America's Financial Mess

[UptonStellington]

Yes, monthly loans and leases in bank credit to commercial and industrial, real estate, and consumer. They have steadily gone up.

Granted its from Cato, but there is this story that I just came across with the same data, as well: http://www.cato.org/pub_display.php?pub_id=9685

[adrock3215]

Keynes is alive and well these days it seems. Bernanke fundamentally believes that govt can stimulate the economy out of a crisis, and in fact it is govts function and duty. He's staked his whole academic career on it, and now that he's in the real world he isn't gonna turn that ship very easily. The worst sort I can think of to run the main bank in the economy.

There are really no more "true" Keynesians in the original sense of the term. Keynes' theories have been wildly discredited since their utter failure to explain the 70's oil crisis. All we have today is neo-Keynesians, which (from what I can tell) are a mix of a little bit of classical, Keynesian, and Monetarist economics. Nevertheless, the notion that the government can "stimulate" is a particularly Keynesian idea, and it seems to not want to go away.

But I see it as a bit disingenuous to say that what is going on right now is Keynesian. While I see his influence, I also believe that the main school being put into practice today is Friedman's Chicago School (Monetarism). While Friedman did some work to prove that the federal government's response to the Great Depression prolonged it, his stubborn insistence that monetary policy could have averted the Depression is his lasting legacy. I think that Friedman's thought on this subject is the main motivator behind Bernanke's current actions. Bernanke sees this situation as potentially parallel to the Great Depression, and he is following Friedman's recommendations here exactly.

[gags]

I'm reading The Forgotten Man by Amity Shlaes right now, which is supposed to show in detail how FDR turned a stock market correction into a decade-long depression.

I highly recommend this book. She does a very nice job of anecdotally showing how government policies that are commonly thought to have ended the Depression actually harmed many individuals and prolonged our economic troubles. All of the parallels for a repeat performance are currently in place. Obama is the new FDR. He will propose large public works projects, he’ll make the oil companies out to be villains (utilities were the bad guys in the Depression), he will have very public prosecutions of alleged wrongdoers, he is talking about protectionism and trade restrictions, and he’ll probably also propose wage and price controls before this is finished.

[Thomas M. Miovas Jr.]

All of your banks now belong to us.

Report: U.S. Considering Taking Ownership Stake in Banks

"The U.S. Treasury Department is considering taking ownership stakes in many U.S. banks in a bid to restore confidence in the badly shaken financial system, the New York Times reported on its Web site Wednesday night."

[Tenure]

in a bid to restore confidence in the badly shaken financial system

Whose confidence?

[Zip]

Whose confidence?

Yours... Shhhhhhhhhhhhhhhhhhhhhh, go back to sleep...

[Zip]

http://www.nationalpost.com/opinion/story.html?id=868919

I know West was asking about the state of Canadian Banking sector a couple of days ago...

This is written in the spirit of the current Political campaign but it contains the basic facts that have saved Canada from most of what is happening elsewhere in the world.

It comes down to prudent practices more than anything else...

[Steve D'Ippolito]

...it comes from not being *forbidden* to be prudent and/or not being *subsidized* in your imprudent behavior, both of which were not true here.

[Thomas M. Miovas Jr.]

All of your banks now belong to us.

This was originally reported by The New York Times via Fox News online, and the write-up has changed. The original article is now available via the NYT website.

From page 2:

"The idea is gaining support even among longtime Republican policy makers who have spent most of their careers defending laissez-faire economic policies."

and:

"Fed officials increasingly talk about the challenge they face with a phrase that President Bush used in another context: “regime change.”"

It's voluntary at this point, but with top executive pay being reduced to $500,000 and the rest being taxed, along with most of the stock going to the government via nationalization, who would do this voluntarily?

[gags]

The trouble seems to be spreading to some forms of corporate debt, in this case loans made to private equity firms.

The percentage of large syndicated US loans rated as problematic has nearly tripled in the last year, highlighting the damage done by the lax underwriting standards of the private equity boom, a report by US regulators showed on Wednesday.

However, this has happened in previous downturns:

”These portfolios are cyclical in nature and do track the general economy,” said Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency, one of the four regulators who conducted the examinations. “We may see criticised loans are increasing for a while and top out before getting better.”

Mr Evers said that similar patterns were seen during previous period of economic stress including the early part of the decade and the late 1980s and early 1990s.

http://www.ft.com/cms/s/0/e7087efa-956d-11...0077b07658.html

[Zip]

...it comes from not being *forbidden* to be prudent and/or not being *subsidized* in your imprudent behavior, both of which were not true here.

Hm, I can see the 'forbidden' part in the refusal of our government to allow bank mergers in the 1990's but regardless of that our banks are among the largest in North America and had they wanted to get involved in the sub-prime market they very well could have, without any mergers.

The not being subsidized part comes from a more conservative mindset on behalf of bankers, government and the population. As far as I know there was no directive from the US government that said that fully 25% of a banks loans had to be to unqualified borrowers. There was no directive telling individual bankers that they should not encourage people to live within their means, and there was no order issued to force individual couples to demand a 2 car garage and a 4 bedroom house as a starter home.

[Thomas M. Miovas Jr.]

As far as I know there was no directive from the US government that said that fully 25% of a banks loans had to be to unqualified borrowers. There was no directive telling individual bankers that they should not encourage people to live within their means, and there was no order issued to force individual couples to demand a 2 car garage and a 4 bedroom house as a starter home.

There were directives to the banks, but I agree the government did not mandate citizens to borrow beyond their means to pay it back. However, with government intervention sending house prices sky rocketing, many people bought now so as not to pay more later. Smart move, if you can afford it.

