PDA

View Full Version : What do you think our government should do about the economic crisis?



mugaliens
2008-Sep-20, 08:44 AM
This thread is about economics, not politics. If I so much as hear a peep about candidates or parties, I'll ask the monitors to shut down this thread!

On with the show...

geonuc
2008-Sep-20, 09:02 AM
Short term: assume the debt from sub-prime mortagages and their derivatives. Call Alan Greenspan and hire him as a consultant. Fire Christopher Cox.

Longer term: Convene a council of economic experts derived mainly from our best universities (not just from the industry - they're too biased). With their help, perhaps create regulation to inhibit people from using the stock market - with all of our savings and retirement funds - like it was a gambling casino. Or perhaps just prohibit accounts that have preferred tax status from investing in risky derivative securities. Tighten the regulation of mortgage brokers and hire more people to enforce the laws we have. Raise taxes to pay those people.

But that's just my layman's take on it. National economic policy is a field that not only demands a comprehensive knowledge of the workings of the economy, but also access to data unavailable to us common folk. So, it's hard to second guess who messed up where and what should be done about it.

ETA: I didn't vote in the poll. I didn't see an option that matched what I would do.

mugaliens
2008-Sep-20, 09:14 AM
In his novel, Glory Road, Heinelin wrote, "For the one thing that stood out as this empirical way of running an empire grew up was that the answer to most problems was: Don't do anything."

Therein, he provided several justifications, including the fact that if an issue ever made it off one of the many worlds in 20 known universes, it was almost always an indication of one of two things:

1. The system had failed the complainant somewhere along the line.

2. The complainant simply didn't like the system.

If the first were true, the "do nothing" approach was appropriate, as viable systems almost always tend to be self-correcting. One example would be deer population. If they overpopulate they tend to starve and become easy prey. The last sentence could be said about 99.99% of all life on our planet.

When we're dealing with human economics, we tend to be a bit more empathetic, and will undertake serious effort and forfeit personal expense to avoid the harsh reality of self-correcting systems.

If the second was true, then the unsatisfied individual deserved the royal slap in the face by having his/her complaint answered by a royal, "So?"

In Heinlein's novel, only under rare circumstances would the overarching government to stick it's fingers into the affairs of the subordinate governments.

Economically, we see the wisdom of this, both with the United States of America, as well as with the later example of the European Union. When borders are relaxed and commerce that's benefitial to society is allowed to flow freely, not only do economic imbalances tend to be self-correcting, but the pooling of economies tends to make the system both larger, and more stable, on average, than maintaining sharp economic borders.

How does this apply to our current economic crisis?

First, is there really a crisis? Sure, home prices have been downturning over the last few months, but is that a crisis, or merely the self-correcting result of having had overinflated home prices in the first place?

Second, stock markets recently tanked, which had everyone up in arms. "The crisis has come! The crisis has come!" cried many - two days before the stock market rebounded. Did it really rebound on news of a government solution, or was it merely the response of people thinking, "Hmmm... that's too low, it'll rebound," and throwing their money into the market?

Did a couple of financial biggies stupidly pool too much of their resources in the wrong place? You bet they did, and Barclay's is singing all the way home, er, to the bank.

The bottom line is that I maintain that what we just witnessed last week was the result of the system correcting itself. Thus, there really isn't a financial crisis, and what we need is a hands-off approach, not a "we can fix this" approach. I maintain that fluctuations in a system are normal indicators that the system is working, and not over-damped. Such indicators are healthy. Your temperature isn't 98.6 degrees 2/47/365, and stocks and home values do not all gain 3.7142532% per annum.

In short, leave it alone!

Paracelsus
2008-Sep-20, 12:11 PM
I was torn between 'Raise taxes' and 'Take the blue pill'. On second thought, perhaps the govt should take the blue pill. This crisis may have so much momentum right now, that any intervention will fail.

Delvo
2008-Sep-20, 12:36 PM
I have yet to be convinced that there even IS a "crisis". By far most mortgages are still being paid. For all the talk of how bad the economy is, the numbers just don't show it.

To the extent that there is an actual "problem" at all, there always was, only now it's just being made more obvious. Foreclosures aren't the problem; they're the result of the real problem, which was bad loans being given in the first place. People are talking about how to prevent the foreclosures, but after the bad loans were given out, foreclosures are what SHOULD happen. LET them happen. The market will respond by reducing prices to where they should have been all along, and the lenders will respond by returning to the use of actual standards in making loans. (There's a law compelling them to give bad loans, which they objected to because they don't WANT to give bad loans because they know it means not getting their money back, but that law can be changed.)

