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Garvinator
22-09-2008, 02:04 PM
With the $US700 billion buyout of the banks about to take place, does this make the economic system in USA the biggest socialist system in the world? :lol: :whistle:

Capablanca-Fan
22-09-2008, 02:15 PM
With the $US700 billion buyout of the banks about to take place, does this make the economic system in USA the biggest socialist system in the world? :lol: :whistle:
Maybe. Governments often solve problems created by the goverment in the first place. In this case, it was the Community Reinvestment Act of Carter and Clinton encouraging lending to borrowers of low credit worthiness. Then the government solved this problem of their own making with implicit guarantees to Fannie and Freddie, and solved this new problem with the bailout that's hugely costly to taxpayers.

Once again, it's the law of unintended consequences, and government intervention begetting more government interventions. If the government had stayed out of the way in the first place, this mess wouldn't have happened.

Garvinator
22-09-2008, 02:26 PM
Maybe. Governments often solve problems created by the goverment in the first place. In this case, it was the Community Reinvestment Act of Carter and Clinton encouraging lending to borrowers of low credit worthiness. Then the government solved this problem of their own making with implicit guarantees to Fannie and Freddie, and solved this new problem with the bailout that's hugely costly to taxpayers.

Once again, it's the law of unintended consequences, and government intervention begetting more government interventions. If the government had stayed out of the way in the first place, this mess wouldn't have happened.
I think the bigger issue than all of what you have said is that it creates, at least an impression if not fact, that if you are big enough, dont worry if you fail, the government will help you out.

I have heard and read two issues that some analysists have with the buyout:

1) The above listed issue
2) Instead of 'buying out' the banks, why not instead use the 700 billion to wipe the mortgages of the people directly affected by the crisis?

Another comment I have seen is, when government money is given directly to the people, it is called welfare, but when government money is given to banks to prop them up, it is called acting in the national interest.

Also, there are quite a few other 'industries' in the USA that could do with a buyout, where is their money, or is the assistance just selective?

TheJoker
22-09-2008, 05:18 PM
Maybe. Governments often solve problems created by the goverment in the first place. In this case, it was the Community Reinvestment Act of Carter and Clinton encouraging lending to borrowers of low credit worthiness. Then the government solved this problem of their own making with implicit guarantees to Fannie and Freddie, and solved this new problem with the bailout that's hugely costly to taxpayers.

Once again, it's the law of unintended consequences, and government intervention begetting more government interventions. If the government had stayed out of the way in the first place, this mess wouldn't have happened.

While the CRA played minor role, by allowing mortage securitisation of CRA loans in 1990s, it was the markets failure to correctly assess the risk of mortage securities that led to their imense popularity. To such an extent that banks were activily pursuing sub-prime clients rather than being forced to lend to them due to the CRA.

It is really a case of the failure of market self regulation, and it is quite funny that you use it as a case for deregulation (true to your right-wing dogmatism). Most would see it as demonstrating that short-termism of the market. It demonstrates the significant impact poor corporate managment (focused on short-term profits) can have on the global economy, particularly in industries where there is a natural tendancy towards or oligopoly or monopoly.

I bet the Freddies and Fannies and Freddies CEOs aren't out on the street with no home a massive debt. http://en.wikipedia.org/wiki/Franklin_Raines
So much for the old "Invisble Hand" fallacy that relies on the false assumption that everyone will behave ethically.

However, I do agree that the government bailout sets a bad example and encourages large firms to engage in risky investments.

Capablanca-Fan
22-09-2008, 05:57 PM
While the CRA played minor role, by allowing mortage securitisation of CRA loans in 1990s, it was the markets failure to correctly assess the risk of mortage securities that led to their imense popularity.
Not at all. The CRA meant that the government heavily leaned on lenders to provide credit to borrowers they thought were poor credit risks, or else they would be demonized as racist redliner.


To such an extent that banks were activily pursuing sub-prime clients rather than being forced to lend to them due to the CRA.
No, just means that the government also provided carrots as well as sticks. The banks were looking after their own self-interests given the actual political constraints and incentives. Without the CRA, there would have been no subprime crisis.


It is really a case of the failure of market self regulation, and it is quite funny that you use it as a case for deregulation (true to your right-wing dogmatism).
What would be funny if not so serious is political demagogues and leftist dogmatists blaming the market for problems caused by political demagoguery in the first place!


Most would see it as demonstrating that short-termism of the market. It demonstrates the significant impact poor corporate managment (focused on short-term profits) can have on the global economy, particularly in industries where there is a natural tendancy towards or oligopoly or monopoly.
Rubbish: politics is short-term: until the next election. Businesses are the ones who have to think long term, because it's their own money at stake.

Also, if businesses fail in a free market, they collapse, and any residual expertise and equipment can be used by more competent businesses. Government departments that fail are usually given even more money.


I bet the Freddies and Fannies and Freddies CEOs aren't out on the street with no home a massive debt. http://en.wikipedia.org/wiki/Franklin_Raines
They made sure of that by lining the campaigns of Obama and other Dems, so they would keep regulators off their backs.


So much for the old "Invisble Hand" fallacy that relies on the false assumption that everyone will behave ethically.
It does no such thing. Rather, it recognizes that most people will look after #1, but trying to interfere with these choices, apart from restraining fraud and coercion, will have unintended consequences.

Friedman pointed out the other invisible hand: government bureaucracies set up ostensibly for the public good are drawn to serve special interests. The subprime crisis is a case in point: government demagogues demand risky lending, and businesses gravitate to participate because of the incentives (positive and negative) to do so.


However, I do agree that the government bailout sets a bad example and encourages large firms to engage in risky investments.
Yes, moral hazard. It applies to foreign aid and debt cancellation in the third world too.

Capablanca-Fan
22-09-2008, 06:03 PM
1) The above listed issue
2) Instead of 'buying out' the banks, why not instead use the 700 billion to wipe the mortgages of the people directly affected by the crisis?
There is no satisfactory solution, only working out the best trade-off. Bailouts are a short term solution, and maybe the best to avoid a real panic, but they could result in long-term moral hazard, as you say.

But even (2) is not satisfactory. Why should those who borrowed within their means and foregone bigger houses or more spending be forced to subsidize the ~5% who went over their heads.


Another comment I have seen is, when government money is given directly to the people, it is called welfare, but when government money is given to banks to prop them up, it is called acting in the national interest.
Oh yes, Friedman pointed out that many people can rationalize that money earmarked for their own interests is "in the national interest". This applies to tariffs, farm subsidies, arts and sports grants, crony capitalism, and welfare.

The answer to the problem of special interests cozying up to politicians for favours is to get the government out of the business of granting favours in the first place.

Kevin Bonham
23-09-2008, 12:03 AM
I attempted to merge a number of posts re the current financial crisis onto one thread and merged them into one post by mistake! I have tried to quote all the posts that were merged below but please let me know if I have made any errors or misattributed anything ... I believe it deserves its own thread rather than being in bits and pieces of several.


“ Obama... blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the ‘trickle-down’ economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend. But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions. Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties. The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but ‘predatory’. Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ‘90s by Clinton and his social engineers.” —Investor’s Business Daily


The Bush administration was asleep at the wheel. They did nothing in seven years to fix the potential problems Clinton left them. I believe their policies made things worse.

Waging a war financed by winding the handle on the money presses and handing out tax cuts for the rich and running the US like it is no rules rugby, has lead to a perfect storm.

I hope that the republicans win in November. They will make such a shambles of fixing the problems that they will be out of office for yonks.




But no spending policies originate in the White House. Rather, bills originate in Congress (http://townhall.com/Columnists/WalterEWilliams/2008/09/17/stubborn_ignorance), which is now controlled by the Dems. But Bush should have vetoed this big spending—as McCain advocated.


Yeah yeah, a war that most Dems supported, including Hillary and Biden!


"Handing out tax cuts for the rich"—perfect elitist mentality, as if money is really the government's and we should be grateful for any money they allow us to keep. In reality, it is really governments refraining from confiscating so much money off the most productive.

[B]Free market ≠ no rules. As explained, the current crisis was caused by the government being more than just the enforcer of rules against fraud and coercion, and becoming participants.


Jono- your argument , splendidly endorses my position that there is little substantive difference, in action, between the parties


Pinning the Tail on the Donkey (http://townhall.com/Columnists/MichaelReagan/2008/09/18/pinning_the_tail_on_the_donkey?page=2)
by Michael Reagan
18 September 2008
...

Big-time Democrat Jim Johnson, who headed Obama's VP search committee, also hauled in millions from running Fannie Mae.

Obama brazenly blames John McCain and the GOP for the current Wall Street mess when it's clear none of it was due to Republican policies. The truth of the matter is that it was McCain and three GOP colleagues who sought to reform the government's lending policies three long years ago after the Bush administration had failed two years earlier. On May 25, 2006, McCain spoke on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005, and warned against the debacle we are now facing if it failed to pass.

He told the Senate that a report by the Office of Federal Housing Enterprise Oversight charged that "Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives."

McCain warned, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

McCain predicted the entire collapse we now are suffering through. He stressed the falsification of financial records to benefit executives, including Obama advisers Franklin Raines and Jim Johnson.

Now Obama has the nerve to try to pin the blame on McCain and the GOP when the facts show that the blame must be pinned on the Democratic donkey.


Ron Paul Blasts “Secret Government” Running Economy

Congressman warns middle class in danger of being wiped out, says Congress is oblivious and Fed has no clue

Steve Watson
September 18, 2008

Congressman Ron Paul has issued a stinging address concerning the financial crisis in which he outlines how the current economic problems, created via malinvestment and shift to a debt based economy, are now being mismanaged by private interests in secret.

What’s more he says he is not sure the Federal Reserve has any idea what to do next and that the Congress is totally oblivious to the whole sorry state of affairs - a cocktail of elements he warns puts the middle class of America in serious jeopardy.

“Today we had a lot of financial fireworks in the markets, a lot of things are going on, and I think we are in the middle of something very big.” the Congressman stated.

Speaking on the recent collapse and government bailout of several big financial institutions he warned:

“We’re talking about big bucks, we’re not talking about hundreds of millions or even hundreds of billions, we’re talking about trillions of dollars, the obligation is immeasurable.”

“The interesting thing is that they (the financial institutions) don’t come to the Congress, I mean the Federal Reserve buys them out, they own it. We as tax payers now own Fannie Mae and Freddie Mac and know one knows how much that will cost. They don’t come to the Congress, we don’t have appropriations, it’s done by secret government, private individuals behind the scenes maneuvering and manipulating and trying to patch things up. While in the meantime, I’m sure there’s a few people making a couple of bucks out of this whole thing.”




The Congressman highlighted how an economy structured on debt and credit and a financial system based on interventionism and self serving moral hazard has led to gross devaluation of the dollar and ultimately lies at the root of the current financial meltdown.

“Our problems come first of all from the Federal Reserve. It is a monopoly and it controls interest rates artificially low, causes people to make mistakes, that’s the basic source. But then on top of that in the Housing market we had the community reinvestment act which told investors that they had to loan to risky borrowers, and that was a risky complication. HUD contributes to this, FDIC contributes, it’s called moral hazard, everything that we have done over here creates moral hazard, that is we assure people or assume that we will take care of everybody, just go out and create the risk, it is the opposite of the market place.” Paul stated.

“You can’t create money like we’re doing in order to support the dollar, because ultimately it hurts the dollar and everything we do in Washington today whether its on the appropriations side, whether it’s what the Fed is doing, buying up America, it’s all putting pressure on the dollar. One of these days we’re just going to have to wake up and say that we need to liquidate debt. This is malinvestment.” he urged.

The Congressman then slammed those who have blamed the crisis on failures of the free market:

“And then they have people come along and say ’see, this is the failure of capitalism’, this has nothing to do with capitalism, this is something that started off as interventionism and us being too involved in the economy for the benefit of special interests. But now it is being socialized out in the open.”

“The end of this comes when people reject the dollar and I think we’re getting awfully close to this.” Paul stated echoing comments from leading investors such as Jim Rogers, who predicted Monday that the dollar would soon lose its world reserve status.

“When you see the movement in the markets that we have today, you know that there are serious problems out there and Congress basically are oblivious, they have no idea what’s going on.” Paul continued.

“As a matter of fact I’m not even sure the Federal Reserve has any idea what to do about this. They’ve been manipulating and maneuvering for their own benefit over the years but eventually the market wins out.”

The Congressman’s comments were echoed today by reports indicating that the Congress cannot agree on any form of action and is likely to simply adjourn and “get out of the way”.

Senate Majority Leader Harry Reid told reporters that “no one knows what to do”.

In a stark warning, Ron Paul stressed that the longer the value of the dollar is allowed to depreciate, the greater the risk becomes for the majority of Americans:

“The reason this is so important is that if you care about people in a humanitarian sense, what you want to do is protect the value of the money. Just think of the third world nations when they have total run away inflation, the middle class gets wiped out. And what we are seeing today is the middle class being jeopardized by this type of system that we have, unlimited spending, unlimited debt, unlimited creation of new credit.”

“So it’s time that we wake up… The answers are in the free market, sound money and our Constitution.” Paul concluded.

Watch the full address by the Congressman:
KX9r-L1gKQc


David I agree with your use of the word "punters" There is a certain amount of risk involved in such investments sigh.

Bailouts and Economic Calculation (http://blog.mises.org/archives/008563.asp)
Robert Blumen
20 September 2008


In his seminal article on economic calculation under central planning (http://mises.org/econcalc.asp), Mises showed that a central planner cannot allocate productive factors in a manner consistent with consumer demand because the planner does not have the ability to calculate in terms of market prices.
...
This is why the recent round of bailouts of financial institutions is so damaging. The impact of these nationalizations is multiplied compared to the takeover of an industrial sector because the capital allocation function is so critical to a market economy. Financial institutions do not produce a physical good, they act entrepreneurially within the total capital structure of the economy to allocate productive factors. In no sense can this entrepreneurial function be replicated by a central planner operating outside of the profit and loss system.

Capablanca-Fan
23-09-2008, 12:11 AM
Thanx Kevin. It makes sense to group all these in one thread.

MichaelBaron
23-09-2008, 12:19 AM
Lets see if we can resolve the crisis :)

Capablanca-Fan
23-09-2008, 08:53 AM
Bush's Calls for Financial Reform Ignored (http://www.newsmax.com/kessler/gse_financial_timeline/2008/09/22/133234.html)
Ronald Kessler, 22 September 2008

For many years, the President and his administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE), but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties.

President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the president's repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

2001

April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

....

Igor_Goldenberg
23-09-2008, 09:48 AM
IMHO, the current bailout (by Bush administration) is disgusting. To be fair, I cannot find in the history a bailout I would approve of.
The chances of congress not passing it are pretty slim.

Igor_Goldenberg
23-09-2008, 09:51 AM
For many years, the President and his administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE), but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties.

The only sensible reform would be to butt out (preferably sell as Australian government did with CBA, Qantas and Telstra)


President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the president's repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

Did he propose butting out?



April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."


Did they propose butting out?

Igor_Goldenberg
23-09-2008, 09:52 AM
ASAIK, everyone involved with Fannie Mae and Freddie MAc assumed they would be bailed out by the government, therefore not a risk to deal with.

Igor_Goldenberg
23-09-2008, 10:08 AM
While the CRA played minor role, by allowing mortage securitisation of CRA loans in 1990s, it was the markets failure to correctly assess the risk of mortage securities that led to their imense popularity. To such an extent that banks were activily pursuing sub-prime clients rather than being forced to lend to them due to the CRA.

It is really a case of the failure of market self regulation, and it is quite funny that you use it as a case for deregulation (true to your right-wing dogmatism). Most would see it as demonstrating that short-termism of the market. It demonstrates the significant impact poor corporate managment (focused on short-term profits) can have on the global economy, particularly in industries where there is a natural tendancy towards or oligopoly or monopoly.


I do not agree that CRA had a minor role, but for the sake of the argument let's assume you are right. Market indeed incorrectly assumed the risk of the loan securities.

Who are the victims?
Mortgage holders? They have to be punished first for taking a loan knowing well they cannot possibly repay them.
Lenders? If they are not forced by CRA, as you assume, they must pay the price for making stupid decisions (lending money that are not going to be repaid.) Making then non recourse is even more stupid
Buyers of the securities? What were they thinking with buying inferiour product at a high price?

Customers of financial institutes that bought those securities are the only genuine victims I can think of.

Even if CRA was not a major factor (even though it was:D ), knowledge of imminent bailout was.

If the current crisis was let to run it's natural course, US economy would be much healthier after it finishes.


I bet the Freddies and Fannies and Freddies CEOs aren't out on the street with no home a massive debt.

Of course. They know how to play bureaucratic machine much better then you and me


However, I do agree that the government bailout sets a bad example and encourages large firms to engage in risky investments.
It is not the first bailout. All it does is rewards bad decision and (surprise surprise) encourages similar behaviour in the future.

Capablanca-Fan
23-09-2008, 11:35 AM
IMHO, the current bailout (by Bush administration) is disgusting. To be fair, I cannot find in the history a bailout I would approve of.
I agree, bailouts suck. Companies should be allowed to fail. The problem here was that congress had kept digging when it was in a hole, meaning that the day of reckoning would be delayed but more severe.

Zwischenzug
23-09-2008, 11:43 AM
I agree, bailouts suck. Companies should be allowed to fail. The problem here was that congress had kept digging when it was in a hole, meaning that the day of reckoning would be delayed but more severe.

I agree. This bailout encourages predatory loaning that caused the recession the first place. What an unpleasant state the American and world economy is in.

Davidflude
23-09-2008, 12:57 PM
It is midnight and Cinderella has done a bunk.

By nationalizing the two big mortgage providers and taking over worthless mortgages the US government has in effect become the owner of half the houses in America. This looks like socialism to me.

pax
23-09-2008, 02:19 PM
There is an erroneous attribution to me in the OP.

pax
23-09-2008, 02:25 PM
ASAIK, everyone involved with Fannie Mae and Freddie MAc assumed they would be bailed out by the government, therefore not a risk to deal with.

This notion that bailouts remove all risk is utterly absurd. When bailouts occur, the majority of company management lose their jobs, stocks (including the huge options packages) crash in value by 90% or more, people engaged in misconduct are sent to jail. Not a risk?!

pax
23-09-2008, 02:26 PM
There is no satisfactory solution, only working out the best trade-off. Bailouts are a short term solution, and maybe the best to avoid a real panic, but they could result in long-term moral hazard, as you say.

This is the first time I've heard you admit this!

TheJoker
23-09-2008, 02:28 PM
Not at all. The CRA meant that the government heavily leaned on lenders to provide credit to borrowers they thought were poor credit risks, or else they would be demonized as racist redliner.


No, just means that the government also provided carrots as well as sticks. The banks were looking after their own self-interests given the actual political constraints and incentives. Without the CRA, there would have been no subprime crisis.

Degregulation allowing derivatives (transferring the risk away from the initial lender) and the over optimistic view of investors regarding the real estate market (of course CRA may have helped over-inflate the market, just like first home buyers subsidies did in Oz) definately had as much impact as the government intervention. Even if the CRA caused inflated real estate prices by artifically stimulating demand the market made the mistake of assuming the "ratchet effect" would apply to house prices and hence miscalculated the risk.



What would be funny if not so serious is political demagogues and leftist dogmatists blaming the market for problems caused by political demagoguery in the first place!.

Balance is the key right-wing radicals like yourself put all the blame on government and lefties on the market. In reality it is a combination of both government interventions and natural market fallibilities.



Rubbish: politics is short-term: until the next election. Businesses are the ones who have to think long term, because it's their own money at stake..

Businesses as a whole as long-term endeavour but individuals running the company are concerned with the short-term. Eron is classic example. Management always offload their stock options before the market gets wind of the trouble. CEO positions are generally short-term roles with incentives based on short-term results.

I agree that government are also short-termist.



Also, if businesses fail in a free market, they collapse, and any residual expertise and equipment can be used by more competent businesses. Government departments that fail are usually given even more money.

True and at the same time those business often transfer vast amounts of private savings from thousands of individuals into the hands of a few senior managers.


They made sure of that by lining the campaigns of Obama and other Dems, so they would keep regulators off their backs.

They certainly did and they also bought off the republicans as well.



It does no such thing. Rather, it recognizes that most people will look after #1, but trying to interfere with these choices, apart from restraining fraud and coercion, will have unintended consequences.

Here is a quote from Joseph Stiglitz tha quite simply explains why the invisble hand is a fallacy:


Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.

Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. Some of the important instances have been long understood—environmental externalities. Markets, by themselves, will produce too much pollution. Markets, by themselves, will also produce too little basic research. (Remember, the government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and most of the advances in bio-tech.)

But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights.

The real debate today is about finding the right balance between the market and government (and the third “sector”—non-governmental non-profit organizations.) Both are needed. They can each complement each other. This balance will differ from time to time and place to place.


Friedman pointed out the other invisible hand: government bureaucracies set up ostensibly for the public good are drawn to serve special interests. The subprime crisis is a case in point: government demagogues demand risky lending, and businesses gravitate to participate because of the incentives (positive and negative) to do so.

It is true all organisations public or private when operating in a monopolistic or oligopolistic market serve the interests of specific interest group. OPEC is good example.

Remember economics 101 some markets are natual monopolies. Water supply is a good example the cost of infrastructure means that have two side-by-side infrastrucures competing against each other is likely to result in economic inefficiency. Also for such industries it is extremely important to society that such business cannot fail because if you turn off the water a group of homes that would be disasterous. As you pointed out public institutions do not fail, they are less efficient but also less volatile.

Also certain industries may not represent a significantly good investment (potential rate of return) to encourage private investment; such as education for the poor. However we all know that increase in education can cause economic growth and is therefore beneficial to the economy as a whole. Hence you need public investment. It is possible to consider privatisation of such industries such as sharing in the future earnings of students, but this requires investment of capital with no return for possibly 20-30 years and then there is a huge risk that no long term profits will result. In the end th best solution is for a government to invest in such areas

Capablanca-Fan
23-09-2008, 02:29 PM
This is the first time I've heard you admit this!
I've said elsewhere that sometimes the best course might be for the government to intervene to solve a problem the government created in the first place. But best of all was for the government not to cause this problem in the first place. Instead it should butt out of trying to play in the economy instead of being the referee preventing fraud or coercion.

Igor_Goldenberg
23-09-2008, 02:31 PM
This notion that bailouts remove all risk is utterly absurd. When bailouts occur, the majority of company management lose their jobs, stocks (including the huge options packages) crash in value by 90% or more, people engaged in misconduct are sent to jail. Not a risk?!
Investing money through the company knowing it will be bailed out if something goes wrong is a lower risk then investing money in a company knowing it will not be bailed out if something goes wrong.

Are you saying that knowledge of imminent bailout encourage extra prudence?
Do you applaud comrade Bush bailout plan?

Capablanca-Fan
23-09-2008, 02:54 PM
Even if the CRA caused inflated real estate prices by artifically stimulating demand the market made the mistake of assuming the "ratchet effect" would apply to house prices and hence miscalculated the risk.
Still you are trying to blame every participant in this ratchet effect except the government that started it in the first place.


Balance is the key right-wing radicals like yourself put all the blame on government and lefties on the market. In reality it is a combination of both government interventions and natural market fallibilities.
Conservatives know that markets have fallibilities, because their participants are imperfect human beings. We just think that trying to fix them would result in even greater government fallibilities. And government fallibilities are much harder to fix; rather, they are rewarded with still more public money, and affect far more people.

I don't see how there can be "balance" between markets (persuasion) and governments (force).


Businesses as a whole as long-term endeavour but individuals running the company are concerned with the short-term.
Government bureaucrats are just the same. But they are far more dangerous since they are not risking their own money.


Enron is classic example.
Actually, Enron is the classic example of the corrupt crony capitalism where businesses rent-seek special privileges from the government, e.g. under "corporate social responsibility" (http://townhall.com/columnists/RobertMurphy/2008/04/26/enron,_the_csr_poster_child), pushing greenie ecofascist politics (http://townhall.com/columnists/RobertDNovak/2002/01/17/enrons_green_side). Indeed, the market punished Enron far more quickly and efficiently (http://townhall.com/columnists/CharlesKrauthammer/2002/02/15/eron_is_no_excuse)than regulation ever could.


Management always offload their stock options before the market gets wind of the trouble. CEO positions are generally short-term roles with incentives based on short-term results.
Part of that is the crass ban on insider trading. Friedman pointed out that allowing this would be a perfect incentive for those in the know to reveal their information to the market much sooner.


I agree that government are also short-termist.
Right, so why replace market failure with government failure? Lefties never argue for replacing government failure with the market.


They certainly did and they also bought off the republicans as well.
Not as much as the Dems, but the very fact of buying politicians off wouldn't happen if government wasn't in the economy in the first place.


Here is a quote from Joseph Stiglitz tha quite simply explains why the invisble hand is a fallacy:
Yet he overlooked the invisible hand that Friedman pointed out, whereby capture of regulatory bodies by special interests is inevitable.

There are many errors in that piece: most research has been developed by the private sector. Governments instead give us expensive black holes like "renewable power".

And this attacks a straw man: free market advocates already advocate a role for the government in enforcing property rights and contracts; we are not anarchists.


Remember economics 101 some markets are natual monopolies. Water supply is a good example the cost of infrastructure means that have two side-by-side infrastrucures competing against each other is likely to result in economic inefficiency.
That's a common argument for nationalization and other government expansion. But this overlooks the possibility of diseconomies of scale. This was glaring in the former Soviet Union.

In reality, much of the water shortage was due to government creating a monopoly for its infrastructure by banning rainwater tanks. Then the envirowackos capture the government, such as in Victoria and in QLD when KRudd became chief bureaucrat of the Goss Labor Government, and the infrastructure is never allowed to be improved by building more dams.


Also certain industries may not represent a significantly good investment (potential rate of return) to encourage private investment; such as education for the poor. However we all know that increase in education can cause economic growth and is therefore beneficial to the economy as a whole.
Indeed so, another reason to get it out of the hands of government and into the market to give parents choice. But lefties like Joker are like Sir Humphrey Appleby below:


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Hence you need public investment. It is possible to consider privatisation of such industries such as sharing in the future earnings of students, but this requires investment of capital with no return for possibly 20-30 years and then there is a huge risk that no long term profits will result. In the end the best solution is for a government to invest in such areas
Non sequitur. Government education ends up serving the interests of the lefty teachers unions not the students.

Capablanca-Fan
23-09-2008, 03:00 PM
There is an erroneous attribution to me in the OP.
Yes, Pax shouldn't get credit for what I said :P

Capablanca-Fan
23-09-2008, 03:09 PM
Find Me a Demon (http://townhall.com/columnists/MonaCharen/2008/09/23/find_me_a_demon)
by Mona Charen
Neither of our would-be leaders covered himself in glory during the past week.

...

John McCain's posture should have been obvious: He should have presented himself as the perspicacious statesman who had foreseen the trouble and warned against it. In 2006, McCain had called for more stringent oversight of Fannie Mae and Freddie Mac, whose failures underlie today's unraveling. In a press release at the time McCain declared, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole." He should then have outlined the kind of reforms he would undertake to prevent this from happening in the future. Had he done this, in tones more in sorrow than anger, he would have been able to reinforce his "reform" credentials without seeming opportunistic or rattled.

As it is, McCain lashed out at Wall Street: "Americans are hurting right now and there's going to be a ripple effect of this financial crisis because of the greed and corruption and excess — and Wall Street treated the American economy like a casino." He then recommended that SEC Chairman Chris Cox, one of the smartest and most able officials in the U.S. government, be fired. Now it may be that Chris Cox has made mistakes — who hasn't? — but the notion that he is responsible for this mess is, to say no more, a stretch. Instead of looking decisive, McCain looked petty by singling him out. He would have been better advised to aim his fire at Democrats in Congress who declined to regulate Fannie and Freddie adequately because they favored making questionable loans to so-called "underserved" populations. A bill to more strictly regulate the mortgage giants passed the Senate Banking Committee in 2005. But as Kevin Hassett of the American Enterprise Institute explains, "Democrats opposed it on a party-line vote "

...

