Morality Aside, Will the Bailout Work?

[stopharian]

Currently The U.S. congress is in contentious discussion about the bailout that has been proposed by treasury secretary Paulson.

The consensus amongst economists and those in the financial world seems to be that any morality aside, this bailout is absolutely essential to prevent a systemic collapse of the U.S. financial system and by extension the world economy.

However, the consensus amongst most of the general populace seems to be that they are personally against this bailout because they see it as supporting greedy bankers and stupid borrowers. Perhaps more interestingly I just saw a survey on CNBC which revealed that perhaps as many as 55% of people are morally opposed to passing any bailout plan EVEN if it is necessary to economic stability. Certainly, legislators are finding nearly NO support amongst their constituency for a bailout.

Then, murmuring from the woodwork, I hear groups of people who feel that no matter what happens the bailout wont work. Perhaps it may stave off economic collapse for a short period of time, but that essentially the economy is doomed to go through earth shattering events either way.


Anyway I ask the question of you. We seem to have two discussions here, one of economic ramifications and the other of monetary morality. Aside from your feelings about the morality of the Bailout:

Is the Bailout needed?

Will the Bailout effectively work to reinvigorate the US economy?


(poll to follow)

[Ferrus]

It could cusion it, which I think is what the US government is aiming for.

Unemployment will rise, I suspect the difference will be 8-10% unemployment and 15-20% unemployment. This is what the governments of the world fear most, unemployment and homelessness, with the attendant social unrest that makes the job of governing more difficult.

[kendoiwan]

Currently The U.S. congress is in contentious discussion about the bailout that has been proposed by treasury secretary Paulson.

The consensus amongst economists and those in the financial world seems to be that any morality aside, this bailout is absolutely essential to prevent a systemic collapse of the U.S. financial system and by extension the world economy.

However, the consensus amongst most of the general populace seems to be that they are personally against this bailout because they see it as supporting greedy bankers and stupid borrowers. Perhaps more interestingly I just saw a survey on CNBC which revealed that perhaps as many as 55% of people are morally opposed to passing any bailout plan EVEN if it is necessary to economic stability. Certainly, legislators are finding nearly NO support amongst their constituency for a bailout.

Then, murmuring from the woodwork, I hear groups of people who feel that no matter what happens the bailout wont work. Perhaps it may stave off economic collapse for a short period of time, but that essentially the economy is doomed to go through earth shattering events either way.
Anyway I ask the question of you. We seem to have two discussions here, one of economic ramifications and the other of monetary morality. Aside from your feelings about the morality of the Bailout:

Is the Bailout needed?

Will the Bailout effectively work to reinvigorate the US economy?


(poll to follow)

I'm hearing alot of those same grumblings. That notion doesn't seem to have much currency around these parts tho...

[kendoiwan]

It could cusion it, which I think is what the US government is aiming for.

Unemployment will rise, I suspect the difference will be 8-10% unemployment and 15-20% unemployment. This is what the governments of the world fear most, unemployment and homelessness, with the attendant social unrest that makes the job of governing more difficult.

FYI More well informed people than I are arguing unemployment minus all the smoke and mirrors is at least 10% as things stand.

[floid]

Maybe long enough for Bush not to go down in history as Herbert Hoover II, which, from an executive point of view, is probably it's main purpose.

[Ferrus]

FYI More well informed people than I are arguing unemployment minus all the smoke and mirrors is at least 10% as things stand.
It is interesting that the US government has indebted itself to the hilt. As the economy slides down, and more people are going to be fed on the government payroll, borrowing will have to go up. Which makes me wonder whether significant proportions of the US budget will in future be taken up simply with repaying interest, much as they are in third world countries.

The three unpalatable options are:

a) Default and screw up government financing for a generation or more
b) Inflate, which is easy now with current oil prices, but again will wreck havoc on the real economy and foreign trade
c) Cut back public services and face the resulting social destabilisation

Ah, the Bush administration has made a proper mess here.

["?"]

I have pondered on this matter and think that it may be good for the country as a whole to hit rock bottom, which is what economic conservatives suggested to solve the foreclosure problem as well as many Republican Congressmen on this matter. Hitting rock bottom will wake up the country to the fact of how much we have come to depend on what I call virtual assets to include credit cards.

[kendoiwan]

It is interesting that the US government has indebted itself to the hilt. As the economy slides down, and more people are going to be fed on the government payroll, borrowing will have to go up. Which makes me wonder whether significant proportions of the US budget will in future be taken up simply with repaying interest, much as they are in third world countries.

The three unpalatable options are:

a) Default and screw up government financing for a generation or more
b) Inflate, which is easy now with current oil prices, but again will wreck havoc on the real economy and foreign trade
c) Cut back public services and face the resulting social destabilisation

Ah, the Bush administration has made a proper mess here.


You would be interested in Warren Buffets film I.O.U.S.A. I haven't seen it yet myself, but he seems to believe there is some other option outside of what you've enumerated... I hope he's right, as I see things you're right on the money though.

[2hype]

The consensus amongst economists and those in the financial world seems to be that any morality aside, this bailout is absolutely essential to prevent a systemic collapse of the U.S. financial system and by extension the world economy.


It doesn't seem to me that there is that consensus. NPR has had professors at business schools saying otherwise.

[Thevenin]

I am not sure I know what it means for the bailout to "work." How will we know if it is working? If the bailout is implemented according to the general outline of Paulson et al., the Dow Jones may go down 4,000 points and economists and others might say that it isn't working. But, perhaps, without a bailout, the Dow Jones might go down 8,000 points. Who knows?

There are probably multiple possible "bailouts" that would work to varying degrees of success. Choosing the best bailout is as much, if not more, a matter of psychology (of mobs) and politics (mob psychology, by definition) as it is economics. No one has experience with the current situation, so every plan is a priori a shoot from the hip.

It's annoying enough for Main Street to have to bail out Wall Street. What's worse is that, if Wall Street tanks, so does Main Street.

[stopharian]

It doesn't seem to me that there is that consensus. NPR has had professors at business schools saying otherwise.

I mentioned that in my OP, but doesn't it seem like they are being interviewed precisely because they have an opinion which is in opposition to the consensus?

[2hype]

I mentioned that in my OP, but doesn't it seem like they are being interviewed precisely because they have an opinion which is in opposition to the consensus?

It seemed to me that they were being interviewed because they were trying to present a well-rounded story instead of trying to panic us.

[airjaw]

Hate to insult the intelligence of the INTPc posters here but I doubt any of us are knowledgeable enough to really predict such a thing like this.

[stopharian]

http://news.yahoo.com/s/ap/20080926/ap_on_el_pr/ap_poll_financial_meltdown

[kendoiwan]

I posted this in the other thread regarding this issue, but what I'm hearing as I watch the talking heads on CNBC and Bloomberg is this

A: Wamu failed not because the bailout is taking to long but because their customers in the past 9 days withdrew X amount of billions of dollars therefore making the bank illiquid.

B: Not a soul is willing to definitively state that this bailout will turn the tax payer a profit but we should do it anyway. A lukewarm, it maybe possible is about the most they're willing to assert.

[sorabji_66]

Hate to insult the intelligence of the INTPc posters here but I doubt any of us are knowledgeable enough to really predict such a thing like this.


That's two votes for that option.

[floid]

The face of the new Dollar Bill

http://forums.intpcentral.com/attachment.php?attachmentid=6830&stc=1&d=1222451981

[SensEye]

Hate to insult the intelligence of the INTPc posters here but I doubt any of us are knowledgeable enough to really predict such a thing like this.This may be true. However, I hope we are intelligent enough to realize three things:

1) It is in the best interest of wall street to incite panic (and get the bailout)
2) Paulson is a former wall street lapdog
3) Wall street has vast polictical influence in Washington (especially old boy republican Washington)

So I would suggest:

1) Don't rush into anything
2) Put MANY strings on the bailout that would cause wall street serious pain if it does not work, and give taxpayers many garauntees of getting their money back with interest if it does work (as opposed to letting wall street return to profitability while the taxpayer is left holding the bag)
3) Get independent 3rd party analysis, don't listen to wall street lobbyists.

[sorabji_66]

This may be true. However, I hope we are intelligent enough to realize three things:

1) It is in the best interest of wall street to incite panic (and get the bailout)
2) Paulson is a former wall street lapdog
3) Wall street has vast polictical influence in Washington (especially old boy republican Washington)

So I would suggest:

1) Don't rush into anything
2) Put MANY strings on the bailout that would cause wall street serious pain if it does not work, and give taxpayers many garauntees of getting their money back with interest if it does work (as opposed to letting wall street return to profitability while the taxpayer is left holding the bag)
3) Get independent 3rd party analysis, don't listen to wall street lobbyists.



"Lapdogs and old boys."

Well, there goes any pretense of intelligent thought in the rest of the comment.

NOBODY HAS A CLUE WHAT WILL HAPPEN!!!!

[Rajah]

"Lapdogs and old boys."

Well, there goes any pretense of intelligent thought in the rest of the comment.

NOBODY HAS A CLUE WHAT WILL HAPPEN!!!!Nice use of logic in being so dismissive of SensEye.

I love irony.

