Bailouts will lead to rough economic ride - Page 2

SouthernDemocrat · 09-23-08, 09:42 PM

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Originally Posted by obvious Child

SD,, I'm not sure I buy the lack of regulation was the problem. From what I can tell from going back to 2002 and 2004, nothing changes except for the administration and congress's intiatives to remove obstacles to buying a house, namely down payments and income. Freddy and Fannie conformed to such policies and we got screwed. So perhaps lack of regulation was at least part of the problem but that ignores the fact that the GOP effectively neutered the obstacles that prevented the poor people from buying houses back in 2002.

Your only looking at half the problem. Yes, large numbers of toxic loans were written starting in 2001. Many people were given loans that had no reasonable ability to be able to pay them back. Yes, there was a push due to Bush's "Ownership Society" to expand home ownership.

However, you are leaving out what made those toxic loans possible. Had it not been for Credit Default Swaps, a completely unregulated derivatives market that was virtually unknown 10 years ago and now, since the Commodities Modernization Act of 2000, has grown in just 7 years to be a market that is at least as large as Global GDP. No one would have wrote these toxic loans without those derivatives. Had that unregulated market not existed, all that toxic paper never could have been issued and sold.

Metropolis · 09-23-08, 09:47 PM

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Lets not stop there though. The same is also true of job creation, poverty reduction, median income growth... basically any measure one wants to put on economic growth, the Free Market Cult comes lags.

How exactly are those representations of economic growth? To me, that seems like growth of social welfare.

Let's talk globalization, revenue/profit increase, creation of Fortune 500 companies.

MC.no.spin · 09-23-08, 09:52 PM

Buffet just bought 5 billion of Goldman Sachs stock. The only economic ride the markets are going on tomorrow is UP.

This economy just took a major turn for the better.

If you've got money to play with, this is a good time to make a play on financials.

SouthernDemocrat · 09-23-08, 09:56 PM

Quote:

Originally Posted by Metropolis

How exactly are those representations of economic growth? To me, that seems like growth of social welfare.

Let's talk globalization, revenue/profit increase, creation of Fortune 500 companies.

GDP, Income Growth, and increases in the standard of living are not economic growth?

I think that virtually every economist on the face of the earth would be surprised to hear about that.

SouthernDemocrat · 09-23-08, 09:57 PM

Quote:

Originally Posted by MC.no.spin

Buffet just bought 5 billion of Goldman Sachs stock. The only economic ride the markets are going on tomorrow is UP.

This economy just took a major turn for the better.

If you've got money to play with, this is a good time to make a play on financials.

Well, while I do think it probably is a good time to buy, I don't think many people are going to agree with you that the economy has taken a turn for the better yet.

Metropolis · 09-23-08, 09:57 PM

Quote:

Originally Posted by SouthernDemocrat

GDP, Income Growth, and increases in the standard of living are not economic growth?

I think that virtually every economist on the face of the earth would be surprised to hear about that.

Let's look up the definition of Economic Growth:

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# An increase in a nation's capacity to produce goods and services.
countrystudies.us/united-states/economy-12.htm

# The rate of change in output from one year to the next.
Alberta Equity Mortgages - Site Search (with advanced glossary)

# Sustained increases in the real GDP of an economy over a long period of time.
wps.prenhall.com/wps/media/objects/4174/4275054/gloss/Osullivan_survey_glossary.html

# the overall growth in an economy. Gross national product and gross domestic product are the usual measures of economic growth. ...
oregonstate.edu/instruct/anth370/gloss.html

# reflects the increase in the production of goods and services over time and is often used as a measure of increased material well-being generated through economic activity. ...
Smart State Strategy 2005-2015 Glossary

# The increase over time in the capacity of an economy to produce goods and services and (ideally) to improve the well-being of its citizens.
www-personal.umich.edu/~alandear/glossary/e.html

# An increase in real output per capita.

I.. don't see the median household income in there anywhere.

Ethereal · 09-23-08, 09:57 PM

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Basically, it seems that the libertarian contention is that if we did not have government intervention into the markets, we would still have business cycles, yet avoid financial crisis like the one we are currently in. Basically, the argument is if we do away with the Federal Reserve, Subsidies, Regulation, and oversight, we will have a virtual utopia under absolute Free Markets and a Gold Standard.

No, no one has made mention of utopias. Perhaps instead of going off on a vague tangent you could specifically adress the article in question. That way we can maintain the appropriate context instead of establishing a new one. Congressman Paul has provided the logic used to arrive at his position, you need only to rebutt it.