Now let me get this straight: the sub-prime mortgage disaster, created in Washington by politicians who wanted to increase home ownership and, yes, perpetuated by unwise gambling in the financial markets undermines the validity of competition? It really makes you wonder, when Obama invites voters to fire the "whole trickle-down, on-your-own, look-the-other-way crowd in Washington who (have) led us down this disastrous path" whether he really means capitalism itself.

TheJoker
23-09-2008, 03:14 PM
I do not agree that CRA had a minor role, but for the sake of the argument let's assume you are right. Market indeed incorrectly assumed the risk of the loan securities.

Who are the victims?
Mortgage holders? They have to be punished first for taking a loan knowing well they cannot possibly repay them.
Lenders? If they are not forced by CRA, as you assume, they must pay the price for making stupid decisions (lending money that are not going to be repaid.) Making then non recourse is even more stupid
Buyers of the securities? What were they thinking with buying inferiour product at a high price?

Customers of financial institutes that bought those securities are the only genuine victims I can think of.

It's not about who are the victims, it is about who are the beneficiaries. Lenders who make risky loans, then they transfer the risk by on-selling the loan, while at the same time not providing complete information on the level of risk to the buyer. The problem is the middle-man has the incentive to with-hold information from both-sides. It is in there interest to convince the borrower to take up a loan regardless of ability to pay (because they can on-sell the risk).

I agree the government should not force private investors to invest in certain sectors such as sub-prime that may not have the necessary risk:return ratio to compete with other investments. In principle I do not agree with the CRA. I just dont attribute the majority of the blame to it. Yes it probably artifically stimulated demand and caused some inflation of house prices. However if sellers of the loan had to assume the risk rather than transfer it to a third party they would not have pursued the risky investments with such vigour, in fact they probably would have found ways to comply with the legislation without actually taking out the risky investments. Business tends to be extremely resistant to government interference when it wants to be. Trust me I know from experience that they find countless loop-holes, interpretations, work-arounds and alternatives to avoid regulations they dont agree with. That is why decisions dictated by government rarely work. That is why government is moving (slowly) towards collabrative decision making.

Where the government sees long-term potential benefits of low-yeilding or non-profitable investments it should make public investment (eg. education). Of course for housing cheap credit or subsidies low-income earners is not the answer as the increase in demand simply drives up prices often causing a bubble (as in the first home buyers grants in Oz). You need stimulate supply to reduce prices and increase quantity. For example a subsidy for every new dwelling built until house prices become more affordable. The best thing would be for government to articulate its goal to the various interest groups and try to find a concensus solution the results of which can be objectively measured.




Even if CRA was not a major factor (even though it was:D ), knowledge of imminent bailout was.

If the current crisis was let to run it's natural course, US economy would be much healthier after it finishes.

Totally agree.



Of course. They know how to play bureaucratic machine much better then you and me.

True and they know how to manipulate the market through control of information.



It is not the first bailout. All it does is rewards bad decision and (surprise surprise) encourages similar behaviour in the future.

No arguement here.

TheJoker
23-09-2008, 04:30 PM
Still you are trying to blame every participant in this ratchet effect except the government that started it in the first place.

I dont deny the CRA probably played a part, however business are notoriously resistant to regulation, that is why I doubt that the CRA was a significant force in the sub-prime drive, if lenders where assuming the risk rather than transferring it to a third party they would have been actively disuading borrowers from taking out loans.



Conservatives know that markets have fallibilities, because their participants are imperfect human beings. We just think that trying to fix them would result in even greater government fallibilities. And government fallibilities are much harder to fix; rather, they are rewarded with still more public money, and affect far more people.


I don't see how there can be "balance" between markets... and governments...

It is true there is an economic school of thought that agrees with you. There is also an equally valid economic school of thought that disagrees with you.



Government bureaucrats are just the same. But they are far more dangerous since they are not risking their own money.

Actually bureacrats have very little incentive to engage in risky behaviour. Risky behaviour is generally not considered a serious limitation of bureacrats. Most criticism is actually the reverse since they have incentitive to "rock the boat" they oftyen fail to innovate and cling to safe inefficient methods.



Actually....market punished Enron far more quickly and efficiently [/URL]than regulation ever could..

So tell me how much did the Eron CEO and CFO who engineered the deception loss. :eek: Nothing!!!! They actually gained millions, what everyone involved in the cover-up made money thorugh inflating the value of their shares and dumping well before the "market punishment". The only people that where punished by the market where unwitting investors duped by senior managers looking to line their own pockets.

As for cronyism and corruption, dont you think business also conclude to increase profits and deceive consumers. A free-market wont solve this problem in fact with out regulation it would encourage in markets that tend toward monopoly or oligopoly.



Part of that is the crass ban on insider trading. Friedman pointed out that allowing this would be a perfect incentive for those in the know to reveal their information to the market much sooner.

Not sure about that I suspect that there would be unintended consequences.



Right, so why replace market failure with government failure? Lefties never argue for replacing government failure with the market..

I think a lot a people support deregulation. The reason the majority of people want government is they want to control the normative aspects of the economy. For example a tough stance on drugs has been shown to increase violent crime. However a free drugs trade could result in increased medical costs etc. Economics is generally a trade-off (there is no such thing as a free lunch). The public wants some control over how we manage these trade-offs and it is more about values than economic efficiency. Assume the increased medical costs outweigh the increased cost of violent crime, however many may feel it is more important to have a safe society with less violent crime, others may feel it more important to remain tough on drugs accept the violent crime as a side-effect and employ the savings in preventative measures such a education about the negative aspects of drugs.

Your values seem to centre around economic efficiency and individual ecomonic freedom.



Yet he overlooked the invisible hand that Friedman pointed out, whereby capture of regulatory bodies by special interests is inevitable.

There are many errors in that piece: most research has been developed by the private sector. Governments instead give us expensive black holes like "renewable power".

And this attacks a straw man: free market advocates already advocate a role for the government in enforcing property rights and contracts; we are not anarchists..

You may think there are many errors but Stiglitz won a Nobel prize for his work on assymetries of information. He has been involved with implementing economic policies in numerous countries. So I suspect his opinion is not only valid but based on real world experience.



That's a common argument for nationalization and other government expansion. But this overlooks the possibility of diseconomies of scale. This was glaring in the former Soviet Union..

It's true there can be diseconomies of scale, but not always some industries are referred to as natural monopolies because either diseconomies of scale do not exist or diseconomies of scale only occur well beyond the total market size. I land line telecommunications is probably a good example of a natural monopoly, no one is willing to build the infrastrucuture.


In reality, much of the water shortage was due to government creating a monopoly for its infrastructure by banning rainwater tanks. Then the envirowackos capture the government, such as in Victoria and in QLD when KRudd became chief bureaucrat of the Goss Labor Government, and the infrastructure is never allowed to be improved by building more dams..

It is probably more due to inflexible prices. However most shortages are only temporary until technology/substitues repace them. Never heard of a ban on rainwater tanks? That is truly stupid any government should not allow that.

Interesting proposition is tri-generation for electricity in urban areas. SOmething he electcity industry is strongly against.


Non sequitur. Government education ends up serving the interests of the lefty teachers unions not the students.

Garbage it serves both. Can you imagine the education children of unemployed parents might get without a public education system. As for vouchers I haven't seen any information that shows they would be sustainable in low income areas where parent can not afford to supplement the voucher (would the rate of return be significant enough to encourage private investment at a suitable quality level). The disadvantage of privatisation is that it then has to compete with all other private investment options. This could significantly affect the level of investment particularly in low population areas (where class sizes are notoriously small).

Just like home-schooling lacks economic effieciency due to teacher student ratio but gains by utilising the home as venue.

pax
23-09-2008, 04:45 PM
Part of that is the crass ban on insider trading. Friedman pointed out that allowing this would be a perfect incentive for those in the know to reveal their information to the market much sooner.

You've got to be kidding - the only "incentive" would be to squeeze out the maximum profit while the information remained private. I can imagine senior managers of failing companies laughing all the way to the bank as they short sell their own company hours before a critical profit downgrade announcement.

pax
23-09-2008, 05:02 PM
Investing money through the company knowing it will be bailed out if something goes wrong is a lower risk then investing money in a company knowing it will not be bailed out if something goes wrong.

It's not much lower risk. Let me put it this way - would you ever invest money in a company that you expected to be in need of a bailout in the future?



Are you saying that knowledge of imminent bailout encourage extra prudence?

No. I'm saying that the bailout makes bugger all difference to the people who made the decisions that led to the failure.



Do you applaud comrade Bush bailout plan?

I think something need to be done to prevent the entire market (i.e millions of investors that have nothing whatsoever to do with the failing companies) from going to shit. As for whether Bush's plan is the right plan, I cannot claim to know with any authority.

I think you would struggle to find many economists or analysts who believe that the Government should have just sat back and let five of the biggest companies in the world go down the gurgler. Your superannuation portfolio certainly would not have thanked you.

Capablanca-Fan
23-09-2008, 05:06 PM
It is true there is an economic school of thought that agrees with you. There is also an equally valid economic school of thought that disagrees with you.
What do you mean "valid"? As in their conclusions follow from their premises logically, regardless of whether the premises are true or false?


Actually bureacrats have very little incentive to engage in risky behaviour.
They have very little incentive to serve the public (despite the misnomer "public service"), and every incentive to expand their departments, since their prestige and salary depends on it. Conversely, unlike private businessmen, they don't bear the costs of their mistakes.


Risky behaviour is generally not considered a serious limitation of bureaucrats.
Risk is not a bad thing per se. The bad thing is insulation of people from the consequences of their actions, or moral hazard. Bureaucrats, academics, activist judges and bailed-out businessmen share this characteristic. Indeed, the left are insulated from facts (http://www.jewishworldreview.com/cols/sowell052998.html), since they resort to political power instead.


Most criticism is actually the reverse since they have incentitive to "rock the boat" they oftyen fail to innovate and cling to safe inefficient methods.
Or unsafe inefficient methods. A good example is the FDA, which costs lives because they hold up drugs to the market. But this is only natural when Congress would keelhaul them if a drug harms some patients even if it helps millions, but leaves them alone if the drug is held up since the link between patient deaths and lack of drugs is much harder to prove. This is more of Bastiat's "things which are not seen (http://bastiat.org/en/twisatwins.html)", which BTW also warned of the dangers of goverments getting involved in credit to unworthy borrowers (http://bastiat.org/en/twisatwins.html#credit)—back in 1850!


As for cronyism and corruption, dont you think business also conclude to increase profits and deceive consumers. A free-market wont solve this problem in fact with out regulation it would encourage in markets that tend toward monopoly or oligopoly.
Far worse problems have occurred when governments interfere with the economy, because that encourages businesses to collude with government to keep competitors out. Hence there are many professions where the numbers are kepts artificially low by arcane licencing requirements (http://www.jewishworldreview.com/cols/sowell092498.asp). As I documented, Enron was a strong supporter of more regulations that would be harder for its competitors to cope with.

If the government interferes with the market, it might be profitable for a business to spend money lobbying for privileges, or paying protection money to prevent penalties. To prevent this cozying up, get the government out of the business of conferring favours (or the opposite).


For example a tough stance on drugs has been shown to increase violent crime. However a free drugs trade could result in increased medical costs etc.
Yes to both.


Economics is generally a trade-off (there is no such thing as a free lunch).
Well done! You're starting to understand the "tragic vision";)


Your values seem to centre around economic efficiency and individual ecomonic freedom.
Not a centre but a corollary of the "tragic vision", recognizing that the best trade-off occurs when people are free to make economic transactions that involve neither fraud nor coercion, and that central planners haven't a hope of managing an economy as well as free prices can.


It's true there can be diseconomies of scale, but not always some industries are referred to as natural monopolies because either diseconomies of scale do not exist or diseconomies of scale only occur well beyond the total market size. I land line telecommunications is probably a good example of a natural monopoly, no one is willing to build the infrastrucuture.
Natural monopolies can be defeated by completely new technology. Some companies had a virtual monopoly on typewriters only 25 years ago.


It is probably more due to inflexible prices. However most shortages are only temporary until technology/substitues repace them. Never heard of a ban on rainwater tanks? That is truly stupid any government should not allow that.
But it happened! Government goons even smashed urban water tanks. And it was only very recently that the Brisbane council lifted their ban on greywater systems. I still haven't heard that they lifted the ban on the highly efficient drip-watering system, imposed because it might discriminate against poor people who couldn't afford them (ah yes, Churchill said that capitalism's vice is unequal wealth; leftism's virtue is equal poverty).

See, bureaucrats can get away with crap; a businessman who alienated customers would go out of business.


Interesting proposition is tri-generation for electricity in urban areas. SOmething he electcity industry is strongly against.
See what I mean about businesses colluding with government against competition, although they will pretend it's in the public interest.


Garbage it serves both. Can you imagine the education children of unemployed parents might get without a public education system.
Thanx Sir Humphrey. Unemployed parents should just take what they are given.


As for vouchers I haven't seen any information that shows they would be sustainable in low income areas where parent can not afford to supplement the voucher (would the rate of return be significant enough to encourage private investment at a suitable quality level).
Come off it. Right now, the poor are the ones who have no choice but the schools they are zoned in. Any sort of voucher would give them more choice than they have now. It would also relieve the pressure on government schools.


The disadvantage of privatisation is that it then has to compete with all other private investment options. This could significantly affect the level of investment particularly in low population areas (where class sizes are notoriously small).
Government departments have to compete with other spending options. Privatization would give parents the choice, something Sir Humphrey Jokerby doesn't want to give them because he thinks government knows best. And politicians are too afraid of annoying the teachers unions (http://www.jewishworldreview.com/cols/sowell102398.asp); who cares about the kids? After all, wealthy lefties can afford to educate their own kids in the best private schools money can buy, and do just that.


Just like home-schooling lacks economic effieciency due to teacher student ratio but gains by utilising the home as venue.
And by optimizing the pace to the individual student not to the mean.

Capablanca-Fan
23-09-2008, 05:09 PM
You've got to be kidding - the only "incentive" would be to squeeze out the maximum profit while the information remained private. I can imagine senior managers of failing companies laughing all the way to the bank as they short sell their own company hours before a critical profit downgrade announcement.
Friedman argued the contrary (http://www.tradeleadsaleaffiliate.com/market1/Milton_Friedman_on_Insider_trading.php), since far more people would be in the know, and have the incentive to reveal information to the market. At present, the market doesn't know until it's too late:


Milton Friedman: I think we should ask the question of how they were discovered. How did we find out about Enron?
Michelle Caruso-Cabrera: Somebody blew the whistle.
Friedman: No, the stock market tanked their stock. The fact is the market is a very effective mechanism for uncovering cases like that.
In fact, if I may say something that’s very heretical, one of the reasons we've gotten things like Enron is because we've been increasingly outlawing insider trading, but insider (trading) is the most effective means of making sure a company that does the wrong thing is penalized for doing so.
Public served by profit motive
Caruso-Cabrera: What do you mean?
Friedman: Here you've got a company like Enron which is doing fraudulent things. People on the inside know about it. One of the best ways to bring it out is to make it profitable, to make that knowledge profitable to them. A whistleblower takes a chance, doesn't gain anything by it. But a person on the inside who knows things are going wrong, who just engages in selling in Enron stock, can make money on it and at the same time serve the market purpose of driving down the price of the stock. And that alerts other people.
Caruso-Cabrera: Right now there are requirements for inside traders, they have to notify …
Friedman: Well, insider trading is illegal. There are people going to jail for insider trading and I think it has been a great mistake. You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.
Caruso-Cabrera: By selling and hence driving down the stock price.
Friedman: Or by buying when it’s the other way around.
Regulation of insider trading is excessive
Caruso-Cabrera: Right now when an executive buys or sells they have to notify the SEC, and it becomes public record and everyone pays attention. Is that a good thing or a bad thing?
Friedman: That’s why things go as far as they do. That's why Enron gets to the stage it is.
Caruso-Cabrera: So it shouldn't be a requirement that they have to publicize that they've sold stock?
Friedman: I think not. It never used to be, you know, this is not a matter of the last 20 or 30 years.
Caruso-Cabrera: So you're saying it would be the volume of selling, not who is selling, that would drive the stock price lower and hence signal to other people.
Friedman: Of course, it doesn't matter who is selling. If you're selling, somebody has to buy. In order to get somebody to buy, you've got to encourage them, the price has to go down.
You see, as is so often the case, people attribute things to the free market which are really the consequences of government interference with the free market.
Again and again it turns out that except for you and CNBC and the like, the free market doesn't have a public-relations mechanism. It doesn't have public defenders, as it were. The government always has a public defender. It has a straight access to the media and to the public airwaves. So you haven't heard anybody saying that maybe one of the reasons that we had Enron, Worldcom and so on was because of excessive government controls and regulations of insider trading and of their activities in general.

Capablanca-Fan
23-09-2008, 05:37 PM
It's not much lower risk. Let me put it this way — would you ever invest money in a company that you expected to be in need of a bailout in the future?
Not if I could help it, but many people have the perception that the government guarantee makes it safe.


No. I'm saying that the bailout makes bugger all difference to the people who made the decisions that led to the failure.
Including the Obama supporters who doled out campaign contributions so the Dems would resist the Bush administration's and McCain's moves to meet the looming danger. But it suits the Obamessiahsocialist to blame the free market rather than politics.


I think something need to be done to prevent the entire market (i.e millions of investors that have nothing whatsoever to do with the failing companies) from going to shit.
Why? The only reason I can think of is that the government caused the problem in the first place, so owes something to investors. But even that has problems because the government doesn't generate money but confiscates it from taxpayers.


I think you would struggle to find many economists or analysts who believe that the Government should have just sat back and let five of the biggest companies in the world go down the gurgler. Your superannuation portfolio certainly would not have thanked you.
It hasn't thanked me anyway. But it might thanx me even less if the moral hazard eventually results in an even greater crash in the future, or if greatly expanded regulation reduces profits sharply. But good on you pointing out that the biggest owners of shares are not the fat cats but superannuation funds on behalf of ordinary people, so we will be the losers after government bailouts and regulations.

Igor_Goldenberg
23-09-2008, 07:11 PM
It's not about who are the victims, it is about who are the beneficiaries. Lenders who make risky loans, then they transfer the risk by on-selling the loan, while at the same time not providing complete information on the level of risk to the buyer. The problem is the middle-man has the incentive to with-hold information from both-sides. It is in there interest to convince the borrower to take up a loan regardless of ability to pay (because they can on-sell the risk).

And those beneficiaries are also those who are bailed out.


I agree the government should not force private investors to invest in certain sectors such as sub-prime that may not have the necessary risk:return ratio to compete with other investments. In principle I do not agree with the CRA. I just dont attribute the majority of the blame to it. Yes it probably artifically stimulated demand and caused some inflation of house prices. However if sellers of the loan had to assume the risk rather than transfer it to a third party they would not have pursued the risky investments with such vigour, in fact they probably would have found ways to comply with the legislation without actually taking out the risky investments.

Correct. Let's take it further.Experience is, in part, based on realisation of someone's mistakes (preferably not own, but it's not always the case:D). This crisis should've taught to be more careful with mortgage securitization. But it just reinforced the message: If a company is a very big one, government will bail it out. Therefore, don't bother doing any thinking.



True and they know how to manipulate the market through control of information.


No. They manipulate market trough control of regulators.

Igor_Goldenberg
23-09-2008, 07:17 PM
You've got to be kidding - the only "incentive" would be to squeeze out the maximum profit while the information remained private. I can imagine senior managers of failing companies laughing all the way to the bank as they short sell their own company hours before a critical profit downgrade announcement.
You are assuming that nobody else in the company knows that profit is going down and sells stocks before the senior manager.

Kevin Bonham
23-09-2008, 08:44 PM
There is an erroneous attribution to me in the OP.

Thanks, removed.

TheJoker
23-09-2008, 09:00 PM
No. They manipulate market trough control of regulators.

Actually it is both, take Eron for example they hide losses with "creative accounting" this caused the market to overprice their stock, Both the CEO and CFO dumped their stocks before the crash. The auditor Arthur Anderson had a commercial conflict of interest. Eron was a big account that brought in big profits, if they approached Eron re the discrepancies they would most certainly loose that account. That's the problem with having a regulator that is paid by the client, they are not really independant.

TheJoker
23-09-2008, 10:02 PM
What do you mean "valid"? As in their conclusions follow from their premises logically, regardless of whether the premises are true or false?

No that they are supported by empirical evidence. The main stream view is that Government spending and taxation act as natural economic stablizers and that crowding-out is minimal (if at all) particularly in times of recession. Coordination of fiscal and monetary policy provides the necessary leakages and injections.



They have very little incentive to serve the public (despite the misnomer "public service"), and every incentive to expand their departments, since their prestige and salary depends on it. Conversely, unlike private businessmen, they don't bear the costs of their mistakes.

This coul easily be rectified through KPIs and wages being related to community satisfaction. ANd a focus on effecient utilisation of government funds rather than the level of government spending by the media.



Risk is not a bad thing per se. The bad thing is insulation of people from the consequences of their actions

Actually not always a bad thing if you want serious innovation you have to permit mistakes to be made without negative consequence. Again it is a trade-off.



Far worse problems have occurred when governments interfere with the economy, because that encourages businesses to collude with government to keep competitors out.

Yes but without govenrment they just collude with each other, the idea of pure competition is not realistic because there almost always exists cooperative strategies that are more profitable eg OPEC. Or if not cooperative strategies at least nash equilibriums.





Not a centre but a corollary of the "tragic vision", recognizing that the best trade-off occurs when people are free to make economic transactions that involve neither fraud nor coercion.

Yes that is your set of beliefs, of course it based on the false premise of an "inivisible hand"

Again going back to Stiglitz's Nobel prize winning theory:


Whenever...the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well.... Markets, by themselves, will produce too much pollution.

[R]ecent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.



Thanx Sir Humphrey. Unemployed parents should just take what they are given.

Come off it. Right now, the poor are the ones who have no choice but the schools they are zoned in. Any sort of voucher would give them more choice than they have now. It would also relieve the pressure on government schools.

Complete privatisation may mean some regions lack the profitability to attract private investment. As long as there is a government system to fill in holes that private investment is not willing to take up then I have no problem.

arosar
23-09-2008, 10:37 PM
I just heard this journo on TV say that what the market hates is "uncertainty". But can you make money out of certainty?

AR

MichaelBaron
24-09-2008, 01:56 AM
I just heard this journo on TV say that what the market hates is "uncertainty". But can you make money out of certainty?

AR

Well you can..its just that a different strategy is required. It is a bit like chess. Some positions require tactics while other call for a strictly positional approach.:hmm:

Capablanca-Fan
24-09-2008, 08:47 AM
I just heard this journo on TV say that what the market hates is "uncertainty". But can you make money out of certainty?
Yeah. Many don't want to invest if they are not sure that their investment might be the next to fall.

Capablanca-Fan
24-09-2008, 08:49 AM
Secretary Paulson, Meet Lord Acton
In the mid 19th century, Lord Acton warned that "power tends to corrupt. Absolute power corrupts absolutely." Note that he dropped "tends" in the second sentence.

Secretary Paulson's proposal for a $700 billion grant of power with no legislative oversight and no judicial review is a fundamental violation of Lord Acton's principle. It is an invitation to corruption and tyranny.

If Russian leader Vladimir Putin had written the plan, I would have understood it. But having an American Secretary of the Treasury write such a plan is such a fundamental violation of our constitutional processes that it makes you wonder how Secretary Paulson can serve in the Cabinet.

Danger One: Crony Capitalism
The first danger of the Paulson bailout proposal is that it will create crony capitalism. People who are failing in business will hire lobbyists and curry favor with politicians to protect them from their own mistakes.

You cannot have capitalism on the way up and socialism on the way down.

You cannot create a welfare state for rich investors.

Danger Two: Bureaucratic Capitalism
The other great danger of the Paulson bailout is that to avoid crony capitalism we will create bureaucratic capitalism.

Already there is talk of salary caps and other government regulatory requirements which would drive the "private" out of "private enterprise."

Bureaucratic enterprise is no replacement for free enterprise — it's a contradiction in terms.

The Paulson bailout holds the potential to slow down American economic growth for another decade.

Or, as in the case of Detroit, forever.

What Should We Do?
As I wrote on Sunday on National Review Online here are four immediate steps we can take:

Eliminate the "mark to market" accounting provision which is driving companies into bankruptcy unnecessarily.

Repeal the Sarbanes–Oxley law which failed in every case this year and which burdens new companies with a $3 million-a-year accounting fee.

Join China and Singapore in eliminating the capital gains tax and watch money pour into the system from private investors at no cost to the taxpayer.

Pass a strong energy bill to return at least $500 billion a year in energy money to the United States.

If we had an extra $5 trillion in energy spending in our economy in the next ten years with a zero capital gains tax and a liberated entrepreneurial sector no longer crippled by Sarbanes–Oxley we would generate the wealth to absorb all the current losses.

A No-Growth Bailout Just Sets the Stage for More Bailouts
Congress should pass no bailout without attaching a powerful economic growth component to it.

A bailout in isolation simply sets the stage for more bailouts.

In the absence of economic growth the economy will decay and debts will decay and they will be back next year for even more of your money.

Economic growth is the only way to get America on the right track.

Capablanca-Fan
24-09-2008, 01:18 PM
This could easily be rectified through KPIs and wages being related to community satisfaction.
Community satisfaction is best measure by the free market: how much they freely spend on a product. Under a control market, "community satisfaction" really means satisfaction of politicians and bureaucrats.


Actually not always a bad thing if you want serious innovation you have to permit mistakes to be made without negative consequence. Again it is a trade-off.
Not if the mistakes seriously hurt the public. Bureaucrats often impose onerous regulation that costs the public money, jobs and even lives, just because they can, without negative consequences.


Yes but without govenrment they just collude with each other, the idea of pure competition is not realistic because there almost always exists cooperative strategies that are more profitable eg OPEC. Or if not cooperative strategies at least nash equilibriums.
Thanx for proving my point: OPEC is a government cartel, not a market one.


Yes that is your set of beliefs, of course it based on the false premise of an "inivisible hand"
This is just a matephor, and both Smith's and Friedman's were supported by actual evidence: the freer economies have hugely outperformed command economies or even "mixed" economies; and regulatory bodies have been captured by special interests over and over again.


Again going back to Stiglitz's Nobel prize winning theory:


Whenever...the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well.... Markets, by themselves, will produce too much pollution.
Same would apply to the individuals in bureaucracies, but more so since they are immune from consequences. And it's notable that the most polluted countries have centrally planned economies.


[R]ecent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.
Of course markets are imperfect. But this is no justification for replacing imperfect markets with imperfect government.

Good grief, this current crisis happened after the crass Sarbanes–Oxley regulation was passed, which imposes huge costs on businesses but doesn't prevent problems.

Here's another article about a lefty Dem, Barney Frank, blaming the free market for the problem (http://townhall.com/Columnists/WilliamWilson/2008/09/23/rewriting_history_lies_that_hurt_us_all), ignoring the fact that goverment started the problem by forcing banks to lend to people unlikely to be able to repay the loan, yet he was one of Fannie and Freddie's main protectors in Congress, repeatedly denying that there were any problems.


Complete privatisation may mean some regions lack the profitability to attract private investment. As long as there is a government system to fill in holes that private investment is not willing to take up then I have no problem.
"Private investment is not willing to take up" really means "people are not prepared to pay for certain things". But the Anointed decide they need them anyway.

Capablanca-Fan
24-09-2008, 04:24 PM
John Stossel slams bailout (http://townhall.com/Columnists/JohnStossel/2008/09/24/what_happened_to_market_discipline), blames government interference—from both parties—with the market for this crisis. He concludes:


Crisis is the friend of the State. The politicians are desperate to be seen as "showing leadership," so we're surely in for a new round of government interventions. Watch for the equivalent of the Sarbanes-Oxley Act. There'll be much posturing about how the new regulations "will keep this from ever happening again," but that's more nonsense because the root problem is not lack of regulation. It's government social engineering of the housing market, which will be unchanged.

This is the path to stagnation and poverty. As Nobel Laureate F.A. Hayek taught, markets are too complicated for planners to know enough to plan them. The relevant information, scattered unspoken among billions of market participants, is beyond the bureaucrats' reach.

We do need protection from reckless businessmen. But there is only one way to provide that: market discipline. That means: no privileges, and no bailouts.

