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Old 11-13-2008, 11:56 AM   #1
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Default Great explanation how we got into this financial mess

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Old 11-13-2008, 12:28 PM   #2
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If JasonC SSB believes this, I finally agree with some of his logic. Must have taken off the tinfoil hat for awhile.
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Old 11-13-2008, 01:01 PM   #3
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I have stopped paying my mortgage for the last month or so and have been saving the money....we are about to put a down payment on a bigger, cheaper, better 3-bdr house. Once we close, we'll foreclosure on the current condo. That'll show the those profit oriented banks a thing or two...
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Old 11-13-2008, 06:52 PM   #4
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Thanks for reposting my link here *******.

This letter was written by a econ professor that is good friends with one of my econ professor. They share a blog together and it was orginially psoted on there back in September. Heres a link to the blog The Austrian Economists
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Old 11-13-2008, 07:41 PM   #5
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LOL did I beat you to it?

Great letter.

I wish the "liberals" would try and understand what the writer is trying to say.
Unfortunately many will immediately jump to the false conclusion that "anti-left writer" = "pro-fascism" = bad, then not even read it through.
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Old 11-13-2008, 07:56 PM   #6
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Can I get Cliffs notes? I'm on some killer *** pain meds and have no attention span.. :(
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Old 11-13-2008, 08:34 PM   #7
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Quote:
Originally Posted by elesjuan View Post
Can I get Cliffs notes? I'm on some killer *** pain meds and have no attention span.. :(
Big Government is just made up of more small people.
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Old 11-13-2008, 11:31 PM   #8
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An interesting counterpoint: The Libertarians' Lament
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Old 11-14-2008, 10:14 AM   #9
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Originally Posted by Atlanta93LE View Post
An interesting counterpoint: The Libertarians' Lament
I am sorry I thought that article was very poorly written. He dosent offer any overall great details. Or offer proof that the mess was not caused by government interference. I will stick by a Professor with a PHD in Econ over listening to him. Here is a rebuttle to his article from the CATO institute http://www.cato-at-liberty.org/2008/...acob-weisberg/

Also here is a long article on the financial sides of things from someone inside the business.
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Old 11-14-2008, 01:03 PM   #10
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deregulation works if collusion is your goal. Look at utilities, cable, internet, fuel, and banking.

good luck finding a private, fixed rate student loan.
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Old 11-14-2008, 01:58 PM   #11
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Quote:
Originally Posted by shuiend View Post
...I will stick by a Professor with a PHD in Econ...
Kind of like Ben Bernanke? Or hell, even Alan Greenspan, if you're counting honorary degrees.

I'm not supporting either side of this blame-game. I only care about what caused this long enough to learn how to help avoid it in the future. So far, I haven't seen much besides criticism all around. But remember, analysis is easier than design.
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Old 11-14-2008, 05:17 PM   #12
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.. except they are/were heads of the most powerful cartel in the world.
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Old 11-14-2008, 07:12 PM   #13
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Sub Prime Crisis for Dummies

-Emerging economies dumping massive amounts of capital into the investment world. International pool of money doubles since 2000, from about 30 trillion dollars to around 70 trillion in 2007.

-Greenspan lowers fed rates so low that the new emerging economies investors have to find somewhere else to invest other than federal bonds.

-They invest in Mortgage Backed Securities thinking that the housing price bubble wasn't a bubble. MBS are mortgages which are bundled together and sold together as a single investment package.

-They used incorrect data to assess the assests. Many "bad loans" were rated AAA(which is like a perfect credit rating in the bond rating world) because they used past loan information to assess the new loans. However there were so many changes to current loaning practices, that the "old data" was irrelevant.

-Collateralized debt obligations further pooling "bad rated" mortgages together to be invested so even really badly assessed loans were rated AAA. Investors buy up these pooled mortgages thinking they're "good as money".

- Because they thought that the housing bubble wasn't a bubble, investors put more and more stress on mortgage brokers and investment banks to continue lowering the standards of loaning practices.

-They introduce the NINA (no income no asset verification) loans and many other insane loan types. The housing bubble collapses and we have trillions of dollars of assets which need to be revalued.

