I thought it was just the biggest one-day loss since 1987?

9/29/2008 4:50:37 PM

9/29/2008 4:58:14 PM

Palin has a plan. Mandatory prayer time to Jesus at all companies so that the lord will bring US businesses back into his grace; showering them with wealth and good fortune.

9/29/2008 5:04:13 PM

^Normally your religious sarcasm is just annoying and off-topic, but I actually laughed at that one.

9/29/2008 5:06:01 PM

Quote :

"And if Milton Friedman is to be believed, the worst of that downturn could have been prevented by government intervention. Kind of like right now. Only some of you are too short-sighted to see that this liquidity trap can only be fixed with a massive federal infusion of capital."

NEWSFLASH! Most of what caused the Great Depression was ham-handed government intervention.

If we're facing a liquidity trap, it does not directly follow that we hand over $700 billion to a single man with very limited oversight to buy out bad assets from banks whose price is very, very hard to determine.

If all of us junior economists are sooooo worried about a liquidity crisis, we actually already have something for this in place - the Fed! They already can and do lend funds to banks. This is not what the bailout was doing.

The bailout was about buying up bad assets from the books of banks to get them off their books - in other words, bailing them out of the mess they got themselves into. If this was simply a matter of capital infusion, the Fed already can loan out to them - but that's not what they want. They want somebody (taxpayers) to step in and buy up assets from them that nobody on the market wants. (At least not at a price banks are willing to sell them at.)

Hm - I wonder why that is? Perhaps because they're awful investments?

Look, this thread should be fun six months from now, when we can hear everyone screaming, "The sky is falling!" and "Bank run!" Because, despite your wanton fears, this is not what is happening.

PS: You can thank us who rallied against this boondoggle for helping to avoid the inevitable hyperinflation that would have occurred should this have passed. Most people are too young to remember double-digit inflation, but I can guarantee this is what would have happened should they have passed this garbage.

[Edited on September 29, 2008 at 5:08 PM. Reason : .]

9/29/2008 5:07:06 PM

Quote :

"NEWSFLASH! Most of what caused the Great Depression was ham-handed government intervention."

I was under the impression the Great Depression occured during the stock market abyss that started in 1929 with the ultimate knock out punch in 1932. All occuring during the administration of Hoover; who did nearly nothing because the market should be allowed to "work its way out" as his policy was. This do nothing attitude led to such an uproar amoung the people who were losing their jobs/houses/wealth that they elected teh socialst Roosevelt for 14 years who is the closest thing we have ever had to a dictator.

I bet you claim the current crisis is Bill Clinton's fault too right..

9/29/2008 5:13:52 PM

I bet you think its GWB's dont you??

The lesson here is that government will SCREW THINGS UP...if government is in charge...then we are all screwed...

[Edited on September 29, 2008 at 5:21 PM. Reason : asdf]

9/29/2008 5:17:14 PM

The better lesson is that humans will screw up when allowed. The government's job is to ensure that the transparency required for a functioning free market exists while private individuals and entities manage the allocation of assets and wealth. The government failed to do the former and it is unlikely that it will do well at the latter.

This is a trip though, 12 days ago Bernanke and Paulson told congress that they had 12 hour to act or we'd face a depression. And yet . . .

9/29/2008 5:21:50 PM

^^please explain how "it started" during clinton's term and then explain how bush exacerbated "it"



ahh you edited. still though, explain your post please

[Edited on September 29, 2008 at 5:22 PM. Reason : .]

9/29/2008 5:21:56 PM

^^^Oh hell, enough of the dogmatic crap. This was a failure of the markets just as much as it was the governments fault. You can point to fannie mae and freddie mac all you want, but markets, by nature, are volatile. And they need to be regulated.

[Edited on September 29, 2008 at 5:22 PM. Reason : 2]

9/29/2008 5:22:17 PM

Quote :

"I was under the impression the Great Depression occured during the stock market abyss that started in 1929 with the ultimate knock out punch in 1932. All occuring during the administration of Hoover; who did nearly nothing because the market should be allowed to "work its way out" as his policy was. This do nothing attitude led to such an uproar amoung the people who were losing their jobs/houses/wealth that they elected teh socialst Roosevelt for 14 years who is the closest thing we have ever had to a dictator."

