Torture versus collateral damage; the bigger evil?

[motorfirebox]

Nope not false, true. Regardless of the things that were done, those loans were bad and the would not have been made if the gov hadn't forced them to be made. So that is it. Bad loans made under duress that eventually went bad. Some surprise that that led to trouble.

It is a necessary part of the financial system that some people win and some people lose. In this case, the bad results of those bad loans would be passed back to the government itself and, for the most part, harmlessly absorbed. No, it wouldn't be indefinitely sustainable, but the damage it could do on its own was pretty sharply limited.

What caused it to snowball into an economy-wrecker was actual, intentional fraud. Do you understand that? If you lend me a nickel and I don't pay it back, you're out a nickel, regardless of whether someone forced you to lend me that nickel or not (and the fact that Fannie and Freddie will pay your nickel if I fail to takes a lot of the sting out of it). If you lend me a nickel, and then bet someone else a hundred million dollars that I'll pay you back, and show them fraudulent documents indicating that I'll probably pay you back, you can't blame me when you lose that hundred million. That was all you.

Yep. I'll go with all of that as contributing factors. Fannie and Freddie were mixed up in all of this and they were widely believed to be no risk because no matter how bad they screwed up, the gov would step in.

Uh, Fannie and Freddie weren't the ones who propagated the idea that securitizing risky loans made them less risky. That was... private investment.

Dayuhan, bubbling and nosediving are what I see indicated--I'll admit we're not there yet. As for what we need, re: government oversight and private investment, what we need is for fraudsters and enemies of the state to be thrown in jail for their crimes. We can't function as a society when some groups are above the law, and the group that most flagrantly and exorbitantly flaunts the law in the US these days is investment bankers. It's useless to talk about more or less oversight when that oversight is utterly toothless.

[carl]

I understand that if all those loans had not been forced to be made the whole thing would not have happened. I understand to that one reason all the various shenanigans went on was because the gov wasn't doing things like watching what was going on. I understand that the banking sector is too bigger to fail than it was before. I understand that much. What I don't understand is the infield fly rule, or why the Indians don't seem likely to win a pennant in my lifetime. Come on, 1948 was a long time ago, we only live so long.

Uh, Fannie and Freddie were/are monstrous entities that pretend to be private institutions while taking advantage of the perception that any failures they had would ultimately be paid for by the taxpayer so that made them less risky...taxpayer money you see.

One thing I see is investment bankers gave an awful lot of money to the campaign of Mr. Obama and that many of the high up guys dealing with investment banking issues in the gov were formerly investment bankers.

[Fuchs]

I understand that if all those loans had not been forced to be made the whole thing would not have happened.

The banking sector would likely have blown up either way.
Too many problems and inadequacies worked together to push for a crash. The U.S. economy produces a crash on the astonishing rate of about every decade. It's simply not stable or well-managed.
The special role of the USD may be a hidden enabler for this, but I'm not sure. Maybe it's just plain old poor regulation and oversight, especially since the 80's.

[carl]

Fuchs:

There is something in what you say about poor regulation and oversight since the 80s. We gave up a lot of the rules that we established during the Depression in the interest of what ultimately turned out the be the interest of the big money men. We also have been developing a culture of impunity for the elites and the institutions dominated by them. That is going to get us in big trouble.

The banking sector may or may not have blown up either way but it wouldn't have blown up in the way it did without gov action.

The last real crash we had was the Depression. These things have been uncomfortable and disconcerting but not crashes on that scale. I don't know if the economy is stable or well managed. That sort of depends on what the definition of stable and well managed is, and that can vary depending on the men making it. That concerns me. It was free more or less. In the long run free is better even with the ups and downs. Creative destruction and all that.

[Fuchs]

In the long run free is better even with the ups and downs. Creative destruction and all that.

You're also talking about the "too big to fail" sector here...

Seriously, there's not much creative destruction any more in the U.S. economy or in European economies. Cassette tapes got pushed aside by CDs and there are some other anecdotes, but the big creative destruction moves don't happen because the existing winners are entrenched and have much influence on politicians and media. They can also pervert the patent and other copyright laws to their ends, by using them to kill off true innovators with fraudulent challenges.
It's also very difficult to innovate and destroy something old in a world where technology has advanced so much that tech wizards in garages simply don't cut it any more. You need teams of dozens of people even for smallish development enterprises. There aren't many Dysons around.

[carl]

Fuchs:

Sadly I must agree. Little that is established is allowed to fail, especially in the financial world. We made noises about not letting things be to big to fail but the banking world is more concentrated than ever. I read an article in the Atlantic (that used to be a good magazine until it went straight party line about two years ago) years ago that said if the IMF was handling the US crisis in 2008, all those big banks would have been nationalized, broken up and sold. But of course it wasn't because the too many of the superzips would have been hurt. As you say, the existing winners protecting themselves.

http://www.theatlantic.com/magazine/...t-coup/307364/

[Backwards Observer]

Enjoy.

