patrick.net

indigenous says

The solution is NO bailouts to mark to market, and let the market figure it out.

"Indeed, a major source of objection to a free economy is precisely
that... it gives people what they want instead of what a particular
group thinks they ought to want. Underlying most arguments against
the free market is a lack of belief in freedom itself."

-Milton Friedman

darlag says

"Indeed, a major source of objection to a free economy is precisely

that... it gives people what they want instead of what a particular

group thinks they ought to want. Underlying most arguments against

the free market is a lack of belief in freedom itself."

-Milton Friedman

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

I believe in freedom, but I understand that freedom isn't as profitable as coercion...Guess which one companies opt for without any rules?

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

tatupu70 says

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

So you are saying that people are basically stupid and incapable of thinking and acting for themselves. That they won't vote with their feet when a bad bank or a bad company takes advantage of them or provides poor, inadequate services. That the poor peons need to be told what to do by a benevolent government that takes care of them and protects them.

Here's another quote from a founding father,

"The duty of government is to leave commerce to its own capital
and credit as well as all other branches of business, protecting
all in their legal pursuits, granting exclusive privileges to none."

-Andrew Jackson

America has become a nation of exclusive privileges for the TBTF crowd which is being supported on the backs of taxpayers. Moral hazard is alive and well in the U.S.

The companies bailed out in 2008-09 were given a Get out of Jail card when they should have been put in jail. The regulations you seem to think will somehow protect against fraud and coercion actually protect the perpetrators, not the people.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/30/greece-really-might-leave-the-euro/

Predicts more extend and pretend as a "solution" to Greek debt.

zzyzzx says

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

I read Spain will be the first to leave, perhaps because Spain's economy is too big to bailout.

As to Greece Draghi is fighting for the existence of EU, so he is literally fighting for his career. Germany would take it in the ass big time if the Euro dissolves so they also are going to go to great lengths for it not to happen.

As Mish indicated they are not going to force Greece to "mark to market", they are going to pretend and extend. Since Draghi has just started his version of QE it could be a while as in Draghi has played every card he has. I would guess a few years?

See what happens when greedy bastards play with mercantilism.

darlag says

So you are saying that people are basically stupid and incapable of thinking and acting for themselves. That they won't vote with their feet when a bad bank or a bad company takes advantage of them or provides poor, inadequate services. That the poor peons need to be told what to do by a benevolent government that takes care of them and protects them.

Nope, I'm saying that all gas stations will collude to keep prices high. All banks will collude to keep fees high.

I'm saying the interests of businesses are directly opposite of the interests of consumers.

darlag says

America has become a nation of exclusive privileges for the TBTF crowd which is being supported on the backs of taxpayers. Moral hazard is alive and well in the U.S.

That's nonsense.

darlag says

The companies bailed out in 2008-09 were given a Get out of Jail card when they should have been put in jail. The regulations you seem to think will somehow protect against fraud and coercion actually protect the perpetrators, not the people.

Actually, if you remember, the reason the bailout was necessary was that the banking industry was DEregulated previously. The cause was poor oversight and too few regulations.

tatupu70 says

Actually, if you remember, the reason the bailout was necessary was that the banking industry was DEregulated previously.

And they would have paid the price for their trespasses if left to the public. Instead the state continues to protect them.

Bellingham Bill says

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

Just like Germany. They say that many Germans just commit suicide when faced with bankruptcy.

Heraclitusstudent says

What are you arguing here? That banks are bad by default? That no one else was involved? The Spanish government fully agreed with what was happening. And this was not unpopular with the spanish people. No one complained on the way in, like people complain about the consequences now. Everyone was in it.

Let's not pick on Spain alone. Greece, Italy, Ireland, the USA, Iceland (the only country to punish both banksters, lobbyists, AND politicians for the crisis) all had politicians bribed into compliance - some over the table (US Lobbyists), some under the table (like Spanish MPs and even members of the Royal Family).

People respond to "Market" forces, even when those "Markets" are captured. You don't blame the cough symptom (home flippers) for the lung cancer (housing bubble), but the smoking (banker-pushed deregulation and weakening of oversight).

The evidence is overwhelming that banks subverted politicians everywhere. From Glitnir to Deutsche Bank to Bank of Asmodeus and Washington Mutual. From minimal reserve requirements to Robo-signing.