[!diom]

Too be honest, I don't know any of the details about the proposed bailout. I do, however, suspect that it's another underhanded powerplay from the Bush administration.

I'm probably just ignorant and confused, not that I care.

[sorabji_66]

Too be honest, I don't know any of the details about the proposed bailout. I do, however, suspect that it's another underhanded powerplay from the Bush administration.

I'm probably just ignorant and confused, not that I care.


Nice avatar... from the box set edition?? (Sort of a regret of a purchase, compared to his others.)

The market will continue to fluctuate. Sometimes more than people feel comfortable with.

[!diom]

Nice avatar... from the box set edition?? (Sort of a regret of a purchase, compared to his others.)


Not sure. I pirated the complete sessions, and the image is from Google.

[sorabji_66]

Not sure. I pirated the complete sessions, and the image is from Google.



What'd you think of it? (Not that much into sitar...)

[ocop]

I am not sure I know what it means for the bailout to "work." How will we know if it is working? If the bailout is implemented according to the general outline of Paulson et al., the Dow Jones may go down 4,000 points and economists and others might say that it isn't working. But, perhaps, without a bailout, the Dow Jones might go down 8,000 points. Who knows?

There are probably multiple possible "bailouts" that would work to varying degrees of success. Choosing the best bailout is as much, if not more, a matter of psychology (of mobs) and politics (mob psychology, by definition) as it is economics. No one has experience with the current situation, so every plan is a priori a shoot from the hip.

It's annoying enough for Main Street to have to bail out Wall Street. What's worse is that, if Wall Street tanks, so does Main Street.

Exactly. The goal of the bailout isn't to prevent a recession, it's the make it not quite as bad (by keeping the financial system intact). If the goal of the bailout is to recapitalize banks (which it is), then it will work. If someone is crazy enough the believe the goal is to prevent a recession (which it is not), then the bailout will fail regardless.

I vote, it will work. I predict, everyone will say it didn't in a year because they all have different visions of just what "working" is.

edit: If the bailout doesn't include a return to pre-1999 banking laws, I will flip my shit. You can't deregulate something powered by sheer human greed, it's a recipe for $700bln of failure.

[!diom]

What'd you think of it? (Not that much into sitar...)

Most of the time I don't have the patience to listen. However, I really get into it when I'm alone and outside at night - Shooting hoops, stargazing, or just walking.

[sorabji_66]

Most of the time I don't have the patience to listen. However, I really get into it when I'm alone and outside at night - Shooting hoops, stargazing, or just walking.


The boxset wasn't needed for this work. In A Silent Way's boxset was a big improvement.

[Chunes]

I wouldn't support this bailout even if I had a time machine and saw that it will work. Obviously, if we have to resort to shady theft operations to sustain our economy, THEN IT IS BROKEN.

Let's let this crap fail and build an economy that doesn't require bailouts.

[Oso Mocoso]

Exactly. The goal of the bailout isn't to prevent a recession, it's the make it not quite as bad (by keeping the financial system intact). If the goal of the bailout is to recapitalize banks (which it is), then it will work. If someone is crazy enough the believe the goal is to prevent a recession (which it is not), then the bailout will fail regardless.

I hope there's a bailout. I think a bailout would soften the blow, but also lead to longer term problems. It's definitely not a win-win situation. However, I really hope we don't get this bailout.

http://en.wikipedia.org/wiki/Bailout_of_U.S._financial_system_(2008)

This guy was appointed to office by the Bush administration, and they want to hand him $700 Billion to hand out as he sees fit with no accountability or oversight?


I vote, it will work. I predict, everyone will say it didn't in a year because they all have different visions of just what "working" is.

Yeah, probably.


edit: If the bailout doesn't include a return to pre-1999 banking laws, I will flip my shit. You can't deregulate something powered by sheer human greed, it's a recipe for $700bln of failure.

Heh. People being greedy is the fundamental assumption of all modern economic thought. It's also part of the argument of why it would be okay to deregulate. It's actually the rare times when people/institutions stop acting in their own best interests when economic breakdowns occur.


Let's let this crap fail and build an economy that doesn't require bailouts.

You sound like you know nothing whatsoever about economics.

[Karl]

I hope there's a bailout. I think a bailout would soften the blow, but also lead to longer term problems. It's definitely not a win-win situation. However, I really hope we don't get this bailout.

http://en.wikipedia.org/wiki/Bailout...l_system_(2008)

This guy was appointed to office by the Bush administration, and they want to hand him $700 Billion to hand out as he sees fit with no accountability or oversight?

I guess this is where I am. The bailout could "work" insofar as it would keep things running smoothly for a bit longer, but throwing money around isn't enough to ensure that it well.

As for being for or against it, I'd rather just sit back and see what happens. There's a way that'll make capitalism work better and a way that it won't, but I don't feel need to start taking a moral stand on how to do capitalism. So I really can't vote in the poll.

[Thevenin]

I wouldn't support this bailout even if I had a time machine and saw that it will work. Obviously, if we have to resort to shady theft operations to sustain our economy, THEN IT IS BROKEN.

Where have you been. The American people are put in hock more and more every year that there is a deficit. And, the vast majority of the debt is owned by foreign governments, who, one can truthfully say, have financed our overseas adventures in places like Iraq even while they have criticized it. They've also financed our prodigious appetite for consumption.

Individual Americans have learned to live beyond their means and have little savings, if any. They have financed their over-consumption with credit card debt. So, they're really no different from the deficit Government they voted for and deserve. People talk about Government being the problem, but it merely reflects how the people are themselves.

This myth that you can have, and are entitled to, anything you want is manifested in the parallel idea in Government that you can concurrently increase spending and decrease taxes. Dream on. A balanced budget used to be a conservative principle. If you don't limit spending enough to achieve a balance, then you increase taxes, or you do both. Or, as Keynes would have it, you use deficit spending during recessions and rake in the tax revenue during the good times. But, over time, things balance out. Today's phony conservatives make Keynes look like a reactionary.

Well, things are going to balance out soon and this is probably a good thing. We are about to relearn the old values of thrift, delayed gratification, and the personal need to inhibit greed. Things are going to be bad. How bad will depend on whether we are smart or dumb. The jury is still out.

[INThoughtPolice]

You sound like you know nothing whatsoever about economics.

Economists don't understand the macroeconomy. In fact, many economists no longer recognize macroeconomics. It's all too big and too complex to understand.

No one asks to see qualifications or for justification when you buy something at the store. You should be free to spend your money as you see fit.

FYI Arthur Laffer's ill-conceived napkin drawing was the reason America had to endure supply-side economics for two terms.

[Chunes]

Who better to design the next economy than average people? Sure economics is rocket science right now, but it doesn't have to be. The economy is purposefully obfuscated as a defense mechanism for the elite; a barrier to entry.

[Karl]

It's not a rocket science, it's a social science. Ie, it's still a science and requires study and testing that most people have not bothered with.

[bluebell]

Hate to insult the intelligence of the INTPc posters here but I doubt any of us are knowledgeable enough to really predict such a thing like this.

Werd. Won't stop us speculating about it though (pun unintended).


Who better to design the next economy than average people? Sure economics is rocket science right now, but it doesn't have to be. The economy is purposefully obfuscated as a defense mechanism for the elite; a barrier to entry.

You mean, the same average people who took out NINJA loans? /cynic

[Chunes]

They aren't close to the majority despite what we hear all the time.

[bluebell]

They aren't close to the majority despite what we hear all the time.

True. But, there is a surprising lack of understanding of basic concepts such as how to calculate percentages, the true cost of going into debt, market failures (people valuing first cost over lifetime cost) etc among the general public.

I can see the average person making small local economies (eg bartering systems) work. But, I can't see how that would work at a global scale. How do you see it working at a state, national, international level? (taking into account the widely varying personal values, human psychology, cultural differences and education levels within a country and across the world) I ask because I'm curious.

[Chunes]

True. But, there is a surprising lack of understanding of basic concepts such as how to calculate percentages, the true cost of going into debt, market failures (people valuing first cost over lifetime cost) etc among the general public.

I can see the average person making small local economies (eg bartering systems) work. But, I can't see how that would work at a global scale. How do you see it working at a state, national, international level? (taking into account the widely varying personal values, human psychology, cultural differences and education levels within a country and across the world) I ask because I'm curious.

The very first thing I'd do is kill the Federal Reserve. If we don't even get to know who runs it (other than figurehead Bernanke) then it must be assumed they are engaging in criminal shenanigans. Centralized banking is centralized power. Centralized power is bad. If that seems harsh, consider any large corporation with their headquarters 1200 miles away.

HQ allocates resources for you and your coworkers, but they have no clue what you need. Also, too much power tends to make you into a dick.

Decentralization would also allow for different cultures. Each economic node would resolve their differences during their various interfacings with one another. Whereas in centralized banking cultures are merely trampled on, mainforce.

As for education levels, we'd have to agree not to exploit areas of low education. This comes back to not being dicks. I have no idea how to make this come to pass, and neither does anyone else.

If I were in charge of my own node, I'd outlaw interest. Basically if you make money manipulating the metafiscal but contribute nothing of value, I'd end your little shell game.

