The End of Libertarianism (http://www.slate.com/id/2202489/)
SnippetA source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from "redlining" minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

Wrong.

It is not Libertarianism that is to blame for the current crisis.

It is the Republicans with their worship of "Free Markets".

There is no such thing as a free market in the real world and never has been.

The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. So right from the start the USA didn't have a free market.

The term "free market" is just a code word for greedy rich business types to get all regulations removed so they can pocket lots of cash and then go begging to the taxpayers when their greed causes everything to fail.

We saw it in the 1980s with the Savings and Loan crisis (cause by Reagan and the Republicans) and now we see it again. Too bad people never wake up and stop voting for political parties who's philosophy is "Greed is Good".

Phil Gramm should be the most disgraced man in America. Instead, McCain picked him to advise him on economic matters and he only quit when he was caught saying that the people who were suffering because of his actions were "whiners". Meanwhile, Gramm has millions he and his wife made from screwing us over.

Libertarians believe that privatization of governmental functions will yield cheaper and more effective services through competition amongst contractors. Ideally, this sounds great but the last eight years have left me wondering how feasible this is in the real-world. Once you introduce a bunch of greedy humans into the equation everything goes to hell. Contracts are doled out based upon political connections rather than genuine competition and the contractors care far more about their bottom line than they do about providing quality services. Throw a bit of corruption into the mix and you wind up with contractors bilking the taxpayers out of billions of dollars. Take a close look (http://www.pbs.org/wgbh/pages/frontline/shows/warriors/contractors/) at any of the contractors who've been involved in providing services in Iraq and you'll find that waste, corruption, abuse, and incompetence is widespread.

Barring some fundamental and spontaneous change in human behavior, would privatization of other governmental functions be any different?

Give me a break guys. I'm not a libertarian, but your choices of systems are few and far between. Europe is moving back towards a more capatilistic system as they have found their soft socialism is failing with unemployment 2-3 times higher then us. They basically have very low growth and low productivity. They tax their populations so high that no one wants to start a new business or work hard--what is the point. Their national health system is a joke and anyone with a few bucks now buys private insurance or comes to the U.S. for care.

For those of you who want the government to solve your problems it will never work. All the problems you find in the private sector you find in the government sector-but worse. This is mainly due to having average at best employees. When there is no competition, accountability, or chance of going out of business like in the governmental agencies you don't have to be great. The main worry for governmental types is how much more they can get in their budget. The budget is the the bible and if they can get more they get more power.

Business and governmental types all make decisions based on whats in it for them. The question you have to ask is who is more efficient and offers more hope for you to get ahead. Most communist and socialistic countries have already learned that you can't see your population prosper by being average with no growth systems.

Blamming business gets you no where except a poor country. Do you really think the government can do better or has the skills to get this country on the right track. Just look at your state and federal agencies--do you see anyone there with better skills then in the private sector. I also love how the socialists keep wanting to kill the golden goose. Who do you think pays for all the governmental programs. Not you. It is businesses who pay your paycheck so that it can be taxed. If there was no greedy business types then there would be no jobs and no paychecks to be taxed.

When it goes to political parties you have no clue again. Both are moving towards buying off the populations. One is just trying to give you more candy. The question is which is going to take us down the path of socialism the fastest. When you don't have a job due governmental regulations, unions getting more power, or high taxes then who are you going to complain about then.

I don't worry anymore who is in control. I already know they don't have my best interest in mind, so if I don't take care of myself and my family they sure won't. I suggest you do the same.

Oh come on, Woldar. There's a wide continuum between total deregulation and the opposite extreme. Your responses don't exactly display that you have any understanding of the subject. You're like Frankenstein muttering "Fire bad". If you want to display WHY you think libertarianism or deregulation is appropriate in financial markets then you're going to have to do better than just saying so.

A number of countries aren't being affected by this current financial crisis (at least the CDO/CDS /Sub-prime stuff) because they took steps to appropriately regulate their financial industries. Good freakin' god, credit default swaps NEVER should have been allowed to happen and those sub-prime mortgages repackaged and resold over and over sounds like a Ponzi scheme to me. How the hell did that ever get by? Sub-prime lending NEVER should have been allowed to happen on the scale it was. And they wouldn't have if there was appropriate oversight and regulations. But there wasn't.

Sure, those things lead to ginormous speculative bubbles that made some people very wealthy (and extremely happy) but most of us suffer the consequences of those bubbles popping. Like seeing our 401k's deflate to depressing levels. Can you imagine what the result would have been if GBW had gotten his way and privatized Social Security and that money had gone into the financial and housing markets? We'd have plunged a lot of people who depend on their SSI to live into complete poverty.

Woldar, nobody is suggesting that the government completely take over the means of production. It isn't an either/or choice between socialism and unfettered capitalism. There is plenty of middle ground between the two extremes. I certainly don't want the government to solve all my problems but I believe that there are problems that the government is better suited to handle than the private sector.

As I mentioned in my previous post, I'm familiar with the argument that the free market fosters competition and encourages innovation. I also pointed out how that doesn't always happen. In fact, much of the innovation that appears to have occurred is in contractors finding innovative ways of bilking the government out of money.

Panamah I do understand the markets and have seen the extremes and been impacted. However, it will go back up overtime. I have seen several large corrections going back into the 70s and this one is just another opportunity to buy investments on the cheap. The dot com was another recent example of extreme uncontrolled heard behavior. We will have more in the future when we have another bubble.

Granted the government played with the mortgage rules going back to Jimmy Carter in order to be a great society and get more people into homes. I agree the government has a role to prevent extremes, but when it starts creating social policy via how it regulates we get into messes like this. 20 years ago the products you mention where not available. Those products are all outcomes of easing regulation in the effort to get more people into homes.

