Who is to blame for the high Unemployment rATE?

Cephus said:

The whole point of regulation in the first place is to control the bad behavior that's likely to occur. If we'd maintained regulation, then the banking industry would not have been able to get involved in mortgages, would not have been stuck with tons of bad paper and bailouts would never have been necessary. Now keep in mind, I entirely disagree with the bailouts, I think every one of those companies should have been allowed to fail based on their own stupidity, but once it stops being American Home Mortgages and starts being Bank of America that's facing failure, it becomes a different ball game. There are certainly banks that refused to get involved in the sub-prime mortgage game, but many, many just bought paper thinking it would all magically be good and made some really horrible decisions. They should have been allowed to die, but if that happened, there goes American consumer confidence, there would have been riots in the streets. It was really a no-win situation, there were no good solutions, except not to deregulate in the first place.

Click to expand...

Why should there be confidence? Even if they didn't get bailed out, why should we trust these companies with our money?

phattonez said:

Why should there be confidence? Even if they didn't get bailed out, why should we trust these companies with our money?

Click to expand...

The fact is, they already have our money, they have trillions of dollars of American citizen's money sitting "in their vaults", telling the relatively uneducated American public that these companies that already have their hard-earned cash are going out of business is political suicide.

Cephus said:

The fact is, they already have our money, they have trillions of dollars of American citizen's money sitting "in their vaults", telling the relatively uneducated American public that these companies that already have their hard-earned cash are going out of business is political suicide.

Click to expand...

It is political suicide, but we need to grow up and realize that the money is gone. Getting government to pay for it with inflation doesn't bring the wealth back.

We could just blame the liquidity trap, but that would let the politicians off the hook who did not allow a credible fiscal stimulus to emerge.

phattonez said:

It is political suicide, but we need to grow up and realize that the money is gone. Getting government to pay for it with inflation doesn't bring the wealth back.

Click to expand...

You know that and I know that, but politicians live in a fantasy world and no politician is ever going to slit their own throat, even if the floor is falling out beneath them. Let's be realistic.

Goldenboy219 said:

We could just blame the liquidity trap, but that would let the politicians off the hook who did not allow a credible fiscal stimulus to emerge.

Click to expand...

Oh yes, that same deflationary spiral that killed us during all the panics before the Great Depression. What anemic growth we had in that age. :roll:

phattonez said:

Those companies were going down because of those mistakes. And voila, they are saved so they can continue those practices.

Click to expand...

What you are suggesting is never actually going to happen, and therefore we need to make laws that account for this reality. If the government had allowed financial institutions to fail in 2008, our entire financial sector would have collapsed because they all owed money to one another. Then there would be no one loaning money to anyone. Look at how big of a domino effect that even the failure of ONE large institution - Lehman Brothers - had on our financial system.

Large financial institutions are ALWAYS going to be bailed out, especially in the midst of a financial crisis. Therefore we need financial regulations in place to minimize the frequency with which the taxpayers have to pick up the pieces for their mistakes.

It's not about innovation in this case as much as it is about the elimination of bad business practices.

Click to expand...

Banning those bad business practices would also go a long way toward eliminating them. Virtually every bank that failed, failed because they took on too many risky investments. The smaller, local banks didn't have this problem, because they were more prudent with their money. The steps to running a successful bank are actually surprisingly simple: Loan money at a higher interest rate than you borrowed it, loan it to people/institutions who are good credit risks, and establish trust with your own creditors. More exotic financial items, like credit-default swaps and various other derivatives that are very far removed from the underlying asset, are rarely necessary and should be HIGHLY regulated.

phattonez said:

Oh yes, that same deflationary spiral that killed us during all the panics before the Great Depression. What anemic growth we had in that age. :roll:

Click to expand...

There is not (and does not a require) a deflationary spiral during this stage of the liquidity trap. We then can refer to our current situation as a jobless recovery trapped with liquidity.

Are those really the only options you are going to give? Clearly it is not only one thing, which is the first problem with your poll. Second, you did not even mention the giant economic collapse. Perhaps you should revisit economics 101. I cannot even vote because there is not a suitable answer.

*Edit:

And :lol: at Europe being an option. What does that even mean?

Kandahar said:

What you are suggesting is never actually going to happen, and therefore we need to make laws that account for this reality.

Click to expand...

That's not an attitude that in good conscience I can have. If something is wrong, I need to speak about it, rather than just accept it.

If the government had allowed financial institutions to fail in 2008, our entire financial sector would have collapsed because they all owed money to one another. Then there would be no one loaning money to anyone. Look at how big of a domino effect that even the failure of ONE large institution - Lehman Brothers - had on our financial system.

Click to expand...

And it wouldn't have been built back up by now without the moral hazard? Oh I wonder what we did during the Panic of 1893. We did not save all of those companies, yet we did not go back to the stone age.

Large financial institutions are ALWAYS going to be bailed out, especially in the midst of a financial crisis. Therefore we need financial regulations in place to minimize the frequency with which the taxpayers have to pick up the pieces for their mistakes.

Click to expand...

Just because that is the status quo does not mean that I have to accept it and find another solution.

Banning those bad business practices would also go a long way toward eliminating them. Virtually every bank that failed, failed because they took on too many risky investments. The smaller, local banks didn't have this problem, because they were more prudent with their money. The steps to running a successful bank are actually surprisingly simple: Loan money at a higher interest rate than you borrowed it, loan it to people/institutions who are good credit risks, and establish trust with your own creditors. More exotic financial items, like credit-default swaps and various other derivatives that are very far removed from the underlying asset, are rarely necessary and should be HIGHLY regulated.

