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Stalins Organ

The end of capitalism as we know it?

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Probably not, but I'm curious about what people think of the bailout of the US financial sector by the Fed's, and what it means for the future.

Don't get me wrong - I'm pretty sure that saving the day is the best thing for hte Feds to do - the alternative looks a lot worse.

But with Agricultural subsidies and this the US is seriously looking like a socialist economy - the amount of Govt money paid to redistribute income & ownership of debt is just staggering - 10 times the size of the NZ economy - 1 1/2 times the Australian one (from 2005 here...)

And then there's always this lovely little cartoon....

758272.jpg

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Socialism is the new capitalism.

But seriously, we've done this before. The S&L crisis got a massive bailout, and the government bailed out Chrysler. There is nothing new under the sun. The country will move on, and the current actions are for the best. There is no sense in riding laissez faire capitalist ideals right into a second great depression.

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. There is no sense in riding laissez faire capitalist ideals right into a second great depression.

No, none at all. Why then was it done?

Capitalism won't go away - it's too efficient a means of transferring goods and ownership. Any attempt to get rid of it has historically meant that the rich who don't flee get it in the neck, the mob wanders around for a bit before they're re-organised and the whole thing takes off again. That's why its called revolution - it comes around, again.

As to the bailout - I'd be surprised if it ends up helping. The US has to stop spending money it doesn't have on wars it doesn't need and corruption it can't afford. Just like the rest of the world, really. :P

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A trillion dollars is certainly a great transfer of goods and ownership.....

However truth to tell we havent' had "ral" capitalism for over a hundred years - since hte "robber baron" days of the 19th century - it was such a disaster then that it was curtailed by regulation.

Also in "true" capitalism, failures are allowed to happen (as I understand it) and Govt bailouts do not - the prospect of success and riches carries the potential downside of failure and penury, and it is this mechanism that is supposed to ensure that the best decisions get made.

With Govt bailouts the down-side goes away - remember that the cause of this particular disaster is soemthing as simple as making home loans to people who can't actually afford them - where is hte downside in making the decision to allow that to happen?

As I understand it a few firms have been effctively natioalised (Stearn, Fannie & Freddie), but the latest seems to be a "simple" cash handout with no x-fer of shareholding or other ownership of the affected institutions?

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I thought this cartoon described the situation very succinctly. I'm sure it may offend the true-believer apostles of St. Ronnie, but there it is.

http://www.gocomics.com/tomtoles/2008/09/18/

Privatize gains and socialize risks - it's the new and improved model of American capitalism. Of course only the risks for certain people need to be socialized. For most people that's called SOCIALISM and we all know how evil that is!

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No, none at all. Why then was it done?

That's wrong. Allowing all the American investment banks to file bankruptcy would have led to the second great depression. The bailout takes that off the table. That's a good thing. You want bread lines, or what?

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Runyan99

The change to the bankruptcy laws in 2003? gave the banks the legal right to pursue debtors who would have been protected under the original laws. This gave the banks the legal position that the money could be recovered and that therefore the risk of loaning to individuals was mitigated. Actually, it gave the directors of the banks the legally safe position of not having to defend their incompetence in deciding to loan to high risk individuals. This set the scene for a housing boom, a very welcome stimulus to a stagnating economy (one that had been doing so since the dotcom crash).

These same directors had sought to improve their cost positions by paying their staff on commission - no loans made, no money coming in and no extra goodies to the hard working bank officer. This system, of course, drives the making of many loans, with whatever justification deemed necessary given, justification hardly likely to be questioned up the line by anyone keen on keeping their job. Anyone who did - and there have been quite a few in the press over the years, wondering how long it could all go on - was subjected to the same sort of bullying that anyone seriously questioning the Iraq war was likely to encounter. And while it was all going good, and no-one being hurt, where was the harm?

At the same time that the banks were funding a home building boom, they were quite happily funding the move offshore of many many manufacturing jobs. The jobs market in developed economies has shifted to tertiary and quaternary industries - service industries. This is fine provided the demand for the services expands or remains steady.

[rant]

Freddie and Fannie happily watered the currency to the tune of some trillions of dollars and sophisticated traders, lawyers and accountants rode the wave as hard as they could. And if they might be ignorant of their misdeeds, they sure as **** don't care what I or anyone else might have to say about them. Why should they? Good on them for driving the legislature with greed and fear and getting theirs. The rest of us are just jealous.[/rant]

Rising oil prices squeezed what remained of US manufacturing, and jobs started to go. Inflation brought rising interest rates. A vicious cycle was promoted - jobs in an area went, which meant that houses bought on tick were foreclosed on due to non-payment, which meant that service industries in the area had to cut costs, which meant more jobs going, which meant more houses foreclosed on and less demand for services - etc. This is still happening, and is why I don't think the bailout will do much for anyone other than the owners of the banks and the traders in their shares.