Heraclitusstudent says

Are you arguing that we should have let banks failed after the crisis? Then again, austerity would have been much worse. No banks, no loans. You would have gone to 35% unemployment. Then maybe after that you would rebound faster. This is the Austrian argument.

Yes. There wouldn't have been NO banks, shitty banks would be unwound, any good assets they had sold off to non-shitty banks. Regional banks that weren't run like shit would be the beneficaries of picking up good assets at low prices, pumping them up to National or International status. There would have been a lousy few quarters of hardship, and that would have been it. 35% Unemployment? No way. 35% Unemployment can only result in a demand-challenged depression, which Austerity can actually help bring on. There's countless federal programs that could be pumped up with new money printed to replace the dead money, and direct funds to viable businesses in lieu of banks

Quite frankly, banking should be a public utility anyway - but that's another subject.

The banks and financial institutions are the biggest donors to neoclassical think tanks and lobbyists pushing deregulatory/re-regulatory benefits to themselves. Through their scholars-for-dollars, they claim "Creative Destruction is Good" - except when it happens to them, then they demand not only Socialism for their mistakes, but Austerity for everyone else which kills demand and slows down the redistribution to good investment from the malinvestment the banks caused.

Austerity kicks Demand in the balls then steals all the money in his Wallet.

The restriction of demand by Austerity slows the correction of malinvestment driven by the banks' direct actions. Instead, the banks' malinvestment is paid by all other actors and segments of the economy, including those who suffered when investment was misdirected away from their enterprises.

darlag says

And they would have paid the price for their trespasses if left to the public. Instead the state continues to protect them

Criminally or financially?

They did pay financially. I'd say losing 90% of a company's value is a pretty strong deterrent against doing it again...

I agree there should have been criminal charges, but I'm not a lawyer so I don't know the intricacies of the situation.

Bellingham Bill says

Spain of course has horribly anti-borrower lending terms.

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

Spain didn't have personal bankruptcy at all until 2003. Why they bothered is a mystery since the revised law isn't much better.

That being said, america is the one out of the mainstream. Personal bankrupcty discharge of debts is pretty much unheard of in many other countries. You can get the debt restructured, but it still exists and is expected to eventually be repaid. Of course other countries don't have millions of lawyers saying it's always someone else's fault either. People are expected to be responsible for what they do.

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

It's only called welfare if government money is going to poor people. If government money goes to rich people it's called investment. They would never blow it on mansions, yachts, and lobbying for more government money.

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

bob2356 says

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

It's only called welfare if government money is going to poor people. If government money goes to rich people it's called investment. They would never blow it on mansions, yachts, and lobbying for more government money.

Yep.

And fucking up on such a Global scale to a huge degree, then demanding to be completely sheltered from all ill effects and make everybody pay (no matter what the cost to themselves) to make you whole again, even steven to where you were before, simply because "I'm so special and irreplacable" is not a deeply-entrenched sense of entitlement.

darlag says

indigenous says

The solution is NO bailouts to mark to market, and let the market figure it out.

"Indeed, a major source of objection to a free economy is precisely

that... it gives people what they want instead of what a particular

group thinks they ought to want. Underlying most arguments against

the free market is a lack of belief in freedom itself."

-Milton Friedman

Good old uncle Miltie... Ooops wrong one! But he may as well be the comedian, because it's not quite clear how he gets taken seriously...

indigenous says

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

It was the banking industry and their political hacks that lobbied for deregulation. Robert Rubin, Larry Summers pushed for the passage of the Gramm Leach Bliley Act that effectively lessened the regulations and allowed banks to become TBTF. The CRA was a little chunk that they conceded on due to pressure on Clinton from Jesse Jackson.

Diva24 says

indigenous says

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

It was the banking industry and their political hacks that lobbied for deregulation. Robert Rubin, Larry Summers pushed for the passage of the Gramm Leach Bliley Act that effectively lessened the regulations and allowed banks to become TBTF. The CRA was a little chunk that they conceded on due to pressure on Clinton from Jesse Jackson.

Irrelevant to what I'm talking about. The CRA part was a joke for the most part, even though it did contribute to bad loans above the sub prime.

The overarching problem is the centralizing of banking and the bullshit Fed approval process. That has been going on since the 80s.

One big giveaway to the 'wealthy' is letting them dig up this nation's nonrenewable natural resources and then sell all that to us.

Actually, bigger than that is all the land titles the government handed out, especially all that land in the 19th century that concentrated in so very few hands.

