Reason Magazine
- reason.com
- reason.tv
- reason.org
- Donate
- Site Search:
Reason on Facebook
Reason on Twitter
Reason on YouTube
Reason RSSGet Reason E-mail Updates!
Manage your Reason e-mail list subscriptionsadvertisements
One Trillion Dollars!
The bailout of the banking industry--which seems to be calming traders--could cost you $1,000,000,000,000. Yes, that's the right number of zeros.
Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system.
Paulson announced plans Friday morning for a "bold approach" that will cost hundreds of billions of dollars. At a news conference at Treasury headquarters, he called for a "temporary asset relief program" to take bad mortgages off the books of the nation's financial institutions. Congressional leaders had left Washington on Friday, but Paulson planned to confer with them over the weekend.
"We're talking hundreds of billions," Paulson told reporters. "This needs to be big enough to make a real difference and get to the heart of the problem."
Makes sense. AIG had a trillion dollars in assets before this week. But if this was a serious country, wouldn't this prompt Obama and McCain to stop talking about how they're going to spend more of our money? All we hear from this is some babbling about firing Chris Cox and blaming the other guy for having the wrong advisors. Oh, and insisting they were right all along.
Earlier this year, a lot of people noticed that an election between a non-white Democrat who upset the frontrunner and an old moderate Republican mirrored the final election in the TV series The West Wing. In the episode "The Cold," President Jed Bartlet summons Democrat Matt Santos and Republican Arnold Vinick into the Oval Office to inform that that he's going to be spending a (paltry-sounding) $70 billion on a defensive war in Kazakhstan.
VINICK
What's this going to cost?
BARTLET
It depends on how long we stay.
SANTOS
It doesn't matter. The first 100 days in office are the most productive of the whole term and there's no way we can extricate ourselves from from something like this in three months. It's not about the money. You're blowing any political capital we might have by forcing us to fight a war.
VINICK
Do we have an estimate?
BARTLET
First twelve months: 70 billion.
VINICK
I can say goodbye to my tax cut. Your education plan is certainly off the table.
Ah, fiction.
Invisible Finger|9.19.08 @ 11:04AM|#
Congress required action when individual Congresscum realized they lost 95% of their wealth.
Lefiti|9.19.08 @ 11:05AM|#
In the face of this rampant heresy, let us bow our heads and
pray.
Hail Market,
Full of grace,
Prosperity is with thee.
Blessed art thou among systems,
and blessed is the fruit
of thy womb, Capital.
Holy Market,
Mother of Goods,
pray for us consumers now,
and at the hour of our bankruptcy.
Amen.
|9.19.08 @ 11:05AM|#
Hey, I've got a good idea. Why doesn't the government just give
everybody a million dollars. Then we'd all be rich!
We are SOOOO fucked.
Lefiti|9.19.08 @ 11:09AM|#
Warren
You have always been SOOOO fucked in the brains department. Your
little libertarian cult will weather this storm because it has no
connection whatever to reality, so relax.
newsandverse|9.19.08 @ 11:13AM|#
BAILOUTS TO FAILOUTS: A NEWS AND VERSE EXTRA
A guide to contemporary use
BAILOUT=Rescue, by government, of important economic entity
AILOUT=Rescue of healthcare industry
ALEOUT=Rescue of Bennigan's
BALEOUT=Rescue of Columbian or Jamaican economy (see also: cotton,
hay)
BRAILLEOUT=Rescue you can't see coming
DALEOUT=Rescue of NASCAR (see also: Roy Rogers)
FLAILOUT=Rescue by FEMA
FRAILOUT=Rescue of an elderly presidential candidate
GALEOUT=Rescue of Jim Cantore (see also: HAILOUT)
GRAILOUT=Rescue of Michael Palin (see also: Monty Python, Indiana
Jones)
NAILOUT=Rescue of construction firm (see also: Asian salon,
Press-on)
MALEOUT=Rescue of sexist political candidate
MAILOUT=Rescue by white, powdery substance (see also: FBI)
EMAILOUT=Rescue of Gov. Palin's Yahoo! account
BLACKMAILOUT=Rescue by extortion
BLACKMALEOUT=Rescue by Dem. Presidential candidate
PAILOUT=Rescue by trickle-down economics
PALEOUT=Rescue by goth
QUAYLEOUT=Rescue of any unqualified Vice-presidential
candidate
SALEOUT=Rescue of pandering political campaign
SCALEOUT=Rescue of Weight Watchers (see also: America's Biggest
Loser)
SHALEOUT=Rescue of oil company (see also: Gulf of Mexico,
ANWR)
SNAILOUT=Any rescue involving US Postal Service
STALEOUT=Rescue of lipstick jokes (see also: Pigs, Pit Bulls, Estee
Lauder)
VEILOUT=Rescue at the altar
VAILOUT=Rescue of anyone who pays $100+ to fall down a
mountain
SURVEILOUT=###REDACTED BY HOMELAND SECURITY###
ZALEOUT=Rescue of cheap wedding rings
FAILOUT=Destiny of most bailouts
www.newsandverse.com
...ripped from the headlines
|9.19.08 @ 11:13AM|#
Hey Edward Lefiti, are you stroking off right now
with your left hand or your right? I just want to know if your
handle is a double entendre.
BDB|9.19.08 @ 11:15AM|#
Don't worry, we can weaken the dollar enough to the point where that won't be so much money!
|9.19.08 @ 11:17AM|#
How much of that trillion is the equivalent of a grant, and how
much will be recouped in the form of a loan or the future profits
of companies the feds take over?
I know, I know, it's ideologically unacceptable either way, but on
the ground, there's a big difference between the government
recovering several hundered billion dollars it disburses vs.
not.
|9.19.08 @ 11:18AM|#
We'll return to Lefiti's incessant shrieking after this
important message:
THE
INDISPUTABLY NON-COERCIVE IDIOT FILTER!
Tired of cranks, assholes, and nutjobs messing up your Hit &
Run experience? INCIF may be the plug-in for you!
Designed by Eric the .5b, a Hit & Run regular, INCIF allows you
to replace long screeds by your least favorite commenters with
nothing but a placeholder! No longer must you entertain the
idiocies of H&R's Least Valuable Players!
Install INCIF and, after a simple configuration process, the trolls
are instantly gone!
Ask your doctor if INCIF is right for you!
(INCIF should not be used by patients running Microsoft Internet
Explorer. INCIF is for Firefox use only, and requires the free
Greasemonkey plugin. Side effects of INCIF may include relaxation,
lower blood pressure, and the lack of a pressing need to reach
through your computer monitor and choke a bitch.)
|9.19.08 @ 11:20AM|#
Imagine if the Secretary of the treasury, with POTUS backing,
had said this when I wrote it.
J sub D | September 6, 2007, 10:53am | #
Who am I supposed to bail out? People who took mortages out on
houses they couldn't afford, or those who gave them the mortages?
To both groups my response is "You made your bed, now lie in
it."
Responsible financial management practices on Wall Street would
have started more than a year ago. Yeah, on the books much money
would have been lost. By those who made the fucking bed.
Instead Wall Street went carelessly forward knowing that Uncle Sam
had their backs. I see that we are propping up those with fucked up
business practices and letting people stop mortgage
payments without penalty (likely a government backed re-finance on
better terms).
Warren's right. Let's mainline just one more time and then
we can get off the junk. Tomorrow. Or next week. Hmmm, maybe we
should wait until November 5th. For today it's "Can I have some
fentanyl mixed in with my blow, please?"
|9.19.08 @ 11:21AM|#
Wow, right when I though it couldnt get any worse. I wonder
where all this money is going to come from. Gas and Groceries
pretty muich takes it all as it is.
JIff
www.anonymize.us.tc
BDB|9.19.08 @ 11:23AM|#
Jake-
Does this filter work for people without email or screen
names?
I'd really like to filter this anonymity douchebag/bot. I installed
the plug in but I can't get it to work.
Lefiti|9.19.08 @ 11:30AM|#
It would be so much better to let all this play out on its own. Losing jobs, life savings and homes--all this builds character. If you're going to survive the vicissitudes of the free market, you need character. I was hoping to see my 401K wiped out, forcing me to get serious about dieting. Alas, The nanny state's intevention has ruined my self-improvement program once again.
Fluffy|9.19.08 @ 11:33AM|#
How much of that trillion is the equivalent of a grant, and
how much will be recouped in the form of a loan or the future
profits of companies the feds take over?