There is plenty of blame to go around. Individuals took loans that they could not make the payments on, speculators bought homes thinking they could make a fast buck, agents sold homes and mortgages inappropriately, banks and mortagage companies took loans without checking to see they could be paid, security firms packaged crap, insurance companies backed this crap without looking at the real risk, and the government was there cheer leading. Congress saw the risk, but both sides of the isle were bought off, etc. etc.

With regard to social security. Don't buy the political slogans. I would rather control my own money then let the govenerment have its fingers in there. By leaving it in their hands we will be lucky to see any payout when we need it.

y point is government and business are out for themselves. If you don't watch out for yourself you will be screwed.

I hate how everyone puts libertarians in one little boxed based off of what they read about libertarians in a college textbook. Libertarians are just like any other political party; there are fundamentalists and there are people towards the center. Libertarians, essentially, are economically conservative and socially liberal. To what extent they are either of those two can be applied to either the republicans or democrats. Considering the majority of Americans consider themselves economically conservative and socially moderate, I don't think libertarianism is dead.


Secondly, libertarians aren't trying to say that lack of regulation had nothing to do with this. What they are trying to say is that people who blame this on "deregulation" are being intellectually ignorant. We live in an age of 30 second media clips and well, our population isn't that smart. We don't want a presidential canidate up there giving a lecture with facts and analysis and stuff, we want a canidate who will give us one word to explain any problem.

People blaming this mess on deregulation remind me of people blaming commodity futures deregulation on the oil spike. 50% of the increase in the price of oil alone was explained directly by the devaluing dollar. Of the other 50% of price increase, there are many other reasons than raw speculation to explain it. And of the speculation, only a fraction of it could be explained by deregulation. So, a law that may have been responsible for 10% of the increase got 100% blame. Welcome to the sound byte age.

Ah, you went back and added words to your other post. Good.
Panamah I do understand the markets and have seen the extremes and been impacted. However, it will go back up overtime. I have seen several large corrections going back into the 70s and this one is just another opportunity to buy investments on the cheap. The dot com was another recent example of extreme uncontrolled heard behavior. We will have more in the future when we have another bubble.

Of course the market will have ups and downs, no one expects otherwise. But when we have the unchecked trend of deregulation that we've had for the last 20 or so years they're far more extreme because people play tricky games and think they've figured out ways to beat the market. Everyone always thinks it'll go on forever. That's exactly what people thought about the real estate market. But since we've had this massive deregulation we have had the Savings and Loan bailout, the Enron fiasco, now the housing sector crisis and you can attribute the ensuing recession to the fall out from that. When TRILLIONS of dollars of wealth are wiped out in a few weeks, there's something fundamentally wrong with the market.

I don't think we can blame the tech sector bubble on deregulation. That was just people thinking, once again, we've changed all the rules, the old lessons don't apply ay longer.

With regard to social security. Don't buy the political slogans. I would rather control my own money then let the govenerment have its fingers in there. By leaving it in their hands we will be lucky to see any payout when we need it.

y point is government and business are out for themselves. If you don't watch out for yourself you will be screwed.
I think if people had to choose between their 401k and SSI right now, probably a lot would be better off with the SSI.

And you can only "watch out for yourself" if you have information. I doubt most people had any idea that these shenanigans with CDOs and CDS's were going on. Even if they heard a whisper about it they probably couldn't get very deep information. Even the so-called experts were pretty confused when this all blew up and it has taken quite awhile to learn the details.

Now, apply the difficulty and complexity of understanding marketplace to Joe Six-pack and well, Joe six-pack is going to begging for his beer on the street corner when it comes time for him to retire.

The deregulation and anti-intellectualism movements in the Republican party seem to be a really dangerous combination. You have to be a very smart insider to understand these convoluted schemes that people dream up in deregulated environments but if you don't have the sophistication to even be curious or question things, you're going to be at the mercy of a lot of ruthless people.

Blame it on the Republicans seems to be your central theme. Last I checked the democrates have controled congress for the past 2 years. The republican's controled congress for only a few years out of the past 60, so point your finger the right direction.

I love the intellectual elite who believe Americans are so stupid that the government has to help them, feed them, and tell them how to live. This elite snobishness is how we get government controlling all aspects of our lives.

On SSI I would rather let people make their own choices on their money. Most people do pretty well with their 401ks--they are not that dumb like you want to make them out to be. At least they would have a chance to get that money in the future. The way the parties are ignoring the SSI problem we won't have it in 20-30 years.

On SSI I would rather let people make their own choices on their money. Most people do pretty well with their 401ks--they are not that dumb like you want to make them out to be.
I think you're giving people too much credit. There are plenty of dumb people out there who'd make bad investments and wind up elderly and broke. Who will end up footing the bills for these folks when they can no longer work?

Blame it on the Republicans seems to be your central theme. Last I checked the democrates have controled congress for the past 2 years. The republican's controled congress for only a few years out of the past 60, so point your finger the right direction.
2 years with a Republican president who is veto happy all of a sudden. Before that we had all republican congress/senate and president (6 years I think). Before that, Democrat president who worked really hard to bridge the divide with the Republican houses. I think we can maybe fault Clinton for not vetoing the repeal of Glass/Steagall, but not 100% sure it was on his watch.

Hell yeah, I do blame it on the Republicans. Most people are blaming it on the Republicans for deregulating stuff that shouldn't have. It was Republicans goaded on by the various lobbyists they were buddies with, like Phil Gramm, who pushed these measures through. This isn't just arbitrary stuff, it can be followed with a bunch of legislative events through the last 20 or so years, starting with Reagan.

I seriously doubt the democrats in the last two years, without having a veto proof majority, could have undone any of it. Besides, other things seemed to be a bigger priority with them, like the 2 wars we're involved in, torture, stuff like that. Probably better off dealing with things you know you can change rather than spinning your wheels and grandstanding just to make a point.

