Good Layman's guide to the financial crisis

[Schmedlap]

I can't agree. Mjustassive economic bubbles always pop and cause ruinous depressions. It is the government's job to "take away the punch before the party gets out of control." Blind faith in free markets caused the problem.

What economic bubbles in the past 50 years caused ruinous depressions in the US?

I have no idea what you mean by the phrase "blind faith in free markets." That is so vague and invokes such an often tossed about term as to be almost meaningless.

I'm just guessing here, but I suspect that...

"It is the government's job to..." = if they don't do it, then the gov't is negligent.

"Blind faith in free markets" = bad judgment

If I got that much right, then I'm not sure what you were not agreeing with.

[Rank amateur]

What economic bubbles in the past 50 years caused ruinous depressions in the US?

"Depression" = depression of asset prices. Dot com stocks is the most recent example. When the value of everyone's stocks slide, it's bad for the economy, so even people who don't own stocks get hurt. Same thing happened to stocks in the 20s and tulip bulb prices in Holland. I believe the same thing happened to gold in the 70s.

The only reason these things haven't caused another "great depression" is because economists have learned a lot since the 30s. The government needs to cool things off when they're hot - higher interest rates, lower money supply - and warm them up when they're cold through government intervention in the economy: social security, unemployment insurance, lower rates.

Basically, anytime people are buying things just because the price is going up - in this case mortgages they can't afford, because the house "will be worth more before the rates adjusts" - inevitably creates a situation where everyone sells as soon as the price drops and prices plummet.

Real estate developers were placing strict limits to keep speculators out of their development. When real estate developers show more awareness of basic economics than the administration, there's only one place to put the blame.

[Ken White]

Real estate developers were placing strict limits to keep speculators out of their development. When real estate developers show more awareness of basic economics than the administration, there's only one place to put the blame.

Which administration? This one? The one before? two or three before?

I think you're confusing 'the administation' (whichever one) with Congress whose pursuit of 'affordable housing for all' (and the concomitant campaign contributions from the lender including Fannie and Freddie) is far more responsible for this debacle than any one administration has been.

I suggest that government intervention thus far has done far more harm than good -- and the prognosis for the future is not good...

[Rank amateur]

Which administration? This one? The one before? two or three before?

I'm refering to the one that thought it there was a supply of millions of mortgages that people couldn't afford and demand for millions of mortgages people couldn't afford that could possibly go wrong?

I suggest that government intervention thus far has done far more harm than good

If a bridge has too many supporting beams, there's nothing wrong with removing a few, but it's stupid to remove all the support.

[Ken White]

I'm refering to the one that thought it there was a supply of millions of mortgages that people couldn't afford and demand for millions of mortgages people couldn't afford that could possibly go wrong?

Thus my question -- all since WW II have had that inclination to one degree or another; as for market deregulation, see Carter J. and Clinton, W. For intervention See Johnson L. and Nixon, R.

Again, I suggest you're letting the prime culprits, our venal and corrupt Congress, slide.

If a bridge has too many supporting beams, there's nothing wrong with removing a few, but it's stupid to remove all the support.

Bad simile and feeds into your earlier error because those beams have been removed by several administrations and Congresses over the period of your short lifetime...

[Rank amateur]

Thus my question -- all since WW II have had that inclination to one degree or another; as for market deregulation, see Carter J. and Clinton, W. For intervention See Johnson L. and Nixon, R.

For sake of clarity, I'm referring to the administration that took over right around the dotted blue line furthest to the right on the bottom charge.




Another analogy. You could argue that armies have caused more harm than good. If you keep weakening yours you'll eventually learn why you had an army in the first place, but reading the history books is a much less painful way to learn the lesson.

[Ken White]

For sake of clarity, I'm referring to the administration that took over right around the dotted blue line furthest to the right on the bottom charge.

Sigh. WHAT dotted blue line. Anyhow, why not just say what you mean? It ain't that hard...

You do realize that the Clinton / Rubin / Summers effort to extend US economic hegemony worldwide changed all the financial rules? That's what started this. And as I said, Congress bears considerable responsibility...

Another analogy. You could argue that armies have caused more harm than good. If you keep weakening yours you'll eventually learn why you had an army in the first place, but reading the history books is a much less painful way to learn the lesson.

That's an even dicier analogy...

I don't have an Army. Do you? Anyhow, you need to talk to Madeline Albright -- she's the one that insisted on using Armies for things for which they weren't designed...

[Schmedlap]

We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.

[J Wolfsberger]

I never thought I'd write this, but Hillary Clinton has a pretty solid approach: "Let's Keep People in Their Homes."

We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.

I'm reasonably certain it was Karl Rove.

[Steve Blair]

I never thought I'd write this, but Hillary Clinton has a pretty solid approach: "Let's Keep People in Their Homes."



I'm reasonably certain it was Karl Rove.

No...Dr. Doom.

[bourbon]

We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.

Are you denying there is a shadow financial system that, as tequila notes:

...grew up to service that capital outside of the regulatory infrastructure that governs banks and thrifts. SIVs, hedge funds, private equity groups, etc. that became so profitable that the inevitably became enmeshed in and took over large parts of Wall St itself.

Who's, "massive overleveraging is what has turned a standard housing bubble into financial apocalypse"? You reject this premise?

Naked In Wonderland, by Patrick Byrne. Forbes.com, September 23, 2008.

The financial and mainstream media for past couple years have been lampooning Patrick Byrne, thing is they aren't laughing now.

Yes, of course, bad judgment, bad faith, and negligent behavior by millions is a factor. I don't think anyone denies this. However, there are more important key factors.

[Rank amateur]

We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person,

It's really not that complicated. Lenders used to make money when people paid their loans back. Then the rules changed. They started making money off commissions whether the loan was paid back or not. I suppose you could blame the people who'd played by the new rules, but no matter how much of a free marketeer you may or may not be, I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.

[Ken White]

It's really not that complicated. Lenders used to make money when people paid their loans back. Then the rules changed. They started making money off commissions whether the loan was paid back or not. I suppose you could blame the people who'd played by the new rules, but no matter how much of a free marketeer you may or may not be, I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.

Pity the shakers and movers do not...

Note the date. Quote:"''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''" Unquote. LINK.

[Schmedlap]

... I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.

I'm not sure where you are getting that impression of my opinion. I think you're confusing someone else's view for mine. I'm the one who pointed the finger at (among others), "regulators who failed to enforce regulations" and "legislators and officials who did away with sensible regulation".