I know, I know, it's ideologically unacceptable either way, but on
the ground, there's a big difference between the government
recovering several hundered billion dollars it disburses vs.
not.
That is a fair question, joe.
But I'd also like you to comment on your previous claims, during
the infamous goldbug debates during the height of the Ron Paul
campaign, that the record of the Fed at managing the monetary
system was good.
It's been a good record, if you just disregard the fact that each
new intervention has raised the stakes by an order of
magnitude.
|9.19.08 @ 11:33AM|#
Jeff Taylor addressed this last month.
Like some tinhorn dictatorship, we just print money and expect
everyone to keep taking it. Anyone remember stagflation (no growth,
high interest, high unemployment)? We're going to see a repeat as
the creditors demand a premium to even take dollars.
All this is due to the repeal of the protections established after
the Great Depression, including the restrictions on using
"leveraged money" (money borrowed to be leant out again in a kind
of pyramid scheme). One act of Congress (Congressman Phil Gramm and
his Republican cronies in the early 2000's) was to repeal the
Glass-Stiegal Act, one of the key laws meant to stop another stock
market Crash due to leveraged buying.
|9.19.08 @ 11:39AM|#
Fluffy,
OK. Monetarism has absolutely nothing to do with this problem. Zero
percent of this problem was caused by inflation. Zero percent of it
was caused by moving interest rates around. What changed between
the 65 years when the Fed's management of interest rates worked
like a charm, and this ongoing disaster, had nothing to do with the
Fed, raising or lowering rates. What changed was the regulatory
regime.
You want to blame the Fed for something? Blame it for dragging its
feet on implementing the regulations on investment banks mandated
by the 1994 bill, not the fact that we have a central bank at
all.
|9.19.08 @ 11:40AM|#
I've basically been waiting my entire life for the financial
system to collapse. I've been stock-piling gold, silver, copper
(and some tin for bronze) for well over a decade now.
For about 2 hours yesterday, I thought all my planning was finally
going to bear fruit, and suddenly the Fed steps in a destroys it
all. Now how much longer are we going to have to wait?
|9.19.08 @ 11:41AM|#
Does this filter work for people without email or screen
names?
I'd really like to filter this anonymity douchebag/bot. I installed
the plug in but I can't get it to work.
The douchebot changes email addresses, so it'll be tough to
permanently filter it. However, it reuses each address for a while,
so if you throw the new email into the filter each time you see one
of its posts, you'll cut back on the number you see.
Check your commas, if the filter isn't working. Losing a comma at
the end of a line is a pretty common error (I did it myself).
Don the libertarian Democrat|9.19.08 @ 11:41AM|#
Make sure you keep that headline for the next time.
|9.19.08 @ 11:49AM|#
How much of that trillion is the equivalent of a grant, and how much will be recouped in the form of a loan or the future profits of companies the feds take over?
I know, I know, it's ideologically unacceptable either way, but on the ground, there's a big difference between the government recovering several hundered billion dollars it disburses vs. not.
Not exactly. It doesn't matter if the government gets the dollars
back, if the bailout causes the dollars to become worthless.
robc|9.19.08 @ 11:53AM|#
joe,
You dont need an extensive regulatory regime (there are some very
basic ones needed, but you know Im not an anarchist, so we wont go
there) if you are willing to let people/businesses fail.
robc|9.19.08 @ 11:54AM|#
The problem is the people who dont see failure as a postivie sign. Failure is a sign that the market is functioning properly.
|9.19.08 @ 11:55AM|#
All this is due to the repeal of the protections established
after the Great Depression, including the restrictions on using
"leveraged money" (money borrowed to be leant out again in a kind
of pyramid scheme). One act of Congress (Congressman Phil Gramm and
his Republican cronies in the early 2000's) was to repeal the
Glass-Stiegal Act, one of the key laws meant to stop another stock
market Crash due to leveraged buying.
Actually passed in 1999 with a Senate vote of 90-8 (including Biden
and Dodd) and signed by Clinton.
Billy Beck|9.19.08 @ 11:58AM|#
"My kids bought me an insurance company! Sweet children:
they don't even have jobs yet."
Jim
Henley cracked that one.
You people are pikers.
|9.19.08 @ 11:58AM|#
Um, CNBC reported that we had already reached $1.43 trillion in commitments to these bailouts. and that was before the $585 billion that we've committed in the last two days. We should be close to 2 trillion by now.
|9.19.08 @ 12:00PM|#
robc,
When failure cascades, we get depressions. I rather enjoyed the 70
years we went without them, after they happened every 20-30 years
prior to that.
But you're right - if you're willing to see shennigans in the
financial sector cause the economy to go into depression, you don't
need regulations.
I'm not.
|9.19.08 @ 12:02PM|#
Actually passed in 1999 with a Senate vote of 90-8
(including Biden and Dodd) and signed by Clinton.
Untrue. That is the vote on the conference report, after the bill
passed both houses in different forms.
The actual bill, when before the Senate, barely passed, with Dodd,
Biden, and Reid voting against, along with just about all of the
Democrats.
robc|9.19.08 @ 12:04PM|#
joe,
The failures wouldnt have cascaded without the government
interference to begin with. The bubble never would have grown that
big. the housing bubble was supported, in part by lower fed
interest rates, in part by fannie/freddie, in part by a billion
other things, that if they hadnt existed would have caused the
bubble to have burst much earlier, with much less
consequences.
Since we havent even hit recession yet, expected a depression
without the bailouts seems questionable. We may get there anyway, I
think the bailouts make it MORE likely, not less. That said,
depressions are a great buying opportunity.
kinnath|9.19.08 @ 12:04PM|#
People prevented the natural reclamation of forest fires in
yellowstone for a hundred years or so. This eventually lead to a
massive fire that wiped out huge chunks of the park. The forest
service now recognizes that letting fires happen when nature makes
them happen is better for the long term health of the park.
How is that so hard to understand in the broader scope of the
world?
|9.19.08 @ 12:04PM|#
Roll Call vote on Phil Gramm's 1998 Glass-Steagel repeal
bill:
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00105
robc|9.19.08 @ 12:05PM|#
joe,
That is the vote on the conference report, after the bill
passed both houses in different forms.
The conference report is the final version of the bill. That is the
most important version to vote against if you oppose a bill.
If you vote against the initial senate version and then vote for
the final version, that means you think the conference made it
better.
Fluffy|9.19.08 @ 12:08PM|#
Zero percent of it was caused by moving interest rates
around.
Joe, come on. This statement is absolutely ludicrous.
You're going to sit there and try to say that the real estate
bubble had no connection to interest rate policy?
Wow, Alan Greenspan should come over your house and blow you
tonight for that kind of press.
Rhywun|9.19.08 @ 12:09PM|#
So the winners appear to be: bankers, banking executives, stupid homeowners, and bankers. At some point the general public is going to balk at propping up these people's lifestyles. Right?
Fluffy|9.19.08 @ 12:11PM|#
The Fed has been in place since 1917, joe.
There was a panic in 1919-20.
There was a panic in 1929 followed by The Big One.
We had stagflation in the 70's.
We had a smaller real estate bubble and a smaller financial system
crash in the early 1990's.
And now we had a BIG real estate bubble leading to a major
financial system event, the outcome of which is currently
unknown.
How can you claim that the Fed has made the system more stable? And
that's not even considering the record of other currencies managed
in a similar way.
|9.19.08 @ 12:11PM|#
robc,
The failures wouldnt have cascaded without the government
interference to begin with. History says otherwise.
Depressions caused by cascading financial sector failures (ie, bank
runs causing bank failures causing liquidity/investment collapses
and calling of loans) happened quite frequently prior to the New
Deal, and ceased to exist under it. So no, cascading failures are
most certaily NOT impossible absent government involvement; history
shows them to be much more likely.
The bubble never would have grown that big. Perhaps not,
but then, speculative bubbles have been with us forever. This issue
is irrelevant, however. The collapse of a bubble in the HOUSING and
REAL ESTATE markets would not have turned into a cascade of failure
across wide swaths of the financial sector were it not for the
"innovative," "dynamic" financial instruments, known today as Big
Shitpile, which never should have been allowed, and would not have
been allowed if the Gramm bill and other acts of negligence hadn't
purposely left the store unminded.
Bubbles pop. The internet bubble popped - but it didn't sent the
entire financial system into turmoil, like this has.