Click to expand...

The problem with this solution is that regulations cannot adequately define what is excessive risk and what isn't unlike how market mechanisms can truly show you what was right and what wasn't.

Goldenboy219 said:

There is not (and does not a require) a deflationary spiral during this stage of the liquidity trap. We then can refer to our current situation as a jobless recovery trapped with liquidity.

Click to expand...

You're not answering the original question. We presumably would have had a deflationary spiral had quantitative easing not taken place, right? So why was there no deflationary spiral during all of the panics before the Great Depression?

I blame everybody except myself!

phattonez said:

That's not an attitude that in good conscience I can have. If something is wrong, I need to speak about it, rather than just accept it.

Click to expand...

And I would rather develop solutions that are cognizant of political and economic realities. I find it's almost always better to base our policies on the way things ACTUALLY work, rather than the way we WISH they worked. Our government, regardless of which political party is in power at any given point in time, will always bail out financial institutions...and rightly so IMO. Economically, the pain from the collapse of the entire financial sector would outweigh the moral hazard incurred. And politically, no one wants a financial collapse to occur on their watch.

And it wouldn't have been built back up by now without the moral hazard? Oh I wonder what we did during the Panic of 1893. We did not save all of those companies, yet we did not go back to the stone age.

Click to expand...

100 years ago, our economy was far less dependent on credit and far less globalized than it is today. Furthermore, the ramifications of the Panic of 1893 WERE catastrophic. Unemployment remained at double-digit levels for over five years following the financial crisis.

Just because that is the status quo does not mean that I have to accept it and find another solution.

Click to expand...

Fine, but I think this shows a lack of awareness of political realities. Even if Congress passed a law declaring that no financial institutions would be bailed out in the future and they were super-serious this time around, they would simply repeal the law at the first sign of trouble and bail the banks out anyway. So given the fact that our government is not about to allow the banks to fail, I think it's prudent to minimize the chance of this happening so that the taxpayers don't get stuck with the bill for bankers' mistakes.

The problem with this solution is that regulations cannot adequately define what is excessive risk and what isn't unlike how market mechanisms can truly show you what was right and what wasn't.

Click to expand...

You're right, I don't expect financial regulation to define this perfectly. They will almost certainly underregulate something which does pose a serious risk, or overregulate something that does not. But that doesn't make the regulations ineffective; although people might disagree over where exactly the line is between a stupid risk and a worthwhile risk, there are plenty of situations that are clearly stupid risks. That's part of the reason that the government sets reserve requirements for banks, for example. If banks only keep 1% of their funds onhand and loan out the other 99%, they're being stupid and are very likely to become insolvent during a downturn...and therefore the government mandates that they generally need to keep 10% onhand. That's not because the government knows that 10% is the magic number where banks are safe, but it's better to have an arbitrary cutoff than no reserve requirement at all.

Kandahar said:

And I would rather develop solutions that are cognizant of political and economic realities. I find it's almost always better to base our policies on the way things ACTUALLY work, rather than the way we WISH they worked. Our government, regardless of which political party is in power at any given point in time, will always bail out financial institutions...and rightly so IMO. Economically, the pain from the collapse of the entire financial sector would outweigh the moral hazard incurred. And politically, no one wants a financial collapse to occur on their watch.

Click to expand...

Rightfully so? Because now we can get the same problem all over again? You act as if we would never recover if we had let the companies fail. Where is the historical evidence of that?

100 years ago, our economy was far less dependent on credit and far less globalized than it is today. Furthermore, the ramifications of the Panic of 1893 WERE catastrophic. Unemployment remained at double-digit levels for over five years following the financial crisis.

Click to expand...

The length of it probably has to do with the McKinley Tariff. In other panics where we decreased the burden of government we saw quick recoveries and remarkable growth.

Fine, but I think this shows a lack of awareness of political realities. Even if Congress passed a law declaring that no financial institutions would be bailed out in the future and they were super-serious this time around, they would simply repeal the law at the first sign of trouble and bail the banks out anyway. So given the fact that our government is not about to allow the banks to fail, I think it's prudent to minimize the chance of this happening so that the taxpayers don't get stuck with the bill for bankers' mistakes.

Click to expand...

I guess I'm just more of an idealist than a compromising pragmatist. I'm not satisfied with our overall growth rates that are meager compared to what we had before we morphed into a corporatist economy.

You're right, I don't expect financial regulation to define this perfectly. They will almost certainly underregulate something which does pose a serious risk, or overregulate something that does not. But that doesn't make the regulations ineffective; although people might disagree over where exactly the line is between a stupid risk and a worthwhile risk, there are plenty of situations that are clearly stupid risks. That's part of the reason that the government sets reserve requirements for banks, for example. If banks only keep 1% of their funds onhand and loan out the other 99%, they're being stupid and are very likely to become insolvent during a downturn...and therefore the government mandates that they generally need to keep 10% onhand. That's not because the government knows that 10% is the magic number where banks are safe, but it's better to have an arbitrary cutoff than no reserve requirement at all.

Click to expand...

But, ignoring your incessant call to recognize political realities, what is wrong with using profit and loss to let the market show us what it should be? What is so terrible about that system that we cannot allow it to operate?