Thomas Sowell said that looking to Congress to solve problems of its own making is like relying arsonists to put out the fires they started.

Capablanca-Fan
25-09-2008, 10:34 AM
“Financial institutions are not being bailed out as a favor to them or their stockholders. In fact, stockholders have come out worse off after some bailouts. The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not. ... [B]ailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos.” —Thomas Sowell

“The credit crunch and foreclosure problems are failures of government policy. In fact, what we see now is a market correction to foolhardy government policy. Congress’ move to bail out lenders and borrowers who made poor decisions will simply create incentives for people to make unwise decisions in the future.” —Walter Williams

“[A]s lawmakers debate buying up hundreds of billions in assets, they should realize that the government’s aggressive meddling in financial decision-making is what got our economy into this mess in the first place. The long-term answer isn’t more federal control, it’s a return to free-market principles.” —Ed Feulner

“Crisis is the friend of the State. The politicians are desperate to be seen as ‘showing leadership,’ so we’re surely in for a new round of government interventions.” —John Stossel

“When the Forbidden Fruit was handed to Adam and Eve, they were allowed the moral choice to accept or decline. I know people who have refused to feast on the money tree. They live simply, within their means, and seem far more content than those who are trying to horde their wealth while clinging to the ladder of ‘success,’ terrified to let go. That isn’t real living. The Puritans rightly saw that as covetousness.” —Cal Thomas

Capablanca-Fan
25-09-2008, 12:26 PM
Commentary: Bailouts will lead to rough economic ride (http://edition.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html)
by Ron Paul (and on CNN, which should please TonyD ;))

TheJoker
25-09-2008, 03:29 PM
Community satisfaction is best measure by the free market: how much they freely spend on a product.

No becuase it only measures the satisfaction of those in the market not the "externalities". People who are affected by the market transactions but are neither consumers or suppliers have no means expressing their satisfaction or dissatisfaction in the market.





Not if the mistakes seriously hurt the public. Bureaucrats often impose onerous regulation that costs the public money, jobs and even lives, just because they can, without negative consequences.

In fact most government regulations are designed to achieve some sort of outcome not just because someone feels like it. Agreed they often fail to do so or have unintended consequences, the same as business decisions.



Thanx for proving my point: OPEC is a government cartel, not a market one.

Actually governments are part of the global market. OPEC has no regulatory influence on the global oil market. Other countries or business are free to enter the market as suppliers and buyers are free to buy from any supplier. In that context OPEC is market oligopolistic cartel.



freer economies have hugely outperformed command economies or even "mixed" economies.

It would be a fallacy of composition to say that because freer markets out perform controlled markets then a totally free market will be the optimal performer.



And it's notable that the most polluted countries have centrally planned economies.

It is would be notable if it were true. WHile China has some of the most polluted cities that is partially due to population density, IIRC china produces less air pollution per capita than the USA.



Of course markets are imperfect. But this is no justification for replacing imperfect markets with imperfect government.

It certainly is if the government produces the outcomes society is looking for where the market does not. How much of reduction in CO2 emissions do you expect with government regulation? There is no price incentive to reducing CO2 in free market, therefore it wont happen.


"Private investment is not willing to take up" really means "people are not prepared to pay for certain things". But the Anointed decide they need them anyway.

Rubbish, worst economic arguement I've ever seen you make. Buyers need more than just a willingness to consume they need a means (i.e. disposable income). No smart investor is going to set up business were the cost of production plus a normal rate of return exceeds consumers disposable income.

Anyway back to the financial crisis, what is people's opinion about how it will affect the Australian realestate market will a poor performing stock market and lowering interest rates cause another realestate boom?

Kevin Bonham
25-09-2008, 09:15 PM
Gee, Bush is doing a very blatant piece of menacing-with-hobgoblins to try to get the people to pressure Congress to approve his dodgy bailout.

He's also talking up the risk of a crisis of confidence, which I would have thought was an irresponsible thing for him to do because of the risk of it becoming a self-fulfilling prophecy.

Tony Dowden
25-09-2008, 09:58 PM
Commentary: Bailouts will lead to rough economic ride (http://edition.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html)
by Ron Paul (and on CNN, which should please TonyD ;))

yes ;) point made. Sigh, on reflection as a uni lecturer in the social sciences/arts I guess I must be one of your 'lefties' but maybe not 'uber' - not if (like McCain) I attend a Baptist church at any rate :)


The 700B ultimately comes from taxpayers.
True, but there must be something in it for the American taxpayer (all 100 million or so of them). Not even bankers who deal with billions should get a free lunch - to paraphrase your mate Milton Friedman ;)

[Disclosure: I lifted this second Jono quote from the USA election thread]

Tony Dowden
25-09-2008, 10:01 PM
Gee, Bush is doing a very blatant piece of menacing-with-hobgoblins to try to get the people to pressure Congress to approve his dodgy bailout.

You bet -this is Bush's last realistic chance to salvage something before the history writers sharpen their pencils and go to work on him.

Probably cynical but the way I see it his trademark unwillingness to even countenance other ideas is most helpful here.

Capablanca-Fan
25-09-2008, 10:48 PM
Gee, Bush is doing a very blatant piece of menacing-with-hobgoblins to try to get the people to pressure Congress to approve his dodgy bailout.
A bailout by its very nature is dodgy, since there is something unjust about profiting when succeeding in the markey, but asking for taxpayer dollars after failing. But what do you propose as an alternative? Any bailout is not to do the lenders any favours, but to stop the economy collapsing if lending dried up. However, maybe a strong shakeup now would prevent a worse problem in the future.

But perhaps Shrubby is trying to stop the Dems tacking on more spending to the bailout?

Capablanca-Fan
25-09-2008, 10:50 PM
Probably cynical but the way I see it his trademark unwillingness to even countenance other ideas is most helpful here.
Actually, he has been far too bipartisan for his own good, e.g. education, medicare, appointing a moronic Dem called Norman Mineta as transportation secretary hence the new Airport Gestapo treating passengers as criminals, approving spending bills, tariffs and the McCain–Feingold free-speech–destroying monstrosity ... Conversely, Obama almost always votes the lefty Dem party line.

Capablanca-Fan
26-09-2008, 11:41 AM
yes ;) point made. Sigh, on reflection as a uni lecturer in the social sciences/arts I guess I must be one of your 'lefties'
It would be interesting to see the proportion of Coalition voters to Labor or Green voters in your faculty.

Zwischenzug
26-09-2008, 02:48 PM
Save the world? Hank just didn't have a clue (http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article4820549.ece)
by Anatole Kaletsky, from timesonline.co.uk


When there was still no plan on Monday, the view was that Mr Paulson must be holding back the details for his testimony to the Senate Banking Committee the following day. But then, to everyone's astonishment, Mr Paulson turned up to the committee on Tuesday morning with only the briefest opening statement, which simply repeated what he had already said the week before: the sky was falling and the only way to stop it was to give him authority over $700 billion in public money, to be spent in unspecified ways.

...
But as the cross-examination rolled on, and Mr Paulson just waffled - “we will ask experts to advise us”, “we will get the best and brightest financiers to suggest ideas” - the terrible truth dawned. There was no such thing as a Paulson plan. Not only did Mr Paulson not know what he was doing. He did not know what he was talking about. When pressed to offer at least some basic principles for his rescue, Mr Paulson had no answers. When challenged about limits to executive remuneration and taxpayer stakes in future profits of participating banks, he brusquely rejected all such proposals - on the amazing ground that they might discourage some of the stronger banks from taking advantage of government support!

Capablanca-Fan
30-09-2008, 07:48 AM
“Sometimes bipartisanship is grounds for celebration, but more often it is cause for tears. Last week, congressional leaders from both parties went into a room to hammer out a plan that would put taxpayers on the hook for $700 billion. But they assert that the investment is essential to the health of the economy. And they insist that if we make this investment, we’ll get all or most of it back. This promise would be more believable if the federal government had a long record of using tax dollars responsibly. In fact, it’s the equivalent of the guy who raids his kid’s piggy bank to feed the slots. The most notable impulse of our leaders is spending money the Treasury doesn’t have, piling up bills that future Americans will have to cover.” —Steve Chapman

“Under [Bill] Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001. Instead of looking at ‘outdated criteria,’ such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named ‘Caylee.’ Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke—it’s a fact. ... In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration’s affirmative action lending policies as one of the ‘hidden success stories’ of the Clinton administration, saying that ‘black and Latino homeownership has surged to the highest level ever recorded.’ Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn’t get out of their loans by selling their houses. A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it’s gone off.” —Ann Coulter

“Much of that mess [in the financial markets] is due to the very people we are now turning to for solutions—members of Congress. Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions. Such institutions—exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers’ money—are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars. For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers. Back in 2002, the Wall Street Journal said: ‘The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.’ The hybrid public-and-private nature of these financial giants amounts to ‘privatizing profit and socializing risk,’ since taxpayers get stuck with the tab when high-risk finances don’t work out... Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians’ political campaigns, so it is perhaps not surprising that politicians have been generous to them. This is certainly part of ‘the mess in Washington’ that Barack Obama talks about. But don’t expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama’s advisers.” —Thomas Sowell

Tony Dowden
30-09-2008, 08:15 AM
Actually, he has been far too bipartisan for his own good, e.g. education, medicare, appointing a moronic Dem called Norman Mineta as transportation secretary hence the new Airport Gestapo treating passengers as criminals, approving spending bills, tariffs and the McCain–Feingold free-speech–destroying monstrosity ... Conversely, Obama almost always votes the lefty Dem party line.

I obviously meant " ... unhelpful ..." (and I was being a bit extreme ;) ).

With respect I don't think the Americans do 'partisan' at all well. For me partisan must include working for the common good - not appropriating each others' idelogies.

arosar
30-09-2008, 11:54 AM
“Under [Bill] Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001. Instead of looking at ‘outdated criteria,’ such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named ‘Caylee.’ Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke—it’s a fact. ... In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration’s affirmative action lending policies as one of the ‘hidden success stories’ of the Clinton administration, saying that ‘black and Latino homeownership has surged to the highest level ever recorded.’ Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn’t get out of their loans by selling their houses. A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it’s gone off.” —Ann Coulter

Yo Jono...you just quoted Ann Coulter. You're a fan, are you? Love her work?

AR

Capablanca-Fan
30-09-2008, 02:28 PM
Yo Jono...you just quoted Ann Coulter. You're a fan, are you? Love her work?
Quite a lot of it. I have all her books, and what she says about lefties is good humour although sometimes harsh. So do you have any evidence that the above quote is in error?

Capablanca-Fan
30-09-2008, 02:36 PM
Watch Terry McCrann explain (http://www.news.com.au/heraldsun/video/?Channel=Herald+Sun+News&ClipId=1396_564rthr&bitra te=300&Format=flash) that the days of easy credit, easy debt and big profits are over, there will be continuing volatility, but the Aussie sharemarket is in much better shape than the Yankee one because our banks are much stronger and we have good resource stocks.

Capablanca-Fan
30-09-2008, 04:05 PM
Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

At a 2004 hearing see Republicans warning of the dangers of Fannie Mae and Freddie Mac, but Democrat after Democrat covering up and attacking the regulations to protect Fannie and Freddie (their Cash Cows) and Obama-supporting Raines that are now destroying the American economy because the Democrats let them cheat. Even Wilhelm Klinton agrees that the Dems share some blame for blocking warnings by himself and the Republicans.

_MGT_cSi7Rs&eurl=http://www.redstate.com/

Tony Dowden
30-09-2008, 07:08 PM
The Aussie sharemarket is in much better shape than the Yankee one because our banks are much stronger and we have good resource stocks.

Because Aussie banking is sensibly regulated? ;)

Capablanca-Fan
30-09-2008, 07:27 PM
Because Aussie banking is sensibly regulated? ;)
No, because Aussie banks never had to suffer from the government interference that the Yankee ones had with the Democrat "Community Reinvestment Act". Also, Australia honours contracts (an important free market principle), so a bank can chase a borrower for what is owed, while American borrowers can hand back the keys and walk away.

Kevin Bonham
30-09-2008, 11:20 PM
According to this analysis (http://www.fivethirtyeight.com/2008/09/swing-district-congressmen-doomed.html) it was essentially those congressmen who are in danger of losing their seats next election who killed the present bailout bill, while those in safe seats were about evenly split.

pax
01-10-2008, 01:00 PM
Stop press: Michael Moore (http://www.michaelmoore.com/words/message/index.php?id=235) sides with the House Republicans on the bailout!

Capablanca-Fan
01-10-2008, 01:44 PM
Stop press: Michael Moore (http://www.michaelmoore.com/words/message/index.php?id=235) sides with the House Republicans on the bailout!
That really puts me off the bailout now. Having said that, the failure to pass it caused the stockmarket to lose more than the value of the failed bailout attempt, which is really saying something.

pax
01-10-2008, 02:24 PM
That really puts me off the bailout now. Having said that, the failure to pass it caused the stockmarket to lose more than the value of the failed bailout attempt, which is really saying something.

Yeah, that was quite something to behold. Mind you, most of it was recovered last night, presumably on hints that the package would be revived. And somehow the Australian stockmarket (despite being less exposed to bad debts) managed to lose more and recover less than the US market. I really don't have the first clue what is going on..

Igor_Goldenberg
01-10-2008, 06:32 PM
I do not support bailouts in generally and this one in particular.
But Michael Moor's opposition makes me wonder if I was wrong about this one.:D

Kevin Bonham
01-10-2008, 09:38 PM
Stop press: Michael Moore (http://www.michaelmoore.com/words/message/index.php?id=235) sides with the House Republicans on the bailout!

The bailout is being supported by the US political "centre" (except those who are up for re-election in marginal seats) but opposed by sections of the left and sections of the right for different reasons. Some elements of the right think the government should not be interfering with the market. Some elements of the left think the government should be interfering with the market, but think that interference should be to help the poor and to regulate, not to take from the poor to prop up failed execs. Moore's position is probably the latter so this alliance of left-liberals and conservative capos against the bailout is one of political convenience.

I actually find myself sympathising to some degree with both the right and the left arguments against the bailout. I also think yesterday's plunge would not have been nearly so bad but for the alarmist hobgoblin-waving by Bush and others about what would happen if the bailout was squashed.

Capablanca-Fan
02-10-2008, 11:11 AM
Terry McCrann:

MacBank, Lehman worlds apart (http://www.news.com.au/heraldsun/story/0,21985,24368279-36281,00.html) 19 Sept
Not drowning, but waiting: BOTH the Australian economy and our financial system are in great shape (http://www.news.com.au/heraldsun/story/0,21985,24428263-36281,00.html) 1 Oct
Now, should we destroy the economy? (http://www.news.com.au/heraldsun/story/0,21985,24428264-36281,00.html) (i.e. go ahead with the Garnaut recommendations) 1 Oct


CMI's take on the crisis (http://creationontheweb.com/content/view/6068). ;)

Desmond
02-10-2008, 01:17 PM
Bailout Jokes (http://www.dailycomedy.com/joke/13252)

The financial crisis is not affecting me. All my money is tied up in unearned income.

The number of home runs per game in the Major Leagues dropped to a 15-year low. As a result, the US government is bailing out BALCO.

Treasury Secretary Henry Paulson's brilliant $700 billion plan could buy every single American 2,000 McDonald's apple pies.

Capablanca-Fan
02-10-2008, 03:04 PM
"I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress, or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac." — Bill Clinton, Good Morning America, ABC, 25 September 2008.

TheJoker
02-10-2008, 05:19 PM
"I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress, or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac." — Bill Clinton, Good Morning America, ABC, 25 September 2008.

I actually watched that interview in full. Clinton admitted that his administration was partially responsible for the crisis because of de-regulation allowing the securitisation of sub-prime loans.

Garrett
02-10-2008, 05:36 PM
I actually watched that interview in full. Clinton admitted that his administration was partially responsible for the crisis because of de-regulation allowing the securitisation of sub-prime loans.

yes I did too, put back some of the respect after the whole ****-suck scandal.

Capablanca-Fan
03-10-2008, 04:16 PM
Hoover-Era Ghost Stories No Longer Apply (http://townhall.com/Columnists/JonahGoldberg/2008/10/03/hoover-era_ghost_stories_no_longer_apply)
by Jonah Goldberg

...

William Leuchtenburg, possibly the greatest authority on the FDR era, wrote some time ago, "Almost every historian now recognizes that the image of Hoover as a 'do-nothing' president is inaccurate."

After the stock market crash of 1929, Hoover browbeat business leaders to keep wages and prices high. He invested heavily in public works projects. He pushed for an international moratorium on debts. He created the Reconstruction Finance Corporation, which later became a home for many of FDR's Brain Trusters. Hoover increased farm subsidies enormously.

Some of Hoover's interventions were good but ineffectual. A few were very, very bad and very effective.

In 1932, Hoover in effect repealed Calvin Coolidge's tax cuts, increasing the rates for the poorest taxpayers by more than 100 percent and hiking the top rate from 25 percent to 63 percent. Worse, contrary to his own better instincts, Hoover signed the disastrous Smoot–Hawley trade bill that raised protectionist walls at precisely the moment the world needed trade the most.

...

The Great Depression was not made "Great" by government inaction. Indeed, FDR's New Deal may have been wonderful in some mytho-poetic sense, and maybe some of its reforms can be defended in some broader context, but as an effort to end the Great Depression, the New Deal was a failure. As my colleague Mark Steyn writes, "Lots of other places - from Britain to Australia - took a hit in 1929 but, alas, they lacked an FDR to keep it going till the end of the Thirties. That's why in other countries they refer to it as "the Depression," but only in the U.S. is it 'Great.'"

...

Also, who are the real Hoovers here? Obama is sympathetic to protectionism, as is his party. He says he will raise taxes on the top income earners, and if he's remotely honest about his spending ambitions, he will have to raise taxes on everybody else as well.

Meanwhile, who sought to intervene when Fannie Mae metastasized? John McCain. Who wanted to keep the party going? The party of Roosevelt. There's blame all around, but nothing today supports the liberal ghost stories of yesterday.

Tony Dowden
04-10-2008, 03:59 PM
The bailout is being supported by the US political "centre" ...

In hindsight the bailout bill was actually supported by pork, pork, pork and more pork :lol:

Capablanca-Fan
04-10-2008, 09:55 PM
In hindsight the bailout bill was actually supported by pork, pork, pork and more pork :lol:
Bloody pigs, the lot of them (almost).

Capablanca-Fan
05-10-2008, 02:38 PM
More on FDR, Hoover and their mistakes that led to the Great Depression (http://townhall.com/Columnists/DavidRStokes/2008/10/05/fdr_and_the_great_deflation). But in the Left-dominated educracy, all you'll hear is that Hoover's laissez-faire "do-nothing" capitalism was at fault, and FDR was responsible for rescuing America from the Depression. The Democrat-supporting teachers unions won't admit that Hoover was no free marketeer, as he raised taxes and imposed tariffs, which hurt people even more; and that FDR actually prolongued the Depression, which didn't end till WW2 ended the "New Deal".

Yet the Obamessiah and his false prophet Biden advocate Hoover/FDR policies of increasing taxes and ending renegotiating free trade agreements. The appalling government schools have produced a generation ignorant of the realities, and even forgetful of disastrous Carter years.


There are two knee-jerk things that both Herbert Hoover and Franklin Roosevelt did that actually ensured that the Depression would have a long run. First, Hoover stifled free trade when he, against the advice of many economists and business leaders, signed a protectionist tariff (Smoot-Hawley) bill. He ignored doomsday warnings that this “would spell economic isolation” and lead to the “most severe depression ever experienced.” Sadly, those warnings came true.

And both Hoover and Roosevelt fought the Depression by raising taxes.

Mr. Hoover gave us the Revenue Act of 1932, which burdened people already having a hard time holding on to homes and making ends meet. With deflation, dollars were worth more, so the government was taking these increasingly rare and more valuable dollars out of the hands of the people, in many cases sealing their financial doom.

Franklin Roosevelt wanted to change society through tax policy. He seldom met a tax he didn’t like. The president clearly cultivated his image as an enemy of the “great accumulation of wealth” and the protector of the “people” from corporations, utilities, and other usual suspects who become convenient rhetorical targets during times of economic crisis and confusion.

...

But, as [Amity] Shlaes points out in her book The Forgotten Man, the two men actually had much in common:


“Hoover and Roosevelt were alike in several regards. Both preferred to control events and people. Both underestimated the strength of the American economy. Both doubted its ability to right itself in a storm. Hoover mistrusted the stock market. Roosevelt mistrusted it more.

Both presidents overestimated the value of government planning.

And both men doctored the economy habitually. Hoover was a constitutionalist and took pains to intervene within the rules — but his interventions were substantial. Roosevelt cared little for constitutional niceties and believed they blocked progress. His remedies were on a greater scale and often inspired by socialist or fascist models abroad.”
...

As an example of FDR’s experimental economic savvy, one day he announced to his staff that he was considering raising the price of an ounce of gold by twenty-one cents. When someone inquired as to the rationale behind that figure the president replied: “because it’s three times seven. It’s a lucky number.”
...

Capablanca-Fan
06-10-2008, 10:40 AM
Chairman KRudd is a case in point: another economic illiterate who blames the crisis on the free market (http://www.news.com.au/couriermail/story/0,23739,24450529-953,00.html):


"This crisis bears the fingerprints of the extreme free market ideologues who influence much of the neo-liberal economic elite," he said, during a private speech to the Federal Labor Business Forum.

"Free market ideologues who have a naive belief that unrestrained markets are always self-correcting and that markets left to themselves will always achieve optimum outcomes.

"Today, we are still cleaning up the mess of the 21st century children of Gordon Gekko."

International Business Daily points out that the real culprit was massive government intervention:


While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was (President Bill) Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie’s and Freddie’s rules.

In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended…

Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.... Banks were given strict new numerical quotas and measures for the level of “diversity” in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another. Loans started being made on the basis of race, and often little else…

Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.

With incentives in place, banks poured billions of dollars of loans into poor communities, often “no doc” and “no income” loans that required no money down and no verification of income.

By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.

Sensible voices in Australia argue that eagerness for still more government control of the economy is dangerous (http://www.news.com.au/couriermail/story/0,23739,24450529-953,00.html):


But it is the rush to regulation that is alarming key policymakers including the Productivity Commission's Gary Banks and Professor Fels, former chairman of the Australian Competition and Consumer Commission.

"The public wants action regarding high executive salaries and ethics and that will involve deep intrusion into the behaviour of business," Professor Fels, dean of the Australia and New Zealand School of Government, told The Australian.

"This will reverse much of the current emphasis on deregulation. This is a big, new challenge in an area where knowledge by regulators is lacking."

Desmond
06-10-2008, 12:10 PM
Associate Prof Stepven Keen on Meet the Press (http://ten.com.au/media/MTP0510.doc)


STEVEN KEEN: If you ask an economist why the chicken crossed the road, the answer is supply and demand. They think everything is about competition. That's conventional economics. I come from a non-orthodox school of economic thought that says that's not the ay the system operates. But this conventional advice says if there's a problem, throw more competition at it and it will fix the problem. It's the economist's vitamin C, this competition. In fact, this particular disease was caused by too much competition. Because when the wholesale lenders turned up they had a margin below the banks because of the wholesale market being cheaper than the deposit rate margin at the time, and they forced the banks to compete by dropping their own lending standards. If there hadn't been that growth of the non-bank sector, we wouldn't have the level of debt we have today and the level of mortgage defaults we're going to have in the future.

Capablanca-Fan
06-10-2008, 12:54 PM
Associate Prof Stepven Keen on Meet the Press (http://ten.com.au/media/MTP0510.doc)
There is a problem with unfair competition, where government backs one side aka "picking winners", e.g. Fannie and Freddie in the USA, Chairman KRudd backing Toyota on hybrids; tariffs, subsidies ...

MichaelBaron
06-10-2008, 04:03 PM
There is a problem with unfair competition, where government backs one side aka "picking winners", e.g. Fannie and Freddie in the USA, Chairman KRudd backing Toyota on hybrids, tariffs, subsidies ...

Yes! And this is only the tip of the iceberg. By interfering into the market economy, government eventually brings long-term economic problems for the country.

Capablanca-Fan
06-10-2008, 08:35 PM
Japan Bank Crisis worsens

Following the problems in the sub-prime lending market in America and the run on HBOS in the UK, uncertainty has now hit Japan.

In the last 7 hours Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank announced plans to cut some of its branches. Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikaze Bank were suspended after they nose-dived.

Samurai Bank is soldiering on following sharp cutbacks, Ninja Bank is reported to have taken a hit, but they remain in the black. Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal.

Capablanca-Fan
07-10-2008, 02:15 PM
“The financial services sector is over-leveraged and too large. Winding this down will, indeed, impose painful costs. Congress is seeking to explicitly transfer these costs to taxpayers, who will underwrite a new government plan devised to correct the old government plans. Taxpayers are being called upon to make a significant sacrifice, with little evidence to suggest that the troubled markets will be settled. In fact, there is evidence to suggest that the latest intervention will delay the required adjustments in the financial services sector. The $700 billion intervention is just the largest, latest in a series of failed bailouts with no guarantee that the desired outcome will even be achieved. As a Public Choice professor, I used to begin class each semester with Armey’s Axiom number one: ‘The market is rational and the government is dumb.’ Those quick to call for more regulation forget the power of markets, and refuse to acknowledge government culpability in the current mess. Time and again, governments the world over have attempted to outsmart the market and the current legislation is no exception. And time after time, markets respond, toppling the best-laid government plans as they move to correctly price the underlying assets in exchange.” —former House Republican Leader Dick Armey

“The Senate version of the financial bailout bill—an emergency measure designed (we thought) to keep the world economy from tumbling into a deep recession—has been ornamented with special favors. Glancing through this bill, you find that Puerto Rican and Virgin Islands rum makers get a tax break, as do certain commercial fisherman and others who were affected by the Exxon Valdez oil spill of 1989. Makers of wooden arrows for children’s toys are remembered, along with rural schools. There’s a duty suspension on wool products, and television production companies get a break on expensing rules. Mental illnesses (including substance abuse) are to receive parity with other disorders in private insurance coverage, and geothermal heat pump systems will get favorable tax treatment. An estimated 24 million middle-class households would be relieved from paying the Alternative Minimum Tax (originally aimed at millionaires). It goes on and on. Some conservative Republicans dug their heels in on the House bailout bill—which was, gulp, relatively clean compared with this. Now a 100-page bill has become a 450-page monstrosity tarted up with special favors for this one and that one. Did they just walk through Senate offices scooping up old bills and throwing them into the word processor? Some of these provisions may be perfectly good ideas. But isn’t the Senate supposed to be the world’s greatest deliberative body? Isn’t it supposed to hold hearings and debate these things instead of bundling them all up in a ‘must pass’ emergency bill?” —Mona Charen

“Liberalism, as an experiment against common sense, undermines every institution it touches, including financial ones. In the age of political correctness, the conservatism of the banking industry was bound to give way to mindless multiculturalism and Great Society babble. Tried-and-true lending principles were deemed illiberal and imprudent loans became a form of ‘progress.’ Whatever the area that falls under it—whether it is banking or education—liberalism’s regulatory regime consists of forcing people to adopt ideological goals which defy rationality: banks are told not to insist on such outmoded tests as good credit; schools are told not to insist on good test scores for admission. High standards across the culture have eroded under liberalism. Why not in banking too? Indeed, given the choice between economic decline and political correctness, liberals always choose the former. To preserve the kangaroo rat, they will cut jobs. To advance faddish global warming theory, they will undercut whole industries. Instead of bemoaning economic decline, they normally interpret it as a measure of enlightenment: that some worthy ideological goal, far more important than money, is slowing business down.” —George Neumayr

Davidflude
07-10-2008, 04:21 PM
Here is a radical solution. Instead of invading Iraq and Afghanistan invade all of the tax havens.

Confiscate all bank deposits. Depositors can get there money back if they can prove it was legally earned and taxes paid in the countries in which they live.

This would provide ample funds to bail out the world economy as well as hitting organized crime and bent politicians where it hurts.

Davidflude
07-10-2008, 04:32 PM
“The financial services sector is over-leveraged and too large. Winding this down will, indeed, impose painful costs. Congress is seeking to explicitly transfer these costs to taxpayers, who will underwrite a new government plan devised to correct the old government plans. Taxpayers are being called upon to make a significant sacrifice, with little evidence to suggest that the troubled markets will be settled. In fact, there is evidence to suggest that the latest intervention will delay the required adjustments in the financial services sector.

