Quote :

"“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act. He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression. For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years. Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence. On the latter point: traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. But indebtedness began rising under Reagan; it fell again in the Clinton years, but resumed its rise under the Bush administration, leaving us ill prepared for the emergency now upon us. The increase in public debt was, however, dwarfed by the rise in private debt, made possible by financial deregulation. The change in America’s financial rules was Reagan’s biggest legacy. And it’s the gift that keeps on taking. The immediate effect of Garn-St. Germain, as I said, was to turn the thrifts from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money. But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down. These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped. Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior. We weren’t always a nation of big debts and low savings: in the 1970s Americans saved almost 10 percent of their income, slightly more than in the 1960s. It was only after the Reagan deregulation that thrift gradually disappeared from the American way of life, culminating in the near-zero savings rate that prevailed on the eve of the great crisis. Household debt was only 60 percent of income when Reagan took office, about the same as it was during the Kennedy administration. By 2007 it was up to 119 percent. All this, we were assured, was a good thing: sure, Americans were piling up debt, and they weren’t putting aside any of their income, but their finances looked fine once you took into account the rising values of their houses and their stock portfolios. Oops. Now, the proximate causes of today’s economic crisis lie in events that took place long after Reagan left office — in the global savings glut created by surpluses in China and elsewhere, and in the giant housing bubble that savings glut helped inflate. But it was the explosion of debt over the previous quarter-century that made the U.S. economy so vulnerable. Overstretched borrowers were bound to start defaulting in large numbers once the housing bubble burst and unemployment began to rise. These defaults in turn wreaked havoc with a financial system that — also mainly thanks to Reagan-era deregulation — took on too much risk with too little capital. There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it. "

http://www.nytimes.com/2009/06/01/opinion/01krugman.html

6/2/2009 5:05:18 PM

6/2/2009 5:16:37 PM

^^ From The New York Pravda.

6/2/2009 5:20:37 PM

Come on Dude we all know it was Clinton, the Liberals running congress these days, and Irresponsible Amuricans.

If we had made George Dubya 'Supreme Chancellor for life' surely under the guidance of good conservative leadership we would already be out of the recession.

6/2/2009 5:24:56 PM

after reading the article the dude definitely hates Reagan, but he made some good points.

The legislation in question allowed Americans who couldn't afford it, to take out loans they couldn't pay back. Combine this with the increased availablity of credit cards and its no wonder people are in so much debt.

Theres plenty of blame to go around. The guy that wrote this would seem to have you believe that Reagans signing of this law forced a bunch of people to get loans they couldn't pay back.

So whats a better idea? Allow people to get loans, even if they might not be able to afford them, or put up hard, government imposed limits for who can get what loans. Most people with public educations have no idea how personal finance works, so its probably a good idea to impose hard limits on who can get loans and credit cards until the populace can be better educated on their proper use.

Quote :

"The immediate effect of Garn-St. Germain, as I said, was to turn the thrifts from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money. "

haha. I bet the dude that wrote this is probably completely in favor of Obama's bailout money, even though it has the same effect.

Quote :

" We weren’t always a nation of big debts and low savings: in the 1970s Americans saved almost 10 percent of their income, slightly more than in the 1960s. It was only after the Reagan deregulation that thrift gradually disappeared from the American way of life, culminating in the near-zero savings rate that prevailed on the eve of the great crisis. Household debt was only 60 percent of income when Reagan took office, about the same as it was during the Kennedy administration. By 2007 it was up to 119 percent. "

I think this is more to do with a culture of entitlement than anything else. I'm entitled to a big screen tv, im entitled to a house, im entitled to a new car. These people never learned how to budget or plan their own finances. I save more than 10% of my income. I bought a condo I can afford. I dont spend money on things I dont need and I dont spend money I dont have. Apparently I am immune to bad Reagan-era legislation

Quote :

"There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it. ""

This is bullshit and he knows it. Hes just trolling at that point. The prime villain is the American consumer. Reagan passing that law might have helped facilitate it, but blaming him is like blaming a bar tender for some dude driving drunk.

