there is a constant, never-ending gallery of "experts" who are constantly predicting financial doom. Sell everything now, buy gold and bullets!
there is also a constant, never-ending gallery of "experts" who are constantly predicting "super-booms" and whatnot. Dow 32,000 by 2018!
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
(I'm reminded of a saying about stopped clocks)
so i guess the answer to the question in the title of the thread is "maybe"? when do we start chanting "end the fed"?
I agree with this. Some of the best advice I ever heard, regarding financial predictions, is that they need to include a timescale, or else they're worthless. Everything will happen eventually, including both booms and busts- the trick is knowing when. Will it be next month? Next year? in 5 years? Most of the quacks like zerohedge hyping up another financial crisis just give vague, ominous warnings, so they can never be proven wrong. But if you were actually making trades based on their advice, you'd go broke.
So, the new product on the market is rent-based securities, which have the potential to be even more deleterious than the mortgage based ones that caused the 2008 collapse.
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
If you follow finance, there is literally always someone predicting doom about some sort of bubble or another. Popular ones right now are the Chinese housing/construction bubble and the US higher education bubble.
I'm not sure what libertarians have to do with the subprime mortgage crisis.
+1
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surrealitychecklonely, but not unloveddreaming of faulty keys and latchesRegistered Userregular
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
If you follow finance, there is literally always someone predicting doom about some sort of bubble or another. Popular ones right now are the Chinese housing/construction bubble and the US higher education bubble.
I'm not sure what libertarians have to do with the subprime mortgage crisis.
presumably a reference to the politics of alan greenspan and his interest rate habits
It boggles my mind we had Alan Greenspan and Hank Paulson in the positions they were in
like, Greenspan is an objectivits nut and Paulson doesn't believe in prayer as opposed to medical care, yeah that's who you want at the wheels of the world's largest economy
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
Actually, prior to 2007, there weren't that many experts predicting a housing bubble burst. When it happened, the media had some difficulty in finding many warnings against it. In hindsight, it's obvious. But at the time, most people were very gung ho for housing investment.
And really, at any time you have someone predicting the next bubble. The OP posted the question "Will there be another financial crisis soon?"
The answer is "Yes, for a given value of soon." There will always be another financial meltdown in the future. It's driven by greed, and greed is a universal human trait.
China's problem right now is the same on that the US has, their population cannot sustain the buying power needed to keep their growth up. In the case of the U.S., we've lost too many middle class jobs to sustain our ability to pay for the next iPhone or other frivolous luxury. In China, it's because their middle class hasn't grown fast enough to be able to afford all the housing they've been building.
China's problem is compounded by the US, because we push them to do things like set up corporate dormatories to house the million workers that make Apple products for the U.S. market. So, we're preventing China's population from advancing to the middle class by forcing them into lower class working conditions, pay, and housing. And then our demand drops off because we screwed up our own economy, which results in layoffs in China, further damaging their economy.
For the U.S., the economy we had from 2002-2008 wasn't sustainable. It was based on increasing personal debt to "keep up with the Jones's". You can't sustain a middle class that's living a lower upper class lifestyle by using up their savings (including equity), because at some point that runs out. Things like Variable Interest Rate Mortgages were often just a way to extend this lifestyle past the point of sustainability. And it shows, because things finally came crashing down.
My personal opinion is that we should have had a major market correction for housing and stock prices to account for how off kilter things had become. The government, however, stepped in to maintain the status quo. Uncle Sam bailed out banks and made lending them money easier than ever in an effort to prevent this market regulation from occuring, thus drawing out the pain and suffering and turning all of the progess since the meltdown into the profits of the 0.01%. Instead of helping out the citizens who had made poor choices, the USG created tax incentives for people to keep buying homes, thus propping up the housing market.
This would have been more painful in the short run, but it wouldn't have resulted in the situation we have now, which is that almost all of the grown in the US goes to the rich, and the middle class is disappearing faster than ever. The path we're on currently is unsustainable and will require a much larger market correction in the future.
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
If you follow finance, there is literally always someone predicting doom about some sort of bubble or another. Popular ones right now are the Chinese housing/construction bubble and the US higher education bubble.
I'm not sure what libertarians have to do with the subprime mortgage crisis.
presumably a reference to the politics of alan greenspan and his interest rate habits
i guess you can argue that low interest rates incentivized banks engaged in subprime lending to increase their efforts in an attempt to generate returns
but i dont think it's fair (or accurate) to lay the wreath at greenspan's feet
whenever markets move adversely we seek to point fingers and figure out the specific thing that did it, and it's never quite that simple. markets are way more complex than a results in b
from monetary policy to perverse incentives to misratings to unchecked optimism to misguided domestic policy there was a perfect storm that allowed 2008 to happen
We were also in the middle of a multi-trillion dollar Keynesian 'pay someone to dig a hole, pay someone else to fill it in' spending program. Except in stead of digging holes we were hassling travelers and killing brown people.
We were also in the middle of a multi-trillion dollar Keynesian 'pay someone to dig a hole, pay someone else to fill it in' spending program. Except in stead of digging holes we were hassling travelers and killing brown people.
When you literally make money by spending money, it's too bad it's not politically viable to pay people to dig holes and fill them back in.
I mean, of course works programs / infrastructure building would be better...but you take what you can get.
While I admit that I lack any sort of economic education, I expect that the stirrings in updating Africa leading it to being the next "let's make stuff cheap here" location and the growth in 3D printing will cause some boom/bust stuff within our lifetimes, albeit probably not in the next decade.
Actually, prior to 2007, there weren't that many experts predicting a housing bubble burst. When it happened, the media had some difficulty in finding many warnings against it. In hindsight, it's obvious. But at the time, most people were very gung ho for housing investment.