Ronald Brak
2008-Sep-20, 12:56 PM
Position 1: Although the Fed will make mistakes, it is better to engage in bail outs than allow the country as a whole to suffer. The bailouts are unlikely to cost the country money and may turn a profit for taxpayers. Those involved will take a haircut so moral hazard is reduced.

Position 2: There is no such thing as a right to the money in your bank account. If you are foolish enough to put your savings in a bank that made bad financial decisions then you deserve to lose your money. Failure to let banks go under will just encourage people to keep depositing money without detailed examination of the bank's financial activity.

Gruesome
2008-Sep-20, 01:47 PM
Take the blue pill.

By voting for this I mean, the repeal of the Federal Reserve and a return to the gold standard. Anything else, I figure, results in comforting the symptoms instead of treating the disease. This fiat money has simply got to go.

Debt is money. Money is debt.

Consider this quote from Robert Hemphill, Credit Manager of the Atlanta Federal Reserve Bank, circa 1936.

If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible - but there it is.

Humans are flawed creatures. Mistakes will happen. Whether by greed or simple incompetence, somebody somewhere is gonna chump it. And since all the debt is interconnected, when one bank screws up the liability moves up the chain, affecting other bank's balance sheets. The snowball grows.

The only way to stop the bleeding is government bailout. More debt (hopefully "good debt" - whatever that is) is added to the pile. More money is created and hence buys less. We get inflation and a spike in the price of gold. If this continues, eventually so much currency enters circulation that it requires a wheel-barrow full of $100 bills to buy a loaf of bread.

So my opinion is to treat the disease. Take the blue pill, because right now....there is no spoon.

(Gruesome is not an ecomomist, but he did stay at a Holiday Inn Express last night!)

tdvance
2008-Sep-20, 01:53 PM
My first choice would be lower taxes--that always boosts the economy, just as raising taxes is a parasite on the economy. The second choice is "do nothing". There's always a desire to act, even when the action is counterproductive. If you want a pendulum to stop swinging, you don't keep pushing on it.

sarongsong
2008-Sep-20, 03:14 PM
...Take the blue pillDefinition, please.

Chuck
2008-Sep-20, 03:36 PM
Take the blue pill. It's too late for us. We should go extinct and give another species a chance to evolve to intelligence. Leave them our history books so they'll know what not to do.

Larry Jacks
2008-Sep-20, 04:06 PM
While I'd like to see the companies (including Fannie Mae) that screwed up so royally collapse, I've resigned myself to the notion that the government isn't going to let that happen. The economic impact could become too severe.

Here are some notions - for every company that the government bails out:

1. Fire the management that got the company into the mess.
2. Cancel any "golden parachutes" for those being fired. Why should the taxpayers pay 7-8 figure bonuses to people who screwed up?
3. Decimate the MBAs and other weenies who got too clever for their own good.
4. For those remaining, tie their compensation to the health of the company.

I don't know if you could outlaw hedge funds, derivatives, and other financial shell games, but it'd be reasonable to consider it. Get back to the basics of sound economic principles.

Just thoughts. They'd never happen.

Moose
2008-Sep-20, 04:07 PM
Saw a proposal for a taxpayer-funded 700 billion (with a B) dollar bailout on the news this morning. Personally, I think that if the only way to prevent economic collapse is through a bailout, it should only be applicable against the mortgages themselves, and not the crooks who gamed the system to create the crisis. Otherwise, the effect is that homeowners basically end up paying off their mortgage _twice_, with the crooks benefiting twice.

Being a responsible mortgage owner, this isn't a solution that thrills me by any stretch, but the alternative simply infuriates me.

korjik
2008-Sep-20, 04:57 PM
Terms along the lines of the AIG bailout I can live with (they got a loan, with interest to stay in business). Grants I wouldnt much care for.

The people in charge at the places that require bailouts should not get a cent.

We arent at great depression levels of problems yet. Lets hope we dont even get close.

Oh, and apologies for all the non-USA BAUT members if this thread seems a bit too US biased :)

orionjim
2008-Sep-20, 05:19 PM
Actually on your list there are only three choices:

Do nothing - let the system stabilize itself
Do nothing -There is no crisis Ė deviations, even severe ones, are normal
Do nothing - Take the blue pill (live in blissful ignorance)
Raise taxes - use for economic incentives
Lower taxes - keep the money in the hands of the people

Also you missed one, the one that was picked; Change the System or Take the Red Pill (embracing the sometimes painful truth) and then do something!