[Edited on June 2, 2009 at 5:51 PM. Reason : a]

6/2/2009 5:47:14 PM

[Edited on June 2, 2009 at 5:47 PM. Reason : a]

6/2/2009 5:47:14 PM

a

[Edited on June 2, 2009 at 5:47 PM. Reason : a]

6/2/2009 5:47:14 PM

Now, I don't think anyone on this board can accuse me of not loving Paul Krugman.
But this column is really just partisan mush.

I mean he places the entire blame of Garn-St. Germain Depository Institutions Act on Reagan and the Republicans??? huh??

#1 Last I checked, it takes two branches of government to make a bill into a law.
#2 Fernand St. Germain, who sponsored the bill in the house (see his name in the bill's title), was a Democrat
#3 the bill was also co-sponsored by many Democrats, including Charles Schumer
#4 the bill passed 272-91 in the Democratically controlled House of Representatives

So how did all of the blame end up on Reagan's lap??

I am also at a loss as to why Krugman thinks this bill is so important for our current financial crisis. Its not even clear what part of the bill he's talking about, which is kinda important because much of it was changed after the S&L crisis.

And weren't more recent pieces of legislation more important for our current financial crisis?? What about the Gramm-Leach-Bliley Act which was signed into law by Bill Clinton in 1999?? Remember, it ended the seperation of commercial and investment banks?? Why does Garn-St. Germain matter more than that bill??? Krugman doesn't say.

This column is just too vauge to be useful. Aside from Garn-St. Germain Depository Institutions Act he doesn't mention any other pieces of legislation but hints that they are out there. He also assures us that they were all bad bills that can be associated with Regan and "his advisors". And if a Democrat ever supported those unnamed pieces of legislation, well better not to mention that. They clearly were taken in by those evil Republicans.

*sigh* Remember when Paul Krugman wrote *good* columns?

[Edited on June 2, 2009 at 6:42 PM. Reason : ``]

6/2/2009 6:13:13 PM

ZOMG hindsight

6/2/2009 6:14:24 PM

Wow, Paul Krugman takes a counter-factual view of history, blames Republicans, calls for regulation.

Stop the presses.

No seriously though, this is choice:

Quote :

"But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down. These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped."

Of course, the fact that home ownership was being pushed as a major political agenda of both parties (in spite of asset inflation, at that) has nothing at all to do with this. Nothing. I'm quite sure Krugman spoke out against this malformed agenda with terrible unintended consequences for the last twenty years as well, no? Even when it was his own team pushing just as hard?

Maybe not?

Oh well. Ignore the man behind the curtain on your way out.

6/2/2009 6:46:06 PM

I have read a number of economists refer to the '90s Krugman and the new Krugman. The former providing intelligent, substantive commentary and the latter providing unsubstantiated, partisan jabs.

Peter Wallison of AEI responds:

Quote :