Right on Jono


The $700 billion intervention is just the largest, latest in a series of failed bailouts with no guarantee that the desired outcome will even be achieved. As a Public Choice professor, I used to begin class each semester with Armey’s Axiom number one: ‘The market is rational and the government is dumb.’

To me this is a rule of thumb not an axiom in the mathematical sense such as
"parallel lines meet at infinity. Nevetheless it is a good rule of thumb.

Those quick to call for more regulation forget the power of markets, and refuse to acknowledge government culpability in the current mess. Time and again, governments the world over have attempted to outsmart the market and the current legislation is no exception. And time after time, markets respond, toppling the best-laid government plans as they move to correctly price the underlying assets in exchange.” —former House Republican Leader Dick Armey

“The Senate version of the financial bailout bill—an emergency measure designed (we thought) to keep the world economy from tumbling into a deep recession—has been ornamented with special favors. Glancing through this bill, you find that Puerto Rican and Virgin Islands rum makers get a tax break, as do certain commercial fisherman and others who were affected by the Exxon Valdez oil spill of 1989. Makers of wooden arrows for children’s toys are remembered, along with rural schools. There’s a duty suspension on wool products, and television production companies get a break on expensing rules. Mental illnesses (including substance abuse) are to receive parity with other disorders in private insurance coverage, and geothermal heat pump systems will get favorable tax treatment. An estimated 24 million middle-class households would be relieved from paying the Alternative Minimum Tax (originally aimed at millionaires). It goes on and on. Some conservative Republicans dug their heels in on the House bailout bill—which was, gulp, relatively clean compared with this. Now a 100-page bill has become a 450-page monstrosity tarted up with special favors for this one and that one. Did they just walk through Senate offices scooping up old bills and throwing them into the word processor? Some of these provisions may be perfectly good ideas. But isn’t the Senate supposed to be the world’s greatest deliberative body? Isn’t it supposed to hold hearings and debate these things instead of bundling them all up in a ‘must pass’ emergency bill?” —Mona Charen

The tradition of corruption goes back at least as far as congressman "Davy Crocket". When the American colonies revolted they threw out the Westminster tradition of comparatively honest administration.

“Liberalism, as an experiment against common sense, undermines every institution it touches, including financial ones. In the age of political correctness, the conservatism of the banking industry was bound to give way to mindless multiculturalism and Great Society babble. Tried-and-true lending principles were deemed illiberal and imprudent loans became a form of ‘progress.’ Whatever the area that falls under it—whether it is banking or education—liberalism’s regulatory regime consists of forcing people to adopt ideological goals which defy rationality: banks are told not to insist on such outmoded tests as good credit; schools are told not to insist on good test scores for admission. High standards across the culture have eroded under liberalism. Why not in banking too? Indeed, given the choice between economic decline and political correctness, liberals always choose the former. To preserve the kangaroo rat, they will cut jobs. To advance faddish global warming theory, they will undercut whole industries. Instead of bemoaning economic decline, they normally interpret it as a measure of enlightenment: that some worthy ideological goal, far more important than money, is slowing business down.” —George Neumayr

Are you in denial about global warning. This should be part of a separate thread. Combining it with this one will turn off people who might agree with you on other issues

Capablanca-Fan
07-10-2008, 06:24 PM
David, what did you mean about Davy Crockett? He seems the opposite of corruption given his essay Not Yours To Give (http://www.juntosociety.com/patriotism/inytg.html), where he lambasted Congress for taking money from some Americans to give to other Americans, in violation of the Constitution. If Congress had followed that principle, there would have been no bailout, no Fannie Mae, no Community Reinvestment Act—and indeed no lobbying of special interests for taxpayer money.

About global warming, no one doubts that the globe is warmed by CO2, otherwise it would be 30° cooler. But does this mean that we should cripple our economy even more when it won't make a detectable difference as long as China and India increase their CO2 emissions? But there is a thread on this issue already (http://www.chesschat.org/showthread.php?p=210437#post210437).

Capablanca-Fan
08-10-2008, 03:35 PM
An Open Letter to my Friends on the Left (http://myslu.stlawu.edu/~shorwitz/open_letter.htm)
Steven Horwitz, economics professor at St. Lawrence University
28 September 2008

...

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms' benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn't rig a new regulatory process in their favor.

One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn't there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. ...

However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.

...

No free market economist thinks ‘greed is always good’. What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that's what genuinely free markets do. Market exchanges are mutually beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it's bad not because it's greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.

...

For starters, Fannie Mae and Freddie Mac are "government sponsored enterprises". Though technically privately owned, they have particular privileges granted by the government, they are overseen by Congress, and, most importantly, they have operated with a clear promise that if they failed, they would be bailed out. Hardly a "free market." All the players in the mortgage market knew this from early on. In the early 1990s, Congress eased Fannie and Freddie's lending requirements (to 1/4th the capital required by regular commercial banks) so as to increase their ability to lend to poor areas. Congress also created a regulatory agency to oversee them, but this agency also had to reapply to Congress for its budget each year (no other financial regulator must do so), assuring that it would tell Congress exactly what it wanted to hear: "things are fine." In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas. Several attempts were made to rein in Fannie and Freddie, but Congress didn't have the votes to do so, especially with both organizations making significant campaign contributions to members of both parties. Even the New York Times as far back as 1999 saw exactly what might happen thanks to this very unfree market, warning of a need to bailout Fannie and Freddie if the housing market dropped.

Complicating matters further was the 1994 renewal/revision of the Community Reinvestment Act of 1977. The CRA requires banks to to make a certain percentage of their loans within their local communities, especially when those communities are economically disadvantaged. In addition, Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership. What all of these did together was to create an enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers. However well-intentioned the attempts were to extend homeownership to more Americans, forcing banks to do so and artificially lowering the costs of doing so are a huge part of the problem we now find ourselves in.

...

... you are concerned about corporate power. So am I. So are many of my free-market economist colleagues. We simply believe, and we think history is on our side, that the best check against corporate power is the competitive marketplace and the power of the consumer dollar (framed, of course, by legal prohibitions on force and fraud). Competition plays mean, nasty corporations off against each other in a contest to serve us. Yes, they still have power, but its negative effects are lessened. It is when corporations can use the state to rig the rules in their favor that the negative effects of their power become magnified, precisely because it has the force of the state behind it. The current mess shows this as well as anything ever has, once you realize just what a large role the state played. If you really want to reduce the power of corporations, don't give them access to the state by expanding the state's regulatory powers. That's precisely what they want, as the current battle over the $700 billion booty amply demonstrates.

...

There will be short-term pain if we don't bail out these firms, but that is the hangover price we pay for 15 years or more of binge lending. The proposed bailout cannot prevent the pain of the hangover; it can only conceal it by shifting and dispersing it among the taxpayers and an economy weakened by the borrowing, taxing and/or inflation needed to pay for that $700 billion. Better we should take our short-term pain straight up and clean out the mistakes of our binge and then get back to the business of free markets without creating an unchecked executive branch monstrosity trying to ‘save’ those who profited most from the binge and harming innocent taxpayers in the process.

Miranda
08-10-2008, 09:17 PM
wow people are writing long posts

But I just want to say:
Iceland's gone bankrupt.

Thought this was the apporpriate forum to mention it in :)

Kevin Bonham
08-10-2008, 11:18 PM
wow people are writing long posts

Or copying and pasting them from somewhere else. :D


But I just want to say:
Iceland's gone bankrupt.

Have they actually gone under now or are they just teetering on the edge?

TheJoker
09-10-2008, 11:39 AM
Iceland's gone bankrupt.

I mentioned in another thread that Iceland's economy had been booming as the result of rapid privatisation. GDP(PPP) per capita and standards of living in Iceland where among the best in the world. I guess that the huge problem with a privatised economy is that it is more vunerable to cyclical factors and market turbulence.

Capablanca-Fan
09-10-2008, 11:43 AM
I mentioned in another thread that Iceland's economy had been booming as the result of rapid privatisation. GDP(PPP) per capita and standards of living in Iceland where among the best in the world. I guess that the huge problem with a privatised economy is that it is more vunerable to cyclical factors and market turbulence.
Really? Never mind that the Great Depression was caused by Hoover's tax increases and tariff bills, and prolongued by FDR's constant intervention in the economy. The current problems can be sourced in government meddling in the form of the Dems' Community Reinvestment Act, and not helped at all by Sarbanes–Oxley, previous bailouts or "mark to market" rules.

Davidflude
09-10-2008, 12:13 PM
Really? Never mind that the Great Depression was caused by Hoover's tax increases and tariff bills, and prolongued by FDR's constant intervention in the economy. The current problems can be sourced in government meddling in the form of the Dems' Community Reinvestment Act, and not helped at all by Sarbanes–Oxley, previous bailouts or "mark to market" rules.

You may be right but remember that if politicians cannot take effective action they take ineffective action just so that they appear to be doing something.

TheJoker
09-10-2008, 12:45 PM
Really? Never mind that the Great Depression was caused by Hoover's tax increases and tariff bills, and prolongued by FDR's constant intervention in the economy. The current problems can be sourced in government meddling in the form of the Dems' Community Reinvestment Act, and not helped at all by Sarbanes–Oxley, previous bailouts or "mark to market" rules.

Thanks Jono nothing you haven't mentioned a thousand times before!!! But this has nothing to do with Iceland's economic model and it's failure. The things you mentioned are external factors beyond Iceland's control. An economic model need to be robust enough to deal with these external factors.

Do you have any comments regarding Iceland? In particular any comments about how its largley privatised economy is prone to cyclical fluctuation and market turbulence due the lack of serious leakage and injection stabilisers. What is your solution to the volatility of private investment?

Do you suggest Iceland's government should not intefere? Should they let the country go to ruin until such time as credit markets return to normal and the country can start to attract private investment again?

Also what is your position on functional monetary policy. Do you agree that the Central Banks should increase the world money supply in order to stimulate investment?

Take your time, troll through your right wing media and make a cut-and-paste post. God forbid you might actually draw some conclusions yourself based on your own economic knowledge.

pax
09-10-2008, 01:05 PM
We should be quite thankful that Australia's banking sector appears so far to be fairly stable. Britain's banking sector was on the brink of collapse yesterday (some banks losing 40% in a day), prompting the trillion dollar bailout. With the fragility of banks around the world, I'm afraid Turnbull is starting to look like a bit of an idiot hammering on about banks passing on 100% of the rate cut.

Ironically, we can also be thankful for John Howard's high interest rates. The fact that we have moderately high rates when everyone else's are rock bottom means that the Reserve Bank actually still has some leverage to inject some stimulus into the Aussie economy. The rest of the world, meanwhile, has just about cut rates as far as they possibly can.

MichaelBaron
09-10-2008, 01:10 PM
I was listening to car radio few minutes ago. In aus, unemployement is on the way up. However, the show presenter was assuring the listeners that a recession is still unlikely...
Lets hope that he is right!

Capablanca-Fan
09-10-2008, 01:34 PM
You may be right but remember that if politicians cannot take effective action they take ineffective action just so that they appear to be doing something.
You mean like this, David?
vidzkYnaf6Y

Trent Parker
10-10-2008, 01:00 PM
My sister is glad that she bought USD at 78c/AUD

She takes off for the states for two months.

Be interesting to see the rate when she and her american boyfriend come back to Aus. lol

MichaelBaron
10-10-2008, 01:42 PM
On the bright side of the currency crisis: I am still getting paid for various activities involving overseas clients (teaching etc.) in US dollars. What a joy it is now to convert the money into the AUD :).

Jim_Flood
10-10-2008, 08:51 PM
The Nigerian Government has warned its citizens that if they get e-mails from Irish/UK/US banks promising government-backed deposit security and seeking bank account details, they should ignore it. It's a scam.

pax
11-10-2008, 12:45 AM
It is astonishing to hear that the British government is using anti-terrorism legislation to seize assets belonging to Icelandic companies as a guarantee against deposits by British customers with collapsing Icelandic banks. It's no wonder some groups were concerned about the potential for abuse of such powers.

eclectic
11-10-2008, 12:53 AM
It is astonishing to hear that the British government is using anti-terrorism legislation to seize assets belonging to Icelandic companies as a guarantee against deposits by British customers with collapsing Icelandic banks. It's no wonder some groups were concerned about the potential for abuse of such powers.

is recourse to such legislation implicit admission that the so called "war against terror" is the underlying cause of the present financial meltdown?

Capablanca-Fan
14-10-2008, 11:12 AM
“’You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.’ So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home-buyers fitting this profile to a group of far-left ‘community organizers’ called ACORN, for assistance. In retrospect, of course, encouraging customers like this to buy homes seems little short of madness. At the time, however, that 1995 Chicago newspaper article represented something of a triumph for Barack Obama. That same year, as a director at Chicago’s Woods Fund, Obama was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN’s way from his post as board chair of the Chicago Annenberg Challenge. Through both funding and personal-leadership training, Obama supported ACORN. And ACORN, far more than we’ve recognized up to now, had a major role in precipitating the subprime crisis... In June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced the administration’s comprehensive new strategy for raising home-ownership in America to an all-time high. Representatives from ACORN were guests of honor at the ceremony. In his remarks, Clinton emphasized that: ‘Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.’ Clinton meant that informal partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers ‘who have historically been excluded from homeownership.’ In the end of course, Clinton’s plan cost taxpayers an almost unimaginable amount of money. And it was just around the time of his 1995 announcement that the Chicago papers started encouraging bad-credit customers with ‘dog-food’ wages, little money in the bank, and even histories of bankruptcy to apply for home loans with the help of ACORN...ACORN is at the base of the whole mess... And Barack Obama cut his teeth as an organizer and politician backing up ACORN’s economic madness every step of the way.” —Stanley Kurtz

“Now, the U.S. Treasury is considering buying banks. Buying banks. That is to say that if Bob’s Bank in Godknowswhere, West Wiscarolina is going under, the U.S. Department of the Treasury is considering bailing out Bob’s Bank by buying it. Here’s the Washington Post’s take on this excellent new obligation you and I are about to take on: ‘The Bush administration is hammering out the final details of a plan that would allow the government to inject cash into banks in exchange for ownership stakes in an effort to shore up confidence in the faltering financial system, according to officials and sources who have been in contact with the Treasury Department.’ I do not want to own Bob’s Bank. Or any other bank. Especially if the geniuses who have been running the bank have run the bank into the ground. What am I missing here? If you read the WashPost’s report on what the Administration is now proposing, you and I are going to be on the hook for the banks’ bad loans. But, because our money is not THEIR money, the Post reports ‘What is less clear is what strings would be attached, particularly regarding the compensation of top executives at participating banks.’ Here’s my plan for compensation of top execs at participating banks: Nothing. Nada. Zero. Bubkis. Not a farthing. If those executives don’t like my compensation plan? They can quit. They can leave in a huff. If they don’t like that, they can leave—in the words of the Marx Brothers—they can leave in a minute an a huff. We’ll get someone else. How about the guy who slices the bagels at the breakfast place on Pennsylvania Avenue? He cannot possibly do any worse than the slug with an MBA from Harvard. Am I wrong? I want the people who got us into this mess drawn and quartered. I do not want them to go to the Spa at some five star hotel in California on my dime. Or yours.” —Rich Galen

pax
15-10-2008, 12:42 PM
The problem of course is that the crisis has grown much bigger than the original protagonists. The entire banking system is under pressure, not just the culprits of the subprime debacle. If left to it's own devices, we could have the entire banking system collapsing around us. Rich Galen obviously relishes that thought.

Basil
15-10-2008, 10:42 PM
Via e-mail from Garrett:


Once upon a time in a village in India, a man announced to the villagers that he would buy monkeys for $10.

The villagers seeing there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts.
The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.

In the absence of the man, the assistant told the villagers: 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50.'

The villagers squeezed together their savings and bought all the monkeys.
They never saw the man, or his assistant, again, only monkeys everywhere!

WELCOME TO WALL STREET, SUCKERS.

Capablanca-Fan
16-10-2008, 11:12 AM
Chairman KRudd bashes banks in populist mood (http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/bash_the_greedy_scapegoat/), and ignorantly blames crisis on capitalism.

Thomas Sowell points out (http://townhall.com/Columnists/ThomasSowell/2008/10/01/penny-wise_politics):


In the midst of a major national financial crisis, what was one of the first things Congress [and now the KRudd government] zeroed in on? The pay of Chief Executive Officers of financial institutions.

If all those CEOs agreed to work for nothing, that would not be enough to lower the bailout money by one percent. Anyone who was really serious would start with the 99 percent and let the one percent come later, if at all.

But however insignificant the pay of CEOs is economically, it is big stuff politically. Whatever the shortcomings of the Democrats [and Layba], they are consistent in their message, and class envy is a great part of that message.

....

What really sets some people off is the fact that a CEO who has mismanaged some corporation into losing billions of dollars is rewarded with a severance package worth millions.

Think about it. If the CEO's decisions are costing the company billions, it is a bargain to get him out the door immediately for millions, rather than having his departure delayed by either internal struggles or battles in the courts.

It is the same principle if you are married to someone who is impossible to live with. The divorce may cost far more than the marriage — and still be worth every cent of it.

But what about the "social justice" of it all?

Such questions seem to carry great weight with people who act as if they are God on Judgment Day. But one of the little overlooked differences between themselves and God on Judgment Day is that God does not have to worry about what is going to happen the day after Judgment Day.

Rewarding someone for being impossible to live with may offend our feelings, just as rewarding someone for mismanaging a company does. But the real question is — what is the alternative and how will that alternative affect the future?

pax
16-10-2008, 11:39 AM
Chairman KRudd bashes banks in populist mood (http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/bash_the_greedy_scapegoat/), and ignorantly blames crisis on capitalism.

.. which is almost as absurd as trying to blame Obama :hmm: :hmm:

Capablanca-Fan
16-10-2008, 12:28 PM
.. which is almost as absurd as trying to blame Obama :hmm: :hmm:
Why? He was a "Community Organizer" who pressured banks into poor-credit loans, and he was always friendly with Marxists, whose philosophy he loves, as shown recently (http://townhall.com/Columnists/MikeGallagher/2008/10/15/sarah_palin_a_wide_gap_between_what_obama_says_and _what_he_does):


Plumber: “Senator Obama I’m going to have a business that is $280,000 a year. Your new tax plan is going to tax me more, isn’t it? You want to tax me. Why do you want to do that?”

Obama: It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance at success too. I think that when you spread the wealth around it’s good for everybody.

Marx was more elegant:


From each according to his abilities, to each according to his needs.

Of course, leftist policies result in less wealth to go around. Unfortunately, in a recession such envy-reeking policies of hurting the "rich" will be popular although they won't do a thing to help the "poor".

pax
16-10-2008, 06:05 PM
Why? He was a "Community Organizer" who pressured banks into poor-credit loans

You crack me up Jono. I can just see the banks bowing down to Barack Obama the "Community Organiser" from South Side Chicago.

Capablanca-Fan
21-10-2008, 11:59 AM
“The government is seeking to buy up shares in healthy, well-run small businesses all across America so it can get those businesses to behave as the government wants them to behave... But isn’t that how we go into this mess—with the government trying to get banks to make more loans? Just as one lie leads to another, imprudent government intervention in the free market leads to further imprudent government intervention in the free market. Each step of the way, we are told we have no choice but to do what the government wants us to do. The original transgression that led us to the current crisis was committed by elected officials in Washington who wanted to buy additional incumbency insurance for themselves by saying to voters: We will help you buy a house. They worked to accomplish this through legislation (such as the Community Reinvestment Act) that pressured banks to make riskier loans and through tax-exempt government-sponsored enterprises Fannie Mae and Freddie Mac, which started buying up riskier loans (so the original lenders did not have to carry the risk) and wrapping them into mortgage-backed securities (which mixed bad loans with good loans)... So we have gone from government pressuring banks to make riskier mortgages, to government-sponsored enterprises buying riskier loans from banks to facilitate even more risky lending, to government buying stakes in the banks themselves... What will be the next unprecedented measure government officials never thought would be necessary?” —Terence Jeffrey (http://patriotpost.us/opinion/entry.asp?entry_id=49037)

Miranda
21-10-2008, 12:50 PM
You crack me up Jono. I can just see the banks bowing down to Barack Obama the "Community Organiser" from South Side Chicago.

:clap: :clap:

Capablanca-Fan
21-10-2008, 01:02 PM
You crack me up Jono. I can just see the banks bowing down to Barack Obama the "Community Organiser" from South Side Chicago.
Maybe you and your new cheerleader Miranda can't, but banks are afraid of being tarred as "racist", even though they weren't. Jesse Jackson is another shakedown artist from way back.

Miranda
21-10-2008, 01:29 PM
Cheerleader? Is that supposed to be an insult? [my twin's cheerleading team won the national championships. they're going to competitions in America next year]

Anyway, if the banks wern't racist, they shouldn't be afraid of beng labelled that. If there's proof that they were, then that's the bank's problem. If they wern't, it will die out soon.

Capablanca-Fan
21-10-2008, 01:41 PM
Cheerleader? Is that supposed to be an insult?
No, a statement of fact.


Anyway, if the banks wern't racist, they shouldn't be afraid of beng labelled that.
What crap. False accusations can be very damaging, hence defamation laws. The problem with accusations like that is the virtual impossibility of disproving a negative.


If there's proof that they were, then that's the bank's problem.
There isn't. The book Vision of the Anointed (http://www.fff.org/freedom/1295h.asp) (1995) by the respected economist Thomas Sowell (http://www.chesschat.org/showthread.php?t=8680) documents how faulty statistics were used to justify this pressure. A major one was the accusation of ‘redlining’ or discriminating against minorities like African-Americans. But Sowell, who is himself African-American, points out major flaws:


If the banks are as greedy as they are accused of being, then all they care about is the colour of the money, not the colour of the lendee.
Exactly the same stats that ‘proved’ discrimination against blacks in favour of whites also ‘proved’ discrimination against whites in favour of Asians, a reductio ad absurdum of the ‘redlining’ argument.
The default rate on loans was about the same in whites and blacks, suggesting that the banks’ lending criteria were rational, taking many things into account that affected ability to pay.



If they wern't, it will die out soon.
Not with shakedown artists fanning the flames, aided by lefties who want an excuse to expand government, such as the Community Reinvesment Act.

Miranda
21-10-2008, 02:04 PM
... sorry?

:P

pax
21-10-2008, 02:56 PM
So if the subprime lending fashion was entirely due to pressure on banks to lend to minorities, and the risk was apparent to everyone involved, tell me this:

Why were international investment banks falling over themselves to get a piece of the subprime market?

MichaelBaron
21-10-2008, 03:08 PM
Why were international investment banks falling over themselves to get a piece of the subprime market?

I think we all know answer to this question :)

Capablanca-Fan
21-10-2008, 03:13 PM
Corporations are just as happy to receive government welfare as anything else :(

The ultimate cause is governments taking money by force from some of its citizens to give to others.

eclectic
21-10-2008, 03:17 PM
Corporations are just as happy to receive government welfare as anything else :(

The ultimate cause is governments taking money by force from some of its citizens to give to others.

good to see you are against the wall street bailout jono ;)

Jim_Flood
21-10-2008, 03:20 PM
There is an alternative view that the CRA of 1997 was the harbinger of doom.

See note 6 on page 5 of this report, which itself is an interesting read.

http://www.bis.org/publ/work259.pdf?noframes=1

The Act only applies to depository institutions, not those big, nasty ex-Masters of the Universe of investment banks which have sort of gone into meltdown.

http://www.ffiec.gov/cra/default.htm

littlesprout85
21-10-2008, 03:26 PM
Ummmm, sprouty totally disagrees with the comments on the false fact of ppl that make more than 250,000 dollars are been punished by taxes & the tax laws. The top three ppl who are the wealthiest ppl stateside said last week on pbs. These top dogs arent being taxed enough , far from it. They laughed and said the the are making even more because their individual taxes arent nothing. And that their corporations are even making more money becuase of the loopholes and such in the current tax laws. In fact they said that the ppl that clean their corporate offices are been taxed more % individually at their income level than they are at the top level of the income bracket they are in. They actually said that they do not know how the lower class actually can make it and to support a family-ufta. They are actually saying that they wish the tax laws were changed so that they(the top in the whole country) were taxed even more on both the ind. and corperate level up to at leasst 32% on both sides.

Also sprout begs to differ on saying that the dem. senator(that was pointed out by jono) and the x. prez(also pointed out by jono)started this whole mess by influencing the banking system. In fact both the dem. senator and x dem. prez were the minority and really had no power what so ever and were in fact sitting both as lame ducks in a senate/congress/house of repersenative/ completly controlled by the republican partay. The x. prez was totally just sitting on top of a rep. ant pile and could do nothing to get anything pass that wasnt already approved by the rep. partay. :(

If you wanna put the blame on something, the fact is that the rep. partay has had the power since 1937 and is totally driving this wreak of a car(economy) into a cement wall. For over 70 years straight the rep. partay has had the majority, while the dem. partay has been in the back seat trying to get something for the reg joe on the streets. :wall:

In order to even get half way back to the way the forefathers intended this whole thing to run right. it will take at least 50 yrs straight of dem. partay control. :clap:

-Sprout85 :)

Capablanca-Fan
21-10-2008, 04:16 PM
Ummmm, sprouty totally disagrees with the comments on the false fact of ppl that make more than 250,000 dollars are been punished by taxes & the tax laws.
They are. As Walter Williams points out (http://townhall.com/columnists/WalterEWilliams/2007/11/14/congressional_and_leftist_lies):


In 2005, the top 1 percent of income earners, those with an annual adjusted gross income of $365,000 and higher, paid 39 percent of all federal income taxes; in 1999, they paid 36 percent.

In 2005, the top 5 percent of income earners, those having an adjusted gross income of $145,000 and higher, paid 60 percent of all federal taxes; in 1999, it was 55 percent. The top 10 percent, earning income over $103,000, paid 70 percent. The top 25 percent, with income of over $62,000, paid 86 percent, and the top 50 percent, earning $31,000 and higher, paid 97 percent of all federal taxes.

What about any argument suggesting that the burden of taxes have been shifted to the poor? The bottom 50 percent, earning $30,000 or less, paid 3 percent of total federal income taxes. In 1999, they paid 4 percent. Congressmen know all of this, but they attempt to hoodwink the average American who doesn't.


The top three ppl who are the wealthiest ppl stateside said last week on pbs. These top dogs arent being taxed enough , far from it. They laughed and said the the are making even more because their individual taxes arent nothing.
Very rich people can avoid taxes by using tax shelters. High tax rates penalize those who are aiming to become rich, and who hire more people.

It's notable that the Dems and Layba are railing against fat-cat CEOs, but not against fatter-cat Hollywood stars, who support the Left.


Also sprout begs to differ on saying that the dem. senator(that was pointed out by jono) and the x. prez(also pointed out by jono)started this whole mess by influencing the banking system. In fact both the dem. senator and x dem. prez were the minority and really had no power what so ever and were in fact sitting both as lame ducks in a senate/congress/house of repersenative/ completly controlled by the republican partay. The x. prez was totally just sitting on top of a rep. ant pile and could do nothing to get anything pass that wasnt already approved by the rep. partay. :(
Come off it. Clinton had a Dem majority to start with, as did Carter. For the last two years, there has been a Dem majority in Congress.


If you wanna put the blame on something, the fact is that the rep. partay has had the power since 1937 and is totally driving this wreak of a car(economy) into a cement wall. For over 70 years straight the rep. partay has had the majority, while the dem. partay has been in the back seat trying to get something for the reg joe on the streets. :wall:
Are you serious? During FDR's disastrous 4-term reign, the Dems had control of both houses. They also had control of both houses from 1954–94, except when the GOP took the senate in the Reagan revolution.


In order to even get half way back to the way the forefathers intended this whole thing to run right. it will take at least 50 yrs straight of dem. partay control.
Not serious. The Forefathers never intended to have such a huge federal government, and the GOP of late has been guilty of expanding it too.

