Great Recession PODs?

After reading this thread, & finding it very informative & interesting, I'm still left thinking there are things unsaid. I agree, Greenspan's influence was pernicious, as was the utter lack of enforcement of existing regulations. I'm astounded there was no clearing agency for debt swaps. I'm outraged there was so little, or no, regulation of mortgage lenders.

I notice, however, there was little mention of regulation, or creation, of derivatives themselves. It makes me wonder if a "brake" on their use as credit default swap tools (which, AIUI, they were) would not have been a good thing--if an outright ban wouldn't have been good.

I wonder what changes following the S&L scandal didn't happen, but might have, which could have prevented the '08 Crash.

I wonder, too, if USG response to "too big to fail" wasn't nonsensical: that is, couldn't, shouldn't, the "deadbeat" banks simply have been wound up & shut down?

Maybe most fundamentally, tho, I wonder about what was driving the housing bubble. Yes, USG was encouraging home ownership. Yes, there were "ninja" loans. Yes, there was speculation. Was it deeper than that? Was there something in U.S. policy driving people to buy? I have in mind the economic stratification, encouraging richer people to buy/build bigger houses, which pushes people in lower strata to buy bigger than they can really afford. Is this a bigger influence than regulators, & Congress, recognized? Or is it smaller than it looks?

So, with these facts in mind, what would you say are the earliest, & the latest, points the Great Recession could be stopped? Was it still possible in '07? Or did it need to be while FDR was still PotUS? I'm not concerned with foresight, here: if the change goes back that far, IMO, it's a structural issue, & that means somebody might recognize it almost anytime.

Any thoughts?

Hi,

I do not think there is any way to stop the Great Recession, only delay it.

People are always going to want to make life better for themselves. Government interference can make this easier or harder, but the proof had better be ironclad that this happened. Everyone knows that planned economies don't work (it is the reason communism doesn't work) but the corollary to that is the government can have very little influence on an economy short of deliberately seizing private property or deliberately going into competition or stealing. Case in point, it is intuitive or even accepted dogma that lowering taxes is better for business, but if it were that simple then lowering taxes to the bare minimum would result in the best economy possible. It does not.

In other words acceptable evidence to prove a POD is not ACORN or Glass-Stegall or CDS or interest rates or any right-wing or left-wing political axes to grind. To stop the Great Recession, you would have to change the consumer culture of Americans so that they did not borrow money to buy non-liquid assets like houses and expect them to grow. Before the Great Recession there was the dot com boom and in the future there will be more and more. Because people will always want to make life better for themselves, and will always want to borrow money to do it. The only reason why the recession was "great" was it affected the foundation of money lending, the financial system. If it was any other industry, we wouldn't be talking about it nearly collapsing Western civilization.

Restricting this from happening is actually anti-free market. How can you stop a bank, a private institution, from lending to another private individual? How can you stop someone from borrowing money that he can't make the interest payments for? How can you stop short-term thinking in capitalism where only the next quarterly report matters and you want to signup as many clients as possible? Trying to do any of these is actually nearly impossible for the government. You can create a lot of rules that becomes a huge house of cards that will collapse eventually as people find creative ways of skirting or breaking the rules.

There's probably two or three PODs that could stop this type of recession from ever occurring. The first is widespread adoption of Islamic banking but that is pre-1900 banking. If you can't lend other people's money, the problem is neatly solved. But, the problem is without widely available money, economic growth is stunted. There are reasons America is the most powerful, rich and successful nation on earth and part of that reason is freely available capital for entrepreneurs and small business. The second POD is probably failure of the Civil Rights act. If there is institutional racism in government, and only the wealthy have access to capital, then the middle class and poor won't have any mobility and there will be no bubble. But again, this runs into the small problem that economic growth is stunted and an economy where huge segments of the population can't fully participate is a weaker and anemic economy. The third POD is probably no Internet and no widely available free information. Without information, people will be loathe to make decisions and bubbles will form slower and crashes will be lighter. But again, the weaker economy issue.

So, to prevent the "great recession" or any recession like that from happening, you would have to make everyone a lot poorer and the economy as a whole a lot slower and stagnant. Crash big and crash hard are inevitable, the alternative being crash slow and crash light which just means less economic growth and a smaller economy overall.

P.S. I know you don't like that answer. But crashing is just part of capitalism, and the more capitalism you want the bigger and harsher the crashes. All of history is the evidence.

strangecircus said:

Hi,

I do not think there is any way to stop the Great Recession, only delay it.

