http://www.marketwatch.com/news/story/eleven-reasons-america-new-top/story.aspx?guid=%7BD23E1901%2D728E%2D4A3C%2D99D1%2D7E80F74C3AE3%7D

Thought it was interesting even though I don't know much about economics. Any thoughts?

7/23/2008 10:08:53 AM

http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html

Quote :

"As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago. History is unlikely to be kind to the Maestro. There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God's sake, do not give us the worst of both worlds -- do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill. That's not capitalism, its not socialism, its not regulation, and its sure as hell isn't what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity. "

emphasis mine

7/23/2008 10:28:37 AM

An interesting comment...

Quote :

"McCain is not conservative in any way shape or form- he is clearly neoconservative. This country has not seen a truly free market in a long long time. When lobby groups can get laws passed that promote their choke-hold on certain industries you will see the problems such as the ones in health care. Everything is so over regulated that the prices of everything is rising, then add the inflation. The simple fact is our government has become so large and so stifling that to be able to maintain TRUE conservative principles is impossible. A free market is not a free market if there are tremendously powerful influences pulling the marionette strings whether that be a lobby group or a federal regulatory agency who aims to make us "safer". The "safer" the mindless masses choose to be, the less safe we actually become. The government tree which should have 3 branches with a few "leaves" on it has become a towering monster canopy which blocks the sun from all who are beneath. A single one of it's roots wears the broken remnants of the pot that once contained it. "

7/23/2008 10:35:37 AM

Quote :

"This country has not seen a truly free market in a long long time. When lobby groups can get laws passed that promote their choke-hold on certain industries you will see the problems such as the ones in health care. Everything is so over regulated that the prices of everything is rising, then add the inflation. The simple fact is our government has become so large and so stifling that to be able to maintain TRUE conservative principles is impossible. A free market is not a free market if there are tremendously powerful influences pulling the marionette strings whether that be a lobby group or a federal regulatory agency who aims to make us "safer". The "safer" the mindless masses choose to be, the less safe we actually become."

agreed; although i do not consider McCain a neocon

7/23/2008 11:35:47 AM

This is neither new nor interesting. America has been a hodgepodge of systems since its founding. The Southern Pacific was a government monopoly for the longest time; Pennsylvania owned its own railroad.

That said, so far I think the system is working great. The Fed las loaned out billions of dollars to protect the system and so far all of it is going to be paid back with interest. I doubt anyone believed the Federal Reserve system could ever operate with such perfect outcomes. Bank owners lose their shirts, bank customers are safe, and the government gets all its money back at the end of the day.

7/23/2008 11:39:44 AM

Do you have a link where I can see how it works in the case that they can't pay the loan back. You have to think, if the collateral they put up is toxic (even though it was rated AAA), then at some point they won't be able to pay it back anymore. At that point, the taxpayer is indeed on the hook, no?

7/23/2008 11:50:46 AM

Yes, but again, by law the Fed gets first dibs on any assets the bank may have. So, even if the bank fails AND the collateral falls flat then yes, the Fed would lose interest on the loan but it would still recover principle within a few years after the banks assets have been liquidated.

But, in one instance, there is an exception when it came to the Bear Stearns takeover. There the Fed is capable of losing money outright, but so far it seems unlikely to happen that way. Either way, we will not know for sure if the Fed is losing money on that deal for a few years time.

7/23/2008 1:28:31 PM

Quote :

"Do you have a link where I can see how it works in the case that they can't pay the loan back. You have to think, if the collateral they put up is toxic (even though it was rated AAA), then at some point they won't be able to pay it back anymore. At that point, the taxpayer is indeed on the hook, no?"

Collateral is posted to the Fed at a discount to its market value. So there is some room for a decline. In the event of a default I am not sure that the Fed has a place in line above other creditors.

In most cases, however, loans from the Fed are repurchase agreements. In which the Fed buys an asset from the bank and the bank agrees to buy it back later. The advantage her is that the collateral does not need to be repossessed as it is already owned by the Fed.

Repos are fairly short in duration and it would take a sudden sharp deterioration to lose much money.

If there are losses its unclear who would pay them. The Fed prints money but does so to maintain the Fed Funds rate at a given level. Depending on how a default effect demand in the Funds market the Fed may end up printing money to cover its losses. Otherwise they are lost from the Feds balance sheet.

Since, Fed profits are paid to the Treasury this is indirectly a loss to the Treasury.

7/23/2008 4:03:21 PM

"The American Republic will endure, until politicians realize they can bribe the people with their own money." – Alexis de Tocqueville (1805-1859)

7/25/2008 1:34:20 AM