At this current point, many of those CDO's have 50% default rates. Some of these CDO's & MBS's which were/are owned by many huge investment banks are collapsing on a massive scale.

Because of the far reaching effects of a credit crunch, we are left where we are today. There is a great deal of truth to the "failure of the freemarket". Just as there are excesses to democracy, there are excesses to any system. This has been admitted by many economists and economic policy experts.
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Old 11-14-2008, 07:25 PM   #14
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Quote:
Originally Posted by naarleven View Post
Sub Prime Crisis for Dummies

-Emerging economies dumping massive amounts of capital into the investment world. International pool of money doubles since 2000, from about 30 trillion dollars to around 70 trillion in 2007.

-Greenspan lowers fed rates so low that the new emerging economies investors have to find somewhere else to invest other than federal bonds.

-They invest in Mortgage Backed Securities thinking that the housing price bubble wasn't a bubble. MBS are mortgages which are bundled together and sold together as a single investment package.

-They used incorrect data to assess the assests. Many "bad loans" were rated AAA(which is like a perfect credit rating in the bond rating world) because they used past loan information to assess the new loans. However there were so many changes to current loaning practices, that the "old data" was irrelevant.

-Collateralized debt obligations further pooling "bad rated" mortgages together to be invested so even really badly assessed loans were rated AAA. Investors buy up these pooled mortgages thinking they're "good as money".

- Because they thought that the housing bubble wasn't a bubble, investors put more and more stress on mortgage brokers and investment banks to continue lowering the standards of loaning practices.

-They introduce the NINA (no income no asset verification) loans and many other insane loan types. The housing bubble collapses and we have trillions of dollars of assets which need to be revalued.

At this current point, many of those CDO's have 50% default rates. Some of these CDO's & MBS's which were/are owned by many huge investment banks are collapsing on a massive scale.

Because of the far reaching effects of a credit crunch, we are left where we are today. There is a great deal of truth to the "failure of the freemarket". Just as there are excesses to democracy, there are excesses to any system. This has been admitted by many economists and economic policy experts.

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Old 11-15-2008, 01:17 PM   #15
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naarleven, did you read the letter?

Much of what pushed corporations down this road is government regulation. The answer is NOT more regulation.

One of the fundamental causes of this bust is the false boom caused by the Fed's low interest rates. Lower than what the free market would have set it at. The creation of the Fed, a cartel, is an act of regulation in itself.

I'm not saying zero regulation: another culprit of this crisis is lack of enforcement of laws. I'm thinking specifically of Naked Short Selling, which is fraud. The SEC never prosecuted a single case:

The Naked Short Selling That Toppled Wall Street | Deep Capture
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Old 11-15-2008, 01:17 PM   #16
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Also consider the origins of government regulation back during the "Progressive Era" of 1890-1910

Big Business and Big Government

Scroll down about 40% of the way to the heading
"The History of Big Business Is the History of Big Government"

Quote:

Consider the story of one of the most famous "trusts" in American folklore: U.S. Steel.

In the 1880s and 1890s, rapid steel mergers created the mammoth U.S. Steel out of what had been 138 steel companies. In the early years of the new century, however, U.S. Steel saw its profits falling. That insecurity brought about a momentous meeting.

On November 21, 1907, in New York's posh Waldorf-Astoria, 49 chiefs of the leading steel companies met for dinner. The host was U.S. Steel chairman Judge Elbert Gary. The gathering, the first of the "Gary Dinners," hoped to yield "gentlemen's agreements" against cutting steel prices. At the second meeting, a few weeks later, "every manufacturer present gave the opinion that no necessity or reason exists for the reduction of prices at the present time," Gary reported.

The big guys were meeting openly— with Teddy Roosevelt's Justice Department officials present, in fact—to set prices.

But it did not work. "By May, 1908," Kolko writes, "breaks again began appearing in the united steel front." Some manufacturers were undercutting the agreement by dropping prices. "After June, 1908, the Gary agreement was nominal rather than real. Smaller steel companies began cutting prices." U.S. Steel lost market share during this time, which Kolko blames on "its technological conservatism and its lack of flexible leadership." In fact, according to Kolko, "U.S. Steel never had any particular technological advantage, as was often true of the largest firm in other industries."