And really, at any time you have someone predicting the next bubble. The OP posted the question "Will there be another financial crisis soon?"
The answer is "Yes, for a given value of soon." There will always be another financial meltdown in the future. It's driven by greed, and greed is a universal human trait.
China's problem right now is the same on that the US has, their population cannot sustain the buying power needed to keep their growth up. In the case of the U.S., we've lost too many middle class jobs to sustain our ability to pay for the next iPhone or other frivolous luxury. In China, it's because their middle class hasn't grown fast enough to be able to afford all the housing they've been building.
China's problem is compounded by the US, because we push them to do things like set up corporate dormatories to house the million workers that make Apple products for the U.S. market. So, we're preventing China's population from advancing to the middle class by forcing them into lower class working conditions, pay, and housing. And then our demand drops off because we screwed up our own economy, which results in layoffs in China, further damaging their economy.
For the U.S., the economy we had from 2002-2008 wasn't sustainable. It was based on increasing personal debt to "keep up with the Jones's". You can't sustain a middle class that's living a lower upper class lifestyle by using up their savings (including equity), because at some point that runs out. Things like Variable Interest Rate Mortgages were often just a way to extend this lifestyle past the point of sustainability. And it shows, because things finally came crashing down.
My personal opinion is that we should have had a major market correction for housing and stock prices to account for how off kilter things had become. The government, however, stepped in to maintain the status quo. Uncle Sam bailed out banks and made lending them money easier than ever in an effort to prevent this market regulation from occuring, thus drawing out the pain and suffering and turning all of the progess since the meltdown into the profits of the 0.01%. Instead of helping out the citizens who had made poor choices, the USG created tax incentives for people to keep buying homes, thus propping up the housing market.
This would have been more painful in the short run, but it wouldn't have resulted in the situation we have now, which is that almost all of the grown in the US goes to the rich, and the middle class is disappearing faster than ever. The path we're on currently is unsustainable and will require a much larger market correction in the future.
There are a few points to make here:
1. This is entirely untrue. A paper done after the crisis here (pdf here) found at least twelve individuals who all predicted a housing-led recession, WITH timetable, and including names like Peter Schiff, Robert Schiller, and Dean Baker. The list includes experts from around the world, including the US, Denmark, and Australia, so it's not like we had a dearth of advance warning.
If that's not enough, the Real-World Economics Review posted their own list, compiled from their subscribers, pointing out an additional four people who called the crisis, including Paul Krugman, Joseph Stiglitz and George Soros, hardly the last people the media would think of contacting.
If THAT isn't enough, Warren Buffet didn't give a time table, but had been cautioning for years about derivatives, famously calling them " time bombs, both for the parties that deal in them and the economic system," (pdf) in a letter to the shareholders of Berkshire Hathaway. In a 2006 interview he said "We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments."
And it's not like no one was listening. Average people started seeing this coming years in advance.
Search interest in "housing bubble" was peaking a full year before the crisis actually hit, and this was laypeople doing the bulk of the searches.
Your entire idea that this bubble caught us all off guard because of some magic inherent in finance markets is demonstrably false, and the idea that the media had difficulties finding advance warnings is a blatant lie.
2. To the broader point, if you want to argue about some "lack of consensus" then you need to look at what actual models people were working with. The biggest models that drove the bubble were that housing prices would keep going up, and that financial markets were self-correcting. As Greenspan said in testimony before Congress, "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms". It is incredibly clear now and was then that neither of these premises were anywhere in the neighborhood of reality, which is part of the reason why all those experts up above called the crisis.
3. I haven't heard of any thing suggesting the US is forcing China to run its manufacturing dorm-style. Apple certainly is, I have no doubt about that, but if the US Government is somehow involved then you should really provide a link.
4. And finally, most of the wealth of the lower and middle class, especially the middle class, is stored in their homes.
After the "Great Recession" hit, house prices fell by 24 percent in real terms, stock prices by 26 percent, and median wealth by a staggering 47 percent between 2007 and
2011. The share of households with zero or negative net worth rose from 18.6 to 22.5 percent, and the share with zero or negative non-home wealth rose from 27.4 to 30.9 percent.
From the NEBR (not a pdf. I KNOW!)
So when we DID have that major market correction that you claim didn't happen, it hit the middle and lower classes the hardest, which is how all market corrections work. The rich get fucked last. Businesses, including banks, have a duty to return a profit, not return a socially optimal solution. If that means fucking over the little guy then that is what will happen. If the quickest way to prevent that from happening is for "Uncle Sam" to step in and provide liquidity so that the pain doesn't trickle down, then well.
You're suggesting a single, quick solution - that, it must be pointed out, relies entirely on the markets being self correcting - to a massive systemic problem and that has never, ever worked. Particularly since the people who would bear the brunt of the pain are not the same people we need to regulate in order to fix this.
While I admit that I lack any sort of economic education, I expect that the stirrings in updating Africa leading it to being the next "let's make stuff cheap here" location and the growth in 3D printing will cause some boom/bust stuff within our lifetimes, albeit probably not in the next decade.
If you look at Southeast Asia and Latin America as models, you need at least a generation of stability before that type of industrialization can take place. Not many nations in Africa are in a good place for that.
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surrealitychecklonely, but not unloveddreaming of faulty keys and latchesRegistered Userregular
whenever anybody is right in even the slightest sense they'll stop at nothing to convince you about how fucking right they were, and if only we had ever listened to them we'd all be sipping mai tais right now
I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
If you follow finance, there is literally always someone predicting doom about some sort of bubble or another. Popular ones right now are the Chinese housing/construction bubble and the US higher education bubble.