People are always going to want to make life better for themselves. Government interference can make this easier or harder, but the proof had better be ironclad that this happened. Everyone knows that planned economies don't work (it is the reason communism doesn't work) but the corollary to that is the government can have very little influence on an economy short of deliberately seizing private property or deliberately going into competition or stealing. Case in point, it is intuitive or even accepted dogma that lowering taxes is better for business, but if it were that simple then lowering taxes to the bare minimum would result in the best economy possible. It does not.

In other words acceptable evidence to prove a POD is not ACORN or Glass-Stegall or CDS or interest rates or any right-wing or left-wing political axes to grind. To stop the Great Recession, you would have to change the consumer culture of Americans so that they did not borrow money to buy non-liquid assets like houses and expect them to grow. Before the Great Recession there was the dot com boom and in the future there will be more and more. Because people will always want to make life better for themselves, and will always want to borrow money to do it. The only reason why the recession was "great" was it affected the foundation of money lending, the financial system. If it was any other industry, we wouldn't be talking about it nearly collapsing Western civilization.

Restricting this from happening is actually anti-free market. How can you stop a bank, a private institution, from lending to another private individual? How can you stop someone from borrowing money that he can't make the interest payments for? How can you stop short-term thinking in capitalism where only the next quarterly report matters and you want to signup as many clients as possible? Trying to do any of these is actually nearly impossible for the government. You can create a lot of rules that becomes a huge house of cards that will collapse eventually as people find creative ways of skirting or breaking the rules.

There's probably two or three PODs that could stop this type of recession from ever occurring. The first is widespread adoption of Islamic banking but that is pre-1900 banking. If you can't lend other people's money, the problem is neatly solved. But, the problem is without widely available money, economic growth is stunted. There are reasons America is the most powerful, rich and successful nation on earth and part of that reason is freely available capital for entrepreneurs and small business. The second POD is probably failure of the Civil Rights act. If there is institutional racism in government, and only the wealthy have access to capital, then the middle class and poor won't have any mobility and there will be no bubble. But again, this runs into the small problem that economic growth is stunted and an economy where huge segments of the population can't fully participate is a weaker and anemic economy. The third POD is probably no Internet and no widely available free information. Without information, people will be loathe to make decisions and bubbles will form slower and crashes will be lighter. But again, the weaker economy issue.

So, to prevent the "great recession" or any recession like that from happening, you would have to make everyone a lot poorer and the economy as a whole a lot slower and stagnant. Crash big and crash hard are inevitable, the alternative being crash slow and crash light which just means less economic growth and a smaller economy overall.

P.S. I know you don't like that answer. But crashing is just part of capitalism, and the more capitalism you want the bigger and harsher the crashes. All of history is the evidence.

Click to expand...

I don't take issue with your premise "recession is inevitable". I do, however, with the proposition there have to be "crashes"--or, indeed, even "great recessions". (I draw a distinction between a recession as a drop in economic output, or a "great correction", & what we got in '08.)

I don't see any of your proposed PODs actually addressing the narrow issue. I'm not trying to wipe out economic slowdowns--tho, IMO, slower overall growth, rather than steep cyclic swings, would not be a bad idea.

Nor am I suggesting home ownership should be (or should have been) discouraged. Probably more limits on mortgage lending would have been a good idea, if only to avoid people ending up in homes they could never afford. (It's for that reason I wonder if something couldn't be done about the income gap: without it, or with it drastically lessened, the pressure toward big, unaffordable houses goes way down. So does urban sprawl & traffic congestion, btw, also good things.) Is there a way to get at this? (My first thought is a tax on capital gains, but...)

USG policy on home ownership has actually benefitted the people with the most money, & not helped the people it was meant to. (In fact, IIRC, it's actually hurt them.) This is not good policy execution--or good policy, when it continues. Changing it, taking out a subsidy for bigger houses paid to people who can already afford them, would be a good idea. Restrictions on absurd mortgage loans by banks or brokers would not harm legitimate (qualified) buyers, but would put a real crimp in the insanity of the bubble, too.

Let me propose an early POD: the G.I. Bill. What happens if it doesn't provide loans just for buying a new home? What if it offers loans for older homes? And lower-rate loans (even compared to those for buying) for renovating older homes? Allowing the postwar building boom still happens (with slightly less fervor, given this change), does this impact the trend to home-purchase speculation?