Uh, no. The Great Depression was a fairly ordinary depression until the following:

-A tightening of credit by the Federal Reserve, resulting in a massive contraction of the money supply. (This was proposed by Friedman and acknowledged by none other than Bernanke).
-The Smoot-Hawley Tarriff Act, which was one of the most restrictive and economically destructive tarriffs in American history (which may very well have caused the initial collapse of the banks)
-Other factors that disrupted prices and wages, like the "make work" projects which artificially increased the scarcity of labor

Help yourself to a fucking history book anytime.

Quote :

"I bet you claim the current crisis is Bill Clinton's fault too right.."

You're quite used to being wrong by now, right? Because that seems to be your "thing" around here.

9/29/2008 5:23:28 PM

I think the breakdown here was from the failure to acknowledge that people often act against their best interests, despite that tendency being the basis for free market economics. Even more modern economic models like game theory have a hard time factoring in short sightedness and stupidity.

9/29/2008 5:25:33 PM

Quote :

"NEWSFLASH! Most of what caused the Great Depression was ham-handed government intervention."

LOL, this is certainly not a settled fact by any means. There were many reasons for the great depression, but you'll be hard-pressed to find an economist who blames it solely on "ham-handed government intervention".

9/29/2008 5:27:35 PM

^Because saying "most" is clearly the same as saying "the one and only source of the problem"

9/29/2008 5:28:38 PM

Quote :

"I think the breakdown here was from the failure to acknowledge that people often act against their best interests, despite that tendency being the basis for free market economics. Even more modern economic models like game theory have a hard time factoring in short sightedness and stupidity."

Explain, please. How does your hypothesis work out in the current situation? i.e., where did people act against their own best interests?

My understanding here is that what essentially went on was a shell game of risk - risk was packaged up into neat little bundles and diversified, such that banks could afford to spread out risk. But many banks did this, unknowing of the fact that other banks were doing this, and nobody had tabs on the real amount of "risky" assets in any given portfolio until the bomb went off.

Meanwhile, exacerbating the situation, you had the moral hazard of entities like Freddie/Fannie who bought up mortgage-backed securities like crazy, which in turn enabled banks to sell more bad loans...

9/29/2008 5:30:10 PM

http://i2.cdn.turner.com/cnn/2008/images/09/29/bailout.rollcall.0929.pdf

Find out how your congressmen or women voted....



Sidenote, I find it funny that when they vote no, it's listed as "NOES"

9/29/2008 5:36:10 PM

OH NOES!

Word is that Pelosi used her speech right before the vote to rail against the failed Bush policies of the last 8 years, turning this issue into a political issue and causing at least a dozen Republicans to vote "NOES" just because she's a cunt.

9/29/2008 5:39:18 PM

Quote :

"LOL, this is certainly not a settled fact by any means. There were many reasons for the great depression, but you'll be hard-pressed to find an economist who blames it solely on "ham-handed government intervention"."

Reading comprehension! Do you have it?

Seriously - you're going to tell us now that the Federal policies I listed above had nothing to do in turning what would otherwise have been a severe recession / depression into the greatest financial crisis our nation ever faced?

Government intervention has and frequently can make problems worse - especially when it goes in the wrong direction.

9/29/2008 5:40:49 PM

Oh yeah i agree they need some regulation....but bad companies need to crash and burn...thats all there is too it....if my 401k goes down too...then that sucks....but we will be better off in the long run

9/29/2008 5:41:05 PM

^^^ yup i just read that on siren.gif.com myself

hurt feelings leading to spiteful actions

how very "my party is never that petty"

[Edited on September 29, 2008 at 6:03 PM. Reason : +]

9/29/2008 5:41:26 PM

^x6

I think you answered your own question- an overestimation of one's knowledge about a situation is one of the reasons that people often tend to act against their own interests. Just because they didn't think they were acting against their own interests doesn't mean they weren't screwing themselves. That part is included in game theory though - the idea that people who think they're acting in their best interests can end up screwing each other over without seeing it coming.

