Democrats - Cause of Credit Crisis - Page 2

MC.no.spin · 09-20-08, 05:22 PM

Quote:

Originally Posted by ARealConservative

The poor certainly do suffer, but it is also a way to export some of the burden on foreign nations. Because they hold so much of our debt, inflation makes their holding of our debt less valuable.

I would be surprised if anybody on DP can say with any certainty the exact ramification of not doing the bailouts. The consensus I have come to understand is it would be far more brutal now, but the recovery period would come faster.

If anybody could explain it for us, my money is on "The Don" (Sutherland)

One way is to compare it with the Great Depression in the 30s. The Fed moved to shrink the money supply then, and it resulted in 25 % unemployment, severely lowered GDP, no money to lend or borrow, bankrupt companies, tons of lost homes (half were in default), etc. We're not going to be that stubborn this time. Inflationary pressures will increase, but we're not in a high range right now, and have some breathing room.

This is an excellent read on the subject:

http://www.ricedelman.com/galleries/...s%20091908.pdf

obvious Child · 09-20-08, 05:23 PM

Quote:

Originally Posted by GottaHurt

President Bush in 2003 tried desperately to stop Fannie Mae and Freddie Mac from metastasizing into the problem they have since become.

Here's the lead of a New York Times story on Sept. 11, 2003: "The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

Even the ultra liberal no friends of Bush NY Times pointed it out.

Your post doesn't seem to get with some of the actual facts.

First of all,

Quote:

in 2002, the Bush administration charted a more aggressive course by pushing for lower down payments and touting vouchers that would allow public-housing tenants to one day own homes.....

In 2004, President George W. Bush campaigned on lower barriers to homeownership as part of the domestic agenda for his second term. The Republican Party platform that year singled out the down payment as the "most significant barrier to homeownership."

Homeownership Push Is Rethought - WSJ.com

Second of all, wasn't Frank's time on that committee relatively short?

And your argument doesn't address how low interest rates impacted mortgage rates.

From what I hear, you are saying that the Democrats failed because they left the market to its own means and did not heavily regulate the investment houses, constantly peering into their daily operations to check on the value of their purchases, the valuation of the Level 3s, and their daily market capitalization?

Am I hearing that right?

The Democrats are a fault because they did not regulate enough.

ARealConservative · 09-20-08, 05:32 PM

Quote:

Originally Posted by MC.no.spin

One way is to compare it with the Great Depression in the 30s. The Fed moved to shrink the money supply then, and it resulted in 25 % unemployment, severely lowered GDP, no money to lend or borrow, bankrupt companies, tons of lost homes (half were in default), etc. We're not going to be that stubborn this time. Inflationary pressures will increase, but we're not in a high range right now, and have some breathing room.

This is an excellent read on the subject:

http://www.ricedelman.com/galleries/...s%20091908.pdf

This seems like a bad comparison for that exact reason, the money supply was shrunk, now it is being massively expanded.

I would think a better example of what is to come is Japan in the 80's.

obvious Child · 09-20-08, 05:34 PM

Quote:

Originally Posted by ARealConservative

I would think a better example of what is to come is Japan in the 80's.

With the exception of the reaction. It's highly unlikely we'll see a decade of stagnation, hundreds of zombie banks and trillions of NPLs like they did.

ARealConservative · 09-20-08, 05:39 PM

Quote:

Originally Posted by obvious Child

With the exception of the reaction. It's highly unlikely we'll see a decade of stagnation, hundreds of zombie banks and trillions of NPLs like they did.

This is precisely what I expect.

America has been living on credit from various bubbles for too long. The housing bubble has been the catalyst for much of our astronomical consumer spending in the last decade.

Prices of goods and services will go up at the same time that values of stocks, property, etc is going way down.

obvious Child · 09-20-08, 05:43 PM

Quote:

Originally Posted by ARealConservative

This is precisely what I expect.