Nodes would trade but if one node toppled the rest would remain relatively unaffected, depending on how decentralized the node system remains.

In my system, I probably allow too much financial freedom which people would then abuse and create centralized banks, etc. So the irony is that I would probably have to centralize the economy myself and try to run it fairly. Plus as I mentioned earlier there's really no way to stop people from exploiting the undeveloped areas without resorting to "benevolent fascism." So there are definitely unresolved flaws.

:banghead:

[Ellipsis]

The bailout will work in the short term by fixing the current set of problems. In the long term it will add to America's national dept and companies will feel they can continue risky bussiness. It will further decrease competition because the bailout is for the big companies that are currently in charge. The smaller ones (that have not entered the market yet) which would have a chance of competing are getting little if anything. Moreover, the industry has already consolidated the biggest players without opening gaps for competition. In short this is a recipe for disaster because the next time around less people will hold more power and will undoubtedly make bigger mistakes.

[Sally]

The bailout will work in the short term by fixing the current set of problems. In the long term it will add to America's national debt and companies will feel they can continue risky bussiness. It will further decrease competition because the bailout is for the big companies that are currently in charge. The smaller ones (that have not entered the market yet) which would have a chance of competing are getting little if anything. Moreover, the industry has already consolidated the biggest players without opening gaps for competition. In short this is a recipe for disaster because the next time around less people will hold more power and will undoubtedly make bigger mistakes.

This is the part that scares me the most.

If the actual bailout is anything like the original 3-page plan, it's going to do nothing to stimulate the real economy and will only raise the voodoo economy onto higher stilts. ...I mean, what is it actually going to take to trigger hyper-inflation? I don't want to know, but I'm afraid we're all going to find out.

[Oso Mocoso]

I mean, what is it actually going to take to trigger hyper-inflation? I don't want to know, but I'm afraid we're all going to find out.

Okay, this is bad but let's not be hand-wringing bed-wetting liberals about this. I can assure you, Chicken Little, right now we're a long ways off from worrying about hyper-inflation. This is bad, but it's not Zimbabwe or Argentina bad.

[Sally]

Okay, this is bad but let's not be hand-wringing bed-wetting liberals about this. I can assure you, Chicken Little, right now we're a long ways off from worrying about hyper-inflation. This is bad, but it's not Zimbabwe or Argentina bad.

I am 100% behind wanting to believe that and 80% behind actually believing it, but that still leaves the question - what's the difference? The fact that Zimbabwe and Argentina didn't have most of the rest of the world dependent on the continued functioning of their economies?

[Oso Mocoso]

I am 100% behind wanting to believe that and 80% behind actually believing it, but that still leaves the question - what's the difference?

There's a huge difference between a well developed economy like the U.S. and a developing economy like Zimbabwe and Argentina. Also, the approach those countries governments took to monetary policy was disastrously careless.

But just check out the examples of real hyperinflation.

http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hyperinflation

All of those countries were either small / undeveloped countries with seriously reckless monetary policy, or countries that lost a war at great expense (ie: Japan's currency suffered hyperinflation after they spent all their resources fighting and then got the crap bombed out of their infrastructure at the end of losing WW2).

Okay, the current recession is likely to be bad. But hyperinflation is when a currency does something really drastic like experience 100% inflation in a month. Using that word for the present situation is just alarmist. We might experience inflation. It's not likely to be the end of life as we know it.


The fact that Zimbabwe and Argentina didn't have most of the rest of the world dependent on the continued functioning of their economies?

No. They were being careless in a situation where their economy was undeveloped and very fragile to begin with. As Bernanke likes to say, this is a very real crisis but the U.S.'s long term economic fundamentals are very strong. We're getting massively kicked in the nuts, don't get me wrong. Yes, it's very painful but as an economy we have the ability to recover.

[Sally]

No. They were being careless in a situation where their economy was undeveloped and very fragile to begin with. As Bernanke likes to say, this is a very real crisis but the U.S.'s long term economic fundamentals are very strong. We're getting massively kicked in the nuts, don't get me wrong. Yes, it's very painful but as an economy we have the ability to recover.


In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiralling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency's value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.

Correct me if I'm wrong, but isn't the deficit a form of currency expansion - more money available? With this bailout - it's sounding like it's going to come from the budget, in which case some other programs must be pushed onto the deficit, right? So you've got even more dollars out there, and meanwhile, the economy is still systemically unstable. You've still got the basic problem of creative finance being more profitable than productive investment. Even if they reign finance in a bit, the factors that caused it to get out of hand in the first place are still there.

The idea that the US economy is more stable than Argentina or Zimbabwe... Probably so, but in itself it is both unsustainable and weighty - more inertia to keep it going, greater consequence if it falls... What I'm saying is that, as far as I can see (and please enlighten me) we're heading down a similar path. What I want to know is what's to keep us from following it off a similar cliff?

[Oso Mocoso]

Correct me if I'm wrong, but isn't the deficit a form of currency expansion - more money available? With this bailout - it's sounding like it's going to come from the budget, in which case some other programs must be pushed onto the deficit, right?

Well, kind of sort of. It is if they just create more money to pay it off. A promise to pay is not precisely the same thing as making a new dollar.


So you've got even more dollars out there, and meanwhile, the economy is still systemically unstable. You've still got the basic problem of creative finance being more profitable than productive investment.

Whoa there. You're making an assumption of what the government's future behavior will be. Also you're making an assertion that the economy is systemically unstable. The chief underlying cause of the present crisis is the fact that real estate in most of California and Nevada as well as around the rest of the U.S. was overvalued and people borrowed against that. Once that's corrected, why is the economy systemically unstable exactly?


Even if they reign finance in a bit, the factors that caused it to get out of hand in the first place are still there.

Oh really? Please elaborate.


The idea that the US economy is more stable than Argentina or Zimbabwe... Probably so, but in itself it is both unsustainable and weighty - more inertia to keep it going, greater consequence if it falls... What I'm saying is that, as far as I can see (and please enlighten me) we're heading down a similar path. What I want to know is what's to keep us from following it off a similar cliff?

The power of really big numbers.

The U.S. is a 14 trillion dollar economy. Yes, our national debt is huge.

Argentina's economy has been historically very uneven. Right now, it's a 525 Billion dollar economy.

Zimbabwe is a 28 Billion dollar economy.

So, you're right that we are heading down a similar path. The difference is one of scope and scale. We're going to experience inflation. Maybe even stagflation. These countries did not have the same kind of economic might that the U.S. does. The natural resources. The physical infrastructure. The educational resources. In terms of what a country needs in order to create economic hot spots, the U.S. is still really strong.

[Sally]

Whoa there. You're making an assumption of what the government's future behavior will be. Also you're making an assertion that the economy is systemically unstable. The chief underlying cause of the present crisis is the fact that real estate in most of California and Nevada as well as around the rest of the U.S. was overvalued and people borrowed against that. Once that's corrected, why is the economy systemically unstable exactly?

It all stems from capitalists investing in speculation rather than production. Speculation bubbles are a "natural" part of this economy (http://moneynews.newsmax.com/streettalk/greenspan_bubbles_normal/2008/05/29/99986.html). Meanwhile, the real economy - production of consumer goods, real wages, consumer prices - has been declining since the 70s. The main thing propping up standards of living has been credit, financed by mortgage speculation, much of the time - well, we can see what that's come to. Monthly Review harps on all of this a lot (http://www.monthlyreview.org/0607wkt.htm). Relevance to current crisis: Bailout plan might not even work, per non-Wall Street economists (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531.html).

Real wages have been stagnant for about 30 years - around the same time the finance sector of the economy started overtaking agriculture and industry - meanwhile the dollar has been steadily losing value. Stagflation's been a fact of life for a while now.


So, you're right that we are heading down a similar path. The difference is one of scope and scale. We're going to experience inflation. Maybe even stagflation. These countries did not have the same kind of economic might that the U.S. does. The natural resources. The physical infrastructure. The educational resources. In terms of what a country needs in order to create economic hot spots, the U.S. is still really strong.

The thing is, we need to utilize our resources in a way that actually creates jobs. A green technology revolution and fair trade legislation would go a long way....

[Oso Mocoso]

It all stems from capitalists investing in speculation rather than production. Speculation bubbles are a "natural" part of this economy (http://moneynews.newsmax.com/streettalk/greenspan_bubbles_normal/2008/05/29/99986.html).

Right. Bubbles are a natural part of the economy and always have been. There's nothing you could do to totally prevent them.


Meanwhile, the real economy - production of consumer goods, real wages, consumer prices - has been declining since the 70s.

I'm a little bit worried when you talk about the "real" economy and then start talking about physical goods. It sounds like you don't understand the term and what is meant by value creation. You're right that the U.S. has been shifting its economy away from making "stuff".


The main thing propping up standards of living has been credit, financed by mortgage speculation, much of the time - well, we can see what that's come to.

That's a very controversial claim.


Monthly Review harps on all of this a lot (http://www.monthlyreview.org/0607wkt.htm).

That article you quoted is just awful.

For example: "From an economic standpoint what has happened is that the link between productivity and wages has been broken. No longer does economic growth mean increases in the real earnings for the working class as their productivity rise"

I'm at a loss for words. I want to go through the article and bit by bit pick apart all of his bullshit.