That said, depressions are a great buying opportunity. If
you've got any money. You know, like the heavily-regulated Bank of
America.
|9.19.08 @ 12:13PM|#
You want to blame the Fed for something? Blame it for
dragging its feet on implementing the regulations on investment
banks mandated by the 1994 bill, not the fact that we have a
central bank at all.
joe,
I'm not familiar with this bill. Would it have mandated that
mortgage lenders not lend at low interest rates to high-risk
borrowers?
Fluffy|9.19.08 @ 12:15PM|#
Blame it for dragging its feet on implementing the
regulations on investment banks mandated by the 1994
bill
Describe the manner in which the 1994 bill would have prevented the
large-scale securitization of subprime loans - in the context of a
macroeconomic environment where those loans were showing stable
repayment.
Because unless they would have done that, just about any regulatory
change you can contemplate would have been window dressing.
|9.19.08 @ 12:19PM|#
robc,
If you vote against the initial senate version and then vote
for the final version, that means you think the conference made it
better. That is an astounding misstatement of how the
legislative process works.
Fluffy,
You're going to sit there and try to say that the real estate
bubble had no connection to interest rate policy? Answered, at
12:11 PM. The popping of the bubble would not have wiped out wide
swaths of the financial sector without the shady investment
vehicles that have proliferated. It would have just been bad for
the real estate market.
The Fed has been in place since 1917, joe. But neither it,
nor the federal code, were engaging in much oversight and
regulation of the financial sector - which is why I've been talking
about the regulatory regime set up by the New Deal, and not the
Fed.
How can you claim that the Fed has made the system more
stable? Did the joe in your head spend the threat talking
about the Fed? Because the joe in this reality has been talking
about the New Deal-era regulatory regime that REPLACED what existed
in 1917, 1919, and 1929.
Also, you know as well as I do that the stagflation of the 70s was
caused by oil prices and wage-and-price controls. Remind me, what
was it that is universally acknowledged to have tamed inflation in
the early 80s? Oh, right: Fed policy.
Fluffy|9.19.08 @ 12:19PM|#
The collapse of a bubble in the HOUSING and REAL ESTATE
markets would not have turned into a cascade of failure across wide
swaths of the financial sector were it not for the "innovative,"
"dynamic" financial instruments, known today as Big Shitpile, which
never should have been allowed, and would not have been allowed if
the Gramm bill and other acts of negligence hadn't purposely left
the store unminded.
This is simply false.
The growth of the securitization market was actually aided by bank
regulations, which created an incentive to bundle loans and move
them off your books, while pretending to insure against losses with
bond insurance and interest rate hedges.
The impulse to securitization became irresistible because the
underlying loans appeared to show solid repayment histories.
They only did so because they were made in an environment of rising
real estate prices - but for a regulator to have stopped the
process, you would have needed a regulator who recognized the
bubble while it was happening. And during the bubble, all the
regulators - and the Congress - denied it was a bubble.
Fluffy|9.19.08 @ 12:22PM|#
Also, you know as well as I do that the stagflation of the
70s was caused by oil prices and wage-and-price controls. Remind
me, what was it that is universally acknowledged to have tamed
inflation in the early 80s? Oh, right: Fed policy.
The pre-Volcker Fed was also accomodationist in policy in the face
of rising inflation.
So you're basically asking me to credit the Fed with solving an
inflation problem it had helped to create.
Fine - it was very nice of the Fed to stop beating its wife. For a
while.
Happy now?
|9.19.08 @ 12:23PM|#
fluffy
I think joe is obviously pointing to New Deal legislation and
regulatory agencies as well as its effect on Fed policy in keeping
the usual boom and bust stuff away.
And, you have to admit, boom and bust cycles have been rare since
then and were pretty common before.
matt2|9.19.08 @ 12:25PM|#
That said, depressions are a great buying opportunity. If you've
got any money. You know, like the heavily-regulated
taxpayer-subsidized Bank of America.
robc|9.19.08 @ 12:25PM|#
And during the bubble, all the regulators - and the Congress
- denied it was a bubble.
Not all of Congress however. Paul saw the bubble and suggested
fixing it by eliminating Freddie/Fannie guarantees.
I think if he has succeeded in 2002, then the bubble would have
deflated well before it ever grew. In fact, joe and his ilk would
have blamed that deregulation for the fall in the housing market
that would have occurred 4-6 years ago, instead of crediting it for
preventing the uber-bubble that never happened.
robc|9.19.08 @ 12:27PM|#
MNG,
And, you have to admit, boom and bust cycles have been rare
since then and were pretty common before.
As I have said before, and joe has even agreed that I might be
right about, longterm, boom/bust cycles lead to greater growth than
managed growth without the cycles.
Boom/Bust cycles are a sign of a healthy economy.
|9.19.08 @ 12:33PM|#
Fluffy,
The growth of the securitization market was actually aided by
bank regulations, which created an incentive to bundle loans and
move them off your books, while pretending to insure against losses
with bond insurance and interest rate hedges.
The more-regulated banking sector has much, much less exposure to
this collapse. Most of the shady subprime loans, which begat the
shady bundled mortgage derivatives, came not from the banking
sector, but from the non-bank lenders, who flooded into the lending
market with the repeal of Glass-Steagel, and who were allowed to
bundle the mortgages with much less oversight.
The pre-Volcker Fed was also accomodationist in policy in the
face of rising inflation. Only one of us is lumping all Fed
actions into the same pile without bothering to distinguish between
good and bad policies, and it ain't me, babe.
Perhaps you're thinking of my ilk? You seem to attribute an awful
lot to my ilk, I've noticed.
MNG,
And, you have to admit, boom and bust cycles have been rare
since then and were pretty common before. Well, the cycles
haven't gone away. It's just that the busts haven't been as nasty.
Until this one.
|9.19.08 @ 12:35PM|#
Describe the manner in which the 1994 bill would have
prevented the large-scale securitization of subprime
loans
It would not have forbidden that action, just made it much less
common, as there would have been a much smaller amount of shady
subprime loans made in the first place.
robc|9.19.08 @ 12:40PM|#
It's just that the busts haven't been as nasty. Until this
one.
pressure built up in the system. Every time that Fed action
prevented a bad bust before it increased the pressure that would
need to be realeased with the next.
They are trying to prevent it again. EVENTUALLY, we are going to
have a nasty bust. The past minimizing of the busts has a
price.
Fluffy|9.19.08 @ 12:43PM|#
It would not have forbidden that action, just made it much
less common, as there would have been a much smaller amount of
shady subprime loans made in the first place.
What regulatory mechanism would have made this the case, joe?
You keep forgetting that our current foreclosure crisis was
preceded by years of historically low foreclosure rates.
And because of that, you are daydreaming about some fantasy
regulation that would have stopped firms from making loans that
were being repaid. Without ever actually describing how that would
have taken place.
Mark-to-market for bonds? That wouldn't have helped during the
bubble, because during the bubble these securities were quite
liquid and their market value was high.
Stricter risk-based capital requirements? Again, that doesn't help
protect you against loans that are being repaid.
|9.19.08 @ 12:44PM|#
Libertarians like to point out that backstopping and low-prime
Fed policies can create moral hazards, but artifically increasing
the upside to risky behavior while softening the downside.
And they are right. While these programs do good things - like
keeping slowdowns from turning into stalls, and keeping people and
businesses from being completely wiped out by the irresponsible
actions of others - they do so at the cost of reducing markt
discipline.
This is exactly why it's so important to replace that market
discipline with regulatory discipline, so long as that backstopping
is in place.
Reasonable people can disagree about whether we should have a
system of backstopping and regulation, or no such system. But only
the most unreasonable people are going to try to tear down the
regulatory regime while leaving the backstopping in place. And yet,
that's exactly what the Republicans and some of the DLC Democrats
have been doing for a decade and a half.
|9.19.08 @ 12:48PM|#
pressure built up in the system.
Lots of metaphors about forest fires and steam valves, but very
little to back it up.
We're just going to pretend that there wasn't a massive change in
policy in the area of financial regulation immediately prior to
this debacle? And postulate that it was the inevitable consequence
of the earlier policy, even though nothing similar happened under
that policy, while it used to happen all the time before it was
adopted?
Look, I know the "correlation does not prove causation" retreat,
but correlation sure as hell does not prove a negative causal
relationship. Particularly when there is a very plausible, well
documented explanation of the causual relationship that explains
the data.
robc|9.19.08 @ 12:57PM|#
joe,
Its hard to run parallel economic systems to test the metaphors.