From my background and the years of training Iíve had on the W. Edwards Deming philosophy the right choice was made; Change the System. I was amazed by the speed it was done. Will it fix the problem? I donít know, I donít think anybody could know. But the problem, IMHO, is more than a minor (tax) adjustment.

Jim

Neverfly
2008-Sep-20, 08:57 PM
Also you missed one,

Then he missed three.
The one you mentioned-
Cheese!-
and...
Beer!

mugaliens
2008-Sep-20, 09:19 PM
Definition, please.

The original term came from a line in The Matrix, where Morpheus is offering Neo a choice between a red pill and a blue pill (http://en.wikipedia.org/wiki/Redpill). If Neo takes the red pill, he sees just how far down that rabbit hole wonderland really goes. If he takes the blue pill, he'll wake up in his previous world, not knowing that his entire concept of existence is nothing more than a construct (The Matrix), which simulates his world for him so that the machine world can use his body as a source of energy.

More recently, Blue Pill (http://en.wikipedia.org/wiki/Blue_Pill_(malware))is the term for a virus which would install itself between Microsoft's Vista operating system and everything else (user and hardware). Thus, like the Blue Pill in The Matrix, both, including antivirus software, would go along living in an artificial world, while the Blue Pill malware

tdvance
2008-Sep-20, 09:33 PM
beer has two positive benefits regarding the economic situation. The first is spending money on beer creates jobs in the beer industry. The other is if you drink enough, the economy no longer bothers you.

mugaliens
2008-Sep-20, 10:51 PM
beer has two positive benefits regarding the economic situation. The first is spending money on beer creates jobs in the beer industry. The other is if you drink enough, the economy no longer bothers you.

However, in your inebriated state, you may nevertheless manage to bother the economy.

Neverfly
2008-Sep-20, 11:12 PM
I will mention what I do know.

I have not pulled a Good Solid contract in at least two weeks.

You know how you get to that point where you're counting the funds and a drop of sweat appears on your forehead?

Talk about LOUSY job calls!

And customers have become increasingly reticent about spending money on my work.
Haggling has become almost an issue at this point.

It's hard to get people to understand that I'm not gouging them, I'm trying to sustain a living here.

Attitudes are up too.

In the last week I have been treated like garbage by customers. They seem to expect me to take their abuse and pander to their incomplete understandings about the work that needs doing.
it's crazy.

One thing about the business is learning how to curb reactions and maintain a professional manner.

I tell you what- these people are severely trying my patience!!
Ike has created some work, but with my son here, I cannot go gallivanting off to Houston.

If the economy is planning on taking a turn for the worst- I may end up being Required to totally change careers.
God I wish I had gone to college!!!

mike alexander
2008-Sep-20, 11:16 PM
My limited understanding of what's going on means I am not sure exactly what to do. Like the Large Hadron Collider, I guess I have to leave decisions to the experts. My own estimate is the probability of formation of a financial black hole, while small, is more likely than a physical one.

A big problem seems to be that these bad mortgages don't really exist as discrete entities anymore. They have been merged and laundered through the financial system until the debt obligation seems to be everywhere, but no one is sure exactly where the bad debt is. Was it Thorsten Veblen who said "The value of a thing is the price it will bring"? There are now large wads of obligations for which the value is unknown. This means the various credit traders don't want to touch a debt that might be just fine, but could be worth much less than the asked price. So trust fails, credit dries up, and an entire system depending of the liquidity of huge amounts of obligations stops. Said system being the world economy.

sarongsong
2008-Sep-21, 12:05 AM
The original term came from a line in The Matrix...No, the [b]original term referred to a 19th century remedy for constipation (http://en.wikipedia.org/wiki/Blue_pill) , which is why I asked. http://www.bautforum.com/images/icons/icon10.gif

TheHalcyonYear
2008-Sep-21, 01:27 AM
Any solution is going to have to requre greater regulation. It was specifically lack of regulation of the new financial instruments that got us in to this mess.

To those who wonder if there really is a crisis, I suggest that you read some of the opinions of those who have been in the financial field for more than 30 years. There are more than a few that think the we may be in the greatest messes since the great depression.

tdvance
2008-Sep-21, 03:04 AM
It was worse than no regulation--it was government-funded incentives to lend to high-risk borrowers, via Fannie Mae and Freddie Mac. As long as this continues, increased regulation will be at best a temporary patch that will blow again the next time the economy is unsteady, and at worst be a burden on businesses and, as a result, stifle long-term economic growth while still not addressing the basic problem.

Van Rijn
2008-Sep-21, 03:19 AM
It isn't clear to me what is meant by saying there should be "more regulation" or "less regulation." It makes me think of Kirk talking to Scotty, perhaps asking him to "increase to Regulation Factor Seven" or something.

