patrick.net

control point says

First would need to agree on when there was "less" government intervention, right? When do you think there was less? Let's start there first before I go digging.

The past 6 years and the early 30s

control point says

Not all of the rich would have wiped out, they weren't all leveraged. A smaller subset of the current rich would have done the same things at even better prices. They are the only ones with cash.

When money is lent, and the loan goes bad, the owners of the bond or loan lose their money (or at least part of it). When companies go badly shareholders lose money. If you prevent this process, you preserve the wealth of rich people.

I don't think all rich would suffer or be wiped out. But a lot of the wealth being created today is not a function of productive assets. I don't think Tweeter for example created a value of $30 billions. Its valuation and that of many other assets is purely a function of speculation driven by the Feds money flood. When they realign with reality, they will make the owners a lot poorer.

And it's not the poor who are owning these stocks or these loans.

Heraclitusstudent says

When money is lent, and the loan goes bad, the owners of the bond or loan lose their money (or at least part of it). When companies go badly shareholders lose money. If you prevent this process, you preserve the wealth of rich people

Are you under the impression that the bailed out companies didn't lose money?

Heraclitusstudent says

The question is not whether they should have bailed out key companies. They had no choice.

Sure they did, and it would have been infinitely better if they had.

indigenous says

Heraclitusstudent says

The question is not whether they should have bailed out key companies. They had no choice.

Sure they did, and it would have been infinitely better if they had.

Destroying a lot of companies that had nothing to do with the problem was not the best solution.

Heraclitusstudent says

indigenous says

Heraclitusstudent says

The question is not whether they should have bailed out key companies. They had no choice.

Sure they did, and it would have been infinitely better if they had.

Destroying a lot of companies that had nothing to do with the problem was not the best solution.

You need to learn about the business cycle and why this is important.

I think Mell said something about that on this thread

Heraclitusstudent says

Of course they lost money. The Fed lost control and there was a deflationary crisis.

First they wouldn't have lost money if the Fed had not encouraged huge and unwarranted risk taking.

How exactly did the Fed encourage unwarranted risk taking? If I gave you a low interest loan, would that compel you to invest it in a risky manner?

indigenous says

You need to learn about the business cycle and why this is important.

I think Mell said something about that on this thread

This kind of disruption has nothing to do with the normal business cycle.

It's like saying that the destruction caused by a volcano is part of the natural order of things.

tatupu70 says

How exactly did the Fed encourage unwarranted risk taking? If I gave you a low interest loan, would that compel you to invest it in a risky manner?

Interest rates are supposed to reflect the risks of the loan. When the Feds manipulate rates, they manipulate this estimate. Lowering rates is equivalent to lowering the perceived risk. And since all asset classes are linked, investors are pushed to take more risks than they otherwise would.

Or if you want the money supply is increased and this money chases yield, taking risks in the process. While the market goes up and the economy grows, risks are muted because... precisely things are going well. But when the cycle turns and the market starts going down, the risks are multiplied.

That's why investors are made into speculators: they all know that in the long run, the assets they hold are not worth the current market value. They just hope to find a bigger idiot who can buy it from them before it collapses.

Heraclitusstudent says

Interest rates are supposed to reflect the risks of the loan. When the Feds manipulate rates, they manipulate this estimate

How? Whoever lends out money can set whatever rate he/she chooses. The Fed doesn't set interest rates on loans made in industry. It can influence the prime rate, but the risk premium is set entirely by whoever makes the loan.

Heraclitusstudent says

Or if you want the money supply is increased and this money chases yield, taking risks in the process.

Why does it chase yield. The money is cheaper so it should be satisfied with lower returns. The difference should be the same.

control point says

Tell that to the fellow from Zimbabwe. Somalia also sounds like a lovely place.

Wow! I am sorry but you are really ignorant and stupid. Zimbabwe has hyperinflation, thanks to heavy-handed policies of the brutal government. Please read up on this. Are you confusing a brutal dictatorship with free market?