Relevance to current crisis: Bailout plan might not even work, per non-Wall Street economists (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531.html).

Define "work".


Real wages have been stagnant for about 30 years - around the same time the finance sector of the economy started overtaking agriculture and industry - meanwhile the dollar has been steadily losing value. Stagflation's been a fact of life for a while now.

You are misinformed about this topic.


The thing is, we need to utilize our resources in a way that actually creates jobs. A green technology revolution and fair trade legislation would go a long way....

I was with you on green technology revolution, but fair trade legislation? If you're thinking about that in terms parallel to what's meant by fair trade coffee then you're really gullible. That's for the most part just a scam.

[C.J.Woolf]

That article you quoted is just awful.

For example: "From an economic standpoint what has happened is that the link between productivity and wages has been broken. No longer does economic growth mean increases in the real earnings for the working class as their productivity rise"

I'm at a loss for words. I want to go through the article and bit by bit pick apart all of his bullshit.
I look forward to your picking apart. The article extrapolates a lot, but can you refute the fact that most of the productivity gains have gone into few pockets?


You are misinformed about this topic.
You're doing it again, Oso. Don't just say someone is misinformed, inform!

Stagnant wages wouldn't be so bad if they weren't accompanied by greater economic insecurity.

[kendoiwan]

I look forward to your picking apart. The article extrapolates a lot, but can you refute the fact that most of the productivity gains have gone into few pockets?
Stagnant wages wouldn't be so bad if they weren't accompanied by greater economic insecurity.

:huh: I'd like to hear his 2 cents on that too

[Oso Mocoso]

I look forward to your picking apart. The article extrapolates a lot, but can you refute the fact that most of the productivity gains have gone into few pockets?

No. I agree with that statement. But you have to understand that the new ways in which value is being created aren't equally available to everyone. Some guy swinging a hammer somewhere isn't a whole lot more productive now than he was before. When some worker at a factory starts being more productive than he was before because someone developed a new industrial automation system, the worker is a relatively disposable part of that system beyond a little training. The economic benefit in that increase in efficiency is going to go to the person whose R&D resulted in developing the industrial automation system.

The guy who figures out how to work smarter in Germany tends to be someone from a labor union. They sink a lot of money into that sort of thing over there. In the States, it's someone who was hired by private companies.

But the parts of the U.S. economy that have been growing in the last couple decades have been large in terms of dollar volume and small in terms of number of employees. When you hear about "The American biotech industry is booming!" Think "the rich are getting richer, and no jobs have been created". Most high tech industries have this effect on a country. For instance, Gilead Sciences was an industry darling a while back. For a while they were earning corporate profits of something like $750,000 per employee. There weren't many of them, and they were all well paid stockholders of the company.

That doesn't just go for tech companies though. When Bush says we're living in a service economy, he's right. Service jobs tend to be either very high paying or low paying. Not much in the middle, there. The high paying jobs require advanced education and lots of training. The low paying ones could usually be done by a trained monkey. Where's the middle class in that economy? But that's because those well trained people really can produce value so much more efficiently than the broom-pushers. It's not like the pizza guy is getting screwed out of extra value that he produces somehow. He just doesn't have the degree in pharmacogenomics that he would need to get a job at the biotech company he's bringing pizza to.

Why is Germany especially but Europe in general ahead in this? The industrial workers invested their money in increased value creation for their own jobs. Negotiations between labor and management there were not adversarial.


You're doing it again, Oso. Don't just say someone is misinformed, inform!

I am not going to apologize for not informing, and I have no intention of informing every ignorant person who comes along. I don't have the time or inclination. Over the past two and a half years I spent over a hundred thousand dollars on my own education. I'll explain a topic someone is clueless on if:

1. It wouldn't take me very much time.

2. I like them.

3. They seem intelligent enough to learn something.

You know, some combination of those three.


Stagnant wages wouldn't be so bad if they weren't accompanied by greater economic insecurity.

True.

[ocop]

Heh. People being greedy is the fundamental assumption of all modern economic thought. It's also part of the argument of why it would be okay to deregulate. It's actually the rare times when people/institutions stop acting in their own best interests when economic breakdowns occur.

I think the issue is that when you get to an individual level, the pursuit of greed (if I can bundle these sub-prime loans into a security while the housing bubble exists, I can make a fuck ton of $$$) tends to override issues of risk on an institutional level. There's also an issue of information lag (just how bad are these loans?).

Then add deregulation mixed with information lag at an institutional level (financial motivation to give AAA ratings and not necessarily having the ability to see whats on everyone's balance sheet) and things start to get bad.

Lust for short-term profit + imperfect information + corrupt regulation = really, really terrible long-term forecast. The free market only works if everyone is omniscient and can know what appropriate market value is.

[Oso Mocoso]

The free market only works if everyone is omniscient and can know what appropriate market value is.

I don't agree with you. People don't need to be omniscient. They need to realize there's an information lag, and the way they're doing things right now doesn't result in maximum profitability. They were acting foolishly, and it's been made quite apparent to them. They'll learn from this and correct their way of doing things.

They don't need 100% certainty of an asset's value, just its approximate worth and the degree of uncertainty involved.

Occasional busts like this are a guarantee in a capitalist market. But overall capitalist systems are much more productive than socialist ones. Socialism has the benefit of being a lot poorer, a lot more equitable and somewhat more predictable.

[C.J.Woolf]

No. I agree with that statement. But you have to understand that the new ways in which value is being created aren't equally available to everyone. Some guy swinging a hammer somewhere isn't a whole lot more productive now than he was before. When some worker at a factory starts being more productive than he was before because someone developed a new industrial automation system, the worker is a relatively disposable part of that system beyond a little training. The economic benefit in that increase in efficiency is going to go to the person whose R&D resulted in developing the industrial automation system.
Couldn't you say the same thing about industrial workers in the early to mid-20th century? They didn't invent the methods that made them more productive, yet they got a bigger share in the rewards. What was the difference? Unions were an obvious factor, but was there more to it?


But the parts of the U.S. economy that have been growing in the last couple decades have been large in terms of dollar volume and small in terms of number of employees.
Good point.


That doesn't just go for tech companies though. When Bush says we're living in a service economy, he's right. Service jobs tend to be either very high paying or low paying. Not much in the middle, there.
The disappearing middle concerns me a lot. I believe it can't be healthy for a country to have a small overclass that is socially -- and increasingly physically -- separate from a large underclass. I have no idea what can done about it, though.


I am not going to apologize for not informing, and I have no intention of informing every ignorant person who comes along. I don't have the time or inclination. Over the past two and a half years I spent over a hundred thousand dollars on my own education. I'll explain a topic someone is clueless on if:

1. It wouldn't take me very much time.

2. I like them.

3. They seem intelligent enough to learn something.

You know, some combination of those three.
Fair enough. I don't know how many times I've been tempted to post and wound up saying "Aw, fuck it" because I knew I would get sucked in to a discussion I had no desire to continue. But be aware that when you do a drive-by like "You're misinformed" without expanding on it, it comes off as arrogant and rude.

[ocop]

I don't agree with you. People don't need to be omniscient. They need to realize there's an information lag, and the way they're doing things right now doesn't result in maximum profitability. They were acting foolishly, and it's been made quite apparent to them. They'll learn from this and correct their way of doing things.

Unfortunately, the blowback from the financial learning curve isn't limited to the financiers.



Occasional busts like this are a guarantee in a capitalist market. But overall capitalist systems are much more productive than socialist ones. Socialism has the benefit of being a lot poorer, a lot more equitable and somewhat more predictable.

I agree completely, but "socialism" is a catch-all term for a whole spectrum of shades of gray. Where/at what level and focus of public expenditure does capitalism morph into socialism in the first place?

There has to be an optimal balance of regulation somewhere in the spectrum. Unfortunately, we're doing it wrong, in one direction or the other.

[Oso Mocoso]

Couldn't you say the same thing about industrial workers in the early to mid-20th century? They didn't invent the methods that made them more productive, yet they got a bigger share in the rewards. What was the difference? Unions were an obvious factor, but was there more to it?

When I studied this subject in school, it was in a concentration called "Operations Management". In the early 20th century, the guy who originated the field was essentially an idle son of a millionaire. He got his start watching bricklayers, and noting inefficiencies in their work. He started telling them how to do their jobs better, and they thought he was a dick but they tried his suggestions and their productivity soared. The guy started studying other jobs and publishing his findings. He got famous, and people adopted his ideas, but he didn't make (or need) any money from it. In his case, yeah, the workers were able to adopt his ideas for free and demand more money for their improved work.

The more modern form of this as it's practiced in the U.S. was developed in Japan's automotive industry in the 70's and it tends to be developed from work paid for by the management of a company and then sort of imposed on the workers. It's a lot less concerned with their well-being. Like I said, in Germany and Europe they've done it somewhat differently.


The disappearing middle concerns me a lot. I believe it can't be healthy for a country to have a small overclass that is socially -- and increasingly physically -- separate from a large underclass. I have no idea what can done about it, though.

Welcome to Central America, where I grew up. :) You'll either have a bunch of servants, or you'll be someone's servant. Odds on the latter. Me too, now that I mention it.