Dow figures after announcement Feds will take over banks: 8,703.60 -554.5 -5.99%

Because the government tends to be capricious with its regulatory guns, no one really knows what will happen if the banks get nationalized. They certainly will not be free to operate according to market conditions.

[adrock3215]

Ever since the fat idiot Barney Frank opened his mouth to speak about the greatness of the bailout bill, the market has been shitting in it.

[Zip]

There were directives to the banks, but I agree the government did not mandate citizens to borrow beyond their means to pay it back. However, with government intervention sending house prices sky rocketing, many people bought now so as not to pay more later. Smart move, if you can afford it.

Dow figures after announcement Feds will take over banks: 8,703.60 -554.5 -5.99%

Because the government tends to be capricious with its regulatory guns, no one really knows what will happen if the banks get nationalized. They certainly will not be free to operate according to market conditions.

I know about your government's directives to banks. Shameful...

When you strip off all the BS and boil this thing down to its essential element, i.e. the individual... is this a housing crisis or a philosophical crisis?

[brian0918]

Ever since the fat idiot Barney Frank opened his mouth to speak about the greatness of the bailout bill, the market has been shitting in it.

I saw a video comparison where, at the beginning of the crisis, Frank was saying it wouldn't be a big deal. Now he's helping make it a big deal.

[IchorFigure]

The new meme they're using is "injecting capital" into the economy. I don't understand what they mean. Where are they getting this capital they're injecting? Are they talking about real goods worth real value or are they talking about printing more money? I don't get it, they make it sound like their alchemists who can create goods out of thin air to put on the market.

[Thomas M. Miovas Jr.]

When you strip off all the BS and boil this thing down to its essential element, i.e. the individual... is this a housing crisis or a philosophical crisis?

Yes, the housing crises was fundamentally caused by bad philosophy, both on the part of government regulations and individuals not acting in a rational long-term manner. Although, the myth was being heavily sold that the value of one's house would always go up, so it would be like buying a $300,000 house tomorrow for $100,000 today. My brother's house did that, actually, it went higher, to almost $600,000 in about ten years. So, were individuals irrational for acting that way? or for buying a bit more of a house assuming it would go up in value tremendously over the years?

By the way, I was shocked to see that the Dow plummeted even more: 8,579.19 -678.91 -7.33%

The Tokyo stock exchange was closed indefinitely after it fell 10%...wonder if the SEC will do that to our market? The market is failing!...the market is failing! No, it is behaving as if the Feds are screwing everything up, which it is.

[Steve D'Ippolito]

Hm, I can see the 'forbidden' part in the refusal of our government to allow bank mergers in the 1990's but regardless of that our banks are among the largest in North America and had they wanted to get involved in the sub-prime market they very well could have, without any mergers.

The not being subsidized part comes from a more conservative mindset on behalf of bankers, government and the population. As far as I know there was no directive from the US government that said that fully 25% of a banks loans had to be to unqualified borrowers. There was no directive telling individual bankers that they should not encourage people to live within their means, and there was no order issued to force individual couples to demand a 2 car garage and a 4 bedroom house as a starter home.

Whoops, double negatives trip me up again. Canadian banks were not required to give these bad loans, they were allowed to be prudent. Our banks were forbidden to be prudent, yours were not. Likewise your government didn't subsidize risky behavior.

[Tenure]

I was converting all my tapes to mp3 format, preparing to haul ass up north for University. In Leonard Peikoff's lecture on 'The Ominous Parallels' he was talking about the, well, ominous parallels between Weimar Republic Germany and the United States at the time (the lecture was given sometime after 1982, but before Ronald Reagan left office, judging by the references he makes to what is currently going at the time of the recording).

He says, to the effect, that with the current actions of the welfare state and the Fed (he talks about how Reagan has, overall, increased government spending, on the moral grounds of the 'Moral Majority', now called the Religious Right), coupled with the general philosophical trend of altruism and anti-mind assaults in the Universities, America is heading towards an economic disaster. He warns that when that disaster comes, the response of the administration at that time will determine everything. If it proclaims that freedom has failed, that it has had it's chance and that now strict regulations and nationalisation of parts of the economy are required, it will be so, with little to no resistance - such will be the state of the culture and of government by then.

Listening to this, it sent a chill down my spine, especially when he mentions that - referring to Hitler's rise in Weimar Germany - any upcoming leader at the time will ride in on the grounds of tough economic regulation, reform and more anti-reason sentiment, to roaring applause of the youth, who will support his campaign as he connects with their ideas, that the market and mind have failed and are useless, compared to blind feeling and faith.

Edited October 9, 2008 by Tenure

[Steve D'Ippolito]

A minor point of clarification, the Moral Majority was a specific organization headed by Jerry Falwell. The terms "Religious Right" or "New Right" was current back in the 80s. If Peikoff said "Moral Majority" he was no doubt specifically referencing Falwell's organization.

[Tenure]

Oh. My understanding was that it was an organisation, but that it was also a general term to describe anyone in the extreme religious right.

[KendallJ]

Nevertheless, the notion that the government can "stimulate" is a particularly Keynesian idea, and it seems to not want to go away.

Thanks for the clarification Eliot. I meant it less in the pure economic sense than in the philosophical sense you mention above.

[brian0918]

The Dow Pre-Market is down 350. It could easily drop below 8,000 today.

[Ordr]

Thank god for gold.

http://www.marketwatch.com/news/story/meta...p;dist=hplatest

Edited October 10, 2008 by Ordr

[Tenure]

If the market drops below 8000, that's actually good isn't it? I mean, it takes us back to normal, back to the real prices before the inflation of the last decade?