Somalia was also mostly in a brutal dictatorship. It has now moved from dictatorshipt to anarchy. "Surprisingly", it is relatively better off under anarchy than under dictatorship. Look at the data:
http://www.peterleeson.com/better_off_stateless.pdf

Key development indicators before and after statelessness
1985–1990a 2000–2005 Welfare change
GDP per capita (PPP constant $) 836b 600c,e ?
Life expectancy (years) 46.0b 48.47c,g Improved
One year olds fully immunized against measles (%) 30 40h Improved
One year olds fully immunized against TB (%) 31 50h Improved
Physicians (per 100,000) 3.4 4h Improved
Infants with low birth weight (%) 16 0.3l Improved
Infant mortality rate (per 1000) 152 114.89c,g Improved
Maternal mortality rate (per 100,000) 1600 1100i Improved
Pop. with access to water (%) 29 29h Same
Pop. with access to sanitation (%) 18 26h Improved
Pop. with access to at least one health facility (%) 28 54.8k Improved
Extreme poverty (%

tatupu70 says

Whoever lends out money can set whatever rate he/she chooses. The Fed doesn't set interest rates on loans made in industry. It can influence the prime rate, but the risk premium is set entirely by whoever makes the loan.

Lenders don't choose because there is a market for loans where the rates are set. And market rates are influenced by what the feds are doing.
The Feds buy treasury bonds and mortgage rates are influenced, so are junk bonds.

The only choice for a lender would be not to make the loan in which case they make nothing and no one is paid for that.

tatupu70 says

Why does it chase yield. The money is cheaper so it should be satisfied with lower returns.

Some people rely on the cash flow. They *need* the yield.

Heraclitusstudent says

Lenders don't choose because there is a market for loans where the rates are set.

Of course they choose. They are lending the money, after all. Have you ever applied for a loan? They have different rates depending on your credit history and ability to repay.

Lenders ABSOLUTELY set the rates by which they loan money.

Only 400% APR!

(It can be over 500%+ in Texas)...
http://paydayloansonlineresource.org/average-interest-rates-for-payday-loans/

gsr says

Wow! I am sorry but you are really ignorant and stupid. Zimbabwe has hyperinflation, thanks to heavy-handed policies of the brutal government. Please read up on this. Are you confusing a brutal dictatorship with free market?

I don't accept your apology.

The context in which that comment was made was centered around how it "isn't 1929...with all the technological advancements, and the information age revolution, we working humans would certainly find work arounds, and a new, better system would take this outdated systems place in a heartbeat"

I simply pointed to Somalia and Zimbabwe as two places that have not found "work arounds, and a new better system....in a heartbeart."

Now since your superior intellect failed to miss that point - allow me to further discredit your post.

gsr says

Zimbabwe has hyperinflation, thanks to heavy-handed policies of the brutal government. Please read up on this.

1. Zimbabwe HAD hyperinflation. It is over now and has been since dollarisation in February 2009, 4 years ago. Please read a book published after 2009.
2.Heavy-handed policies of the brutal government had nothing to do with this. The white minority (less than 1%) owned 70% of the land in the country, and Mugabe instituted a "willing buyer, willing seller" program, with loans to purchase the land buy Black Zimbabweans financed by the US and UK, primarily. This worked fine until both decided they were no longer willing to finance the purcahses in the late 90s. Zimbabwean revolutionaries (not government) reacted by seizing farms and torture. Zimbabwe's government was unable to control the revolutionaries - and this lead to economic sanctions - effectively closing the local economy - leading to shortages. This lead to economic recession, causing tax revenues to fall and finally, Zimbabwe was not able to meet its obligations to the IMF. Weimar Germany happened next, with associated hyperinflation.

gsr says

"Surprisingly", it is relatively better off under anarchy than under dictatorship. Look at the data:

Well at least publish all of Table 1 from Mr. Leeson's paper. What you see is general health outcomes have improved while the population is poorer. Again context might be helpful but you struggle with that. Context, such as Table 2 - comparing Somalia with other countries of the region. Let's look at Ethiopia v. Somalia...you know...that place that prohibits private land ownership.

GDP per capita +15.5%, -29%
Adult literacy nd, -20%
Infant mortality Rate +28.5%, +24.4%
Life Expectancy +9, +5.4
Pop. with access to improved water -4.3%, 0%
Pop. with access to improved sanitation +333%, +44%.

And I would say they are about on par with Kenya too.

Point is - yes they have improved (but honestly, TVs, comparing the 1980s to the 2000s? No surprise an increase there)

But so have other nations in the region, and those countries do have functioning governments. This means that there is little correlation between amount of government and general improvement in that region.

