It's My Philosophy on the Industry

Via Ben Smith, Barack Obama rounds up the culprits for today's market meltdown.

I certainly don't fault Senator McCain for these problems. But I do fault the economic philosophy he subscribes to. It's the same philosophy we've had for the last eight years – one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else. It's a philosophy that says even common-sense regulations are unnecessary and unwise; one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.

Matthew Yglesias picks up the rebound.

Conservatives don't believe in [the] safety net for regular people — just for the billionaires. Guaranteed health care? Forget it. Guaranteed retirement income? No way. Just let the market work, and when it stops working the executives will be okay and the rest of us will, oh, something or other.

It's just something to keep in mind when you hear John McCain ranting about the horrors of government waste. Obviously, there is some waste in there, and certainly some stuff that sounds funny like Sarah Palin's seal DNA earmark. But in McCain's mind, it's all waste. Nobody paid attention at the time, but back in the spring he came out with an extraordinarily stingy housing plan that would have done essentially nothing to help ordinary people hit by the foreclosure crisis. McCain, after all, managed to acquire eight homes through good old fashioned hard work marrying an heiresses, so why shouldn't hard work and prudence be good enough to see any family through tough times?

I think we're seeing a return to the frame that Obama wants: If the country thinks the economy's collapsing, and if the blame is placed on Coolidgenomics, then the Democrat wins. Unfortunately for the Democratic ticket, Joe Biden is far more convincing than Obama in serving up this sort of boilerplate. But this clip is the sound of a Democrat on friendly turf.

Comments

[Gilbert Martin]

" But I do fault the economic philosophy he subscribes to. It's the same philosophy we've had for the last eight years - one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else. It's a philosophy that says even common-sense regulations are unnecessary and unwise; one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises."

More leftist economic looney tunes from Barak the 1st.

The man has never had an original thought. All he does is regurgitate the same old liberal crap that the leftists have been spewing since FDR took office.

[ChicagoTom]

More leftist economic looney tunes from Barak the 1st.

Yeah its so fucking looney -- it's too bad it's true and 100% correct.

[Eric Dondero]

There's one Democrat blog MyDD, claiming that it's the fault of McCain's "laissez faire libertarian economic" approach.

[The Extispicator]

It always tickles me that the left blames every economic problem on the free markets. As though we've ever tried out a free market system.

And don't get me started on the underlying assumptions behind Obama's statement -- that the government's role is basically to decide who to "give" to and who not to. This is what's wrong with our politics in this country, the parties have come down to WHO we should give money to and no one asks WHETHER anymore.

[Don the libertarian Democrat]

In his statement today, Sen. Obama mentioned common sense regulations. We obviously need to know what he means. I'm more hopeful than you, which is why I'm supporting him. By the way, allowing crises like these to occur is one way to guarantee excessive regulation. Period.

[GG]

"Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them."

[jasno]

The problem with the Republicans, as I see it, is that they actually believe they're the party of limited government and economic freedom. A lot of us bought into that rhetoric(like when I voted for Bush in 2000(shudder)).

The reality is that they're the party of propping up the establishment and government breaks and favors for the well connected. I think its time the libertarians stop trying to find space under their tent.

Ahh if we could only draw out the non-wacko Dems we could really have something.

[JMR]

Yeah, that massively increased government spending under Bush is SO laizzez faire & libertarian. Good one!!

[J sub D]

Nobody paid attention at the time, but back in the spring he came out with an extraordinarily stingy housing plan that would have done essentially nothing to help ordinary people hit by the foreclosure crisis.

That would be people who took out loans they couldn't repay. right? Yeah, other people should pay higher taxes to help the defaulters. Fuck a bunch of personal responsibility for your own actions.

It's all the greedy private businesses fault. If only firms like the Lehman Brothers were subject to the kind of financial oversight that Fannie Mae and Freddie Mac were, none of this would have happened.

[PapayaSF]

If only firms like the Lehman Brothers were subject to the kind of financial oversight that Fannie Mae and Freddie Mac were, none of this would have happened.

J sub D wins the thread!

[stuartl]

It's the same philosophy we've had for the last eight years - one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.

Translation: Let's raise the tax rate on those evil people paying the most taxes.

[anon]

We have a "Safety net" for medical and retirement. Medicaid, Medicare, Social Security.

I'm just sorry it doesn't meet Baby Boomer's lavish expectations, but you can live off it.

[YoungBlood]

Obama is incorrect. We already have "common sense" regulations. He's peddling for more control desired by his donors.

[Chloe]

Neither Obama nor McCain have a viable solution to the current economic woes. McCain wants to bail out the millionaires. Obama wants to increase taxes and give it as free handouts to those who won't take care of themselves.

Both screw me in the process.

[libertarian democrat]

McCain's "laissez faire libertarian economic" approach.

That's just painful to read.

[anon]

Oooh the "marrying an heiress" critique. How sKerry.

[The Angry Optimist]

one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.

Give? I think he means "take less".

The fact that Barack Obama thinks that all money is government money except for what The Benevolent Ones give us back is extremely disturbing.

[Don Mynack]

Anybody see that AIG has already rejected a privately-funded bailout plan in favor of a hoped-for gov't bailout, just so their sorry board (which the private investors would of course replace) can keep their jobs? Bush at least showed some backbone in letting Lehman fail and go to a bankruptcy court, a much better mechanism than a bail out to properly deal with these companies, by punishing their inept management.

Here's a good take on this from some pros (link goes to pdf):
http://tinyurl.com/6adm5p

[Gilbert Martin]

"Yeah its so fucking looney -- it's too bad it's true and 100% correct."

Too bad that neither you nor anyone else alive on this planet is the least bit capable of proving that it is.

[BDB]

"laissez faire"?

For God's sake man, McCain's hero is Teddy Roosevelt!

These must be the same people that say the CATO Institute is "Neocon".

[The Angry Optimist]

Yeah its so fucking looney -- it's too bad it's true and 100% correct.

Yes, ChiTom...what exactly is your "evidence" that what Obama is saying is true? AFAICT, he's not saying anything substantive, which means you've essentially glommed onto boilerplate statements with no facts for backing.

[TallDave]

Uh oh. Did Barack massively exaggerate his pre-community-organizer financial-sector job?

http://sweetness-light.com/archive/did-obama-turn-down-a-wall-street-career

First, it wasn't a consulting house; it was a small company that published newsletters on international business. Like most newsletter publishers, it was a bit of a sweatshop. I'm sure we all wished that we were high-priced consultants to multinational corporations. But we also enjoyed coming in at ten, wearing jeans to work, flirting with our co-workers, partying when we stayed late, and bonding over the low salaries and heavy workload.

It appears Obama also invented the idea he had a secretary, never wore a suit and tie (which attire he claimed seeing himself in at work inspired an important personal moment), claimed to be "writing" things he was actually only editing, and fabricated out of whole cloth the notion he ever did anything remotely like "interview Japanese financiers or German bond traders" as he says in his book.

This is a serious problem, as it shreds his credibility. If Obama is lying about all these things, can middle-class taxpayers be expected to believe him when he claims he won't raise their taxes?

I don't think the media can cover for Barack on this one for long. Eventually, they're going to have to ask him some of the hard questions this raises.

[jtuf]

McCain, after all, managed to acquire eight homes through good old fashioned hard work marrying an heiresses, so why shouldn't hard work and prudence be good enough to see any family through tough times?