In this way, the free market acts as an equalizer. While economies of scale allow corporate giants more flexible financing and can drive down costs, massive size usually also creates inertia and inflexibility. U.S. Steel saw itself as a vulnerable giant threatened by the boisterous free market, and Gary's failed efforts at rationalizing the industry left only one line of defense. "Having failed in the realm of economics," Kolko writes, "the efforts of the United States Steel group were to be shifted to politics."

Sure enough, on February 15, 1909, steel magnate Andrew Carnegie wrote a letter to the New York Times favoring "government control" of the steel industry. Two years later, Gary echoed this sentiment before a congressional committee: "I believe we must come to enforced publicity and governmental control . . . even as to prices."

When it came to railroad regulation by the Interstate Commerce Commission, the railroads themselves were among the leading advocates. The editors of the Wall Street Journal wondered at this development and editorialized on December 28, 1904:

Nothing is more noteworthy than the fact that President Roosevelt's recommendation recommendation in favor of government regulation of railroad rates and[Corporation] Commissioner [James R.] Garfield's recommendation in favor of federal control of interstate companies have met with so much favor among managers of railroad and industrial companies.

Once again, big business favored government "curbs" on business...
If you prefer watching a video to reading the above, have a look:

The Founding of The Federal Reserve

From the 5 minute to the 15 minute mark, he specifically talks about the industries of the Robber Barons during the "Progressive" era of 1890-1910. He talks about the attempted cartelization of these industries and how they finally succeeded, by getting "intellectuals" to call for government regulation.
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Old 11-15-2008, 05:30 PM   #17
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Originally Posted by JasonC SBB View Post
naarleven, did you read the letter?

Much of what pushed corporations down this road is government regulation. The answer is NOT more regulation.

One of the fundamental causes of this bust is the false boom caused by the Fed's low interest rates. Lower than what the free market would have set it at. The creation of the Fed, a cartel, is an act of regulation in itself.

I'm not saying zero regulation: another culprit of this crisis is lack of enforcement of laws. I'm thinking specifically of Naked Short Selling, which is fraud. The SEC never prosecuted a single case:

The Naked Short Selling That Toppled Wall Street | Deep Capture
I did read it. But my point was, the situation wasn't entirely a matter of policy OR freddie/fannies problem. More pressure was put on investors NOT by government regulation to give mortgages to poor people, but instead increased pressure from emerging economies looking to invest their new found capital.

ALSO my point was that ANY system has its flaws and it is foolish for anyone to be so ideological about an approach to any system, political or economic. Capitalism has flaws. Democracy has flaws. Socialism has flaws. No system is impervious to disaster.

While I do agree to some point that CRA had some involvement in the crisis, it is far from the only reason. "Securitization" of these new mortgages and bad information was another reasons banks and investors fooled themselves into believing their own load of bullshit.

However, I am as opposed to corporatism as the writer is. Marriage of state and business is as bad as marriage of state and religion.
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Old 11-15-2008, 11:27 PM   #18
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"Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws. " -G.W. Bush

President's Address to the Nation


And for a rare treat, i'm in agreement with Mr. President. I feel it was an outdated regulatory practices that contributed to the issue. On the note of the Fed, I won't get into an debate about it because its clear we have differing opinions on fiat currencies.

Read this on a blog tonight

Quote:
Which is exactly why one shouldn't debate them that much. And by the way: "Austrian" refers to things coming out of Austria and "Economics" stands for a science, "Austrian Economics" is neither of them, which is why I used "Austrian school of economics". The wisest words on this have been said by Robert Solow when Interviewed by Arjo Klamer when attacking a far less deserving target:

Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte.
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Old 11-16-2008, 11:13 AM   #19
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Which is exactly why one shouldn't debate them that much. And by the way: "Austrian" refers to things coming out of Austria and "Economics" stands for a science, "Austrian Economics" is neither of them, which is why I used "Austrian school of economics". The wisest words on this have been said by Robert Solow when Interviewed by Arjo Klamer when attacking a far less deserving target:

Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte.
Actually one of the professor responded to that exact blog post you just posted a little while ago. Here is the response to that post that you cite.
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