The reason why the 2008 recession was so horrible was it was a correction within the financial industry. If it had been the construction industry, medical industry, software, education or any other sector, it wouldn't have been so grievous. The reason is, when the financial industry is affected, there is less money to loan to small or medium business and less money for expansion and even to make payroll. In this way, the financial industry is special, in that it is allowed to spend other people's money and is responsible for providing loans. If there is nobody giving out loans, small and medium business bankrupts and almost all economic growth stops.

The irony of those who blame too much borrowing and government interference is in a free market, anyone is free to lend money to anyone. The (unsaid because it is offensive and ridiculous when in plain English) hypothesis of those who blame ACORN and Bill Clinton for the 2008 recession is that if only those minorities didn't buy homes they couldn't afford, then the recession would have been averted. But how can you stop a sales agent, who makes a few thousand dollars commission, from signing up as many people as possible and lending as much money as possible, when it is not your money. A bank's money is not their money -- it is the money of the depositors. ACORN, affirmative action, minorities and whoever is the scapegoat of the day doesn't count for the fact everyone will always want to make as much money as possible, including banks, and banks will lend to make that money.

Unless you ban allowing banks to spend other people's money, borrowing is an undeniable fact of capitalism. And the irony is by banning, you are interfering in capitalism and slowing economic growth. The depositors choose to give the banks money, the banks choose to spend their money. You could make an argument that the FDIC encourages depositors to put money into banks, and is therefore government interference, but money in the mattress is not being spent or moving. Even without FDIC most people would still choose to put money into blue chip banks and banks would still be able to lend that money because it is their money, unless the government interferes.

The sole purpose of money is not to be a fixed store of holding for savings or an asset, but to facilitate economic activity. The more money there is, generally the more economic activity. So as long as the money supply increases (to account for destruction and hoarding of money) then money is doing its job. The (indirect) economic rationale for government spending and government loans is to inject money into an anemic economy. You might be able to eliminate that with a good enough POD but you will never eliminate banks spending other people's money and the need for (more) money for economic growth.

If by eliminating the GI Bill you are implying the GI Bill started a tradition of government spending and government loans, the answer is no. The root motivation goes far deeper and is far more fundamental than political ideologies or public policy. It is not FDR or the Great Society or any of that which started government spending or government loans or government interference, but simply the human condition and human way of life.

Before the information age, governments made huge public works projects like bridges and roads not because of misguided social engineering, but because there's a social contract between the taxes a citizen chooses to pay and the government. This has existed since the beginning of mankind, for example the Egyptian Pyramids whose evidence now suggests the laborers were not slaves but well treated workers who ate meat received top notch medical care. There's no point paying taxes if the government doesn't give restitution to you in some fashion in hard times. Now, since many "good" jobs are office work or the financial industry instead of construction, the government interference is loans and printing money instead of the Pyramids or Great Wall or the Hoover Dam.

Thanks.

strangecircus said:

The reason why the 2008 recession was so horrible was it was a correction within the financial industry. If it had been the construction industry, medical industry, software, education or any other sector, it wouldn't have been so grievous. The reason is, when the financial industry is affected, there is less money to loan to small or medium business and less money for expansion and even to make payroll. In this way, the financial industry is special, in that it is allowed to spend other people's money and is responsible for providing loans. If there is nobody giving out loans, small and medium business bankrupts and almost all economic growth stops.

The irony of those who blame too much borrowing and government interference is in a free market, anyone is free to lend money to anyone. The (unsaid because it is offensive and ridiculous when in plain English) hypothesis of those who blame ACORN and Bill Clinton for the 2008 recession is that if only those minorities didn't buy homes they couldn't afford, then the recession would have been averted. But how can you stop a sales agent, who makes a few thousand dollars commission, from signing up as many people as possible and lending as much money as possible, when it is not your money. A bank's money is not their money -- it is the money of the depositors. ACORN, affirmative action, minorities and whoever is the scapegoat of the day doesn't count for the fact everyone will always want to make as much money as possible, including banks, and banks will lend to make that money.

Unless you ban allowing banks to spend other people's money, borrowing is an undeniable fact of capitalism. And the irony is by banning, you are interfering in capitalism and slowing economic growth. The depositors choose to give the banks money, the banks choose to spend their money. You could make an argument that the FDIC encourages depositors to put money into banks, and is therefore government interference, but money in the mattress is not being spent or moving. Even without FDIC most people would still choose to put money into blue chip banks and banks would still be able to lend that money because it is their money, unless the government interferes.