Wait a second. The eight houses are Cindy's. So why are librals angry about them? Are they upset that John's and Cindy's marriage crosses income levels? Is it that John didn't vet Cindy's finances in detail before picking her as a wife? Matthew Yglesias is at the Guardian, but even he should know that, "How many houses do you own?" hasn't been a pick up line for over a century.

[The Angry Optimist]

I want to press this further: it seems that the only issue of fact that Obama is pushing forward in the above quoted is that McCain is somehow a free-marketer, which is constructively. and. totally. false.

[Gilbert Martin]

"The fact that Barack Obama thinks that all money is government money except for what The Benevolent Ones give us back is extremely disturbing."

Of course it is. But it's hardly an original thought. That is the premise that leftists have been operating by for about 60 years or so.

[TallDave]

Anybody see that AIG has already rejected a privately-funded bailout plan in favor of a hoped-for gov't bailout, just so their sorry board (which the private investors would of course replace) can keep their jobs

That is just so very wrong.

[anon]

Bush at least showed some backbone in letting Lehman fail and go to a bankruptcy court, a much better mechanism than a bail out to properly deal with these companies, by punishing their inept management.

Why let Lehman go to bankruptcy and not Bear Stern? Did Lehman not grease the right people?

[joe]

If only firms like the Lehman Brothers were subject to the kind of financial oversight that Bank of America was, none of this would have happened.

There, fixed that for you. So, how's Bank of America doing?

It astounds me that the same people who so arrogantly proclaimed that there was no housing crisis, then proclaimed that the housing crisis wasn't going to harm the economy, continue to assume their infallability when it comes to all things economic.

[BDB]

I think if right wing blogs are furiously looking for silver bullets to kill Obama with again, I can say with confidence that the Palingasm is officially over.

[Simon Blackstone]

Weigel wrote that McCain marryed 'Heiresses'.
Was this a typo or is it his way of insinuating that McCain is a Moslem?

[joe]

Come to think of it, Simon, I've never seen John McCain's birth certificate.

Bum-bum-BUMMMMMMMM!!!

[joe]

People like to talk about "moral hazard" around here, as if it's something unique to government, something that increases inexorably, and in direct correlation, with the level of government involvement.

Well, the ability to sell off shitty mortgages createsd a moral hazard for lender.

The ability to bundle shitty mortgages and sell the securities created a moral hazard for financial firms.

The ability to grade your own mortgage securities "Dude, Triple A all the way" regardless of the underlying risk created a moral hazard.

[kinnath]

First, de-regulated is not un-regulated.

Second, the wealthy have access to influence the regulatory system to their own advantage.

Anyone that thinks a new set of regulations isn't going to create a differently distorted marketplace that produces a different kind of crises in the future must be smokin' some o' dat pinneapple expresssssssssss.

[Jamie Kelly]

That pretty much seals it for me.
Obama isn't just ignorant, he's dangerously manipulative and ignorant.
If this man could blame his fucking grandmother's whiteness on free markets, he'd do it.

[armchairpunter]

I will keel over and expire the day I hear a politician say "I don't much about the economy, but it seems like every time the government steps in to try to fix it, it just makes it worse."

[joe]

We don't need some "new" set of regulations.

We need to extend the existing regulations that cover the banking sector, or a close facsimile, to the rest of the financial world.

How many times does this have to happen? Banks have been rock solid under the Depression-era regulations. Whenever some financial geniuses manage to evade them, we see the same failures that used to create bank runs and panics in the 19 century.

First the S&Ls. Now these "mortgage companies" and insurance companies making loans and every other bank-not-a-bank dodge.

And the banking sector, the poor persecuted banking sector that has to do business the boring old way and doesn't get to be all dynamic and trendy and innovative and stuff is standing there, rock solid like it always has.

Again.

Lesson? Maybe?

[armchairpunter]

As I've said elsewhere, if Barry and Joe are so damned smart (with there heads out of the sand--and other dark places), why didn't they short these stocks weeks ago?

[Jamie Kelly]

People like to talk about "moral hazard" around here, as if it's something unique to government, something that increases inexorably, and in direct correlation, with the level of government involvement.

Trouble is, joe, that moral hazards in the free market are punished with economic justice, even if that means some people get fucked. Moral hazards in government not only go unpunished, but are rewarded.
How many people on the boards of Fannie Mae and Freddie Mac are going to go to jail?
Let's just say that the Enron execs won't have any cellmates.

[joe]

Because I don't spend my life investing, I don't have a bunch of capital lying around, and because the key to shorting is timing.

But no, I can't be right. The mortgage lenders are all rock solid, just like the banks.

The same bumper-sticker cliches that were trotted out to explain why this deregulation was such a great idea 15 years ago are now being chanted like the rosary, and the cascade just keeps going.

Don't tell me I can't possibly be right because you don't want to be right. Look out the fucking window, cultists.

[joe]

Trouble is, joe, that moral hazards in the free market are punished with economic justice

Yeah, the people who made irresponsbile loans then sold them off probably have guilty consiences about the fourth-generation buyers now stuck with the derivatives. Yippie.

[The Angry Optimist]

First the S&Ls.

The big problem with the S&Ls is the same one we're seeing here: moral. hazard.

I know you don't like it, joe, but when you set loose financial institutions but still provide them government backing, it's a recipe for "leaving the taxpayers holding the bag".

Banks have been rock solid under the Depression-era regulations.

Only because FDIC is extremely limited. If we had a version of FDIC that covered all investments made in deposit banks, we'd be facing the same situation.

The solution is to either A) tightly restrict firms if they're going to be underwritten by the government or B) let them free, with both the freedom to invest AND the responsibility to take it on the chin when they do poorly.

[J sub D]

There, fixed that for you. So, how's Bank of America doing?

Better than these banks who operated under the same regulations. Until their failure.

Your point? Other than leftists think we need more government wisdom in the financial sector.

[Corey Cagle]

joe | September 15, 2008, 3:13pm | #

Joe, you do realize that the entire mortgage-backed securities market was created by Fannie Mae/Freddie Mac back in the 1930s, right? And the "Dude, Triple A all the way" rating system was likewise created as a way for the federal mortgage companies to be able to offload risk.

Good job proving the point that moral hazard "increases inexorably, and in direct correlation, with the level of government involvement."

[Jamie Kelly]

chanted like the rosary

So you admit Catholics like yourself are delusional and full of shit?
"Those pious morons are too busy praying to their phony-baloney god ..."
-- Homer Simpson

[The Angry Optimist]

I do think, joe, that your prime examples are actually proving OUR case rather than yours.

[Jamie Kelly]

Yeah, the people who made irresponsbile loans then sold them off ...

We need a government program to make sure that nobody ever takes out a loan from them again, because it's impossible for anyone to know who these people are.

[joe]

I know you don't like it, joe, but when you set loose financial institutions but still provide them government backing, it's a recipe for "leaving the taxpayers holding the bag".

What, exactly, makes you think I don't realize that "setting loose financial institutions" is dangerous? I've been making that point all thread, and on other threads.

And as far as "still give them government backing," this was happening like clockwork throughout the 19th century, too, well before the creation of financial regulation. People get caught up in boom times and think their shit doesn't stink, whether there's a backstop of not.