I'm not sure what libertarians have to do with the subprime mortgage crisis.
presumably a reference to the politics of alan greenspan and his interest rate habits
i guess you can argue that low interest rates incentivized banks engaged in subprime lending to increase their efforts in an attempt to generate returns
but i dont think it's fair (or accurate) to lay the wreath at greenspan's feet
whenever markets move adversely we seek to point fingers and figure out the specific thing that did it, and it's never quite that simple. markets are way more complex than a results in b
from monetary policy to perverse incentives to misratings to unchecked optimism to misguided domestic policy there was a perfect storm that allowed 2008 to happen
oh sure, but thats what hes referring to
greenspan is about as objectivist libertarian as u can get politically
1. This is entirely untrue. A paper done after the crisis here (pdf here) found at least twelve individuals who all predicted a housing-led recession, WITH timetable, and including names like Peter Schiff, Robert Schiller, and Dean Baker. The list includes experts from around the world, including the US, Denmark, and Australia, so it's not like we had a dearth of advance warning.
a note on the paper linked - something is clearly wrong, the author spends the entire latter half of the paper bashing the "neoclassical model" by picking on.... Macro Advisors, which is absolutely, absolutely, absolutely not mainstream. Mainstream is DSGE. Macro Advisors is structural.
DSGE is, by construction, always consistent with accounting identities. It is Macro Advisor type structural models that need to watch out when checking that all implied behaviour is actually consistent. But these models are then not actually 'equilibrium' models, in the same sense that 'accounting' models don't preclude equilibration either.
I agree with your sentinment Gooey, but there are things that definately had significant impact. Prior to 1999, the Fed only made loans to Commercial Banking institutions. With the repeal of parts of Glass-Steagal in 1999, Investment banks now had access to this funding (by merging with commercial). Now the banks could borrow money from the USG at lower than normal rates and gamble to their hearts content.
(Keep in mind, the repeal of the commercial/investment divide was supported by both parties and signed into law by Clinton)
Combine this with a long duration zero interest rate policy, and it's not surprising to see stocks far outpace economic growth. Banks can borrow money for nothing, invest in the stock market, make tons of money, then pay back the USG. Even when they're directly barred from using this money to invest, they do things like securities based on whether a stock will go up or down by some value. We're literally allowing banks to gamble with our tax dollars, with us assuming the risk, and the banks getting the profits. This results in things like the London Whale.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
Think about that. The largest banks make their money by borrowing from the fed to gamble with, then using their winnings to make sure the government doesn't make their gambling illegal. It's an entirely parasitic relationship which does not benifit society.
Now, I think that banks have a place in modern society. The ability to grant loans is important for making our business function, from startup to cash shortages at payroll time. But, just mooching off of society? That needs to be cut out.
And one way or another, it will be cut out eventually. Either the government will get their act together and put a stop to behaviour like this (not holding my breath), or income/wealth inequality will rise to the point that the citizenship will take things into their own hands. It happened with the election of FDR, and I had hopes that the same would have happened with Obama.
Actually, prior to 2007, there weren't that many experts predicting a housing bubble burst. When it happened, the media had some difficulty in finding many warnings against it. In hindsight, it's obvious. But at the time, most people were very gung ho for housing investment.
And really, at any time you have someone predicting the next bubble. The OP posted the question "Will there be another financial crisis soon?"
The answer is "Yes, for a given value of soon." There will always be another financial meltdown in the future. It's driven by greed, and greed is a universal human trait.
China's problem right now is the same on that the US has, their population cannot sustain the buying power needed to keep their growth up. In the case of the U.S., we've lost too many middle class jobs to sustain our ability to pay for the next iPhone or other frivolous luxury. In China, it's because their middle class hasn't grown fast enough to be able to afford all the housing they've been building.
China's problem is compounded by the US, because we push them to do things like set up corporate dormatories to house the million workers that make Apple products for the U.S. market. So, we're preventing China's population from advancing to the middle class by forcing them into lower class working conditions, pay, and housing. And then our demand drops off because we screwed up our own economy, which results in layoffs in China, further damaging their economy.
For the U.S., the economy we had from 2002-2008 wasn't sustainable. It was based on increasing personal debt to "keep up with the Jones's". You can't sustain a middle class that's living a lower upper class lifestyle by using up their savings (including equity), because at some point that runs out. Things like Variable Interest Rate Mortgages were often just a way to extend this lifestyle past the point of sustainability. And it shows, because things finally came crashing down.
My personal opinion is that we should have had a major market correction for housing and stock prices to account for how off kilter things had become. The government, however, stepped in to maintain the status quo. Uncle Sam bailed out banks and made lending them money easier than ever in an effort to prevent this market regulation from occuring, thus drawing out the pain and suffering and turning all of the progess since the meltdown into the profits of the 0.01%. Instead of helping out the citizens who had made poor choices, the USG created tax incentives for people to keep buying homes, thus propping up the housing market.
This would have been more painful in the short run, but it wouldn't have resulted in the situation we have now, which is that almost all of the grown in the US goes to the rich, and the middle class is disappearing faster than ever. The path we're on currently is unsustainable and will require a much larger market correction in the future.
There are a few points to make here:
1. This is entirely untrue. A paper done after the crisis here (pdf here) found at least twelve individuals who all predicted a housing-led recession, WITH timetable, and including names like Peter Schiff, Robert Schiller, and Dean Baker. The list includes experts from around the world, including the US, Denmark, and Australia, so it's not like we had a dearth of advance warning.