Fair enough. I don't know how many times I've been tempted to post and wound up saying "Aw, fuck it" because I knew I would get sucked in to a discussion I had no desire to continue. But be aware that when you do a drive-by like "You're misinformed" without expanding on it, it comes off as arrogant and rude.

I know. I don't really care that much if people on the Internet think I'm arrogant. From time to time I've started following that up with a reading list. Like "Hey, read the following books and come back."

[C.J.Woolf]

I know. I don't really care that much if people on the Internet think I'm arrogant. From time to time I've started following that up with a reading list. Like "Hey, read the following books and come back."
That's an improvement. At least it gives one an idea of where you're coming from.

[walfin]

Welcome to Central America, where I grew up. You'll either have a bunch of servants, or you'll be someone's servant. Odds on the latter. Me too, now that I mention it.

Sounds like we're on the way back to feudal times.

You'll avoid the bust if you're lucky, though. But that's not likely to happen, not by a long shot.

Then again, America has been through one great depression before and survived. People just have to stop taking on so much debt that they can't handle. Should know what's good for themselves, and be responsible to the rest of the little people just like them who aren't at fault.

[Thevenin]

IOccasional busts like this are a guarantee in a capitalist market. But overall capitalist systems are much more productive than socialist ones. Socialism has the benefit of being a lot poorer, a lot more equitable and somewhat more predictable.

Agreed. Capitalist systems tend to pull more people up while socialist systems tend to keep more people down. This is because, in capitalist economies, talent, skill, hard work, risk and initiative are more accurately priced. That is, they are not "price controlled" in a capitalist system as they are in socialist systems.

However, capitalist systems work best with minimal, yet sufficient, regulation. That's the hard part. It's what failed in the current crisis. That is, mortgage backed securities were improperly over priced because data about their true risks were ignored or discounted. The true price of these securities was much lower because they represented far greater risk than people were willing to acknowledge or, after multiple bundlings, capable of knowing.

By the way, saying socialist systems are more "equitable" depends on your definition of "equitable." They are not equitable to talented people whose abilities are undervalued.

In any imaginable economic system there is going to be a bell curve or similar, analogous distribution of wealth and some people are going to be on the bottom. It's important to adopt economic policies that shift the curve up and not down (i.e., shift "right" rather than "left"?).

[Ferrus]

They are not equitable to talented people whose abilities are undervalued.
Yes, but 'talent' is often rewarded far less than social standing or having the right contacts in either system.

[Thevenin]

Yes, but 'talent' is often rewarded far less than social standing or having the right contacts in either system.

Contacts are important, and many extroverts have a "talent" for having contacts, something typically difficult for an INTP. But, having contacts, per se, doesn't mean anything if you have nothing to transact. I've no talent for "contacts" but I've partnered with people who had many.

Social standing is probably more important in the UK than here in the US. Although we do have a certain nauseating segment of the population who concern themselves with anachronistic social lists. Here, the nouveau riche tend to have more influence than the old rich because they have more money to "give" (that is, bribe) politicians.

[Sally]

Welcome to Central America, where I grew up. :) You'll either have a bunch of servants, or you'll be someone's servant. Odds on the latter. Me too, now that I mention it.

So we can agree that the current US economy = shrinking middle class. Since consumer spending makes up a huge part of the US economy and shrinking middle class = less consumer spending (as the richest 10% of the population, however much money they're spending, are unlikely to fuel the service/consumer-based economy the same way a vibrant middle class does) ... I'm still seeing fundamental instability here. What's your interpretation?

[Oso Mocoso]

So we can agree that the current US economy = shrinking middle class.

Yes, we agree about that.


Since consumer spending makes up a huge part of the US economy and shrinking middle class = less consumer spending

Wrong. A shrinking middle class doesn't mean less consumer spending. It changes the demographics of consumer spending, though.


(as the richest 10% of the population, however much money they're spending, are unlikely to fuel the service/consumer-based economy the same way a vibrant middle class does)

Yeah, it'll fuel it, but differently.


I'm still seeing fundamental instability here. What's your interpretation?

I don't see fundamental instability. I see a lot of alarmism. I see inevitable social change driven by technological progress. Also, the world economy in the aftermath of WW2 left the US with a huge economic advantage vs the rest of the world. That was never sustainable, and things are swinging back into balance.

I think you should really read "The Wealth of Nations" to start out. It was written in 1776 but the ideas it presents are easy to understand and they make up the bedrock of modern economic thought. I consider it to be one of the best books I've ever read. Following "The Economist" and "The Wall Street Journal" for economic news.

In terms of a good course, I highly recommend this lecture series.

Economics, 3rd Edition
(36 lectures, 30 minutes/lecture)
Course No. 550

Course Lecture Titles
1. How Economists Think
2. Division of Labor
3. Supply and Demand
4. Price Floors and Ceilings
5. Elasticity
6. The Labor Market and Wages
7. Financial Markets and Rates of Return
8. Personal Investing
9. From Perfect Competition to Monopoly
10. Antitrust and Competition Policy
11. Regulation and Deregulation
12. Negative Externalities and the Environment
13. Positive Externalities and Technology
14. Public Goods
15. Poverty and Welfare Programs
16. Inequality
17. Imperfect Information and Insurance
18. Corporate and Political Governance
19. Macroeconomics and GDP
20. Economic Growth
21. Unemployment
22. Inflation
23. The Balance of Trade
24. Aggregate Supply and Aggregate Demand
25. The Unemployment-Inflation Tradeoff
26. Fiscal Policy and Budget Deficits
27. Countercyclical Fiscal Policy
28. Budget Deficits and National Saving
29. Money and Banking
30. The Federal Reserve and Its Powers
31. The Conduct of Monetary Policy
32. The Gains of International Trade
33. The Debates over Protectionism
34. Exchange Rates
35. International Financial Crashes
36. A Global Economic Perspective

http://www.teach12.com/ttcx/coursedesclong2.aspx?cid=550

If you want to "preview it" for free, this lecture can be obtained through other less reputable sources. Google can lead you to them.

[Sally]

~Econ: The Classics~

Thanks - I'll look into that lecture series.

I'm reading Galbraith's The Affluent Society right now, which provides a very interesting look at the evolution of economic thought. I'm trying to learn to understand the meta-analysis and the fundamental models of the various schools of thought at the same time... So far seems like there's a lot of confusion between the descriptive and the proscriptive within and between competing theories.

[SensEye]

"Lapdogs and old boys."

Well, there goes any pretense of intelligent thought in the rest of the comment.

NOBODY HAS A CLUE WHAT WILL HAPPEN!!!!LOL. So you council just rushing in blind and doing what Wall street (those whose greed created ths whole mess in the first place) want?

Yeah, that's intelligent. Or just trust the leaders? They only have your best interests at heart. That's why their handing the taxpayer the bill.

[Ferrus]

Thanks - I'll look into that lecture series.

I'm reading Galbraith's The Affluent Society right now, which provides a very interesting look at the evolution of economic thought. I'm trying to learn to understand the meta-analysis and the fundamental models of the various schools of thought at the same time... So far seems like there's a lot of confusion between the descriptive and the proscriptive within and between competing theories.
Yes, I read that. A good deal of normative judgement hiding itself as scientific.

[airjaw]

SWEEET, more econ knowledge.

[abathur]

Oso:

I've been rolling a question over in my head for the past week or so. I'm a writer, not an economist--so I have some logic but not a lot of training to guide this. It's likely to be horrid--but I've been really curious about what someone with more savvy would say.

There's a fundamental question beyond my own here. I think if you asked the average american who lived through WW2 if we're a fundamentally different people today, I think they'd agree wholeheartedly. But would we be capable of the same tenacity for survival in the face of something similarly sobering (in this case, severe economic woes in the short term, the loss of a middle class in the long term.)

To the point: What would be the viability of creating a mutual-fund-like-company in which takes consumer investments and uses them solely to begin buying back US debt held overseas? I saw one of the talking heads say we're facing about $32,000 in national debt per person in the country, which, while staggering, doesn't seem to be even vaguely beyond our capacity to pay back--outside the government--over a number of years given a tenacious, frugal mindset like that of a people which once embraced victory gardens and scrap metal drives to support the war effort.

Instead of increasing our taxes for the government to "buy back" the debt--always a hard sell here, the system would promote proactive responsibility at a basic level, and individuals could be said to "own" an asset of some sort, instead of simply watching money leave their paycheck for something as hard to conceive of for the average person as national debt.

Obviously, this would do nothing to actually retire all of this debt, just move it onto our shores. And the effort would be ostensibly associated with matching reductions in consumer spending--however, these would be accompanied with a personal accountability for debt, as well as, ideally, in the presence of trillions of dollars of american owned american debt, a real reason to see that debt paid off.

The big risk, of course, seems to be that the program would just result in the American people buying back large amounts of bad debt that would've never been repaid in the first place, facing the reduced consumption associated with the amount of saving the program would take, yet never reaching any real payoff on it.

Beyond my ignorance, what other effects and implications might be associated with this idea?