The solution is to either A) tightly restrict firms if they're going to be underwritten by the government or B) let them free, with both the freedom to invest AND the responsibility to take it on the chin when they do poorly. Since the same thing we're seeing now was a frequent, constant element of the economy before the creation of the modern economic system, I'll have to go with A.

Even if somewhere, some financial genuis whose shit doesn't stink can't make quite as much money on his novel method of accounting.

[James]

Of course Wall Street and the Republicans have never really been in favor of 'Free' Markets, because in a true free market system there would be winners and losers. We have a state capitalism system in this country where no matter what the system is always right and the gov't instead of letting the failed system die continuously comes back to bail it out with taxpayer money. What Democrats like me are appalled at is that when the average to low income people are bailed out it is called 'Evil Socialism' but when Bear Stearns is bailed out it is called business as usual.

[joe]

Your point?

My point is that the difference between the puny number of failing banks on that list compared to the tens of thousands doing busines in America, vs. giants like Lehman and Merrill and AIG, could not possibly be clearer to anyone who isn't actively trying to delude himself.

In any healthy economy, there is going to be churning, even during the best times. There'sd a difference between churning and a cascade of failure, though.

Oh, and btw, you know how most of the banks on that list failed? They got over-extended in the crap-mortgage-securites market.

[The Angry Optimist]

What Democrats like me are appalled at is that when the average to low income people are bailed out it is called 'Evil Socialism' but when Bear Stearns is bailed out it is called business as usual.

Not around here, it isn't called that.

Also, "Democrats" like you are up there talking about how All Money is Government Money until you give it back to us. You should probably switch parties, because you sound smarter than your standard-bearer.

[James]

The market is down over 400...BURN BABY BURN! Oh don't worry, here comes the fed to give you another interest rate cut...fucking Wall Street wusses.

[Jamie Kelly]

joe:
The stock market tumbles after years of speculation and over-investment in dot-com securities. Many people lose their life savings. Companies are shuttered at a rate unseen of since the Great Depression. Even those who are peripherally invested in such securities are hit hard.
The Dow sinks to a 10-year low.
Good thing or bad thing?

Your answer here: ____________________________________________________________________

[joe]

Joe, you do realize that the entire mortgage-backed securities market was created by Fannie Mae/Freddie Mac back in the 1930s, right?

Yes, I do, Corey. And I also realize that there were strict regulations put on banks engaging in that busiess. And I also realize that those regulations didn't apply to other sorts of financial entities. And I further realize that it is almost entirely those other entities, and not banks, that have produced this situation.

Yup, I did do a great job proving my point. Of course, it's very easy when the entities subject to less regulation collapse while the ones subject to more regulation stand tall.

[joe]

Jamie,

The popping of the dot com bubble had good and bad elements.

Seriously, it's time to figure out that I'm not clueless, and drop the debate gimmicks.

[Jamie Kelly]

I just want to add:
Fuck people who take out risky loans far above their financial capacity and then lose their homes.
Fuck mortgage lenders who make those loans and then get on their knees and suck government cock for a bailout.
I hope all of them are living under a bridge sleeping in urine-soaked dirt, where I can throw rocks at them.

[Jamie Kelly]

The popping of the dot com bubble had good and bad elements.

Are you on Obama's campaign staff?
That was priceless.

[kinnath]

"Clueless Joe" has nice ring to it 😉

[joe]

But the people who make those loans, the repackage and sell them off, get to chuckle and everyone else ends up under the bridge.

And none of the laissez faireys has a solution to that.

[James]

The CEO of Lehman made 40 Million last year...he won't be delcaring bankrupcy anytime soon.

[kinnath]

And none of the laissez faireys has a solution to that.

Snipers

[joe]

OK, fine, except for kinnath...

[kinnath]

I ain't good for much except for easy answers

[joe]

Are you on Obama's campaign staff?
That was priceless.

Ask a stupid question like that, what do you expect?

[kinnath]

let's not forget jury nullification . . snipers ain't much good without jury nullifcation

[Warty]

Either jury nullification or mob help to intimidate juries, kinnath.

Also, I'm glad to see that rude joe is back. Polite joe is boring.

[The Extispicator]

And none of the laissez faireys has a solution to that.

Don't buy bad investments?

[Don Mynack]

"Why let Lehman go to bankruptcy and not Bear Stern? Did Lehman not grease the right people?"

Well, Bear Stearns was technically bought by JP Morgan, in a deal brokered (and partially financed) by the gov't. Not a direct bailout, but pretty close. Apparently, they were the "counterparty" to a bunch of contracts and letting them fail would bring down a bunch of more solid institutions. I'm not so sure about this reasoning, myself, since Bear was known to be in trouble for over a year due to bad mortgage debt, so those must have been old contracts, I guess.

Lehman has been circling the drain for a while. Everybody took at look at them and everybody took a pass.

I also think that Fannie and Freddie should have undergone the traditional bankruptcy process, just like Lehman, with their boards replaced and assets sold off. Only the first part of that is happening with the gov't conservatorship.

[armchairpunter]

If we, as a people, do not have the freedom to fail, at times in dramatic fashion, we have no freedom at all.

It's not about whether government policies are good or bad "for the economy." It's about whether I am free to buy and sell as I please, absent fraud. It's about taxing me only as necessary to carry out the enumerated roles of government.

Freedom is in peril when rosy outcomes in every sphere become the stated aim of government.

[joe]

Don't buy bad investments?

All investments are bad investments when the collapse of the financial sector tanks the stock markets and wipes out this much capital.

[Is Biden the (wrong) answer?]

With the poll positions switching, the question is: Who has been switching their vote from Obama to McCain and why?

Nobody who ever considered voting for Obama was going to switch over the lipstick nonsense. Nobody who likes Palin's politics was ever considering voting for Obama. So, that leaves Biden and something else.

I can't address something else, but Biden could very well be the poison that sent economically oriented voters to the other side. Many voters are single-issue (like our SIV) and those who were holding out for a moderate economic policy from the left may have despaired at the spectre of Biden.

[joe]

It's not about whether government policies are good or bad "for the economy." It's about whether I am free to buy and sell as I please, absent fraud.

That's fine, punter, if that's how you value things.

Just don't turn around to say that of course your political program is the one that's going to be best for the economy, and that everybody else need to take Ekon 101.

Oh, and, uh...

Poop. (That's for you, Warty.)

[Jamie Kelly]

The correct answer, joe, is that the dot-com bust was good.
Someday when you're older, I can tell you why.

[kinnath]

And none of the laissez faireys has a solution to that.

On a more serious note, the solution is not regulation by government but agressive stockholders.

When the stockholders join the lemmings on the street, the outcome is inevitable (regardless of what the government does).

[not Kenny Rogers]

All investments are bad investments....

Don't bet what you can't afford to lose.

[Marcvs]

The entire mortgage market was incredibly skewed by the existence of two large quasi-governmental bodies called Fannie Mae and Freddie Mac. To pretend that this "crisis" occurred in a laissez-faire environment is complete and utter bullshit.

[TallDave]

If we, as a people, do not have the freedom to fail, at times in dramatic fashion, we have no freedom at all.

The buggy whip industry is too big to fail! We cannot let these companies with their thousands of employees go bankrupt.

Ladies and gentleman, we must outlaw the automobile.

[James]

If Fannie and Freddie had not been taken over by the gov't then you would have seen a real economic crisis...too bad.

