A lot of rich people would lose money. So instead, the government will play ball, bail out the rich by stealing from the poor and middle class. That's the story they keep promoting. If they don't rape citizens to pay off Wall Street, Wall Street will fall down and then who will donate money to Obama and McCain? The entire financial and banking system is based upon a false premise. That credit and money should be divorced from the market, and instead exclusively decided upon by politicians in the employ of special interests. There would be no moral hazard, and there would be no bailout or conservatorship, if the government had not given an implicit guarantee that assistance would be there. Now everyone is flocking to the market, risking their money foolishly, because they all believe at the end of the day, the federal government will bail them out if they lose. So they only have 2 outcomes. Insane profit, or break even. All courtesy of the poorest people in society watching their standard of living erode. Bear Sterns was bailed out. And that caused further weakness, so now FRE and FME are getting bailed out. Later, Lehman will be bailed out. And the next one, and the next one, and everyone will pay for it with inflation.
The banks are in really bad shape, and FDIC is massively underfunded to deal with the number of potential "bad banks" they have on their watch list. Any lost money in bank failures will also be covered up with inflation to top up FDIC's reserves. What is now going on, is that the shadow shell game of voodoo economics from before is out in the wide open, because most of the citizenry are too ignorant to understand that these bailouts are going to hit them in their purchasing power 12 months from now. How brazen Paulson and Bernanke are with their lies, is simply amazing. They are either lying now, or they were lying months ago. Either way, they should probably be brought before Congress to answer for themselves. Senator Jim Bunning agrees, The government is literally acting like they do not have any limits on spending, debt etc. They are throwing money at every special interest, and passing the inflation on to the citizenry. The best thing you can do is be debt free, and make sure you are increasing your skill base, because if the economy sinks much lower, it is going to be very hard to find and keep jobs. You need to make yourself valuable to an employer, perhaps even consider getting a second part time job while the job getting is still decent.
i understand that G but what is the real danger i think we have a big problem because rich are too rich. wherever they put their money it creates a bubble. this is the real problem. They were needed because they had to invest in huge factories, but now they do not do that anymore so there is a lot of cash that they just want to speculate. actually if they break up these companies it might be better. it will decreases the monopoly and will create the same financing quickly.
The real danger is massive political upheaval. No. The problem is that the rich (special interests) manipulate the government to use a sleight of hand to steal directly from the lower and middle class through inflation. They get rich, you get poor, and the government is the middle man, lauding platitudes about "too big to fail". The best way to prevent things like this from happening, is to take the power to create money away from the government. Then the special interests will no longer be interested in it, and the citizens will be able to check it by how much they are being directly taxed. It is immoral what is going on, including the passing on of this generation's debt to the next. No one should have to come into this world, born into slavery to banks and foreign investors.
thanks G but what you want to do is pretty hard. if we just let them die we shrink a lot of money and we prevent a big transfer of money. i do not see how public would be upset.
The problem with the Guerilla perspective is that it ALWAYS blames the government. In fact when the markets (that he proclaims are ALWAYS BETTER and ALWAYS CORRECT explode and turn downward) he always blames the government. When you look at the debacle of Fannie and Freddie, the bailout by the government has the same impact of a corporate chapter 7 bankruptcy. Take out the political cries and screams. Here is what a chapter 7 bankruptcy does to equity and debt holders. Debt holders have second call on remainder assets. Secured debt holders have an even higher level of call on remainder assets. Bankruptcy takes the remainder assets and divies them up to the holders of debt and equity based on whose call on the hoped for productiveness was most secure. Secured debt holders accept the smallest return and in turn get the highest security (return in the event of bankruptcy). Unsecured debt holders are second. Equity holders are last in line. Equity holders are hoping for huge gains in stock value and should accept the highest risk. If foreign debt holders have the highest level of security, then in a chapter 7 bankruptcy they would be the first in line for return on their debt. That is a fundamental basis on which business (he likes to call it a political name-> capitalism) works. It is a structuring of risk and reward. Okay....there is no doubt that politics played into this. The probable goal was to keep the US financial system working in the midst of terrible times. Foreign entities hold enormous amts of American debt, govt. backed debt and have this enormous threatening sway on America's well being. There is no doubt, in