But, from looking around, it seems the places with the strictest
controls had the hardest falls when they finally came. Does that
mean the pressure/fire metaphors are accurate? No. But, they seem
to have some basis in fact.
Did the change in regulations have an effect? Sure, along with the
things you deny too, like Fed fucking around with interest rates.
Look, the government WANTED people buying houses, they did lots of
things both actively and passively (new regulations and eliminated
other regulations) that encouraged it. Which was the bigger cause,
the regulations or the deregulations? Hard to say, lets just blame
the government.
BTW, your argument on the Fed, only accepting the good Fed policies
and not the bad is a form of the "if we only elected the right
people argument". I cant prove it, but the right people dont exist.
Well, I can get any christian to accept it, its a fundamental part
of the belief. Atheist Libertarians seem to get it too.
And I agree with the paragraph and backstopping. Deregulation with
backstopping is stupid. But what have a been pushing? Letting
people fail hard.
|9.19.08 @ 1:15PM|#
We're just going to pretend that there wasn't a massive
change in policy in the area of financial regulation immediately
prior to this debacle?
Yeah, but Sarbanes-Oxley may have actually contributed to the
problem, rather than helping prevent it.
|9.19.08 @ 1:17PM|#
robc,
But, from looking around, it seems the places with the
strictest controls had the hardest falls when they finally
came.
I'm not sure what you're talking about. Here in the states, the
strictly-regulated banks are doing a lot better than the non-banks
in this crisis. The stricty-regulated stock market recovered from
the tech bubble collapse and didn't send the financial system into
meltdown.
Did the change in regulations have an effect? Sure, along with
the things you deny too, like Fed fucking around with interest
rates. The Fed fucking around with interest rates may or may
not have contributed to a housing bubble, but that's irrelevant to
the question. The question is, why did this collapsing bubble turn
into a series of cascadign collapsed across the economic system,
when no other popping bubble did that for 80 years? The answer to
that question is found in the shady mortgage-backed securities, the
shady loans that preceded them, and shady credit-default swaps. All
the Fed's monetarism did is make it more profitable to invest. You
might as well blame the economic growth fostered by the internet,
then. The point is, not everything people do to make money during
an economic boom is equal. Some things, like building up a tower of
debt backed by junk that's going to vanish on the off chance real
estate prices don't rise forever, are really dangerous.
I certainly hope you're not "looking around" at, say, Cuba, as if a
meaningful parallel exists between communism and the regulation of
financial markets. That would just be silly.
BTW, your argument on the Fed, only accepting the good Fed
policies and not the bad is a form of the "if we only elected the
right people argument". No, it's not, any more than your
argument that the government should move in a more libertarian
direction, which I can just as accurately describe as "If only we
elected the right LIBERTARIAN people." This isn't about people,
it's about policies.
But what have a been pushing? Letting people fail hard. I
can respect the argument that we should try to get to a place where
the economy works as you describe; disagree, but still respect.
However, what's going on outside our windows isn't the "letting
people fail hard" that you want to see.
In the forest-fire metaphor, doing nothing about this situation is
the equivalent of letting megafires grow and grow, because you
don't like the fire-suppression regime that made them happen. They
aren't natural fires, and they aren't going to have the same
consquences of natural fires if allowed to burn unimpeded; what
they're going to do is wiope out the ecosystem and the human
settlements that you want to ultimately make safer. The way you get
back to that system is to selectively clear during appropriate
times, until the forest is back to something like a natural state,
and THEN let natural forest fires burn.
|9.19.08 @ 1:18PM|#
Over WHERE, RC Dean? I'm supposed to look over WHERE? I can't see what you're waving your hand at.
Fluffy|9.19.08 @ 1:22PM|#
We're just going to pretend that there wasn't a massive
change in policy in the area of financial regulation immediately
prior to this debacle?
Joe, this current debacle is just the big brother of the S&L
collapse. That was another banking system disaster coming on the
heels of an asset price bubble fed by a combination of Fed
over-easing and, on the fiscal policy side, deficit spending.
This time the Fed easing was greater, the deficit spending was
greater, and the bubble was larger. BOOM! Baby fall down.
You are indeed allowing correlation to imitate causation. But the
change in Glass-Steagall that occurred in 1999 had nothing to do
with this crisis.
Consider the fate of Lehman. Lehman had a subsidiary mortgage
company called Aurora Home Services. Aurora was a major Alt-A
wholesaler and conduit whose product lineup was "secretly" behind
the products offered by several other major mortgage wholesalers.
The products offered by Aurora played a large part in destroying
Lehman.
To avoid this happening, we would have needed a regulation that
prevented an investment bank from owning a mortgage company - and
no such regulation ever existed or was contemplated. Deregulation
wasn't necessary for a bank to own a mortgage company; they've
owned them for decades. The only difference between what happened
with Aurora was the product line - and the product line, as I keep
stressing, came into existence because the housing bubble created
the data-driven illusion that these products were sound. When
presented with data that show Alt-A loans being repaid, the natural
response of the market was to offer more of these types of loans.
And no regulator was going to stop it, because that wasn't what the
regulators were looking for.
Invisible Finger|9.19.08 @ 1:36PM|#
When failure cascades, we get depressions.
That's because the regulations freeze assets. The depression
happened because people couldn't recover ANY of their money, let
alone 20% of it that would at least kept some molasses-like
liquidity in the system.
the Fed and Treasury are trying to prevent the feeze-up, but it'll
result in steep inflation starting in 2010 or so.
The philosophical arguments are fun, but please don't let your
ideologies (on either side) keep you from protecting yourself (ala
Mr. Montgomery Ward) in the existing reality.
|9.19.08 @ 1:40PM|#
Will this finally get the GOP apologists to admit their party is
a fraud and sham?
By the way, all of this is being done with borrowed money--mostly
from the Chinese and Arabs. Imagine if FDR had financed the New
Deal with lending from the Nazis and Japs and you have a fair
analogy.
|9.19.08 @ 1:52PM|#
The decreasing regulation that Joe refers to was put into place
by the same political bankster elites who LOVE, LOVE, LOVE the
federal reserve. The deregulation was not just generic
"deregulation", it was limited deregulation aimed to benefit
targeted specific people who are wealthy enough to phone up the
president, talk to a couple lobbyist and get specific legislation
passed at their whims. The thousands of pages of new regulations
written intot he tax code every year are passed byt hese same
people. The people getting direct benefit from bailouts are these
same people.
Yet Joe would have us beleive taht allowing these same people to
right some new regulations will suddenly make the system
better!....insanity.
|9.19.08 @ 1:52PM|#
Fluffy,
Joe, this current debacle is just the big brother of the
S&L collapse.
...which was also a problem of no one minding the store. S&Ls
were, just like so many financial institutions today, making loans
on the basis of junk and hoping its value wouldn't collapse. Boy,
good thing nobody stopped lenders from doing THAT after the S&L
fiasco!
The only difference between what happened with Aurora was the
product line - and the product line, as I keep stressing, came into
existence because the housing bubble created the data-driven
illusion that these products were sound. When presented with data
that show Alt-A loans being repaid, the natural response of the
market was to offer more of these types of loans. And no
regulator was going to stop it, because that wasn't what the
regulators were looking for.
There are always going to be boy-geniuses who come up with an
innovative "product line." Financial-sector regulation is like
collecting the trash - yes, there's going to be more trash next
week. That's why we keep garbagemen on staff. Damn straight no one
was contemplating them...at least, no one in a position to do
anything about it, because the regulatory agencies were captured by
people with an ideological aversion to the jobs to oversight, and
even if someone did try to get ahead of the curve, their bosses and
Congress stymied them.
The failure to keep up with novel scams is a regulatory failure,
too.
Paul|9.19.08 @ 1:52PM|#
I can say goodbye to my tax cut. Your education plan is
certainly off the table.
I'm confused, which one is the Republican?
But seriously, is anyone else as pissed as I am at the government
right now? Bailing out mother fuckers.
|9.19.08 @ 1:53PM|#
Gabe, too, cannot talk policy, so he talks about people.
Great minds talk about ideas.
Mediocre minds talk about things.
Small minds talk about people.
Invisible Finger|9.19.08 @ 1:54PM|#
The more-regulated banking sector has much, much less
exposure to this collapse. Most of the shady subprime loans, which
begat the shady bundled mortgage derivatives, came not from the
banking sector, but from the non-bank lenders,
The even shadier Alt-A and OptionARM loans came from the retial
banking sector.