Blame it on the Republicans seems to be your central theme. Last I checked the democrates have controled congress for the past 2 years. The republican's controled congress for only a few years out of the past 60, so point your finger the right direction.
Why are we in this current mess?

Because of credit default swaps. Which are completely unregulated.

Why?

Phil Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000. The Commodity Futures Modernization Act of 2000 was a key reason for the 2007-2008 Subprime / Housing / Mortage / Banking disaster. Stating the Act would "protect financial institutions from overregulation", his actions left the credit default swaps, which are behind the subprime mess, totally unregulated.

Who was controlling Congress in 2000?

Republicans.

Go put that in your pipe and smoke it.

The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]

The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.

It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000; the legislation thus became law as a part of H.R. 4577 - Public Law 106–554, §1(a)(5).

This bill also caused the Enron disaster. Phil Gramm's wife brought over a million dollars to his household from working for Enron.

Several Democratic legislators introduced legislation to close the Enron loophole from 2000-2006 but were unsuccessful.

Finally having control of Congress, in September 2007, Senator Carl Levin (D-MI) introduced Senate Bill S.2058 specifically to close the "Enron Loophole". This bill was later attached to H.R. 6124, the Food, Conservation, and Energy Act of 2008, aka "The 2008 Farm Bill".

President Bush vetoed the bill, but was overridden by both the House and Senate, and on June 18th, 2008 the bill was enacted into law.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

You can blame Clinton for signing the original bill, although as part of a Omnibus spending bill (http://en.wikipedia.org/wiki/Omnibus_spending_bill) if he had vetoed it the government would have been in a mess. Again, a REPUBLICAN Congress wrote and passed the bill.

With good old Phil Gramm sneaking in the credit default swap part at the last minute, in the middle of the night, with almost no one being aware of it.

This is the man McCain picked to advise him.

Go tell us more how the Democrats are to blame...

I think you're giving people too much credit. There are plenty of dumb people out there who'd make bad investments and wind up elderly and broke. Who will end up footing the bills for these folks when they can no longer work?
You don't have to be dumb to get hurt. The market dropped by 30% this year. If you were retired you could have seen a third of your 401k evaporate. If you were taking distributions from it either your income from it would be reduced by a third or else you'd have fewer years to live on it.

I got kind of lucky, mine only lost 10% because I had been lazy and hadn't redistributed, but one of my mutual funds did lose 30%.

ost people don't put a lot of thought into their investments. It isn't because they're dumb, it's just not what they're interested in learning about, they're busy and have other priorities. Most people never bother to get around to picking funds in their 401ks, they just let it go into whatever default fund their company has.

It is always amazing to me how Republicans have no trouble redistributing wealth to big business like banks and car companies but man, they sure hate to see poor people get a break.

You don't have to be dumb to get hurt.
No, you don't have to be dumb to get hurt but being dumb can amplify the pain and get you to it quicker. Greed can make people who are otherwise pretty smart do some very dumb things. When the market began its decent back in 2000 a lot of people assumed it was just another fleeting dip and lost their shirts buying huge amounts of stock on margin.

No, you don't have to be dumb to get hurt but being dumb can amplify the pain and get you to it quicker. Greed can make people who are otherwise pretty smart do some very dumb things. When the market began its decent back in 2000 a lot of people assumed it was just another fleeting dip and lost their shirts buying huge amounts of stock on margin.
Yeah. No argument from me on that.

I was talking to my friends about how their retirement accounts are doing. Apparently one friend's financial adviser told him to get out of his mutual funds right at the height of the losses. So he probably lost 1/3 of his net worth in his retirement.

I heard on NPR during the Fanny/Freddy debacle that a bunch of mutual funds bought heavily into them assuming the government would bail f/f out and their value would go up. *sigh*

Republicans/Libertarians always have this let the buyer beware mantra going on. But I'd be willing to bet they were as unwary as everyone else. I think their supposition that would make total deregulation is that:

People have all the information they need to make great decisions (they often don't).
People are smart/educated/Nobel prize winners enough to understand it, and if they don't, I or someone else can prey on them and its their own fault because they blew it (blame the victim).

Republicans/Libertarians always have this let the buyer beware mantra going on. But I'd be willing to bet they were as unwary as everyone else.

Back in the '90s I worked with two guys who considered themselves to be Libertarians. One of them refused to take any risk at all and missed out on some of the best investing years ever while the other had a knack for picking the only stocks that weren't making gobs of money. We used to joke that, if he invested in a stock you should sell it immediately because it was going to tank (and it almost always did).

/sigh

I really miss the '90s. If you were willing to invest and you weren't skittish or overly greedy it was fairly easy to make obscene amounts of money.

I remember that, well in the late 1990's anyway. The early 1990's were a mess. It seemed like a lot of people were making lots of dough just trading. They always thought they were so smart but my suspicion was a monkey with a dartboard could make money back then randomly picking stocks.

I remember one woman who quit working and just went to trading. I always wondered what happened to her wealth when the bubble broke.

They always thought they were so smart but my suspicion was a monkey with a dartboard could make money back then randomly picking stocks.
Even just simple, common sense observations could pay off. "Hey, selling stuff online is a good idea maybe I should pick up some EBAY and/or some AMZN." At any other time the P/E rations would have scared the crap out of people but in the 90s, nobody cared.

I remember one woman who quit working and just went to trading. I always wondered what happened to her wealth when the bubble broke.
"Would you like fries with that?"

Libertarian-leaning magazine Reason's response to the Slate article:

http://www.reason.com/news/show/129580.html

You guys are sad and just typical liberal coolaid drinkers. Expand your horizon outside of NPR and the NY Times.

Liberals, socialists, commies all start out by saying we are just trying to protect those poor people who can't help themselves. We soon get more laws, restrictions, taxes, and interference in our lives The vast majority of Americans can make their own financial and life decisions without interference of the elite snobs who want to control us. This country was built on people fleeing their home countries to find freedom to make their own decisions.