"In an article in Sunday’s New York Times, columnist Paul Krugman reached back to the Garn-St. Germain Act of 1982 to try to pin the current financial crisis on Ronald Reagan. His argument was that the act gave the S&Ls “a license to gamble with taxpayers’ money.” Krugman’s effort to shift blame from Fannie Mae and Freddie Mac—where it belongs—to an obscure law adopted 27 years ago makes clearer than usual that he didn’t earn his Nobel prize as an economic historian.krugman The Garn-St. Germain Act was an effort to save the S&L industry from the consequences of government regulation. During the inflation of the late 1970s (note to Krugman: thanks in part to the policies of Ronald Reagan’s political opponents) interest rates rose above the 5.25 percent cap federal regulations placed on what S&Ls could pay for deposits. As a result, deposits poured out of S&Ls into investments that paid higher market-based rates. This was the genesis of money market mutual funds, which were able to offer shareholders higher rates on their money than banks and S&Ls, with virtually equivalent safety. The loss of deposits threatened the survival of S&Ls. The first step authorized by Congress was the Depository Institutions Deregulation Monetary Control Act of 1980 (another note to Krugman: this was a Democratic Congress, before Reagan took office), which authorized the cap on deposit interest rates be lifted gradually, and this was accomplished over the next three years by the Depository Institutions Deregulation Committee, consisting of the major bank and S&L regulators, chaired by the secretary of the treasury. However, unlike banks, S&Ls were still restricted by law from making loans other than for housing, and thus they had no short-term investments that would allow them to earn profits even if they could now attract funds by paying market rates. The Garn-St. Germain Act was meant to correct this by freeing S&Ls to use a portion of their deposits to make non-housing loans. But it came too late. The mismatch between what S&L’s could earn on the mortgages they already held in 1982, and the rates that they now had to pay for their deposits, resulted in huge losses for the industry, and its eventual collapse in the late 1980s. The lessons that most economists and economic historians derived from the S&L debacle were that it is a mistaken policy to place a regulatory cap on interest rates, and an even more mistaken policy to limit the ability of depository institutions to diversify their assets. The lesson that Krugman learned is that regulation of rates and investments is always good, even if it drives a whole industry into bankruptcy. There were certainly abuses when the S&Ls tried to use their new powers, but the fundamental reasons for losses in the S&L industry were the combination of a cap on deposit rates and the restrictions on permissible investments. Even if this were not true, however, Krugman misses some important facts. After the S&L industry collapsed, Fannie and Freddie grew to take their place. Despite efforts by the Bush administration and the Republicans in Congress to rein them in through toughened regulation, Congress would not act to restrict their growth or risk-taking. Now the two companies are insolvent, under the control of the federal government, and held or guaranteed $1.6 trillion in subprime and Alt-A loans—popularly known as “toxic assets”—when they were taken over. Not apparently a student of the subject, Krugman contended in his columns before they were taken over that they didn’t hold any subprime loans. It’s doubtful that his column will report, in the future, what is likely to be the fact that Fannie and Freddie will cost U.S. taxpayers at least $400 billion, dwarfing the losses of the S&L industry. Finally, Krugman appears to have forgotten that in 1991—after the S&L collapse—President Bush proposed and Congress adopted the Federal Deposit Insurance Corporation Improvement Act, a very strict regulatory law that gave bank and S&L regulators broad new authority to prevent the excessive risk-taking that occurred in the S&L industry and among commercial banks. So for those (like Krugman) who believe in the efficacy of government regulation, whatever lingering effects might have come from the deregulatory Garn-St. Germain Act were cancelled out by the tough new regulatory law nine years later. Despite that act, however, it is important to note that we now have the greatest bank crisis since the Great Depression. This is a clear demonstration that tough regulation—although it is necessary when institutions are backed by the federal government—is no panacea."

http://blog.american.com/?p=1391

[Edited on June 2, 2009 at 9:55 PM. Reason : /]

6/2/2009 9:54:35 PM

I save more than 10% of my income.

I am very curious about this sort of thing. When these statements are made does that include 401k contributions, or is it only money that hits savings and/or money market accounts? When the national savings rate is reported does that include 401ks as well, or no? I ask because a savings rate of 0% seems impossible with those taken into account.

Is there any data indicating how the savings rate has changed due to the recession?

Thanks!

6/3/2009 10:35:31 AM

A Motherfucking Ronald Reagan statue was just unveiled at the Capitol Rotunda

6/3/2009 11:54:32 AM

^^ i believe the savings rate does take into account 401k, because the description I've found of it is basically "total payroll vs. total consumer spending". It's a very rough estimate, and it doesn't actually poll or question individual's spending habits.

i think you would be surprised at the number of people who don't have 401ks or IRAs, or don't contribute to them even if they are available. Furthermore, there are probably people who do contribute to 401ks, and yet build up more credit card debt every month to cancel out their savings.

6/3/2009 11:59:48 AM

^ I am pretty sure you're right that contributions to 401ks are included, but an important thing to note is that the value of those 401ks are not considered. That is understandable since it isn't relevant to the question of what fraction of income the U.S. is saving. However, it is important when answering the question of how much U.S. citizens "should" be saving.

I know that up until quite recently a lot of folks justified the low savings rate of U.S. citizens by saying that because the value of people's investments was rising so quickly (homes, stocks, etc) that people could afford to save lower fractions of their income. I don't know if thats changed.

6/3/2009 1:08:10 PM

Ronald Reagan statue unveiled in Capitol Rotunda

http://tinyurl.com/pr55yd

6/3/2009 1:20:55 PM

When i think of savings %; I think of....