So, to answer you question, engaging in a shell game as they did was where they acted against their own best interest. It was a failure to see the larger picture and to consider the slightly longer term implications of their actions. It was also partly arrogance, to fail to realize that their clever shell games were an obvious idea to their counterparts all over the country. Here's where I think regulation can help- not to tell people what is in their best interest but to help avoid a cluster-fuck when an entire industry blindly throws itself off a cliff.

Where regulation failed here is in giving too much credit that people would actually be guided by the invisible hand of self interest. Yes, if they all did what was actually in their self interest things would have been much different. The problem with that sort of almost religious economic ideology is that people trample each other, trip, and in turn get trampled.

[Edited on September 29, 2008 at 5:45 PM. Reason : ]

9/29/2008 5:42:45 PM

^ Perhaps I misunderstood your statement, then. Because what it seems like what you're describing is an information problem - people act against their better interests because they are unaware of their better interests. i.e., they have an underestimated view of total risk, and were overconfident in their own actions.

In that sense, no one ever knowingly goes against their own best interests (unless they're suicidal), but sometimes they do when they don't have enough information or miscalculate risk. I think this is what you're getting at, right?

9/29/2008 5:47:42 PM

Quote :

"Reading comprehension! Do you have it?"

Yep, although admittedly I glossed over the "most" in the statement I quoted.

Quote :

"Seriously - you're going to tell us now that the Federal policies I listed above had nothing to do in turning what would otherwise have been a severe recession / depression into the greatest financial crisis our nation ever faced?"

Now you're the one who could use some reading comprehension. Where did I say anything of the sort? Plus, you said "most of what caused the Great Depression", not what made it as bad as it was. If that is what you meant to say, then you should have phrased it differently.

Quote :

"Government intervention has and frequently can make problems worse - especially when it goes in the wrong direction."

I agree completely. There is no doubt that the government fucked up in handling the unfolding downturn, which led to the Great Depression. But to act like any and all types of government intervention are inherently bad is foolish. The fed can and does frequently intervene in the market with positive results. The regulation and market stewardship they provide is absolutely necessary. It can be argued that the occasional bailout is in the best interests of the market as well.

9/29/2008 5:48:36 PM

Quote :

"But to act like any and all types of government intervention are inherently bad is foolish. The fed can and does frequently intervene in the market with positive results. The regulation and market stewardship they provide is absolutely necessary. It can be argued that the occasional bailout is in the best interests of the market as well."

The issue at hand is not a dogmatic aversion to governmental intervention (although certainly, I'll cop to being predisposed against it in most circumstances). It's the fact that frequently, some intervention, given the way politics work, is worse than no intervention, because it's going to be the wrong kind.

For instance - unchecked power to buy up bad assets? Bailing out irresponsible actors at the expense of responsible ones? Textbook definition of moral hazard. Not to mention that it inhibits what needs to be happening right now - allowing the the market to set a clearing price of bad securities and allowing the correction in home prices to actually happen.

Both of these are politically unpalatable but economically necessary - hence instead we get talk of bailouts to stop both.

Meanwhile, bad actors need to fail. If we're genuinely concerned about the collapse of credit overall, this is the very reason that the Fed exists - to be the lender of last resort. But being the lender of last resort does not automatically imply that somehow we should entrust $700 billion+ to one person to buy out every bad holding from every bank that over-leveraged. This is far from the "only" solution to the crisis.

9/29/2008 6:09:46 PM

I tend to agree. How can we heal these chronic problems when we don't know the locations or durations?

Imagine a doctor who has a very sick patient and instead of doing tests to measure his symptoms versus the potential causes, he simply pumps the patient full of expensive antibiotics without considering his allergies, his blood pressure, his heart rate, his breathing rate or cognitive abilities. It's completely insane and totally irresponsible. However, there is a chance that the medicine might work, but there is also a much more dangerous chance. In the doctor's attempt to cure the patient, he may have actually helped to kill him. Furthermore, taking the metaphor a step further, if the doctor had known the true nature of the disease from the start, he would have discovered that the disease was extremely contagious. Now that the entire hospital is infected due to his irresponsibility, it's far too late to prevent the outbreak from infecting the entire general public.