I think the real issue is what type of regulation we should have. Of course, that discussion can get pretty political.

Neverfly
2008-Sep-21, 04:03 AM
Any solution is going to have to requre greater regulation. It was specifically lack of regulation of the new financial instruments that got us in to this mess.

To those who wonder if there really is a crisis, I suggest that you read some of the opinions of those who have been in the financial field for more than 30 years. There are more than a few that think the we may be in the greatest messes since the great depression.

I disagree- of course...

It's a matter that we were over-regulated to begin with that has led to part of this.
It never ceases to amaze me how people think that adding more regulation will somehow fix what some regulation broke...:doh:

mike alexander
2008-Sep-21, 04:47 AM
As societies we accept all sorts of regulations (sometimes referred to as laws) as necessary to keep a certain amount of order and safety (traffic regulations, civil and criminal codes, and so on). What makes financial considerations qualitatively different from, say, FDA regulations, or construction codes?

Ronald Brak
2008-Sep-21, 05:52 AM
As a non USian, it does not appear to be overegulation that has lead to the current problem, it appears to be a lack of regulation or poor regulation. Now a lack of regulation means that new and useful products can be introduced quickly and economic benefits reaped. Unfortunately it means things that aren't good ideas can spread quickly. Particularly things that are good for individuals singularly, but bad for the system when everybody does them. The huge expansion of derivitives seemed sensible, people were hedging against things such as changes in interest rates and so on. It all seemed responsible. But when there are trillions of dollars worth of them and suddenly something unexpected happens and a large company can't afford to honour its derivitives, that means the people they were supposed to pay go under and people they were supposed to pay go under so on and so on and it all comes down like a house of cards. Now it might be tempting to let the whole lot come down and teach the financial community a lesson, but the drawback of that is that many banks could collapse and your grandmother lose her savings. That isn't fair on your grandmother. She had nothing to do with making the mess. So the best thing to do is for the Fed to try to stop the collaspse, limit the damage, and punish those responsible. I don't know if they will do a good job of this or not, but it's certainly worth trying and I'm sure they will do a better job of it than I would, so good luck to them, good luck to the United States and good luck to the world.

Neverfly
2008-Sep-21, 06:03 AM
As societies we accept all sorts of regulations (sometimes referred to as laws) as necessary to keep a certain amount of order and safety (traffic regulations, civil and criminal codes, and so on). What makes financial considerations qualitatively different from, say, FDA regulations, or construction codes?

Let's say that I have a small business.
In running that business I must meet certain regulated standards. Like cleanliness or safety.
Because I must meet these criteria, more money is spent and productivity is reduced in order to maintain these standards.
That's fine.
Now, over time, let's add regulations. There is More than just the consequences that we see- there are the psychological consequences of regulating people. Some is tolerable but the more you regulate, the more they struggle to get free.
When you have reached a point where they are resistant but not yet fighting, then add more- something is going to give.

Adding further regulation at this junction is more likely to cause harm than good.


-------------------------------------------------------


One of my peeves with the way the USA has been handling financial affairs in recent times is that we SHARE too much.
We need to come home.
We need to focus on home.
We need to stop sharing.
We need to take care of US.

Graybeard6
2008-Sep-21, 06:20 AM
No, the original term referred to a 19th century remedy for constipation (http://en.wikipedia.org/wiki/Blue_pill) , which is why I asked. http://www.bautforum.com/images/icons/icon10.gif
Thank goodness! I couldn't figure whether you were referring to extra strength Valium or Viagra.

Neverfly
2008-Sep-21, 06:23 AM
Thank goodness! I couldn't figure whether you were referring to extra strength Valium or Viagra.

This would only apply if we are looking to boost the economy and get the stocks up. Hopefully to stay up.

korjik
2008-Sep-21, 07:09 AM
It isn't clear to me what is meant by saying there should be "more regulation" or "less regulation." It makes me think of Kirk talking to Scotty, perhaps asking him to "increase to Regulation Factor Seven" or something.

I think the real issue is what type of regulation we should have. Of course, that discussion can get pretty political.

What, doing what needs to be done instead of doing what makes you look best?!?!?!?!

What kind of facist commie are you?!?

:D

closetgeek
2008-Sep-21, 03:48 PM
No, the original term referred to a 19th century remedy for constipation (http://en.wikipedia.org/wiki/Blue_pill) , which is why I asked. http://www.bautforum.com/images/icons/icon10.gif

Am I the only one who thought viagra?

Drunk Vegan
2008-Sep-21, 04:22 PM
Why is there no poll option for "bend over and kiss their behinds goodbye" - ?