Savings %= total net pay - bills & utilities - loan payments - discretionary spending- misc expenses / net pay + 401k contribution*(1+effective tax rate) / (net pay)

Although for younger people i think someone who does not save anything beyond their 401k is almost as bad as someone living from paycheck to paycheck. As savings is not JUST for retirement.

What i'm curious is if money is still considered "savings" if i use it to buy new shoes this week, buy a video game next month, airplane tickets for vacation in 2 months, if i use it for a car payment next year, house imporvements in 3 years, kids college in 15 years. At what point is putting money in your savings account not "saving"



[Edited on June 3, 2009 at 1:26 PM. Reason : L]

6/3/2009 1:22:30 PM

^^ yeah I already posted about the Reagan Zombie unveiled to suck the brains out of the lower class people who walk past him in the Capitol Rotunda

6/3/2009 1:26:36 PM

^ Are you referring to the bipartisan event that Nancy Pelosi orchestrated?

Quote :

"'I particularly want to thank Nancy Pelosi for everything she did to organize this, bring this together, and make it happen,' [Nancy] Reagan said."

http://briefingroom.thehill.com/2009/06/03/reagan-statue-unveiled-nancy-reagan-thanks-pelosi/

[Edited on June 3, 2009 at 1:40 PM. Reason : You lose again. ]

6/3/2009 1:38:25 PM

I lose what? I didn't say anything that had anything to do with Nancy Pelosi, or partisanship. You're a fucking idiot.

6/3/2009 2:49:38 PM

^ So, you're pro-Reagan?

Quote :

"A Motherfucking Ronald Reagan statue was just unveiled at the Capitol Rotunda"

6/3/2009 6:52:25 PM

tww libertarians/conservatives flip out over calls for regulation, insist market wasn't free enough and didn't allow for those amazing rational actors to take over and make the economy run, post articles from American Enterprise Institute while saying NYT is like a propaganda piece.

Suppose I should also mention that Krugman hasn't been to keen on Obama's proposals for how to fix things.

The ownership society was a bad idea, but the answer wasn't the stuff proposed by a swath of the DC establishment from Reagan to Rubin.

6/3/2009 7:20:53 PM

Quote :

"Suppose I should also mention that Krugman hasn't been to keen on Obama's proposals for how to fix things."

Yeah, because Obama isn't nationalizing enough.

Seriously, if you're going to rag on conservatives and libertarians, are you going to hold this guy up as your model of intellectual integrity?

Really?

6/3/2009 7:36:55 PM

Reagan was a conservative republican version of Obama. Both used their charisma and public speaking skills to obtain lofty heights of approval from their followers (even if their views and policies are subpar are misguided); while the opposing side balks that they are screwing up America and awful politicians. In reality though both are somewhere in between.

6/3/2009 8:40:13 PM

I'm confused Socks''''? Didn't you rake me through the coals a few months ago for siting Krugmans take on the economy and the U6?

6/3/2009 8:58:48 PM

PinkandBlack, which counterarguments from the AEI do you disagree with?



[Edited on June 3, 2009 at 9:12 PM. Reason : .]

6/3/2009 9:08:49 PM

Quote :

"Yeah, because Obama isn't nationalizing enough. Seriously, if you're going to rag on conservatives and libertarians, are you going to hold this guy up as your model of intellectual integrity? Really?"

DOCTOR STEVE CHAOS with the indignation! Good show, you unique libertarian snowflake, you! And with the edgy bolded text and everything.

If we're going to put the banking system through pain, I'd rather, *shock*, look at temporary nationalization, which we've discussed before I think. Like they did in Sweden's banking crisis in the early part of the 90s:

Quote :

" Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government. That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well. "

Quote :

"Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States. But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated."

Quote :

"Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said. The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well. Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times. Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years. After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks. Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral."

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html

Wait, NYT disregard.

The real key here is that both sides of the government gave in early enough to do such a thing. It's too late to form any kind of consensus now, and we've already gone through with a bailout anyway. Here you had a plan that didn't let the banks fail like some would want, but didn't leave them off the hook to do what thou wilt with whatever money gets pumped into them like crazy like we're doing.

Now I've said already, the concept of the "ownership society" did get us into this, and I think most of you agree with that. People who couldn't pay loans back got loans. I'm not a housing policy kind of guy so I can't claim to know better ways to go about this aside from straight up subsidies that don't leave a bunch of unpaid loans sitting out there.