[Corey Cagle]

Joe,

I think you did a fair job of identifying one of the roots of the problem with the crap-mortgage market when you mentioned the "Dude, Triple-A all the way!" rating system. Remember, though, that this fraud was created to allow Fannie and Freddie to offload high-risk mortgages into the financial markets. The entire practice of bundling mortgages in order to sell the bad ones with the good was a moral hazard created, as usual, by the federal government.

This system could probably have continued for some time without the added federal interference in the housing market that started in the 1990's and continued with Bush's so-called "Ownership Society." Federal regulations were changed to require banks to make loans they otherwise wouldn't have (by prohibiting "discriminatory lending practices"), which caused a huge upsurge in the number of bad loans that were bundled in with the good and rated Aaa.

Federal regulators allowed federal corporations to commit fraud based on the presumption that those corporations' bad paper would ultimately be backed by federal tax dollars. Once Clinton and Bush started really pushing home ownership (either in the name of some arbitrary sense of 'equity' or on the theory that homeowners tend to vote Republican), the system overloaded and crashed.

There were definite screwups in the market which contributed to the housing crash, but the entire situation was created and fueled by the government; ultimate blame lies with the federal government, not with the market.

[J sub D]

I'll sum the debate up.

joe: we need to proect the investors from themselves.

J sub D: Fuck 'em.

GWB with bipartisan approval just pssed away at least a trillion and the country hasn't gone belly up. AIG (still solvent), Lehman Brothres (chapter 11 reorganization) and Merrill Lynch (already purchased, off the table) ain't shit. Some cowboy investors get their ass handed to them and homes become more affordable to those who pay their bills.

Color me unconcerned if it's time for some to pay the piper.

[Lazy Fairy]

joe,

The arguments for capitalism are multi-faceted.

On one hand, you have those who argue that capitalism, as the most free market, is the most ethical system. This relies on the assumption that freedom, even freedom to hurt yourself, but not others, is an unambiguously good thing.

On the other hand, you have those who argue that capitalism has the best track record of all systems in regards to promoting overall equity, not just average equity. And that the freer the markets, the better the results.

The first is a moral philosophy argument and the second is a pragmatic argument. They are not incompatible.

[TallDave]

Of course Wall Street and the Republicans have never really been in favor of 'Free' Markets, because in a true free market system there would be winners and losers.

There's definitely some truth to this: businesses naturally want to create barriers to entry, mega-mergers, and other impediments to competition, and also be bailed out if conditions go bad, and way too many Repubs are willing to play along.

Some people were decrying the fact Bell Labs was discontinuing basic research, blaming the AT&T breakup. I said thank God. A patrician monopoly is no better than a patrician gov't.

[joe]

Corey Cragle,

Remember, though, that this fraud was created to allow Fannie and Freddie to offload high-risk mortgages into the financial markets. The entire practice of bundling mortgages in order to sell the bad ones with the good was a moral hazard created, as usual, by the federal government.

To be more precise, it was created by the federal government when it failed to implement adequate regulations. The federal government didn't force anyone to bundle mortgages like that, ir allowed them too. That's the failure here. That's the specific government policy in question, and it's a sin of omission That Freddie and Fannie were quasi-public at the time doesn't change that.

BTW, you know what would be a good name for a band?

"Pwnership Society"

[joe]

J sub, as usual, makes up an argument for me becaue he can't refute what I've actually written.

"Protect investors from themselves." Yes, that's precisely what my point about the economy as whole going down the tubes is about.

I'm sure those guys at the tire shop with no retirement accounts are sure gonna learn their lessons about all those stocks they never bought when they get laid off.

[Mo]

Lehman has been circling the drain for a while. Everybody took at look at them and everybody took a pass.

Actually, Don, I would guess they didn't grease the right people. If BofA or Barclay's got the same backstopping from the Fed that JP Morgan did when they bought Bear, Lehman would be acquired now. I wouldn't discount an old Goldman/Lehman grudge as being part of this.

[Marcvs]

"I'm sure those guys at the tire shop with no retirement accounts are sure gonna learn their lessons about all those stocks they never bought when they get laid off."

You're right, why can't we just always keep everyone employed regardless of the economic situation? And why can't we just make the minimum wage $1,000,000/yr so that everyone can be rich too!

[sage]

All investments are bad investments when the collapse of the financial sector tanks the stock markets and wipes out this much capital.

Most, not all. And certainly not the investments that haven't been made yet. Which is to say, there's some real bargains out there.

[TallDave]

Color me unconcerned if it's time for some to pay the piper

Exactly. Someone has to.

There's another element that doesn't get talked about much: behavior in the absence of risk.

Let's say your kindly uncle gives you $1,000 to invest, and you can either invest it in something that has a 90% chance of success and pays 10%, or something that has a 10% chance of success, but pays 200%. If your kindly uncle further tells you "Hey, don't worry, if you lose your investment, I'll still give you back the $1,000" you now have a much greater incentive to take the riskier option.

As we dismantle Glass-Steagal and the gov't starts underwriting risk, it becomes increasingly possible that the entire financial system as a whole could collapse if one part collapses. Pray this never gets put to the test, because the entire Western economy could end up looking like Zimbabwe.

[joe]

You're right, why can't we just always keep everyone employed regardless of the economic situation?

I hear straw is a good investment. It always is, when libertarian bullshit gets blown out of the water by reality.

I'm talking about "the economic situation," dipshit, and how it came about.

[Barack Obama]

You're right, why can't we just always keep everyone employed regardless of the economic situation? And why can't we just make the minimum wage $1,000,000/yr so that everyone can be rich too!

That is the hope and change we've been waiting for!

When I implement this plan and everyone is rich, those bitter people in small towns can finally stop clinging to their guns and religion, pigs will no longer need lipstick, and feeble old John McCain won't have to learn to use a computer.

I'm Barack Obama, and I approved this message.

[kinnath]

To be more precise, it was created by the federal government when it failed to implement adequate regulations. The federal government didn't force anyone to bundle mortgages like that, it allowed them too. That's the failure here.

Your logic is irrefutable, so long as one accepts that underlying assumption that the government has a responsibilty to prevent people doing risky shit.

Some of us here would argue that the government actually encouraged people to do risky shit by establishing a pair of semi-government agencies that were very publicly backed with a multi-billion-dollar line of credit.

I can get behind a set of regulations that require transparency so that stockholders can monitor the performance of the companies they invest in. I can even get behind regulations that prevent companies from rating themselves (directly or through subsidiaries) and that require independence of audits and ratings (under appropriate non-disclosures if necessary).

But in the end, it still has to be "buyer beware" or we are all just minions of the federal government.

[curious]

Anybody see that AIG has already rejected a privately-funded bailout plan in favor of a hoped-for gov't bailout, just so their sorry board (which the private investors would of course replace) can keep their jobs

Anyone have a link to this?

[Tony]

I call blind devotion to a pure but unrealized utopia that has absolutely no practical evidence behind it a religion. Do you people read other economists besides the ones you agree with?

Reality suggests deregulating financial systems results in massive poverty (except for a few plutocrats). Maybe they just weren't deregulated enough, but I wonder which Latin American country would be willing to undergo an experiment to prove it now.

[anon]

Lehman has been circling the drain for a while. Everybody took at look at them and everybody took a pass.

BofA was welling to "buy" Lehman if the government backed up the same way they did with JP Morgan and Bear. But the government refused. Someone forgot to grease somebody. At least, that is my take.