U.S. Public Opinion on Torture, 2001–2009

Many journalists and politicians believe that during the Bush administration, a majority of Americans supported torture if they were assured that it would prevent a terrorist attack. As Mark Danner wrote in the April 2009 New York Review of Books, “Polls tend to show that a majority of Americans are willing to support torture only when they are assured that it will ‘thwart a terrorist attack.’” This view was repeated frequently in both left and right leaning articles and blogs, as well as in European papers (Sharrock 2008; Judd 2008;Koppelman 2009; Liberation 2008).There was a consensus, in other words, that throughout the years of the Bush administration, public opinion surveys tended to show a pro-torture American majority.

But this view was a misperception. Using a new survey dataset on torture collected duringthe 2008 election, combined with a comprehensive archive of public opinion on torture, we show here that a majority of Americans were opposed to torture throughout the Bush presidency. This stance was true even when respondents were asked about an imminent terrorist attack, even when enhanced interrogation techniques were not called torture, and even when Americans were assured that torture would work to get crucial information. Opposition to torture remained stable and consistent during the entire Bush presidency. Even soldiers serving in Iraq opposed the use of torture in these conditions. As we show in the following, a public majority in favor of torture did not appear until, interestingly, six months into the Obama administration. (Reed College Symposium)

Public Opinion on US Torture, 2001-2009 - Reed College Symposium Paper

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Elizabethan Crime and Punishment - www.william-shakespeare.info

What we can learn from the torture scene in Shakespeare's King Lear - firedoglake - 3.14.2010

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Lingchi - wikipedia

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Medieval Torture - medievality.com

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The Water Cure - new yorker - 2.25.2008

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Torture Practices of the Ancient World - spiegel - 5.15.2009

[jcustis]

What do Fannie and Freddie have to do with waterboarding and collateral damage?

[Dayuhan]

What do Fannie and Freddie have to do with waterboarding and collateral damage?

The link seems to be the proposition that torture, financial crises, and presumably much of the range of unpleasantness between trace back to a lack of some construct called "moral courage". Make of that what you will. I'm still not sure I understand what it's meant to be, beyond vigorous agreement with whoever is making the argument based on "moral courage".

[carl]

Public Opinion on US Torture, 2001-2009 - Reed College Symposium Paper

That was a great paper. It is filled with all kinds of insight. It gives me hope that what a Sergeant said to a fearful Iraqi in Brandon Friedman's "The War I Always Wanted" is still somewhat true. The Sergeant said "We're Americans. We don't do that ####."

The paper also brings up the question of why segments of the elite in gov, Cheney, Woo etc and the media, Jack Bauer and his ilk, why have they lost their moral foundation?

[Backwards Observer]

why have they lost their moral foundation?

Don't ask me. I just work here.

In sum, the study found, power doesn’t corrupt; it heightens pre-existing ethical tendencies. Which brings to mind another maxim, from Abraham Lincoln: “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

Why Power Corrupts. - Smithsonian - Oct, 2012.

[motorfirebox]

I understand that if all those loans had not been forced to be made the whole thing would not have happened. I understand to that one reason all the various shenanigans went on was because the gov wasn't doing things like watching what was going on. I understand that the banking sector is too bigger to fail than it was before. I understand that much.

Then you understand nothing. Silver Thursday happened just fine without the government forcing anyone to buy anything. As for the government not watching what was going on--the government, at the behest of the finance industry, passed that responsibility down to private enterprise. Oops.

Uh, Fannie and Freddie were/are monstrous entities that pretend to be private institutions while taking advantage of the perception that any failures they had would ultimately be paid for by the taxpayer so that made them less risky...taxpayer money you see.

That's not what was being discussed, and not what you agreed with Dayuhan over. Dayuhan specifically mentioned securitizing bad debt as a factor in the crash. Securitizing bad debt is a completely separate concept from taxpayer backing of bad debt.

One thing I see is investment bankers gave an awful lot of money to the campaign of Mr. Obama and that many of the high up guys dealing with investment banking issues in the gov were formerly investment bankers.

Yes. It's unfortunate. Obama has shown slightly more willingness to restrict the finance industry than the GOP, but won't go so far as to throw people in jail for fraud on a scale that makes Bernie Madoff look like a three card monty hustler. So, because the Tea Party is even worse for the markets than Obama--seriously, trying to cancel the debt limit? Do you want to kickstart the zombie apocalypse? Wait, don't answer that--they've thrown their weight behind the Democrats. For the banks, it's a choice between total disaster and a slap on the wrist. For the lower and middle class, it's a choice between total disaster now and total disaster over the next few decades.

[carl]

Then you understand nothing. Silver Thursday happened just fine without the government forcing anyone to buy anything. As for the government not watching what was going on--the government, at the behest of the finance industry, passed that responsibility down to private enterprise. Oops.