And bigger than rural land holdings is urban housing empires; the expense renters pay these days is not primarily the cost of the sticks and bricks (or management thereof), it is the cost of keeping the 2nd bidder from taking over the tenancy.

Imagine if we had to pay the man for every breath of air we took. The land market isn't any different, millions of rich people getting something for nothing via their land monopoly.

"Nobody gets this." -- Perhaps it's best if they didn't, LOL

real annual per-capita housing expense

thunderlips11 says

You don't blame the cough symptom (home flippers) for the lung cancer (housing bubble), but the smoking (banker-pushed deregulation and weakening of oversight).

Who was corrupting politicians: Realtors, Builders, Banksters, Flippers, Voters who like their home equity... i.e. a majority of people. Politicians also do things if they see a short term interest, a short term boost in economic activity, which they did. Bottom-line everyone contributed to the problem at their own level and it's just a tiny bit too convenient to say "the bankster made me signed this no interest stated income loan" and encouraged me to lie.

thunderlips11 says

Regional banks that weren't run like shit would be the beneficaries of picking up good assets at low prices, pumping them up to National or International status. There would have been a lousy few quarters of hardship, and that would have been it. 35% Unemployment? No way.

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out. Credit would freeze everywhere: money markets, intra bank lending, day to day lending to companies, etc... Most banks would fail and those remaining would be so suspicious that they would make loans only to people sitting on golden collaterals. The lack of lending would mean economic devastation. Companies would fail everywhere. There would absolutely be 35% unemployment in a country like Spain that had 18% unemployment in 1995 BEFORE the euro.

The only argument here is that it would indeed solve the problem, and the rebound would be fast. Of course retired people with pensions wiped out would go hungry but that's an other problem.

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

Nobody is talking about punishing the banks, simply allowing capitalism to take it's course,

I'm not advocating it, I'm just explaining what "capitalism taking it's course" means for the people. You can't let banks fail and hope "the little people" would be helped by that. They are, in a very practical sense, in the same boat as banks.

thunderlips11 says

Austerity kicks Demand in the balls then steals all the money in his Wallet.

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Heraclitusstudent says

thunderlips11 says

Austerity kicks Demand in the balls then steals all the money in his Wallet.

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

That saving is done by the government at the expense of the citizens. IOW if you devalue your currency that is great for getting commerce to your country, but it also devalues the buying power of the citizens. Ergo no real economic growth for the domestic economy.

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces

No it prints and saves that.

AFAIK China still runs a trade surplus by taking the USD its exporters receive and prints up the yuan for them in exchange.

shows China's NIIP has been flat for a while

Heraclitusstudent says

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out.

Then we better take steps to prevent TBTF and embark on policies that encourage many small banks instead of a handful of large ones.

Heraclitusstudent says

Credit would freeze everywhere: money markets, intra bank lending, day to day lending to companies, etc... Most banks would fail and those remaining would be so suspicious that they would make loans only to people sitting on golden collaterals

Keynes and FDR solved this problem almost a century ago. Banks are not the only source of cash infusions into the economy.

Also, of course, there are massive social effects from hypocrisy of elite driven events.

Heraclitusstudent says

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

That's the Triffin Dilemma, and it's fueled by a combination of world reserve currency status and bank-friendly goods production-hostile strong currency policies..

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Not at all. China is aflush not only with Ghost City construction, but Airports, Railroads, Subways, Highways. More than half of Chinese work at SEOs. It is greatly expanding it's military capacity with expensive modern vehicles and weapon systems. It's funding a huge space program that will probably continue to a moon shot in the next 15 years.

thunderlips11 says

Heraclitusstudent says

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out.

Then we better take steps to prevent TBTF and embark on policies that encourage many small banks instead of a handful of large ones.

The real problem is banking oversight. It is trough the Fed and a bank getting approval for expansion through citizen groups to "prove the bank is a good citizen". Canada for instance has far fewer banking problems because the oversight is by appointed officials who don't have an ax to grind and make non political decisions. Over a comparable time frame the US has had IIRC 14 banking crises compared to Canada's ZERO over the same time period. A banking crises is defined as involving 1% or more of the GDP.

The solution would be to re regulate banking and get politics the fuck out of it.

Keynes and FDR created infinitely more trouble than they fixed.

thunderlips11 says

Not at all. China is aflush not only with Ghost City construction, but Airports, Railroads, Subways, Highways. More than half of Chinese work at SEOs.