In that sense, from what I understand from that AEI article, yes, Fannie and Freddie and those who drove the housing bubble are to blame. But that doesn't mean that the solution was greated deregulation. Rather, smarter lending practices.

I'm probably getting all sorts of stuff confused here. I'm not a public policy person, I just like politics. I do know that AEI stands about as good of a chance as being unbiased as NEW YORK PRAVDA, seeing as it's certainly among the offenders in Washington who produce pages after pages of reports critical of business regulation, significantly bankrolled by the people who would most benefit from repeal of said regulations. They have a financial interest in turning public opinion against regulation. More power to them, but they're not exactly a scholarly outfit.

6/3/2009 9:40:00 PM

Quote :

"DOCTOR STEVE CHAOS with the indignation! Good show, you unique libertarian snowflake, you! And with the edgy bolded text and everything."

It's not indignation, you jackass, it's Krugman's own stated opinions. How edgy of me, using font for emphasis!

Meanwhile, if you want to talk about half-baked ideas, let's not only piss away untold billions in what amounts to perhaps the greatest case of moral hazard in American history, but have the government start actively managing the banks too. I sure bet that will end well.

Seriously, you act like you're immune to this phenomenon of "cherrypick your scenario" you so roundly castigate.

6/3/2009 9:53:02 PM

Quote :

"Meanwhile, if you want to talk about half-baked ideas, let's not only piss away untold billions in what amounts to perhaps the greatest case of moral hazard in American history, but have the government start actively managing the banks too. I sure bet that will end well. "

you just see "nationalization" and then stop reading, right? this was a successful propping up of banks. would it work again? who knows? humans are irrational beings and are probably just as likely to fuck up and lose people money in this as they would be if they just let banks fail (which, while you might be fixated on the lost tax money, would still be a loss of money). I'd be willing to take a shot at saving everything with this though. It has worked quite well before.

i'm stoked to hear you expound on the "moral hazard" of nationalizing banks (which would likely have cost less, if this model they used in the article i posted works the same, which is uncertain b/c economics isn't a science like some people think) as opposed to just shoveling money in them. then again, i already sorta know how you'll respond so why bother?

you need to chill out and stop getting offended when people use colorful language to insult your deeply held ideology, even if they are a dumb bullshit artist like me. You're starting to act like hooksaw in that you need to constantly defend your honor from people who think you're ideology is bullshit.

[Edited on June 3, 2009 at 10:14 PM. Reason : .]

6/3/2009 10:11:45 PM

Fail Boat. If I did, it was only because i thought Krugman overt partisanship had misled him once again. Not because I dont think he's awesome.
http://thewolfweb.com/message_topic.aspx?topic=544281

6/3/2009 11:41:29 PM

Quote :

"you just see "nationalization" and then stop reading, right? this was a successful propping up of banks. would it work again? who knows? humans are irrational beings and are probably just as likely to fuck up and lose people money in this as they would be if they just let banks fail (which, while you might be fixated on the lost tax money, would still be a loss of money). I'd be willing to take a shot at saving everything with this though. It has worked quite well before."

If you'd like a more thorough explanation, then here you go: I am incredibly skeptical that this administration - or the prior one, for that matter - could do so without an extensive degree of political meddling which would ultimately compromise the process. Already we're beginning to see this with GM, and I think you'd have to be completely naive to believe that this administration wouldn't try and start leveraging on banks for social policy.

Exhibit A: The fact that one of their stated policies with regard to the housing prices has been to attempt to prop up prices. This in spite of the fact that housing is historically over-valued. I think you'll agree with me on this point that this is generally bad policy.

Exhibit B: The administration's push to rewrite mortgage terms. Again, given the predilections of this administration, I think once given control of banks, one of their first moves would be simply declare that banks must suddenly begin a widespread rewrite of their mortgage terms, including writing down principal balances. If you don't see why this is inherently dangerous, then I can't help you any further.

Furthermore, there's the belief that we'd all magically "recover" our costs once these bad assets clear. Except that given the nature of these assets - many of which are incredibly overvalued - I doubt that many of them are worth half of what the banks paid, and at that, the reason why the banks are stuck with them is that there's no way in hell that they want to clear them at the fire sale prices that the market would demand and thus be stuck holding the loss.