You big government types all seem to think the worlds problems will be solved if we only let someone in Washington figure it out for us. I would rather let the individual have the freedom to make good and/or bad decisions. If we left it up to you we would have 10% plus unemployment, crappy medical care, no growth, no major inventions, and no progress. Oh wait that is France.

[Obnoxious Rant Intentionally Omitted]
Oh, is that the game we're playing? Reduce your opponents to stereotypes, make ad hominem attacks, and regurgitate simplistic talking points? I'll take your political views more seriously when you move out of your mom's basement and get a taste of the real world, Sparky.

Oh, is that the game we're playing? Reduce your opponents to stereotypes, make ad hominem attacks, and regurgitate simplistic talking points? I'll take your political views more seriously when you move out of your mom's basement and get a taste of the real world, Sparky.

:evilgrin: I see what you did there.

y 0.02 on the OP topic: Libertarianism isn't dead, just misguided. It tends to be isolationist, and that hasn't worked for us in the past, so it definitely wouldn't work in a globally connected modern society.

Other than that, going back to the Constitution and strictly vetting any new expense program based on whether or not justification for it is found in that illustrous document is a fine idea.

Sparky? You are seriously funny, Klath.

Klath

Look who is tossing attacks. It must have hit home. If the shoe fits wear it. It doesn't take much to get a liberal foaming at the mouth.

Signed Sparky.

Libertarianism isn't dead, just misguided. It tends to be isolationist, and that hasn't worked for us in the past, so it definitely wouldn't work in a globally connected modern society.
Aye, I would think that full-blown Libertarianism (of the sort alluded to by the author of the article that Kamion posted) would create problems for businesses whose foreign competition is subsidized by their government.

Hee hee! I'm betting John Stewart is going to have some fun things to say tonight.

It tends to be isolationist, and that hasn't worked for us in the past, so it definitely wouldn't work in a globally connected modern society.

Yeah, clearly the "shoot-first ask questions later," "flood the third world w/ subsidized food products," and "place sanctions on every other country" policies of the war parties are such a superior way to engage the world.

Hee hee! I'm betting John Stewart is going to have some fun things to say tonight.
This clip (http://www.youtube.com/watch?v=acgl48Z1_ws) was fairly painful to watch.

Another libertarian article debunking the slate one:

http://mises.org/story/3162

Well I haven't even finished the first paragraph and already I'm finding problems: The Democratic presidential candidate has gone out on a limb by declaring that the current crisis is the result of deregulation during the Bush presidency.
He's hardly the lone voice saying this. Even Alan Greenspan and the current head of the SEC, Cox, are saying they were wrong in allowing the markets to be as deregulated as they are. Almost every conservative pundit and even some bankers and investment guys are saying it. God, you have to be living in a cave if you haven't seen/heard it.

In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

here have been many clips here arguing that the Community Reinvestment Act (legislation forcing banks to loan in areas from which they take deposits, enacted in 1977 and strengthened in 1995) caused the subprime meltdown, because banks were forced to make loans in poor areas.

Robert Gordon shows that the CRA could not have been responsible for the subprime meltdown for two reasons:

1. Timing--CRA activity largely slowed down by 2002, yet sub-prime lending continued to intensify.
2. Lenders NOT covered by CRA played a huge role in sub-prime lending. "Half of sub-prime loans came from...mortgage companies beyon the reach of CRA...Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending...Independent mortgage companies...not covered by CRA, made high-price loans at more than twice the rate of the banks and thrifts."

Did Liberals Cause the Sub-Prime Crisis? (http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_c risis)
Conservatives blame the housing crisis on a 1977 law that helps-low income people get mortgages. It's a useful story for them, but it isn't true.
Sorry dude. Even your fellow conservatives are willing to shoulder the blame. Take a look at the congressional hearings or try listening to your news from someone other than Rush Limbaugh. You can continue to support a failed political philosophy but hopefully most of the country has now learned the lesson first hand that deregulation just lets greed and corruption run rampant. We've seen it played out so many times over the years and now culminating in this major fiasco. I just don't see how anyone is ever going to be able to push that as a successful political agenda any longer.

And yet another

http://www.lewrockwell.com/orig8/ward-aaron4.html

Err You missed his point. His point was that people are blaming this on deregulation that occurred during the Bush administration, even though all the "evil deregulation" that occurred happened during the Clinton administration. He went on to talk about how some blame this on a lack of new regulations rather than deregulation.

Now, it's important to put the article you quote in context. It's from the Ludwig Von Mises Institute. They have extremely paticular views of how banking "should" be, but they don't exist. So you can write them off as another conservative talking points peddler, but that's quite wrong.

The good news is I don't have to type all this crap out and try to explain this to you economic-newbs. Some one has done it for me... in fact that some one just happens to be a libertarian.....

Ladies and Gentlemen...I give you Joshua.....err i mean Ron Paul.

First off you're barking up the wrong tree.
http://www.youtube.com/watch?v=YBStWyQW6Rk

Scrambling around to find an answer? The answer was given 6 years ago in '02.
http://www.youtube.com/watch?v=pvlUx5ECD2w

Little more info on why our economy is effed up (This one has music to keep it interesting)
http://www.youtube.com/watch?v=OrR-SNLtXAc

Again in '07
http://www.youtube.com/watch?v=A4kxTkhwR_Q


So in summary this economic downturn is not because of a free market. Since our market is not free, a free market is not controlled by the federal reserve. Several factors have caused this issue to come about fixed prices and interest rates by the federal reserve, mal-investment, massive credit building, printing money to fill holes in the economy, and last but not least corperatizing the economy. The market should determine the worth not the federal reserve. Illiquid assets should not be propped up, once again the assets worth should be determined by the market not the federal reserve.