If that's not enough, the Real-World Economics Review posted their own list, compiled from their subscribers, pointing out an additional four people who called the crisis, including Paul Krugman, Joseph Stiglitz and George Soros, hardly the last people the media would think of contacting.
If THAT isn't enough, Warren Buffet didn't give a time table, but had been cautioning for years about derivatives, famously calling them " time bombs, both for the parties that deal in them and the economic system," (pdf) in a letter to the shareholders of Berkshire Hathaway. In a 2006 interview he said "We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments."
And it's not like no one was listening. Average people started seeing this coming years in advance.
Search interest in "housing bubble" was peaking a full year before the crisis actually hit, and this was laypeople doing the bulk of the searches.
Your entire idea that this bubble caught us all off guard because of some magic inherent in finance markets is demonstrably false, and the idea that the media had difficulties finding advance warnings is a blatant lie.
Prior to the housing bubble bursting, the majority of economists did support the housing bubble. I never once stated that there were none who warned against it. There are many economists around the world, and you will always find some that argue for a particular topic. In the end, the bubble did catch the broader world off guard.
And how much credibility do you want to give to google trends? If so many people saw the Great Bubble coming, why did it happen?
2. To the broader point, if you want to argue about some "lack of consensus" then you need to look at what actual models people were working with. The biggest models that drove the bubble were that housing prices would keep going up, and that financial markets were self-correcting. As Greenspan said in testimony before Congress, "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms". It is incredibly clear now and was then that neither of these premises were anywhere in the neighborhood of reality, which is part of the reason why all those experts up above called the crisis.
Influencial economist was wrong and didn't predict the Great Bubble. Rather supports my previous position.
3. I haven't heard of any thing suggesting the US is forcing China to run its manufacturing dorm-style. Apple certainly is, I have no doubt about that, but if the US Government is somehow involved then you should really provide a link.
I never once said the US government was directly involved with forcing Chinese to live in manufacturing dorms. I said the US was, meaning us, the citizens, as consumers of the goods that China has been providing. The greater hunt for better-cheaper-faster is coming at a cost to the Chinese (and others) population.
4. And finally, most of the wealth of the lower and middle class, especially the middle class, is stored in their homes.
After the "Great Recession" hit, house prices fell by 24 percent in real terms, stock prices by 26 percent, and median wealth by a staggering 47 percent between 2007 and 2011. The share of households with zero or negative net worth rose from 18.6 to 22.5 percent, and the share with zero or negative non-home wealth rose from 27.4 to 30.9 percent.
From the NEBR (not a pdf. I KNOW!)
So when we DID have that major market correction that you claim didn't happen, it hit the middle and lower classes the hardest, which is how all market corrections work. The rich get fucked last. Businesses, including banks, have a duty to return a profit, not return a socially optimal solution. If that means fucking over the little guy then that is what will happen. If the quickest way to prevent that from happening is for "Uncle Sam" to step in and provide liquidity so that the pain doesn't trickle down, then well.
You're suggesting a single, quick solution - that, it must be pointed out, relies entirely on the markets being self correcting - to a massive systemic problem and that has never, ever worked. Particularly since the people who would bear the brunt of the pain are not the same people we need to regulate in order to fix this.
True, we did have a market correction. It would have been worse had the government not stepped in, and the rich were hurt the least. But the way the government handled things benifited the rich and barely effected the average American. The government is supposed to protect the people, not just the elite.
Instead of over a trillion dollars in bailouts and multi-trillions in bond purchases, the government could have acted in a number of ways that would have had greater benifit to everyone. They could have:
1) Created a home loan rescue plan that worked.
2) Written a check for each homeowner to be placed towards their home loan (thus helping homeowners and the banks)
3) Started a nation-wide survey plan to re-value and force banks to adjust home loan values
etc etc.
Now, there are certainly flaws with each of the above choices. But I think any would have been better for the country than what we received.
Alan Greenspan's book The Map And The Territory actually has Greenspan quoting himself in 2002 saying that our policies would lead to a housing bubble. He then goes on to explain why he didn't think it was his job to do anything about it.
"I recognize that the government could have fixed a problem with the market, but in my opinion the government shouldn't ever fix anything because in the long run the market corrections will be better"
I agree with your sentinment Gooey, but there are things that definately had significant impact. Prior to 1999, the Fed only made loans to Commercial Banking institutions. With the repeal of parts of Glass-Steagal in 1999, Investment banks now had access to this funding (by merging with commercial). Now the banks could borrow money from the USG at lower than normal rates and gamble to their hearts content.
(Keep in mind, the repeal of the commercial/investment divide was supported by both parties and signed into law by Clinton)
Combine this with a long duration zero interest rate policy, and it's not surprising to see stocks far outpace economic growth. Banks can borrow money for nothing, invest in the stock market, make tons of money, then pay back the USG. Even when they're directly barred from using this money to invest, they do things like securities based on whether a stock will go up or down by some value. We're literally allowing banks to gamble with our tax dollars, with us assuming the risk, and the banks getting the profits. This results in things like the London Whale.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
Think about that. The largest banks make their money by borrowing from the fed to gamble with, then using their winnings to make sure the government doesn't make their gambling illegal. It's an entirely parasitic relationship which does not benifit society.
Now, I think that banks have a place in modern society. The ability to grant loans is important for making our business function, from startup to cash shortages at payroll time. But, just mooching off of society? That needs to be cut out.
And one way or another, it will be cut out eventually. Either the government will get their act together and put a stop to behaviour like this (not holding my breath), or income/wealth inequality will rise to the point that the citizenship will take things into their own hands. It happened with the election of FDR, and I had hopes that the same would have happened with Obama.