TIMMIK
21-10-2008, 04:44 PM
and the GOP of late has been guilty of expanding it too.
"We have now presided over the largest increase in the size of government since the Great Society," said Sen. John McCain, the Republican candidate vying to replace Mr. Bush in the White House, during the first presidential debate.

littlesprout85
21-10-2008, 08:20 PM
Ummm, Your nutz Jono, FDR didnt have totally control of all three sections of the gov. Not the house/senate/and the congress. He just Had the Backing of all Three,(Rep. & Dem) and And Its a Good thing that he did. Or The World would totally be a different story now. He Totally got the average joe's backing too along with ever rep. and dem. alike. Imagine if he wasnt such a great prez like the one that is in power now.

For example- do the ppl of australia like wat this current adm did to get into this war today. I Think not- But back in the 40's your ppl totally wanted FDR to jump in there and fast. The jap's Were banging on your door -remember. Hitler was runing the blitz every night on your fellow english.
Dont try to think that just because one of our greatest prez's had the majority of all three judicial branches. It Wasnt So.

Now lets just go ahead and jump to our latest ex prez. Its totally not true. The prez before him had all three branches majority (rep.) who by the way is this current prez's daddy. and when Daddy left office-BC didnt have a mojority of any of the branches. As a matter of fact, BC shut the gov down for 68 days straight, told em to think about getting their act together and start voting to cut the outta control rep spending. I was right here and believe meh things came to a crawl. only thing that was up and running was the post office,hospitals and the armed forces. BC was sitting on top of the rep. ant pile that Daddy left him. BC couldnt get nothing passed without a total fight.

When our current x-prez left there wasnt any debt. At that time they tore down the debt clock in NY. and We were 200 billion in the black. Wat did Daddy also leave for BC but a huge debt, daddy out spent all the presidents before him -INCLUDING FDR. So BC our current x-prez did wonders for the country and the world.:clap:

Now onto the current prez, Just Like daddy, only knows how to make $ by going to war. Hmmmm also like his daddy, Outspent all the prez's before him INCLUDING HIS DAD:eek: They have hung the debt clock back up in NY.and ran it up so high that the had to add another 0 too it:rolleyes.

This current prez will continue to Spend til da bitter end.( wants to send out another stimulas package now) Its a good thing that he has lost control of all three branches now. Doesnt have a majority in any, because it could be even worse. This current prez also has frozen all his records for the next 50 yrs. So we will never truly know wat really went on in this time of history. our current ex prez BC is totally transparent because hillery and him opened their records up for the world to see. :clap:

Really the only good point to your counter punching da sprout is that the average joe her LIKE meh is paying high % of Taxes- but that punch was a Sucka Punch cause Meh totally aggreed with you. :whistle:

But da sprout didnt agree with the fact that you think that the top dogs- the top 1% of meh countrys population in earnings doesnt want to pay more- Thats Wat They Said. They wanted to change the tax law and take out the loopholes. The Want tto Help and Give Way -Way More- The Top Dogs Feel sorry for their workers, and THEY WANT TO PAY HIGHER TAXES DUDE. The top dogs want the tax laws changed.To get the loopholes out and pay their fair share. Even if its 50-60 % because 60% of a huge pie is far-far greater earnings than the average joe. We all have to pay our fair share here, and the top dogs want to pay more. :doh:

Capablanca-Fan
21-10-2008, 09:42 PM
FDR didnt have totally control of all three sections of the gov. Not the house/senate/and the congress.
Yes he did. The Dems had a Senate Majority (http://en.wikipedia.org/wiki/United_States_Senate_Majority_Leader) from 1933–1947, 49–53, 55–81, 87–95, most of 2001–03. The Dems had the House (http://en.wikipedia.org/wiki/List_of_Speakers_of_the_United_States_House_of_Rep resentatives) 1931–45, 49–51, 55–93.

And he infamously tried to stack SCOTUS with his supporters. Yet his policies were just grotesque extensions of Hoover's. Hoover was far from a laissez-faire capitalist—he raised taxes and imposed tariffs, just as Obama wants to do.


For example—do the ppl of australia like wat this current adm did to get into this war today. I Think —But back in the 40's your ppl totally wanted FDR to jump in there and fast.
And rightly so. One can agree that FDR was a good war president, but an appalling peacetime president. His constant experimentation helped prolong the depression (http://reason.com/news/show/123476.html), unlike previous and future ones that were over in a year or two. His goons destroyed food to keep prices high, while people were starving.


As a matter of fact, BC shut the gov down for 68 days straight, told em to think about getting their act together and start voting to cut the outta control rep spending.
Gingrich wanted to cut spending. The "Contract with America" was partly about fiscal conservatism. The current crop of the GOP has betrayed this, and paid the price. But the Dems never minded all this spending; Obama supported the Bridge to Nowhere for example.


But da sprout didnt agree with the fact that you think that the top dogs- the top 1% of meh countrys population in earnings doesnt want to pay more- Thats Wat They Said.
Let them pay more then. But they are stupid in thinking that the government is the best place to give their money. In reality, most of the mega-rich exploit loopholes and tax havens, but the high taxes burden their rivals who are not yet as rich.


They wanted to change the tax law and take out the loopholes. The Want tto Help and Give Way -Way More- The Top Dogs Feel sorry for their workers, and THEY WANT TO PAY HIGHER TAXES DUDE.
Only eccentric billionaires. Most wealthy people would rather pay wages to their workers, expand their businesses, and donate to efficient charities rather than bloat the grossly inefficient government even further.


The top dogs want the tax laws changed.To get the loopholes out and pay their fair share. Even if its 50-60 % because 60% of a huge pie is far-far greater earnings than the average joe.
But punishing the wealthy won't help the average joe, since small businesses employ many average joes and provide goods that the average joe wants to buy. Hoover and Roosevelt also loved high taxes.


We all have to pay our fair share here, and the top dogs want to pay more. :doh:
No, only a few leftist eccentric billionaires, and they really want to be allied with a more powerful government.

TheJoker
22-10-2008, 09:44 AM
Walter Williams points out:


In 2005, the top 1 percent of income earners, those with an annual adjusted gross income of $365,000 and higher, paid 39 percent of all federal income taxes; in 1999, they paid 36 percent.

In 2005, the top 5 percent of income earners, those having an adjusted gross income of $145,000 and higher, paid 60 percent of all federal taxes; in 1999, it was 55 percent. The top 10 percent, earning income over $103,000, paid 70 percent. The top 25 percent, with income of over $62,000, paid 86 percent, and the top 50 percent, earning $31,000 and higher, paid 97 percent of all federal taxes.


The shift can be explained by real income growth. Those in the higher brackets experienced significant real income growth whilst those in the bottom 5 percent experienced zero real income growth. This will cause the tax burden to shift even with a flat (non-progressive) tax rate.

Given below is a fictional example even with a flat tax rate of 10%

1999
Real Income A: $300,000
Tax A: $30,000 (91%)

Real Income B: $30,000
Tax B: $3,000 (9%)

2005 (only A's real has grown)
Real Income A: $400,000
Tax A: $40,000 (93%)

Real Income B: $30,000
Tax B: $3,000 (7%)

So unless Williams wants to correct the brackets for real income growth, the statistics say nothing about government taxation policy. The tax burden is shifting because the income distribution is shifting.

Capablanca-Fan
22-10-2008, 10:36 AM
The shift can be explained by real income growth. Those in the higher brackets experienced significant real income growth whilst those in the bottom 5 percent experienced zero real income growth. This will cause the tax burden to shift even with a flat (non-progressive) tax rate.

Given below is a fictional example even with a flat tax rate of 10%

1999
Real Income A: $300,000
Tax A: $30,000 (91%)

Real Income B: $30,000
Tax B: $3,000 (9%)

2005 (only A's real has grown)
Real Income A: $400,000
Tax A: $40,000 (93%)

Real Income B: $30,000
Tax B: $3,000 (7%)

So unless Williams wants to correct the brackets for real income growth, the statistics say nothing about government taxation policy. The tax burden is shifting because the income distribution is shifting.
And one reason the real income is shifting is that the tax rates were reduced, which encourages more economic activity. I regard income growth as a good thing, since this is NOT at the expense of the lower income groups, but lefties only see the increasing economic inequality as if it were a zero-sum game.

The fact remains that the top American income earners are paying the bulk of income tax already, while the bottom half pay no income tax. So the Obamessiah was stretching the truth to promise tax cuts for 95% of all Americans.

"They are always under the dominion of the superstition of government, and forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion — that the state cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it. This latter is the Forgotten Man." — William Graham Sumner

TheJoker
22-10-2008, 01:50 PM
And one reason the real income is shifting is that the tax rates were reduced, which encourages more economic activity. I regard income growth as a good thing, since this is NOT at the expense of the lower income groups, but lefties only see the increasing economic inequality as if it were a zero-sum game.

No-one said it was at the expense of the lower class. It's about making sure the income growth is sustainable and does not fuel inflation (hence progressive taxation).

What is an appropriate level of tax revenue is generally measured as percentage of real GDP, and therefore growth income requires growth in tax revenue.

If you could show that tax revenue is rising faster than real income growth, then I'd agree with you tax cuts may be warranted. But I'd also caution against make tax cuts to hastily for two reasons. Firstly radical changes n tac policy are likley to cause short run inflation/deflation as suply tries to catch up with the new levels of demand. Secondly you actually want to ensure that the government is going to be able to maintain or better still increase expenditure/transfers in a recessionary period without going into massive debt. Otherwise a reduction in government expenditure will further exacerbate the recession.


The fact remains that the top American income earners are paying the bulk of income tax already, while the bottom half pay no income tax.

And that is far since they are earning the bulk of the income.


state cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it

This is incorrect the government can print money. Of course this leads to deflation in the value of currency, but still the quote is wrong.

Secondly I'd point out the importance of tax as an insurance policy against recession, civil unrest and of course against personal misfortune. Do not underestimate the positive benefits of a welfare system and adequete regulation has on consumer confidence. Also that a budget surplus in a boom period can be used as a stimulus pacakage in a recession. This lessens the volatility of private investment.

Zwischenzug
22-10-2008, 02:37 PM
This is incorrect the government can print money.

The Federal Reserve in the US is the organization that prints money and it is separate from the government. It is a PRIVATE entity.

Capablanca-Fan
22-10-2008, 03:09 PM
No-one said it was at the expense of the lower class. It's about making sure the income growth is sustainable and does not fuel inflation (hence progressive taxation).
Inflation is caused by government spending and printing money, not because some people are earning a lot.


What is an appropriate level of tax revenue is generally measured as percentage of real GDP, and therefore growth income requires growth in tax revenue.
Why? It would be better to identify what the government must spend on within current revenue limits, and take no more than what is required.


If you could show that tax revenue is rising faster than real income growth, then I'd agree with you tax cuts may be warranted. But I'd also caution against make tax cuts to hastily for two reasons. Firstly radical changes n tac policy are likley to cause short run inflation/deflation as suply tries to catch up with the new levels of demand.
Reagan pointed out in his debate with Carter that the cause of inflation was not the people living too well but the government living too well.


And that is far since they are earning the bulk of the income.
But they are taxed at a higher rate as well, so their taxes are disproportionately high compared to their income.


This is incorrect the government can print money. Of course this leads to deflation in the value of currency, but still the quote is wrong.
It was right at the time of writing (late 19th century), before the government printed money. The principle still stands though: the government doesn't produce any real money: it either takes from someone else directly, or takes money indirectly from the population by printing more which leads to inflation as you say, which is tantamount to stealing the value of everyone's money.


Secondly I'd point out the importance of tax as an insurance policy against recession, civil unrest and of course against personal misfortune. Do not underestimate the positive benefits of a welfare system and adequete regulation has on consumer confidence. Also that a budget surplus in a boom period can be used as a stimulus pacakage in a recession. This lessens the volatility of private investment.
Sounds nice, but remember Bastiat's point about what is NOT seen: sure, we can see the benefits of government spending, but we don't see the spending by the private sector that would have occurred if the government had not confiscated its money.

TheJoker
22-10-2008, 03:19 PM
The Federal Reserve in the US is the organization that prints money and it is separate from the government. It is a PRIVATE entity.

Wrong the US Bureau of Engraving and Printing prints the money (notes only coins are produced by the Mint). The Federal Reserve is responsible for issuing the currency to the banking system. The government owns the currency and has the rights to produce the currency. I am not sure if there is a legal impedement preventing the Government from printing currency for its own use independant of the Fed? Regardless a government could easliy pass new legislation, unless something is written into the consitution.

TheJoker
22-10-2008, 03:53 PM
Inflation is caused by government spending and printing money, not because some people are earning a lot.

Demand-pull inflation, look it up. It will be in any high school economics text.:rolleyes:


Why? It would be better to identify what the government must spend on within current revenue limits, and take no more than what is required.

Leakage and injection stabilisers again that high school economics text will straighten that out for you.



Reagan pointed out in his debate with Carter that the cause of inflation was not the people living too well but the government living too well.

Actually either can result in demand-pull inflation.



But they are taxed at a higher rate as well, so their taxes are disproportionately high compared to their income.

Again it not about some concept of "individual fairness", it is about preventing demand-pull inflation, and providing necesary leakage and injection stabilisers to facilitate smooth and sustainabe economic growth.



It was right at the time of writing (late 19th century), before the government printed money. The principle still stands though: the government doesn't produce any real money: it either takes from someone else directly, or takes money indirectly from the population by printing more which leads to inflation as you say, which is tantamount to stealing the value of everyone's money.

I think you mean wealth not money.


Sounds nice, but remember Bastiat's point about what is NOT seen: sure, we can see the benefits of government spending, but we don't see the spending by the private sector that would have occurred if the government had not confiscated its money.

Actually that is the whole point of taxation, private sector investing is to volatile. There is to much investment in boom periods causing demand-pull inflation and a huge contraction during recessions. Progressive taxation cools off the private investing during the booms; and increased spending (funded by previous surpluses) stimulates the economy during a recession. Government spending acts as a counter balance to private investment to smooth out cyclical fluctuations.

So not only does it sound good, but it works in practice; Provided that the government does two things (which it often fails to do);

- Run a budget surplus during the boom periods rather than the more politically popular option of returning the extra revenue in tax cuts or government transfers.

- Don't overspend on ideological/popluar initiatives during periods of growth e.g. the Iraq war which has left the US with a huge budget deficit. Now that a recession has arrived theve got no reserves to increase spending.

Capablanca-Fan
22-10-2008, 06:31 PM
Demand-pull inflation, look it up. It will be in any high school economics text.:rolleyes:
That seems to be about your level, which is hardly surprising given the leftist slant of teachers unions, but this is Keynesianism, and also historically used to justify unemployment with the "Phillips curve".


I think you mean wealth not money.
Point remains: government can't generate wealth, only transfer it. Printing money is just a form of wealth transfer, but more insidious. This has been realised in the last two decades/


Actually that is the whole point of taxation, private sector investing is to volatile.
Really? A bit of volatility wouldn't be a bad thing, getting rid of the dregs quickly instead of propping them up artificially and merely putting off a far worse fall.


There is to much investment in boom periods causing demand-pull inflation and a huge contraction during recessions. Progressive taxation cools off the private investing during the booms; and increased spending (funded by previous surpluses) stimulates the economy during a recession.
Oh yeah, worked really well with FDR.


- Run a budget surplus during the boom periods rather than the more politically popular option of returning the extra revenue in tax cuts or government transfers.
Tax cuts put more money in people's pockets to spend more, which helps businesses that the public wants rather than what politicians want. And businesses hire people.


- Don't overspend on ideological/popluar initiatives during periods of growth e.g. the Iraq war which has left the US with a huge budget deficit.
This was war supported by most Dems at the time, and it was largely due to the propaganda of Obama's new worshipper Colin Powell.

littlesprout85
22-10-2008, 06:49 PM
Lets see again about this Rederic about FDR. Ok jono FDR was only in office for 3 terms not 4. 12 years is 3x 4 =12 :hmm: Also jono wats your point- meh is saying that dem had true power in 1937 during FDR's Term.:doh:

Also you are confused jono on the point sprout was making. Just because one branch of the gov. Say the house of rep. has a majority of dem- say 56-44% majority. Thats not wat meh is pointing out. Sprout is saying that in order to have True power- All THREE Branches + the prez have the same majority. When this occurs the prez totally can get alot done.(passing anything he wants)

Wow clinton had a slim majority in the congress-no majority in the other two branches(2 outta 4). Wat good will that do him. Congess is in charge of upholding the laws of the country. Not in making the laws or passing the laws into office. The house makes the Bill. The senate passes it or puts the bill back to the house. If the bill passes the senate. Then it moves to the prez to either pass it into law,or veto. The bill still isnt dead yet thou. If it passes up again it makes it into law. Sprouty was talking on a bigger term of True Power(4 outta 4). All Three Branches must be in democratic control along with the dem. prez. That hasnt happened since 1937, FDR's terms in office.That True dem Power was short lived. Meh is getting these facts from 4 univerity professors in the us. on the Charlie Rose Show on pbs. The rep. partay has had that true power and control during this current prez's term. Also his Dad had set up the same true power back in his 2 terms as prez. the Prez inbetween mr. BC had only one branch that only had a slim majority(2 outa 4). :whistle:

The forefathers intended to has the power of both partays swing on a pendulum, back and forth thru history. It truly hasnt swung totally to the dem side since the 1937. and that swing didnt last that long bud. The Rep. side has had True Power ever since that part of FDR's term. Now this election cycle is where True Power in coming into effect for the dem. partay. Truly its about time the pendulum swings to the dem.side. This country is only 227 years old. and before Lincoln there wasnt two partays. The Majority of the timeline in this countrys history line has been under Rep. control Thats a fact.:clap:

Sprout85 :)

Capablanca-Fan
22-10-2008, 07:08 PM
Lets see again about this Rederic about FDR. Ok jono FDR was only in office for 3 terms not 4. 12 years is 3x 4 =12 :hmm:
Please read history: FDR was elected for a fourth term and died in office.


Also jono wats your point- meh is saying that dem had true power in 1937 during FDR's Term.:doh:
I documented that the Dems had the majority in both Senate and House for FDR's reign.

It is very bad to have unchecked power, yet that's what the Dems will have if Obama wins.

TheJoker
22-10-2008, 10:17 PM
Point remains: government can't generate wealth, only transfer it.

Well again that is not exactly true either. State owned and operated industry can certainly generate wealth. I think what you want to say is that a majoirty of the process of governance involves the redistribution of wealth.



Really? A bit of volatility wouldn't be a bad thing, getting rid of the dregs quickly instead of propping them up artificially and merely putting off a far worse fall.

Actaully its a serious problem because of what it does to consumer/investor confidence. Lack of confidence seriously inhibits long-term economic growth.



Oh yeah, worked really well with FDR.

Not familiar with the FDR case so I wont comment.



Tax cuts put more money in people's pockets to spend more, which helps businesses that the public wants rather than what politicians want. And businesses hire people.

Yes but you dont want them spending more if the economy is already operating at full capaciy (i.e. full employment) otherwise you get inflation. For example you get pressure on wages as well as workers are harder to find causing cost push inflation.

Successful economies like Australia recognise this



This was war supported by most Dems at the time, and it was largely due to the propaganda of Obama's new worshipper Colin Powell.

I couldn't care who supported it. It has been a huge drain on the US budget deficit.

Capablanca-Fan
23-10-2008, 06:50 PM
The Bailout Reader at Mises.org (http://mises.org/story/3128), a free-market group (supporting Ludwig von Mises' Austrian School of Economics), has a collection of articles that warned of the problems long ago. e.g.:

Fannie Mae Distorts Markets (http://mises.org/story/986) (2002):

[Obama's budy, former Fannie CEO Franklin] Raines may be in a dream business, but the net result of Fannie Mae’s actions in the credit markets is a nightmare of resource misallocation and massive systemic risk.

Who Made the Fannie and Freddie Threat? (http://mises.org/story/1463) (2004):

On Tuesday February 24, 2004, the chairman of the Federal Reserve, Alan Greenspan, in his testimony to the Senate Banking committee, issued a warning that Fannie Mae and Freddie Mac—the two giant mortgage buyers—have grown so large that they pose a threat to the entire financial system. To reduce this threat the Fed chairman recommends that Congress cap their size. In this regard, in Q4 the assets of Fannie Mae stood at over $1 trillion.

...

Consequently, the attempt to rein into the size of the monster leads to an economic bust. Now, contrary to conventional wisdom the bursting of the bubble is the beginning of economic healing. It arrests the bleeding of real wealth generators and puts things into a proper perspective.

...

There is a strong likelihood that the U.S. housing market bubble has already reached dangerous dimensions. The trend adjusted house price index has been following an explosive growth path. After falling to -44 in Q2 1997 the trend adjusted house price index jumped to +60 in Q4 2003.

Fannie Mae: Another New Deal Monstrosity (http://mises.org/story/2627) (2007)

Fannie Mae is not a free-market entity, nor is it a private body that must compete on the same playing field as its competitors. Fannie Mae is representative of all that's wrong with central planning institutions: it is a government-created conduit for carefully crafted financial and market socialism that the bureaucrats uphold for the purpose of propping up their fantasies for pandemic social engineering.

There's nothing "American" about this dream. In the eyes of the Republic's visionaries, this particular dream has turned into a nightmare.

littlesprout85
23-10-2008, 07:44 PM
Ahhhh, Meh Thinking that Jono is starting to agree on the FDR subject, meh was just mis interpeting all the punches thrown and meh have a fever still :::doh:

Now on to this subject of the financial crises and the point that jono has been bringing up^

Dont blame the lenders for the economic crises. They are in the business of lending. Its not the lenders fault if 90% of the population is in debt.

Its truly the ppls fault that are barrowing. They are the ones that are spending more than wat they earn on a yearly basis. Thus its the ppls fault and they themselves are the root of this evil. This practice is causing this current financial crises and the housing crises along with the credit crises we are all truly feeling now.:wall:

It is Not the lenders fault at all, they are lending to the top 10% that are outta debt. But the top !0% (which sprouty is a part of) Doesnt want a loan because we have the means to grow. So The lenders really have no choice but to lend to the other 90% of the ppl( debters) If the lenders have the flow they will lend it- otherwise this crises would be far more reaching and devistating if the credit, housing,financial markets freezes up completely -Duh.:rolleyes:

-Sprout85 :)

Axiom
23-10-2008, 07:47 PM
Wall Street's 'Disaster Capitalism for Dummies'
14 reasons Main Street loses big while Wall Street sabotages democracy
By Paul B. Farrell, MarketWatch
7:10 p.m. EDT Oct. 20, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- Yes, we're dummies. You. Me. All 300 million of us. Clueless. We should be ashamed. We're obsessed about the slogans and rituals of "democracy," distracted by the campaign, polls, debates, rhetoric, half-truths and outright lies. McCain? Obama? Sorry to pop your bubble folks, but it no longer matters who's president.
Why? The real "game changer" already happened. Democracy has been replaced by Wall Street's new "disaster capitalism." That's the big game-changer historians will remember about 2008, masterminded by Wall Street's ultimate "Trojan Horse," Hank Paulson. Imagine: Greed, arrogance and incompetence create a massive bubble, cost trillions, and still Wall Street comes out smelling like roses, richer and more powerful!



Yes, we're idiots: While distracted by the "illusion of democracy" in the endless campaign, Congress surrendered the powers we entrusted to it with very little fight. Congress simply handed over voting power and the keys to trillions in the Treasury to Wall Street's new "Disaster Capitalists" who now control "democracy."
Why did this happen? We're in denial, clueless wimps, that's why. We let it happen. In one generation America has been transformed from a democracy into a strange new form of government, "Disaster Capitalism." Here's how it happened:

*
Three decades of influence peddling in Washington has built an army of 42,000 special-interest lobbyists representing corporations and the wealthy. Today these lobbyists manipulate America's 537 elected officials with massive campaign contributions that fund candidates who vote their agenda.
*
This historic buildup accelerated under Reaganomics and went into hyperspeed under Bushonomics, both totally committed to a new disaster capitalism run privately by Wall Street and Corporate America. No-bid contracts in wars and hurricanes. A housing-credit bubble -- while secretly planning for a meltdown.
*
Finally, the coup de grace: Along came the housing-credit crisis, as planned. Press and public saw a negative, a crisis. Disaster capitalists saw a huge opportunity. Yes, opportunity for big bucks and control of America. Millions of homeowners and marginal banks suffered huge losses. Taxpayers stuck with trillions in debt. But giant banks emerge intact, stronger, with virtual control over government and the power to use taxpayers' funds. They're laughing at us idiots!

Amazing isn't it, Wall Street's Disaster Capitalists screwed up, likely planned or let happen this meltdown and recession. Yet America's clueless taxpayers just reward them by giving the screw-ups massive bailouts, control over more than $2 trillion of tax money, and the power to clean up the mess they made. Oh yes, we are dummies!
This end game was planned for years in secret war rooms on Wall Street, in Corporate America, in Washington and the Forbes 400. Democracy is too cumbersome. It had to be marginalized for Disaster Capitalism to take over. Reagan, Bush and Paulson were Wall Street's "Trojan Horses."
Naomi Klein summarizes the game in "Shock Doctrine: the Rise of Disaster Capitalism." This "new economy" generates enormous profits feeding off other peoples' misery: Wars, terror attacks, natural catastrophes, poverty, trade sanctions, subprime housing meltdowns and all kinds of economic, financial and political disasters. Natural (Katrina) or manmade (Iraq), either way "disaster capitalism" creates fortunes.
So you, me and the other 300 million better get out of denial. America is no longer a democracy. Voting is irrelevant. Best case scenario: We're a plutocracy, a government ruled by the wealthy, the richest 1%, the Forbes 400, the influential wealthy elite, while the other 99% are their "servants." Meanwhile, the inflation-adjusted income of wage-earners has declined for three decades.
Worst case scenario: America's no democracy and as a result of the meltdown and the surrender of our power to Wall Street's new Disaster Capitalism we are morphing into what one WWII dictator called "corporatism," a "merger of state and corporate power," kind of like what's going on now with Goldman Sachs' ex-boss as de facto president.
Wolves in sheep's clothing

We know for the last eight years disaster capitalists ignored obvious warnings of a coming meltdown. They apparently planned it. They road the bull, got very rich. Now they have the ultimate disaster capitalist weapons, trillions in tax money, virtual control of government.
That's why I fear we're on the edge of a dangerous line between Wall Street's version of disaster capitalism and a toxic "merger of state and corporate power." The wolf is in sheep's clothing. Wall Street pretends we're a democracy. Yet America more closely resembles the kind of "corporatism" that Laurence W. Britt wrote about five years ago in Free Inquiry magazine.
We adapted his historical analysis of 14 key traits for today's discussion. Notice how they have a huge impact your investments and retirement:
1. Wall Street rich get first priority
Think "bailout." Wall Street's greedy con game spins out of control globally. Millions of homeowners misled, lose. Who gets hundreds of billions first? Wall Street's con men.
2. National security obsession
Think of the expansion of executive powers in the name of national security: Preemptive wars, wiretapping private citizens, Gitmo, torture; driven by a dark wealthy neocon elite.
3. Superpower with massive military
Think of our $3 trillion Iraq/Afghan War. Disaster capitalists love the thrill of military power. We outspend all nations, over half the federal budget to strut before the world.
4. Extreme nationalism
Signs are everywhere: Flags, lapel pins, "support the troops" slogans, all to get huge military budgets passed. Challenge them and you're un-American and unpatriotic.
5. Rally the masses by scapegoating enemies
Think "axis of evil," mushroom clouds, "Islamofascists," more terrorist attacks on the homeland. Propaganda creates "enemies" in the public's mind and distracts from real issues.
6. Corruption and cronyism
Think earmarks, no-bid defense contracts, paid mercenaries outnumbering military in Iraq, superlobbyist Jack Abramoff, biofuels, bridge to nowhere, millions donated to campaigns.
7. Obsession with crime
Think of prison-building as just another investment opportunity, rather than focusing on reforming our criminal justice system. Stoke irrational fear of criminals and extremists.
8. Labor and low wages
Think corporate earnings versus the wages paid to workers. No "trickling down," leaves more for tricklers: Rich insiders, stockholders. Wages dropping as CEO salaries skyrocket.
9. Contempt for human rights
Think of abuses of habeas corpus, loss of right to trial, bogus charges, plus "demonizing" the victims, all in the name of national defense and homeland security.
10. Mass media manipulation
Think of leaking false information, Joseph Wilson, Valerie Plame, Scooter Libby, Colin Powell's United Nation's testimony, Condoleezza Rice's mushroom clouds, WMDs, all to suppress the truth.
11. Obsession with sexism
Think of paternalism, antigays, antiabortion, subordinate women -- then codify the system as the law of the land reinforcing a male-dominated society, punish violators.
12. Disdain for intellectuals
Think of conservative intellectuals Francis Fukuyama and Bill Buckley. Contrast them to Sarah Palin and Joe Sixpack conservatism, Bush's funding cuts for arts and science education.
13. Religion in government
Think of all the faith-based programs versus antiscience in drug approvals, creationism vs. evolution, Ten Commandments enshrined in public buildings, public money to churches.
14. Fraudulent elections
Think of police and prosecutorial intimidation and threats to voters, challenging minority voters, ballots disappearing, party election officials committing outright fraud.
Yes, officially America is still a democracy. We have enough signs and rituals to support that illusion. But the truth is America has become a plutocracy run by and for the wealthy. And since Wall Street's Disaster Capitalism coup de grace, we are rapidly morphing into a dangerous new government.
For more, read Britt's original article, then add comments here: Was the meltdown planned by Wall Street's Disaster Capitalists? End of Story
http://www.marketwatch.com/news/story/14-reasons-main-street-loses/story.aspx?guid=%7BF63EC448%2DD9C1

Miranda
23-10-2008, 07:55 PM
Ax: that's just paranoia.