Most of those were the result of lobbying because non-bank lenders
were kicking their asses and wanted regulatory changes.
Outside of Paul and maybe Flake, the rest of Congress was all on
board for these changes for the sake of "affordability."
|9.19.08 @ 1:56PM|#
Yet Joe would have us beleive taht allowing these same
people
Really, Gabe? You think I want "the same people" who pushed through
that targeted deregulation to, like Phil Gramm for example, to
continue to dictate regulatory policy?
Really? Is that what you see me arguing?
|9.19.08 @ 1:56PM|#
the fed is a big culprit in this. They artificially juiced up
the economy with NEGATIVE real interest rates. When certain elites
have access to money at negative interest rates the GDP gets a
boost and W is happy, however it is only a matter of time before
ridiculous malinvestmetn takes place.
If it hadn't been subprime loans based it would have been a extra
"humanitarian war" somewhere or "carbon offsett mania" or some
other malinvestment with "bi-partisian" political support.
|9.19.08 @ 1:59PM|#
if we must ahve a fed juicing the money supply to "smooth" out the economy as the fed supporters advise, then I suggest a fairer way to do it would be for the government to just mailout checks more often....to every person in the country. As it stands now JP Morgan gets a benefit of roughly 300 billion dollars and my family gets more debt...doesn't seem fair.
Paul|9.19.08 @ 2:00PM|#
There are always going to be boy-geniuses who come up with
an innovative "product line."
Exactly. Which is why the risk MUST BE LEFT WITH THE GODDAMNED
INVESTORS AND BANKS, AND NOT WITH THE TAXPAYERS!
WHEN BANKS KNOW THEY'RE GOING TO GET BAILED OUT, THEY WILL CONTINUE
TO PRODUCE COMPLEX FINANCIAL INSTRUMENTS WHICH OUTPACE
REGULATION.
That's how this fucking thing works. Stop. Stop it. Just fucking
stop!!!!!!!!!
The instruments are meant to be complicated. That way investors and
regulators get bogged down in the rules, and look past the obvious:
Debt is expanding to 35 times assets. Everyone seems to know
now that debt is 35 x assets. But they're so busy looking
at the rules of the instruments and dealing with regulations, that
they miss this blatantly obvious fact. Enron did the exact same
thing. It created complex instruments which overwhelmed the
traditional profit centers which resulted in a collapse.
A ponzi scheme is still a ponzi scheme, no matter how many sciency,
financial-y sounding terms you stick on it. Ponzi schemes are
illegal, we're done regulating. Now go outside and play, the
government will not be providing any band-aids. Jail sentences are
long. Have fun.
But this time, for sure, pinkie promise, MORE Sarbanes-Oxley-like
regulation will fix this. We just didn't go far enough. Just not
quite far enough.
Stupid bastards and religious freaks, there's no shortage.
|9.19.08 @ 2:03PM|#
The even shadier Alt-A and OptionARM loans came from the
retial banking sector. And the retail banking sector was
required to have enough capital to cover their losses and not go
out of business if the loand went bad. Not so for the
non-banks.
Most of those were the result of lobbying because non-bank
lenders were kicking their asses and wanted regulatory
changes. Kicking their asses, because the actions that caused
this financial meltdown were 1) making them a great deal of money
in the short run and 2) completely unregulated.
Yep, regulatory failure let the worst actors have free reign, which
put pressure on the more responsible to lower their standards,
too.
Outside of Paul and maybe Flake, the rest of Congress was all
on board for these changes for the sake of "affordability."
Yep, between the Kool-Aid drinkers, the bribed, and the people who
just went along because they didn't know any better, Deregulatory
Fever was very widespread. The good news is, I don't think we're
going to see as many people coming down with it for a while.
Invisible Finger|9.19.08 @ 2:03PM|#
The more-regulated banking sector has much, much less
exposure to this collapse.
This same toxic loand shit is all over the more regulated sector.
C&D loans, along with residential, are being priced by the
market right now at 20% of stated value and that is what is causing
the drop.
Banks won't sell their assets for what the market syas they are
worth, so money flow slows to a trickle. And now the banks are
caught in a squeeze - they need to sell assets and they don't want
to sell them for their fair market value because they still won't
have enough money. Hence, Paulson and Bernanke are trying to pour
hot water over the ice. IMO, they'll need to pump in about 15
trillion because the leverage pyramids are so many levels. They
don't want to inflate that much, but they aren't going to have much
choice.
Paul|9.19.08 @ 2:05PM|#
. Kicking their asses, because the actions that caused this
financial meltdown were 1) making them a great deal of money in the
short run and 2) completely unregulated.
And fully backed by the Federal government.
|9.19.08 @ 2:05PM|#
Joe,
the same groups who paid lobbyist to work with Phil Gramm will pay
lobbyist to "work with" the new regulators. You think Goldman and
JP Morgan won't have a say if Obama is president?
Invisible Finger|9.19.08 @ 2:06PM|#
Zero percent of it was caused by moving interest rates
around.
joe is fairly correct on this. Interest rates are a price, and
prices are determined by supply and demand. The Fed cotrols the
interbank lending rate, that's all. The increased supply of credit
was caused by new regulations allowing more leverage - first the
European Union did it, then Asia. The US was the last to do so,
after seeing smaller banks get swallowed up by foreign
companies.
|9.19.08 @ 2:07PM|#
Paul,
In the real world, when the economy ran like that (ie, before the
New Deal's financial regulation) depressions happened every 20-30
years. So obviously, the absence of backstopping doesn't stop the
boy geniuses from causing the whole system to shut down.
You know what did? New Deal and post New Deal regulation.
Yeah, stupid bastard religious freaks who can't adjust their
theology to the real world evidence sure are a dime a dozen.
Paul.
|9.19.08 @ 2:07PM|#
"But this time, for sure, pinkie promise, MORE
Sarbanes-Oxley-like regulation will fix this. We just didn't go far
enough. Just not quite far enough."
If only the deregulation had gone far enough, this wouldn't have
happened...Gee, that was easy...
|9.19.08 @ 2:10PM|#
I thought I heard that the Gramm bill explicitly kept some of
the junkier financial products involved in this mess from being
regulated?
Then we get this mess that involves those junky financial
products.
So it strikes me as reasonable to think that maybe had there been
better regulation this could have been headed off.
Paul|9.19.08 @ 2:12PM|#
. Kicking their asses, because the actions that caused this
financial meltdown were 1) making them a great deal of money in the
short run and 2) completely unregulated.
And fully backed by the Federal government.
Oh, sorry, my bad. Fully backed by:
Paul [last name deleted]
5*5* 3* Ave **
Se*ttl* W*, 98***
That's who's fully backing it.
Fuck it, now I'm angry.
Living in Seattle, oh let me tell you how many people were
dangling... "innovative loans" in front of my eyes when I bought my
house in the late nineties. Oh how I could have had that quaint
Tudor in Madison Park, if only I took the interest-only ARM they
were offering.
But me and my simple-minded non-college, high-school only education
and bean-counting economics attitude thought "These things are a
really bad idea" and I bought the slightly dowdier house with an
un-hip location using a traditional fixed-interest loan.
I'm lookin' around and thinking... "what crisis?"
Everytime I hear some dip-shit politician talk about how they want
to help people out who are having one of "life's rainy days", I
wanna go all Lee Harvey Oswald on 'em.
|9.19.08 @ 2:12PM|#
And fully backed by the Federal government.
Fine. Regulation and oversight reduce these disasters, and promises
of bailouts increase them.
That's why it's even more important to have a solid regulatory
regime when there's a backstop in place, as I discussed above.
jtuf|9.19.08 @ 2:12PM|#
DC plans to fix Wall St. OK, now it's time to reduce your exposure to stocks.
Paul|9.19.08 @ 2:13PM|#
If only the deregulation had gone far enough, this wouldn't
have happened...Gee, that was easy...
Oh, you are so very, very very wrong. Arguing with the libertarian
in your head, I see.
This stuff WILL happen, but the risk remains WITH THE INVESTORS!
When financial institutions agree to regulation, they also
negotiate backing. See how this works?
|9.19.08 @ 2:14PM|#
I'm lookin' around and thinking... "what crisis?"
This is who still thinks financial deregulation is teh awesome:
people who think that whether they can pay their own mortgage is
the determinant of the strength of the economy.
Dude, look out the window.