The doctor should of quarantined the patient as a precaution, which would have saved millions of lives and perhaps the patient as well.

This is also what we should do, allow the banks to fail by quarantining their influence instead of investing in them, and clean up all of the pieces after.

[Edited on September 29, 2008 at 6:28 PM. Reason : -]

9/29/2008 6:13:53 PM

The Federal reserve created 630 billion dollars out of thin air to give to financial institutions. Why do they need steal it from us if they can just create it out of thin air anyway?

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=worldwide

9/29/2008 6:14:10 PM

9/29/2008 6:53:52 PM

fuck you GOP...your lack of government involvement and regulation got us in this mess, now you're pushing it even further into the shitter by saying you don't want to correct the mistakes because it requires government involvement

we need to have baby jesus come down to these fucktards and tell them god wants them to save our economy so we can get out of this shit

9/29/2008 8:06:19 PM

As much as I wish this was solely the GOP's fault, it's simply not. This is an American disease, and the cure is not antibiotics, it's quarantine. We need to isolate the instability in order to know what to fix first, and then act. Ironically, our inaction may payoff, at least until we know for certain how and where to act.

9/29/2008 8:13:47 PM

Quote :

"The Federal reserve created 630 billion dollars out of thin air to give to financial institutions. Why do they need steal it from us if they can just create it out of thin air anyway? http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=worldwide "

LOL... I knew it would happen sooner or later. Big brother is just digging the hole deeper.

[Edited on September 29, 2008 at 8:25 PM. Reason : ]

9/29/2008 8:21:11 PM

Quote :

"fuck you GOP...your lack of government involvement and regulation got us in this mess, now you're pushing it even further into the shitter by saying you don't want to correct the mistakes because it requires government involvement"

No, government involvement is partly what got us into this mess. More transparency is needed, some regulation is okay, direct involvement not so much. Letting the government throw away 700B dollars with little oversight seems like an incredibly bad idea.

9/29/2008 9:14:17 PM

you did it not

NO you did it

nu-uh it was you!

the GOP and Liberals are acting like school children trying to point the blame on the other to save face for election time. In reality every congressman should look in the mirror as well as every American in this country for being the true cause.

9/29/2008 9:20:35 PM

Quote :

"Sure, like any American, when I see a photo on the Internet of an adorable little investment bank and find out it's at risk of being put to sleep, I want to throw in $2,000 to $3,000 of my own money to adopt it. But instead of jacking up inflation, letting the dollar sink further and paying higher taxes so we can keep up cheap borrowing -- which is what this plan amounts to -- I think we need to let those who made bad loans get burned. We need to accept that credit will dry up and that maybe -- for just a bit -- we'll have to stop buying more than we can afford. "

http://www.latimes.com/news/opinion/la-oe-stein26-2008sep26,0,4649598.column

9/29/2008 11:10:51 PM

Had the House approved the bailout, would it then have gone to the Senate? If so, any idea how long they would have taken to vote?

9/29/2008 11:49:07 PM

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

Excellent commentary on why the bailout wasn't a good idea.

Quote :

"Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending."

Seems like both political parties are equally responsible for most of this mess.

9/29/2008 11:57:41 PM

Quote :

"Had the House approved the bailout, would it then have gone to the Senate? If so, any idea how long they would have taken to vote?"

I thought I had read that they were going to vote on Wednesday and that many members of the House were pissed that they had to vote on it so much earlier and have the public outcry be aimed at them solely instead of the collective Congress.

9/30/2008 12:03:12 AM

I am glad this bill failed. I am tired of the idea that a given business "can't fail." Why not? Lots of businesses fail every day; why can't banks?

This whole situation reminds me of the airlines. A small set of big carriers fighting a price war over the same customers; constantly accepting the "Too Big To Fail" Faustian bargain with the government; never differentiating.