[Geotpf]

It's a winning argument-if the government bails out Bear Sterns and Fannie Mae and Freddie Mac, shouldn't it give (fill in the blank) to the little guy? Maybe the fact that this is a politcal winner for the Dems is why the Bush administration flip flopped and didn't bail out Lehman Brothers.

Same thing with Iraq. After Iraq, no Republican can complain about wasteful spending with a straight face, because the Democrats can always point to the three trillion dollar hole in the desert. Things like the "bridge to nowhere" don't help, either.

[J sub D]

J sub, as usual, makes up an argument for me becaue he can't refute what I've actually written.

No joe. As usual you can't understand something unless I lay it out specifically, so I'll do it now for your mentally challenged ass.

I am tired of argueing with someone who thinks proper response to the failure of regulation is that more and betterer regulation is required.

It's like talking to a dumbass drug warrior, "We've failded to stop marijuana smoking because we haven't done enough law enforcement", or a deluded theist who asserts "I have faith! And that proves I'm right!"

Unless I somehow misconstrued you desire for more and betterer regulation of the financial industry. 'Cause it's worked out so well, of course.

[Brandybuck]

Yes, McCain's economic policies suck. That much Obama and myself agree. But McCain's economic policies are not conservative, nor libertarian, and only barely capitalist. Certainly not laissez-faire. Yet conservatives and libertarians will get painted by McCain's brush.

People already think that deregulation means giving special privileges to select corporations, now they'll think that free markets mean hands-on government management of the economy.

[GG]

Anyone have a link to this?

During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. because an option tied to the offer would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

Someone forgot to grease somebody. At least, that is my take.

Friends of Lehman

[J sub D]

So AIG is not in dire straits, they just think they'll do better begging from the government. They may be right.

[Corey Cagle]

Joe,

To be more precise, it was created by the federal government when it failed to implement adequate regulations.

To be more precise still, the federal government stacked the deck, allowing fraud (one of the two social no-nos in a libertarian society) to be committed on behalf of the large quasi-public mortgage firms. Without regulatory boards allowing an artificial Aaa rating, your average staid, stoic, risk-averse banker wouldn't touch bundles of bad mortgages.

In a broad sense, you're right; there was a lack of regulation in the mortgage industry. What you're missing is the fact that this lack of regulation was specifically created by the federal government in order to benefit Fannie and Freddie.

So long as you're only saying that we need regulation against fraud, you're actually making a very libertarian argument.

Oh, and "Pwnership Society" would be a perfect name for an online gaming group.

[joe]

allowing.

Yep.

They allowed. They did not intervene. They did not regulate. They did not prevent.

They took a hands off approach.

Allowing. Precisely.

The allowed Freddie and Fannine to do that, just as they allowed the private sector financial firms to do it.

Yep. That's you're problem right there. Nobody minding the store, and the Boy Geniuses with their Big Ideas That Couldn't Possibly Go Wrong were ALLOWED to do whatever they wanted.

And no, I'm not arguing that stopping fraud is the answer. Their was no criminal fraud in the packaging and rating and selling of these derivatives. The shame isn't what was done that was illegal, but what was done that was perfectly legal. What was ALLOWED.

[joe]

I just saw Carly Fiorina on MSNBC, and she was making a lot of sense. John McCain may not know very much about economics, but he's definitely got people around him who have their feet firmly planted on the ground, and no some la-di-da pie-in-the-sky ideology.

[joe]

kinnath,

Some of us here would argue that the government actually encouraged people to do risky shit by establishing a pair of semi-government agencies that were very publicly backed with a multi-billion-dollar line of credit.

You don't get it. ALL of us here would argue that the government did that. Everybody here understands that backstopping can create moral hazard.

For six decades, regulators and policymakers made sure to counterbalance that force with regulations and standards that prevented them from going hog wild. About 15 years ago, a clique of ideologues decided that it wasn't important to mind the store, and massive deregulation was implemented, even as that backstop remained.

Sometimes, you see some of the the smarter libertarians (Kevin Carson and our own Thoreau come to mind) talk about how it's important to bring about libertopia by doing things in the right order - by first tearing down those elements of the modern state that benefit the most powerful, rather than taking away poor people's welfare checks and workers' safety regulations first thing.

Let's call the Mortgage Meltdown "Exhibit A" for that argument.

[Elemenope]

It's crazy notion time.

If I am negotiating a mortgage with a bank, that's a private lending contract between two parties: me, and the bank.

Presumably I sought out this bank because I am a diligent borrower and so checked its liquidity, investment habits, etc, blah blah blah. Presumably as a good lender, the bank says yes to me only after checking my income, credit rating, etc, blah blah blah.

So, can someone tell me, please, what is so wrong with a regulation that prevents my mortgage agreement with a specific bank from being sold by that bank to some third party with which I did not negotiate and did not have dealings with?

Because that sounds sensible to me.

[TallDave]

So AIG is not in dire straits, they just think they'll do better begging from the government. They may be right.

Precisamundo!

And thus secure from any responsibility to avoid risk, they will once again issue cheap policies to people living on flood plains.

[joe]

And thus secure from any responsibility to avoid risk, they will once again issue cheap policies to people living on flood plains.....

If allowed to do so.

[Mr. Nice Guy]

Hearing the news of the banking woes the first thing I thought was that hard-core libertarians would try to fend off critics of deregulation by saying it "didn't go far enough" or that "it wasn't REAL deregulation" or some such thing.

Just like my Marxist buddies, when asked about the failures of socialism in the USSR or Cuba or Eastern Europe always say "well that wasn't REAL socialism" or "they just did not go far enough in trying socialism, they allowed to many capitalistic elements."

Since REAL socialism/laissez faire economies exist like unicorns and pixies do it ensures that neither will ever really be shown to have flaws. That must be awful nice.

In the real world there were economies with more socialistic elements than others, and they did bad, which should say something about socialism I should think. And, there were these much ballyhooed deregulation policies put in place and now this crap happens.

It was a real treat though to see GOP officials passionately telling people "it's going to be ok, all those New Deal programs and safety nets [you know, the ones we bitch about all the time] are in place." It's like the people on H&R who insist that no health care reform is needed because Medicare already pays poor people's emergency care. Priceless.

[Mr. Nice Guy]

"So, can someone tell me, please, what is so wrong with a regulation that prevents my mortgage agreement with a specific bank from being sold by that bank to some third party with which I did not negotiate and did not have dealings with?"

LMNOP
B/c that restricts LUBERTY! You know, the precious luberty of the bank to sell the mortgage without your knowledge or permission. Like the precious luberty of employers to require drug tests of employees, or the precious luberty of firms to mandate that items sold to retailers cannot be offered by said retailers for less than stipulated prices. That these luberty protections empirically result in less choice for more people is not relevant of course.

You sneaky commie.

[J sub D]

And thus secure from any responsibility to avoid risk, they will once again issue cheap policies to people living on flood plains.....

If allowed to do so.

This is just too stupid to resist.

joe, who would be stupid and irresponsible enough to sell flood insurance to cover property owners of property that is commonly known to be at risk of flooding by everybody concerned? At a loss? Every year since 1968? I'll give you a great society hint about an organization that would be stupid enough to insure property in flood plains and hurricane exposed barrier islands/coastal areas that encourages more people to settle there and thus increasing it's losses.