Obviously an economy based on building ghost cities is not an economy based on consumption. The saving numbers are there.

Bottom line if you are going to claim austerity is depriving the world economy from demand, you can't apply this argument to Greece or France. This is an argument that should be applied to the countries that are actually saving.

thunderlips11 says

Then we better take steps to prevent TBTF and embark on policies that encourage many small banks instead of a handful of large ones.

Sure, and this wouldn't help the question of whether finance is dominating the Greek, the US, or the UK economy.

Finance really goes wild when you have ultra loose monetary policies and regulations meant to promote wide spread lending. This is exactly what countries with a large account deficits, like the US and UK, need.

Finance suffers when you have austerity policies, when a country deleverage.

So there you have it again: being anti-austerity is de-facto being pro-finance. Contrary to what lefties would hope.

I'm not even convinced that smaller banks would avoid the TBTF problem. You can have many small banks fail and still have the same domino effect. What you really need is less debt. You need rebalancing between deficit countries and surplus countries. And this means cutting consumption and increasing productivity in southern europe.

Or you need to stop mindless trade globalization altogether. Trade is the real root of all these issues.

Heraclitusstudent says

I'm not even convinced that smaller banks would avoid the TBTF problem.

The solution to the problem is better regulation. Decentralizing does tend to make the smaller banks more vulnerable as they become dependent on too small of an area. OTOH centralizing the banks contributed to the TBTF.

Again the proof in the pudding is that Canada with non political regulation has had 0 banking crises to IIRC 14 for the US with very political regulations.

The source of this info is the book "Fragile by design"

As to the other the real problem is mercantilism and the reserve currency status of the dollar. The reserve currency status is a liability to the US not an asset.

This article explains why this is the case regarding balancing foreign trade and current accounts.

http://blog.mpettis.com/2014/10/are-we-starting-to-see-why-its-really-the-exorbitant-burden/

That would be the entire bond market.

Heraclitusstudent says

Bottom line if you are going to claim austerity is depriving the world economy from demand, you can't apply this argument to Greece or France. This is an argument that should be applied to the countries that are actually saving.

I think we're using different versions of Austerity here. Austerity has little directly to do with increasing savings, but rather cutting expenditures independent of whether it results in savings or not:

In economics, austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increases, or a mixture of the two.[1][2][3] Austerity policies may be attempts to demonstrate governments' fiscal discipline to their creditors and credit rating agencies by bringing revenues closer to expenditures; they may also be politically or ideologically driven.

Austerity involves policies to reduce government spending and or higher taxes in order to try and reduce government budget deficits.

A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.
http://www.investopedia.com/terms/a/austerity.asp

Heraclitusstudent says

Or you need to stop mindless trade globalization altogether. Trade is the real root of all these issues.

Absolutely. The reason China is flush with cash is because other countries demand, and the US runs a multi-hundred billion dollar trade deficit with it.

Heraclitusstudent says

What you really need is less debt. You need rebalancing between deficit countries and surplus countries. And this means cutting consumption and increasing productivity in southern europe.

When you get rid of debt, you also get reduce the money supply. Productivity is hard to sustain if : Somebody makes it better/cheaper than you, they're using the same currency, and that currency is strong - and you have reduced domestic demand due to reduced consumption.

The connection between lower consumption and increased productivity would be difficult to establish, since productivity would have to be jump started by demand, and most producers are going to jump start production based on increasing domestic demand.

Bottom line if you are going to claim austerity is depriving the world economy from demand, you can't apply this argument to Greece or France. This is an argument that should be applied to the countries that are actually saving.

Heraclitusstudent says

Bottom line if you are going to claim austerity is depriving the world economy from demand, you can't apply this argument to Greece or France. This is an argument that should be applied to the countries that are actually saving.

As for Austerity in Europe, the Economist, the Socialist Worker of Neoliberalism, ran this piece:
http://www.economist.com/blogs/freeexchange/2012/05/austerity

As for the "Austerian" Economists, with Reinhard and Rogoff's book leading the charge, their methodology and mistakes were summed up well in this blog:

Reinhart and Rogoff, in case you are wondering, are two economists who wrote a very famous paper purporting to demonstrate that high public debt to GDP ratio leads to negative economic growth. This paper was then cited by Paul Ryan et al. as justification for shredding what remains of our country’s social safety net.

But SHOCKER!, the paper was wrong! As a UMass grad student recently discovered, Reinhart and Rogoff not only based their conclusions off selectively chosen data, they made a serious coding error in the Excel spreadsheet they were working with.