So of your points, 100% false or misleading. Good job.

You read something that supports your preconceived idea of reality and take it hook line and sinker. So typical of Austrian wannabes.

I love dipshits from George Mason, btw. No political motivation behind the research that comes from there....

http://en.wikipedia.org/wiki/Mercatus_Center

Heraclitusstudent says

indigenous says

You need to learn about the business cycle and why this is important.

I think Mell said something about that on this thread

This kind of disruption has nothing to do with the normal business cycle.

It's like saying that the destruction caused by a volcano is part of the natural order of things.

Your right it does not have anything to do with the normal business cycle.

And that is the point. And that is what you need to learn about. Seriously do yourself a favor and read this:

http://direct.mises.org/daily/6533/Only-Austrian-Theory-Can-Explain-and-Expose-Booms-and-Bubbles

indigenous says

And that is the point. And that is what you need to learn about. Seriously do yourself a favor and read this:

I had a look to this page and saw nothing new. We all understand why a housing bust affects banks balance-sheets and how this is caused by malinvestments.

The point I'm making is that you can see the goal of bust as to purge the malinvestments. However a credit bust is a self-reinforced phenomenon. It ripples through the economy and is unlikely to stop at unhealthy parts. Left to itself it will destroy perfectly healthy companies which in an other context would have flourished. This uselessly destructive and the impact of a bust can be lessened provided you prevent that.

Heraclitusstudent says

The point I'm making is that you can see the goal of bust as to purge the malinvestments. However a credit bust is a self-reinforced phenomenon. It ripples through the economy and is unlikely to stop at unhealthy parts. Left to itself it will destroy perfectly healthy companies which in an other context would have flourished. This uselessly destructive and the impact of a bust can be lessened provided you prevent that.

Not true. It is a myth that has been spread by Wall St.

The center of the problem was the derivatives. GS, Morgan Stanley, Citi Bank, et al would have gone the way of Lehman Brothers but that would have been the extent of it.

GM was irrelevant to the melt down.

AIG had 800 billion in assets with only 10% involved in derivatives. Being that AIG is an insurance company it is required to separate the arm that was involved in derivatives. Point being no way in hell were they going out of business.

GE same deal they were not going out of business, they had to roll over 5 billion, small problem for a company with 200 billion in sales.

Point is that no main st companies were in ANY danger as it would not have spread. That was a fairy tale authored by Paulson, Bernanke, and Immelt, and Buffet

bgamall4 says

So the banks are at risk with too little collateral for deals and are at risk if taking away QE leads to a housing crash.

The banks that were involved in derivatives were about a dozen with 20 trillion in assets with 80 billion in exposure.

indigenous says

Point is that no main st companies were in ANY danger as it would not have spread.

You're dreaming. Credit was frozen. Banks just wouldn't deal with each other. Their balance-sheets were devastated. The entire financial system would have collapsed. Derivatives are just one transmission mechanism, and not the worse. The main one is that the money supply would have collapsed absent feds intervention. The transmission through economic slowdown itself would have ravaged main street. Not to mention companies relying on short term loans and the like.

It's worth remembering that before the crisis, financial profits represented close to 40% of all companies profits in the US. This kind of profits were made by companies like GM. The US had essentially become a large hedge fund.

So, no, this wasn't a myth.

Heraclitusstudent says

indigenous says

Point is that no main st companies were in ANY danger as it would not have spread.

You're dreaming. Credit was frozen. Banks just wouldn't deal with each other. Their balance-sheets were devastated. The entire financial system would have collapsed. Derivatives are just one transmission mechanism, and not the worse. The main one is that the money supply would have collapsed absent feds intervention. The transmission through economic slowdown itself would have ravaged main street. Not to mention companies relying on short term loans and the like.

It's worth remembering that before the crisis, financial profits represented close to 40% of all companies profits in the US. This kind of profits were made by companies like GM. The US had essentially become a large hedge fund.

So, no, this wasn't a myth.

Yes that is the myth but not true. I'm in the middle of David Stockman's book 700 pg of excruciating details of just how the whole thing was a charade created by Wall St. Just as they have done before with other bubbles. He was on 'Reagan's cabinet and been in the finance world for many decades.

indigenous says

I'm in the middle of David Stockman's book 700 pg of excruciating details of just how the whole thing was a charade created by Wall St. Just as they have done before with other bubbles. He was on 'Reagan's cabinet and been in the finance world for many decades.

