America's Financial Crisis

[yerazhishda]

Re: America's Financial Crisis

How's this for keeping on track?

*****************************

Washington Mutual is seized to avert failure
By Eric Dash and Andrew Ross Sorkin

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night in what is by far the largest bank failure in American history.
Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to J.P. Morgan Chase. The remainder of WaMu, the nation's largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu depositors are guaranteed by the Federal Deposit Insurance Corp. up to the $100,000 per account limit. WaMu customers are unlikely to be affected.
Howard Headlee, Utah Banker's Association president, said Thursday night the purchase of Washington Mutual bank by JPMorgan Chase should have no ill effect on Utahns.
"Chase is a very stable, strong financial institution," he said.
The seizure and purchase of WaMu, Headlee said, is a positive move that should appear seamless to the public and ensure "continuity" for customers.
"Frankly, I don't think the customer will see anything," Headlee said. "There will be little to no impact on their accounts."

source: http://www.sltrib.com/ci_10561877

[jgk3]

Re: Bush administration: financial crisis

On a personal level, I bumming out about this mess...all the wealth you and you family worked so hard for has a great potential to vanish in a blink of an eye.

I'm still young and didn't have enough years yet to get attached to the idea that my wealth and financial ambitions are standing on some legitimate decree of value. For my parents, that's another story.

But I see what all this is leading to for those who wish to lead a city life... More red tape and surveillance. More waiting in lines instead of being a go-getter. Since previous recessions and depressions, the reality that we live in a surveillance state has only been enhanced. Although I don't really mind it so much because I'm not on a blacklist or anything, I do feel the difference (of not being watched) when I am in the outskirts of the city, or in the woods and tend to appreciate it quite a bit.

[crusader1492]

Re: Bush administration: financial crisis

That's all well and good, but you can't raise a family in the woods.

[Armenian]

Re: Bush administration: financial crisis

That's all well and good, but you can't raise a family in the woods.

Humanity managed to do just that for thousands of years. Your real question should have been - how can you get yourself to part with the varied pleasures of city life? And that is where things get subjective for some prefer city lifestyles while others prefer the country. As for me, I prefer a country lifestyle but I see myself stuck in the city. However, cultures with strong agrarian lifestyles will thrive in hard times. We need to relearn the joys of living simply and naturally.

[ZORAVAR]

Re: Bush administration: financial crisis

We need to relearn the joys of living simply and naturally.

So true. Humans have the inborn skill to complicate their own lives. Fortunately, they also have the survival instinct and the ability to go back to basics.

[Armanen]

Re: Bush administration: financial crisis

I think Armenia will survive the great crash, whether it happens soon or in a decade. We have survived much worse and through the generations have developed a "survival gene" if you will.

[crusader1492]

Re: Bush administration: financial crisis

Humanity managed to do just that for thousands of years. Your real question should have been - how can you get yourself to part with the varied pleasures of city life? And that is where things get subjective for some prefer city lifestyles while others prefer the country. As for me, I prefer a country lifestyle but I see myself stuck in the city. However, cultures with strong agrarian lifestyles will thrive in hard times. We need to relearn the joys of living simply and naturally.

I purchased a wood burning stove and I plan to have a big garden next year. Does that count?

I also just learned how to skin a squirrel on youtube.

http://www.youtube.com/watch?v=66AVwthXgMA

[Armenian]

Re: Bush administration: financial crisis

I purchased a wood burning stove and I plan to have a big garden next year. Does that count? I also just learned how to skin a squirrel on youtube. http://www.youtube.com/watch?v=66AVwthXgMA

That's a good start, especially the skinning a squirrel part.

[Anonymouse]

Re: America's Financial Crisis

The Great Bailout Brouhaha

Free market economists weigh in on Paulson's plan

September 25, 2008

As Congress and President Bush set to "hammering out the details" of a proposed $700 billion bailout for investment banks, reason asked free-market-friendly economists three pressing questions: How bad is the current market situation?; how bad are the current proposed bailout plans?; and what's the one thing we should be doing that we're not?

Bryan Caplan

1. How bad is the current market situation?
To be honest, I'm not too sure. While we're blaming banks and investors for their "herd behavior," we should remember that politicians and the media often run with the herd, too. When the dust settles, I suspect we'll realize that conditions weren't as bad as people assumed—or at least they weren't until we tried to fix them.

2. How bad are the current proposed bailout plans?
Again, to be honest, I'm not too sure. The plans are creating a bad precedent—perhaps the worst precedent since the New Deal. But it's worth remembering that a "$700 billion bailout" doesn't literally mean that the government gives $700 billion to investors. Instead, it means that the government can buy $700 billion worth of assets; the transfer to investors is only the difference between $700 billion and the fair market value of the assets.