I'm not really sure why you're so zeroed in on ibank prop trading, especially now that it basically doesn't (won't) exist anymore because of the volcker rule. I mean, i guess you can argue that prior to dodd-frank money center banks were trading on the fed's dime since cash is fungible, but, really? come on.
the london whale didn't get himself underwater with loose monetary policy, it was with piss-poor oversight and his ability to hide his daily p&l (yes, in this type of job your p&ls are tracked on a daily basis)
not to mention the fact that "gambling with our tax dollars" is quite a stretch given the way the fed actually works
good luck with the implied proletariat revolution, i guess?
The Volcker Rule isn't in effect though. From the wikipedia page:
On December 10, 2013, the necessary agencies approved regulations implementing the rule, which were scheduled to go into effect April 1, 2014.[7] However, as of December 30, 2013, the final Volcker Rule regulations had not been published in the Federal Register, and the agencies had stated they were evaluating several issues.[
And the rule has had many holes drilled into it, such as:
However, conferees changed the proprietary trading ban to allow banks to invest in hedge funds and private equity funds at the request of Senator Scott Brown (R-Mass.), whose vote was needed in the Senate to pass the bill.[20] Proprietary trading in Treasurys, bonds issued by government-backed entities like Fannie Mae and Freddie Mac, as well as municipal bonds is also exempted.
Here's a great article about how banks are manipulating metal markets to create meaningless fees and drive up prices by using their 0% interest rate money from the Fed.
So the Federal Reserve is practically powerless to stimulate the economy if banks are allowed to make money in any way they perceive as better than making loans.
}
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
I know that you just intended your response to be a really smarmy statement, but it's really true. If banks can make more profit by non-lending activities, then what's their incentive for lending activities?
The Fed's activities since the crash have not resulted in economic recovery for over 99% of the population of the U.S. So, to me, it's a failure.
I know that you just intended your response to be a really smarmy statement, but it's really true. If banks can make more profit by non-lending activities, then what's their incentive for lending activities?
The Fed's activities since the crash have not resulted in economic recovery for over 99% of the population of the U.S. So, to me, it's a failure.
The fed can't do anything to help the balance of power in the economy. They only acted as they did because the govt refused to do anything significant. We need a complete overhaul of taxation in the us to get the rate of taxes paid by the 1% back above 50% to really change things for the better.
I know that you just intended your response to be a really smarmy statement, but it's really true. If banks can make more profit by non-lending activities, then what's their incentive for lending activities?
The Fed's activities since the crash have not resulted in economic recovery for over 99% of the population of the U.S. So, to me, it's a failure.
I didn't mean it as anything other than an observation. I agree, the Federal Reserve simply doesn't work the way banks can function now.
}
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
I know that you just intended your response to be a really smarmy statement, but it's really true. If banks can make more profit by non-lending activities, then what's their incentive for lending activities?
The Fed's activities since the crash have not resulted in economic recovery for over 99% of the population of the U.S. So, to me, it's a failure.
The Fed cannot change banking regulations, that's the job of Congress. The Fed cannot enact fiscal policy, that too is the job of Congress.
When the crisis hit, a very large part of it was an absolutely massive shock to liquidity. All the "should have dones" you mentioned were long term fixes. Home loan modifications, regulatory fixes, none of those would have solved a massive liquidity crisis, and they all required Congress to act.
The Fed's biggest policy tool for spurring economic growth across the board is its ability to lower interest rates, as, in a typical economy, lower rates spur growth. Right now the rates are, basically, zero. So the Fed is dealing with a very limited tool set.
I have no idea where you're getting this antiFed kick from; it's pretty clear you don't know at all what the Fed does.
Right, but the Fed does enact monetary policy, and the Fed is not succeeding at their goal of maximum employment.
All three branches of the government each have their own share of burden for the current state of the economy in addition to the Fed.
And I'm not sure that any one branch will, at any time in the next couple of years, be able to get their act together. Much less all of them. So, we're not going to be recovering any time soon.
Right, but the Fed does enact monetary policy, and the Fed is not succeeding at their goal of maximum employment.
All three branches of the government each have their own share of burden for the current state of the economy in addition to the Fed.
And I'm not sure that any one branch will, at any time in the next couple of years, be able to get their act together. Much less all of them. So, we're not going to be recovering any time soon.
Here's a great article about how banks are manipulating metal markets to create meaningless fees and drive up prices by using their 0% interest rate money from the Fed.
Oh I missed this.
The federal funds rate is the rate banks charge EACH OTHER to borrow money. When they borrow directly from the fed they need to be in some sort of crisis, and they are charged a higher rate for their poor planning. Right now that rate is about half a percent higher than the FF rate; in normal times its about a full percent higher, and an extra half percent for baks that are really dumb. And again, that rate is IF the bank qualifies for the loan, which means they have to have some form of collateral and a clear plan on payong it back
The Fed isn't giving away money. You really have a fundamental misunderstanding of how the Fed works.
Right, but the Fed does enact monetary policy, and the Fed is not succeeding at their goal of maximum employment.
All three branches of the government each have their own share of burden for the current state of the economy in addition to the Fed.
And I'm not sure that any one branch will, at any time in the next couple of years, be able to get their act together. Much less all of them. So, we're not going to be recovering any time soon.
Well, no, because the Fed is basically doing all it can. It's just not enough.
Because they haven't been financially engineered yet. Home prices were extremely stable prior to Gramm-Leach-Bailey and the balanced budget push/federal surpluses towards the end of the 90's driving money seeking a safe return into the housing sector since we didn't have enough Treasury paper for sale. [ cite ]
I mean, it's possible that rental prices won't experience a speculative bubble in the same way after getting the Wall Street treatment. But I wouldn't be too sure on it.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
Right, but the Fed does enact monetary policy, and the Fed is not succeeding at their goal of maximum employment.