The sole purpose of money is not to be a fixed store of holding for savings or an asset, but to facilitate economic activity. The more money there is, generally the more economic activity. So as long as the money supply increases (to account for destruction and hoarding of money) then money is doing its job. The (indirect) economic rationale for government spending and government loans is to inject money into an anemic economy. You might be able to eliminate that with a good enough POD but you will never eliminate banks spending other people's money and the need for (more) money for economic growth.

If by eliminating the GI Bill you are implying the GI Bill started a tradition of government spending and government loans, the answer is no. The root motivation goes far deeper and is far more fundamental than political ideologies or public policy. It is not FDR or the Great Society or any of that which started government spending or government loans or government interference, but simply the human condition and human way of life.

Before the information age, governments made huge public works projects like bridges and roads not because of misguided social engineering, but because there's a social contract between the taxes a citizen chooses to pay and the government. This has existed since the beginning of mankind, for example the Egyptian Pyramids whose evidence now suggests the laborers were not slaves but well treated workers who ate meat received top notch medical care. There's no point paying taxes if the government doesn't give restitution to you in some fashion in hard times. Now, since many "good" jobs are office work or the financial industry instead of construction, the government interference is loans and printing money instead of the Pyramids or Great Wall or the Hoover Dam.

Thanks.

Click to expand...

Or even go back to the 1920s and the home loan crisis then. This pretty much all happened back in Great Depression its just we learned how to modulate it better so there wasn't the social upheaval that created the New Deal. The elite don't want to strengthen the social safety net and have to contribute to the society they wrecked in their endless greed for money

strangecircus said:

The reason why the 2008 recession was so horrible was it was a correction within the financial industry. If it had been the construction industry, medical industry, software, education or any other sector, it wouldn't have been so grievous. The reason is, when the financial industry is affected, there is less money to loan to small or medium business and less money for expansion and even to make payroll. In this way, the financial industry is special, in that it is allowed to spend other people's money and is responsible for providing loans. If there is nobody giving out loans, small and medium business bankrupts and almost all economic growth stops.

The irony of those who blame too much borrowing and government interference is in a free market, anyone is free to lend money to anyone. The (unsaid because it is offensive and ridiculous when in plain English) hypothesis of those who blame ACORN and Bill Clinton for the 2008 recession is that if only those minorities didn't buy homes they couldn't afford, then the recession would have been averted. But how can you stop a sales agent, who makes a few thousand dollars commission, from signing up as many people as possible and lending as much money as possible, when it is not your money. A bank's money is not their money -- it is the money of the depositors. ACORN, affirmative action, minorities and whoever is the scapegoat of the day doesn't count for the fact everyone will always want to make as much money as possible, including banks, and banks will lend to make that money.

Unless you ban allowing banks to spend other people's money, borrowing is an undeniable fact of capitalism. And the irony is by banning, you are interfering in capitalism and slowing economic growth. The depositors choose to give the banks money, the banks choose to spend their money. You could make an argument that the FDIC encourages depositors to put money into banks, and is therefore government interference, but money in the mattress is not being spent or moving. Even without FDIC most people would still choose to put money into blue chip banks and banks would still be able to lend that money because it is their money, unless the government interferes.

The sole purpose of money is not to be a fixed store of holding for savings or an asset, but to facilitate economic activity. The more money there is, generally the more economic activity. So as long as the money supply increases (to account for destruction and hoarding of money) then money is doing its job. The (indirect) economic rationale for government spending and government loans is to inject money into an anemic economy. You might be able to eliminate that with a good enough POD but you will never eliminate banks spending other people's money and the need for (more) money for economic growth.

Click to expand...

And you seem to be saying the cheats & thieves who crashed the economy should accept no blame for doing it.

Yes, the sales agent should try & sell as many mortgages as possible--within the law. Maybe that's the problem: it's not his money. Or, rather, it's not his boss's money. One suggestion made in the other thread was, make investment banking (& maybe mortgage lending) a strictly private business: you've got to use your own money, & if somebody gets screwed over, they can take your house. That makes a lot of sense.

There's something else in play, IMO, & I forgot it before: the idea of stock options & ownership as a good thing. What happened instead was, companies started gaming the system & turned the stock market into a casino to drive up the value of options. If this never happened, at least some of the pressure to "perform" before '08 would never happen.

It's not just about being allowed to do something for the benefit of everybody: it's being disallowed from cheating to benefit only yourself, & then expecting everyone else to pay to clean it up.

strangecircus said:

If by eliminating the GI Bill you are implying the GI Bill started a tradition of government spending and government loans

Click to expand...