Quote :

"i'm stoked to hear you expound on the "moral hazard" of nationalizing banks (which would likely have cost less, if this model they used in the article i posted works the same, which is uncertain b/c economics isn't a science like some people think) as opposed to just shoveling money in them. then again, i already sorta know how you'll respond so why bother?"

It's a moral hazard propping them up, period. Perhaps less so if the stock is diluted through a nationalization, but the fact is, the same principle applies. Except in PinkandBlack land, where apparently the government works without error and moral hazard is simply an academic term with no real-world consequences.

But let's ignore that part for a second, since it's obvious you already have. Perhaps you could explain to all of us how this does not come tantamount still to privatizing gains and socialziing losses? Because unless this turns out as the super-awesome-secret-deal-of-a-lifetime, we're going to end up taking a bath on this one - be it by nationalization or bailout; the only question is "by how much?"

I realize that by your thinking that no-strings bailouts and stock takings (i.e., "nationalization") are the only options on the table, and hence anyone who rejects the latter seems like an absolute fool (and, were we stuck with only those choices, the latter does in fact look more rational), but really. Try and think a little outside your own box for a moment.

Quote :

"you need to chill out and stop getting offended when people use colorful language to insult your deeply held ideology, even if they are a dumb bullshit artist like me. You're starting to act like hooksaw in that you need to constantly defend your honor from people who think you're ideology is bullshit."

Dude, you pretty much troll and act like a bullshit artist, and you're calling me hooksaw-like? Dude, look in the mirror - you're acting like a mirror image version of the same. RAWR RAWR LIBERTARIANS RAWR RAWR RON PAUL RAWR!

I mean, replace "Liberals" and "Pelosi" in the above, and you see where this is going.

[Edited on June 4, 2009 at 7:14 AM. Reason : .]

6/4/2009 7:01:06 AM

Quote :

"How edgy of me, using font for emphasis!"

DrSteveChaos

I can tell you from experience, the lefties here like to take issue with that!

6/4/2009 11:17:19 AM

Quote :

"I realize that by your thinking that no-strings bailouts and stock takings (i.e., "nationalization") are the only options on the table, and hence anyone who rejects the latter seems like an absolute fool (and, were we stuck with only those choices, the latter does in fact look more rational), but really. Try and think a little outside your own box for a moment."

You do realize there have been many successful nationalized industries in 1st world, capitalist, successful nations, right? It doesn't involve geniuses running the government, just a commitment to actually following through (and that can be debated, our political system does have a tendency to be a massive clusterfuck).

When you talk about bank failure, you're talking about something that is sadly a fact of the market. However, when you realize that the true "free market" approach would be not only for these things to fail, but for there to have been no FDIC to back it up in the first place (damn you, New Deal!), then things are a little absurd. Next time I guess all those people will be wise rational actors, right?

Maybe I'm wrong and you do believe in the FDIC, it seems libertarians on here have a tendency to backtrack on things once confronted with their absurdity (see: the health care thread).

6/4/2009 11:32:15 AM

Quote :

"You do realize there have been many successful nationalized industries in 1st world, capitalist, successful nations, right? It doesn't involve geniuses running the government, just a commitment to actually following through (and that can be debated, our political system does have a tendency to be a massive clusterfuck)."

See my prior comments. I don't trust this particular administration - or the last one - not to completely politicize this. This inherently breeds a conflict of interest, where political goals clash with those of the company itself. Not to mention the fact that, given the rather large stake in the operations of the nationalized industry, we can expect more funds flushed down the toilet if things don't go as planned. (This, too, we have observed from other first-world nations).

Quote :

"When you talk about bank failure, you're talking about something that is sadly a fact of the market. However, when you realize that the true "free market" approach would be not only for these things to fail, but for there to have been no FDIC to back it up in the first place (damn you, New Deal!), then things are a little absurd. Next time I guess all those people will be wise rational actors, right? Maybe I'm wrong and you do believe in the FDIC, it seems libertarians on here have a tendency to backtrack on things once confronted with their absurdity (see: the health care thread)."