America has been living on credit from various bubbles for too long. The housing bubble has been the catalyst for much of our astronomical consumer spending in the last decade.

Prices of goods and services will go up at the same time that values of stocks, property, etc is going way down.

I regularly go to talks by a Brandes manager through my Morgan Stanley broker. So in a way I have an unfair advantage over most of you. But one thing she said that is quite obvious is that America needs to return to a culture of savings. That we should import the savings culture in from other countries.

Still, this will pass. The question is what is next? Are we going to have another crisis? Absolutely. Will we learn from this one? Absolutely not.

MC.no.spin · 09-20-08, 05:48 PM

Quote:

Originally Posted by ARealConservative

This seems like a bad comparison for that exact reason, the money supply was shrunk, now it is being massively expanded.

I would think a better example of what is to come is Japan in the 80's.

I think it serves as a good justification for doing what Paulson did. I also think it was savvy to take over the properties that default, so that they can be sold later. Taking 80% ownership in AIG could lead to a nice return, considering the price they got it for.

Re: Japan, they stagnated their money growth after the collapse, though not as much as the 30's, but enough to show that in comparing the 30's for the U.S., 80's for Japan, and 2000's for the U.S., money growth was paralell with GDP growth post boom in each. See here:

Why Money Matters - WSJ.com

ARealConservative · 09-20-08, 05:57 PM

Quote:

Originally Posted by MC.no.spin

I think it serves as a good justification for doing what Paulson did.

If we had a plan in place to not hope it slows the bleeding, I would be more accepting of it. Unfortunately, these bailouts just provide further incentive for poorly thought out risk.

Quote:

I also think it was savvy to take over the properties that default, so that they can be sold later. Taking 80% ownership in AIG could lead to a nice return, considering the price they got it for.

I find this to be a frightening change in direction. Nationalization of Industry works fine in theory. We could extend this line of reasoning to every facet of our economy. We could totally rely on a benevolent dictator to make the right decisions that help the greater good, , but I don't think it works in the real world.

Quote:

Re: Japan, didn't they stagnated their money growth after the collapse, though not as much as the 30's, but enough to show that in comparing the 30's for the U.S., 80's for Japan, and 2000's for the U.S., money growth was paralell with GDP growth post boom in each. See here:

Why Money Matters - WSJ.com

Perhaps. I'm reading your links...

obvious Child · 09-20-08, 05:59 PM

Quote:

Originally Posted by MC.no.spin

I think it serves as a good justification for doing what Paulson did. I also think it was savvy to take over the properties that default, so that they can be sold later. Taking 80% ownership in AIG could lead to a nice return, considering the price they got it for.

Not really. All AIG needed was a bit of short term liquidity. While the nationalization of AIG may result in a nice return for the government, it was a poor decision on the part of investors and of AIG. AIG just needed a little time. All the fed should have done was provide the bridge loan to give AIG the time to sell off assets and stay solvent. AIG's problem wasn't bad loans primarily. It was a timing issue of liabilities. Paulson's decision was not a good one. We should not be nationalizing companies that can earn their way out of the problem. Hell, we should not be nationalizing companies PERIOD.

MC.no.spin · 09-20-08, 06:02 PM

Quote:

Originally Posted by ARealConservative

If we had a plan in place to not hope it slows the bleeding, I would be more accepting of it. Unfortunately, these bailouts just provide further incentive for poorly thought out risk.

It HAS to come with new regulations, which Paulson says are getting worked out now.

Quote:

I find this to be a frightening change in direction. Nationalization of Industry works fine in theory. We could extend this line of reasoning to every facet of our economy. We could totally rely on a benevolent dictator to make the right decisions that help the greater good, , but I don't think it works in the real world.

It's true this steps closer towards a centrally planned economy (socialism), but the alternative was a deeper recession/depression with greater pains for everybody. Provided there is a road map back to a regulated free market economy, I see why this was done.

Personally I'm breathing a sigh of relief, as it is vital for me that money be flowing in the market and credit be given to consumers.