Axiom
23-10-2008, 07:56 PM
Ax: that's just paranoia.
Well, no , it was mainstream "Market Watch" ! :doh: :wall:

littlesprout85
23-10-2008, 08:05 PM
Wow, Spoken like Sproutys true Hero here at chesschats.;)

Sprout totally agrees with the axman on this subject. Meh for one wanted to see every bank fall into ruins, along with every person that is in debt. To Live Beyond ones means is ludacris. And to be bailed out Time to time again and let the ppl who arent in debts pay the bills. What kinda society is this. :wall:

It is a society that says go ahead and declare bankrupcy 3 times and the 4th one is free. How in the heck can we be proud to be in this such society. Individuals arent held accountable anymore. Banks arent accountable.Wall Street can throw a Partay everyday of the week and they know now that the gov is going to bail em out. HEck they even throw more partays after getting bailed out :0

This Borrowing from china,in order to buy oil from da middle east- only to burn it up Has To STOP. To keep incouraging this as an stimulus will just create a carbon nightmare that will make this current financial crises a walk in the park. In 10 years if this practice of borrow-buy-burn continues- youll need to invest in a spacesuit w/oxygen tank to walk in da park.:whistle:

-Sprout85 :)

Capablanca-Fan
23-10-2008, 09:12 PM
Sprout totally agrees with the axman on this subject. Meh for one wanted to see every bank fall into ruins, along with every person that is in debt. To Live Beyond ones means is ludacris. And to be bailed out Time to time again and let the ppl who arent in debts pay the bills. What kinda society is this. :wall:
Yeah, and the Community Reinvestment Act bullied lenders into lending to borrowers living beyond their means.


It is a society that says go ahead and declare bankrupcy 3 times and the 4th one is free. How in the heck can we be proud to be in this such society. Individuals arent held accountable anymore. Banks arent accountable.Wall Street can throw a Partay everyday of the week and they know now that the gov is going to bail em out. HEck they even throw more partays after getting bailed out :0
Yeah, I agree here (if I understood you right :O)

Davidflude
24-10-2008, 12:04 AM
Allways go for a stuff up rather than a conspiracy. Conspiracies are incredibly difficult to organize, coordinate and so much can go wrong. Just look at how many failed attempts were made to kill Hitler.

Capablanca-Fan
25-10-2008, 02:27 PM
Allways go for a stuff up rather than a conspiracy. Conspiracies are incredibly difficult to organize, coordinate and so much can go wrong. Just look at how many failed attempts were made to kill Hitler.
Very wise advice, David.

littlesprout85
28-10-2008, 06:10 PM
Realize that sproutys country of orgin the gov. is only like in control(regulates) of 10-15% ofthe population up until this financial crises. Where on the other side of the pond-lets say a country like Germany. Germany has enjoyed a grand financial growth(country wealth) and they citizens enjoy universal healthcare as well as a big social safety net. In Germany there gov is in control (Regulation) 50-60% of their ppls lives.:cool:

To compare the two-FAR CRY:doh: It is a good thing to have a Lil More gov. Regulation. Especially if the whole world in buying into stateside markets. Also to have basically a broken safety net where the average joe is denied basic healthcare and turned away from hospitals is simply unacceptable-Especially when the Illegals Get free Healthcare and arent even part of this country where sprouty resides.:wall:

-Sprout85 :)

Capablanca-Fan
28-10-2008, 08:04 PM
Europe has more unemployment than America. America's crisis was caused by too much government interference in the market, not too little. Evidently the green sprout doesn't believe in freedom.

Capablanca-Fan
29-10-2008, 04:49 PM
Wackonomics (http://townhall.com/Columnists/WalterEWilliams/2008/10/29/wackonomics)
by Walter E. Williams
29 October 2008

For the U.S. Congress, news media, pundits and much of the American public, a lot of economic phenomena can be explained by what people want, human greed and what seems plausible. I'm going to name this branch of economic "science" wackonomics and apply it to some of today's observations and issues.

Since July this year, crude oil prices have fallen from $147 to $64 a barrel. Similarly, average gasoline prices have fallen from over $4 to a national average of $2.69 a gallon. When crude oil and gasoline were reaching their historical highs, Congress and other wackoeconomists blamed it on greedy oil company CEOs in their lust for obscene profits. But what explains today's lower prices? The only answer, consistent with wackonomic theory, is easy: Oil company CEOs have lost their lust for obscene profits. Or, maybe, since many of these CEOs are getting up in years, they might have begun to heed Matthew's warning (19:24), "It is easier for a camel to go through the eye of a needle than for a rich man to enter into the kingdom of God."

Speaking of CEOs, there's the "unconscionable," "obscene" salaries they receive, in some cases over $10 million a year. Wackonomics has an easy answer for these high salaries: it's greed. However, CEOs don't have the corner on greed. There are other greedy people we don't scorn but hold in high esteem. According to Forbes' Celebrity 100 list, Oprah Winfrey receives $275 million, Steven Spielberg gets $130 million, Tiger Woods $115 million, Jay Leno $32 million and Dr. Phil $40 million. I need to talk to these people and learn their strategy. I've been making every effort to get that kind of money. I go to bed greedy, dream greedy dreams, awaken greedy and proceed through the day greedy. Despite my heroic efforts, it's all been for naught; I earn a pittance by comparison.

Wackonomics can help us understand what some people call the income distribution. The logical extension of wackonomic thought is that the unequal or unfair distribution of income is the handiwork of a dollar dealer who distributes dollars. The dollar dealer might deal one person a million dollars a year while dealing most others a mere pittance like $10, $20 or $30 thousand a year. Thus, the reason why some people are wealthy while others are poor is because the dollar dealer is a racist, sexist, a multi-nationalist, or just plain mean. Economic justice requires a re-dealing of the dollars, income redistribution or spreading the wealth, where the government takes the ill-gotten gains of the few and returns them to their rightful owners. Wackonomics might have a greed-based explanation for income inequality. There is a pile of money called income and greedy people got there first and took their unfair share. Similarly, economic justice requires a redistribution of income.

....

littlesprout85
29-10-2008, 06:32 PM
Meh Really Cant Believe you would question meh Believe in FREEDOM !!!!

(Sprouty breaks out da Gibson in Memory of Jimmi Hendrix . . )

Wat Did Da Man Believe in- The FReedom of Speech . . . .. .. Sprout lost a good friend in this War. He Believes in the everyone has right to the freedom of speech. One you are enjoying here undoubtably Jono. :'(

-Sprout85 :)

Kevin Bonham
29-10-2008, 10:23 PM
America's crisis was caused by too much government interference in the market, not too little.

Too much and too little might be more to the point.

Capablanca-Fan
30-10-2008, 12:40 AM
Too much and too little might be more to the point.
How so? Too much back then and too little now? But even this bailout, said to be essential to preserve the sharemarket, hasn't stopped it crashing.

Davidflude
30-10-2008, 01:13 AM
The book to read is "Freakonomics"

It answers questions such as

"Why do drug dealers live with their mothers?"

"Where have all the criminals gone?"

"Is Sumo wrestling rigged?"

Kevin Bonham
30-10-2008, 08:32 AM
How so? Too much back then and too little now?

Too much back then in some places and too little back then in others. Governments acting for political reasons and getting their paws into sectors where the risk can and should be shouldered by private business, but at the same time failing to adequately regulate sectors where the collapse of speculation bubbles can have dire ramifications for the general public. Even Greenspan is now saying he was wrong on this.

Capablanca-Fan
30-10-2008, 01:18 PM
The book to read is "Freakonomics"
But in reality, the book to read is Freedomnomics by Dr John Lott (http://econlog.econlib.org/archives/2007/06/plenty_to_like.html), an answer to that.

TheJoker
30-10-2008, 01:47 PM
The book to read is "Freakonomics"


The book to read is "Freedomnomics"

Actually both are written by accomplished economists, so you probably want to read both to get a diversity of opinion

Capablanca-Fan
05-11-2008, 03:53 PM
Capitalism and the Financial Crisis (http://townhall.com/Columnists/WalterEWilliams/2008/11/05/capitalism_and_the_financial_crisis)
by Walter E. Williams
5 Nov 08

...
Professor George Reisman has written a very insightful article on his blog titled "The Myth that Laissez Faire Is Responsible for Our Financial Crisis (http://georgereisman.com/blog/2008/10/myth-that-laissez-faire-is-responsible.html)". You can decide whether we have in an unregulated laissez-faire economy. There are 15 cabinet departments, nine of which control various aspects of the U.S. economy. They are the Departments of: Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce, and Interior. In addition, there is the alphabet soup cluster of federal agencies such as: the IRS, the FRB and FDIC, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA.

Here's my question to you: Can one be sane and at the same time hold that ours is an unregulated laissez-faire economy? Better yet, tell me what a businessman, or for that matter you, can do that does not involve some kind of government regulation. A businessman must seek government approval for the minutest detail of his operation or face the wrath of some government agency, whether it's at the federal, state or local level. Just about everything we buy or use has some kind of government dictate involved whether it's package labeling, how many gallons of water to flush toilets or what pharmaceuticals can be prescribed. You say, "Williams, there's a reason for this government control." Yes, there's a reason for everything but that does not change the fact that there is massive government control over our economy.

It is incorrect to say that laissez-faire or free markets are unregulated. There is ruthless regulation, but it's not by government. Take the mortgage industry. In the absence of government interference, it is unlikely that a lender would extend a mortgage to a person with a poor credit history, making no down payment, and providing no verifiable employment history. But under the pressure of the government's Community Reinvestment Act and Fannie Mae and Freddie Mac buying up or guaranteeing such mortgages, a lender will.

When businesses make unwise decisions that lead to bankruptcy, their assets are sold off to someone else who might be able to put them to wiser use. Government bailouts give businesses a reprieve that the market wouldn't give them. Bailouts have at least two effects. They permit continued unwise use of resources and it creates what economists call moral hazard, the expectation of future bailouts and others hopping on the bailout wagon.

...

Desmond
17-11-2008, 03:16 PM
Jono, I read a week or two ago (I forget which thread, sorry) your take on the golden handshake for CEOs of failing companies. IIRC your argument was that is a CEO is costing the company tens of millions, then getting rid of them for one or two million is a good deal. My question is: wouldn't it be better to fire them?

Capablanca-Fan
17-11-2008, 03:21 PM
Jono, I read a week or two ago (I forget which thread, sorry) your take on the golden handshake for CEOs of failing companies. IIRC your argument was that is a CEO is costing the company tens of millions, then getting rid of them for one or two million is a good deal. My question is: wouldn't it be better to fire them?
Yes, one would hope, but sometimes their contracts would make it more costly to do so.

Desmond
17-11-2008, 03:25 PM
Yes, one would hope, but sometimes their contracts would make it more costly to do so.Ah OK, so they might have some termination clause where even if they are fired they would get a year's salary or something like that. Seems a bit ridiculous but I guess you don't get to be CEO of a large company without good negotiation skills.

Capablanca-Fan
17-11-2008, 03:28 PM
Ah OK, so they might have some termination clause where even if they are fired they would get a year's salary or something like that. Seems a bit ridiculous but I guess you don't get to be CEO of a large company without good negotiation skills.
Yes. Also, even if all the golden handshakes were withdrawn, it would hardly make a dent into the financial crisis.

Kevin Bonham
17-11-2008, 11:08 PM
The swiping at bonuses and so on is just populist anti-rich stuff on Rudd's part. However if a company has accepted a government bailout to stave off its own annihilation then it is reasonable for the government to place limits on its ability to throw away more money.

Capablanca-Fan
18-11-2008, 05:04 PM
The swiping at bonuses and so on is just populist anti-rich stuff on Rudd's part.
Indeed, while throwing taxes coerced from poor people at rich car makers.


However if a company has accepted a government bailout to stave off its own annihilation then it is reasonable for the government to place limits on its ability to throw away more money.
True enough.

Capablanca-Fan
18-11-2008, 05:04 PM
‘My politics are based...on things I and millions like me were brought up with. An honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police.’ —Margaret Thatcher, 1981

Crossfire (Axiom)
18-11-2008, 05:38 PM
‘My politics are based...on things I and millions like me were brought up with. An honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police.’ —Margaret Thatcher, 1981
I wonder if that included a nest egg free from government intervention , like using pensions to pay off errant bankers ?

Capablanca-Fan
18-11-2008, 05:44 PM
I wonder if that included a nest egg free from government intervention, like using pensions to pay off errant bankers ?
Almost certainly, and free of Chairman KRudd's plan to filch superannuation money for infrastructure projects.

Crossfire (Axiom)
18-11-2008, 05:48 PM
Almost certainly, and free of Chairman KRudd's plan to filch superannuation money for infrastructure projects.
So, whats the causal common denominator at play here ?

Capablanca-Fan
25-11-2008, 04:06 PM
“Jolting” the Economy
by Thomas Sowell
25 November 2008

...

Amid all the political and media hysteria, national output has declined by less than one-half of one percent. In fact, it may not have declined even that much — or at all — when the statistics are revised later, as they very often are.

We are not talking about the Great Depression, when output dropped by one-third and unemployment soared to 25 percent.

What we are talking about is a golden political opportunity for politicians to use the current financial crisis to fundamentally change an economy that has been successful for more than two centuries, so that politicians can henceforth micro-manage all sorts of businesses and play Robin Hood, taking from those who are not likely to vote for them and transferring part of their earnings to those who will vote for them.

For that, the politicians need lots of hype, and that is being generously supplied by the media.

Whatever the merits of trying to shore up some financial institutions, in order to prevent a major disruption of the credit flows that keep the whole economy going, what has in fact been done has been to create a huge pot of money-- hundreds of billions of dollars — that politicians can use to give out goodies hither and yon, to whomever they please for whatever reason they please.

No doubt we could all use a few billion dollars every now and then. But the question of who actually gets it will be strictly in the hands of Barack Obama, Nancy Pelosi and Harry Reid. It is one of the few parts of the legacy of the Bush administration that the Democrats are not likely to criticize.

...

In the light of history, this is a faith which passeth all understanding. Even in the case of the Great Depression of the 1930s, increasing numbers of economists and historians who have looked back at that era have concluded that, on net balance, government intervention prolonged the Great Depression.

...

Herbert Hoover did what Barack Obama is proposing to do. Hoover raised taxes on high-income people and put restrictions on international trade, in order to try to save American jobs. It didn't work then and it is not likely to work now.

...

Jim_Flood
27-11-2008, 01:05 PM
I trust no one on this form actually relates to this. Then again..........

http://www.youtube.com/watch?v=bNmcf4Y3lGM

Capablanca-Fan
29-11-2008, 10:19 AM
Financial Rescue: Bolder Beats Bigger (http://townhall.com/Columnists/JonahGoldberg/2008/11/28/financial_rescue_bolder_beats_bigger)
by Jonah Goldberg
28 November 2008

The costs of Washington's bailout fiesta are now so huge, you can see them from space.

The latest number, which includes the Citigroup rescue, is $7.7 trillion. That's roughly half of America's GDP.

In fairness, it's impossible at this point to know the full costs of the various financial rescue efforts because, for example, some of them involve mere loan guarantees, which may cost nothing.

Still, any way you slice it, we are talking about really, really large amounts of money here. Barry Ritholtz, a financial blogger and Wall Street analyst, offers some perspective. Adjusting for inflation, the Marshall Plan cost $115.3 billion. The Louisiana Purchase: $217 billion. The race to the moon: $237 billion. The New Deal: $500 billion (estimated). The Korean War: $454 billion. The Iraq war: $597 billion.

You can add all of these things together and still not come close to what taxpayers are on the hook for already. You could even throw in the Savings and Loan bailout ($256 billion), the Vietnam War ($698 billion) and all of NASA ($851 billion) and still come up short.

...

But rather than blow money on a lavish re-enactment of the New Deal, or continue bailing out undeserving corporations, why not really think outside the box? Rep. Louie Gohmert (R-Texas) suggests an across-the-board reprieve on paying 2008 income taxes. This would leave an extra $1.2 trillion in the hands of Americans, who are the best stewards of their own money. Nobel Prize-winning economist Robert Mundell proposes a one-year moratorium on corporate income taxes in order to stimulate investment, job creation and the like. That wouldn't be as popular, for understandable reasons.

The details can be negotiated, but this sort of approach would certainly create more jobs and spur more consumer demand than paying for a lot of asphalt. It would buy a lot more prosperity than any corporate bailout. Politically, it could buy Obama and Congress a year to formulate a serious tax-reform proposal. And — here's the amazing part — it would be much cheaper than what we've spent already.

Capablanca-Fan
30-11-2008, 04:47 PM
Same Old New Deal? (http://townhall.com/Columnists/GeorgeWill/2008/11/30/same_old_new_deal)
by George Will
30 Nov 2008

...
The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending — President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt — unemployment was 17.2 percent.

"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

In The Forgotten Man: A New History of the Great Depression, Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and wages higher than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits — prerequisites for job-creating investments — were excessively drained into labor expenses that left many workers priced out of the market.

In a 2004 paper, Harold L. Cole of UCLA and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages, and then employment and consumer demand.

...

Writes Russell Roberts of George Mason University:


"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."

Capablanca-Fan
01-12-2008, 11:22 AM
Henry Ergas argues that KRudd's Layba Government is repeating the mistakes of history mad during previous financial crises (http://www.theaustralian.news.com.au/story/0,25197,24730487-7583,00.html):


Lesson 1: Don’t reduce labour market flexibility. During the period of the two oil shocks (in 1973 and 1979), a slew of European countries strengthened unfair dismissal provisions and gave unions greater bargaining powers. Without exception, the result was to increase unemployment and make it far more persistent… The Government’s proposed new IR laws are therefore especially dangerous…

Lesson 2: Don’t trash the capital stock. The oil shocks made large parts of the capital stock uneconomic, especially in manufacturing, as it was designed for an era of low energy prices… An emissions trading scheme is like a self-inflicted oil shock.. The Government’s combination of an ETS and new IR laws may therefore provoke anticipatory shutdowns in capacity and reductions in employment.

Lesson 3: Trying to spend your way out of recessions is a mug’s game… They are ineffectual because the lags between government spending decisions and ultimate economic impacts are difficult to predict and, at least for some kinds of expenditures, likely to be very long… Increased outlays are additionally likely to be inefficient because the setting of spending priorities is so vulnerable to rent-seeking (http://www.investopedia.com/terms/r/rentseeking.asp).... Ultimately, the greatest difficulty with poor-quality public expenditure is that it is difficult to reverse.
...
If a discretionary fiscal stimulus is required, it is consequently far better delivered through general cuts in taxes than through targeted increases in outlays. Rather than once-off bonuses, the tax cuts should be locked in for a sufficiently lengthy period to genuinely stimulate consumption and encourage initiative. And if they can be designed to reduce the most severe distortions in the tax system — distortions particularly pronounced at the bottom and top of the income distribution — so much the better.

Capablanca-Fan
02-12-2008, 02:40 PM
As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson:

“For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”

TheJoker
03-12-2008, 12:54 PM
As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson:

“For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”

It is true that there are only a finite amount of labour reasources, however those resources are not likley to be fully employed at any one time and spare capacity in the labour market is a common occurence, renderring the above statement incorrect.

In addtion investment (pulbic or private) particularly infrastructure projects tends to create further investment opportunites and hence more jobs not less.

Aren't we lucky economics knowledge has moved well beyond what was know 60 years ago. So that such "Economics in One Lesson" they were thought to apply then, are now widely recognised as wrong.

Capablanca-Fan
03-12-2008, 01:09 PM
In addtion investment (pulbic or private) particularly infrastructure projects tends to create further investment opportunites and hence more jobs not less.
But only by taking money that could have been invested privately and likely more efficiently. I.e. the market depends on what people want enough to pay for, and is less likely to have an expensive bureaucracy.

Bastiat's "things that are not seen" apply just as much to present day leftist government policies as they did 150 years ago.


Aren't we lucky economics knowledge has moved well beyond what was know 60 years ago. So that such "Economics in One Lesson" they were thought to apply then, are now widely recognised as wrong.
More likely, they have never been refuted, but politicians find it convenient to blame the non-existent "laissez-faire capitalism" so they can justify increasting their control of the economy. And the Leftmedia and Lefteducracy idolize that economic charlatan FDR, crediting him for pulling America out of the Depression when he actually prolongued it, and ludicrously calling the interventionist anti–free-trade Hoover a "laissez-faire capitalist".

TheJoker
03-12-2008, 01:47 PM
But only by taking money that could have been invested privately and likely more efficiently. I.e. the market depends on what people want enough to pay for, and is less likely to have an expensive bureaucracy."

Actually private investment is likley to ignore infrastrucutre projects that have significant time frames for cost recovery/profit generation. A new highway to a remote region is a good example. When the new highway is built it may take several decades for businesses establish themselves in the new region and for significant traffic flows to evolve to recover costs from a toll. Private investors will not build the new highway and hence the remote region will remain under-developed. The government however can weigh up the cost of building the road against long-term potential economic benefits, no just the the ability of the road itself to turn a profit.

Where spillover benefits are significant but direct return on captial investment is low public investment (or public incentives for private investment) is more efficient than private investment.



More likely, they have never been refuted, but politicians find it convenient to blame the non-existent "laissez-faire capitalism" so they can justify increasting their control of the economy... blah blah blah

More likely contemporary economic theory does not support minarchism or laissez-faire capitalism and recognises the role of public investment and market regulation as essential to produce efficient sustainable economic growth and human development.

It has nothing to do with leftism at all! The same contemporary economic theories also recognise the importance of free trade and the underlying role of the market mechanism (supply and demand) in the economy.

Capablanca-Fan
10-12-2008, 05:53 PM
Do Worry About the Deficit (http://townhall.com/Columnists/JohnStossel/2008/12/10/do_worry_about_the_deficit?page=full&comments=true)
by John Stossel
10 Dec 2008

...

The deficits run by Roosevelt were comparable to those run by his predecessor, the allegedly do-nothing, laissez-faire Herbert Hoover. Both administrations spent heavily, but both also raised taxes substantially.

Of course, neither was able to fix the economy. On the contrary, their policies made a depression the Great Depression, extending it many years and even generating a depression within a depression in 1937. As Roosevelt's treasury secretary noted (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/28/AR2008112802370.html) [Henry Morgenthau], "After eight years of this administration we have just as much unemployment as when we started."

But Krugman and others suggest that since the New Deal ran moderate deficits and the Depression persisted, then Roosevelt should have run bigger multiyear deficits — and so should Obama. "t's basically money we owe to ourselves. ... The best course of action, both for today's workers and for their children, is to do whatever it takes to get this economy on the road to recovery," Krugman wrote.

This is the wrong lesson to learn from the 1930s. The New Deal didn't fail because its deficits were too small. As Amity Shlaes shows in [I]The Forgotten Man (http://www.reason.com/news/show/123476.html), the New Deal failed because it interfered with the market's natural regenerative processes. By raising taxes, hamstringing producers with arbitrary regulations and creating uncertainly about what the government would do next, business people were unwilling to invest and hire workers.

Uncertainty about taxes, regulation and government policy similarly threaten recovery today.

Obama must realize that government has no wealth of its own and that commandeering scarce resources from the private sector only stifles the economy. Deficit spending does this two ways. When the Treasury borrows money, it outbids private borrowers who would have put the money to productive use. When the Fed creates money, it depreciates the dollar, shifts purchasing power from the people to special interests, and — by tampering with the price signals — creates an unsustainable recovery that will collapse and throw people out of work when the inflation stops.
...

Capablanca-Fan
11-12-2008, 03:40 PM
Government to the ‘Rescue’ — Been There, Done That (http://townhall.com/Columnists/LarryElder/2008/12/11/government_to_the_rescue_-_been_there,_done_that?page=full&comments=true)
by Larry Elder
11 Dec 2008
...

“My 93-year-old Republican father, who only finished the eighth grade until going back to get his GED in his late 30s, has more judgment, wisdom and common sense [than uni graduate Comrade Obamov]. My father never spent one minute in the auto industry and does not think he could run it. Obama thinks government can. My father thinks if you lend or borrow money irresponsibly, you shouldn't be ‘saved’ by taxpayers. Obama — and a whole bunch of Republicans — think they should.”

“It's about helping people,” my “rabid” friend said [he had described himself as a "rabid Obama supporter].

“My friend, economist Thomas Sowell, told me that whenever government wants to ‘do something’, ask yourself three questions. 1) Who pays for it? 2) How much will it cost? 3) Will it work? With this brief analysis, Sowell said, one almost always finds 'something' is not worth it, is wrongheaded, or makes things worse.

“Who pays?” I continued. “Taxpayers do — either through higher taxes, borrowed money to be repaid with higher taxes, or printing money that creates inflation and higher interest rates.”

“The cost?” he asked.

“Well, last Sunday morning, Obama appeared on Meet the Press,” I said. “He offered a massive ‘infrastructure’ program, a New Deal II. The cost? Obama said his economic team is working on that. So far, the amount of government money spent or expects to spend — on FDIC insurance and to rescue banks, borrowers, insurance companies and investment firms, as well as the auto industry — exceeds $7 trillion or $8 trillion.

“Treasury Secretary Henry Paulson initially proposed $700 billion under TARP, the Troubled Assets Relief Program,” I continued. “But wait, Paulson then said no, it's not a good idea to spend the money on troubled assets — better to spend the money on buying stock in financial institutions. So within weeks, the central premise of the bailout — the need to purchase 'toxic’ assets held by financial institutions — was thrown out the window.”

My friend and I were now drawing a crowd.

“Paulson told us,” I said, “that lenders needed money in order to unlock the ‘credit freeze’. But banks instead used the money to clean up their own balance sheets or to purchase other banks — completely contrary to the stated purpose of providing them cash infusions. And now Obama wants to ‘put people to work’ on government infrastructure projects. He wants to ‘modernize’ school and federal buildings. He wants to invest in technologies to create ‘green’ jobs.”

“How do you know it won't work?’ he asked.

“Well, years into the Great Depression, FDR's secretary of the treasury, Henry Morgenthau, declared (quoted here verbatim): ‘We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!’

“So this has been tried, and many economists believe that the spending, along with other dumb government actions, prolonged and possibly deepened the problems and certainly did not solve them.”
...
[The solution]
“‘It seems to me the government's just too damn big,’ said my Depression-era/World War II-veteran father. ‘I'd let people keep their own money. They'll figure it out. They always do.’”

Capablanca-Fan
12-12-2008, 02:46 PM
Ron Paul: Bailouts Will 'Destroy the Dollar' (http://www.newsmax.com/newsfront/ron_paul_interview/2008/12/11/160795.html?s=al&promo_code=7440-1)
Jim Meyers
11 Dec 2008

...
Asked by Newsmax’s Ashley Martella about the bailouts of Wall Street, the banking industry and apparently the Big Three automakers, Paul — a member of the House Financial Services Committee — said:

“I think we’re going in the wrong direction and I strongly oppose it.

