Thanks for Commenting
The Dow Jones Industrial average tumbled over 777 points yesterday to close at 10,365.45. ... And, you know what? That was less than a 1% loss.
Fuzzy math, or voodoo economics?
See, the real problem is that we didn't repeal Glass-Steagel soon enough. That and the Securities Exchange Act.
Couldn't agree more with everything you said. For the first time in awhile our elected officials in DC have worked for our vote and represented our concerns. The level of greed not only on Wall Street, but also on Main Street with the American people's excessive levels of consumption has created the perfect storm in our economy. Our infatuation with credit has fueled the artificial growth since the early 90s and is now coming to a painful but realistic end. Despite what the pundits say, credit will continue to be available in this country, but only if you deserve it. The bailout would only subsidize the irresponsible lending practices that have brought us to this point. This country needs a serious reality check in so many ways, and despite the pain of these harsh realities, they must occur.
For those about to enter retirement or lose their job in the financial sector, this is an extra painful time, but our country and our economy will be leaner and stronger going forward. May the pain be short and swift and my taxes remain low. Thanks Mario for the best summation of all the arguments against the bailout and alienation of the free market system!
The problem began when some in Congress believed that everyone had a right to home ownership, even without a downpayment. Without any equity in the house when you moved in, it was a lot easier to just walk away and defalt on the mortgage. Fancy and not understanadable financing followed.
As was previously mentioned, credit is for those who can, and will repay it.
Our Congress not falling for for Wall Street bailout scheme is encouraging.
my original point still holds
Wrong, if your original point is that the current market problems are not very serious. Consider this example.
I'm retired. I don't have a pension, I have money I've saved and invested, and which is all I have to live on. The portion invested in equities is down about 24% over the last year. That means that from my investments in stocks I have 24% less money with which to go out to eat, to buy clothes, to see movies, to travel, to do everything else I'd like to do.
That means that all the people from whom I'd buy goods and services - clothing stores, motels, restaurants, movie theaters, etc. are going to get 24% less revenue from me. I'm not alone, there are lots of people in my situation. So businesses are going to get 24% (very roughly speaking) less revenue, so they'll have to fire some of their employees and order less from manufacturers. Those fired employees will spend less, and the manufacturers who are seeing fewer orders will fire some of their employees and buy less from their suppliers, and it all goes around in a downward spiral.
Also wrong, if your point is that the market will fix everything if we just regulate less.
I'm not panicking at the moment, despite that 24%. That's because I also have money in Certificates of Deposits at banks. While banks have been failing left and right, I'm not worried.
Why am I not worried? Because there's government regulation. My CDs are guaranteed by the US government through the FDIC. If we didn't have the FDIC, and the regulations that go along with the FDIC, all the banks would have failed by now, people would have been completely wiped out of all their bank deposits, and everyone would be hoarding food. Federal regulation is keeping that terrible event from happening.
We've tried unregulated markets and they've failed every time. They don't fail right away, but they always end up in these devastating boom and bust cycles. We saw it at the end of the 19th century, and during the 1930s, and we saw it with Enron and the deregulation of the California electricity markets, and we're seeing it again. Left to themselves, people who make the markets lie and cheat.
Take your example of the accounting rule that says "banks had to mark their illiquid investments to the most recent market price of a similar security that actually had a trade" (I'm taking your word on this).
That's a very sensible regulation. It simply means that companies must not lie to investors and creditors about their financial condition. Not lying to investors is important if you want people to be willing to invest. If companies do lie, as Enron and others did, investors end up losing whopping great amounts of money. The people who lied spend their money, or disappear or die, and the people who were fooled end up losing their savings and their retirements. I can't imagine why you think it's a bad idea to have a rule that says companies shouldn't lie.
Its interesting to me that Republicans blame Democrats for Sarbanes-Oxley. That legislation was passed in 2002 when the GOP had control of both the Legislative and Executive branches and passed 334-90 in the House and 99-0 in the senate. It was a reaction to Enron, Worldcom, and a few other corporations misrepresenting their assents by reporting them at some future value which was never attained.
Its true that the reason these mortgage-backed securities have lost most of their value is due to the mark-to-market accounting required by SOX, but in now way did SOX or any other legislation passed by either party force or even encourage financial companies to buy mortgage-backed securities. That's the fault of the corporations themselves - a fundamentally market-created problem.
It is true that Dems in the mid-late 90's wanted to encourage home ownership in the lower classes but it was the *market* that came up with the interest-only, variable rate, 3/5/7, and balloon payment mortgages which have lead to the current mortgage crisis, not Dems or the GOP. When people trumpet free markets they're forgetting that it was the free market that duped people (even relatively rich ones) into buying houses they couldn't afford using these types of loans.
Lost in all this is the fact that these securities do have real value and that value is significantly higher than the US Treasury will end up paying for them. I think most people on the left think of this bailout plan as a giveaway to the corporations and people on the right see it as nationalization of industry but they're both wrong. Its the government buying securities at below value which will both give the financial corporations the liquidity they need to recover and have the bonus of earning the taxpayers a profit.
The "root cause of the this credit crunch" is requiring investment firms to use the actual value of their investments on their books instead of allowing them to make up the value a la Enron? Really? Ha haha ha hah a.
The $45 trillion market in mortgage backed securities can only loosely be tied to actual mortgages at this point. The future value was extracted from these mortgages so many times over already that it eventually ran out. When home prices leveled and then began to reverse, the jig was up, just like the Ponzi scheme that it was.
We've been printing money and mismanaging interest rates since 2001. That combination, a cynical ploy to temporarily make supply side fundamentalism appear to work, set the stage for massive over-investment in credit instruments. The price for this fraud will be trillions in bailouts, deficits, devaluation, and inflation.
No, this wasn't caused by too much regulation (nice orthodox try, though!) or home loans made to poor people. It was just the opposite.
"That's still higher than it was 5 years ago at this time." Adjust for inflation, Mario. Do it once when you compare money over time, please. You might actually began to understand what those numbers mean.
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