The end? What does that mean? No, I don't think it's the "end". But if a deep 10 year economic funk is the side effect of the market purity you seem to advocate, I would say that is an unacceptable side effect. One of the reasons the U.S. financial system has historically been resilient and strong is that we have an effective regulatory structure compared to other countries. However, when the misdeeds and screwups of a small group of individuals and companies can lead to the collapse of the whole bloody economy (and I mean that in the context of a Great Depression-magnitude problem, not a run of the mill recession), that tells me market forces did not work and additional regulation is required.

 

Companies loan money on zero down ARM mortgages based on corrupted appraisal processes. They then sell the loans to other companies which bundle them, mislabel them as investment grade and sell them off, where they become ticking timebombs permeating large swaths of the financial landscape. That scenario reflects a lack of adequate regulation. The free market works when risk of negative consequences is limited to the economic actor making the decision. The free market doesn't work when the decisions of a relative few have spectacularly disproportionate negative consequences for the economy as a whole.

I don't understand what you are saying. Have people been forced to invest in these bundled, zero down loans? I certainly wouldn't want to invest in these.

This is how Warren Buffet and many of the world's entrepreneurs make their money, right? They buy these failing companies and turn them around.

 

Sure. And companies fail regularly. But, it isn't everyday leviathans, especially all in one sector, nosedive or Hammerin' Hank begs one company to bailout a competitor. It has really been a nightmare scenario.

 

We will be fine. People are buying into the hype that the economy is failing because the media won't stop telling them that. We will be OK.

 

OK.

Sure. And companies fail regularly. But, it isn't everyday leviathans, especially all in one sector, nosedive or Hammerin' Hank begs one company to bailout a competitor. It has really been a nightmare scenario.

What do you suppose the best solution is? The government bail everyone out?

 

To me, the result of this crisis is that security companies and investors will become more cautious. Banks won't loan to those who can't pay it back. It's too bad that this has to happen, but it will result in more efficient banking/investing practices.

The government didn't force them to do anything. It just provided a strong financial incentive that encouraged risky behavior. By reducing the fed funds rate below the rate of inflation, the fed was in effect giving away "free money" and therefore the financial instutitions were willing to loan money to just about anybody. This doesn't excuse the financial instutions from loaning money to people who lacked the financial resources to repay the loan, or to people who lacked enough collateral in the event they defaulted on the loan. Neither does it excuse those people who accepted a loan they should have known they couldn't repay. However, it does mean that this financial crisis was more complex than a free market gone awry; government intervention played a role also.

 

In addition, I just don't buy the idea that the financial institutions that are in trouble now were duped into buying something other than what they expected. In the first place, these are Wall Street professionals whose job it is to know the details of these financial instruments. Secondly, it is inconceivable that you could hide trillions of dollars in subprime loans from these institutions any more than you could hide the state a Delaware. Both are simply too big not to be noticed. The bottom line is that these financial institutions were willing to assume the risk because they never expected the subprime realestate bubble to burst.

 

So what your saying is that almost every time something like this happens it's the governments fault because they should've "protected us from ourselves". That the lenders were given too much freedom so it's the governments fault that the lenders were recklessly lending.

What do you suppose the best solution is? The government bail everyone out?

 

To me, the result of this crisis is that security companies and investors will become more cautious. Banks won't loan to those who can't pay it back. It's too bad that this has to happen, but it will result in more efficient banking/investing practices.[/QUOTE]

 

I tend to agree, and it's already starting to take place. I've seen so many people in their mid 20's that have filed bankruptcy or have over $20,000 in debt, many of whom will likely not pay it back.

 

Any loan I've taken out I've paid back within a year and a half. Nothing over $5,000.00 so far. I'm saving that for when I buy my house. But I've seen so many people take out $4-5,000, and then another grand here or there, and it keeps piling up. I'm not good at budgeting, but I will pay my bills on time, and I will not take out more than I can afford. SOOOO Many young adults and college students don't know how to manage their own bills and I think a large part of the current problem is a result of that, and will serve as a wake up call to lenders, people receiving the loans, and even parents to help educate their kids more.

What do you suppose the best solution is? The government bail everyone out?

 

Nope, but that is what it is doing, isn't it? The government has more or less signed off on letting these companies do as they please, and when the fall on their face they step up and throw them a lifeline. Again, not much of a disincentive to run a company into the ground.

 

This isn't a simple case of the market v. command. The current crisis is the manifestation of the problems in the current system. The logical question at this moment is why is this happening? Or, is there something that can be done to curtail its happening in the future?

