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 ...
I'm for free market capitalism and I'm sure Koloktronis is
Were just blaming Wall Street's excesses for bringing us 0bama
Wall St isn't even capitalist anymore. I don't know what to call it
Uh....don’t forget the Blame America Firster, James Earl Carter...
“I’m wondering since you post here on FR but are so adamnatly opposed to free market capitalism, what brings you to this site? It certainly can’t be your philosophy of govt.”
Well, for starters I am very, very much in favor of free market capitalism. I have run my own law practice for 32 years. Thursdays I sit down at lunch time and pay the office bills. I represent small business people and small banks and credit unions, people who work very, very hard and “play by the rules”, real capitalists who put it on the line everyday and then go home to raise families and run communities...not thieving mega rich plutocrats who have convinced a whole segment of American society that what they do is “free market capitalism” and their metaphorical rape and pillage of this country and now the world is the real “American Way”. My story of the 29 year olds and MacMansion is true and I saw it happen time and again and again and again. I saw the “appraisals” bumped up 20% higher than fmv to justify loans of 116% of value and I watched all the greedy sobs take their cut and I have heard politicians here in America and their fellow travelers here on FR justify it all with claims of the “free market”. And I’ll tell you, s, if I thought even a substantial minority of the people here on FR thought all of that was OK because of a commitment to “free market capitalism”, then I’d be gone as quick as I would if I believed that the people here praying for God to kill senators or that the military should pull of a coup because that man Obama won the presidential election formed a substantial minority. I don’t happen to believe that. I believe that most people here think the Wall Street thieves and internationalists who trashed this economy are traitors to their fellow Americans and their claims to support “free market capitalism” are lies.
“Uh....don’t forget the Blame America Firster, James Earl Carter...”
Oh, God...that loser! His economic ideas, to the extent he had any, were just nonsense. On the other hand he came on the heels of “WIN”, Whip Inflation Now. Remember that one? I found a “WIN” pin in a desk drawer at the office two days ago.
Article commentsIf that doesn't work just go to the comments section of the original link.
It looks like other freepers have added comments and invited the poster to discuss things here as well.
Derivatively (pun intended), yes they are responsible.
First of all, the amounts of the actual loans were far greater than you are acknowledging. As woofie points out above: After the Democrats in congress filibustered the Bush administrations attempt to regulate Fannie and Freddie in 2005. Freddie and Fannie then went on to insure as much $ in mortgage debt in the next 3 years as it had in the previous 30 years.
And secondly, the staggering vastness of the resulting derivative structures that created the bulk of the (now collapsing) debt were all originally justified as forms of insurance for these bad loans, and then increasingly as forms of insurance for each other, almost literally without limit.
Yet to say these instruments should have been "better regulated" is to disregard what was driving their frantic creation in the first place - the known worthlessness of the original Fed-required loans. Once that is taken into account, you have to acknowledge that nothing else was left but to try to create insurance for the enforced risk. So if you "regulate" that, you deny even the limited insurance of time extension.
So lack of "regulation" in this matter is a red herring - it would have been like "regulating" the use of a parachute from people thrown out of a plane over the ocean. You might argue that the fall shouldn't bother them since they can't swim, either, but they'd respond that they'd like to live long enough to try.
Thanks!
I’m thinking that the thieves in govt will lay their hands on the savings of the “proletariat” (taking 401K savings and IRA’s) and putting it in the federal retirement system will light the spark of another revolution.
*****************************************************
I can see that happening ,, your IRA or 401K will remain (in part) yours but the rules will change to mirror SS where you lose all when you die and with stricter rules on withdrawals, perhaps halving the minimum yearly drawdown and making it a maximum.
In 2005 there was already a huge amount of mortgage debt. We really need a chart showing how much of the total mortgage debt was forced by government.
And later in your post, Yet to say these instruments should have been "better regulated" is to disregard what was driving their frantic creation in the first place - the known worthlessness of the original Fed-required loans.
Are you saying that regulating Freddie and Fannie is good, but regulating derivatives is not?
Thanks for the info.
The freepers who defend these faux capitalists of Wall St/AIG/banks tend to be libertarians. They have limited powers of discrimination. They always blame government and regulators. We are plagued by EPA, EEOC and OSHA regulators and some freepers foolishly extend this to all regulators
During the GW years we needed a lot more regulation of Wall Street and their credit default swaps, CMOs and derivatives. But GW Bush is also sort of a libertarian so for him it was 100% hands off all markets
One of the most highly touted, and one of the most widely hated, laws ever passed to regulate business and it DIDN'T stop the meltdown. I never hear this mentioned, so I thought I'd make this point.
Banking crises have been a hallmark of capitalism since there was capitalism. If it’s allowed to run it’s natural course and bad loans and bad business decisions are allowed to fail the recovery will be much quicker. What the govt is doing now, and what it did in ‘29, are prescriptions for failure. Conveniently, the govt can continue to blame the problem on the market because pretty much everyone has the same populist attitude that you do.
In any case, we’re all headed down the drain together. I personally don’t ever expect to see real prosperity again in my lifetime, just more and more govt control and class warfare.
“Banking crises have been a hallmark of capitalism since there was capitalism. If it’s allowed to run it’s natural course and bad loans and bad business decisions are allowed to fail the recovery will be much quicker.”
We agree. Where I think we disagree is on the ideological necessity of being in this mess in the first place.
By then it was too late. What ended any chance of reasonable regulation were the bipartisan legislation in 1999 and 2000, signed by Clinton, to repeal Glass-Steagal and to override state laws on gambling on securities. The latter meant that, effectively, I could buy insurance on your house and collect if it burned down. Further the insurance company could sell its side of the contract to someone who may or may not pay me if your house burned down (I would have no say in that sale). Further, I could sell my part of the insurance contract to whoever I wanted to (your other neighbor who hates your guts and likes to play with matches).
Bottom line, the financial market was turned into a casino with many players (hedgies, Europeans, our own investment banks) betting on the failure of (in essence) each other.
Wow, that was a quick response. You’re up early.
I’ll tell you what I think of the current crisis, not with words but instead with my deeds. I pulled my money out of the market and sidelined it in bond funds and money market accounts the middle of last year. Overall, I lost less than 10%. In other words, I could see the handwriting on the wall and I missed the big collapse. Now I’m sitting on the sideline waiting to reinvest. Current govt policy doesn’t lead me to believe that time will come soon, if even in my lifetime. I view the banking crisis as water under the bridge. What I am interested in is the future. It’s not bright.
If government agencies were in on this mess, then it... by definition, cannot be the fault of a ‘free market’.
After all, the government was there to f$#k things up. Now, if the companies, by and large... and without any governmental help, did this - then that’s another story.
Bailing out banks and brokers isn’t a free market.
Free markets would let unsuccessful businesses *fail*.
Propping up unsuccessful businesses is a hallmark of communist nations (ie - North Korea, China, Cuba, and the Soviet Union).
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.