I haven't read Stockman and I won't comment on this, but I understand why conceptually a deflationary spiral leads to an implosion of the financial system - and we reached the implosion point in 2008. We are talking of the collapse all major banks worldwide. To believe that you could let this happen and main street would not be impacted is naive as far as I can tell.
At it happened main street was impacted in spite of the bailout.
Uncontrolled dependencies: You can't punish the banksters without punishing main street, and you cannot bailout main street without implicitly bailing out banksters.

Heraclitusstudent says

At it happened main street was impacted in spite of the bailout.

No, Main St was impacted because of the bailouts.

The problem is the market was not allowed to clear. This is important to liquidate failed companies like GS, GM, Morgan Stanley. And for GE and Buffet and AIG to take a haircut.

Instead of the money going to these failing sources it would instead go where there is real demand. This is how the business cycle works.

The meme that is agreed upon but not true is that these down turns can be avoided when in actual fact they are vital to the health of the economy. This is seen in nature where the wolves or lions thin out the slower animals of the herd. If this does not occur the herd becomes diseased and wipes out the entire herd.

Heraclitusstudent says

You can't punish the banksters without punishing main street, and you cannot bailout main street without implicitly bailing out banksters.

Again not true there would have been the normal down turn in the business cycle but it would have been over quickly. The Great Depression would have been over with in a couple of years if it were not for FDR continuing it for 10yr.

Stockman was emphatic that this would NOT have happened. Only the highly leveraged financial companies would have been hurt.

The life insurance companies that were required to by law not to be leveraged lost less than 1% through the Great Depression.

It ONLY hurt entities that were over leveraged. GS was leveraged 30 to 1. Of course they should have failed. Of course this had NOTHING to do with Main St.

Good thread.

indigenous says

Instead of the money going to these failing sources it would instead go where
there is real demand.

OK great. Please illustrate by telling everyone where demand exists that is not being met because of lack of capital.

sbh says

indigenous says

no main st companies were in ANY danger as it would not have spread.

You say lot's of dumb shit all the time but this one takes first place. Main street mom and pop businesses don't make payroll from petty cash, they borrow it. They don't purchase inventory with petty cash, they borrow it. The banking system was the width of a piece of paper away from seizing up because no one could calculate the solvency of any source of lending: everyone was too risky; there was no financial trust; we were one moment from disaster. You're willing to say anything, AND you're an idiot.

Read my response above.

tatupu70 says

indigenous says

Instead of the money going to these failing sources it would instead go where

there is real demand.

OK great. Please illustrate by telling everyone where demand exists that is not being met because of lack of capital.

That is the cool part nobody knows. It was Captain Shudup who said the economy never grows the same was as it did before a correction.

In 1983 who could have foreseen home computer taking off, in the early 90's who could have foreseen the impact of the internet.

Krugman said "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

If the investment capital is mis-allocated in GM or GS or ... it is not available to finance small companies to grow investment in producer goods to meet real demand.

sbh says

You haven't said anything new in so long everyone on this forum could make your kool-aid talking points for you.

That is encouraging.

indigenous says

That is the cool part nobody knows

I'm laughing. So, you're saying there are businesses starved for capital. Or ideas that aren't being exploited becuase of lack of funding. All the while interest rates are at or near all time lows??

How do you reconcile that? Does that make sense in your world??

Investors are putting their money in treasuries earning slightly more than nothing instead of into these great ideas that are dying from lack of capital??? It's ridiculous. Even for you.

indigenous says

No, Main St was impacted because of the bailouts.

The problem is the market was not allowed to clear.

The mass layoffs happened way before the market would clear anyway. Mainstreet was impacted by the crisis.

It is clear that you need to purge the rot created by the bubble. No one contests that. That means writing off loans, foreclosing houses, reducing extra capacity where it applies. But if you do it by destroying the entire financial system, you destroy far more than what should be cleared. Especially in a high debt environment like we had. The fallout would have been explosive.

It's like doing a hair cut with a guillotine.

The market clearing happens regardless of everything else. It's just less painful to do it overtime even if the price is low growth for a while.

indigenous says

Only the highly leveraged financial companies would have been hurt.