I don't believe we have avoided the second great depression. History hasn't been a long suit for the legislative representatives for a decade now - why should that change?

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I heard on the radio today that US House of Reps Speaker Nancy Pelosi said Congress would be amending the bail-out legislation to make sure that the executive bonuses weren't paid to the paragons of capitalism in charge of the bail-out-ee firms!

When the history of the 1990s and 2000s is written, there will be whole chapters devoted to the ugly, appalling greed of the executive cabals who voted themselves million dollar salaries and bonuses, no matter how well or badly their companies performed.

I think corporate bail-outs should be directly linked to executives of these companies agreeing to forgo all salary for the next five years, minimum, while agreeing to keep on working for their outfit until they are solvent once more, and have repaid their debts to taxpayers. They should have plenty of assets stashed away to tide them over while they repay their debt to society.

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My personal lesson learned from this is that before you can have small government (which I want. He, I'm in MA mad.gif ) you need to find a way to keep the sizes of companies at a reasonable level, too.

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My personal lesson learned from this is that before you can have small government (which I want. He, I'm in MA mad.gif ) you need to find a way to keep the sizes of companies at a reasonable level, too.

Yes, we need to return to the height of the trust busting days.

Unfortunately, this crisis has made it worse - Bank of America and Wachovia here in NC have scooped up failed brokerage houses.

Some thoughts on spin;

As the gov't assumes these mortgages, aren't they recorded as assets?

And, I understand that China and others own a lot of this mortgage as part of their investments / banking; so would this not bring some of the debt back?

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All I know is that there was a great push many years ago to "deregulate" everything because that would make everything work oh so well. All that I can see as a result is chaos and plundering by a relative few, at the expense of the many.

I recall the mantra in a movie about Wall Street - "Greed is good." Perhaps for the predatory few, but what of the rest of the populace?

It could be said that greedy persons invested in homes that they could not afford and since then have lost them - but in the end all they did was sign on the bottom line as they pursued the American Dream.

Just as millions of Americans still remain in great personal unsecured debt...because they want the things that middle class life in a modern world is supposed to bring them.

Now it is clear that the ideal life described by the media for the middle class is really a come-on, soliciting the listener to take on debt loads for years without end. There are few who can live the lifestyle of a middle class or upper class person without incurring debt, and most of those probably inherited their assets - or are part of the predatory pack that is causing all this economic cannibalization.

Given that the average person has a limited attention span and lack of analytical capability, both of which are characteristics encouraged by the media and the state-run education system, the "sheep led into the shearing pen" syndrome is understandable. They see, they want, they borrow and they borrow even more when it is offered, all without consideration of the end result.

I frankly don't expect any more great things coming from this country, with the sort of leadership that has been nurtured and fostered, and given the sad state of awareness and ability bred and encouraged in the citizenry. It's the Roman Empire all over again and the barbarians are at the gates, eager to divvy up the spoils.

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I think corporate bail-outs should be directly linked to executives of these companies agreeing to forgo all salary for the next five years, minimum, while agreeing to keep on working for their outfit until they are solvent once more, and have repaid their debts to taxpayers. They should have plenty of assets stashed away to tide them over while they repay their debt to society.

That's an excellent suggestion, but it presupposes that they would actually do any useful work during that period. I find that doubtful given that it was likely their decisions that led to the mess in the first place. As an option, I suggest that they be put on trial for gross negligence and incompetency and if found guilty be stripped of all their wealth and thrown in prison for up to life, depending on how much misery it is estimated that they caused. While in prison, they should be held in solitary confinement and fed only bread and water.

Michael

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That's an excellent suggestion, but it presupposes that they would actually do any useful work during that period. I find that doubtful given that it was likely their decisions that led to the mess in the first place. As an option, I suggest that they be put on trial for gross negligence and incompetency and if found guilty be stripped of all their wealth and thrown in prison for up to life, depending on how much misery it is estimated that they caused. While in prison, they should be held in solitary confinement and fed only bread and water.

Michael

Which, paradoxically, is the Chinese model. If you don't get a bullet.

So more central planning and the slow creep of socialism into American business! :D

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So more central planning and the slow creep of socialism into American business! :D

Even better would be if those who run things were to develop a healthy social conscience. But that probably won't happen until long after we've gone to central planning.

:(

Michael

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Even better would be if those who run things were to develop a healthy social conscience. But that probably won't happen until long after we've gone to central planning.