This idiotic, fiscally insane organization is right now 9.6 trillion dollars in debt.

[The Angry Optimist]

So, can someone tell me, please, what is so wrong with a regulation that prevents my mortgage agreement with a specific bank from being sold by that bank to some third party with which I did not negotiate and did not have dealings with?

Because the bank owns your house and not you? Part of the reason they lent you the money was that put your house (read: "mortgage") into their ownership until such time as you paid off the loan.

Where is the title to your car held when you buy it on loan? The bank...so who owns it? The bank.

It's not that hard. It's not YOUR mortgage to *own*...it's yours *to pay off*

[The Angry Optimist]

MNG -

Massive sarcasm FAIL. -5

[Elemenope]

TAO --

The bank may own the asset, but that doesn't mean the debt is transferable. In fact, I see no reason why those two things are *at all* transitive.

Please, make an argument that addresses the issue at hand. If I negotiated with a bank to pay that bank in exchange for use of an asset, how can I be forced to someone else with whom I have not negotiated and who is not a party to the contract that I signed?

[Elemenope]

ahem...

...forced to PAY someone else with whom...

[The Angry Optimist]

well, if I loan you five bucks, and you write it down, I can sell that piece of paper and someone else can come and claim that five bucks.

'Cause it's my piece of paper (actually, it's my five dollars).

[The Angry Optimist]

more basically put, a piece of paper that says "X individual will pay the bearer of this piece of paper Y dollars" is a concept about as old as dirt. I don't know WHY other than the fact that you have the five dollars and they have the right to recall the loan (depending on the terms)...so if they have the right of recall, they should have the right to sell.

[Elemenope]

If they have the right of recall, they should have the right to sell.

But WHY?

Mortgages aren't bearer bonds. They have two signatories. If Bob owes Joe five dollars, nothing about that simple fact makes it necessary that Joe may transfer that debt obligation to Alice. If Alice shows up at Bob's door and says "Joe sez I can get five dollars from you" Bob can say "Fuck off, Alice. I've made no deals with you, and Joe has no right to say that I owe you anything. I will pay *Joe* five dollars, and once he receives that five dollars it's up to him what he does with it."

Let me ask you this: if lenders were no longer able to trade away their undersigned debts and/or assets, what terrible consequences would ensue?

[The Angry Optimist]

Let me ask you this: if lenders were no longer able to trade away their undersigned debts and/or assets, what terrible consequences would ensue?

You're kidding, right? Mortgage-backed securities are worth six trillion dollars (well, not now probably). They're a HUGE engine for growth...they turn stable but illiquid assets into a massive chunk of capital available for investment.

Mortgages aren't bearer bonds.

To a certain extent, they are. The mortgagor reserves the right to foreclose if you fail to make the payments (on the money he lent you!). In a way, a deed is a negotiable instrument (although not officially classified as such under the UCC). The holder of the mortgage is entitled to "X sum of dollars over Y years at Z interest". I'm failing to see where your issue is with who holds it and collects the check.

Think of it this way: someone could buy off your 1 million dollar winnings in the lottery for 500Gs if you wanted to sell it. What's the dif?

[juris imprudent]

joe sez About 15 years ago, a clique of ideologues decided that it wasn't important to mind the store, and massive deregulation was implemented, even as that backstop remained.

Actually joe, it was the Hon. Henry Gonzales (D-TX) that made sure the backstop (for S&Ls) not only remained, but was actually raised - as part of that round of "de-regulation".

[juris imprudent]

clueless joe sez If allowed to do so.

This is starting to sound like a subgenius screed.

[Mr. Nice Guy]

Yeah juris there was no real "de-regulation" championed by free marketers where laissez-faire types, while of course saying it wasn't ideal, said loudly and often was at least in the direction of "de-regulation."

And there was no real de-regulation of energy markets and organizations that led to Enron and such, despite all those free marketer types loudly and often saying there was and pushing for it.

And yeah, the privatization that caused so much misery in Russia under Yeltsin that was praised by free marketers as in the proper direction of privatization and markets wasn't really a privitization at all.

Whenever any much ballyhooed free marketer reform fails it is because it wasn't REALLY done in the REAL free market style. If it had been it would REALLY have been successful. It never has to do with the fact that maybe steps in the direction of laissex-faire markets could actually be conducive to great harm to consumers, investors, prosperity, etc. The free market is magic, and it's claims to magical properties simply cannot be falsified. Anything widely recognized and pushed as pro-markets when proposed which then causes harm can, after the fact, be recognized as not having been an ACTUAL OR REAL market reform after all. Beautiful.

LMNOP
TAO's point is that it's a simple assignment. But of course the point in all this is, should such assignments by lenders be regulated? In the absence of such regulation would market incentives, given people's tendency to in fact act quite irrational at times, lead to consequences that harm the business climate, investors, etc.? If the answer is a likely yes then such regulation imo is a reasonable and necessary impingment on the "luberty" of lenders to engage in that practice. As their fucking up while practicing such "luberty" could and seemingly is bring a great deal of material harm (and actual reduction in many people's liberty as measured in possible opportunities or in being subjected to economic pressure) to so many such a restriction is imminently proper. It's certainly preferable to the alternative: having to bail out these fuckers when the magical market fucks up (which is a socialization of costs and risks following private gains).

[Corey Cagle]

LMNOP-

What gives banks the right to sell the mortgage you negotiated with them?

How about the contract you agreed to and signed. Read the fine print; your mortgage very likely specifies (and certainly does if Fannie/Freddie are involved at all) that the bank reserves the right to sell your mortgage.

[The Angry Optimist]

MNG - even further sarcasm FAIL. You suck at this.

And given that your post is lacking in both humorous style AND substance, the only proper response is to mock you.

[The Angry Optimist]

It's certainly preferable to the alternative: having to bail out these fuckers when the magical market fucks up (which is a socialization of costs and risks following private gains).

Whoops, you did have substance, but this point undid your entire childish little tirade. Ask yourself "Why do we 'have' to bail them out?" and you just might figure this out all by your widdle self.

[Mr. Nice Guy]

We bail them out because of the social harm that occurs to many that had little to do with the stupid irrational acts the decision makers engaged in. Times like now are great reality checks for hard core libertarians who insist that economic harm isn't connected between individuals. Of course you magically would not be harmed by all of this. Yeah, right.

TAO (A-R, right?) et al., you guys are "reverse Marxists", utopian mystics. But most people who have to exist in the real world see through such nonsense quickly, which is why even the free marketers that have any influence are falling all over themselves to promise better regulation and praise the many New Deal programs that protect all of us, even silly mystics such as yourself...

[Mr. Nice Guy]

Paulson's panicky invocation of FDIC was priceless.

"Pleese Jebus, save us!"

[The Angry Optimist]

TAO (A-R, right?) et al., you guys are "reverse Marxists", utopian mystics

No, we aren't. you keep saying it like it's true even though you've been told over and over this isn't about utopia, it's about freedom to choose.

We bail them out because of the social harm that occurs to many that had little to do with the stupid irrational acts the decision makers engaged in.

No, that's not why we bail them out, MNG. More specifically, you haven't come to the reason that these companies became so large that they "had" to be bailed out in the first place. So what is that reason?

I guess I'll have to lead you by the nose through this.

which is why even the free marketers that have any influence

Like whom? I dare you to say Republicans.