That is a large number of US companies, representing a large percent of the GDP and a large number of jobs.

The question is do you consider that they are themselves "malinvestments" and purge them, just because of high leverage, or do you consider that they are sustainable a priori until proven otherwise.

Lets take a look at this hypothetical scenario. A risk averse saver with $100,000 in the bank in beginning of 2008. His competitor is a low level 1 percenter who had $5 million in stock market in index fund. Lets also say that he/she had 10% of assets in cash ($500,000). So, their wealth disparity is 5.4 million. Lets assume that conservative saver managed to save $20,000 in 2008. Ending value = $120,000 cash savings. The one percenter lost 37% in the index fund in 2008 - so their account value at end of 2008 is $3,348,500 + original 500K = $3,848,000. Lets assume they balled and spent all their savings since they got compacent. End of 2008 wealth disparity = $3,728,500. Thus, the wealth disparity difference between beginning of 2008 and end of 2008 is $1,671,500 - that's how much closer the conservative saver with much more modest means was to the 1 percenter investor.

And then QE occured. Index fund had positive years every single year since then in no small part due to QE. By my calculations, by end of 2013, the account value of the 1 percenter is almost $7,640,000. Assuming that conservative risk averse saver still managed to save $20,000 per year, that amounts to wealth disparity of ($7,640,000+ $500,000) - ($120,000 + $100,000) = $7,920,000 by end of 2013. So, yes, it is undoubtedly correct that QE ifluenced stock market climb enhanced wealth disparity. And that's assuming that the 1 percenter made no additional savings at all!

On a further note, the assumption that the 1 percenter would pounce on everything at "fire sale" prices is very hard to believe. That's only true if they had their assets in cash. But most american high rollers are in the stock market. So, to assume that they would look at their decimated portfolio and decide to cash out to buy other assets at "fire sale" prices runs counter to most people's psychological makeup. I think they would be more likely to jump off the bridge or stand in front of caltrain....

Heraclitusstudent says

In the same family, you may have 25 yrs old millennials who have nothing, and are starting in a bad job market with a debt handicap. Most will just never buy real-estate at current prices.

I read a similar sentiment on here a lot. With renting the same cost as buying--what are millenials going to do then? Live in a car? Under a bridge?

You have to be very careful when using wages as a benchmark for estimating house values. Homeowners are a subset of the population--usually the higher earners. So comparing median income with median home price is a flawed ratio from the start.

control point says

I simply pointed to Somalia and Zimbabwe as two places that have not found "work arounds, and a new better system....in a heartbeart."

You are wrong. Somalia actually found a better system than what they had under dictatorship. They do have a long way to go though. But you need to look how a specific society functions under certain conditions. You can't compare Somalia with Sweden at the current stage.

And refusing to bail out failed industries is actually the upholding of the rule of law. Doing anything otherwise is the opposite.

control point says

.Heavy-handed policies of the brutal government had nothing to do with this.

You are totally wrong on this. Here is a typical "right-wing" source called Wikipedia:
>>
Crucial to both components is discipline over the creation of additional money. However, the Mugabe government was printing money to finance involvement in the Democratic Republic of the Congo and, in 2000, in the Second Congo War, including higher salaries for army and government officials. Zimbabwe was under-reporting its war spending to the International Monetary Fund by perhaps $22 million a month.[11]

Another motive for excessive money creation has been self-dealing. Transparency International ranks Zimbabwe's government 134th of 176 in terms of institutionalised corruption.[12] The resulting lack of confidence in government undermines confidence in the future and faith in the currency.
>

Or, do you like right-wing newspaper called New York Times?
http://www.nytimes.com/2006/05/02/world/africa/02zimbabwe.html?pagewanted=all&_r=0

At the same time, Mr. Mugabe's government has printed trillions of new Zimbabwean dollars to keep ministries functioning and to shield the salaries of key supporters — and potential enemies — against further erosion. Supplemental spending proposed early in April would increase the 2006 spending limits approved last November by fully 40 percent, and more such emergency spending measures are all but certain before the year ends.

On Friday, the government said it would triple the salaries of 190,000 soldiers and teachers. But even those government workers still badly trail inflation; the best of the raises, to as much as $33 million a month, already are slightly below the latest poverty line for the average family of five.

control point says

And I would say they are about on par with Kenya too.

