Posted on 02/19/2009 4:29:12 PM PST by Ernest_at_the_Beach
In the long run, when we are all dead, historians will be debating the root causes behind the global financial meltdown of 2008. They will join up multiple dots, just as they did after the September 11 terror attacks. Among the precipitating factors, toxic mortgage debt securities grossly inflated banks’ balance sheets and investors’ portfolios. Credit rating agencies blessed those assets’ illusory values. Real estate tumbled in a vicious downward spiral, while steep oil prices helped reverse the business cycle.
Inadequate regulation, in America and elsewhere, clearly exacerbated all the other drivers. Specifically, when regulators permitted major American investment banks to take on more leverage, they “made the dollar amounts larger and the margin of safety less,” describes Barry Ritholtz, director of Equity Research at Fusion IQ. Imagine climbing up the outside of a building. The leverage lets you climb higher, and also takes away the safety equipment.
(Excerpt) Read more at realclearmarkets.com ...
Remove all regulation on the financial markets, and watch how far the indexes go down.
If you don't think the game is fair, take your ball and go elsewhere.
I took my money out of the stock markets 4 years ago.
CDS are an interesting example. Billions of dollars in bets for trillions that in reality the house (AIG etc.) couldn't cover. Should the government cover those bets for the gamblers who placed them? Hell no! Let them burn as an example to others. I wrote back in October that CDS should only be honored when the holder owns the securities that were insured, all other only get their premiums back. That would have unwound the furball with the right amount of pain in the right places.
The free market idea isn't and should be "beloved", it is as flawed as human nature is. But the only alternative is despotism and slavery in whatever name it currently goes by. If you give your freedom over to someone else because they promise to keep you safe, paraphrasing Ben Franklin, you're f****d.
One problem with the bailout is that is sends the message that there is a power that will make all your hurts whole. And its name is government bailout. We've seen the most ridiculous applications for money, but it makes sense that if the big players can get a reprieve, why not everyone else? The anger will be very great when not everyone qualifies for that kind of handout and the squabbling over who got a bigger piece of pie starts.
We are probably going to get everything you mention above, but would it have been worse if the big players had been left to fail? At least then the suffering would have been distributed fairly. I think that would count for a lot. People can pull through hard times and they have many times before. Fear of the hard times to come shouldn't drive us to give up on our best ideals.
What we need is a separation between business and state. The two are so intermingled together, laissez-faire has basically become, let the market rule for those firms that have paid enough into Washington.
We are stampeding into socialism so I don't see that happening here soon. Capital will end up flowing to a more free place, if it comes into existence.
Thanks.... will say more
mark
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