People talk about "runs on the banks." What a bunch of nonsense. This isn't 1930 where the only bank in town is the First National Branch of Providence and if it fails, you go straight back to the mattress. Banks don't differentiate themselves very well, and when they start to act imprudent, people have a choice. They can go to Credit Unions, they can go to ING, they can go to Jamie Dimon, ...

I say -- what we call a "run on the bank" is actually just consumer choice, that banks are just another service, and why are they so damned special? If a bank sullies its brand and people don't want to do business with them, or don't trust them, then -- so be it. There are others.

And if the whole industry's brand is ruined? Well, it has to be replaced by something better; a new business model. How does government intervention do anything but prolong that very necessary process?

If the end customer of the banks is hurt during this restructuring, the government can surely lend to them directly as a "bridge" until the giant collapse is complete and new businesses start up. Since when is it good policy to prop up dying industries with bad business models instead of bridging the gap with ordinary folks and letting innovation run its course?

This bail out is bullshit, and I don't believe the scaremongering. Banks aren't hallowed institutions, they're businesses. We can already see ominous signs of the wrong outcome, with the massive taxpayer-funded consolidation taking place (seriously, let's just let Jamie Dimon run the Treasury). The bail out just takes us further down that path with no recourse to do the right thing.

Ron Paul is right, the vicious cycle has to end. If the government were in the computer industry we'd all be stuck on mainframes now because they're "too big to fail" ...

9/30/2008 12:12:53 AM

I agree I am not big fan of the Big Banks. I honestly hold inBig Banks in worse regards than Big Oil. The problem is my salary is paid through a "big bank" account; and Big Bank is so integrated into so much of the american economy that a high rate crash of the financial system would create chaos. The gov't needs to act as a damping force to slow the decay of the status quo banking system into that which within the current market expects and supports.

9/30/2008 12:19:37 AM

so then we should stick with a business model that is, frankly, a proven failure?

You know, the thing that fucking BLOWS MY MIND is how any Democrat would listen to anything George W. Bush had to say when he comes out and says "listen, we gotta act now, or else bad shit is gonna happen!" I mean, these are the same guys that are tearing dubya and the republicans a new one for "rushing to war with iraq" and "rushing into the Patriot Act." But then Dubya gets up and says "hey, shit is gonna hit the fan, do this NOW!!!" and the Dems just say "ok"?

now, obviously they did a little more than roll over and play dead, but... what. the. fuck.

[Edited on September 30, 2008 at 1:15 AM. Reason : ]

9/30/2008 12:52:15 AM

Quote :

"Rockwell: The entire establishment was united in favor of what was surely the most horrible and outrageous bill to ever come before Congress. The Fed, the Treasury, leadership of the Democrats and Republicans, the Wall Street Journal and the New York Times, all the major think tanks, most talking heads, the wealthiest corporations, important academics – in short, the whole of the power elite – were united in favor of this awful thing that proposed the following: Americans were to be stripped of their earnings and their future to prop up failed enterprises. Forget back-door socialism: this was right through the front door. This means that more money would be necessary, as the middle class was sucked dry by the vampire state for years to come. In any case, no matter how you look at it, the defeat of the bill is a victory for freedom. The defeat of the power elite is essential for liberty to thrive. For the free market to function, we need the government/corporate cabal to lose its capacity to get its way in every area of life. They need to feel fear. They need to lose security. They need to have a sense of uncertainty as to whether their every wish is our command. The House defeat of the bailout is a magnificent rebuke in that sense. The failure of the bailout bill was the precondition for economic recovery. It should make believers in liberty realize that we can change history, that tyranny is not our fate, that the leviathan state can be beaten back. Yesterday was one of the worst days in decades for the power elite. It was one of the best for liberty. "

http://www.lewrockwell.com/rockwell/near-death-of-state.html

9/30/2008 1:55:34 AM

Yes, clearly the defeat of this bill was the precondition for economic recovery, as evidenced by that 800 point drop in the Dow

9/30/2008 2:09:34 AM

^
Market corrections are not always comfortable. Better to take our medicine now and live within our means for a while..then to let the politicians drag this mess out, ripping off the tax-payer even more along the way.

