record home ownership rate [increasing from 64.2% in 1994 to 68% in 2001], I'm convinced, would not have been reached without CRA and its close relative, the Fannie/Freddie requirements."

The 1992 GSE Act was the fuse, and the trillions of dollars in subsequent CRA and GSE affordable-housing loans would fuel the greatest housing bubble our nation has ever seen. But who lit the fuse?...

This is misleading and just flat out wrong. They are implying that CRA lending amounts to six trillion dollars, when it is a minuscule fraction of that. The six trillion dollar number includes houses like mine and a lot of other ImmInst members and most of your parents. The people who purvey this meme really don't care that it's wrong. It sounds good to people who don't have any understanding of these issues or of what really caused the credit crisis, pimps their ideology, and that's all that matters to them. Do you really want to know what caused the problem? Go here and listen to what may be the best explanation in existence. You can also download the transcript, but the audio is better.

You attacked the first part of the ACORN article (rightly or not) but you ignored the rest of the article (and my point).

Between Fannie Mae, Freddie Mac, ACORN, and the CRA, and backed by a long history with the IMF and endless other government intervention into the economy -- this agenda was muscled into the market by the government.

Ok let's say I agree that we should have some legislation to abolish these "too big to fail" institutions and to stop socializing the risk of private investments. And I seriously do agree! We should be privatizing all aspects of this regulatory-welfare monster of government. How about starting with abolishing the Community Reinvestment Act, and privatizing Fannie Mae, Freddie Mac, ACORN, IMF, and so on? Let's return to a free market where reward and risk are privately held, and if a privately held risk falls, it falls alone without threatening the rest of the economy in any fundamental way, and return to a market where individuals keep all the responsibility of their decisions, and their accountability is enforced entirely by their own self-interest.

You didn't check out the link I posted, did you? I can tell, because if you did, you wouldn't be blaming the credit crisis on the GSEs, ACORN, the CRA and the IMF. This issue is too important to get wrong, because when you get it wrong, the people and practices responsible for it don't get stopped. We do at least agree that we should return to a state where if a private entity fails, it fails without wrecking the economy. That is precisely what is being debated in congress right now. Oh, excuse me, the Republicans wouldn't allow debate on it. They filibustered discussion of it! That's how bad they want to fix the problems. I wonder whose side they're on?

So look, why don't you listen to that link, because, and I have to be frank here, you do not understand the causes of the credit crisis. This is too important to get wrong.

[Alex Libman]

Ranked greatest causes of this economic crisis, IMHO:

(1) Expansionary monetary policy sending the market signal for people to shop till they drop - even if they can't afford it.

(2) The governmental regulatory monopoly creating blind faith in the system -- "if it's legal then it must be good" -- while in reality, like all government monopolies, being corrupt and ineffective.

(3) Government actively encouraging bad loans through various "help the poor" initiatives, of which CRI is just the tip of the iceberg.

(4) Other destructive effects of the Federal government, including having the second-highest (after Japan) corporate taxes in the developed world.

(5) Increased foreign competition.

Edited by Alex Libman, 28 April 2010 - 06:10 AM.

[donjoe]

(2) The governmental regulatory monopoly creating blind faith in the system -- "if it's legal then it must be good" -- while in reality, like all government monopolies, being corrupt and ineffective.

You may want to expand on that: "governmental regulatory monopoly ... being corrupt ... is susceptible to manipulation by fat-pocketed corporatists who are more than willing and able to bribe politicians for acts of deregulation that work in the corporation's nearly exclusive interest".
Which is what happened before this latest crisis (e.g. the Glass-Steagal act was repelled at the bidding of the greedy leeches in the banking sector).

[Alex Libman]

There will inevitably be "fat-pocketed corporations" trying to benefit from governmental loot. It's an evolutionary inevitability - even if 99% of corporations were to nobly sacrifice themselves by refusing to kiss the government's butt, the remaining 1% will, and pretty soon those 99% would shrink and that 1% would grow until the percentages were reversed. You can't arrest all the people in the bank robber's neighborhood who benefit from his generous handouts, you have to go at the source of the criminality - the thief himself.

Though in the specific example you bring up the corporations weren't trying to steal anything, just regain what is rightfully theirs - the right to do business on terms that are acceptable to them and their customers / stakeholders - not the power-hungry bullies in Washington DC!

Edited by Alex Libman, 28 April 2010 - 07:59 AM.

[Lallante]

Using the financial crisis as evidence that government should be abolished is rather like saying the cure for cancer is suicide.

Flawed or insufficienct regulation is not an argument for no regulation.

Edited by Lallante, 28 April 2010 - 10:49 AM.

[Alex Libman]

Using the financial crisis as evidence that government should be abolished is rather like saying the cure for cancer is suicide.