Point is - yes they have improved (but honestly, TVs, comparing the 1980s to the 2000s? No surprise an increase there)

Kenya is in better shape than Ethiopia. And, Kenya has higher economic freedom than Ethiopia as well. Of course, these two things cannot be related.

Heraclitusstudent says

I haven't read Stockman and I won't comment on this, but I understand why conceptually a deflationary spiral leads to an implosion of the financial system - and we reached the implosion point in 2008. We are talking of the collapse all major banks worldwide. To believe that you could let this happen and main street would not be impacted is naive as far as I can tell.

You should read Stockman's book, and/or many other economics books not tainted by Keynesianism. It is naive to believe the banksters' hyperbole. All the major banks of Iceland collapsed. Their economy recovered much much faster than the rest of the western world that's caught the bailout disease.

At it happened main street was impacted in spite of the bailout.

Not "in spite of" but "because of." Main Street was/is being robbed by Wall Street via the bailouts. That's why we are witnessing Great Depression #2 on Main Street, while record bonuses on Wall Street.

Uncontrolled dependencies: You can't punish the banksters without punishing main street, and you cannot bailout main street without implicitly bailing out banksters.

It's not about punish or not punish. Let the individual people of the society decide whether they want to do business with the specific banksters on Wall Street, or with someone else. It's as simple as that. The current system is punishing people on Main Street every time the specific banksters on Wall Street cook up another bomb. Any wonder why they are rather fond of cooking those bombs with increasing frequency?

Heraclitusstudent says

Depressions are not has bad as you think on a human level. Sure there are a few jumpers. But you stand in the bread line, get to know your neighbor, learn some humility, start again, learn to save, learn the true value of things. - By opposition of today's raw arrogance of people throwing money around like it means nothing, being rewarded for stupid speculations, while prudent people are getting screwed en masse.

A Depression actually would not bring on the bread line or the prolonged hardship that we are experiencing. Prolonged hardship is the result of a Great Depression caused by government intervention trying to hold up prices to artificial levels and preventing transactions/trade from taking place.

gsr says

You are totally wrong on this. Here is a typical "right-wing" source called
Wikipedia:

Inflation exceeded 50% per year in Zimbabwe before any of this, starting in the late 90s AFTER the US and UK cut them off and revolutionairies seized and tortured white landowners. Sanctions came, the economy crashed, and Zimbabwe printed even more to meet its obligations to the IMF. After printing started en masse to meet debt obligations, inflation surged from 100% per year to 1000% to 1,000,000%.

They would have had high inflation without the US and UK backing out and sanctions, but they would not have had currency collapse.

control point says

Inflation exceeded 50% per year in Zimbabwe before any of this, starting in the late 90s AFTER the US and UK cut them off and revolutionairies seized and tortured white landowners. Sanctions came, the economy crashed, and Zimbabwe printed even more to meet its obligations to the IMF. After printing started en masse to meet debt obligations, inflation surged from 100% per year to 1000% to 1,000,000%.

They would have had high inflation without the US and UK backing out and sanctions, but they would not have had currency collapse.

While I'm not a fan of IMF, I hope you do realize that IMF obligations are not denominated in local currency, so it's rather absurd to claim a need to print local money to meet IMF debt.

The real reason for the massive money printing was quite simple: Mugabe administration destroyed its own tax base (the productive farms across the country) and still had to pay its political base (the "revolutionaries"). So, just like numerous hyperinflating regimes throughout history, it resorted to money printing.

Reality says

While I'm not a fan of IMF, I hope you do realize that IMF obligations are
not denominated in local currency, so it's rather absurd to claim a need to
print local money to meet IMF debt.

I know that they did not pay the IMF in local currency - but it is the exact same thing that happened in Weimar Germany. The "drain" on the economy from the IMF debt relative to production under sanctions forced them to print to pay the local bills.

No IMF debt, no drain, no need to print.

The sanctions desroyed productivity, not the seizing of the farms per se. One led to the other, but regardless of the "owner" of production the production could have still existed. Cutting off the demand from the outside world for that production is what killed the economy.

If the Canadians nationalized their oil reserves - the oil reserves would still exist. Their economy would crash if we didn't buy from them any more. If we still bought from them - no issue.