Paul|9.19.08 @ 2:14PM|#
Fine. Regulation and oversight reduce these
disasters,
I might might even agree with you on this point, joe,
except that bailout ALWAYS follows regulation. Always. It's called
protection. Sure we'll operate with your rules, but what if we
fail?
|9.19.08 @ 2:15PM|#
This stuff WILL happen, but the risk remains WITH THE
INVESTORS!
Uh, yeah. Remember in the 1900s, when bank runs never had any
consequences beyond those faced by depositors and investors?
Oh, wait....
Billy Beck|9.19.08 @ 2:15PM|#
"Joe": "I rather enjoyed the 70 years we
went without them, after they happened every 20-30 years prior to
that."
{snicker} Got data? Show your work, asshole. I want to see these
"depressions every 20-30 years prior to that". Cough 'em up or
FAIL.
Richard|9.19.08 @ 2:16PM|#
If for some reason you can't use the superior INCIF troll filter
there's an alternative at:
http://www.heurtley.com/richard/xtroll
jtuf|9.19.08 @ 2:16PM|#
What I don't get is why this news sparked a global stock ralley. For all the talk about the world hating Bush and thinking he is an idiot, they are awfully enthusiastic about putting their financial future in his hands.
|9.19.08 @ 2:17PM|#
I might might even agree with you on this point, joe, except
that bailout ALWAYS follows regulation. Always.
Really? Please list for me the bailouts in the financial sector in
the four decades following the adoption of the New Deal system of
financial regulation.
Please list for me the bailouts of investors that took place after
the 1987 and 2001 stock market collapses.
Paul|9.19.08 @ 2:17PM|#
Dude, look out the window.
I did, and I read the papers. And I keep reading stories about
well-heeled people who pushed their loans to the bleeding edge, and
then saw their house payment increase dramatically when the
priciple came due.
The paper keeps writing these sob-stories about forclosure, and
it's always some (formerly) affluent yuppie (some of them are even
financial planners, for chrissakes!) losing their home because
interest rates went up, and their ziggy-zaggy "innovative loan
product" zigged when they thought it would zag.
Rhywun|9.19.08 @ 2:19PM|#
Well, the Dow's back up another 400 points. Crisis averted. Nothing to see here. Move along.
Invisible Finger|9.19.08 @ 2:23PM|#
And the retail banking sector was required to have enough
capital to cover their losses and not go out of business if the
loand went bad. Not so for the non-banks.
A distinction without a difference. When Lehman (a non-bank) had a
rating drop, they had to come up with more collateral. They
couldn't and collapsed. Same with AIG.
Some kind of discipline made them come up with more collateral. If
it wasn't government regulation, it was market discipline. Since
you said there was no regulation, it must have been the market.
|9.19.08 @ 2:24PM|#
Billy Beck,
Panic of 1819 1819-1824: The first major financial crisis in the
United States featured widespread foreclosures, bank failures,
unemployment, and a slump in agriculture and manufacturing
Panic of 1837 1837-1843: A sharp downturn in the American economy
was caused by bank failures and lack of confidence in the paper
currency. Speculation markets were greatly affected when American
banks stopped payment in specie (gold and silver coinage).
Panic of 1857 1857-1860 of the Ohio Life Insurance and Trust
Company burst a European speculative bubble in United States
railroads and caused a loss of confidence in American banks. Over
5,000 businesses failed within the first year of the Panic, and
unemployment was accompanied by protest meetings in urban
areas.
Panic of 1873 1873-1879: Economic problems in Europe prompted the
failure of the Jay Cooke & Company, the largest bank in the
United States, which bursted the post-Civil War speculative
bubble.
Panic of 1893 1893-1896: Failure of the United States Reading
Railroad and withdrawal of European investment lead to a stock
market and banking collapse. This Panic was also precipitated in
part by a run on the gold supply.
Panic of 1907 1907-1908: A run on Knickerbocker Trust Company stock
on October 22, 1907 set events in motion that would later lead to
the Great Depression in the United States
Great Depression 1929-1939: Stock markets crashed worldwide, and a
banking collapse took place in the United States.
Seven depressionis, 110 years. That works out to one every 15.7
years.
You got me; I underestimated how frequently cascading
financial-sector failures sent our country into depression before
the New Deal. Thanks for asking.
|9.19.08 @ 2:25PM|#
{snicker} Got data? Show your work, asshole. I want to see
these "depressions every 20-30 years prior to that". Cough 'em up
or FAIL.
Lawlz, Billy Beck. Go stand in the corner until I say you can
leave, and try to keep a civil tongue in your head. There's
obviously plenty of room for it.
|9.19.08 @ 2:27PM|#
Paul,
In the absence of mortgage-backed derivatives, the losses would
have stayed with those borrowers and their lenders.
Good thing no regulations stopped the growth of those junk
products, eh? Aren't we just so much more free and prosperous?
|9.19.08 @ 2:29PM|#
Invisible Finger, you aren't making any sense.
A distinction without a difference. When Lehman (a non-bank)
had a rating drop, they had to come up with more collateral. They
couldn't and collapsed. Same with AIG.
Yes, that's exactly what I said - they were making these loans and
didn't have the real assets to cover them. Had they been subject to
the same regulations as banks, they would have only made the loans
and bought the loans they could cover with their assets, and when
the market demanded that they come up with it, it would have been
there.
I just said that.
adrian|9.19.08 @ 2:38PM|#
Solid Regulatory Backstop created by Political Jesus will solve
this.
I won't hold my breath.
Paul|9.19.08 @ 2:47PM|#
Panic of 1907 1907-1908: A run on Knickerbocker Trust
Company stock on October 22, 1907 set events in motion that would
later lead to the Great Depression in the United States
Joe, for your reading
pleasure:
Following a failed attempt by copper speculator and bank president F.A. Heinze to corner the U.S. copper market, depositors rushed to pull their money from trusts associated with Heinze. The trusts, largely unregulated, were outside of the voluntary clearinghouse system-coalitions of banks that extended each other credit-that protected most banks from runs. John Pierpont Morgan, along with other bankers he organized, provided $30 million to stabilize the trusts; the U.S. Treasury pitched in another $25 million. Morgan even asked New York clergy to implore their congregations to stay calm. The crisis prompted the creation of the Federal Reserve System six years later.
I noticed your list of recessions following the creation of the
Fed.
We had the savings and loan bailout, followed by regulation, FDIC
insuring. As you pointed out, boy-geniuses continued to create
complex financial instruments based on crap.
You see, joe, this is a place where you and I agree. I have no love
of the corporate world, I've made that known dozens of times on
this blog. These creepy fund managers and financial whiz-boys get
no love from me. Their cheesy plastic smiles, their $1,200 dollar
suits, and their repeated answers to the question "So, how do you
make your money" is always "It's kind of complicated.", followed by
an Enron-esque meltdown a few years later, also followed by the
cries for "regulation!" and "we can't let this happen
again!!!".
It's the remedy where we disagree. You're convinced that I'm
suggesting regulation breaks the system. While sometimes it does
break things within the system, it doesn't do anything overall to
fix it. My proof: See current events.
Invisible Finger|9.19.08 @ 2:48PM|#
and didn't have the real assets to cover them.
Wha? WaMu is subject to regulation like you claim - and they made
loans exactly like you said regulation prevents them from
making.
What's unreal about the assets? The assets were purchased at price
X and listed on the balance sheet at the same value. Even the most
brutal government regulator would've said it was on the
up-and-up.
I'm not having an ideological argument. I'm just trying to point
out factual and logical misstatements, it's not an attack.
Fluffy|9.19.08 @ 2:50PM|#
Damn straight no one was contemplating them...at least, no
one in a position to do anything about it, because the regulatory
agencies were captured by people with an ideological aversion to
the jobs to oversight, and even if someone did try to get ahead of
the curve, their bosses and Congress stymied them.
No one was in a position to do anything about it.
Joe, this entire argument started because I claimed the debacle was
the result of monetary and fiscal policy, and you claimed it was
the result of deregulation.
You have yet to describe what regulation was removed that would
have prevented the problem.
The closest you've come is to talk about the repeal of certain
elements of Glass-Steagall. The 1999 reform of Glass Steagal
allowed investment banks, commercial banks, and financial services
companies like insurers to merge. The major example of a
post-Glass-Steagall enterprise is Citigroup. Lehman, Bear Stearns,
Fannie and Freddie, etc., are NOT examples of post-Glass-Steagall
organizations.