Oh god, here we go again with more deregulation:

A Last Push To Deregulate (http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004749.html?hpid=topnews)
The White House is working to enact a wide array of federal regulations, many of which would weaken government rules aimed at protecting consumers and the environment, before President Bush leaves office in January.

The new rules would be among the most controversial deregulatory steps of the Bush era and could be difficult for his successor to undo. Some would ease or lift constraints on private industry, including power plants, mines and farms.

...
The burst of activity has made this a busy period for lobbyists who fear that industry views will hold less sway after the elections. The doors at the New Executive Office Building have been whirling with corporate officials and advisers pleading for relief or, in many cases, for hastened decision making.
Lets nail down the favors to lobbyists so we're well taken care of once we leave office.

Good to see Bush is going to do to Obama what Clinton did to him. With the dems in control of the house, senate, and white house I think you will get all the regulations you ever dreamed of Panamah.

Expect a backlash in the form of higher unemployment, a deeper recession, and industries going over seas where they don't have to deal with the mommy state.

Liberals aways want to kill the golden goose who pays the wages and creates jobs. The high paying manufacturing jobs are all either gone over seas and on their way. More regulation will make it harder to compete with China. If you think high tech is going to save us just look at the what China and India are pumping out in the way of engineers. We will soon be facing massive competition from countries that don't like us.

I suspect a lot of liberals will have free time in the future. Then we will be hearing about job creation with tax payer money. I only wish liberals would read a history book and see what other socialized countries are doing with regard to freeing their markets. They are going in the opposite direction of what you want to see happen.

LOL! It always cracks me up to see you conservatives predicting gloom and doom and then the opposite happens. You think guys like Bush (both father and son) are going to bring you some sort of economic nirvana and they leave the office to the next guy with enormous economic woes to unravel, horrible debt. Now we get 2 wars and a recession, perhaps a depression to kick it all off. Obama must be insane to want this job.

I just hope Obama does as well as Clinton did. But he starts from a far, far worse place.

You also might want to remember that a communist country is kicking everyone's butt in economic growth, so are (were) quite a few European countries, like Norway has been at the top of a bunch of lists for many years, with policies I'm sure would send you screaming "socialism" at the top of your lungs. Unfortunately most of the world invested heavily in our crazy markets and bought into our pyramid schemes (CDOs) so they're going to have issues too.

I never got around to sharing this giggle before but McCain said on the campaign trail, or debate forget which one, that Teddy Roosevelt was his hero. (McCain's Hero: More Socialist Than Obama! (http://www.slate.com/id/2202950/)). Which is funny as hell because if anyone had notions that our current crop of Republicans would call socialist it'd be Theodore Roosevelt. He knew that huge levels of income disparity would lead to true socialism. Think about it, when you get a vast group of people who can't live in decent circumstances and they can vote... what are they going to vote for (or perhaps even riot for)? To improve the conditions of the people living in the top 1%? No, they might agitate for things like progressive income taxes at best, at worst they might start to impose stuff like windfall profits taxes and so on.

"No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar's worth of service rendered not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate."
So pick your poison. You can only get your Republican goodies when there's a happy, successful middle-class. When they start to decline then all that goes out the window and we're going to start seeing a little more wealth redistribution.

Oh as far as reading history is concerned, here's something you might want to start with: Theodore Roosevelt's New Nationalism speech. (http://www.teachingamericanhistory.org/library/index.asp?document=501) Your buddy, McCain, who now says that progressive income tax is "socialism" admires the man who delivered this speech. Sometimes I get whiplash trying to track the thought processes...

so are (were) quite a few European countries, like Norway has been at the top of a bunch of lists for many years

Err, Norway is one of the largest oil exporters in the world. It's not exactly difficult for them to have economic success.

And while they have one of the highest per capita GDPs in the world, their purchasing power isn't that impressive. They have high taxes/tariffs so everything there is expensive -- most notably, their general VAT (what we call sales tax) is 25%, which is insane imo. So while Norwegians may have a lot of paper wealth, their material isn't nearly as impressive.

And if anything, the Norwegian government is extremely inefficient. They spend so much money on unemployement benefits and the like that they need to tax like any standard European countries to provide benefits, even though their national oil company produces huge revenues. It's also kind of funny that they have some of the most expensive gas in the world. The government taxes the hell out of it so they're able to export more oil.

The Norwegian government spends way too much money on unemployement benefits and other labor-related perks. But with that being said, what they do with college is vastly superior to what Obama wants to do. Obama wants to have strings attached to college tax credits, which is fine. But what in the hell does doing community service have to do with being a good student? In Norway, the government will help you pay off college if you complete college. The #1 problem with state funding in college is that people waste the resources w/o actually completeing school, so the Norwegian way helps fix that.

Your buddy, McCain, who now says that progressive income tax is "socialism" admires the man who delivered this speech. Sometimes I get whiplash trying to track the thought processes...

Errr, do you even know McCain's position? Last time I checked, his tax plan is also a progressive tax system.

Why he calls Obama's plan socialism is because he's giving refundable tax credits (aka checks) to people who don't pay no income tax. No matter how you slice it, Obama's tax plan is lower-middle class welfare.

Errr, do you even know McCain's position? Last time I checked, his tax plan is also a progressive tax system.
He's carrying on like it's something new. Obama said people over a certain level should have to pay a little more and you'd think this was an entirely new concept with all the howling going on.

The Earned Income Tax credit is not new. You might want to check factcheck.org from time to time. You have to file a tax return, but you're eligible for a credit even if you pay no taxes.

You might want to stay on top of of the Fact Checking sites for whoppers like these (http://www.factcheck.org/elections-2008/the_whoppers_of_2008_--_the_sequel.html) before you believe everything your candidate is spewing. I check up on mine.

Did I say I believe everything he says? I was simply saying his tax credits is why he thinks Obama is a socialist. But of course he's overstating it, he's a politician in an election.