You know what? First and foremost let's start by operating within the confines of the law. That would be an excellent point to work from, which sadly this administration has decided to be too cumbersome. Then once we actually follow the laws we lay out, for things like FDIC receivership of failed banks, then perhaps we can debate the finer academic points like the FDIC's necessity.

As I understand it, FDIC receivership would function simply like an expedited bankruptcy, whereupon secured creditors (i.e., depositors) are insured by default, while the fees for such insurance are paid by the banks themselves. Hardly the worst possible outcome. Banks, meanwhile, can be liquidated while those who didn't screw up fill in market share. If we didn't have people screaming Everybody panic!!!!, it seems like it could have been even somewhat of an orderly solution - you know, actually following the laws.

And bankruptcy is where the automakers should have been started, instead of limping to that inevitable conclusion, hundreds of billions of dollars later.

6/4/2009 6:19:15 PM

Quote :

"See my prior comments. I don't trust this particular administration - or the last one - not to completely politicize this. This inherently breeds a conflict of interest, where political goals clash with those of the company itself. Not to mention the fact that, given the rather large stake in the operations of the nationalized industry, we can expect more funds flushed down the toilet if things don't go as planned. (This, too, we have observed from other first-world nations)."

1. Nationalization is a last resort, and the US isn't exactly adept to it. I'd prefer a more liberal economy w/ stong social safety net (which is while I'll never accept the total absence of some sort of gov. from regulating the economy or having some sort of role), but I'm more hesitant to let the market sort things out since it can be just as ugly at times as bad government. I'm a liberal, and stability is necessary for prosperity, both of the mind and business.

2. Government assistance has created some of the strongest companies in the world (see: Samsung, Toyota, Nokia, NissanRenault, an increasing number of Chinese firms). It sometimes takes proper government intervention (while limited) to ensure competition and the birth of strong new firms who can't compete at first. I have a book recommendation: http://www.amazon.com/Free-Market-Government-Marketplace-Competitive/dp/1591842468

Sometimes intervention provides larger growth in the future when it protects industry. Plenty of capitalists and economists (and marketing hacks, like me) will admit that.

6/5/2009 1:20:51 AM

come on... Nationalization was the first fucking option chosen this time.

The free market usually only gets "ugly" when the gov't steps in and mucks shit up. Other times, a correction is a correction. There's nothing "ugly" about that.

Finally, the gov't can't intervent and increase competition. It's kind of impossible for them to do that, because they are going to naturally favour one company over another, which is the antithesis of competition. See Fannie and Freddie.

6/5/2009 12:39:23 PM

Quote :

"Other times, a correction is a correction. There's nothing "ugly" about that."

Ahahaha you can't believe half of the shit you say

6/5/2009 12:46:58 PM

Quote :

"stong social safety net "

You mean a safety hammock where LaQuonda can pump out babies but since we must think of the children we increase her food stamp
allowance, welfare check, give her some nice section 8 housing, and free healthcare service for the kids. So except for money to buy
dubs for her cavalier and Colt 45 to drink she could otherwise sit on teh couch watching Ricki Lake every day.

6/5/2009 1:30:39 PM

with the forthrightness you display racism it makes it clear that you're basically trolling.

6/5/2009 1:37:37 PM

So what's the alternative to deal with LaQuonda? You think if we stopped the checks, she'd stop having babies? What kind of effect do you think this would have on crime rates? Isn't that the real reason for welfare: to keep whitey safe from poor black folks?

Or will the free market just adjust to deal with people who don't get help and turn to crime?

6/5/2009 1:39:05 PM

Quote :

"You mean a safety hammock where LaQuonda can pump out babies but since we must think of the children we increase her food stamp allowance, welfare check, give her some nice section 8 housing, and free healthcare service for the kids. So except for money to buy dubs for her cavalier and Colt 45 to drink she could otherwise sit on teh couch watching Ricki Lake every day."

lol we needed a good Welfare Queens racist rant. good job, pal. you're sure a fan of freedom.

[Edited on June 5, 2009 at 3:13 PM. Reason : ,]

6/5/2009 3:12:00 PM

With government intervention, we create welfare queens.
Without government intervention, we create golden parachutes.

Guess some people are just corrupt and any system will always be abused.