It’s cool though. They have written a petulant Op Ed in the Times basically explaining why none of us should WORRY about the data and the methodology they used and the Excel spreadsheet — it’s totally FINE and the original premise of their paper (which purported to demonstrate a causal relationship between high deficits and slow growth) remains sound and the best way to get out of our current economic crisis is still austerity, austerity, austerity!

Well, there’s the thing about that “small actual difference” between the critics’ paper and their paper: THEIR paper shows that high deficits lead to a negative growth rate of 0.1%; the critics’ paper shows that the same high deficits (90% ratio of public debt to GDP) are correlated with POSITIVE growth of 2.2%.

But yeah, it’s a small difference, in the grand scheme of things. For example, right now we are making -.1% interest on our checking account, when you factor in all the fees and everything but this is a “small actual difference” from the roughly 2.2% interest we made on our checking account during the heady days before the 2008 crash. Small difference. Potato, potahto.

Read more at http://wonkette.com/513931/famous-austerity-economists-just-because-our-data-is-no-longer-operative-doesnt-mean-we-were-wrong#4SkTyesYgx39aCKI.99

The critic's blog on Oxford University Press' site, talking about their now fully peer reviewed criticism of Reinhardt and Rogoff's errors and methodology. Which the two Austerians attempt to dismiss their serious cherry-picking and calculation errors as a mere "kerfluffle"
http://blog.oup.com/2014/01/public-debt-gdp-growth-austerity-why-reinhart-and-rogoff-are-wrong/

Final comment for now: In 2007, Spain's Debt to GDP was a low 34%. Lower than the US, lower than most European Countries, including Germany.

Spain

http://www.economicshelp.org/blog/5525/economics/spanish-economic-crisis-summary/

In Spain's case at least, The Financial Crisis caused the Debt, not the debt the Financial Crisis.

Germany

thunderlips11 says

productivity would have to be jump started by demand, and most producers are going to jump start production based on increasing domestic demand.

Ass backwards

indigenous says

thunderlips11 says

productivity would have to be jump started by demand, and most producers are going to jump start production based on increasing domestic demand.

Ass backwards

Right, in Austrian land, entrepreneurs and investors usually invest in new firms that produce goods and services for which there is no existing demand.

thunderlips11 says

Right, in Austrian land, entrepreneurs and investors usually invest in new firms that produce goods and services for which there is no existing demand.

Once again the chicken or the egg. I will go all wogster on you, name a product that did not precede the demand.

thunderlips11 says

I think we're using different versions of Austerity here. Austerity has little directly to do with increasing savings, but rather cutting expenditures independent of whether it results in savings or not:

I'm using the only definition of austerity that makes sense.

If someone spends more than they earn, borrowing money every year to spend, you wouldn't call that person 'austere'. You wouldn't say their problem is that they are not consuming enough (generating end-demand).

The same goes for countries policies.

On the other hand if someone spends less then earn, they are de facto saving a lot, and you can say they are not generating enough end-demand, creating a problem in the economy by hoarding money that should be circulating.

This point is the center of understanding what is happening in southern Europe.
If you don't understand this, you don't understand the Greek crisis.

indigenous says

Once again the chicken or the egg. I will go all wogster on you, name a product that did not precede the demand.

Every product every invented? As Bill should have taught you earlier, products don't create demand, they satisfy it.

tatupu70 says

indigenous says

Once again the chicken or the egg. I will go all wogster on you, name a product that did not precede the demand.

Every product every invented? As Bill should have taught you earlier, products don't create demand, they satisfy it.

This is absolutely the stupidest how many angels can dance on the head of a pin discussion I've ever seen. Companies make products, if people want them then they buy them. Some were in demand but the technology didn't exist to make them (airplanes for one) , some were just good ideas that no one had thought of (velcro comes to mind). How fucking simple is that?

bob2356 says

How fucking simple is that?

Extremely, I expect nothing more from you.

The importance of this is that it creates the proper importance. I.E. the Ks spew that consumption is all important and in fact we get 1.5 times the economic activity for every dollar spent by the government.

The fact is though that the government doesn't produce anything, despite the fact that their spending get counted as GDP. This is the VERY reason that the USSR collapsed.

On the other hand if production is rewarded and investment in that production is rewarded we get a thriving economy.

Not only is this point not stupid it is imperative.