my mind the US govt., its many divisions and the structure of American business permeating into American culture and the daily lives of Americans is way to debt oriented. Again I believe it is an example of outright political radicalism to blame it all on government. When every inch of the economy, advertising and culture screams out to buy now and pay later--that isn't government alone--in fact that is how this economic system is playing into American culture. This totally played out this decade and the last with rising home prices, a stock market that exploded since the big stock market crash of 1987....and an emphasis on buy buy buy. Way too much American "equity" or family net worth has been tied to American home values that soared in price over 2 decades and especially this decade. This has been ENORMOUSLY compounded by endless use of 2nd mortgages to refinance homes, pulling all the equity out of homes....and equity that is no longer there. Many influences, including Govt policies, endless advertising, business schemes, all worked together to create a national overinvestment into real estate whose pricing represent a typical boom bust cycle. Now we are in the bust cycle. Business cycles are the direct result of how business(Guerilla calls it capitalism work. Always has been that way. Always will. Why? Investment always comes before purchase. The businesses that make huge investments into new products have to sell like hell to get a payoff. If the results of the investment don't pay off....Ah...the businesses sink. Is it the result of Too much liquidity? Possibly. But consider the following. World liquidity is Gigantically enormous. Frankly, if there weren't foreign buyers with enormous capital to buy US debt...they wouldn't own it. Simply capping the American creation of debt doesn't put a cap what is going on in the majority of the world economy. The 2nd question is EXACTLY how much American liquidity has been created. All of these things are measurable. Determine how much American liquidity there is and how it compares to past periods and measure it against the growth of foreign liquidity and its levels of past years. Then determine if creation of American liquidity is the source for American economic woes. Economic theory is first and foremost-->theory. Its most elementary premise is based on the premise that markets are logical and effective and a far better way to create wealth than through govt intervention. In this regard, markets, based totally in theory, are the way to create wealth. This theory relies on a series of theoretical ASSUMPTIONS describing PERFECT MARKETS. Here is the second hour of the most elementary part of economic theory: No Markets are PERFECT. Every real life market defies the premise of the basic theories. Items for sale in markets are not totally replaceable with one another and fundamentally EVERY MARKET has players who have more knowledge and information than the other players. That means every market is susceptable to manipulation, inefficiencies and outcomes that might DRASTICALLY change the outcomes of a perfect market. The results are so dramatically different than the outcomes one would expect from a perfect market that it simply destroys the promises of the theory of perfect markets and often makes them null and void. The actions taken to save Fannie and Freddie were done to avoid a total economic and financial breakdown throughout the economy. I certainly lived through the micro problems when a market collapses as did the American commercial real estate market did in the late 1980's and early 1990's. Actually with markets failing currently, there are examples of everything failing RIGHT NOW. Something called the auction/bid market failed recently. Financial institutions sold investments to all sorts of players in this market. The former actions of the market....ALWAYS sold the investments as being ENTIRELY LIQUID. The markets failed and the investments were the opposite. NO Liquidity. Institutions bought into this market looking for marginally higher returns than other safe markets. When the markets collapsed these institutions had ZERO access to their capital. The collapse impacted a Florida school district that used that investment as a liquidity fund to pay its employees. When the auction markets collapsed and the cash was no longer available....the school district simply had ZERO money to pay its employees. It was saved by a local bank with a short term emergency loan. Ultimately the school district pulled its liquidity and investments out of the investment firm that had frozen the assets. Now imagine that scenario played out in every single business and institution across the country if the fundamental economic system collapsed. Disaster as we haven't seen since the Great Depression. The action to bail out Fannie and Freddie, and the action to bail out Bear Stearns were taken to avoid that wide spread calamity. Its that simple. I agree with Guerilla that there is way too much debt in America. The US government has allowed debt levels to explode over the last several decades. No politicians deal with it. On the consumer side as a society we swallow way too much debt. The housing crisis is an example of this phenomena. Too many mortgage holders have too much debt on their homes. One can take all the problems of the economy and turn it into an attack on the American government. The argument keeps revolving around the first hour of economics classes without regard to the all important second and subsequent hours. I'd suggest Guerilla stay in school.