[Oso Mocoso]

There's a fundamental question beyond my own here. I think if you asked the average american who lived through WW2 if we're a fundamentally different people today, I think they'd agree wholeheartedly. But would we be capable of the same tenacity for survival in the face of something similarly sobering (in this case, severe economic woes in the short term, the loss of a middle class in the long term.)

The American people are nothing if not innovative and resilient. I think the country will be okay.


To the point: What would be the viability of creating a mutual-fund-like-company in which takes consumer investments and uses them solely to begin buying back US debt held overseas?

Are you thinking the company would be state bankrolled or private? Either way I don't see any reason this wouldn't be viable to do. I'm not 100% sure what you intend this to accomplish. Depending on its intent, it may or may not be the best way to go about what you're hoping it to do.


Instead of increasing our taxes for the government to "buy back" the debt--always a hard sell here, the system would promote proactive responsibility at a basic level, and individuals could be said to "own" an asset of some sort, instead of simply watching money leave their paycheck for something as hard to conceive of for the average person as national debt.

So, this sounds like you're thinking it would be a non-profit corporation? Or something like a new department within an existing branch of the government?


Obviously, this would do nothing to actually retire all of this debt, just move it onto our shores. And the effort would be ostensibly associated with matching reductions in consumer spending--however, these would be accompanied with a personal accountability for debt, as well as, ideally, in the presence of trillions of dollars of american owned american debt, a real reason to see that debt paid off.

Okay. Here I think you're getting on shaky ground. If our debt is overseas, and we default on it, the people who don't get paid are overseas. Yes, by them holding our debt they exercise some leverage over us in terms of international relations. But do we want to trade that for a situation where they get paid and then if Americans default on the loans other Americans don't get paid? Consider the cost-benefit analysis of that in light of the effort it would require to accomplish what you're talking about.


The big risk, of course, seems to be that the program would just result in the American people buying back large amounts of bad debt that would've never been repaid in the first place, facing the reduced consumption associated with the amount of saving the program would take, yet never reaching any real payoff on it.

Right. A lot of sacrifice. Not a lot of payoff.


Beyond my ignorance, what other effects and implications might be associated with this idea?

Who would provide the capital required at start-up to get it rolling? How could a venture like this make a profit? As an idea, this is very late 90's. You have an idea. You do not have a business model.

[abathur]

Are you thinking the company would be state bankrolled or private? Either way I don't see any reason this wouldn't be viable to do. I'm not 100% sure what you intend this to accomplish. Depending on its intent, it may or may not be the best way to go about what you're hoping it to do. Hadn't followed it that far. Private, I would suppose. I don't see the government as proactive enough to bother doing something like this, even if it were worth doing.


So, this sounds like you're thinking it would be a non-profit corporation? Or something like a new department within an existing branch of the government?
Ideally a non-profit corporation.



Okay. Here I think you're getting on shaky ground. If our debt is overseas, and we default on it, the people who don't get paid are overseas. Yes, by them holding our debt they exercise some leverage over us in terms of international relations. But do we want to trade that for a situation where they get paid and then if Americans default on the loans other Americans don't get paid? Consider the cost-benefit analysis of that in light of the effort it would require to accomplish what you're talking about.
I suspected this is the way it would ultimately go. Just seems like the prospect of making any headway on the debt is pretty abysmal when it's such an abstraction. That's the biggest attraction, I think. Kinda like an article I read recently about a guy who stopped throwing everything away. He's keeping all of his trash in his basement. And now he's realized just how senseless much of it is. How can we make debt "real" to people, and push them towards similar realizations?


Who would provide the capital required at start-up to get it rolling? How could a venture like this make a profit? As an idea, this is very late 90's. You have an idea. You do not have a business model.
Ha. Not something I'd run with myself. If it was actually worth doing I'd imagine you can find private investors to put up the capital to kick it off.

[Ferrus]

Economics is generally more philosophical and less technical than finance, unless you get into the econometrics. Some sound economic thinking could've helped the banks.

[Sally]

Yes, I read that. A good deal of normative judgement hiding itself as scientific.

When does Galbraith pretend to be scientific?

[ApeTheDog]

1. There will always be trade. You can't kill the economy.
2. This problem is caused by letting it spiral and evolve too fast.
3. This bailout represents more of the latter "fast patching/evolving".

So if I wasn't allowed to abstain, I'd be against it, but I have no idea if that's a good thing or not.

These sure are interesting times. Trying to control unsavoury people into having atomic weapons might lead to world war 3. Trying to control the flow of wealth might lead to wall street blowing up.

I actually think it would be a good thing, in the long-term, to just let everything go to ruins. At least then we'd be able to rebuild and set up better systems.

World 2.0

[Ferrus]

When does Galbraith pretend to be scientific?
He doesn't, that's the point, it's the charge he lays at many economists (and social scientists in general).

[SensEye]

With all the finger pointing going on about who caused the vote to fail, I went for a little lookie loo at the results.

Final Vote Results (http://clerk.house.gov/evs/2008/roll674.xml)


Hmmm, check that title (emphasis mine):

BILL TITLE: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes

Seriously, WTF? Can we not find the person responsible for this title and have him shot? Just on principle.

[Ferrus]

Hahaha. Maybe congress will pass a constitutional amendment, giving the presidency and the Fed special powers in case of a war, a major natural disaster or terrorist attack 'and for other purposes'.

[Thevenin]

I actually think it would be a good thing, in the long-term, to just let everything go to ruins. At least then we'd be able to rebuild and set up better systems.

Why do you think we'd be able to set up better systems? Presumably, those putative systems would be more efficient, more stable, and more equitable than anything extant today. How would you do this and what system would you implement, assuming you could overcome the extreme diversity of economic opinion that has led to the compromises we have today? Just curious.

[purveyor of truth]

Why do you think we'd be able to set up better systems?

Neccessity and a fresh start for greed.

[Thevenin]

Neccessity and a fresh start for greed.

Same ingredients as last time.

[purveyor of truth]

Same ingredients as last time.

And hopefully it'll take em a while to get greed reperfected again. If it doesnt, maybe we are at that place in a societies development where it implodes on itself.

[Oso Mocoso]

... assuming you could overcome the extreme diversity of economic opinion that has led to the compromises we have today?

It's not diversity of economic opinion that has led to the compromises we have today, it's greed + democracy.

[Thevenin]

It's not diversity of economic opinion that has led to the compromises we have today, it's greed + democracy.

I agree. But, it was the diversity of economic (also, political) opinion that led to the need for compromise. If everyone has the same opinion, no compromise is needed. Unfortunately, the art of compromise is sorely lacking among the polarized politicians of today. Without sufficient compromise, economic stability is lost to cyclical swings between too much and too little regulation. Now, we're likely to enter a period of too much regulation. I'm not sure the political system, as currently populated, is capable of finding the balance point of minimal, yet sufficient, regulation.

As an EE, I'm tempted to make an analogy to amplifiers with too little negative feedback (regulation)--they're unstable and swing to the highest voltage possible (i.e., the "rail"). That is, they are essentially non-linear. Too much negative feedback, and an amplifier is stable, but lacks significant gain (amplification). But, politicians are rarely engineers who know how to balance a system or bias an amplifier, much less, an economy.

[MountainHiker]

This bailout isn't about subprime mortgages or saving jobs, it's about bailing out the big hedge funds that were dabbling in heavily leveraged derivatives, and more importantly, those that loaned them their betting money. End of story.

The subprime defaults are a rather small part of it, but it's easier to sell that to the public than the idea that a bunch of wealthy folks only had to put around 5% down then leverage the remaining 95% or so. Then they could move markets with that amount of money and make a killing on just 0.01% gains. Those leveraged bets have polluted the whole system and when they started falling, there was no easy way to stop them. I won't even go into naked shorting.

Anyway, that's what my research has led me to. You may now begin telling me why I am wrong. (sorry, just in a smart-assed mood today. Wait, I'm in that mood every day. hahaha)

[kendoiwan]

This bailout isn't about subprime mortgages or saving jobs, it's about bailing out the big hedge funds that were dabbling in heavily leveraged derivatives, and more importantly, those that loaned them their betting money. End of story.

The subprime defaults are a rather small part of it, but it's easier to sell that to the public than the idea that a bunch of wealthy folks only had to put around 5% down then leverage the remaining 95% or so. Then they could move markets with that amount of money and make a killing on just 0.01% gains. Those leveraged bets have polluted the whole system and when they started falling, there was no easy way to stop them. I won't even go into naked shorting.

Anyway, that's what my research has led me to. You may now begin telling me why I am wrong. (sorry, just in a smart-assed mood today. Wait, I'm in that mood every day. hahaha)

Nah, you're right and anyone who says different is full of it.

[purveyor of truth]

So that means what? We're all fucked right? I need to buy firearms, ammo and stock up on gasoline.

[kendoiwan]

So that means what? We're all fucked right? I need to buy firearms, ammo and stock up on gasoline.

:bigguns:

[Oso Mocoso]

This bailout isn't about subprime mortgages or saving jobs, it's about bailing out the big hedge funds that were dabbling in heavily leveraged derivatives, and more importantly, those that loaned them their betting money. End of story.