The financial crisis was directly caused by government intervention in the economy. The impact of a cure for cancer on the suicide rate would be unpredictable, but if it does increase it then it would only be an indirect consequence (ex. people living longer than they themselves wished). Voluntary surrender to government regulation, or even to death, is a person's Right. Forcing it on a person is a crime.

[Lallante]

Using the financial crisis as evidence that government should be abolished is rather like saying the cure for cancer is suicide.

The financial crisis was directly caused by government intervention in the economy. The impact of a cure for cancer on the suicide rate would be unpredictable, but if it does increase it then it would only be an indirect consequence (ex. people living longer than they themselves wished). Voluntary surrender to government regulation, or even to death, is a person's Right. Forcing it on a person is a crime.

The financial crisis was directly caused by the collapse of inter-bank lending, which in turn was caused by the realisation that many mortgage backed derivatives were worthless and that many more might be, leading to complete opacity as to the financial position of each bank (and thus huge risk associated with lending between banks).

[niner]

Using the financial crisis as evidence that government should be abolished is rather like saying the cure for cancer is suicide.

The financial crisis was directly caused by government intervention in the economy. The impact of a cure for cancer on the suicide rate would be unpredictable, but if it does increase it then it would only be an indirect consequence (ex. people living longer than they themselves wished). Voluntary surrender to government regulation, or even to death, is a person's Right. Forcing it on a person is a crime.

The financial crisis was directly caused by the collapse of inter-bank lending, which in turn was caused by the realisation that many mortgage backed derivatives were worthless and that many more might be, leading to complete opacity as to the financial position of each bank (and thus huge risk associated with lending between banks).

Reality. What a concept.

[eternaltraveler]

mortgage backed derivatives were worthless

because many mortgages backing them were worthless. Every link in the chain you mentioned was part of the problem, and a few links that you did not mention.

[niner]

mortgage backed derivatives were worthless

because many mortgages backing them were worthless. Every link in the chain you mentioned was part of the problem, and a few links that you did not mention.

Absolutely right. Many mortgages were worthless because Wall Street was vacuuming them up as fast as the mortgage brokers could write them, so the mortgage brokers didn't care at all about credit quality. Hedge funds like Magnetar and Paulsen were supercharging the process by selecting the worst possible mortgages to be included in CDOs (working in concert with large investment banks), while simultaneously shorting them. They were literally creating instruments that were designed to fail. This is what Goldman is in trouble for. Goldman knew that their CDOs had been designed to fail, and that Paulsen had a short interest. They sold them to customers without disclosing this. I don't like Goldman and their brethren. Do you own mutual funds, or do your parents have a pension? Goldman is stealing from you right now, as you read this, using High Frequency Trading to implement front-running schemes and subvert the market.

[eternaltraveler]

that is also part of it. I'm not about to defend Wall St. But what would you expect? Corporations have no accountability whatsoever. The corporate model is designed as a tool for people to make gains without associated risks.

The owners of Goldman should be held accountable. You know. Human beings.

You can try to make a pile of regulations to compensate for this fundamental failure of governments recognizing corporations as separate legal entities, but so long as human beings(or similar intelligences) are not at the base of the chain all you'll succeed in is poorly patching one hole while 10 more leaks spring (you can be positive the regulations they end up producing, whatever they are, will be written like every other congressional bill, you know, incomprehensible and open to interpretation; ie you wont even know what the regulations are until after 25 years of case law).

regulations often equal ways the government poorly compensates for other things it messed up in the first place (the government also, like corporations, has no accountability, no human beings are ever held responsible for what they do by using this tool)

Also all those that received loans that they can't pay should have their houses taken away. GM and Citigroup should have gone under. And people should have learned they can't get something for nothing for a decade or two. Oh well.

Edited by eternaltraveler, 29 April 2010 - 02:31 AM.

[RighteousReason]

Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance.
http://online.wsj.co.....eTabs=article

[501characters]

I just watched this movie today, I've gotta say it was awesome. It explained the economic crisis in its full context. Until you have seen this movie you just don't have the full story.

I've never heard of this movie, but if you liked it that much, something tells me that it blames everything on "the liberals". I couldn't tell a thing from the trailer. Does it talk about the creation of CDOs that were designed to fail, by the likes of Magnetar and Paulson? Does it talk about the SEC asleep at the switch? Does it talk about the systemic problem of the ratings agencies paid by the people whose products they are supposed to be rating? Does it talk about the culture of deregulation and Alan "Bubbles" Greenspan's belief that the markets would "regulate themselves"? I hope that this movie tells the truth, because the truth needs to be known by every American. I fear, however, that it is a slick piece of entertainment designed to push a particular political point of view, and that it distorts the truth significantly. I hope I'm wrong about that, but I'm pretty sure I'm not.

You gotta love Niner