You are right. But, a lot of people will lose their homes, and the banks will start going down, which will cause social unrest. The system is setup to get really big, and then collapse under it's own weight. Unfortunately, the public, politicians and special interests do not believe in allowing for relief mechanisms to dilute bad debt and malinvestment. They just want to keep inflating the bubble until it bursts.
This is only a problem if one doesn't want to ever lay the blame where it belongs, or has an interest in protecting the status quo. As long as what I write is factual, and can be backed up with theory, evidence and reason, then I don't see a problem. I'm not some anti-market zealot, because frankly it's irrational and unreasonable. Markets are always better, and they are self-correcting. That is not to say that markets do not make mistakes, but those mistakes are made by individuals, who have to take personal responsibility for their mistakes, instead of the illusion that government can control markets, and socialize the costs and failures to everyone, including parties who are uninvolved and cannot afford to bear a share of the losses. It's a direct consequence, politically and socially of a debt based monetary system. When you have a monetary system that stores value in debt, then it is only natural that the economy will be debt based. This is incorrect. For example, my much aligned (by you) Austrian school does not believe in perfect markets. It is an economic school that relies on praxeology, or understanding human action. Human action is not theory, mathematical models (which my Austrian school eschews) are purely theoretical. In order to criticize something, it is wise to first understand it. Government intervention does not create wealth. It only redistributes it, taking a cut for overheads along the way. Production by workers, and capital investment by entrepreneurs creates wealth. Not some politician with the stroke of a pen, signing a bill into law. More on this later. This is simply welfare for the rich. Fannie and Freddie, like any market institution that has bad business practices, runs inefficiently and stockpiles losses, should be reorganized and sold off, not made to survive off the backs of people who had nothing to do with them. That they were so big, was because they were perceived to be GSEs. The government should never guarantee that big businesses will not be allowed to fail, because it will insure that management at large firms will run their companies into the ground, knowing that the taxpayer will have to bail them out. The system is collapsing, and it has to collapse because bad debt has to be liquidated out of the system. What is happening, is that the losses are being propped up, but that cannot go on forever. Sooner or later, the bad loans, the losses and the scandal will have to bleed out, otherwise the crisis will fester and infect other markets (as it has already done with consumer goods, credit, construction and finance). More on this later. It's very simple to rectify. Simply use sound money, and allow the bad debt to liquidate itself. The system could be cleaned up in 3 or 4 years if the right actions are taken now. The personal comments are not needed Earl. Despite your continued attempts to insult me personally, I am still making sound arguments, and fairly accurate predictions. The government brings in fiat money. The government creates the Federal Reserve. The government deficit spends. the government confiscates the nations gold, and then later closes the gold window. The government beats the drums for war, which create the debt and inflation. Now I would love to blame the bankers, or the Illuminati or Lizard people living under the streets of NY, but all roads lead to the government. Government is the one who regulates, intervenes, and investigates. It taxes, and creates money. It creates legal tender laws, and sets the market rate of interest. Now, as mentioned earlier in this reply, I would provide more, and I hope like our debate about the definition of inflation, this answer is accurate, rational and precise enough to advance us to the second hour of economics class. If the minimum wage can set a living wage, why not raise it to make the living wage one that is fairly wealthy? In other words, why not make the minimum wage $20 an hour? or $100? If government has no control over the negative effects of the economy, then how can we believe that they can create prosperity? They either have the power to control the economy, or they do not. To imply that all government intervention has (1) no effect, means the government is punchless vs. the market, and (2) if the government does have an effect, then aren't they responsible for the busts as well as the booms? To believe otherwise, would be to run from the notion of cause and effect, or ideas like what goes up, must come down. We instinctively know these things to be true from our experiences every day. Why is it when it comes to government, we believe all sorts of irrational things such as the above? If we truly believe that the government can stop inflation, then why hasn't it? If the FED's mandate is low unemployment AND stable prices, why have prices risen under a central bank like never before in history? Pre-Federal Reserve, you could blame a lot on markets. But the FED prints the money and sets the interest rates. These directly influence booms and busts. To say that what we experience in the macro and micro economy is divorced from the FED, would be like insisting that gravity plays no role in why I cannot float on air.
why would people lose their homes? the loans are already made. i can see the investors losing their money. and i can see a shortage of available loans for a short time. but the govt can set up a new company to replace these two as they fail
Go study great depression and reason why it was illegal to have gold. When things turn bad..people go mad cut off some peoples' heads. That may lead to revolution like the French. Then commies will say be patriotic and be selfless and do it for your country. Fuck the country, I am INDIVIDUALISTIC CAPITALIST. Money talks bullshit walks.