[Mr. Nice Guy]

"They're a HUGE engine for growth...they turn stable but illiquid assets into a massive chunk of capital available for investment."

And create incentives for lenders to buy riskier and riskier ones irrationally hoping default will not come, then it does and presto, our magic current situation, where the markets are harmed (which harms the 50% of folks who own stocks in various ways), interest rates might increase in response, banks fail (well, thanks to the gov they won't, thanks for nothing markets), etc.

Hocus Pocus Marketus Magicus! People just are not gonna buy this bullshit TAO when reality is smacking them in the face.

[The Angry Optimist]

by the way, MNG, sometimes you have decent points and sometimes you're a grade-A jackass. Do you drink and post on here or something? If drinking makes you a jackass, either quit drinking or quit posting.

[The Angry Optimist]

And create incentives for lenders to buy riskier and riskier ones irrationally hoping default will not come

Wrong again, MNG. Why is it, do you think, that lenders go for riskier MBS's than is generally prudent?

[Mr. Nice Guy]

We used to not bail out these kind of companies, back in the old laissez-faire Boom and Bust days. Ah, those were the days (Response: Hey, those days weren't REALLY laissez faire! Magicus Marketus Silencieus Our Criticucs!)

[The Angry Optimist]

you have like, four questions pending about how ignorant you are about how the markets in MBS's and general securities work.

Or is your terrible sarcasm an admission that you're pulling all of this ex recto?

[Mr. Nice Guy]

"by the way, MNG, sometimes you have decent points and sometimes you're a grade-A jackass. Do you drink and post on here or something? If drinking makes you a jackass, either quit drinking or quit posting."

I liked your drunken morning rages over your capricous rape charges better :).

"Why is it, do you think, that lenders go for riskier MBS's than is generally prudent?"

Why it must be TEH GUBERMENT, right? Because all good rational businessmen would never make any decision that would bite them in the ass later when conditions they optimistically assumed would hold (no recession) fail.

TAO, you're one of the great minds of the century. Too bad that century is the 18th.

[The Angry Optimist]

still waiting for an answer of substance, MNG.

And your humor freakin' blows. Lefiti is funnier than you.

[Mr. Nice Guy]

"Why is it, do you think, that lenders go for riskier MBS's than is generally prudent?"

Why it must be TEH GUBERMENT. The fact that this mess happened in a time following a lessening of the GUBERMENT's involvement in this area and a much ballyhooed growth of "the market" is of course to be ignored 😉

[Mr. Nice Guy]

"And your humor freakin' blows."

Ouch. Still sore over the Bristol Palin thing, eh Ayn Randian? Don't worry so much, ya'll's love child will be well looked after (if taught that dinosaurs walked with man under Jesus' watchful eye).

[The Angry Optimist]

Still. Not. An. Answer.

I'll give you a hint: it's not "lessening" taxpayer liability to give your kids your credit card without restrictions.

[juris imprudent]

MNG-

No "laissez faire type" favors govt bailouts of market failures. It really is that simple. You and the other statist/status-quoist ilk (left and right) can't get your heads around that concept most likely because your panties are so bunched up that you risk breaking your necks in the vain attempt to remove them from your arses. Note I did not say that you would "free" your heads from your arses - as you wouldn't want to be contaminated by that "luberty" stuff.

People who do stupid stuff, in the market as elsewhere in life, suffer the consequences. If that makes your conscience bother you - then by all means give ALL of your money away to those poor folk.

[The Angry Optimist]

Ouch. Still sore over the Bristol Palin thing, eh Ayn Randian?

I have no idea what you're even blathering on about.

[Mr. Nice Guy]

juris
When some people do stupid stuff it's not just them that suffer the consequences. We are kind of seeing that now, eh?

[The Angry Optimist]

We are kind of seeing that now, eh?

Yes, that's true.

Now ask yourself if every one of those instances:

A) needs to be regulated against and prevented and
B) is made better or worse by government-guaranteed "liability insurance" (i.e. bailouts)

Since you obviously couldn't get to this point on your own.

[Mr. Nice Guy]

"I have no idea what you're even blathering on about."

A-R, you're among friends here. We realize now that your bizarre rants over capricous rape charges, made with the implication that you "really" understood from experience the pain such things cause was related to your bizarre rage filled need to defend Bristol Palin's honor. We understand ;).

But c'mon, trot out the Magical Market narrative in all its glory: this situation was caused by the government regulations of the lending industry which encouraged the risky loans and induced the reliance of investors in the government ulitmately backing them up blah, blah, blah. You don't have some cute secret, just a bullshit narrative that noone is gonna buy for a while...

[The Angry Optimist]

TAO, you're one of the great minds of the century. Too bad that century is the 18th.

Awesome - I'm arguing in favor of a relatively progressive and diversified manner of trading (MBS's) and the "progressives" want to go less diverse, less efficient and more traditional debt-and-equity financing.

[The Angry Optimist]

Bye, MNG. You're going in the filter.

[Mr. Nice Guy]

TAO
Am I supposed to be for the bailouts (thats for all the people who pushed the "de-regulation/privatization/whatever "market" reform that blows up in their face and then they have to mop up the mess)? I thought I was for tighter regulation of these fuckers in the first place. That's what regulation is for, preventing this shit. Helping provide incentives further than the market can to goad actors to not act so recklessly.

[Mr. Nice Guy]

"Bye, MNG. You're going in the filter."

OH NOES!

You are trip TAO! Hocus Pocus!

[juris imprudent]

MNG sez When some people do stupid stuff it's not just them that suffer the consequences. We are kind of seeing that now, eh?

You mean like the people that bought 6, 7 or 8 houses on speculation - fueling the price bubble and fomenting the credit crunch? Funny thing is there are still charlatans running the housing game out there - make a fortune buying repos!

Think of it like the change over from total forest fire suppression to understanding fire as part of forest ecology. You're going to have a mess for a while, but things will be healthier in the long run.

[The Angry Optimist]

ji - best to not waste your breath. MNG will just tell you that we should have more tightly regulated the forests in the first place.

"Dammit, I TOLD these trees not to grow here! Jail them!"

[Elemenope]

The filter is a sign of weakness.

In any case, I think that stripping out the sarcasm, MNG's obvious point is that the abject stupidity and risky behavior of some people will end up harming many others because of loss of market confidence; people who did not participate even indirectly in risky behavior. The guy with the mutual fund and the 401K filled with stocks may not have bought five houses on credit, and yet he still gets fucked when the market crashes.

And you have not addressed that obvious but inconvenient point.

[juris imprudent]

The guy with the mutual fund and the 401K filled with stocks may not have bought five houses on credit, and yet he still gets fucked when the market crashes.

Hey, that would be me. And no, I'm not begging the govt to make it all better. And I sure as hell do not want to be paying off someone else's bad debt.

Unless of course the govt promises to make my house & 401k value go back up to what it was AND gives me a pony!

[hotsauce]

So, can someone tell me, please, what is so wrong with a regulation that prevents my mortgage agreement with a specific bank from being sold by that bank to some third party with which I did not negotiate and did not have dealings with?

You can negotiate a provision in the mortgage agreement that the bank may not sell the mortgage, just as you negotiate and agree to hundreds of other terms and conditions.

If you don't want to borrow more than $400,000, you don't need a regulation making it illegal to borrow more than $400,000. You can either negotiate a smaller loan or not accept the deal.