But that doesn't change the fact that 1) There will be some people who recieve more back from the gov. than they pay in because of Obama's tax credits and 2) Obama's goal is to appeal to middle class welfare queens.

Anyone that receives more in tax credits than they pay in taxes is not middle class.

Flat tax rate FTW. I'm far from a McCain supporter, however Obama's plan is specifically catered toward getting him in office not for the good of America. Which is exactly why I don't like McCain, he picked the hockey mom for no other reason than votes, not for the good of helping America.

Did I say I believe everything he says? I was simply saying his tax credits is why he thinks Obama is a socialist. But of course he's overstating it, he's a politician in an election.

But that doesn't change the fact that 1) There will be some people who recieve more back from the gov. than they pay in because of Obama's tax credits and 2) Obama's goal is to appeal to middle class welfare queens.

I'd rather the working middle class or poor get some breaks than the enormous corporations. We've had 8 years of corporate welfare culminating in the recent $700,000,000,000,000 (did I get enough 0's in?) welfare.

How good has all that welfare for the corporations and tax-cuts for the wealthy been over the last 8 years? The middle class is getting poorer and more are falling into poverty.

Think. If too many people end up poor what's going to happen? Go consult a few history books. Revolution is often the result, governments being overthrown, far left policies being adopted (or if you're in the Middle East, theocracies). That sort of thing is moderated in our country because we let the poor have an equal voice. I think if you were honest with yourself you'd really see that having a solid, stable, healthy and big middle class is better than having a few people with "swollen fortunes" being given some tax cuts. It helps us keep the pendulum from swinging too far one way or the other.

I think I know what you like about the liberals. They will give you something you have not earned. I think you just don't like anyone who makes money. Guess what--those people making money are creating jobs.

Taking money away from productive people and giving it to people who are not paying taxes is simple welfare. Now you don't even need to be poor. You can decide to only work part time, semi retire, not finish up your education, etc... We are creating a bunch of lazy Americans.

The reason Russia and China are growing so fast is they are freeing their people to make money. The are removing regulations and taxes the opposite of what you want to do.

You argue that we need more regs, taxes, and govenment control. Then you argue the socialists are doing better economically. Then you say we have to pay off the poor so they don't create revolution. You obviously don't read history or pay attention to economics.

1. Every country that is growing dramatically is either a oil country or a past socialist country that is freeing its economy from regulation.
2. The great society of Johnson has not solved the problem of poor in this country. More social welfare does not create jobs or put people to work.
3. The poor in the U.S. would be considered rich in just about any 3rd world country. I don't see anyone starving on the streets--so that revolution you are talking about will only happen after our economy gets a lot worse do to liberals trying to be business people.

Stop listening to NPR and reading the NYT. Branch out Panamah and you might learn a few things besides the liberal media pap.

I'd rather the working middle class or poor get some breaks than the enormous corporations. We've had 8 years of corporate welfare culminating in the recent $700,000,000,000,000 (did I get enough 0's in?) welfare.

How good has all that welfare for the corporations and tax-cuts for the wealthy been over the last 8 years? The middle class is getting poorer and more are falling into poverty.

Well, there are two issues going on here.

First one would be corporate welfare; that is, financial incentives for corporations to act in a certain way. This is the policy of both political parties, they just favor different things. IE, Republicans want to give oil companies incentives to drill in the US as opposed to overseas, and the democrats want to give incentives to wind farms. The debate among the two parties isn't whether or not corporate welfare is wrong, but rather what industries should benefit from corporate welfare. Democrats love corporate welfare because they believe in central economic planning, and fiddling around with the tax code is the way to have central planning in a market-based economy.

Second issue would be over corporate tax rates. If you want to view cutting the corporate tax rate as pandering to the fat cats, do so at your own peril. There is no valid argument for keeping our corporate tax rate so high -- even revenue.

http://www.brendan-nyhan.com/photos/uncategorized/2007/08/01/edag112_1corpt_20070712182433.gif

Now, whether or not corporate tax rate cuts should be prioritized over other tax reductions is another discussion.

Heh. That curve appears to have been drawn based on 2 data points. It certainly doesn't fit the rest of the data.

Based on those data points (and discarding Norway as an anomaly) it looks like the best fit would be approximately a straight line from the UAE through the UK.

Yeah the curve doesn't fit at all, I just wanted to show that we have one of the highest corporate tax rates (at least on paper), but still only receive the revenue levels as countries with less than 1/2 the rate as ours.

To maximize revenue as a % of GDP, the ideal level would be in the upper 20%s. However, some would argue that it'd be beneficial to make it even lower, because while you'll receive less revenue as a % of GDP, the low corporate taxes will encourage higher GDP growth which will in turn produce even more revenues.

To maximize revenue as a % of GDP, the ideal level would be in the upper 20%s.
What's the basis for this argument? We agree that a maximum exists, but I don't think we have enough information to make claims about where that maximum is.

Love your chart Kamion. The liberals will soon change the subject faced with facts.

It is indeed a useful chart--it counters the assertion that we are to the right of the maximum on the Laffer curve (note: not the incorrectly labelled curve drawn on the chart).

The UAE receives it's money from the oil industry which is nationalized.

If we nationalized our oil companies we'd probably pay a lot fewer taxes too.
The gas and oil industry is still the basic and most important of the UAE's industries. In the Emirate of Abu Dhabi, it is run and controlled by the Supreme Petroleum Council under the chairmanship of His Highness Sheikh Khalifa Bin Zayed Al-Nahyan, Crown Prince of Abu Dhabi. Abu Dhabi National Oil Company (ADNOC), which was established in 1971, controls the gas and oil affairs in the Emirate. ADNOC is fully owned by the Government of Abu Dhabi, and is the parent company, or owner of all or majority of the shares, of 15 companies known as the "ADNOC Group of Companies". These companies are involved in oil and gas exploration and production, petrochemical industries, marine transportation, distribution of petroleum products, exploration and production services and facilities, and natural gas processing.
http://www.adgas.com/Default.aspx?tabid=310
Sure we could lower corporate taxes and tax individuals more. I suppose that'd be one way to draw jobs to the US.