I'm not. I'm wondering if it didn't indirectly subsidize the over-reach in home buying. I'm fairly certain the USG program designed to encourage first-time buyers did just that, by subsidizing rich(er?) people purchasing larger, more expensive houses, which then put pressure on to "keep up with the Joneses" & led to excessive debt... (And, indirectly, to sprawl & other bad outcomes.)

That isn't a neutral outcome of policy. It's not a "natural" or desirable outcome of banking. That's a mistake waiting to bite you.

strangecircus said:

There's no point paying taxes if the government doesn't give restitution to you in some fashion in hard times.

Click to expand...

Fair enough. In turn, when society provides things, like a safe economic system, stable gov't, law & order, so forth, corporations & the wealthy should be willing to pay taxes to support it, not tell those less well off, "Go screw, we're keeping it". And when they f*ck over people, or f*ck up the system, they should damn well be paying the cost of their behavior.

Notice, they got a US$700 billion bribe, instead. And licence to do it again.

wiking said:

Or even go back to the 1920s and the home loan crisis then. This pretty much all happened back in Great Depression its just we learned how to modulate it better so there wasn't the social upheaval that created the New Deal.

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If it worked once, we don't need to go back: just copy & redo it...

If the laws against fraud were enforced, and had companies not allowed things like robosigning, the recession may only have been slightly less harsh, but the public would likely be a lot less mad. (Robsigning not only led to more foreclosures, but also foreclosures on paying customers.)

Orville_third said:

If the laws against fraud were enforced, and had companies not allowed things like robosigning, the recession may only have been slightly less harsh, but the public would likely be a lot less mad. (Robsigning not only led to more foreclosures, but also foreclosures on paying customers.)

Click to expand...

Which comes back to lack of enforcement of existing regs. Which was gutted by a GOP in the pay of the bank lobby & Democrats too cowardly to call them on it.

Fixing that is a problem you've got to go back decades to get a start on... Maybe it needs a thread all its own.

Now, if the regs had been enforced, how much of the trading in garbage would have been caught & prevented before it reached a crisis point? More important, it seems, how do you get the Congress not to gut the enforcement? Change campaign finance laws?

If that's what it takes, you need to butterfly Buckley...& how you do that, I don't even want to guess....

phx1138 said:

Which comes back to lack of enforcement of existing regs. Which was gutted by a GOP in the pay of the bank lobby & Democrats too cowardly to call them on it.

Fixing that is a problem you've got to go back decades to get a start on... Maybe it needs a thread all its own.

Now, if the regs had been enforced, how much of the trading in garbage would have been caught & prevented before it reached a crisis point? More important, it seems, how do you get the Congress not to gut the enforcement? Change campaign finance laws?

If that's what it takes, you need to butterfly Buckley...& how you do that, I don't even want to guess....

Click to expand...

Democrats were also on that feeding trough. Chris Dodd received millions of dollars from banks and people in the banking industry. Money flows to those in power, and that is a big problem for regulations.

Lord_Thrawn said:

Democrats were also on that feeding trough. Chris Dodd received millions of dollars from banks and people in the banking industry. Money flows to those in power, and that is a big problem for regulations.

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I won't exclude anybody. As I recall, tho, it was a GOP mantra, back to the '80s: deregulation cures all ills. And bailouts cure all mistakes.

phx1138 said:

I won't exclude anybody. As I recall, tho, it was a GOP mantra, back to the '80s: deregulation cures all ills. And bailouts cure all mistakes.

Click to expand...

Not to go off topic, but the volume of in this thread is making it hard to read. And there are respectable arguments for deregulation, such as the deregulation of the trucking industry that made consumer friendly companies like Walmart possible.

Nazi Space Spy said:

there are respectable arguments for deregulation, such as the deregulation of the trucking industry that made consumer friendly companies like Walmart possible.

Click to expand...

I'm not so sure. "Deregulation" always seems to end up meaning "less consumer protection" & "higher prices", not to mention "lots of companies go out of business".

Was trucking an unprofitable industry before the '80s? I don't think so. Neither, I suggest, was it impossible for WalMart to make money. It might have meant making a bit less money...which I can live with.

More to the point, in banking & mortgage finance, less regulation & less enforcement risks exactly the disastrous outcomes we've seen in the S&L mess & the '08 Crash. How, how, is that a good outcome?