All three branches of the government each have their own share of burden for the current state of the economy in addition to the Fed.
And I'm not sure that any one branch will, at any time in the next couple of years, be able to get their act together. Much less all of them. So, we're not going to be recovering any time soon.
Well, no, because the Fed is basically doing all it can. It's just not enough.
Yeah the Fed has nothing much to do in that sense. They're basically stuck now with waiting for other players to do their part.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
Aren't the big banks even bigger now? If one gets itself in trouble, doesn't that mean we have to bail them out even moreso now? Why should we expect them to behave responsibly? Even if the living will provision was implemented properly, which I am under the impression there are still questions about that, wouldn't a major financial institution being forced to dismantle cause a huge panic? I don't think that we would allow it.
Also, the capital requirements still seem laughably small to me. They really should be at something like twenty percent. I consider Alan Greenspan to be wacky and laughably on the libertarian side of things, but even he advocates a 1/5 ratio or twenty percent in his book the Map And The Territory.
Edit: Greenspan mentions a similar ratio to what I quoted in this interview with Jon Stewart.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
If one gets itself in trouble, doesn't that mean we have to bail them out even moreso now?
No, depending on what you mean by bail out.
Why should we expect them to behave responsibly?
We shouldn't.
Even if the living will provision was implemented properly, which I am under the impression there are still questions about that, wouldn't a major financial institution being forced to dismantle cause a huge panic?
That would depend on the particulars, the broader policy responses, and the macro-conditions that were prevailing at the time.
Moniker, could you explain your position in some detail? It sounds like more or less you expect big systemically important banks to be engaged in crazy shenanigans and hi-jinx, but don't think they will require a bailout. Is that because you believe that the living will provision will work properly, or is there some other reason that I am unclear on?
Moniker, could you explain your position in some detail? It sounds like more or less you expect big systemically important banks to be engaged in crazy shenanigans and hi-jinx, but don't think they will require a bailout. Is that because you believe that the living will provision will work properly, or is there some other reason that I am unclear on?
Basically. And, like I said, it depends on what you consider to be a bailout. For instance, do you consider Washington Mutual, Wachovia, or Merrill Lynch to have been bailed out?
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I don't agree with this. When you look back at the consensus among friends / colleagues of Paulson & Summers, you see that there was a pretty strong opinion that the house speculator's bubble (and all of it's associated trappings, like the insurance gambling) was dangerous. All sorts of experts were pointing-out that it wasn't a good idea to just assume home value was always going to be anchored to how much a house down the block sold for, and that it was a much riskier market than a select few firms were suggesting.
The problem isn't that people weren't able to make predictions - they certainly were, and certainly did have solid models - the problem was that a (relatively) small group of libertarians were at the wheel and weren't listening to anyone (as usual), quite happy to just make bank on the short term and assume that, somehow, all of the people being crushed with mortgage debt / home equity loan debt that they ultimately couldn't handle would continue making payments rather than get foreclosed on.
If we had listened to them, we genuinely wouldn't have had the crisis. Instead, we chose to follow Paulson / Summers / Greenspan off the cliff (or those in power did, anyway).
If you follow finance, there is literally always someone predicting doom about some sort of bubble or another. Popular ones right now are the Chinese housing/construction bubble and the US higher education bubble.
I'm not sure what libertarians have to do with the subprime mortgage crisis.
presumably a reference to the politics of alan greenspan and his interest rate habits
like, Greenspan is an objectivits nut and Paulson doesn't believe in prayer as opposed to medical care, yeah that's who you want at the wheels of the world's largest economy
Actually, prior to 2007, there weren't that many experts predicting a housing bubble burst. When it happened, the media had some difficulty in finding many warnings against it. In hindsight, it's obvious. But at the time, most people were very gung ho for housing investment.
And really, at any time you have someone predicting the next bubble. The OP posted the question "Will there be another financial crisis soon?"
The answer is "Yes, for a given value of soon." There will always be another financial meltdown in the future. It's driven by greed, and greed is a universal human trait.
China's problem right now is the same on that the US has, their population cannot sustain the buying power needed to keep their growth up. In the case of the U.S., we've lost too many middle class jobs to sustain our ability to pay for the next iPhone or other frivolous luxury. In China, it's because their middle class hasn't grown fast enough to be able to afford all the housing they've been building.
China's problem is compounded by the US, because we push them to do things like set up corporate dormatories to house the million workers that make Apple products for the U.S. market. So, we're preventing China's population from advancing to the middle class by forcing them into lower class working conditions, pay, and housing. And then our demand drops off because we screwed up our own economy, which results in layoffs in China, further damaging their economy.
For the U.S., the economy we had from 2002-2008 wasn't sustainable. It was based on increasing personal debt to "keep up with the Jones's". You can't sustain a middle class that's living a lower upper class lifestyle by using up their savings (including equity), because at some point that runs out. Things like Variable Interest Rate Mortgages were often just a way to extend this lifestyle past the point of sustainability. And it shows, because things finally came crashing down.
My personal opinion is that we should have had a major market correction for housing and stock prices to account for how off kilter things had become. The government, however, stepped in to maintain the status quo. Uncle Sam bailed out banks and made lending them money easier than ever in an effort to prevent this market regulation from occuring, thus drawing out the pain and suffering and turning all of the progess since the meltdown into the profits of the 0.01%. Instead of helping out the citizens who had made poor choices, the USG created tax incentives for people to keep buying homes, thus propping up the housing market.