I should add, though, that I don't think the people spearheading the bailout have a clear idea about what they're doing either. They remind me of the old saying: "Something must be done. This is something. Therefore this must be done." I'm a former student of Chairman Ben Bernanke and his behavior during this mess has been a big disappointment.

3. What's the one thing we should be doing that we're not?
Waiting a couple of years. Unemployment is only 6.1 percent; by standard measures, we're still not in a recession. Even if you have no libertarian sympathies, shouldn't you at least give familiar, low-impact responses (especially standard monetary policy) before you throw caution to the wind?

Bryan Caplan is an associate professor of economics at George Mason University and the author of The Myth of the Rational Voter.

Robert E. Wright

1. How bad is the current market situation?
The current situation is potentially dire. The comparison with 1932-33 is sobering: An unpopular Republican president is in office, the financial system is a mess, and an important election looms, yet many fear what the articulate Democratic candidate might do if elected. We won't have to wait until March to find out this time around. But given how fast the world moves these days, late January will seem an eternity away. The payments system broke down last time (March 1933), necessitating a bank "holiday," a moving speech ("the only thing we have to fear is fear itself"), and creation of the FDIC (Federal Deposit Insurance Corporation). Breakdown of the payments system today would stagger the economy. During the Depression we didn't have to worry about hackers and terrorists but they must be salivating now. They will probably wait until after the election, but they will almost certainly try to kick us while we are down, just like they did during the last two recessions (1990 invasion of Kuwait and 9/11).

2. How bad are the current proposed bailout plans?
The current bailout plans are so bad it's impossible to tell just how bad they are with any precision. The devil, as they say, is hiding in details that are either undisclosed or will be concocted on the fly. For example, it is clear that some sort of tax will have to be placed on financial institutions that grow TBTF (too big to fail). If the tax is too high, financial services firms will stay small and the United States may lose, or be unable to regain, its competitive advantage in some important financial areas. If the tax is too low, financial services firms will merge and conglomerate at a rapid pace just to avoid "Lehmanasia" (euthanasia if they are not big enough to represent a systemic risk) during the next crisis. If the tax is just right, only those companies that need to be huge to compete internationally should be willing to pay it. The probability that regulators will get this and similar issues right appears small indeed given their track record.

3. What's the one thing we should be doing that we're not?
There are many things that policymakers are not doing that they should be. One is thinking long and hard about how to improve regulation. Clearly, both regulators and financiers need to know more about economics and financial history: Paying mortgage originators their full commission upfront was an affront to both theory (incentives matter big time) and history (the failure of six previous mortgage securitization schemes in the U.S. between the Civil War and World War II for the same reason). Equally clearly, compensation structures within financial services firms need to put much more weight on long-term or deferred compensation. Yearly bonuses may be appropriate for some (e.g. traders) but are clearly not appropriate for others (e.g. executives). Only then will managers eschew short term profits for long term gains, as they used to do when they were partners in private concerns.

Robert E. Wright is clinical associate professor of economics at New York University's Stern School of Business and the author of One Nation Under Debt.

Jeffrey A. Miron

1. How bad is the current market situation?
The current situation is serious, but not so much because the economic conditions are especially bad. The situation is serious because policymakers seem poised to undertake an enormous intervention that will have huge adverse effects and may well exacerbate the very kind of problem the intervention is meant to fix.

2. How bad are the current proposed bailout plans?
See #1. The bailout is a terrible idea. It transfers a huge amount of wealth to people who do not deserve it. It will generate enormous incentives for creative bookkeeping as the investment houses and banks try to rid themselves of any assets they do not want. The bailout fails to eliminate the crucial policies that contributed to and caused the current situation, such as the Community Reinvestment Act, the creation of Fannie Mae and Freddie Mac, and so on. Last but hardly least, the bailout sets a terrible precedent: If you take huge risks and become too big to fail, the government will bail you out.

3. What's the one thing we should be doing that we're not?
The only things we should be doing are eliminating the underlying policy causes of the current situation; see #2.

Jeffrey A. Miron is senior lecturer and director of undergraduate studies in the Department of Economics at Harvard University.

Chris Dillow

1. How bad is the current market situation?
No one knows! Our problem is one of Knightian uncertainty; we just don't know (and banks themselves don't know) what those illiquid mortgage derivatives are worth. If I were looking for comfort, I'd point out that the non-financial, non-housing economy has held up OK during the first 13 months of the crisis, so perhaps the linkages between the financial and "real" economy aren't as strong as feared. And there's some evidence that housing transactions are, at least, falling less quickly.