Anyway, that's what my research has led me to. You may now begin telling me why I am wrong. (sorry, just in a smart-assed mood today. Wait, I'm in that mood every day. hahaha)

I don't like the phrase "loaned them their betting money". That's not how I see this. Most of the money wasn't lost by big hedge funds at the end of the day. You don't explicitly make the mistake of mistaking correlation for causation in the crisis, but you sound like you might be.

The value of housing in the United States in general was overpriced. In particular, it was enormously overpriced in California, Nevada, and Arizona. The fact that housing was a profitable thing to sell led to the overproduction of housing. The fact that there was a lot of housing on the market meant that sellers were anxious to get buyers so they didn't have excess expensive housing inventory sitting around. So, they took chances on selling to customers they might not have done business with under normal circumstances.

What this meant was that a lot of people who couldn't pay had mortgages on homes that were suddenly worth a lot less on the market than the price of the mortgage.

THAT is the root cause of the crisis. The stuff you're talking about may have been a factor in making the fallout worse than it would have otherwise been. By bundling mortgages and leveraging them people were able to obfuscate the amount of risk present in a given financial package. Okay, but the underlying cause was still the housing bubble. No housing bubble, no crisis.

Why is the housing bubble important to average people? They're the ones losing their homes to banks that are collapsing. I don't know that the proposed bailout would have helped with that. The text sounds like it would just be appointing someone Bailout Tsar and handing them a checkbook. No telling what they would do. I guess it sort of had to be written that way to get something moved through Congress quickly, but it sounds like the Reps and Dems couldn't agree on someone they'd all trust with the checkbook.

[Thevenin]

This bailout isn't about subprime mortgages or saving jobs, it's about bailing out the big hedge funds that were dabbling in heavily leveraged derivatives, and more importantly, those that loaned them their betting money. End of story.

The subprime defaults are a rather small part of it, but it's easier to sell that to the public than the idea that a bunch of wealthy folks only had to put around 5% down then leverage the remaining 95% or so. Then they could move markets with that amount of money and make a killing on just 0.01% gains. Those leveraged bets have polluted the whole system and when they started falling, there was no easy way to stop them. I won't even go into naked shorting.

Anyway, that's what my research has led me to. You may now begin telling me why I am wrong. (sorry, just in a smart-assed mood today. Wait, I'm in that mood every day. hahaha)

Citations?

[kendoiwan]

I don't like the phrase "loaned them their betting money". That's not how I see this. Most of the money wasn't lost by big hedge funds at the end of the day. You don't explicitly make the mistake of mistaking correlation for causation in the crisis, but you sound like you might be.

The value of housing in the United States in general was overpriced. In particular, it was enormously overpriced in California, Nevada, and Arizona. The fact that housing was a profitable thing to sell led to the overproduction of housing. The fact that there was a lot of housing on the market meant that sellers were anxious to get buyers so they didn't have excess expensive housing inventory sitting around. So, they took chances on selling to customers they might not have done business with under normal circumstances.

What this meant was that a lot of people who couldn't pay had mortgages on homes that were suddenly worth a lot less on the market than the price of the mortgage.

THAT is the root cause of the crisis. The stuff you're talking about may have been a factor in making the fallout worse than it would have otherwise been. By bundling mortgages and leveraging them people were able to obfuscate the amount of risk present in a given financial package. Okay, but the underlying cause was still the housing bubble. No housing bubble, no crisis.

Why is the housing bubble important to average people? They're the ones losing their homes to banks that are collapsing. I don't know that the proposed bailout would have helped with that. The text sounds like it would just be appointing someone Bailout Tsar and handing them a checkbook. No telling what they would do.

There have been housing bubbles in the past, the way I see things mortages should not be securitirized in the first place without extreme regulatory oversight that would prevent the 30 time leveraging schemes that plagued the housing financial market.

[Oso Mocoso]

There have been housing bubbles in the past, the way I see things mortages should not be securitirized in the first place without extreme regulatory oversight that would prevent the 30 time leveraging schemes that plagued the housing financial market.

There has not been a housing bubble like this in United States history. Source: Robert Schiller Irrational Exuberence, University Press 2005

http://upload.wikimedia.org/wikipedia/en/thumb/6/6c/Shiller_IE2_Fig_2-1.png/726px-Shiller_IE2_Fig_2-1.png

[kendoiwan]

There has not been a housing bubble like this in United States history. Source: Robert Schiller Irrational Exuberence, University Press 2005

http://upload.wikimedia.org/wikipedia/en/thumb/6/6c/Shiller_IE2_Fig_2-1.png/726px-Shiller_IE2_Fig_2-1.png

http://www.econtalk.org/archives/2008/09/kling_on_freddi.html

[MountainHiker]

Citations?


"The collapse of the subprime market soon spread into other mortgage sectors… and the derivatives created on top of all those subprime mortgages made everything much worse. Given that the annual GDP of the U.S. economy is just $13 trillion, the $250 trillion in derivatives should have been seen as an accident waiting to happen."

Link: A Horrible Mess, and How We Got There (http://financialsense.com/editorials/casey/2008/0929.html)


"Subprime mortgage bond losses are likely to total as much as $550 billion US, or about half the value of all first-mortgage subprime debt issued in the past three years, Standard & Poor's chief credit officer Mark Adelson said.

Banks and brokerages have already written down $508.5 billion in holdings, according to Bloomberg data, and Adelson's estimate may be a sign that much of the damage to bondholders from the credit crisis has been accounted for."
Link: Subprime Losses May Total $550 BN (http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=bdf4b206-5ceb-4e21-a124-c8ec057070d3)

The other citation was a talk this morning with a friend who's a stock broker. Sorry I didn't record it so I can't cite it.

Do those that pass muster professor? Or are three approved sources required? Let me see that requirement on the syllabus.

Anyway, I really don't care too much about whether or not I have my cause and effect logically correct. The way I see it the heavily leveraged derivatives are THE REASON the bailout was requested. Yes, the subprime mess was the match, but the stacks of newspapers and other flammable clutter caused the fire to burn uncontrollably. The subprime mess most likely could have been contained, but the additional fuel was too much.


So that means what? We're all fucked right? I need to buy firearms, ammo and stock up on gasoline.

I'm not sure what it means. The mafia thugs came to the door demanding protection money and we told them no. The ball's back in their court. We'll have to see what kind of punishment they decide to dole out on us. The best thing I can come up with for figuring out what to do it to think like a criminal. That'll get you closer to understanding their next steps and what they might do next.

[Chunes]

I heard they're pushing through a similar bailout proposal. Maybe they'll just keep trying until it works.

[kendoiwan]

I heard they're pushing through a similar bailout proposal. Maybe they'll just keep trying until it works.

That's what they usually do. Keep repeating the same lies until people start believing them...:stupid:

[jyakulis]

I don't like the phrase "loaned them their betting money". That's not how I see this. Most of the money wasn't lost by big hedge funds at the end of the day. You don't explicitly make the mistake of mistaking correlation for causation in the crisis, but you sound like you might be.

The value of housing in the United States in general was overpriced. In particular, it was enormously overpriced in California, Nevada, and Arizona. The fact that housing was a profitable thing to sell led to the overproduction of housing. The fact that there was a lot of housing on the market meant that sellers were anxious to get buyers so they didn't have excess expensive housing inventory sitting around. So, they took chances on selling to customers they might not have done business with under normal circumstances.

What this meant was that a lot of people who couldn't pay had mortgages on homes that were suddenly worth a lot less on the market than the price of the mortgage.

THAT is the root cause of the crisis.

Huh? How is this the root cause. You just explained a lot of the effects of artificially low interest rates if you ask me.

[airjaw]

The bigger the lie, the more people believe in it. - Hitler

[Thevenin]

"The collapse of the subprime market soon spread into other mortgage sectors… and the derivatives created on top of all those subprime mortgages made everything much worse. Given that the annual GDP of the U.S. economy is just $13 trillion, the $250 trillion in derivatives should have been seen as an accident waiting to happen."

Link: A Horrible Mess, and How We Got There (http://financialsense.com/editorials/casey/2008/0929.html)


"Subprime mortgage bond losses are likely to total as much as $550 billion US, or about half the value of all first-mortgage subprime debt issued in the past three years, Standard & Poor's chief credit officer Mark Adelson said.

Banks and brokerages have already written down $508.5 billion in holdings, according to Bloomberg data, and Adelson's estimate may be a sign that much of the damage to bondholders from the credit crisis has been accounted for."
Link: Subprime Losses May Total $550 BN (http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=bdf4b206-5ceb-4e21-a124-c8ec057070d3)

The other citation was a talk this morning with a friend who's a stock broker. Sorry I didn't record it so I can't cite it.

Do those that pass muster professor? Or are three approved sources required? Let me see that requirement on the syllabus.

Anyway, I really don't care too much about whether or not I have my cause and effect logically correct. The way I see it the heavily leveraged derivatives are THE REASON the bailout was requested. Yes, the subprime mess was the match, but the stacks of newspapers and other flammable clutter caused the fire to burn uncontrollably. The subprime mess most likely could have been contained, but the additional fuel was too much...

Thanks.

[jyakulis]

Do those that pass muster professor? Or are three approved sources required? Let me see that requirement on the syllabus.