This would have been more painful in the short run, but it wouldn't have resulted in the situation we have now, which is that almost all of the grown in the US goes to the rich, and the middle class is disappearing faster than ever. The path we're on currently is unsustainable and will require a much larger market correction in the future.
i guess you can argue that low interest rates incentivized banks engaged in subprime lending to increase their efforts in an attempt to generate returns
but i dont think it's fair (or accurate) to lay the wreath at greenspan's feet
whenever markets move adversely we seek to point fingers and figure out the specific thing that did it, and it's never quite that simple. markets are way more complex than a results in b
from monetary policy to perverse incentives to misratings to unchecked optimism to misguided domestic policy there was a perfect storm that allowed 2008 to happen
When you literally make money by spending money, it's too bad it's not politically viable to pay people to dig holes and fill them back in.
I mean, of course works programs / infrastructure building would be better...but you take what you can get.
There are a few points to make here:
1. This is entirely untrue. A paper done after the crisis here (pdf here) found at least twelve individuals who all predicted a housing-led recession, WITH timetable, and including names like Peter Schiff, Robert Schiller, and Dean Baker. The list includes experts from around the world, including the US, Denmark, and Australia, so it's not like we had a dearth of advance warning.
If that's not enough, the Real-World Economics Review posted their own list, compiled from their subscribers, pointing out an additional four people who called the crisis, including Paul Krugman, Joseph Stiglitz and George Soros, hardly the last people the media would think of contacting.
If THAT isn't enough, Warren Buffet didn't give a time table, but had been cautioning for years about derivatives, famously calling them " time bombs, both for the parties that deal in them and the economic system," (pdf) in a letter to the shareholders of Berkshire Hathaway. In a 2006 interview he said "We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments."
And it's not like no one was listening. Average people started seeing this coming years in advance.
Search interest in "housing bubble" was peaking a full year before the crisis actually hit, and this was laypeople doing the bulk of the searches.
Your entire idea that this bubble caught us all off guard because of some magic inherent in finance markets is demonstrably false, and the idea that the media had difficulties finding advance warnings is a blatant lie.
2. To the broader point, if you want to argue about some "lack of consensus" then you need to look at what actual models people were working with. The biggest models that drove the bubble were that housing prices would keep going up, and that financial markets were self-correcting. As Greenspan said in testimony before Congress, "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms". It is incredibly clear now and was then that neither of these premises were anywhere in the neighborhood of reality, which is part of the reason why all those experts up above called the crisis.
3. I haven't heard of any thing suggesting the US is forcing China to run its manufacturing dorm-style. Apple certainly is, I have no doubt about that, but if the US Government is somehow involved then you should really provide a link.
4. And finally, most of the wealth of the lower and middle class, especially the middle class, is stored in their homes. From the NEBR (not a pdf. I KNOW!)
So when we DID have that major market correction that you claim didn't happen, it hit the middle and lower classes the hardest, which is how all market corrections work. The rich get fucked last. Businesses, including banks, have a duty to return a profit, not return a socially optimal solution. If that means fucking over the little guy then that is what will happen. If the quickest way to prevent that from happening is for "Uncle Sam" to step in and provide liquidity so that the pain doesn't trickle down, then well.
You're suggesting a single, quick solution - that, it must be pointed out, relies entirely on the markets being self correcting - to a massive systemic problem and that has never, ever worked. Particularly since the people who would bear the brunt of the pain are not the same people we need to regulate in order to fix this.
If you look at Southeast Asia and Latin America as models, you need at least a generation of stability before that type of industrialization can take place. Not many nations in Africa are in a good place for that.
oh sure, but thats what hes referring to
greenspan is about as objectivist libertarian as u can get politically
low interest rates contributed but proximate causes distal causes etc etc
a note on the paper linked - something is clearly wrong, the author spends the entire latter half of the paper bashing the "neoclassical model" by picking on.... Macro Advisors, which is absolutely, absolutely, absolutely not mainstream. Mainstream is DSGE. Macro Advisors is structural.
DSGE is, by construction, always consistent with accounting identities. It is Macro Advisor type structural models that need to watch out when checking that all implied behaviour is actually consistent. But these models are then not actually 'equilibrium' models, in the same sense that 'accounting' models don't preclude equilibration either.
(Keep in mind, the repeal of the commercial/investment divide was supported by both parties and signed into law by Clinton)
Combine this with a long duration zero interest rate policy, and it's not surprising to see stocks far outpace economic growth. Banks can borrow money for nothing, invest in the stock market, make tons of money, then pay back the USG. Even when they're directly barred from using this money to invest, they do things like securities based on whether a stock will go up or down by some value. We're literally allowing banks to gamble with our tax dollars, with us assuming the risk, and the banks getting the profits. This results in things like the London Whale.
Of course, we're supposed to have passed laws like Dodd-Frank to prevent this from reoccuring. But, lobbyists, paid by the banks, have so far managed to prevent Dodd-Frank from going into effect.
Think about that. The largest banks make their money by borrowing from the fed to gamble with, then using their winnings to make sure the government doesn't make their gambling illegal. It's an entirely parasitic relationship which does not benifit society.
Now, I think that banks have a place in modern society. The ability to grant loans is important for making our business function, from startup to cash shortages at payroll time. But, just mooching off of society? That needs to be cut out.
And one way or another, it will be cut out eventually. Either the government will get their act together and put a stop to behaviour like this (not holding my breath), or income/wealth inequality will rise to the point that the citizenship will take things into their own hands. It happened with the election of FDR, and I had hopes that the same would have happened with Obama.
Prior to the housing bubble bursting, the majority of economists did support the housing bubble. I never once stated that there were none who warned against it. There are many economists around the world, and you will always find some that argue for a particular topic. In the end, the bubble did catch the broader world off guard.
