Posted on 09/18/2008 12:38:31 PM PDT by politicket
BOHICA.
I’m afraid so...and this time - to add insult to injury - it’s being driven by Chuckie Schumer.
The government does not have unlimited funds and we already have a monster debt and gigantic deficits. How in the world can we keep dropping tens or hundreds of billions on a seemingly daily basis to try to prop up the market?
I think that - unfortunately - we all know the answer to that.
Hair of the dog, nothing more. The government needs a 12-step program to purge all of this BS, not another short-term “fix”.
When admitting that there is a problem, an unstated requirement in the process is that one actually note the problem itself. Here, the government is essentially saying that the problem is “not enough alcohol” and is going to sell a kidney to get enough booze to prevent the hangover for ‘just a while longer’.
As always with national socialism in its various incarnations, political “necessities” are camouflaged as “economic necessities”. When short-term politics trumps long-term economics, our sole consolation is the stale Keynesian platitude that “in the long run, we are all dead”. We are enslaving our grandchildren before they are even conceived.
With all that has been transpiring of late with Washington, I've actually given this some considerable though via interpretation too.
Others may call it "wonder".
They've been indentured servants for a long time. Now we're on to the 4th, and 5th generations.
I have to disagree with you on this, I believe the correct analysis is the opposite - the non-performing loans and declining or stagnant home values in the U.S. housing market have been the main reason for the credit and liquidity shocks in the financial sector which, in turn, have been manifested as uncertainty and illiquidity in the derivatives market. Sure there are other factors at play but the biggest effect is traceable back to the valuation problems in the mortgage pools and mortgage-backed securities and derivatives.
When it came to the Great Depression, the little book said “No one thought that the stock market could ever go down!”, and talked of the new tech craze that was radio.
I thought as I read the article, that change a few words and you have a picture of the tech boom for the same reasons. I also thought that we came very close to a fascist or socialist revolution in those days.
Looks like we are no longer close.
For five years prior to 1929, rising prices typified the stock market. During this period, American investors enjoyed an enormous "bull market." (The opposite, a market characterized by falling prices, is called a "bear market."). Check - we have that.
Americans invested in the stock market for six reasons during the 1920s:
1. Rising stock dividends. New investors entering the market, many who viewed it as an easy way to get rich quick, helped inflate stock prices. Economic historians, however, estimate that a relatively small number of Americans--about 4 million--had investments in the market at any one time. Yet, the constant influx of new investors coming in and old investors moving out ensured that new money was always floating around. Check - many more investors now, but still a ton of them looking to turn a quick buck.
2. Increase in personal savings. Higher wages meant that even average Americans now had surplus money to put into savings or invest in the stock market. Sorta Check - we don't have any savings anymore, but we do have vast sums of money that we use as "surplus" in the form of credit cards.
3. Relatively easy money policy. At this time, banks made money more readily available at lower interest rates to more and more people. Although economists debate the actual influence of this phenomenon on the stock market, it's conceivable that many people took out loans not only to buy cars, but also to buy stock. Check, check, and double-check.
4. Companies invested their over-production profits in new production. From 1925 on, industry was over-producing. In anticipation of eventually selling the surplus, business leaders funneled their profits right back into industry. They invested in factories and new machinery, and hired more workers, which, in turn, fueled even greater overproduction. This increased production gave the companies an aura of financial soundness, which encouraged Americans to buy more stock. Sorta check - Companies now take their profits and put them in complex hedging schemes and derivative strategies - which give a "perceived" increase in wealth. In actuality, we are now a service-based economy that produces very few things of real, inherent wealth.
5. Lack of stock market regulation. At this time, there were no effective legal guidelines on buying and selling stock. Free from such limitations, corporations began printing up more and more common stock. Many investors in the stock market practiced "buying on margin," that is, buying stock on credit. Confident that a given stock's value would rise, an investor put a down payment on the stock, expecting in a few months to pay off the balance of their initial investment while reaping a hefty profit. This investment strategy turned the stock market into a speculative pyramid game, in which most of the money invested in the market didn't actually exist. Huge check.
6. Psychology of consumption. The Psychology of Consumption fed the optimism of investors and gave them unquestioning faith in prosperity. When the Crash did come, it was even more devastating because of this unquestioned faith. Check. Attitude of "jump in - the water's warm".
So...any similarities? Or just coincidence? Or making a huge deal out of absolutely nothing?
I think that we're saying the same thing - that the mortgage problem has created the turmoil that we're seeing in the derivatives market. My point is/was that the derivatives market is a complete house of cards that contains huge amounts of poor, greedy financial bets having nothing to do with the mortgage industry.
If, and when, the derivatives market explodes it will make the thing that set it off - and the thing that is the sole focus of many people - seem like very small potatoes in comparison.
See post #170
“We may not like having to drink poison, but at least we have our choice”
I’m for crash and burn!!
Taxpayers didn’t cause this mess. We shouldn’t have to pay for it. How many times have we had to clean up after the greedy and/or ignorant? When is it going to stop?
If that were a important aspect, then the answer is to stay poor and destitute thereby eliminating the effects of a crash.
The major cause, as they claim, was little or no regulation, yet bad regulation equals or exceeds no regulation so that is BS.
This leaves us with a answer that was not in the Wicki articles....The real reason is that there was no Fed to stop it in 29. They left it alone, and even made it worse by constricting the money supply rather than flood the markets with liquidity.
It was this mistake that caused the long recovery and resulting depression.
I’d love that, but my hubby doesn’t want one. *sigh*
I know it’s a bad situation, but if we’re going to have capitalism and a free market then let’s do that. “If” capitalism works then won’t the economy eventually right itself without the government sticking its nose in everywhere?
The government sticking its nose in everywhere is a big part of the mess we’re in now. They stick their nose in, taxpayers pay the price for it.
I don’t like it and thinking about a democrat in the WH, especially the messiah...none of us will ever have a nickel to our names no matter how much and how hard we work.
I could see all of your points until this one. Flooding the markets with liquidity does not necessarily stop a depression from happening. A depression is built on lack of trust of the underlying currency. All that the influx of money contributes to is a dilution of the money supply and an increased price for consumers.
The Fed has been the problem in this country, not the solution.
If you worked for a growing company, you participated. If you bought a home, you participated. If you ate food and bought TVs, cars and stuff, you participated.
Economies have many facets, and money is fungible, so it goes everywhere!
It is Wall Street that is the funding mechanism for the entire economy, so if you were alive, you participated by consuming what Wallstreet created.
Obviously no lessons were learned from RTC and how we should of never let it happen again.
If, and when, the derivatives market explodes it will make the thing that set it off - and the thing that is the sole focus of many people - seem like very small potatoes in comparison.
Fair enough on the first point, but on the second point I think you are going too far.
To put it another way, if the US government decided to issue a guarantee of all outstanding US home mortgages, the serious liquidity and valuation concerns in the derivatives market would simply disappear.
The act of one institution entering into, say, a credit default swap with another institution, is neither evil nor good. One can't say in abstract that derivatives are good or bad.
Take the AIG case. The AIG holding company issued credit default swaps on mortgage-backed securities, the value of which evaporated, leading to a downgrade of AIG leading to collateral requirements AIG could not meet. The problem is not the derivative, but the loss in the mortgage market. Put another way, if AIG had not issued the credit default swaps the counterparties would be stuck holding the bag of crappy mortgages and we would be reading financial news headlines about the problems of those counterparties, whomever they may be.
Having said that, I will not be surprised to see Congress ban some classes of over-the-counter derivatives and require commodity-exchange type requirements for these.
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