Why would we need to tax people more? Cutting the corporate tax rate to the upper 20%s would be mostly, if not completely, self-financing. Even if its not directly self financing, cutting the corporate tax rate would give businesses more money to 1) give more money to the workforce which will be taxed and 2) increase profitability which will increase capital gains.

As far as nationalizing our oil companies well, that'd just be dumb. We get a lot of revenue from them already, and you also need to consider the money we benefit from our oil companies drilling for oil in foreign countries. Also need to consider how much production would drop off, since that's usually what happens after nationalization. Considering the US is the 3rd largest oil producer in the world, us screwing that up could really mess up the world market.

Just want to clear something up. You can't tax a corporation, corporations feel no pain. Any thing done to a corporation gets passed on to it's employees. In the form of lower wages, cut benefits, and loss of jobs.

As far as nationalizing our oil companies well, that'd just be dumb.
Yeah, I didn't think you'd go for that but I was trying to point out the revenue has to come from somewhere. Your chart shouws UAE as some kind of tax free nirvana, well the only reason it is that way is because oil industry is nationalized. Do you think because the UAE doesn't have corporate taxes that that's how they can build their amazing city? Nooooo, it's because oil prices went threw the roof and they got lots of oil, and the government basically collects and distributes those profits. A monarchy I think. They're going to be in a world of hurt if oil prices stay down. How're they going to pay for the upkeep on that stuff?

I think in a normal economy, one that isn't producing enormous bubbles that burst every few years, you're going to see fairly small growth in the GDP. You can't really count on increasing the GDP to cover revenes. That's a lot of what is happening in CA right now. We have budgets based on revenues that were made during a boom in housing prices, so property tax income was great. But now we can't possibly cover those expenses with the revenue we have.

Then another thing I see government doing, and I'm going to sound weirdly conservative here but oh what the hell, is building things and not realizing that everything we build has ongoing expense into the future. That's why our roads and bridges are in such bad shape. You build those things when you've got loads of money but can't maintain them when things aren't so good (or everyone is over promising tax cuts every election cycle). I see RL businesses doing this. They buy technology they can't really maintain because they don't figure in the people costs of administering that equipment down the road.

Just want to clear something up. You can't tax a corporation, corporations feel no pain. Any thing done to a corporation gets passed on to it's employees. In the form of lower wages, cut benefits, and loss of jobs.
Well... that and perhaps lower executive pay, fewer multi-million executive bonuses perhaps. A little lower dividend to stock holders. But tell me how much money from the 40 billion dollar profits Exxon/Mobile is pulling down makes its way into the employee's pocket? Really, I'd love to know.

It has been my experience that my salary didn't change much no matter how well a company did, unless they just couldn't afford raises. But those making obscene profits gave them to executives or banked them, they didn't benefit employees directly. Maybe a nicer lunch room. In the end companies don't pay their employees more than the market dictates.

But I wouldn't be against dropping corporate taxes but I'm a realist enough to know that the money has to come from somewhere and that's more likely going to be income taxes, maybe a VAT tax. And I'm also a realist enough to know that higher income taxes are about the hardest thing to pull off in this country because almost no one is willing to vote themselves higher taxes.

The UAE isn't Kuwait; there are taxes there. They just removed the corporate tax rate to entice companies to move there (which worked fantastically, btw.) That was the same reason why Ireland cut their corporate tax rate to 12.5%, which was one of the main reasons why Ireland was able to shock the world with double digit growth in the 90s, something thought to have been impossible in a first-world developed economy. Ireland's success was brought on because of their policies; tech companies looking to setup their European operations choose Ireland because of their business friendly enviroment, and the Irish people benefited greatly.

It's important to note that one reason why the Gulf states are able to fund their governments isn't just oil revenues, but also the fact they invest government surplusses through sovreign wealth funds. But people on the political left in America think investing government money -even in foreign government bonds- is a bad idea because your at the mercy of the evil marketplace.

It's also important to note that Alaska recieves 85% of its revenue from oil companies. The US government benefits plenty from non-nationalized oil. It's just that the US's oil-to-people ratio is far worst than the UAE's or Kuwaits.

Just want to clear something up. You can't tax a corporation, corporations feel no pain. Any thing done to a corporation gets passed on to it's employees. In the form of lower wages, cut benefits, and loss of jobs

Well... that and perhaps lower executive pay, fewer multi-million executive bonuses perhaps. A little lower dividend to stock holders.
Prioritizing class warfare is one way to ensure that everyone loses.

I'm not saying that lower corporate taxes may lead to more bonuses to executives, but it would also lead to a more competitive labor market which in turn would benefit everyone.

It has been my experience that my salary didn't change much no matter how well a company did
Well, internal factors are only a very small part of how companies set up their compensation plans. What lower corporate taxes would do is allow companies to hire more people which in turn would force companies to compete over employees.

---------------

And once again, we're having a discussion about what economic policies are the most beneficial with completely ignoring the consumer side of things.

I don't know about you, but I like making money to buy things, not because I like having a lot of pieces of green paper in my pocket. Do you not think that cutting the corporate tax would pass savings onto consumers?

No, because product pricing is determined by what the market will bear rather than the cost to bring a product to market.

Give me a break guys. I'm not a libertarian, but your choices of systems are few and far between. Europe is moving back towards a more capatilistic system as they have found their soft socialism is failing with unemployment 2-3 times higher then us. They basically have very low growth and low productivity. They tax their populations so high that no one wants to start a new business or work hard--what is the point. Their national health system is a joke and anyone with a few bucks now buys private insurance or comes to the U.S. for care.