The easiest POD is 1998. During the Asian Contagian and the Russian Default Crisis, the hedge fund Long Term Capital went under. At the time, the Fed organized an orderly unwinding of the fund because it looked like if it collapsed that Lehman would go under. And if Lehman went under a few other banks went under. If Lehman goes under in 1998, you have a great recession in 1998 and 1999 in parallel with what was going on in Asia, Latin America, and sluggishness in Europe. But there would have been derivative reform and broader financial regulation following the collapse.

edit: It actually probably would not have been a great recession since the housing bubble had not occurred yet and the internet bubble was not yet in full swing. So probably a recession worse than 01 but not as bad as 08-09.

Dunning Kruger said:

The easiest POD is 1998. During the Asian Contagian and the Russian Default Crisis, the hedge fund Long Term Capital went under. At the time, the Fed organized an orderly unwinding of the fund because it looked like if it collapsed that Lehman would go under. And if Lehman went under a few other banks went under. If Lehman goes under in 1998, you have a great recession in 1998 and 1999 in parallel with what was going on in Asia, Latin America, and sluggishness in Europe. But there would have been derivative reform and broader financial regulation following the collapse.

edit: It actually probably would not have been a great recession since the housing bubble had not occurred yet and the internet bubble was not yet in full swing. So probably a recession worse than 01 but not as bad as 08-09.

Click to expand...

That's about ideal, IMO: a shock to the system, & to the players, without it being a catastrophe.

I continue to wonder about going back to the S&L crisis; IMO, earlier is better. This POD, tho, works pretty nicely.

The question is, what (exactly) would need to change from OTL to get Congress off the dime?

phx1138 said:

That's about ideal, IMO: a shock to the system, & to the players, without it being a catastrophe.

I continue to wonder about going back to the S&L crisis; IMO, earlier is better. This POD, tho, works pretty nicely.

The question is, what (exactly) would need to change from OTL to get Congress off the dime?

Click to expand...

The S&L crisis was a major deal as it was, costing tax payers over $160b. I dont know how to make it bigger. And it still didnt inspire change.

But '98 was the canary in the coal mine that was ignored. The derivatives were in place, although not as prevalent as they were in '08. And the balance sheets werent quite as bad.

Dunning Kruger said:

The S&L crisis was a major deal as it was, costing tax payers over $160b. I dont know how to make it bigger. And it still didnt inspire change.

But '98 was the canary in the coal mine that was ignored. The derivatives were in place, although not as prevalent as they were in '08. And the balance sheets werent quite as bad.

Click to expand...

Yeah, that's it: the signs are there, but nobody's paying any attention...

phx1138 said:

And you seem to be saying the cheats & thieves who crashed the economy should accept no blame for doing it.

Yes, the sales agent should try & sell as many mortgages as possible--within the law. Maybe that's the problem: it's not his money. Or, rather, it's not his boss's money. One suggestion made in the other thread was, make investment banking (& maybe mortgage lending) a strictly private business: you've got to use your own money, & if somebody gets screwed over, they can take your house. That makes a lot of sense.

There's something else in play, IMO, & I forgot it before: the idea of stock options & ownership as a good thing. What happened instead was, companies started gaming the system & turned the stock market into a casino to drive up the value of options. If this never happened, at least some of the pressure to "perform" before '08 would never happen.

It's not just about being allowed to do something for the benefit of everybody: it's being disallowed from cheating to benefit only yourself, & then expecting everyone else to pay to clean it up.

Click to expand...

Well, you need to think does everyone actually pay to clean it all up? Did the deficit or taxes go up, or is it just the Federal Reserve printing huge sums of cash to beef up banks? There is a difference. Another difference is motive or intent. If by doing it, they were idiots and made bad investments, well then do you really think it deserves jail time? Investment is risk and the market is a risk if it doesn't work out it doesn't mean you deserve jail time for it. The whole foundation of our justice system is motive.

In the end, FDIC guarantees bank deposits, and banks can spend depositor's money on investment and loans. That is the root issue. So people will always be expected to "pay to clean it up" if a bank explodes. Lehman Brothers or AIG or other investment companies I agree should suffer the consequences. But when trillions of dollars are leaving the system and you have to literally decide overnight whether to stabilize the free world, you don't have the luxury of acting slow or separating the good from the bad you have to blanket treat. The Fed could see trillions being sucked out of the economy in real time because of the panic.

The bailout would not have happened with one or two companies, it was more like spread of Spanish Flu and making even solvent companies unable to secure loans to make payroll. No payroll, can't pay supplies, you are bankrupt even if you are in the black. Many business operate with a razor thin margin and use banks to make payouts between paydays.