Pizza, I mean this very sincerely. You are a really good guy, I applaud your positions on peace and goodwill amongst men, but economically, you really need to work on some of these ideas. The government cannot "create" anything. It can only redistribute by taxing and regulating. The government doesn't make bread, process oil or film great movies. It creates nothing. Two more companies made out of thin air, and backed by the promise of raping tax payers to support their inevitable mismanagement (yes, inevitable) will just repeat and compound the problem. Good stuff. But it's not just the commies, it's the fascists too. They want you to fall for the "do it for your country" crap, as they rob the people blind.
that is why i am asking questions here. i am not expressing any opinion as you see. i was looking for a dumbed down reason of why the two of them can not be replaced by a new entity?
They can be replaced, easily. Ginnie Mae could take over for Fannie and Freddie as far as providing liquidity to good loans. Plus, I get the biggest kick out your thread title for some reason.
Yes this will happen once the government takes over. Maybe 5yrs, 10yrs. At the moment it doesn't look good to set up a company and hand it over to some people as private entity. Things have to cool down a bit and people forget and cycle of privatizing the gain and socializing the losses just repeats it's self. Nothing new here.
Ok, sorry if I came across harsh. You can replace the entities, but you will end up with the same problem. When government fails, people never think, "let's remove that function or institution", they immediately think "let's make it bigger and add more funding!" The inherent problem with GSEs (government secured entities) like this, is that they propose a moral hazard. If things go sideways, the treasury has to get involved, which means that the losses and failures are socialized to everyone, whether they rent or are 3 years old. Now surely, no one believes that 3 year olds have any culpability it responsibility to bailout some ahole who bought a $600,000 house, with zero down and made interest only payments while working at McDonalds. But that is how the system functions. The people who risk loss (the in-over-his-head home owner and the mortgage paper holder) are not allowed to fail. My best analogy is if you went to the casino every day to gamble, and when you win money you can keep it, and if you lose, a government agent standing by the exit, pays you enough cash to cover your losses. So you play every single day, because at worst, you can only break even, and at best you will get rich. It's a no-lose proposition. But that is what is seen. What is unseen, is where does the government agent keep coming up with this money to settle your losses? Did he tax a middle income family that already can't afford health care? Did he inflate the money supply, creating inflation that reduces the standard of living for the poor and dependent? Did he elect not to buy body armor for the troops so he could pay you back? That's the moral hazard of bailing people out. The government can only redistribute wealth, not create it from thin air (otherwise they should create enough to make everyone rich, right?). When it redistributes, it helps out one party, and hurts another. It's a game of political football, and why I oppose someone like Obama, who has very socialistic policies. A truly honest and progressive government, would be removing barriers to success, instead of taking from Peter to pay Paul. A good government, would cut it's own debt and budgets, end it's wars quickly and cut waste, so that the citizens have more wealth and resources to live a better life. As I keep saying, this is a bailout of the bankers. Welfare for the rich as Jim Rogers calls it. And the candidates are guilty of this as well, Obama and McCain have many Wall Street firms as their top contributors. This is no accident. Those politicians are expected to maintain the status quo of transferring wealth from main street to wall street, using the government as the broker. And people wonder why poverty can't be eradicated or why people can't afford health care....
People overpayed for the homes with some fraud involved by some lenders, appraisers and buyers. The collapse of the banks will not on the face cause people to lose their homes. As long a speople keep paying their mortageges there shouldn't be a problem.
pizza, I posted this to another thread, but if you read it, I hope it will better explain what I have tried to share. http://mises.org/story/3103 If you're interested in more articles like this, articles that explain the situation and consequences of different responses, let me know and I will find more for you.