[alan]

I just saw Carly Fiorina on MSNBC, and she was making a lot of sense. John McCain may not know very much about economics, but he's definitely got people around him who have their feet firmly planted on the ground, and no some la-di-da pie-in-the-sky ideology.

Yeah, we are the problem, and Fiorina
is the solution. It takes some kind of special subliminated hate to come to that conclusion. BTW, the very sane and profit making Jim Rogers agrees with us and not McCain and Obama.

It astounds me that the same people who so arrogantly proclaimed that there was no housing crisis, then proclaimed that the housing crisis wasn't going to harm the economy, continue to assume their infallability when it comes to all things economic.

Your problem right there is the fact that Libertarian economist have been warning about the housing bubble since it was initiated with the Feds priming the pump in '02 and screwing with basic data points like bond ratings and risk analyst reports to make it happen (and only in libertarian economic news letters from the '03 & '04 time period will you read about Fannie Mae employees getting canned for overly candid reports on the institution's practice of bundling).

According to Joe, free market types didn't see these problems even though they were the only ones writing about them, and also they were writing about how the Joes of the world would blame us 'ideologues' while giving the chattering Washington asses who did not see the shit hit the fan quick enough to avoid getting sprayed a pat on the back for their collective wisdom, a 'good job, old man, here is some more power for your lovely city since you don't possess nearly enough, tut, tut, those silly pathetic, reckless markets, if only they aspired to your level of professionalism you brave and smart Washingtonians'.

I call blind devotion to a pure but unrealized utopia that has absolutely no practical evidence behind it a religion. Do you people read other economists besides the ones you agree with?

Reality suggests deregulating financial systems results in massive poverty (except for a few plutocrats). Maybe they just weren't deregulated enough, but I wonder which Latin American country would be willing to undergo an experiment to prove it now.

Latin America following the cultural path of Spain (so you don't waste any of your time charging racism, I am of this particular decent) did not develop capitalist institutions in the historical frame that England, Germany and the American/Canadian colonies did. Whether the economic model be Feudal, Capitalist, Socialist in cultural respects, Latin
culture still tends to plutocracy.

Economic development doesn't just occur in a vacuum. There also has to be a receptive culture for it to take
place (see Max Weber for a full explanation).

[alan]

That's what regulation is for, preventing this shit. Helping provide incentives further than the market can to goad actors to not act so recklessly.

When the regulation creates institutions like Fannie and Freddie whose officers feel that it is safe to leverage their worth 50 to 1, that is lending fifty times more than they actually carry (does that help also in understanding why the prices are out of whack, young professionals can't even afford to buy middle class
property in Orange County CA). who watches the watchers .

[Nick]

Guys, we're all getting a bit ahead of ourselves here. In a laissez faire free market, corporations wouldn't exist.

Total deregulation of the economy would lead to the end of corporate exemptions from legal and financial accountability for fraud, violation of rights, violation of property, etc. The people in the organization could actually be held accountable for crimes and could lose all their money in the process.

A laissez faire market would be one made of only proprietorships, partnerships and cooperatives. Increased growth in business leads to increased risk, so businesses would remain small and act responsibly, and the competition would keep prices low and quality high.

If the Left wants to shrink corporate power, they should be the first ones in line to argue for deregulation (which does not mean one cannot advocate for easier legal piercing of the corporate veil, which has nothing to do with regulation and everything to do with holding criminals accountable for their crimes.) The Left should also be the first to realize that the more the government gets involved with the regulation and administration of corporations, the bigger they get.

The rise of socialism and regulation has only led corporations to become more centralized and powerful, because a merger becomes financially preferable to the increased overhead of remaining separate. If Corporation A buys Corporation B, Corporation A just expanded its market share significantly while reducing the proportional amount of regulation for that market share. The expansion of Corporate A's regulatory and accounting infrastructure to absorb Corporation B's market share would be less than than the combined amount Corporation A and Corporation B require to maintain operations separately. Thus overregulation leads to corporate conglomeration.

By the way, I say we should let all of them rot. Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, etc. don't deserve to remain in business if they make bad business decisions. The marketplace will fill the gaps with other companies buying off their debts at discount prices. And the Government (which would have long been bankrupt if it were a corporation) certainly won't manage them better. I think they set a terrible precedent over the past few months, and I'm glad they seem to have at least realized the moral hazard in their thinking.

[alan]

BTW, if you McCainiacs and Obamaniks think you are going to pin this problem
on 'free market ideologues', you better
watch your asses. Like the Chicago Bears defense roughing up Delhomme, and the refs who let them get away with it, you sir will awaken a sleeping giant.

[Rorschach]

When the regulation creates institutions like Fannie and Freddie whose officers feel that it is safe to leverage their worth 50 to 1, that is lending fifty times more than they actually carry (does that help also in understanding why the prices are out of whack, young professionals can't even afford to buy middle class
property in Orange County CA). who watches the watchers.

Congress?

Whoops!
Jennifer Rubin - 09.15.2008 - 10:09 AM

Fannie Mae and Freddie Mac survived scrutiny by manipulating, cajoling, and lobbying politicians and hiring board members who were politicos (e.g. Jamie Gorelick) rather than mortgage gurus. They hired lobbyists, gave massive donations, obtained nice tax breaks, and sailed below the regulatory radar screen.

Of the 354 lawmakers who received money from Freddie and Fannie between 1989 and 2008, Sen. Chris Dodd received the most. But next was . . . drumroll . . . Barack Obama. Yup. And he was only there for three years. Not too much went to John McCain, about a sixth of what Obama received

Oh, shit.

[Famous Mortimer]

"Protect investors from themselves." Yes, that's precisely what my point about the economy as whole going down the tubes is about."

Libertarians love to throw around straw-men arguments on here because they're so bad at discussing gray areas. It's a form of panic. The backhanded comments inevitably begin to fly as well. It's a predictable process much like mitosis.

I guess the King Rand Version of the Libertarian Bible doesn't include all of the necessary codes.

[John C Jackson]

What's with all the "libertarians" here holding up corporate welfare as libertarian economics?

As a libertarian I find it strange when leftists complain about corporate welfare or point out the conservative disconnect between welfare for the poor and corporate bailouts and other so-called libertarians take this as an attack on free-markets.

Huh?

Yes, the leftist socialists have economics all wrong, but why blame them while defending the conservative welfare statists?

[junior]

Joe - "First the S&Ls. Now these "mortgage companies" and insurance companies making loans and every other bank-not-a-bank dodge."

The banks are heavily regulated. The market craves higher returns than they can possibly give. Other entitities enter the market place to provide those returns. Government by it's nature cannot keep up with the market place. Investment moves disproportianately to these other entitites. The result is that we have a financial crisis that may have played out in a much smaller way without the regulation.

You seem to be saying that IF government would just keep up with the marketplace everything would be fine. Well...government has proven time and again that it cannot keep up with the marketplace. As long as we live in a democracy, your utopian world of good government doesn't exist and never will. I guess we could find a good king to run things, but that may have it's own unintended consequences.

[J sub D]

I don't like to say I told ya so (OK, I do like to)from 2 days ago -

Read the top two posts, check out the first link in
GG | September 15, 2008, 5:22pm.
My prediction immediately follows.

How do you like co-signing a big ass loan for your loser brother in law?

[J sub D]

Disregard the above. Shitty site navigation by me is the cause.