If you want the punishment for white collar crime to be bigger then that's a separate issue than "too big to fail" or being idiots with other people's money. The punishment didn't fit the crime, then make the laws more harsh, make more regulation and enforce existing laws. But the punishment will never fit the crime for a "trigger" like Lehman Brothers that cascades to the entire economy. You can't legislate away fear or bank runs or in this case the whole economy running.

I'm not. I'm wondering if it didn't indirectly subsidize the over-reach in home buying. I'm fairly certain the USG program designed to encourage first-time buyers did just that, by subsidizing rich(er?) people purchasing larger, more expensive houses, which then put pressure on to "keep up with the Joneses" & led to excessive debt... (And, indirectly, to sprawl & other bad outcomes.)

That isn't a neutral outcome of policy. It's not a "natural" or desirable outcome of banking. That's a mistake waiting to bite you.

Click to expand...

Yes that is social engineering, to help with class mobility and first-time home buyers. But, even if that didn't exist, people would still want to buy a home. You can't get rid of that, and where there's a want the market will respond. A mortgage is by definition using money a person doesn't have, basically a promise. And when due diligence is not done, then the mortgage defaults. The problem is very fundamental you can't force someone not to give away money, unless you interfere very heavily through laws and regulation and so on. And then you face unintended consequences as well and manipulate the free market.

I would say it's a natural outcome of banking to lend other people's money. Encouraging people to borrow more, may or may not be the unintended effect of social engineering but you need to do more to convince. When a couple decides to buy a home, they don't say, this program exists we are going to abuse it. They say, I have a job at Walmart for $15 an hour and you have a job at the bank for $20 an hour let's do this and hope we keep our jobs so the mortgage payment can be made every month and escape the trap of rent.

Fair enough. In turn, when society provides things, like a safe economic system, stable gov't, law & order, so forth, corporations & the wealthy should be willing to pay taxes to support it, not tell those less well off, "Go screw, we're keeping it". And when they f*ck over people, or f*ck up the system, they should damn well be paying the cost of their behavior.

Notice, they got a US$700 billion bribe, instead. And licence to do it again.

If it worked once, we don't need to go back: just copy & redo it...

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You mentioned this in the other thread but 1. Not all TARP funds were spent, around 500 billion and 2. TARP was repaid and made the government money. Because banks and mortgage companies do not want the burden of the government on their board of directors, or a government official controlling the way they do business. This is a matter of public record and a fact.

It will happen again, because companies have been for years looking to shed deadweight and eliminate waste and useless employees. The 2008 recession was the perfect excuse for companies to lay off workers and hoard cash. This is a market correction that happens every 30-50 years. It will happen again, because most of the USA is not into manufacturing but business services and the financial industry. People lament the death of manufacturing and so on, but manufacturing doesn't scale directly with population. Financial services, business services and customer service provides relatively stress free (physically) jobs with relatively decent pay supporting other things that scale directly with population, like housing. Look at any other industry and only education and healthcare scale as well and those are political footballs of "human rights" and so on. So yes, the financial industry and business services will be oversized, and rightly so because it provides a higher quality of life for Americans. And yes, a correction will happen again, because it is a bubble of 40% of the American economy, but a good one because you want your kids to work in an office, not a factory. And houses scale directly with population too, because everyone wants a house.

strangecircus said:

Well, you need to think does everyone actually pay to clean it all up? Did the deficit or taxes go up, or is it just the Federal Reserve printing huge sums of cash to beef up banks? There is a difference.

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There is. It's the difference between Bear & AIG getting a bailout & going out of business. It's the difference between the execs getting golden parachutes & paying for the mess out of their own pockets &, yes, getting jail time.

strangecircus said:

Another difference is motive or intent. If by doing it, they were idiots and made bad investments, well then do you really think it deserves jail time? Investment is risk and the market is a risk if it doesn't work out it doesn't mean you deserve jail time for it. The whole foundation of our justice system is motive.

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I don't disagree. Yet they were gaming the system. That needs some kind of punishment, if not jail. Trading bans, loss of bonuses (at a f*cking minimum), loss of personal property, something. The robosigners & ninja-loaners deserve jail.

strangecircus said:

In the end, FDIC guarantees bank deposits, and banks can spend depositor's money on investment and loans. That is the root issue. So people will always be expected to "pay to clean it up" if a bank explodes.

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I take no issue with that: the depositers (or homeowners) shouldn't be paying the price. Neither, however, should the execs who created the mess be enriched by that process.

strangecircus said:

Lehman Brothers or AIG or other investment companies I agree should suffer the consequences.