My problem is that, even before Lehman Brothers collapsed, the U.S. was likely to have a mild recession over the winter. The danger is that this'll increase risk aversion.

2. How bad are the current proposed bailout plans?
They're sub-optimal rather than terrible. It would be better if banks could be recapitalized either through debt-equity swaps as Luigi Zingales has suggested, or through a government order to stop paying dividends and hold rights issues, or through partial nationalization. I'm not so worried that the plan will cost taxpayers heavily—it might not—as by the social injustice of it. The welfare state seems more generous for bankers than for the poor.

3. What's the one thing we should be doing that we're not?
Apart from keeping our heads? Remember the distinction between capitalism and free markets. This crisis raises many questions about the merits of capitalism—and in particular the massive gap between ownership and control that afflicts quoted companies—but does not undermine the case for free markets.

Chris Dillow is economics writer at the Investors Chronicle. He blogs at Stumbling and Mumbling.

Frederic Sautet

1. How bad is the current market situation?
Very bad. It could be one of the worst business cycles since World War II or more. There is a mountain of malinvestments. This is coupled with over-leveraged investment banks and other financial institutions that have been using new financial instruments carelessly for a decade because of the perverse incentives in the system.

2. How bad are the current proposed bailout plans?
This is socialization of the banking industry, plain and simple.

3. What's the one thing we should be doing that we're not?
Getting out of the mess is not going to be easy. Once the perverse incentives are in the system, it's hard to go back. Bailing out is very bad and in the long run is worse than bankruptcy. It is not a coincidence that Paulson is the former CEO of Goldman Sachs and is now bailing out his friends. The problem is that bankers should be punished for their careless, stupid investments (JP Morgan, for instance, has $8.1 trillion in credit derivatives on its books), but since it was largely driven by the government's loose monetary policy and regulation, bankers are not the only ones responsible. Clearly letting the banks fail in the short run would have bad consequences for many households in the U.S. (and elsewhere). The problem is that the government does not have the incentives to intervene just for a short time. Once the banks are nationalized, it may take a while before the government leaves the place. Ultimately, this situation calls for radical policy solutions: The return to the gold standard and the abolition of central banks. reason should run a special issue on this theme.

Fredric Sautet is a senior research fellow at the Mercatus Center at George Mason University.


Mark Thornton

1. How bad is the current market situation?
I believe that the current state of the economy is worse than at any time during my life. Debt and future obligations of the federal government are daunting and the personal finance of the average American is extremely weak. The capital and financial imbalances in the economy are extreme. Ultimately this is due to the fiat dollar, fractional reserve banking, and the central bank (i.e., the Federal Reserve).

2. How bad are the current proposed bailout plans?
The actions taken over the last year and the pending bailout of Wall Street have not and will not help. They have made and will make the economic situation much worse. This is the exact same approach that took us into the Great Depression. There is no reason to expect the correct solution from the same people who created the crisis in the first place and who until very recently thought the economy was strong and that there was little or no chance of recession.

3. What's the one thing we should be doing that we're not?
The most important reform is to recognize the legal monetary status of gold and silver as intended in the Constitution so they can serve as an alternative money that is untaxed and unhindered by government interference. This would send a strong message throughout the world economy and begin to establish political pressure against monetary inflation and fiscal irresponsibility by government.

Dr. Mark Thornton is a senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, and the book review editor of the Quarterly Journal of Austrian Economics. His books include The Economics of Prohibition and Tariffs, Blockades, and Inflation: The Economics of the Civil War (with Robert B. Ekelund, Jr.). He is the editor of The Quotable Mises and The Bastiat Collection.

http://www.reason.com/news/show/129041.html

[jgk3]

Re: Bush administration: financial crisis

A woodburning stove would definitely come in handy Crusader

I watch videos like that from time to time too, the more knowledge I get on how to work with the bountiful supplies of the woods, the more enthusiastic I become about the whole prospect of shifting my dependencies towards nature. City life has it's perks too, namely that it's a good center for exchanges of ideas and knowledge, training for different skills, you can buy lots of goods here that you can't elsewhere, etc, etc... But when it comes down to it, that doesn't mean we need to live in the city, and for me personally, the country would be very comfortable and fulfilling.

Oh btw, I just joined the scouts troops for ages 18-26 (I have no prior experience) and they go on trips in different provinces and even in New England, it should be fun for me and I'll let you guys know how it goes. It's basically 4 main trips a year, usually during weekends and at most, they are a week long. Not at all infeasible for a student.

anyways, we should make another thread out of such discussions, especially if we're going to post youtube videos on how to skin squirrels.