6/5/2009 6:30:15 PM

Quote :

"Or will the free market just adjust to deal with people who don't get help and turn to crime?"

Well yes. I mean, if we assume that the purpose of welfare is in part to keep people who are without from turning to crime, then you can assume that people see a value in spending money to assist those down on their luck. As such, if there is value, people will pay for it, in particular, the people with the most to lose, and the people with emotional /philosophical need to do so.

Incidentally, during the time when my wife was without a steady job or insurance, the government couldn't (wouldn't) help her, because she was willing and able to do what work she could do. At the same time, a local church coordinated with some local doctors to provide free or low cost health services to people who didn't have insurance and who otherwise couldn't afford the services. A simple pay stub or letter from unemployment was enough for proof of (lack of) income and in her particular case, the exams were free and her $1000+ /month medication was a whopping $4.

I know we like to pretend around here that if the government didn't provide for people, no one would, but it's simply not true and dishonest to claim otherwise.

Of course, this isn't really the topic of the thread so we now return you to your regularly scheduled thread.

6/5/2009 6:34:23 PM

Quote :

"You think if we stopped the checks, she'd stop having babies? What kind of effect do you think this would have on crime rates? Isn't that the real reason for welfare: to keep whitey safe from poor black folks? "

While you are right welfare does serve to deter crime from those who'd otherwise be affording their meal of the night by pawning your car stereo; this was not its original intent or even its current purpose "technically".

Welfare was supposed to be the "oops I'm a 41 yr old mom homemaker with 3 mouths to feed and my husband just died; i need help while i look for a job since he did not have life insurance"

or

"oops my leg got crushed in a car accident and i'm never going to be able to hold a job down what about my dependents?"

or even during times of top economic recession for able bodied people who are looking for work but are having a difficult time finding a well paying position.

Whatever its intent it was not meant to be a lifelong "free pass" to pump out future welfare recipients b.c u do not feel like working or think the man owes you. Even if she decides to not work and live off the gov't if we just eliminate the "dependent" variable aspect of welfare maybe Laquonda will execute enough common sense to not get knocked up for the 5th time b.c she'll have one more expense cutting into what she can buy with her welfare check money.

This is what bothers me even more than letting people ride the free hammock train. The fact that the system is setup in such way to encourage and create statistically more people who will also be future welfare recipients or criminals that some welfare supporters argue that it works to discourage.
Either way I should not have money taken away from my future children to subsidize somebody else who chooses to procreate irresponsibly. Sorry Timmy i could not afford that $2000 for your class trip to europe; uncle sam feels like i must provide money so that other people can have kids free of cost


[Edited on June 5, 2009 at 7:13 PM. Reason : L]

6/5/2009 7:09:39 PM

hey now, you know welfare is more than just broke people with cable and rims

it's abandoned buildings and property collecting checks for business expenses with no intention of ever being developed

6/5/2009 7:23:36 PM

Quote :

"it's abandoned buildings and property collecting checks for business expenses with no intention of ever being developed"

?

6/5/2009 8:57:14 PM

^^true

6/5/2009 9:19:53 PM

Quote :

"Either way I should not have money taken away from my future children to subsidize somebody else who chooses to procreate irresponsibly. Sorry Timmy i could not afford that $2000 for your class trip to europe; uncle sam feels like i must provide money so that other people can have kids free of cost"

Coming up with silly hypothetical situations is a TSB pastime.

6/7/2009 10:50:30 PM

Liberal news magazine makes the exact same complaints about Krugman's article that I made:

Quote :

"How could Paul Krugman, winner of the Nobel Prize in economics and author of generally excellent columns in the New York Times, get it so wrong? His column last Sunday--"Reagan Did It"--which stated that "the prime villains behind the mess we're in were Reagan and his circle of advisers," is perverse in shifting blame from the obvious villains closer at hand. It is disingenuous to ignore the fact that the derivatives scams at the heart of the economic meltdown didn't exist in President Reagan's time. The huge expansion in collateralized mortgage and other debt, the bubble that burst, was the direct result of enabling deregulatory legislation pushed through during the Clinton years"

http://www.thenation.com/doc/20090615/scheer

6/8/2009 8:31:36 PM

set em up

6/8/2009 9:42:07 PM