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We're agreed.

strangecircus said:

when trillions of dollars are leaving the system and you have to literally decide overnight whether to stabilize the free world, you don't have the luxury of acting slow or separating the good from the bad you have to blanket treat. The Fed could see trillions being sucked out of the economy in real time because of the panic.

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And I don't suggest nothing should have been done. I do say the worst cases should've been simply wound up & closed, in an orderly (if accelerated or expedited) fashion. I also say the execs should have been held to account. Nobody was even charged by DoJ. It took NY State to do that. (I wish I could recall the D.A. who did it; he deserves a medal, & Holder's job. Holder deserves a desk doing Immigration law in Guam.)

strangecircus said:

even solvent companies unable to secure loans to make payroll.

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And how much of that was because solvent banks refused to loan money for reasons having nothing to do with the crisis per se? IDK what the law says, & I'm not sure about the psychology, but I do know banks were sitting on billions & refusing to loan it.

strangecircus said:

If you want the punishment for white collar crime to be bigger then that's a separate issue than "too big to fail" or being idiots with other people's money. The punishment didn't fit the crime, then make the laws more harsh, make more regulation and enforce existing laws. But the punishment will never fit the crime for a "trigger" like Lehman Brothers that cascades to the entire economy. You can't legislate away fear or bank runs or in this case the whole economy running.

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I don't mean to suggest that's possible. I only mean to say what was done bears little relationship to the seriousness of the crisis created. Nobody responsible for creating the mess was actually held to account; instead, they were rewarded. The bailout had no strings at all, not even a (flimsy) promise not to misbehave again. And the law that supposedly "fixed" the problem does nothing like it.

strangecircus said:

Yes that is social engineering, to help with class mobility and first-time home buyers. But, even if that didn't exist, people would still want to buy a home. You can't get rid of that, and where there's a want the market will respond.

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I don't dispute that, & I wouldn't try to prevent it. What I'm saying is, try & channel the desire in a different direction. Do you believe that's impossible?

Go back a moment to the G.I. Bill. Had there been a "divided" option for homeownership (is that a word?), one for new homes, one (with better terms) for "used" homes (I can't think what the term is), would it have changed the number of owners? Or would it only have changed the number of new homes built? My sense is, it would only have changed the number of new homes. Indeed, it might actually have increased the number of new owners. The same is true of the existing subsidy. It's a laudable goal; it's effects are poisonous. That's a policy issue, or an issue of structure; change how it's done, I have no objection to it.

strangecircus said:

when due diligence is not done, then the mortgage defaults.

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There's a huge difference between "lack of due diligence" & prima facie fraud.

strangecircus said:

hope we keep our jobs so the mortgage payment can be made every month and escape the trap of rent

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And if that's all it was, I wouldn't be complaining (I don't think). It's bigger than that. It's a gov't program that is supposed to help people who can't afford it. It's paying off people who can, & giving them an incentive to "go big", which is attracting people who can't afford it to "go big", too--& the result is ninja loans...

strangecircus said:

You mentioned this in the other thread but 1. Not all TARP funds were spent, around 500 billion and 2. TARP was repaid and made the government money.

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Which does not make giving the deadbeats & crooks the money to begin with a good idea. See above.

strangecircus said:

eliminate waste and useless employees. The 2008 recession was the perfect excuse for companies to lay off workers and hoard cash.

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Yeah, that's right, workers don't actually produce anything for the company. What is it with U.S. companies? The first, the only, response to cutting cost is to fire somebody. Here's an idea: let's see what happens to Lehman's or GM's stock price if they lay off everybody. I'm sure the price will skyrocket--right before it tanks. Here's another idea: let's try cutting executive pay instead of firing people, & hire execs that actually like the job & the company, & not just the size of their bonus checks. Or pay execs for actually making money, & not giving deadbeats bribes to go away (like Coke did).

We're now, unfortunately, getting OT....

strangecircus said:

This is a market correction that happens every 30-50 years. It will happen again

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It will happen again because the system is rigged. I said it before: there's a difference between "correction" & "crash". As it is now, the system is set up for "crash". It need not be. I'm genuinely wondering how it's possible.

It appears you think it's not. It seems you think periodic crashes are actually a good thing. I don't. IMO, this kind of economic chaos is bad for everybody. How is volatility & uncertainty & economic slump a good thing? How is that better than a slower, but steady, growth?

No, I'm not saying "much slower", just take a tick off the top. Or make it up some other way. How about companies increasing profitability by improved productivity rather than simply cutting jobs, for a start? Or reducing energy waste in the economy?

Unfortunately, that probably wants its own thread...