That's the only rational response to this crisis.

It's been a long time coming and I can't see how anyone's surprised. This house of cards has been ready to fall over for many years now.

mugaliens
2008-Sep-21, 04:55 PM
No, the original term referred to a 19th century remedy for constipation (http://en.wikipedia.org/wiki/Blue_pill) , which is why I asked. http://www.bautforum.com/images/icons/icon10.gif

No.

Who is the OP?

Thank you.

filrabat
2008-Sep-21, 07:29 PM
There's no way around it except to purge the poison of defaulted subprime mortgages from the system other than to buy them back. Those mortgages are the secondary cause of the problem (the primary cause was banks loaning too much money to people in a poor credit/financial position). Even so, The deficit will go stratospheric on account of this! Therefore, I see no way around raising taxes, although I don't think raising taxes creates incentives.

The real problems are regulatory. Frankly, I though rules already existed prohibiting banks from lending so much to people with so little!! What's especially bad is that these mortgage-backed investments had little if any information about the quality of the mortgage (or a package of mortgages....good loans mixed with bad loans).

Note: I don't the last part (or any part) was political, for I define "political" as reccommending specifics about regulation, rather than just a vague general statement "we need more regulation". If anyone disagrees, just let me know and have the mods alter the post as they see fit.

mugaliens
2008-Sep-22, 06:26 PM
Note: I don't the last part (or any part) was political, for I define "political" as reccommending specifics about regulation, rather than just a vague general statement "we need more regulation". If anyone disagrees, just let me know and have the mods alter the post as they see fit.

You're too politically sensitive. I didn't find it to be political at all.

Here is an example of something that's polical:


What kind of facist commie are you?!?

:D

All except the cheesy face, that is.

However, it's clear korjik meant it entirely in jest, so it's not really political at all, either, as political humor is about as anti-political as one can get without going to jail, so korjik's safe.

Except for the smiling green face. Looks like something out of Spiderman 3...

bbrrrrr! Sends chills down my spine something fierce, I tell you...

tdvance
2008-Sep-22, 06:32 PM
As societies we accept all sorts of regulations (sometimes referred to as laws) as necessary to keep a certain amount of order and safety (traffic regulations, civil and criminal codes, and so on). What makes financial considerations qualitatively different from, say, FDA regulations, or construction codes?

I think that would come down to the kinds of regulations. One proposed is limiting CEO salaries. I only thought that could happen in the old Soviet Union. So--you are only allowed to hire a CEO who's worth X per year or less to the company....and that's going to make things better.... (not to worry, they'll find a way to pay the CEOs more than what's on the books, either that or the most qualified CEOs will go find someone else who will). It's like price controls (Tried many times before). A price cap has two major effects; 1. reduction in supply; 2. reduction in quality.

sarongsong
2008-Sep-22, 07:00 PM
The original term came from a line in The Matrix...
No. Who is the OP? Thank you.Oh, I get it---time reversal! :doh:
original (http://www.google.com/search?client=opera&rls=en&q=define:original&sourceid=opera&ie=utf-8&oe=utf-8) - preceding all others in time or being as first made or performed...

Click Ticker
2008-Sep-22, 07:33 PM
I know of a link to a slide show explanation that involves stick figures that explains the sub-prime lending crises to a tee. The problem is that it has very BAUT unfriendly language in it. Perhaps I could PM it to a moderator and they could decide if it was worth posting.

Bottom line though, is that it was a combination of too much regulation and not enough regulation that created this mess.

Too much. Banks, through various "fair credit" and "community reinvestment" legislation were required to make loans they never would have otherwise. The creation of Fannie Mae and Freddie Mac as well as FHA loans took the perceived risk away from the lenders giving them incentives to make riskier loans.

Not enough. No licensing or educational requirements for mortgage brokers in many states led to many unscrupulous individuals willing to bend the rules to get their commission. Wether it be the owners of mortgage companies or the brokers in their employ. This, of course, had everyone in the world chasing properties they never would have considered 30 years ago, and created higher real estate prices due to the increased demand.

I mean, really, who in their right mind does a $150,000 mortage on 5% down to an individual who was just hired for a commission based job based on their stated income? And that's one of the loans that worked out because the individual ended up quite successful. But it's a high risk loan to do.

As far as the earlier situation of tying CEO's compensation directly to the financial perfomance of the company - look no farther than Enron to see where that can end up. Yippee! More option bonuses. We need this bottom line to look better. Somebody get the accountant on the phone.

mike alexander
2008-Sep-22, 07:46 PM
There is also the too clever by half manipulation of debt. Laundering all these mortgages into forms where no one seems to know exactly how to trace lines of responsiblity seems to have ended up in destroying trust that the stated value of a thing is close to the real value. A high velocity economy has to have a high trust factor.