“I find it to be bad economics. I find it bad morally to transfer wealth from one group of people to another no matter what kind of problems they have…

“Lo and behold, the Constitution doesn’t talk much about allowing Congress to go and bail out their friends. So I oppose it from practical and well as philosophic reasons.”

Martella noted that some of the big problems automakers face are union-related, such as commitments to life-long pensions and health care for retired workers.

Paul said the automakers are “sort of trapped because they’ve signed these contracts…

“These commitments, which had been signed onto by the pressure of the unions, which were backed up by law, [have] brought them to their knees.

“If we take the funds from those people who have been more efficient to prop this system up, we’ll never see the correction…

“Excessive labor costs are very very important but the business people, the people who run the car companies, won’t dare say so, or won’t say very much, because they can’t offend the liberals in Congress who are the ones who are going to bail them out.”
...

Capablanca-Fan
17-12-2008, 12:06 PM
Big Government Breeds Big Corruption (http://www.humanevents.com/article.php?id=29935)
by Newt Gingrich
16 Dec 2008

Question: What do Illinois Governor Rod Blagojevich (D), convicted Senator Ted Stevens (R), failing public school administrators, and the 80 percent of retiring California Highway Patrol chiefs who apply for disability have in common?

Answer: None of them is honest, and all of them are part of America’s already vast and rapidly expanding government.

The idea that big government is inherently corrupting is as old as America itself. It was part of the Founders’ case for casting off the chains of the British monarchy.

More recently, the principle that big government breeds big corruption was perhaps expressed best by humorist P.J. O’Rourke, who said:


“When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.”

Blago is Just the Most Obvious Example

The shocking case of corruption in the office of the governor of Illinois by Rod Blagojevich is just the most obvious manifestation of this tendency for dishonesty to grow as government grows.

When the Detroit public school system continues to take money for the 76 percent of students that it fails to graduate on time or at all, its administrators aren’t being honest.

When 80 percent — 80 percent! — of California Highway Patrol assistant and deputy chiefs claim a disability at retirement to inflate their pensions, they are not being honest. (Also see this shocking story from yesterday’s New York Times).

When at least 25 percent of the $50 billion of the taxpayers’ money spent each year on Medicaid in New York is likely due to fraud, waste and misuse, it’s not only the individuals defrauding the system that are being dishonest, but the government officials allowing this travesty to continue are dishonest as well.

The list could go on and on.
...

Desmond
17-12-2008, 12:19 PM
It says 80% apply. Any idea how many of those actually get approved? I guess you can't blame them for trying (then again, maybe you can).

Capablanca-Fan
17-12-2008, 03:12 PM
Postponing Reality (http://townhall.com/Columnists/ThomasSowell/2008/12/17/postponing_reality?page=full&comments=true)
by Thomas Sowell
17 Dec 2008

...
The current bailout extravaganza is applying the postponement of reality democratically — to the rich as well as the poor, to the irresponsible as well as to the responsible, to the inefficient as well as to the efficient. It is a triumph of the non-judgmental philosophy that we have heard so much about in high-toned circles. We are told that the collapse of the Big Three automakers in Detroit would have repercussions across the country, causing mass layoffs among firms that supply the automobile makers with parts, and shutting down automobile dealerships from coast to coast.

A renowned economist of the past, J.A. Schumpeter, used to refer to progress under capitalism as "creative destruction" — the replacement of businesses that have outlived their usefulness with businesses that carry technological and organizational creativity forward, raising standards of living in the process. Indeed, this is very much like what happened a hundred years ago, when that new technological wonder, the automobile, wreaked havoc on all the forms of transportation built up around horses.

For thousands of years, horses had been the way to go, whether in buggies or royal coaches, whether pulling trolleys in the cities or plows on the farms. People had bet their futures on something with a track record of reliable success going back many centuries. Were all these people to be left high and dry? What about all the other people who supplied the things used with horses — oats, saddles, horse shoes and buggies? Wouldn't they all go falling like dominoes when horses were replaced by cars? Unfortunately for all the good people who had in good faith gone into all the various lines of work revolving around horses, there was no compassionate government to step in with a bailout or a stimulus package. They had to face reality, right then and right there, without even a postponement.

Who would have thought that those who displaced them would find themselves in a similar situation a hundred years later?

Actually the automobile industry is not nearly in as bad a situation now as the horse-based industries were then. There is no replacement for the automobile anywhere on the horizon. Nor has the public decided to do without cars indefinitely.

While Detroit's Big Three are laying off thousands of workers, Toyota is hiring thousands of workers right here in America, where a substantial share of all our Toyotas are manufactured. Will this save Detroit or Michigan? No.

Detroit and Michigan have followed classic liberal policies of treating businesses as prey, rather than as assets. They have helped kill the goose that lays the golden eggs. So have the unions. So have managements that have gone along to get along.

...

Desmond
18-12-2008, 09:12 AM
A friend of mine is a contracter for a reasonably large corporation. The corporation is putting on Christmas lunch for its employees. He works in a satelite office, other side of town to the main office.

Cost of employee contribution to lunch: $10.
Cost of making your own way across the city including tolls: $15.
Cost of having your pay docked for the 3 hours you spend away from your desk: $80
Employer showing its Christmas spirit: priceless.

Adamski
18-12-2008, 12:03 PM
A friend of mine is a contracter for a reasonably large corporation. The corporation is putting on Christmas lunch for its employees. He works in a satelite office, other side of town to the main office.

Cost of employee contribution to lunch: $10.
Cost of making your own way across the city including tolls: $15.
Cost of having your pay docked for the 3 hours you spend away from your desk: $80
Employer showing its Christmas spirit: priceless.I'd LOL if it wasn't so sad.

pax
19-12-2008, 04:13 PM
Actually the automobile industry is not nearly in as bad a situation now as the horse-based industries were then. There is no replacement for the automobile anywhere on the horizon. Nor has the public decided to do without cars indefinitely.

... which renders the entire analogy rather invalid, don't you think?

Capablanca-Fan
20-12-2008, 02:18 AM
... which renders the entire analogy rather invalid, don't you think?
Not at all: it is an a fortiori argument: at least auto workers are likely to find jobs in other auto industries because people will still drive cars. All the workers in the horse and buggy industry and related industries had none of the same work to seek out, since people stopped using horse and buggy. So the latter had it much harder, yet their industry wasn't bailed out. Neither was the icebox industry after home fridges were invented.

Capablanca-Fan
23-12-2008, 04:35 PM
Another Great Depression? (http://townhall.com/Columnists/ThomasSowell/2008/12/23/another_great_depression?page=full&comments=true)
by Thomas Sowell
23 Dec 2008

Let's start at square one, with the stock market crash in October 1929. Was this what led to massive unemployment?

Official government statistics suggest otherwise. So do new statistics on unemployment by two current scholars, Richard Vedder and Lowell Gallaway, in their book Out of Work.

The Vedder and Gallaway statistics allow us to follow unemployment month by month. They put the unemployment rate at 5 percent in November 1929, a month after the stock market crash. It hit 9 percent in December — but then began a generally downward trend, subsiding to 6.3 percent in June 1930.

That was when the Smoot–Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences.

Five months after the Smoot–Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.

This was more than a year after the stock market crash. Moreover, the unemployment rate rose to even higher levels under both Presidents Herbert Hoover and Franklin D. Roosevelt, both of whom intervened in the economy on an unprecedented scale.

Before the Great Depression, it was not considered to be the business of the federal government to try to get the economy out of a depression. But the Smoot-Hawley tariff — designed to save American jobs by restricting imports — was one of Hoover's interventions, followed by even bigger interventions by FDR.

The rise in unemployment after the stock market crash of 1929 was a blip on the screen compared to the soaring unemployment rates reached later, after a series of government interventions.

For nearly three consecutive years, beginning in February 1932, the unemployment rate never fell below 20 percent for any month before January 1935, when it fell to 19.3 percent, according to the Vedder and Gallaway statistics.

In other words, the evidence suggests that it was not the "problem" of the financial crisis in 1929 that caused massive unemployment but politicians' attempted "solutions." Is that the history that we seem to be ready to repeat?

The stock market crash, which has been blamed for the widespread suffering during the Great Depression of the 1930s, created no unemployment rate that was even half of what was created in the wake of the government interventions of Hoover and FDR.

...

Today, increasing numbers of scholars recognize that FDR's own policies were a further extension of interventions begun under Hoover. Moreover, the temporary rise in unemployment after the stock market crash was nowhere near the massive and long-lasting unemployment after government interventions.

Capablanca-Fan
24-12-2008, 05:55 PM
Regime Uncertainty (http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf):
Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War
Robert Higgs, economic historian
The Independent Review 1(4):561–590, Spring 1997.

It is time for economists and historians to take seriously the hypothesis that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors.

"[T]he economy remained in the Depression as late as 1940, because private investment had never recovered. ... [T]he insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of federal government actions and the nature of the Roosevelt administration during the so-called Second New Deal from 1935 to 1940. ... [T]he willingness of businesspeople to invest requires a sufficiently healthy state of 'business confidence,' and the Second New Deal ravaged the requisite confidence. ... "

MichaelBaron
25-12-2008, 11:20 AM
Regime Uncertainty (http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf):
Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War
Robert Higgs, economic historian
The Independent Review 1(4):561–590, Spring 1997.

It is time for economists and historians to take seriously the hypothesis that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors.

"[T]he economy remained in the Depression as late as 1940, because private investment had never recovered. ... [T]he insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of federal government actions and the nature of the Roosevelt administration during the so-called Second New Deal from 1935 to 1940. ... [T]he willingness of businesspeople to invest requires a sufficiently healthy state of 'business confidence,' and the Second New Deal ravaged the requisite confidence. ... "

This certainly explains why the depression has occurred. But it does not really explain why they economic growth started after the WW2

Capablanca-Fan
25-12-2008, 03:47 PM
This certainly explains why the depression has occurred. But it does not really explain why they economic growth started after the WW2
The paper does. WW2 spelled the end of the New Deal, and Truman replaced a lot of Roosevelt's more fanatical anti-business people with more moderate people who didn't frighten businessmen and investors.

TheJoker
28-12-2008, 11:48 PM
Regime Uncertainty (http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf):
Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War
Robert Higgs, economic historian
The Independent Review 1(4):561–590, Spring 1997.

It is time for economists and historians to take seriously the hypothesis that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors.

"[T]he economy remained in the Depression as late as 1940, because private investment had never recovered. ... [T]he insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of federal government actions and the nature of the Roosevelt administration during the so-called Second New Deal from 1935 to 1940. ... [T]he willingness of businesspeople to invest requires a sufficiently healthy state of 'business confidence,' and the Second New Deal ravaged the requisite confidence. ... "

Except the main reason for a lack of private investment had less to do with fiscal policies but instead was largely a monetary phenomenom as described by Milton Freidman. The Fed allowed the money supply to contract when it should have been expanding the money supply through OMO purchasing of government bonds.

The widespread economic concensus is that the the Great Depression was triggered by Fed increasing the dicscount rate in 1929 causing the speculative investment bubble to burst. The downturn was prolonged by the Fed's failure to implement monetary policies to counter-act the shrinking mony supply.

Soem fiscal policy failures such as increasing taxes and restricting trade through tarrifs did exacerbate the crisis. But the contention that "public works" programs prolonged the downturn have not been substaintiated and considering that crowding out has been shown to be insignificant and the knowledge that there is indeed a multiplier effect, running a budget deficit is likley fuel economic growth not prevent it.

Capablanca-Fan
29-12-2008, 12:16 AM
Except the main reason for a lack of private investment had less to do with fiscal policies but instead was largely a monetary phenomenom as described by Milton Freidman. The Fed allowed the money supply to contract when it should have been expanding the money supply through OMO purchasing of government bonds.
Although Friedman qualified this by opposing the existence of the Fed in the first place; only that if we have it, it should expand the money supply. And note, he said:


The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.


The widespread economic concensus is that the the Great Depression was triggered by Fed increasing the dicscount rate in 1929 causing the speculative investment bubble to burst. The downturn was prolonged by the Fed's failure to implement monetary policies to counter-act the shrinking mony supply.
Yet as has been documented, the huge unemployment increase didn't follow after the crash but after the tariffs and increased uncertainty.


Soem fiscal policy failures such as increasing taxes and restricting trade through tarrifs did exacerbate the crisis. But the contention that "public works" programs prolonged the downturn have not been substaintiated and considering that crowding out has been shown to be insignificant
Only in your dreams. In reality, as Bastiat showed 150 years ago, the government public works programs produce seen benefits, but at the unseen cost of taking away spending from the private sector that would actually have to please the public. We see this in the proposed bailout of Detroit car industries that already make cars that people don't want to buy.

TheJoker
29-12-2008, 12:27 AM
Yet as has been documented, the huge unemployment increase didn't follow after the crash...

It takes time for businesses to respond and in the 1930s that would have been a slower process as business struggled to determine the impact of the crash on their operations. We are only just starting to see a reduction in employment as result of the current downturn in an age of hyper-speed information. Also they probably initially expected the Fed to act to correct the situation which didn't happen.

Economists are split as to whether the Great Depression shows that government intervention is uneccessary or whether it simply shows that a coordinated approach to fiscal and monetary policies are required.


Only in your dreams. In reality, as Bastiat showed 150 years ago, the government public works programs produce seen benefits, but at the unseen cost of taking away spending from the private sector that would actually have to please the public.

He showed nothing of the sort, government deficit spending in a recession does not take away spending from private investment this is a furhpy. As has been shown by the empirical evidence.

Capablanca-Fan
30-12-2008, 03:31 PM
It takes time for businesses to respond and in the 1930s that would have been a slower process as business struggled to determine the impact of the crash on their operations. We are only just starting to see a reduction in employment as result of the current downturn in an age of hyper-speed information. Also they probably initially expected the Fed to act to correct the situation which didn't happen.
The Higgs paper and Sowell article provided plenty of documentation that businessmen were scared to invest because of the uncertainty that FDR created. It's no accident that five months after the Smoot–Hawley tariff act signed by laissez faire rabid interventionist Hoover, the unemployment rate hit double digits for the first time in the 1930s. Obamov and KRudd have also made noises about restricting free trade.


Economists are split as to whether the Great Depression shows that government intervention is uneccessary or whether it simply shows that a coordinated approach to fiscal and monetary policies are required.You were the one who mentioned Friedman, who was adamant that the Depression was NOT a free market failure.


He showed nothing of the sort, government deficit spending in a recession does not take away spending from private investment this is a furhpy. As has been shown by the empirical evidence.
Rubbish. Lefties act as if governments can magically generate money to spend. In reality, it can only spend money it has taken from someone else, so that someone can no longer spend it; or print money resulting in inflation which screws the value of money for the population.

And big spending didn't help the Great Depression, as Henry Morgenthau, FDR's Treasury secretary whinged: "I say after eight years of this administration we have just as much unemployment as when we started." What makes you think it would be different this time.

TheJoker
30-12-2008, 09:04 PM
The Higgs paper and Sowell article provided plenty of documentation that businessmen were scared to invest because of the uncertainty that FDR created. It's no accident that five months after the Smoot–Hawley tariff act signed by laissez faire rabid interventionist Hoover, the unemployment rate hit double digits for the first time in the 1930s. Obamov and KRudd have also made noises about restricting free trade..

No doubt the tarrifs had a negative impact. But this again has nothing to do with deficit fiscal spending to combat a recession. I haven't heard of either Rudd or Obama talking tarrifs.


You were the one who mentioned Friedman, who was adamant that the Depression was NOT a free market failure.

Nobody implied it was a failure of the free market. Freidman saw the GD as primarily due to monetary policy failures. Freidman's main argument against expasionry fiscal policy to combat recession was his idea of crowding-out empirical eveidence shows that crowding is insignificant in an economic downturn, and that increased fiscal spending stimulates the economy through the multiplier effect and the accelerator effect.



Rubbish. Lefties act as if governments can magically generate money to spend. In reality, it can only spend money it has taken from someone else, so that someone can no longer spend it; or print money resulting in inflation which screws the value of money for the population..

Nobody thinks the money comes from nowhere, the idea is that the government will run a surplus in the good times in order to temper the economy and run a deficit (spending the surplus) in the bad times thus reducing the seveity of the business cycle.


And big spending didn't help the Great Depression, as Henry Morgenthau, FDR's Treasury secretary whinged: "I say after eight years of this administration we have just as much unemployment as when we started." What makes you think it would be different this time.

American Economic Review September 2008


This paper suggests that the U.S. recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's policy actions. On the monetary policy side, Roosevelt abolished the gold standard and—even more importantly—announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible. These actions violated prevailing policy dogmas and initiated a policy regime change...

Capablanca-Fan
02-01-2009, 10:38 AM
No doubt the tarrifs had a negative impact. But this again has nothing to do with deficit fiscal spending to combat a recession. I haven't heard of either Rudd or Obama talking tarrifs.
Obama was talking about "renegotiating" free trade agreements, and KRudd's subsidies of car industries amount to the same.


This paper suggests that the U.S. recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's policy actions. On the monetary policy side, Roosevelt abolished the gold standard and—even more importantly—announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible. These actions violated prevailing policy dogmas and initiated a policy regime change...
More leftist garbage about FDR being the saviour from the Depression; never mind that it wasn't really over even when he died in his fourth term. When a Depression lasted so long in his reign, it's more likely that his actions prolongued it.

Capablanca-Fan
08-01-2009, 11:56 PM
Thomas Sowell on the fallacy of the "stimulus" (http://townhall.com/columnists/ThomasSowell/2009/01/06/the_economic_stimulus?page=2)

In short, it can be years before the money that is supposed to stimulate the economy actually gets into the economy. And nobody knows what the economy will be like when that money finally gets into circulation.

A common problem with government economic policies in general is that it is very hard to predict how long it will be before the policy actually affects the economy. An economic stimulus policy created during a contraction in demand can take effect during an inflationary expansion of demand-- and fuel still more inflation.

A trillion dollars or so, created out of thin air by a government that already has a huge deficit, can set off another round of inflation that can take some very painful new policies to bring under control-- or can have even more painful effects, if it is not brought under control.

TheJoker
09-01-2009, 12:42 AM
In short, it can be years before the money that is supposed to stimulate the economy actually gets into the economy. And nobody knows what the economy will be like when that money finally gets into circulation.

A common problem with government economic policies in general is that it is very hard to predict how long it will be before the policy actually affects the economy. An economic stimulus policy created during a contraction in demand can take effect during an inflationary expansion of demand-- and fuel still more inflation.

A trillion dollars or so, created out of thin air by a government that already has a huge deficit, can set off another round of inflation that can take some very painful new policies to bring under control-- or can have even more painful effects, if it is not brought under control.

Yes this is he major criticism of fiscal policy, it is cumbersome in its implementation, especially when compared to the near immediate effects of monetary policy.

Yes the deficit (in times of strong global economic performance) left by the out going administration is certainly a problem. Luckily Howard ran surpluses in Australia over the same period.

Capablanca-Fan
09-01-2009, 08:39 AM
Yes this is he major criticism of fiscal policy, it is cumbersome in its implementation, especially when compared to the near immediate effects of monetary policy.
Yes. What America needs is long-term tax cuts to encourage business and personal investments because long-term planning is possible. A short-term injection won't affect long-term planning.


Yes the deficit (in times of strong global economic performance) left by the out going administration is certainly a problem. Luckily Howard ran surpluses in Australia over the same period.
He had his uses, huh? He inherited a bog deficit, and the next Coalition PM looks like inheriting one from Chairman "spend, spend, spend" KRudd.

Igor_Goldenberg
09-01-2009, 09:12 AM
Yes. What America needs is long-term tax cuts to encourage business and personal investments because long-term planning is possible. A short-term injection won't affect long-term planning.

While I never object to a tax cut (and it would be very good for Australia, for example), in case of US it's secondary, at least as far as income tax is concerned. IMO they need to drastically cut spending (and welfare is not the biggest one!).
Military spending can be safely cut in half without affecting capabilities.
Waste in other areas is staggering as well.

TheJoker
09-01-2009, 11:54 AM
IMO they need to drastically cut spending (and welfare is not the biggest one!).
Military spending can be safely cut in half without affecting capabilities.

That would put a lot of people out of work. It could be offset by reductions in business taxes. I think business tax cuts would be a better idea than personal income tax cuts aren't as reliable in producing economic stimulus because of savings and spending on imports.

The question of whether tax cuts or government spending is better at stimulating is an age old debate. Government spending has a greater multiplier effect therefore is considered more expasionary than tax cuts. The down side as pointed out by Sowell, is that the spending injection is often delayed by bureaucratic processes.

The biggest problem for the US was incompetent Administration that ran a deficit during the a global economic boom period, when it should have been running a surplus. Then they might have had the room to do both.

TheJoker
09-01-2009, 11:59 AM
Yes. What America needs is long-term tax cuts to encourage business and personal investments because long-term planning is possible. A short-term injection won't affect long-term planning.

I agree it needs business tax cuts. As Igor suggested redeploying some of the military budget would help.

The other thing is that this might not be a downturn but rather a correction of previous unsustainable growth that was fuelled by consumption based on credit.

The over the top US lifestyle may well be the first casualty of globalisation as more and more of its wealth flows to into more competitive economies such as China and India.





He had his uses, huh? He inherited a bog deficit, and the next Coalition PM looks like inheriting one from Chairman "spend, spend, spend" KRudd.

That's because he came to power on the back of a recession. And had the fortune of a presiding over global economic boom facilitated by China. And sold off some valuable assets, rather than tackling the real challenge of managing the efficiently.

His first home owners grant helped fuel the real estate bubble and cause an affordability crisis in housing (the one thing it was supposed to offset). So it wasn't all good. But could have been a lot worse!

Igor_Goldenberg
09-01-2009, 02:44 PM
His first home owners grant helped fuel the real estate bubble and cause an affordability crisis in housing (the one thing it was supposed to offset). So it wasn't all good.
Yes, Howard government was also a big spender. First home owners grant is another example of spending making problem worse.

But could have been a lot worse!
As we witnessed in a little bit more then a year of Rudd/Labour rule.

TheJoker
09-01-2009, 03:58 PM
First home owners grant is another example of spending making problem worse.

It is an example of a politically popular policy with unsound economic founding. The subsidy should have been on the supply-side to create a surplus of housing and reduce the price. Instead it fuelled demand. More people in the market with more money competing for the same number of dwellings pushed prices upward.

But what politican in their right mind is going to say they will give new dwelling developers a grant rather than new home owners.

And plenty of Howard's constituents (the baby boomers) benefitted greatly from the price bubble and well time tax break on selling-off the inflated investment properties and dumping the money into super funds (at least if they went for cash funds).


As we witnessed in a little bit more then a year of Rudd/Labour rule.

Spending on certain infrastructure actually creates economic growth opportunites. The government can facilitate this particularly wen the expected returns on the actual infrastrucutre are small but the spillover benefits to the economy are large. Highways are a good example, it would not be profitable (for the developer) to build a highyway to remote area, however once built it may open up numerous investment opportunities in that area that in the long-run will be beneficial to the entire economy. The government can fund such projects, whereas private investment needs to be able get a short-term return on investment.

Another thing is that government spending in an economic downturn aides recovery.

Capablanca-Fan
10-01-2009, 11:39 AM
It is an example of a politically popular policy with unsound economic founding.
Agreed. Ostensibly it was first proposed to make up for the extra cost of GST.


Spending on certain infrastructure actually creates economic growth opportunites.
But as Sowell points out, there is more political mileage in building new things than necessary repairs on existing things.


The government can facilitate this particularly wen the expected returns on the actual infrastrucutre are small but the spillover benefits to the economy are large. Highways are a good example, it would not be profitable (for the developer) to build a highyway to remote area, however once built it may open up numerous investment opportunities in that area that in the long-run will be beneficial to the entire economy. The government can fund such projects, whereas private investment needs to be able get a short-term return on investment.
Private investment thinks long-term; the government only thinks up to the next election.


Another thing is that government spending in an economic downturn aides recovery.
It didn't help with the Great Depression, as FDR's Treasury secretary and close friend, Henry Morganthau, conceded to Congressional Democrats in May 1939:


"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"*
admitted.

Capablanca-Fan
10-01-2009, 11:44 AM
I agree it needs business tax cuts.
:clap: Businesses don't really pay taxes anyway: it is the staff and customers who end up paying.

In Australia, we should abolish payroll tax, an absurd fine on employers hiring people! Hawke/Keating did Australia a great service by introducing dividend imputation, abolishing the iniquitous double taxation that still infests America.


As Igor suggested redeploying some of the military budget would help.
Not yet though, as long as they are actively deployed.


The other thing is that this might not be a downturn but rather a correction of previous unsustainable growth that was fuelled by consumption based on credit.
Yes, see my sig line.


That's because he came to power on the back of a recession.
But the debt was worse than Keating had admitted.


And had the fortune of a presiding over global economic boom facilitated by China.
Yet Australia weathered an Asian downturn too.


And sold off some valuable assets, rather than tackling the real challenge of managing the efficiently.
Same thing, since government can't manage very much efficiently.

Capablanca-Fan
13-01-2009, 04:04 PM
“[E]very critical decision that will be made regarding the economy will be made by Insulated Americans whose assets are substantial enough to keep them from being unduly affected by whatever folly they foist on the rest of us. No matter what kind of stupidity, short-term thinking, political correctness, or corruption emanates from the Oval Office or halls of Congress, our political ruling class will never want for all the necessities and most of the luxuries life affords — even if the rest of America is standing on bread lines or living in tent cities. ... The sad reality is that the term ‘citizen government’ has become an oxymoron. Our political class has never been more removed from the average American and their interests. ... Perhaps we should concentrate on electing Exposed Americans to office: nothing concentrates the mind like having a direct stake in the decisions one makes. We already know how Insulated Americans run things — right into the ground. Ground their feet will never touch.” —columnist Arnold Ahlert (http://politicalmavens.com/index.php/2009/01/05/groin-the-antidote-for-2010/)

Kevin Bonham
13-01-2009, 04:51 PM
We already know how Insulated Americans run things — right into the ground. Ground their feet will never touch.” —columnist Arnold Ahlert (http://politicalmavens.com/index.php/2009/01/05/groin-the-antidote-for-2010/)

Interesting article. I've often wondered about a similar kind of thing in Australia - suppose a party was formed that represented nothing but the economic interests of pensioners, undemployed people, low-income workers and poor retirees, and possibly students. There are enough people in these demographics that if such a party could capture even a quarter of that support base it would win numerous Senate seats and the balance of power.

However as soon as someone from this kind of demographic becomes elected as a politician they automatically exit that demographic, unless they make some arrangement to give most of their income away. Also, the debate about what is the best way to assist the poor and exposed is not an economically simple one, so just because someone is economically marginalised does not mean they can convince others in the same category that they have the answers. Voters are strongly influenced by profile (which is most easily available through public success in various wealth-earning manners) and it is very hard for a financially struggling candidate to make themselves well enough known in the electorate to be successful - unless they are a Green.

The GROIN (Get Rid Of Incumbents) approach was put into practice by Pauline Hanson's One Nation who generally preferenced incumbents last, although to some degree that seemed like a dummy-spit at major parties both not preferencing them. Anyway, there's no evidence that it works. Major parties prefer to simply surrender a bunch of seats to each other rather than accept third-party platforms.

Capablanca-Fan
13-01-2009, 04:58 PM
A Yes Minister episode covered some similar ground once. Hacker's astute chauffeur told him about a talk radio show where the host argued that if the cabinet used public transport rather than chauffeurs, they would fix the crappy public transport system. Hacker said there was no way that he needed the chauffeur since cabinet business couldn't afford the one-hour+ waits at bus stops. Similarly, the cabinet used private hospitals so didn't need to fix the public ones, and send their kids to private schools so don't worry about the appalling state of the "comprehensive schools".