So what your saying is that almost every time something like this happens it's the governments fault because they should've "protected us from ourselves". That the lenders were given too much freedom so it's the governments fault that the lenders were recklessly lending.

 

You either didn't read shooter's post or don't know how interest rates work.

Nope, but that is what it is doing, isn't it? The government has more or less signed off on letting these companies do as they please, and when the fall on their face they step up and throw them a lifeline. Again, not much of a disincentive to run a company into the ground.

 

This isn't a simple case of the market v. command. The current crisis is the manifestation of the problems in the current system. The logical question at this moment is why is this happening? Or, is there something that can be done to curtail its happening in the future?

Now I think I understand what you are getting at, and I agree with you.

 

Even if the government let these companies fail, executives of these companies would bear little responsibility (with the exception of worthless stock options), and the real loser is the shareholders and investors. However, what do you think we should do to the executives? Prosecute them? I don't think that is appropriate at all.

 

I guess there is a very complicated solution to this problem. But I believe that the only solution is that strategies of the average investor have to change. People can't continue to invest in companies that are built upon loans to people who can't pay back. And maybe the only way for that to happen is this crisis.

 

And H brought up a strong point earlier, about how bundled (unpayable) loans are mislabeled as investment grade. However, like van Hayek would say, I'd prefer that my government harnesses human emotion rather than rely on coercion- I don't want a government that puts more regulations on it. I think part of the final solution has to be something like a consumer-interest group. Maybe a government board (or private) that tracks the "health" of prospective investments to prevent the aforementioned mislabeling.

 

But, if I have not said it before, this is not my specialty. I'd like to hear what you or H thinks the solution is. I really don't think re-regulating these industries is the way to go, and I am not sure of the most effective way of putting the onus entirely on executives (furthermore, if we do that, they don't always deserve the brunt of the blame).

Like I said earlier, free markets work great until they crash.

Free markets work great until Government gets its tentacles all over it.

You either didn't read shooter's post or don't know how interest rates work.

 

I understand how interest rates work, deal with them on a daily basis. Still think the lenders are at more fault than the government. It disgusts me that people blame everything on the government when alot of it has to do with poor business decisions that cost major company's millions if not billions of dollars. These company's are liable for their actions, I don't care if the government made it too easy for them to make poor business decisions. It was still there choice.

So what your saying is that almost every time something like this happens it's the governments fault because they should've "protected us from ourselves". That the lenders were given too much freedom so it's the governments fault that the lenders were recklessly lending.

 

:confused:I have no idea how you reach that conclusion from my post.

The government didn't force them to do anything. It just provided a strong financial incentive that encouraged risky behavior. By reducing the fed funds rate below the rate of inflation, the fed was in effect giving away "free money" and therefore the financial instutitions were willing to loan money to just about anybody. This doesn't excuse the financial instutions from loaning money to people who lacked the financial resources to repay the loan, or to people who lacked enough collateral in the event they defaulted on the loan. Neither does it excuse those people who accepted a loan they should have known they couldn't repay. However, it does mean that this financial crisis was more complex than a free market gone awry; government intervention played a role also.

 

In addition, I just don't buy the idea that the financial institutions that are in trouble now were duped into buying something other than what they expected. In the first place, these are Wall Street professionals whose job it is to know the details of these financial instruments. Secondly, it is inconceivable that you could hide trillions of dollars in subprime loans from these institutions any more than you could hide the state a Delaware. Both are simply too big not to be noticed. The bottom line is that these financial institutions were willing to assume the risk because they never expected the subprime realestate bubble to burst.

 

This, and I get what you're saying, that you don't believe it was soley either party, but it get's old everyone saying that the government was at fault. When the rates were being cut it was in part to try to maintain the market or increase competitiveness. I just get sick of hearing that the gov't gave too much or didn't do enough, or shouldn't have done it this way or that. I recognize that people will see each thing differently. I just really feel that this is almost completely on the big banks, and the unforseen fall out in the housing market, stuff(for lack of better words) happens.

Did anyone see the CNN news report that was live from the bank?

 

I still want to urge everyone to go to YouTube and search for "lehman cnn report" and watch the first video :thumb:

The government is now preparing an unprecedented $85 billion dollar bailout of AIG, which could include government ownership.

 

Link

I am the last guy to propose more regulation but the old school banks are standing strong (for the most part) while the un-regulated Wall Street banks are falling fast.

 

Regulation checked the greed of banks......that ended up being good for them, their shareholders and their depositors.

 

I bet the shareholders at Lehman Brothers would would welcome the same regulation in hindsight.