Larry Jacks
2008-Sep-22, 07:55 PM
I think that would come down to the kinds of regulations. One proposed is limiting CEO salaries. I only thought that could happen in the old Soviet Union. So--you are only allowed to hire a CEO who's worth X per year or less to the company....and that's going to make things better.... (not to worry, they'll find a way to pay the CEOs more than what's on the books, either that or the most qualified CEOs will go find someone else who will). It's like price controls (Tried many times before). A price cap has two major effects; 1. reduction in supply; 2. reduction in quality.

I oppose government regulation of salaries. At the same time, I hope that tax dollars aren't going to finance multi-million dollar golden parachutes for the executives that ran their companies into the ground. Some of these parachutes are reportedly in the tens of millions. They screwed up and they deserve to not only be fired not not rewarded for their inepitude.

tdvance
2008-Sep-22, 08:23 PM
I'm not in favor of any kind of bailout, but if one had to happen, the 700billion was burning a hole in the treasury's pocket and had to go somewhere, the best place might be the stockholders (divided according to shares owned). Most of those would then put most of the money right back in the market, but not back into the failed banks. This would boost the stock market (I still say, without long-term gain, since the money has to come from somewhere, either taxpayers now, or taxpayers tomorrow via debt) without boosting the ones who brought it down.

Delvo
2008-Sep-22, 09:53 PM
I'm getting pretty annoyed at the perpetual use of the word "collapse" in economics. It has no particular economic meaning, so it's just an attempt to scare people.

mugaliens
2008-Sep-22, 10:48 PM
Like when some newspapers were reporting how some people were "making a run on their savings and loan institutions."

For the love of Mike...

tdvance
2008-Sep-22, 11:15 PM
yeah, every better pay their loans off pronto, or the S&L might go away and your loan disappears!!! (ha ha, funny how loans always get buyers, but savings doesn't :) )

mike alexander
2008-Sep-22, 11:32 PM
For the love of Mike...

Why, thank you.

mugaliens
2008-Sep-23, 06:16 PM
Why, thank you.

Don't mention it.

I give perfectly good advice away for free, too.

Argos
2008-Sep-23, 07:03 PM
Oh, and apologies for all the non-USA BAUT members if this thread seems a bit too US biased :)

Accepted. But the fact is that it can spill on everybody. The Group of Seven plus emerging economies are being called on to help stabilize the international financial system.

Disinfo Agent
2008-Sep-23, 07:51 PM
As societies we accept all sorts of regulations (sometimes referred to as laws) as necessary to keep a certain amount of order and safety (traffic regulations, civil and criminal codes, and so on). What makes financial considerations qualitatively different from, say, FDA regulations, or construction codes?Taboo?

Drunk Vegan
2008-Sep-24, 02:32 AM
The difference is that FDA or building codes are there to protect people's health and safety. And if you don't have health and safety, you have a chance of dying, so it's within our self-interest to accept FDA regulation and building codes.

With financial regulations, however, you're talking about directly influencing the ways in which people can make money.

To anyone who hears of it, it will sound as though you are *limiting* his ability to turn a profit, and thus hurting his livelihood - thus an attempt to introduce financial regulation is seen as a direct attack against the entrepreneur.

danscope
2008-Sep-24, 04:30 AM
Hi,
I haven't read all the replies.
Let me say that the market can cool it's heels untill after the election.
It took since 1980 and the king of jelly beans to screw things up the way it has become ....because of their beloved deregulation and fool hardy giveaways
with the certain idea that the taxpayers would bail them out.
NOT SO FAST.
Let me clue you to the way things used to be. I put down $10,000 and borrowed $24,000 to build my own home.....at 10.5%. By the time I finished, it came down to 8 1/2 % and I closed. I built a modest home which my family could afford to keep and heat and pay taxes upon.
Now, I'm supposed to underwrite these pirates who take $600,000 and a
home equity loan for another $100,000 so they can buy a Porsche and a BMW
for Muffy while their kids went to Yale. My kids went to where we could afford it, and.......we had to pay it back!!!!! For 700 Billion $ I think we will take a more focused view and truly scrutinize this situation.
And that's a no S^%&^t item. I wasn't born yesterday and I didn't fall off the turnip truck.
For this much money, we are going to think about it some . The reason we are in this mess is that WE HAVEN'T THOUGHT ABOUT IT.
So, don't let a bunch of stinkin pirates put a gun to your head and say....
" Act Now! " like it was some kind of fancy time share promotion that had to be done "TODAY ONLY " .
We need to see how much, why and where and who, and when. PERIOD.
And this time, I don't want Greenspan and Paulson pontification like they know something. They clearly don't.
This is not meant to be a political post. It is supposed to be a rational
approach to the biggest boondoggle since teapot dome. If you don't know about that one, google it. Yes, Virginia, there are pirates out there and they
will run over their own grandmother for ......a dollar.
Randolf and Mortimer Duke must go.
And there is no free lunch.
Best regards, Dan