When the behavior that was deregulated isn't the behavior that led
to the crisis, and the behavior that did lead to the crisis is
behavior that was permitted by regulation both before and after the
reform of Glass-Steagall, I do not see how you can continue to
assert that deregulation caused the crisis. It's an empty Atriotic
talking point and nothing more.
It would not have mattered what personnel were occupying the
regulatory bodies we currently have in place, Joe. Have you ever
been through a banking audit? I have. Prior to 2006 the regulators
would come in looking for several things: consumer protection
errors and omissions [things like failing to make the proper
disclosures]; non-arm's-length transactions [things like excessive
lending to relatives or business associates of directors];
non-performing loans not being properly disclosed; failure to
comply with HMDA and CRA regulations; things like that.
You know what they weren't doing? Looking at performing loans to
tell you why you shouldn't have made those performing loans.
This means that if macroeconomic conditions were stimulated by
government in a way that temporarily made shitty loans perform very
well and look like investment-grade or near-investment-grade loans,
nobody was going to see it and no regulator was going to be able to
stop it.
That to me pretty much demonstrates that if we're looking for a bad
actor in this crisis, we can't look at the regulators, and we can't
look at the deregulators. We have to look at the people who created
the macroeconomic conditions that made the system run wild. And who
might those persons have been, joe?
BTW, just as an aside, comparing the Panics of the 19th century
with the Great Depression, the S&L failure, or our current
situation is really inappropriate. The Panics were minor league
compared to what we've experienced in the last 100 years, during
the Fed era. The Panics, at least in the US, were historically
noteworthy only because they seemed extreme at the time; in terms
of their actual economic impact for wealth destruction and the
like, they were modest by the standards of the last 18 months.
|9.19.08 @ 3:02PM|#
Paul,
What I put up there was a list of DEPRESSIONS, not recessions. I
listed every single depression since the creation of the Fed - that
is, the single depression since the creation of the Fed, the 1929
Great Depression. Since then, we've had only recession, no
depressions. The business cycle will always be with us, but
depressions need not.
Thanks for the reading. Yep, another example of a financial crisis
in an unregulated fiancial sector, which led to a bailout. That'll
happen when there' isn't sufficient oversight in the financial
sector. That'll happen.
My proof: See current events. Uh, you mean the collapse of
the financial sector brought about by shady, debt-backed deals
without adequate standards and security? That's MY proof - and no,
poiting out that there are other, more heavily-regulated aspects of
the financial market doesn't mean you get to take it from me.
|9.19.08 @ 3:04PM|#
Invisible Finger,
Wha? WaMu is subject to regulation like you claim - and they
made loans exactly like you said regulation prevents them from
making. But they didn't make as many, because they weren't
allowed to.
And what's more, many of those assets were, themselves, junk-backed
securities, so yet again, we see the roots of this in regulatory
failure allowing this crap to infiltrate throughout the system.
|9.19.08 @ 3:07PM|#
Fluffy,
The 2000 bill pushed through by Phil Gramm specifically forbade the
government from regulating these junk-mortgage backed securities.
This has been pointed out several times. Please stop pretending it
hasn't, and please stop pretending not to have seen my argument
about "innovative" financial transactions requiring someone to mind
the store and keep up with the garbage.
|9.19.08 @ 3:09PM|#
BTW, just as an aside, comparing the Panics of the 19th
century with the Great Depression, the S&L failure, or our
current situation is really inappropriate. The Panics were minor
league compared to what we've experienced in the last 100 years,
during the Fed era.
Bull. There has been one (1) actual depression in the last century
- a period when the GDP actually shrank to a significant degree -
and that was the Great Depression. The panics of the 19th century
were actual depressions. Everything we've had since the Great
Depression - that is, since the modern regulatory state was set up
- has been a mere recession.
robc|9.19.08 @ 3:22PM|#
joe,
However, what's going on outside our windows isn't the "letting
people fail hard" that you want to see.
Actually...
Hail Eris!!
robc|9.19.08 @ 3:24PM|#
The business cycle will always be with us, but depressions
need not.
Wrong. We will eventually have another one. And it will be bad. Not
having depressions is a bad idea.
Fluffy|9.19.08 @ 3:51PM|#
The 2000 bill pushed through by Phil Gramm specifically
forbade the government from regulating these junk-mortgage backed
securities.
Link.
Also, provide a link to proposed regulations that were precluded by
Gramm-Leach.
Mortgage securitizations have existed since the 70's. They weren't
invented in 1999, when Glass-Steagall was amended by Gramm's
bill.
Invisible Finger|9.19.08 @ 3:55PM|#
And what's more, many of those assets were, themselves,
junk-backed securities
As a thrift these would be the bulk of assets of WaMu and wouldn't
raise eyebrows from a regulator. To prevent the exposure, you'd
pretty much have to make building societies illegal. Or you'd have
to force 20% down, limited DTI underwriting on thrifts. It was
Congress and local governments that sold underwiting standards down
the river in the name of "affordability" - which begat increased
demand which begat increased prices which begat reduced
affordability which begat calls for even less stringent
underwriting.
The large investment banks had reached their limit in exposure to
these securities a few years ago. But when Fannie And Freddie got
into the market for them the supply increased and the value of the
older ones started dropping much faster - no actuary could have
foreseen the huge runup by Fannie and Freddie.
zig zag man|9.19.08 @ 3:57PM|#
When war on some drugs testing began in earnest in the '80's,
all the propaganda warned of how much money illegal drug users were
costing companies in productivity and absenteeism, let's say
millions of dollars.
This is TRILLIONS of dollars, lost or stolen, depending on whose
side you believe.
If it was lost, there's some serious irresponsibility going on in
our markets. I
If it was stolen, then we're talking criminal activity and people
should be doing the perp walk for that.
Yet, I have to take a drug test for any number of jobs which are
responsible for far less than what these pinstripped bandits cost
us.
|9.19.08 @ 4:11PM|#
"""Zero percent of it was caused by moving interest rates
around."""
So foreclosures that resulted from people that could no longer
afford their morgage when the interest rates of an ARM increased
had nothing to do with this?
Paul|9.19.08 @ 4:16PM|#
The business cycle will always be with us, but depressions
need not.
?!! You're a brave man, joe. A reckelssly brave man. You do
understand that there are differences between a burgeoning
industrial economy, and a sophisticated, complex and diverse
service based economy, right? Depressions probably will happen, but
may be relegated to limited sectors, or mitigated by global
economic activity. Even then, we might just get stung by a global
depression. And why worry? We'll get bailed out... RIGHT? And
besides, we're going to have all these new regulations, so really,
we've beat the business
cycle.
Yep, another example of a financial crisis in an unregulated
fiancial sector, which led to a bailout. That'll happen when there'
isn't sufficient oversight in the financial sector. That'll
happen.
So we're back in agreement. No matter how much you try to regulate,
another sector, somewhere, pops up that's not regulated. And these
'unregulated' sectors are popping up at an increasing rate. Savings
and Loan scandal. Enron. Sub-prime mortgage industry. And we also
agree that when an island of non-regulated sectors do appear, that
a bailout is imminent.
NPR did a segment the other day reporting that some of the failing
financial firms which fall into the slightly-too-small-to-bail-out
category are thinking of merging together, so they can form a
too-big-enough-to-fail enterprise. These guys are BANKING on
bailouts. And guess what, the very people in the middle of this
mess will be the ones calling for regulation.
I hear yet another report of the financial sector where one analyst
said that these financial instruments were so complicated, that
even the CEO's and fund managers didn't fully understand them. If
that isn't the very definition of risk, then I don't know what
is.
Regulators were asleep at the switch. OF COURSE THEY WERE. And they
will be again when super-genius quiz-boy invents a new and
fantastically never-before-seen debt instrument (unregulated,
natch) and causes another economic blowout. But don't worry, it's
just a matter of maintenance, right? You know, like street
sweeping. Keep adjusting the regs, making new ones etc. You don't
"solve" the trash problem by regulating garbage disposal...
|9.19.08 @ 4:17PM|#
"""If it was lost, there's some serious irresponsibility going
on in our markets."""
Lost as in losing side of a gamble? The irresponsibility part is
people thinking they can't lose.
Paul|9.19.08 @ 4:30PM|#
Lost as in losing side of a gamble? The irresponsibility
part is people thinking they can't lose.
They can't.
Fail.
Bailout.
Regulate.
Fail.
Bailout.
Regulate.
...
..
.
How y'all doin' today?