9/30/2008 2:25:43 AM

Quote :

"The gov't needs to act as a damping force to slow the decay of the status quo banking system into that which within the current market expects and supports."

They already do. That's why we have FDIC and the takeover provisions when banks fail. The issue here is whether to allow these banks to remain solvent, independent, private businesses at the expense of taxpayers.

9/30/2008 2:48:42 AM

Quote :

"Yes, clearly the defeat of this bill was the precondition for economic recovery, as evidenced by that 800 point drop in the Dow"

Self-fulfilling prophecy of failure, essentially similar to what was outlined in that "banks are holding a gun to their heads and threatening to pull the trigger" article... The drop in the Dow happened largely because the markets were watching the bill voting, not simply out of coincidence at the same moment because the government didn't take immediate action.

9/30/2008 5:38:18 AM

Quote :

"Sure, like any American, when I see a photo on the Internet of an adorable little investment bank and find out it's at risk of being put to sleep, I want to throw in $2,000 to $3,000 of my own money to adopt it. But instead of jacking up inflation, letting the dollar sink further and paying higher taxes so we can keep up cheap borrowing -- which is what this plan amounts to -- I think we need to let those who made bad loans get burned. We need to accept that credit will dry up and that maybe -- for just a bit -- we'll have to stop buying more than we can afford."

Wait. So if we don't do the bail-out, all that happens is "credit dries up?" I don't know what this means. But if it means that everybody just has to stop buying more than they can afford for a while, if that's the only consequence, then I'm totally on board with that. Fuck a bail-out.

Even if the consequences are a little more severe, I'm still cool with it. My whole life I've secretly dreamed of becoming an underground prizefighter. Great Depression II sounds like a good excuse. Once I'm the champ, I'm gonna retire at my peak and parlay my fisticuff skills into an illustrious career in prostitution. I'll be the most vicious pimp the streets have ever known.

9/30/2008 5:50:30 AM

Asian Leaders Urge U.S. to Pass Rescue, Pledge Action (Update1)

http://www.bloomberg.com/apps/news?pid=20601101&sid=aYmU4CKOzbng&refer=japan

Quote :

"Sept. 30 (Bloomberg) -- Asian leaders urged U.S. lawmakers to pass a financial rescue package after a $700 billion plan collapsed in Congress yesterday, pledging to provide liquidity to banks and take any action necessary to ensure stability. "

Why don't they spend all of the money they have accumulated on US goods, which will give us that extra money we need, instead of telling us to borrow more??

9/30/2008 7:16:11 AM

^ Because they'd rather have us indebted to them than get the short term benefits of buying our stuff.

9/30/2008 7:17:54 AM

Quote :

"You know, the thing that fucking BLOWS MY MIND is how any Democrat would listen to anything George W. Bush had to say when he comes out and says "listen, we gotta act now, or else bad shit is gonna happen!" I mean, these are the same guys that are tearing dubya and the republicans a new one for "rushing to war with iraq""

Except this is not some stupid foreign war so Bush can play arm-chair general and hook up defense/oil/rebuilding contracts for his buddies in Iraq.

This situation effects peoples jobs/livlihood/etc

9/30/2008 7:28:27 AM

Take your medicine people....

9/30/2008 7:42:16 AM

Quote :

"Self-fulfilling prophecy of failure, essentially similar to what was outlined in that "banks are holding a gun to their heads and threatening to pull the trigger" article... The drop in the Dow happened largely because the markets were watching the bill voting, not simply out of coincidence at the same moment because the government didn't take immediate action."

I think like all reaction the market moved on changing information and sentiment. When congress voted down the package it became clear that at a minimum congress did not internalize what was going on.

Now I think everyone believes that the package will go through. However, given that enough congressman and especially Republicans were willing to vote against it has to destroy confindence that congress will be able to move if things get worse. Not to mention there is still the slight possibility that something will happen and the bill will be significantly delayed.

[Edited on September 30, 2008 at 9:20 AM. Reason : .]

9/30/2008 9:03:33 AM