HenrikOlsen
2008-Sep-24, 12:30 PM
This is not meant to be a political post.
But it was, so see you after the election.

Nadme
2008-Sep-24, 02:05 PM
I think the 18th century French were onto something with that revolution and guillotine business... :D

sabianq
2008-Sep-24, 02:49 PM
executive order 11110

http://www.google.com/search?hl=en&q=executive+order+11110&btnG=Search

Ivan Viehoff
2008-Sep-24, 03:18 PM
Let's say that I have a small business.
In running that business I must meet certain regulated standards. Like cleanliness or safety.
Because I must meet these criteria, more money is spent and productivity is reduced in order to maintain these standards.
That's fine.
Now, over time, let's add regulations. There is More than just the consequences that we see- there are the psychological consequences of regulating people. Some is tolerable but the more you regulate, the more they struggle to get free.
When you have reached a point where they are resistant but not yet fighting, then add more- something is going to give.

Adding further regulation at this junction is more likely to cause harm than good.
Well it is unsurprising you feel like that because you have a lot of over-heavy regulations. The government needed to knock a nail in but could only find a jack-hammer to do it, and seeing an absolute necessity of knocking that nail in picked up the jack-hammer. If you lived in Europe, you'd find it was even worse. And having got those over-heavy regulations, the government doesn't replace them with the minimal necessary regulation, because every regulation presents someone with an economic opportunity, and they lobby very hard against removing it.

But TDadvance is right. Certain regulations are a lot better than not having them. Bankers will always take too many risks if you let them, and the stability of the financial system is a massive public good, so the risks private bankers take have to be regulated. One solution is to nationalise the banking system, but since the Bank of England has lost more money than all other British nationalised industries put together throughout their entire history, we can see that is a sub-optimal solution. Only certain tasks are reserved for a nationalised central bank. One proof that sometimes good regulation is better than total freedom is the success of Europe's GSM standard relative for mobile telephony relative to the USA's absense of a standard. But of course the US did add in a totally ridiculous standard for mobile telephony, the recipient pays rule, which was shooting yourself in the foot. So perhaps it wasn't Europe's good regulation wot won it (as we say in tabloid-newspaper-ese in England), it was the US's daft regulation wot lost it.

OP asked about more or less taxes. Actually that is a question about something else. The present crisis is the credit crunch. That's about banking regulation and saving the financial system from collapse. In the longer run is the issue about the persistent over-spending of US governments relative to their tax base. You can get away with that for only so long. The US is heavily borrowed, arguably already over-borrowed. If you don't choose at least one of tax more and spend less, you will receive your just Argentinean-style reward.

Pippin
2008-Sep-24, 05:45 PM
I believe if you read the economic reports carefully you will see the term non-liquid assets used frequently. Bad-debt is a misnomer. These mortgage based securities were traded and retraded until they lost any profitability. This was further exacerbated by the foreclosures. The banks can no longer provide the profitable interest they promised the brokerage houses, and the brokerage houses can no longer sell the securities. These companies should be forced into bankruptcy and the CEO's etc should be convicted of securities fraud for misrepresenting the risk ratings of these funds. The US taxpayers should not be held accountable unless the people that misrepresented these funds are jailed and never allowed to work in th financial sectors again.
my 2 cents :)

mugaliens
2008-Sep-24, 08:15 PM
Bankers will always take too many risks if you let them...

Well, why not? After all, it's not their money...