I'm doin' fine... sittin' here in my fixed rate mortgage. Looking
at the ex-financial planner driving down the street loaded with all
his posessions and a sign on his car: Got foreclosed, Puyallup or
Bust!
Paul|9.19.08 @ 4:35PM|#
That's why it's even more important to have a solid
regulatory regime when there's a backstop in place, as I discussed
above.
Missed this one earlier. Should I hold my breath? God I so hope
Obama becomes president. And no, I'm not being sarcastic.
|9.19.08 @ 5:05PM|#
"It would be so much better to let all this play out on its own.
Losing jobs, life savings and homes--all this builds
character."
Lefetiti, you are pathetic. You keep repeating that dumb "prayer",
which would be funny to a third grader when he got tired of fart
jokes.
And why oh why is someone ENTITLED to a job, home, or even life
savings, if they are careless with it? Just because someone WANTS a
$500,000 home, and is able to pull a few strings and buy it, is he
ENTITLED to simply default on the payments? Or is he ENTITLED to
get $600,000 for it if he has to sell it because he can't make
payments?
If the system failed, it's because of dumb asses like you.
|9.19.08 @ 5:13PM|#
The paper keeps writing these sob-stories about forclosure, and
it's always some (formerly) affluent yuppie (some of them are even
financial planners, for chrissakes!) losing their home because
interest rates went up, and their ziggy-zaggy "innovative loan
product" zigged when they thought it would zag."
Exactly. Why is it some kind of tragedy that the formerly affluent
have to now rent a smaller or more modest house?
Paul|9.19.08 @ 5:42PM|#
I have a legit question for the group:
Some of these financial institutions are writing off as much as $1
billion in debt. If they're writing off $1 billion in sub-prime
mortgage debt, what happens to the mortgagees? If I'm a homeowner
whose debt gets 'written off', what's the result of that for
me?
voxpo|9.19.08 @ 5:51PM|#
Panic of 1893 1893-1896: Failure of the United States
Reading Railroad and withdrawal of European investment lead to a
stock market and banking collapse. This Panic was also precipitated
in part by a run on the gold supply.
"With the end of the Civil War, the country experienced feverish,
unregulated growth, especially in the railroad industry,
with the government giving massive land grants and
subsidies to railroads. Thus, the massive overbuilding of the
nation's railroads, and the overinvestment by bankers of
depositors' funds in the railroads laid the foundation for the
Panic and the depression that followed."
http://en.wikipedia.org/wiki/Great_railroad_strike_of_1877#Economic_conditions_in_the_1870s
Syd|9.19.08 @ 5:52PM|#
Just to complicate things, the Panics of 1873 and 1893 were the accent marks of what is called the Long Depression, which lasted from 1873 until 1896. The end points were the periods of deepest misery, although the farmers were having problems through the whole period, which led to the Free Silver movement.
Alkioki|9.19.08 @ 6:21PM|#
There are a lot of simplistic arguments in this blog. What will probably happen is the govt will buy "boxes" of mortgages that will include both good and bad ones. It will be a headache to separate the good from the bad and to negotiate deals with mortgagees or implement foreclosures on homes that are valuable assets. There has been insufficient time to do this work so the "boxes" have not been saleable to anyone; hence the illiquidity of the owners of these boxes. Big government headaches and bureaucracy will follow. But the cost will probably be the giant bureaucracy more than losses on the mortgages (assuming govt does not overpay). Maybe govt should pay only half and share the return over the half)... At least there will be more jobs, though not terribly productive ones.
Invisible Finger|9.19.08 @ 6:35PM|#
Some of these financial institutions are writing off as much
as $1 billion in debt. If they're writing off $1 billion in
sub-prime mortgage debt, what happens to the mortgagees? If I'm a
homeowner whose debt gets 'written off', what's the result of that
for me?
Depends on whether you are paying your mortgage or not. You ain't
gettin' a free house, if that's what you were wondering.
|9.19.08 @ 6:38PM|#
So, if you're really afraid of the moral hazard created by the
government bailing out companies that are "too big to fail" - if
it's really something you're concerned about, you really
think it's a danger - now that the government has signed on to two
such huge bailouts, there's really only one solution left to that
hazard:
Disgorgement.
The political will among the public plainly exists. So, are you
really worried about the incentive structure being created? Or is
that just something you say?
Lemme guess: the people who, two minutes ago, were piling up
illicit fortunes while misallocating capital away from the most
rational destinations because of a market distortion, (their risk
being implicitly underwritten by the government) are suddenly going
to transform into the paragons of productivity, and every penny's
worth of the money artificially steered their way by the
governmental intervention (ie, the implicit and now explicit
guarantee) is suddenly going to be the fruits of labor secured with
the sweat of their brow.
Invisible Finger|9.19.08 @ 6:43PM|#
unregulated growth, especially in the railroad industry,
with the government giving massive land grants and subsidies to
railroads.
This is why so much written "history" contains overdoses of
doublethink.
The growth is "unregulated" but there were "massive land grants and
subsidies". Logically, that is massive regulation, not
unregulation. So the author's stupidity and economic bias is
blatant in the writeup. As George Carlin said, language gives you
away.
Invisible Finger|9.19.08 @ 6:46PM|#
joe, can you re-write that? There were so many parenthicals I couldn't keep your point and your sarcasm straight.
voxpo|9.19.08 @ 6:53PM|#
there's really only one solution left to that hazard:
Disgorgement.
That's fine for actual law-breakers. But how is it a solution for
dealing with executives who acted legally in a distorted
market?
economist (now very drunk)|9.19.08 @ 9:31PM|#
Shit, last bottle. Now I have to drive to the liquor store and get another few.
Paul|9.19.08 @ 11:49PM|#
Depends on whether you are paying your mortgage or not. You
ain't gettin' a free house, if that's what you were
wondering.
No, I know that no one's going to get a free house. I was just
wondering what would happen to debt written off if there were no
government bailouts (err, infusements of capital) to cover illiquid
debt.
I know what's going to happen with a bailout. The government will
own the debt and then oversee the collection, or ultimate writeoff
of said debts...which presumably will result in evictions and
foreclosures for those that fail, are failing or have already
failed to maintain their mortgage payments.
|9.20.08 @ 2:52PM|#
Some of these financial institutions are writing off as much
as $1 billion in debt. If they're writing off $1 billion in
sub-prime mortgage debt, what happens to the mortgagees? If I'm a
homeowner whose debt gets 'written off', what's the result of that
for me?
What it means is that the lender realizes that you aren't going to
pay him what you owe under the mortgage, nor is he going to get
what he thought was the value of his collateral when he throws you
out on the street and auctions your house off in a foreclosure
sale, so he has to write down the value of the mortgage on his
books to what it's really worth, not what it says on its face.
|9.20.08 @ 3:11PM|#
Bull. There has been one (1) actual depression in the last
century - a period when the GDP actually shrank to a significant
degree - and that was the Great Depression. The panics of the 19th
century were actual depressions. Everything we've had since the
Great Depression - that is, since the modern regulatory state was
set up - has been a mere recession.
That's only because we've changed the definitions. Except that the
"depressions" that took place in the 19th century are what we'd
call"recessions" if they took place today. There's a reason we call
what happened in the 30s the *Great* Depression--it's because it
was of a magnitude that dwarfed all those earlier depressions. And
in fact, it permanently transformed the use of the term
"depression," which now is used only for contractions that resemble
the Big One in the 30s.
(In fact, IIRC, the term "recession" was popularized about 1937 to
refer to the downturn that was then taking place. It would have
been called a "depression" under the old standards, but that word
had become too scary, so the government geniuses came up with the
term "recession" to make the contraction sound less severe.)
(Similarly, before the 1940s, people used the term "concentration
camp" for camps like the ones the Spanish used to detain Cubans,
the British used to detain Boers, and the American used to detain
the issei and nisei. After 1945, it has tended to be reserved for
death camps, or used by people who are trying to make a Nazi
analogy.)
|9.20.08 @ 3:23PM|#
If you vote against the initial senate version and then vote
for the final version, that means you think the conference made it
better. That is an astounding misstatement of how the legislative
process works.
Much better simply to say that Biden and Dodd were against S. 900
(the Glass-Steagall repeal) before they were for it.
Site comments/questions:
Media Inquiries and Reprint Permissions:
(310) 367-6109
Editorial & Production Offices:
3415 S. Sepulveda Blvd.
Suite 400
Los Angeles, CA 90034
(310) 391-2245