I do too understand stuff. Honest. I understand the offsides rule in soccer/football and I understand why when the Kuwaiti team long ago tried to depend on that they ended up failures. So that is something.

The gov was watching what was going on. They were watching very closely to see that what they figured were enough of what the lending institutions had formerly figured were bad loans were being made to people who were poor credit risks. Then when those people couldn't pay, a predictable event, things fell apart.

That's not what was being discussed, and not what you agreed with Dayuhan over. Dayuhan specifically mentioned securitizing bad debt as a factor in the crash. Securitizing bad debt is a completely separate concept from taxpayer backing of bad debt.

No, what I understood Dayuhan's main point to be was the gov establishing perverse incentives. In my view that sort of institutionalized moral hazard.

[motorfirebox]

No, what I understood Dayuhan's main point to be was the gov establishing perverse incentives. In my view that sort of institutionalized moral hazard.

Really? You understood "the perception that if you pool enough dubious loans together they somehow cease to be dubious" to be about government establishing perverse incentives? Because, wow. That's not at all what that phrase means.

I do too understand stuff. Honest. I understand the offsides rule in soccer/football and I understand why when the Kuwaiti team long ago tried to depend on that they ended up failures. So that is something.

The gov was watching what was going on. They were watching very closely to see that what they figured were enough of what the lending institutions had formerly figured were bad loans were being made to people who were poor credit risks. Then when those people couldn't pay, a predictable event, things fell apart.

Yeah, see, you can say you understand "stuff", but when you're flatly ignorant of the role the ratings companies played? That indicates that you actually don't understand stuff.

Regardless, that's twice you've shifted goalposts in a single page, which is more crap than I'm willing to deal with.

[carl]

Really? You understood "the perception that if you pool enough dubious loans together they somehow cease to be dubious" to be about government establishing perverse incentives? Because, wow. That's not at all what that phrase means.

I did understand. Though I had to read it real slow and then put my thinking cap on and cogitate hard before I got it. Because, wow, if government provides perverse incentives and subsidizes moral hazard, it may tend to lead to dubious groupthink.

Yeah, see, you can say you understand "stuff", but when you're flatly ignorant of the role the ratings companies played? That indicates that you actually don't understand stuff.

I already said I understood the offsides rule in soccer/football. That is stuff, I think.

Anyway, I do understand that because ratings companies were paid by financial institutions to rate them and the investments they offered there was an inherent conflict of interest. That was not a good thing. See, not so ignorant, at least not completely, totally, blindingly, maddeningly ignorant.

Regardless, that's twice you've shifted goalposts in a single page, which is more crap than I'm willing to deal with.

I have a question. How come when I wrote #### as part of a quote in post 77 it came out ####, but when you write crap, it comes out crap? I don't understand that.

[carl]

Backwards Observer:

You provide good links.

That one says more or less that the good stay good and the bad stay bad. Our elites, to me, seem to be trending bad. I don't know why either. Maybe it has something to do with the paramount importance of being nice. That may sound paradoxical but in order maintain the right (thank you RCMP), you have to say no at times, which isn't nice.

I don't know, I am still trying to puzzle this out.

[motorfirebox]

I did understand. Though I had to read it real slow and then put my thinking cap on and cogitate hard before I got it. Because, wow, if government provides perverse incentives and subsidizes moral hazard, it may tend to lead to dubious groupthink.

Wow. Just... wow.

Wow.

[carl]

(and the fact that Fannie and Freddie will pay your nickel if I fail to takes a lot of the sting out of it).

Oh I forgot to comment on this. Fannie and Freddie may have their name on the check, but it is my money they are spending. That makes that check much easier to write.

As far as that hundred million dollar bet about the nickel, it is a bet that the nickel will be paid, not that a particular person will pay it. Much easier to make that bet when Fannie and Freddie are going to back it with my money.

I already said something about moral hazard didn't I.

[Dayuhan]

Dayuhan, bubbling and nosediving are what I see indicated--I'll admit we're not there yet. As for what we need, re: government oversight and private investment, what we need is for fraudsters and enemies of the state to be thrown in jail for their crimes. We can't function as a society when some groups are above the law, and the group that most flagrantly and exorbitantly flaunts the law in the US these days is investment bankers. It's useless to talk about more or less oversight when that oversight is utterly toothless.

That seems to me a bit like leaving a kilo of ground beef in front of your dog, telling the dog not to eat it, then coming back the next day and whacking the stuffing out of the dog for having eaten the meat. I've no objection to punishing those who committed fraud, but throwing some or a lot of investment bankers in jail is going to provide little more than emotional satisfaction if we don't recognize and stop repeating the perverse incentives that encouraged and rewarded their behaviour. Again, the illusion that regulation or oversight can somehow compensate for bad management of incentives needs to be perforated and dismissed.