Capablanca-Fan
15-01-2009, 07:07 AM
“There are more fundamental reasons to doubt whether throwing more money at a problem largely if not entirely caused by loose money and government incentives and mandates to overspend and over lend will yield the kind of recovery that President-elect Barack Obama and most Americans would dearly love to see. In his speech on the economy and his stimulus package Thursday — a speech still notably short on details — the president-elect declared that ‘only government can provide the short-term boost necessary to lift us from a recession this deep and severe.’ The unspoken assumption behind such a statement is that government has a virtually inexhaustible supply of money that can be deployed without having deleterious side effects, only beneficial ones. The problem, of course, is that government has no money of its own, only the money it takes by force from the productive sector of society or it borrows and must pay back with taxes extracted from our children and grandchildren. In the private marketplace economic transactions take place only if both (or all) parties believe they benefit. Such private, profit-making activity, as most of American history demonstrates, involves not simply the redistribution of existing wealth but creation of new wealth. Increased government spending, however financed, takes money from the private wealth-generating sector of society and allocates it to projects not on the basis of their capacity to be economically self-sustaining, but on the basis of their political attractiveness. ...[A] government ‘stimulus’ can only be accomplished by taking money away from genuinely economically productive activity. Pumping dollars that will eventually be worth less than they are today into various projects may provide some short-term relief or appearance of relief. But only the private sector can actually create wealth and thereby stimulate genuine economic growth. This seems pretty elementary, but most people in Washington have powerful incentives to ignore elementary truths.” — Orange County Register

Capablanca-Fan
18-01-2009, 07:14 PM
$15 million of Rudd's bonus blown on pokies (http://www.news.com.au/couriermail/story/0,23739,24927125-952,00.html)
Courier Mail
18 January 2009


POKER machines won out with the Federal Government's stimulus package, which has been blamed for a $15 million boost in revenue in Queensland.

What do you expect? As CATO's Dan Mitchell explains (http://pajamasmedia.com/blog/not-all-tax-cuts-are-created-equal/):


The key thing to understand is that not all tax cuts are created equal. If policy makers want to boost growth, they need to reduce marginal tax rates on productive behavior such as work, saving, and investment. This "supply-side" insight is why the Kennedy and Reagan tax rate reductions were successful. It also is why flat tax jurisdictions such as Hong Kong and Slovakia enjoy such strong growth. And it is why zero tax regimes such as the Cayman Islands are beacons of prosperity.

Unfortunately, all reports indicate that the Obama plan will revolve around a gimmicky idea to give $500–$1,000 of tax relief to every household. Households certainly will be happy to receive this money, and I surely will cash any check that President Obama sends in my direction, but simply giving people money does not give them any reason to engage in additional productive behavior. And without more work, saving, investment, or production, there is no increase in national income.

TheJoker
18-01-2009, 09:51 PM
$15 million of Rudd's bonus blown on pokies (http://www.news.com.au/couriermail/story/0,23739,24927125-952,00.html)
Courier Mail
18 January 2009


POKER machines won out with the Federal Government's stimulus package, which has been blamed for a $15 million boost in revenue in Queensland..

Link doesn't work.

But spending on gaming machines isn't such a bad thing, it is much better than spending on imports. Most of the money stays on shore, is paid to Australain workers in the gaming industry or Australian gaming machine manufacturers such as Aristocrat. Admittly some of the money will return back to the state governments in the form of tax (removing it from rapid circulation)

However the main thing is that very little of this money will flow offshore, meaning that it will still be in the economy and contribute to GDP through the multiplier effect and which in turn should stimulate investment through the accelerator effect.

Capablanca-Fan
18-01-2009, 10:38 PM
Link doesn't work.
Fixed now.


But spending on gaming machines isn't such a bad thing, it is much better than spending on imports.
Trade makes more sense than gambling. Free trade is good for a country's wealth, while gambling is a tax on poor understanding of probability.


However the main thing is that very little of this money will flow offshore, meaning that it will still be in the economy and contribute to GDP through the multiplier effect and which in turn should stimulate investment through the accelerator effect.
This is mercantilist thinking refuted by Adam Smith 200 years ago. In reality, free trade makes both countries wealthier. Gambling helps no one, esp. pokies. It rather sucks money that might have been spent on productive industries.

What we need is a long term change to encourage productive economic behaviour. Not a short-term cash injection coupled with an encouragement to the same sort of reckless spending that got us into this mess.

TheJoker
19-01-2009, 10:04 AM
Trade makes more sense than gambling. Free trade is good for a country's wealth, while gambling is a tax on poor understanding of probability.

Trade works to help the economy where a product/service can be produced at a cheaper rate in another country (comparative advantage), allowing the original country to deploy its existing resources towards areas where it has a comparative advantage.

However if imports grossly outweigh exports this can be a drain the economy.

You might consider gambling an efficient way to redistribute wealth towards the more entrepreneurially minded who are likely to spend it more productively.



This is mercantilist thinking refuted by Adam Smith 200 years ago. In reality, free trade makes both countries wealthier.

Covered above a massive trade deficit is not good for an economy. Free trade only benefits countries that have some major comparative advantages.

Particularly when workers are not free to move across labour markets. If the spare capicity in the labour market, created by importing a product, can not be redeployed productively the unemployment causes a drain on the economy. Same thing applies it unemployed capital resources.

The idea that free trade with closed labour markets is always beneficial is based on the false assumption that the unemployed labour and capital resources can be easily trasnferred into another productive activity.

Three issues arise; firstly the cost of re-skilling the labour force to an alternate activity. Secondly the transferability of capital resources, can a tractor used for farming be transferred into a mining activity cost effectively? Finally, are there alternate industries that is likley to achieve sufficient scale to re-employ the resources.

I hope when arguing for free trade, you also support the removal of all labour market protections, such as restricted immigration.


Gambling helps no one, esp. pokies. It rather sucks money that might have been spent on productive industries.

It doesn't suck money at all. You might say that it uses resources human and capital in a unproductive manner. However, Las Vegas shows that providing a gambling service can generate a substaintial export income. Macau is another example of how an economy can increase its wealth by exporting services.


What we need is a long term change to encourage productive economic behaviour. Not a short-term cash injection coupled with an encouragement to the same sort of reckless spending that got us into this mess.

By reckless spending I assume you mean speculative spending that caused asset prices bubbles. Large scale borrowing against over-inflated asset prices that fuelled increased comsumption. An over exuberence in the sustainability of such credit-fuelled consumption that lead to a huge increase highly leveraged business models.

We need a solution to the continual speculative bubbles and busts. Some have predicted that alternate energies will be the next big speculative bubble/bust.

Davidflude
19-01-2009, 10:29 AM
What is making things harder to fix is that the velocity of circulation of money is dropping fast. This reduces the effectiveness of increasing the amount of money in circulation.

MichaelBaron
19-01-2009, 11:02 AM
My grandparents were listening to News on the Radio today and someone said that house prices will go down further 8%. :hmm:

Desmond
19-01-2009, 11:15 AM
$15 million of Rudd's bonus blown on pokies (http://www.news.com.au/couriermail/story/0,23739,24927125-952,00.html)
Courier Mail
18 January 2009


POKER machines won out with the Federal Government's stimulus package, which has been blamed for a $15 million boost in revenue in Queensland.I have to admit I was sceptical of this, but a big increase in both month-month figures and year-year figures does look compelling. A real shame to see people waste the money in this way.

TheJoker
19-01-2009, 11:16 AM
My grandparents were listening to News on the Radio today and someone said that house prices will go down further 8%. :hmm:

It's not a problem if you are buying and selling in the same market. In fact it is good for those looking to upgrade.

Capablanca-Fan
19-01-2009, 11:17 AM
Trade works to help the economy where a product/service can be produced at a cheaper rate in another country (comparative advantage), allowing the original country to deploy its existing resources towards areas where it has a comparative advantage.
Right, yet Comrade Obamov opposes free trade, and our government is shoring up our car industries with tax dollars.


However if imports grossly outweigh exports this can be a drain the economy.
More mercantilist nonsense, nowadays described as obsession with "trade deficit", which as Walter Williams explains is not a bad thing (http://www.jewishworldreview.com/cols/williams052505.asp).


You might consider gambling an efficient way to redistribute wealth towards the more entrepreneurially minded who are likely to spend it more productively.
Fine, but this redistributed tax dollars confiscated from the public, given to irresponsible spenders. Tax cuts would encourage productive economic activity and enable long-term planning.


I hope when arguing for free trade, you also support the removal of all labour market protections, such as restricted immigration.
Immigration is not only a labour market thing. But yes, I would like to see the bureaucratic red tape sharply reduced on skilled migrants and spouses.


We need a solution to the continual speculative bubbles and busts. Some have predicted that alternate energies will be the next big speculative bubble/bust.
Probably right, since the government is so heavily involved.

Desmond
19-01-2009, 11:19 AM
It's not a problem if you are buying and selling in the same market. In fact it is good for those looking to upgrade.
How so?

TheJoker
19-01-2009, 11:35 AM
More mercantilist nonsense, nowadays described as obsession with "trade deficit", which as Walter Williams explains is not a bad thing (http://www.jewishworldreview.com/cols/williams052505.asp).

What Williams fails to mention is that he needs employment/income to continually purchase his groceries. A trade deficit reduces the income genrated by the country (other things held equal) thus it is not sustainable.


Tax cuts would encourage productive economic activity and enable long-term planning..

Business tax cuts yes. Individual tax cuts are just as likley to be spent on gambling.



Immigration is not only a labour market thing. But yes, I would like to see the bureaucratic red tape sharply reduced on skilled migrants and spouses.

Even if it likley to cause unemployment to increase and wages to fall sharply?



Probably right, since the government is so heavily involved.

Actually automatic stabilisers (taxation and government transfers) help reduce the severity of the business cycle.

TheJoker
19-01-2009, 11:39 AM
How so?

If my house was worth $500,000 3-years ago and there has been a 10% fall in prices across the board my house is now worth $450,000.

If the house I intend to upgrade to was worth $1million 3-years ago it is now worth $900,000

Previously the upgrade would have cost $500,000 but at the new market prices the upgrade costs only $450,000.

MichaelBaron
19-01-2009, 12:01 PM
It's not a problem if you are buying and selling in the same market. In fact it is good for those looking to upgrade.

I am....may be moving from Caulfield to Sth Yarra subject to negotiating with parents.

MichaelBaron
19-01-2009, 12:02 PM
If my house was worth $500,000 3-years ago and there has been a 10% fall in prices across the board my house is now worth $450,000.

If the house I intend to upgrade to was worth $1million 3-years ago it is now worth $900,000

Previously the upgrade would have cost $500,000 but at the new market prices the upgrade costs only $450,000.

Sorry to say but you did not buy well in this case. Compared to 3 Years ago..prices are still good. Not so good compared to 8 months ago though

Capablanca-Fan
19-01-2009, 12:26 PM
How so?
The rapacious state government robs you and your buyer less in stamp duty, and the federal government less in GST.

Capablanca-Fan
19-01-2009, 12:30 PM
Business tax cuts yes.
Which I support, e.g. company tax and especially payroll tax, a fine on employing someone. Business taxes are really an illusion, because individuals ultimately pay them.


Individual tax cuts are just as likley to be spent on gambling.
Not so much, since they mean that government takes less money that people earn, and earned money is more likely to be valued than a government "gift" confiscated from others.


Even if it likley to cause unemployment to increase and wages to fall sharply?
Not so likely, since more jobs would be created. Same with free trade.


Actually automatic stabilisers (taxation and government transfers) help reduce the severity of the business cycle.
Oh yeah, that really worked to prevent this recession or get America out of the Great Depression.

TheJoker
19-01-2009, 01:28 PM
Sorry to say but you did not buy well in this case. Compared to 3 Years ago..prices are still good. Not so good compared to 8 months ago though

Depends on the market. It was just a fictitous example.

TheJoker
19-01-2009, 02:31 PM
Not so much, since they mean that government takes less money that people earn, and earned money is more likely to be valued than a government "gift" confiscated from others.

I am familiar with most of the research on gambling and I have yet to see anything to substantiate you claim that earned income is less likley to be gambled than government benefits. My personal experience in the industry would lead me to believe that it makes no difference to the problem gambler. But pelase point me to the source of your statement.



Oh yeah, that really worked to prevent this recession or get America out of the Great Depression.

The Independant Review Fall 2007

Frank G. Steindl; Regents Professor of Economics Emeritus at Oklahoma State University:


There are two prominent views about what ended the Great Depression. The most widely accepted one by far emphasizes U.S. entry into World War II, with its attendant government spending for armaments. According to this view... the war's fiscal stimulus moved the economy completely out of the Depression. That the war ended the Depression is a view held not only by economists, but also by the public in general. The second view, in contrast, prominent particularly among economists, sees monetary expansion, which began in spring 1933, as the principal reason for its end.

Note that in this paper Professor Steindl presents a third view as to what caused the end of the depression based on productivity growth

Capablanca-Fan
19-01-2009, 03:33 PM
I am familiar with most of the research on gambling and I have yet to see anything to substantiate you claim that earned income is less likley to be gambled than government benefits.
Common sense: you value what you work hard for. People don't usually value what they don't earn. Just look at the way the underclass often trash state housing.


Frank G. Steindl; Regents Professor of Economics Emeritus at Oklahoma State University:


There are two prominent views about what ended the Great Depression. The most widely accepted one by far emphasizes U.S. entry into World War II, with its attendant government spending for armaments.
Yet the US entered WW2 12 years after the crash of 1929. All the big spending, interventionist and protectionist practices of Hoover and FDR prolongued the Depression and wasted the 1930s. It would be catastrophic if the current recession lasted so long and was ended only by a catastrophic war. Yet so many people think that FDR's big spending ended the Depression.

MichaelBaron
19-01-2009, 03:45 PM
I am familiar with most of the research on gambling and I have yet to see anything to substantiate you claim that earned income is less likley to be gambled than government benefits.

Let me make a politically incorrect but true statement. Most gamblers are poor rather than rich! They gamble away: government benefits, child support allowances, pensions, working class incomes etc.

Capablanca-Fan
19-01-2009, 03:50 PM
Let me make a politically incorrect but true statement. Most gamblers are poor rather than rich! They gamble away: government benefits, child support allowances, pensions, working class incomes etc.
Similarly, look at the casinos and race tracks: the wealthiest people are those who run the gambling businesses, not the gamblers. KRudd's wealth redistribution subsidized gambling addicts at the expense of productive taxpayers.

Capablanca-Fan
19-01-2009, 06:44 PM
New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America
Burton Folsom, Jr.
Reviewed (http://mises.org/misesreview_detail.aspx?control=347) in The Mises Report 14(4), Winter 2008.
...

A diehard defender of Roosevelt might ... argue that Roosevelt was insufficiently far-reaching: despite his radical reputation, Roosevelt only reluctantly embraced the Keynesian prescription of increased public spending. Roosevelt did indeed spend a great deal on government programs; but this must be balanced against his tax increases. When the two are taken together, the stimulus that New Deal outlays provided the economy was less than needed to restore prosperity. William Leuchtenburg, one of the most influential historians of the New Deal, favors this approach.


"The havoc that had been done before Roosevelt took office," Leuchtenburg argues, "was so great that even the unprecedented measures of the New Deal did not suffice to repair the damage." … Some historians say that FDR should have done more deficit spending during the recession of 1937. (p. 12)

Folsom wisely rejects this argument. It rests on a familiar fallacy, classically exposed by Frédéric Bastiat in the 19th century and Henry Hazlitt in the 20th. Spending by the government does not add to employment, since taxes displace private spending and investing. Folsom aptly quotes Hazlitt in this connection:


"Every dollar of government spending must be raised through a dollar of taxation," Hazlitt emphasized. If the WPA builds a $10 million dollar bridge, for example, "the bridge has to be paid out of taxes… Therefore," Hazlitt observed, "for every public job created by the bridge project a private job has been destroyed somewhere else… All that has happened, at best, is that there has been a diversion of jobs because of the project. (p. 84)

Keynesians of course have a response ready. They will say that investors, owing to pessimism about the future, would not have spent on their own the money the government takes in taxes. Instead, they would have hoarded it; had the money remained in private hands, the increase in employment would have been less than what occurred under the beneficent auspices of Washington.

Folsom ably dispatches this Keynesian canard. If businessmen were reluctant to invest, precisely the antibusiness attitude of the Roosevelt administration was in large part responsible. Roosevelt supported confiscatory rates of taxation; small wonder, then, that investors were reluctant to embark on new projects. They had good reason to think that if they were to be successful, Roosevelt would grab their profits for his own dubious schemes. Polls of businessmen taken in 1939 make evident this reluctance.


In March 1939, for example, AIPO [American Institute of Public Opinion] asked a national sample, "Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?" More than twice as many respondents said "yes" as said "no." (p. 248)

...

TheJoker
19-01-2009, 07:56 PM
Yet the US entered WW2 12 years after the crash of 1929. All the big spending, interventionist and protectionist practices of Hoover and FDR prolongued the Depression and wasted the 1930s.... Yet so many people think that FDR's big spending ended the Depression.

Yes many in fact the majority of people including economists believe that expansionary fiscal policies played a major role (along with expansion of the money supply) in ending the great depression. Probably for good reason it is supported by the evidence.

Very few argue that expansionary fiscal policy has a negative impact. Friedman's "Crowding Out" theory has only been shown to exist during periods of full employment, and even then it is still rather weak.

However evidence for both the accelerator effect and the multiplier effect are strong.

TheJoker
19-01-2009, 08:07 PM
New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America
Burton Folsom, Jr.

Folsom is a historian not an economist. He has also been a free market, libertarian activist for years. So it is hardly surprising that he has written such a book.

Even my article from the overtly libertarian Independant Review recognises that the majority opinion is that expansionary fiscal policy helped the US to recover.

Davidflude
19-01-2009, 08:13 PM
I am....may be moving from Caulfield to Sth Yarra subject to negotiating with parents.

What is the special attraction of South Yarra? Have you considered other suburbs such as the leafy Eastern suburbs? Depending on your budget North Balwyn, Mont Albert, Box Hill or Blackburn are all nice.

Davidflude
19-01-2009, 08:18 PM
Some years ago New Zealand wiped out its automobile industry. I have seen it said the the world has 60% over capacity for automobile production. Should the Aussie automobile industry be allowed to wither on the vine?

I am old fashioned. I think that the only cases for subsidization is the infant industry concept or where the industry is needed for defence.

Capablanca-Fan
19-01-2009, 08:23 PM
Some years ago New Zealand wiped out its automobile industry.
Yet Kiwis are not short of good quality cars.


I have seen it said the the world has 60% over capacity for automobile production. Should the Aussie automobile industry be allowed to wither on the vine?
Yes, just like the horse-and-buggy and icebox industries. They had it far tougher, since they had been around for centuries, and their industries unlike cars became extinct.

Jobs saved in protected industries are usually outweighed by those lost in industries that use the protected products.


I am old fashioned. I think that the only cases for subsidization is the infant industry concept or where the industry is needed for defence.
Yet as Friedman pointed out, such protected infant industries usually never grow up. But otherwise agree.

TheJoker
19-01-2009, 08:45 PM
Let me make a politically incorrect but true statement. Most gamblers are poor rather than rich! They gamble away: government benefits, child support allowances, pensions, working class incomes etc.

AC Nielsen Study on
Prevalence of Gambling and Problem Gambling in NSW (http://www.olgr.nsw.gov.au/pdfs/rr_prevalence_gambling.pdf)


Non-gamblers are more likely to be aged 65 plus years, female, residing in metropolitan Sydney, not in the paid workforce, educated to university/post graduate level, born overseas, earning a personal annual income (pre-tax) of less than $10,000, and residing in the Coastal Sydney region.

Moderate risk gamblers are more likely to be aged from 18-24 years ,
male, in full time work, educated to Year 10, earning a personal annual income (pre-tax) of $50,000 or more, and residing in South East region.

Problem gamblers are more likely to be aged from 18-24 years, male, never married, and residing in Riverina/Murray or Western
Sydney regions.

Capablanca-Fan
20-01-2009, 12:40 PM
Folsom is a historian not an economist.
But an expert in the history of capitalism. Maybe it takes a historian to recognize that Hoover was a big-spending, interventionist, protectionist, despite the myth that he was a do-nothing laissez-faire capitalist, a myth swallowed even by Bush and Cheney. FDR made the Depression "Great" by extending Hoover's policies, as well as discouraging investment by his anti-business rhetoric and rule-changing.


He has also been a free market, libertarian activist for years.
The unforgiveable sin in the eyes of the leftist Anointed.

MichaelBaron
20-01-2009, 01:50 PM
What is the special attraction of South Yarra? Have you considered other suburbs such as the leafy Eastern suburbs? Depending on your budget North Balwyn, Mont Albert, Box Hill or Blackburn are all nice.

In my case attractions are:

1) close to the city
2) close to where my investment property/future place of residence is
3) i would love to go jogging every day in Botanical Gardens
4) can walk to the city along Yarra river rather than travel by train

Again, it all depends on the person. In my case Sth Yarra is ideal place to be.

TheJoker
20-01-2009, 02:23 PM
The unforgiveable sin in the eyes of the leftist Anointed.

Not at all, but this may have swayed his judgement. Considering that even the Libertarian aligned journal the Independant Review admits that the majority view of economists is that expansionary fiscal policy helped the US to recover from the Great Depression, Folsom definitely holds a minority veiwpoint and his argument has not been able to convince the majority of economists. Unlike Friedman's arguement that a contraction in the money supply caused and prolonged the Great Depression.

ER
21-01-2009, 02:51 PM
Latest news on the jobs front indicate that we are going into tough economic crossroads; and I mean very tough! :(

Spiny Norman
21-01-2009, 05:05 PM
Storm clouds have been brewing for some time. I've battened down the hatches ...

Capablanca-Fan
27-01-2009, 10:37 AM
Fannie Mae Eases Credit To Aid Mortgage Lending (http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&partner=permalink&exprod=permalink)
Steven Holmes
NYT 30 Sept 1999

...
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
...
And see how the GOP in 2005 tried to reign in Freddie and Fannie but were opposed by the Dummycrats:
_MGT_cSi7Rs

Capablanca-Fan
27-01-2009, 02:15 PM
“A wise prince will seek means by which his subjects will always and in every possible condition of things have need of his government, and then they will always be faithful to him.” —The Prince, Niccolo Machiavelli (1469–1527)

Capablanca-Fan
28-01-2009, 11:52 AM
KRudd's "stimulus package was spent on a "record pokie spree (http://www.news.com.au/story/0,23599,24953191-1702,00.html)", and booze (http://www.news.com.au/story/0,27574,24789711-29277,00.html) increasing crime (http://www.theaustralian.news.com.au/story/0,25197,24893754-2702,00.html). Some recipients were more sensible, defying KRudd's spendthrift advice and paid off debt (http://www.theaustralian.news.com.au/story/0,25197,24945649-2702,00.html).

So despite Ian Murray's shilling for KRudd, "the retail baron Gerry Harvey declared the first $10.4 billion stimulus package a dud (http://www.smh.com.au/text/articles/2009/01/20/1232213646780.html), saying it had not affected Christmas spending patterns. "My view is if there'd been no fiscal stimulus, I don't think it'd have been much different," he said.

Yesterday his company, which includes the Harvey Norman chain, announced the closure of its Domayne store in Campbelltown, a victim of the economic crisis."

Cited from Andrew Bolt, Rudd’s rescue is killing us (http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/rudds_rescue_is_killing_us/):

Terry McCrann:


(T)here’s a big risk that much of the spending — here and even more so in the US — really will be wasted. A critical point, completely lost in the desperate rush to spend, spend, spend our way out of — or merely even just to sidestep — recession, is that there really is no free lunch. The money being spent will come from somewhere. Either borrowed or raised from taxpayers.

John Montgomery:


The new policy of demand management through government spending — known as Keynesianism — will not work. It never has, for the simple reason that governments cannot run economies and they do not create wealth. By throwing government money around in any number of bail-outs, infrastructure programs and pet social projects, governments are running up debt and simultaneously failing to revive the economy.

Allan Fels:


Professor Allan Fels, of the Australia and New Zealand School of Government, said it made sense to plan as if the recession would last for three years. ”Don’t use up all your ammunition at once,” he said.

The Age:


As Prime Minister Rudd and Mr Swan consider their options, many of the experts surveyed by The Age have cautioned against another big spending package, with one, Melbourne University’s Professor John Freebairn, saying that a recession was needed in order to fix Australia’s problems.

“Our houses are too expensive, our balance sheets are in poor shape, and over 15 years we accumulated some pretty sloppy business practices. Almost as Paul Keating said, sometimes we need recessions to get over our bad behaviour,” he said.

Canberra Times:


THE Federal Government pushed ahead with the announcement of a $4 billion fund to support the commercial property sector despite reservations from the Reserve Bank… By stepping in to offer replacement finance, the fund would tend to support commercial property prices. But this would interfere with the normal workings of the market and prevent bank balance sheets adjusting accordingly, a situation the Reserve Bank would not condone.

Jennifer Hewett:


“RUDD Bank” is testimony to the Government’s determination to appear decisive as it tries to figure out how to handle an economy quickly going pear-shaped. But ...(c)ontrary to the impression deliberately created by Canberra, the new commercial property fund will do virtually nothing to directly protect jobs in the construction industry…

(F)ormer Commonwealth Bank chief executive, now Future Fund head, David Murray ... advised the Government on January 15 there was no immediate case for intervention in the commercial property sector… He said this week the structure needed to be carefully thought through, so costs were not borne only by the commonwealth.

The Australian:


THE federal government-led $4billion lending facility for commercial property is expected to mask sloppy lending practices undertaken by many of the major banks during the property boom.

pax
28-01-2009, 01:19 PM
KRudd's "stimulus package was spent on a "record pokie spree (http://www.news.com.au/story/0,23599,24953191-1702,00.html)", and booze (http://www.news.com.au/story/0,27574,24789711-29277,00.html) increasing crime (http://www.theaustralian.news.com.au/story/0,25197,24893754-2702,00.html). Some recipients were more sensible, defying KRudd's spendthrift advice and paid off debt (http://www.theaustralian.news.com.au/story/0,25197,24945649-2702,00.html).

I was the recipient of a fair chunk of KRudd's bonanza, and I have to say that it has probably resulted in a fair bit of economy stimulation. We have just bought our first house. There are Settlement Agents and Real Estate agents getting paid, builders and pest controllers doing inspections, and the seller is using the proceeds to build a house. It also props up the housing market a bit in shaky times. Obviously, I am not everyone - but it's not a bad bit of leverage for a $10k or so handout.

Basil
28-01-2009, 01:23 PM
Pax, were those expenditures a result of the handout? You bought a house because of the handout?

If not, the money (cited as expended) was going to be spent anyway, which begs the question what did you really do with the extra money that wasn't going to be spent anyway?

We reduced/ retired debt BTW.

Spiny Norman
28-01-2009, 03:13 PM
I'm steadily buying sausages at $4.00/kilo from the local butcher with my handout ... without the handout, I would have been buying reconstituted sawdust in supermarket sausages at $2.00/kilo ... so I estimate that we are stimulating the economy to the tune of roughly $8/week as a result (the $2,000 will last a long time!).

Capablanca-Fan
28-01-2009, 03:35 PM
I was the recipient of a fair chunk of KRudd's bonanza, and I have to say that it has probably resulted in a fair bit of economy stimulation. We have just bought our first house. There are Settlement Agents and Real Estate agents getting paid, builders and pest controllers doing inspections, and the seller is using the proceeds to build a house. It also props up the housing market a bit in shaky times. Obviously, I am not everyone - but it's not a bad bit of leverage for a $10k or so handout.
Thought you didn't like it when Howard offered a similar handout for first home owners, because it helped raise home prices since there was more money to spend. I tend to agree. So what changed your mind?

And will such a one-off stimulus work? Even its proponents admit they don't know that. It's even worse in America, when Paulson et al. have no clue how much is needed, and how it's now being spent differently from its intention: buying out troubled assets.

Spiny Norman
28-01-2009, 03:38 PM
Nah, that was Liberal government handout ... Liberal government handout is bad (they are trying to bribe people) ... Labor government handout is good (its done for only the best reasons, out of the goodness of their heart and the generosity of their spirit). ;)

pax
28-01-2009, 03:44 PM
Pax, were those expenditures a result of the handout? You bought a house because of the handout?

It was a factor. Without the handout, we probably would have had to wait a bit.

Six months ago, buying wasn't an option. Today, between the FHB grant, lower interest rates and slightly lower prices it was suddenly possible.