Anyway, I really don't care too much about whether or not I have my cause and effect logically correct. The way I see it the heavily leveraged derivatives are THE REASON the bailout was requested. Yes, the subprime mess was the match, but the stacks of newspapers and other flammable clutter caused the fire to burn uncontrollably. The subprime mess most likely could have been contained, but the additional fuel was too much.



Nah you're right man. The derivatives are the problem. I heard they are up to like a quadrillion dollars now. That's why the bailout bill was cleverly worded to include non mortgage related debt. The bankers want us throwing our dollars into their quadrillion dollar black hole. We'll be buying bread with wheelbarrows of dollars before we know it if we keep listening to these crooks. Now it looks like the senate is going to try to slide it through.

[MountainHiker]

Huh? How is this the root cause. You just explained a lot of the effects of artificially low interest rates if you ask me.

Okay, I was pretty bold in my earlier assessment about derivatives. Just finished work, was in a funky mood, etc... However, your idea of artificially low interest rates is another basic element of this whole problem.

James Howard Kunstler also offers a basic problem of it all with his criticism of suburbia. We turned suburban sprawl into the industry of America. Here's his basic website for those with further questions: http://kunstler.com/

Also, it seemed that many developers were selling almost exclusively to speculators. At least it seemed that many were marketing that way. From my understanding, many of the subprime folks who defaulted never even lived in the house or condo. I'm glad I didn't live in one of the hot markets. Although I might have sold my house in 2005 and rented as all indications were that things were gonna pop! At least it seemed that way to me.

The one thing I am certain of in all of this is that Paulson is much more concerned with his buddies on Wall Street than any of us on Main Street. Yeah, I'm a cynical person.

[C.J.Woolf]

Hmmm, check that title (emphasis mine):

BILL TITLE: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes

Seriously, WTF? Can we not find the person responsible for this title and have him shot? Just on principle.
It was a procedural thing. Congress dug up and old bill that had passed the House but not the Senate, hollowed out the original text, and inserted the bailout text. That gave it seniority over all the other bills now before Congress, and maybe some other tricks.

[Oso Mocoso]

News Update:The National Debt Clock ran out of numbers.

http://www.portfolio.com/images/feeds/blogs/01-debt-clock-large.jpg

[Dark Razor]

James Howard Kunstler also offers a basic problem of it all with his criticism of suburbia. We turned suburban sprawl into the industry of America. Here's his basic website for those with further questions: http://kunstler.com/


Well this is off-topic, but I love Kunstler's Eyesore of the Month (http://www.kunstler.com/eyesore_200504.html) series :lol:
http://www.kunstler.com/eyesore_200709%20B.jpg

[kendoiwan]

http://finance.yahoo.com/tech-ticker/article/83221/Bailout-a-Done-Deal-So-What-Happens-Now?tickers=jpm,wfc,c,bac,gs,ms,%5Egspc

[purveyor of truth]

Tonite the senate passed a 850 billion bailout package, 100 billion in presidential discretionary spending. See its all better now. 3 monthes to spend 100 billion dollars.

[sandwich]

Oh, good, that'll fix it. :banghead:

[Oso Mocoso]

Oh, good, that'll fix it. :banghead:

Yep, $1000 dollar toilet seats made by Halliburton. Just what we needed.

[purveyor of truth]

Yep, $1000 dollar toilet seats made by Halliburton. Just what we needed.

Fuck that, we're gettin $10,000 dollar toilet seats this time around.

[Anonymous]

Tonite the senate passed a 850 billion bailout package, 100 billion in presidential discretionary spending. See its all better now. 3 monthes to spend 100 billion dollars.

The news I'm reading says it was just the regular 700 billion. Where'd you read that?

[purveyor of truth]

The news I'm reading says it was just the regular 700 billion. Where'd you read that?

A couple news channels this evening, they supposedly added 150 billion to it to entice more politicians on board.

[Oso Mocoso]

Fuck that, we're gettin $10,000 dollar toilet seats this time around.

That's why we're not winning in Iraq. The toilet seat gap!

[Chunes]

Wait wait wait...

So they add more money to it and NOW it passed?

'the hell?

[Oso Mocoso]

Wait wait wait...

So they add more money to it and NOW it passed?

'the hell?

They wouldn't pass it until sufficient pork barrel provisions were attached to it.

[Chunes]

Oh, apparently it still has to go through the house on Friday. I didn't realize that. Hopefully it'll die there.

Also, trying to repass the same bill over and over again should be illegal. This is stupid.

[Oso Mocoso]

Also, trying to repass the same bill over and over again should be illegal. This is stupid.

I disagree completely. Laws are complex and they tend to get riders attached to them that are sometimes ridiculous. It seems perfectly legitimate to shoot down a law due to an odious rider and then propose the same law again without any riders.

[Chunes]

That wasn't the case here.

[MountainHiker]

Well this is off-topic, but I love Kunstler's Eyesore of the Month (http://www.kunstler.com/eyesore_200504.html) series :lol:

Hey, we're INTPs. There's nothing off-topic as we will find a way to make a connection!

Yeah, I always like those pictures too. Thanks for posting the latest as I haven't been there yet to take a look.

[SensEye]

They wouldn't pass it until sufficient pork barrel provisions were attached to it.I haven't seen the new bill, but this is what I have been hearing.

It's sad really. I may be wrong, but I think the American economy is in serious trouble. When the first bill was defeated, I thought it was because although something had to be done, the bill did not protect taxpayers enough. Now I see I was, once again, hopelessly niave. I thought maybe there was a grain of civic duty buried in the hearts of politicians such that they would be concerned about their constituents. Apparently not. However, I think playing pork barrel politics during this crisis is really going to have serious consequences.

[2hype]

One of our senators voted against the bill. He also was one of the only members of Congress to vote against the patriot act. I heart him.

[ApeTheDog]

you may be facing hyperinflation. It could be a good time to convert dollars into yen or euro's before they lose a lot of value

[stopharian]

Im Just a Bill

[Ferrus]

http://www.youtube.com/watch?v=8WpwAWUpsXM

[weebolj]

Only now did find out the name (or the abbreviation) of the bailout plan.
IT'S A TARP!

:theclap:

[kendoiwan]

Only now did find out the name (or the abbreviation) of the bailout plan.
IT'S A TARP!

:theclap:

Didn't you get the memo. It's not a "bailout" it's an "emergency economic rescue" thingy...

[drdolittle]

I have had enough of people agreeing that it is necessary and still not understanding what is/has happened. It will not work, it will cause inflation for the average american to face and it will be scammed off by the ruling elite. Remember the blue tarps of Katrina roofing? These guys are robbing the store on their last day at work. Hopefully the next administration will take judicial action but only hopefully. Obama and McCain both have large contributors from the banking business. Lets just hope president Obama is new enough and unjaded enough to do what's right.

[purveyor of truth]

The McFailin ticket was all there wont be any earmarks IN THIS BILL, and then guess what?

[pangolin]

Evidently it is now failing (though passed) due to the fact that CEO's don't want to subject themselves to the restrictions it imposes. Guess we know what they were after now.

[Ferrus]

Evidently it is now failing (though passed) due to the fact that CEO's don't want to subject themselves to the restrictions it imposes. Guess we know what they were after now.
They will eventually succumb to it though. When it comes down to their company going to the wall, or signing up, well, we'll see how long they last.

[kendoiwan]

They will eventually succumb to it though. When it comes down to their company going to the wall, or signing up, well, we'll see how long they last.

Pffft. Logic

[kendoiwan]

http://news.yahoo.com/s/ap/20081005/ap_on_re_us/foreclosure_woman_shoots_self

[Karl]

Is that all you have to do to stop from being evicted? I'll have to remember that one.

[kendoiwan]

http://news.yahoo.com/s/ap/20081005/ap_on_re_eu/eu_europe_meltdown

[SensEye]

They will eventually succumb to it though. When it comes down to their company going to the wall, or signing up, well, we'll see how long they last.Do you mean succumb as in:

1) Find ways to weasel around the somewhat toothless restrictions.
2) Just straight up violate the somewhat toothless restrictions as there will be no consequences as the bailout demonstrates in the first place.

But yeah, they'll grab the free cash.

[kendoiwan]

But it's working!!! :mellow:

[Ferrus]

1) Find ways to weasel around the somewhat toothless restrictions.
2) Just straight up violate the somewhat toothless restrictions as there will be no consequences as the bailout demonstrates in the first place.
That all depends on how serious the government in question is when it comes to enforcing it.

[purveyor of truth]

I just learned a friend of mine, a loan officer at a major northwest banking system lost her job. She (aggressive ENTJ) got another job but still, not someone I would have thought could go down.

[SensEye]

That all depends on how serious the government in question is when it comes to enforcing it.Based on what I understand was the history of this situtation, I would suggest they won't be very serious at all. Especially once the public (who have a very short term memory) lets it move off the front page.

The same lobbyists that got the regulations softened in the first place will still be lobbying. They are already lobbying to have the bailout apply to as wide a variety of companies as possible. The free lunch buffet is getting crowded.

AIG got 85 billion to start, and just asked for (and received) another 35 billion. Neat trick huh? No mention of where the money went or when they will stop asking for more.

If people gave me money every time I asked, I might just keep on asking too.