And how much credibility do you want to give to google trends? If so many people saw the Great Bubble coming, why did it happen?
Influencial economist was wrong and didn't predict the Great Bubble. Rather supports my previous position.
I never once said the US government was directly involved with forcing Chinese to live in manufacturing dorms. I said the US was, meaning us, the citizens, as consumers of the goods that China has been providing. The greater hunt for better-cheaper-faster is coming at a cost to the Chinese (and others) population.
True, we did have a market correction. It would have been worse had the government not stepped in, and the rich were hurt the least. But the way the government handled things benifited the rich and barely effected the average American. The government is supposed to protect the people, not just the elite.
Instead of over a trillion dollars in bailouts and multi-trillions in bond purchases, the government could have acted in a number of ways that would have had greater benifit to everyone. They could have:
1) Created a home loan rescue plan that worked.
2) Written a check for each homeowner to be placed towards their home loan (thus helping homeowners and the banks)
3) Started a nation-wide survey plan to re-value and force banks to adjust home loan values
etc etc.
Now, there are certainly flaws with each of the above choices. But I think any would have been better for the country than what we received.
just a guess
I'm not really sure why you're so zeroed in on ibank prop trading, especially now that it basically doesn't (won't) exist anymore because of the volcker rule. I mean, i guess you can argue that prior to dodd-frank money center banks were trading on the fed's dime since cash is fungible, but, really? come on.
the london whale didn't get himself underwater with loose monetary policy, it was with piss-poor oversight and his ability to hide his daily p&l (yes, in this type of job your p&ls are tracked on a daily basis)
not to mention the fact that "gambling with our tax dollars" is quite a stretch given the way the fed actually works
good luck with the implied proletariat revolution, i guess?
And the rule has had many holes drilled into it, such as:
http://www.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
The Fed's activities since the crash have not resulted in economic recovery for over 99% of the population of the U.S. So, to me, it's a failure.
The fed can't do anything to help the balance of power in the economy. They only acted as they did because the govt refused to do anything significant. We need a complete overhaul of taxation in the us to get the rate of taxes paid by the 1% back above 50% to really change things for the better.
I didn't mean it as anything other than an observation. I agree, the Federal Reserve simply doesn't work the way banks can function now.
"Orkses never lose a battle. If we win we win, if we die we die fightin so it don't count. If we runs for it we don't die neither, cos we can come back for annuver go, see!".
The Fed cannot change banking regulations, that's the job of Congress. The Fed cannot enact fiscal policy, that too is the job of Congress.
When the crisis hit, a very large part of it was an absolutely massive shock to liquidity. All the "should have dones" you mentioned were long term fixes. Home loan modifications, regulatory fixes, none of those would have solved a massive liquidity crisis, and they all required Congress to act.
The Fed's biggest policy tool for spurring economic growth across the board is its ability to lower interest rates, as, in a typical economy, lower rates spur growth. Right now the rates are, basically, zero. So the Fed is dealing with a very limited tool set.
I have no idea where you're getting this antiFed kick from; it's pretty clear you don't know at all what the Fed does.
All three branches of the government each have their own share of burden for the current state of the economy in addition to the Fed.
And I'm not sure that any one branch will, at any time in the next couple of years, be able to get their act together. Much less all of them. So, we're not going to be recovering any time soon.
What do you think they should be doing?
Oh I missed this.
The federal funds rate is the rate banks charge EACH OTHER to borrow money. When they borrow directly from the fed they need to be in some sort of crisis, and they are charged a higher rate for their poor planning. Right now that rate is about half a percent higher than the FF rate; in normal times its about a full percent higher, and an extra half percent for baks that are really dumb. And again, that rate is IF the bank qualifies for the loan, which means they have to have some form of collateral and a clear plan on payong it back
The Fed isn't giving away money. You really have a fundamental misunderstanding of how the Fed works.
Well, no, because the Fed is basically doing all it can. It's just not enough.
Because they haven't been financially engineered yet. Home prices were extremely stable prior to Gramm-Leach-Bailey and the balanced budget push/federal surpluses towards the end of the 90's driving money seeking a safe return into the housing sector since we didn't have enough Treasury paper for sale. [ cite ]
I mean, it's possible that rental prices won't experience a speculative bubble in the same way after getting the Wall Street treatment. But I wouldn't be too sure on it.
Nope.
It could certainly be stronger and more impactful, but it is still a significant improvement over 2008. Same with Basel III.
Yeah the Fed has nothing much to do in that sense. They're basically stuck now with waiting for other players to do their part.
Aren't the big banks even bigger now? If one gets itself in trouble, doesn't that mean we have to bail them out even moreso now? Why should we expect them to behave responsibly? Even if the living will provision was implemented properly, which I am under the impression there are still questions about that, wouldn't a major financial institution being forced to dismantle cause a huge panic? I don't think that we would allow it.
Also, the capital requirements still seem laughably small to me. They really should be at something like twenty percent. I consider Alan Greenspan to be wacky and laughably on the libertarian side of things, but even he advocates a 1/5 ratio or twenty percent in his book the Map And The Territory.
Edit: Greenspan mentions a similar ratio to what I quoted in this interview with Jon Stewart.
http://www.ritholtz.com/blog/2013/10/greenspan-on-cap-requirements-self-regulation/
Yes.
No, depending on what you mean by bail out.
We shouldn't.
That would depend on the particulars, the broader policy responses, and the macro-conditions that were prevailing at the time.
We wouldn't.
Basically. And, like I said, it depends on what you consider to be a bailout. For instance, do you consider Washington Mutual, Wachovia, or Merrill Lynch to have been bailed out?