:(

Michael

Bah - you have the opportunity to run for the legislature, and its possible you have a social conscience, why don't you do it?

(I know why I don't - I'm waaay too lazy. So sucks to me.):D

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Good analysis Costard

Hand in hand with the boom was the SEC's relaxation of leverage allowing 30 to 40 times lending per dollar held - this instead of the historic 12? times. This really screwed the system inputting huge amounts of money into the system with no proper oversight and no one being responsible for stupid lending as Costard pointed out.

What makes me so angry is a traditional banker would have recognised what a horse**** idea this was. It so sucks. And as for Greenspan! ****?!!*

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All I know is that there was a great push many years ago to "deregulate" everything because that would make everything work oh so well.

If you think anything was "deregulated", you will be buying into the biggest pile o' crap to come down the pike in a long time.

Congress told the bankers exactly what to do, and they went and did it.

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If you think anything was "deregulated", you will be buying into the biggest pile o' crap to come down the pike in a long time.

Congress told the bankers exactly what to do, and they went and did it.

Companies mixing banking and insurance and securities wasn't a result of deregulation? Could you elaborate a bit on what you said? I was unaware that Congress dictated policy to the global financial sector. Instead of using the term "Congress" can you name names? Who in Congress told the bankers exactly what to do that caused this meltdown? :confused::confused:

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Congress can actually do that in the USA? I thought it was the other way around - seriously - isn't Congress heavilly lobbied' date=' bought and paid for by big business??

Yes, lest they pass even more regulations. ;)

"Deregulation" in this case meant go loan poor people money for houses they can't afford and we'll let you increase your leverage, and you can sell the risky loans back to Fannie Mae to cover your butt, and we, Congress, will cover the loans if worse comes to worse.

Not exactly go do whatever you want, and God go with you, which is what deregulation means to a normal person.

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Companies mixing banking and insurance and securities wasn't a result of deregulation? Could you elaborate a bit on what you said? I was unaware that Congress dictated policy to the global financial sector. Instead of using the term "Congress" can you name names? Who in Congress told the bankers exactly what to do that caused this meltdown? :confused::confused:

Sen. Chris Dodd and Rep. Barney Frank.

A couple of links for you.

http://online.wsj.com/article/SB122212948811465427.html

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0

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Lars, from jsw:

Quote: "It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers "

But they weren't. How could they reasonably be viewed as such?

Quote: "Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them "

In other words, this was viewed as a rort that needed to be exploited.

Quote: "Their accounting had just been revealed as fraudulent, "

but no-one was tried for or convicted of fraud. Where was the executive? - I mean we're talking about a huge amount of money here, and the potential to severely damage the market.

Also, some of the sub-prime mortgages being bought and traded were known to be shonky deals, with unrealistic expectations of sky high interest rate rises after the initial honeymoon period: I can imagine new home buyers might not be bothered to read the contracts, I can't see a banker doing the same thing (unless s/he was criminally negligent of his/her responsibilities).

Quote: "In contrast, Sen. Obama's conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. "

faulty logic.

The other article you cite is equally devoid of worthwhile analysis.

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Lars, from jsw:

Quote: "It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers "

But they weren't. How could they reasonably be viewed as such?

Because they were originally set up by the government. There was an implied guarantee. And as you can see, a real one.

Quote: "Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them "

In other words, this was viewed as a rort that needed to be exploited.

Yep. That's what capitalists do. As Congress well knew.

Quote: "Their accounting had just been revealed as fraudulent, "

but no-one was tried for or convicted of fraud. Where was the executive? - I mean we're talking about a huge amount of money here, and the potential to severely damage the market.

Congress let them off the hook. In exchange, they made loans to Congress's favorites. You did read that part, didn't you?

Also, some of the sub-prime mortgages being bought and traded were known to be shonky deals, with unrealistic expectations of sky high interest rate rises after the initial honeymoon period: I can imagine new home buyers might not be bothered to read the contracts, I can't see a banker doing the same thing (unless s/he was criminally negligent of his/her responsibilities).

How is he negligent if he knows he can turn around and sell it to Fannie Mae? The banker is even more negligent if he doesn't take the closing cost revenue and return it to his stockholders.

Quote: "In contrast, Sen. Obama's conversion as a financial reformer marks a reversal from his actions in previous years, when he did nothing to disturb the status quo. "

I'll let Obama off the hook. He hasn't been around long enough to have had a conversion to anything. Empty suit there.

But Dodd's fingerprints are all over this. He's been a crook since way back. Or did you miss the Arthur Anderson accounting scandal too?

faulty logic.

The other article you cite is equally devoid of worthwhile analysis.

Would you like a few more financial papers to argue with?

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