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So lets look at history as a guide. In the 100 years prior to the establishment of the Federal Reserve we had 4, yes thats 4, Economic Depressions. We have had one since.

Correlation does not equal...come on, I know you know this one. Also, doesn't it damage your position that the Great Depression occured under the watch of the Federal Reserve?

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Prior to our mixed economy around 30% of Americans lived below the poverty line, seniors made up the single largest demographic living in abject poverty, there little to no middle class, median income growth was absymal, and we were not even a first world nation.

And you attribute this to a lack of government intervention depsite the fact that America was a virtual plutocracy of government and big business? Not to mention the thousands of other variables one could consider.

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The crisis today is the direct result of a lack of oversight and regulation. The sectors in crisis were almost invariably lightly regulated. What happened was that conservatives bought into this idea back in the early 80s that the economy had changed considerably since the New Deal, and thus the idea of market regulation was antiquated and no longer relevant the world we find ourselves in today.

I'm not exactly sure how this applies to Dr. Paul's assessment. Are there any specific aspects of his position you would like to adress?

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Well, the thing is, they were right that the economy had changed a lot since then and the regulatory structures in place were built around the old industrial economy of the 30s, 40s, and 50s. Their mistake was believing that human nature had changed since the New Deal, that we had left behind all of the faults of man that made market regulation necessary in the first place. So the answer was to modernize market oversight and regulation, not abolish it.

Some market regulation is necessary. I don't believe anyone is claiming otherwise, but the fact remains that excessive market regulation is largely to blame for the current economic downturn. Admittedly, Dr. Paul does not delve into the consequences of globalization (which I feel is the other half of the general economic coin) but he makes a very good argument against the creation of artificial market demand and prices through government intervention. Our economic polices must reflect the market instead of seeking to create a false economic reality.

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We need to learn the lessons of history. No one likes regulation, but no one likes spending what may be a trillion dollars before its all said and done bailing out a financial system in crisis either. Had adequate regulation been in place, this would not have happened. The unregulated Derivatives Markets are entirely to blame for the crisis we find ourselves in and we will have to take action, whether we like it or not, in order to not find ourselves in the same situation the Japanese found themselves in throughout the 90s.

I believe certain regulations could have been useful (it seems asymmetrical information had a hand in this) but to infer from this that government regulation is largely beneficial is spurious, especially when one can make a strong case that government intervention was largely to blame.

SouthernDemocrat · 09-23-08, 10:05 PM

Quote:

Originally Posted by Metropolis

Let's look up the definition of Economic Growth:

I.. don't see the median household income in there anywhere.

Let's look at your list:

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# An increase in a nation's capacity to produce goods and services.
countrystudies.us/united-states/economy-12.htm

That would be GDP growth.

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# The rate of change in output from one year to the next.
Alberta Equity Mortgages - Site Search (with advanced glossary)

GDP Growth again.

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# Sustained increases in the real GDP of an economy over a long period of time.
wps.prenhall.com/wps/media/objects/4174/4275054/gloss/Osullivan_survey_glossary.html

Yes, thats where I showed that GDP growth was unremarkable at best under Reagan-Bush / Bush II, compared to 1950-1980, and the Clinton years.

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# reflects the increase in the production of goods and services over time and is often used as a measure of increased material well-being generated through economic activity. ...

# The increase over time in the capacity of an economy to produce goods and services and (ideally) to improve the well-being of its citizens.
www-personal.umich.edu/~alandear/glossary/e.html

Yes, this would be Median Income Growth, Poverty Rate Reductions, Job Growth and so on.

For example, economists would consider the economy of the United States, Canada, and Western Europe to be considerably stronger than China or India despite the fact that China and India have enjoyed strong GDP growth, because median incomes, employment rates, poverty rates, and other material economic measures are much better in those nations than in China or India.

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# An increase in real output per capita.

This one is per-capita GDP.

dirtpoorchris · 09-23-08, 10:14 PM

I just heard Treasury dude say "We must act now."
Last time I heard that I was at a used car lot.
I F*&$in hate my car.

SouthernDemocrat · 09-23-08, 10:36 PM

This is what I don't get. The debate seems to be over what conditions need to be applied to this 700 billion dollar bailout. Don't get me wrong, I think the absolute blanket authority sought by the treasury department is dangerous and probably unconstitutional.

However, why give them the whole 700 billion now? Why not say, authorize 100 billion, and then if more is needed in a month, visit the issue again then. It will probably take them a couple of years through reverse auctions to buy up all these toxic assets, so why do they need the blank check for the entire projected amount this week?