Therein lies one of the problems with many investments, including mutual funds. So long as the fund manager is treating it with some TLC, the fund performs at or better than the risk-associated market. When that TLC falls by the wayside, the fund performs poorly, or in the case of FM[sup]2]/sup], begins rapidly accumulating risk, unbeknownst to the investors.

sarongsong
2008-Sep-24, 08:43 PM
executive order 11110

http://www.google.com/search?hl=en&q=executive+order+11110&btnG=SearchAnd?

jfribrg
2008-Sep-25, 04:38 PM
My feeling is that we are at a critical point here. yes the doomsday talk is justified. In all likelihood, we are going to be in a depression very soon. I generally don't think that government interference is warranted, but in this case it is essential. The folks who think that we should let the financial markets fix themselves may be correct in a fairness sense, but that would repeat the mistakes made in 1930 and 1931. The problem is that I don't know what could possibly get the housing market to turn around any time soon. There were several million houses (mostly existing houses) sold in the US this year. I think the people who bought them are fools. Why buy a house today when you can expect to pay less for the same property next month? When you have deflationary expectations, economic investment grinds to a halt and you have a depression. If all we get out of this is a severe recession, then I would say we dodged the bullet.

I like the idea of somehow helping homeowners stay in their houses instead of being foreclosed. That helps to restrict the glut of available houses and leverages the bailout money to have a greater impact. You don't need to buy the entire property. You are only paying for the difference between the monthly payment and what the homeowner can afford. The only problem is that this would reward many of the people who caused the problem in the first place. It may be necessary, but I don't like it.

The idea of limiting executive pay sounds too socialistic, but again it may be necessary in the circumstances. When a company gets a government bailout, it should also get a say in how the company is run. Perhaps instead of limiting executive pay we should give them 10 year incentives (instead of short term ones). If the bonus is based only on how a company performs in the long term, there will be less incentive to take unnecessary risks in order to jack up the profitability for a month or two. If this had been the case, companies would not have been tempted to issue risky loans because the inevitable write-offs a couple of years later would kill the executive bonuses.

One final thought: I completely agree that the people who cause this mess (and there are thousands of them) should go to jail. Unfortunately that means that they will have a bed to sleep on, which is better than the millions of others who lost their homes during the upcoming depression.

Cougar
2008-Sep-25, 05:35 PM
It's a matter that we were over-regulated to begin with that has led to part of this... It never ceases to amaze me how people think that adding more regulation will somehow fix what some regulation broke...:doh:

This seems quite backwards to me. Correct me if I'm wrong, but the ruling party in the U.S. for the last 8 years has a platform that contains a solid foundation in the simple phrase "less government." As I understand it, the idea is that the "free market" will regulate itself according to natural forces. I appears now that a little governmental regulation and oversight would not have been such a bad idea.

I have no idea where your "over-regulated to begin with" comes from.

closetgeek
2008-Sep-25, 05:36 PM
If you can actually give an educated prediction, that would be great. The most I am asking is for short and clear, lay-person's answers to possibility.

Is there a chance that our economy can recover with out any intervention?
Is there a difference between a depression and a full on economic collapse?
Can or will an economic collapse lead to a collapse in societal structure; will we be talking Marshall Law?

nauthiz
2008-Sep-25, 05:51 PM
Is there a chance that our economy can recover with out any intervention?
Of course. Although history suggests that it will probably recover more quickly with appropriate intervention than without.


Is there a difference between a depression and a full on economic collapse?
The more I see the term used, the more it seems to me that economic collapse is a term without a definition. If anything, it means a sudden and large drop in economic productivity. Whereas a depression would be a very long-term period of greatly reduced economic productivity that might follow a 'collapse' if the economy doesn't bounce back quickly but doesn't necessarily have to start with one.


Can or will an economic collapse lead to a collapse in societal structure; will we be talking Marshall Law?
Doubtful. Central Europe was hit really hard by the Great Depression, and while it did seem to give a leg up to some fairly extreme political ideologies, it didn't foster anything like a full-on Lord of the Flies scenario.

sarongsong
2008-Sep-25, 09:12 PM
...Can or will an economic collapse lead to a collapse in societal structure; will we be talking Marshall Law?Following the Boy Scout motto: http://www.bautforum.com/images/icons/icon10.gif

September 8, 2008
...Beginning Oct. 1 for 12 months, the U.S. Army 3rd Infantry Division’s 1st Brigade will be...an on-call federal response force for natural or manmade emergencies and disasters...this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom...
armytimes (http://www.armytimes.com/news/2008/09/army_homeland_090708w/)

Disinfo Agent
2008-Sep-25, 09:44 PM
Central Europe was hit really hard by the Great Depression, and while it did seem to give a leg up to some fairly extreme political ideologies, it didn't foster anything like a full-on Lord of the Flies scenario.Some of those ideologies got pretty close to a Lord of the Flies scenario!
On the flip side, the U.S. got through the Great Depression without any major social uphevals.

antoniseb
2008-Sep-25, 10:51 PM
I think this is a very important topic for our American members to consider, and I strongly encourage any who are interested to visit Blogs and Salons that focus on political and economic issues.

... and I have closed this thread.