Clearly you mean the OTHER Europe, the one I -don't live in.

- confused hobbit

Err, Norway is one of the largest oil exporters in the world. It's not exactly difficult for them to have economic success.

Where this would've been true had we actually SPENT said money, mostly we don't. It's being saved and invested and is pretty much ear marked for handling the situation when the elderly-boom really hits (we really should have the decency to stop living so long!) and there are a gazillion pensions to be paid out.

And while they have one of the highest per capita GDPs in the world, their purchasing power isn't that impressive. They have high taxes/tariffs so everything there is expensive -- most notably, their general VAT (what we call sales tax) is 25%, which is insane imo. So while Norwegians may have a lot of paper wealth, their material isn't nearly as impressive.

Of course it seems expensive if you're taking your foreign pay check, based on your nations general wage level and trying to purchase things here. But you're failing to mention that based on OUR general income, we have it pretty darn good.

And if anything, the Norwegian government is extremely inefficient. They spend so much money on unemployement benefits and the like that they need to tax like any standard European countries to provide benefits, even though their national oil company produces huge revenues.

Yes, it's true, we've decided that it's money well spent making sure that noone sleeps on the streets and that everyone has food. We're such awful people!

And if that weren't enough, we've been horrible enough to implement free health care and hospitals for everyone as well.

Neither system is perfect, as no system is, but I tend to think that having a decent system that takes care of the weakest in our society is better than having no system at all.

And seeing how the unemployment rate in october 2008 was 2.10% here, as opposed to - say - the usa equivilant was 6.10% (sept 2008), surely it must be a tad difficult to blame our unemployment rate on our benefit system.

Take me out and shoot me at daybreak!

It's also kind of funny that they have some of the most expensive gas in the world. The government taxes the hell out of it so they're able to export more oil.

Again, this is based on your perception of "expensive". Relative to our income, we have some of the cheapest gas in Europe. I can fill my tank more times over with my take-home-pay than my colleague in say.. Spain. Or Sweden. That the actual cost is lower in Spain really does not matter to me, as it'd be hugely impractical for me to drive down there to fill up the tank :)

No, because product pricing is determined by what the market will bear rather than the cost to bring a product to market.

Let me guess, next you'll tell me that CO2 cap-and-trade won't pass costs onto consumers.

Let me guess, next you'll tell me that CO2 cap-and-trade won't pass costs onto consumers.

Of course it will (especially if left unregulated). What is it with some people wanting everything but wanting it free?

huh

huh

It seemed to me that you did not like the prospect of having to PAY for something, that's all. If I misunderstood you, please clarify.

Yay! Our resident Norwegian is here. You should see the fjords on her!

It seemed to me that you did not like the prospect of having to PAY for something, that's all. If I misunderstood you, please clarify.

The context of Palarran's quote I was responding to is on the previous page.

Ok, both of us have been oversimplifying it, I think.

Companies will pass savings on to consumers only if they expect that an increase in the volume of sales will offset the decrease in profit per sale. Due to the shape of a typical demand curve, this normally requires jumping between discrete price points, which means in many cases a tax cut would have to be substantial to have any impact on pricing.

And even then that's no guarantee. Suppose the cost of producing a Nintendo Wii for the U.S. were reduced due to a tax cut. Given that Wiis are still selling as fast as they can be produced at $249 each, why should they lower the price any?

Yay! Our resident Norwegian is here. You should see the fjords on her!

And they're real too!

Yeah, I didn't think you'd go for that but I was trying to point out the revenue has to come from somewhere. Your chart shouws UAE as some kind of tax free nirvana, well the only reason it is that way is because oil industry is nationalized. Do you think because the UAE doesn't have corporate taxes that that's how they can build their amazing city? Nooooo, it's because oil prices went threw the roof and they got lots of oil, and the government basically collects and distributes those profits. A monarchy I think. They're going to be in a world of hurt if oil prices stay down. How're they going to pay for the upkeep on that stuff?

I think in a normal economy, one that isn't producing enormous bubbles that burst every few years, you're going to see fairly small growth in the GDP. You can't really count on increasing the GDP to cover revenes. That's a lot of what is happening in CA right now. We have budgets based on revenues that were made during a boom in housing prices, so property tax income was great. But now we can't possibly cover those expenses with the revenue we have.

Then another thing I see government doing, and I'm going to sound weirdly conservative here but oh what the hell, is building things and not realizing that everything we build has ongoing expense into the future. That's why our roads and bridges are in such bad shape. You build those things when you've got loads of money but can't maintain them when things aren't so good (or everyone is over promising tax cuts every election cycle). I see RL businesses doing this. They buy technology they can't really maintain because they don't figure in the people costs of administering that equipment down the road.

Nah, the company will raise the price of their product or services before the EVP's take a cut in pay. Dumping the cost back on the consumer.

Nah, the company will raise the price of their product or services before the EVP's take a cut in pay. Dumping the cost back on the consumer.

In that case, the company's financial advicers need to be fired for not realising sooner that the product could be successfully marketed at a higher price.

Not really, lowest price has always just been a benefit. Some companies are willing to part with that as their product has several other benefits, there isn't that much loss in sales.

Not really, lowest price has always just been a benefit. Some companies are willing to part with that as their product has several other benefits, there isn't that much loss in sales.

y point is, if the loss in sales is something which the company considers to be worth it, then it's not very smart of them not to have raised the price already before the cost increase. Wouldn't you agree?

Also see Panamah's post above (the one starting with her thinking everyone's been oversimplifying things). The post explains it regarding passing savings on to customers, but serves as a good explanation regarding when they'll pass increased cost onto consumers and when they won't as well.

If they can sell 10 units at 10 dollars a piece, but only 9 units if they raise the price to 11, there is absolutely no financially sound reason to raise the price.

However, if they could raise the price to 12 and still sell 10 units, and could've done so also before the increased production cost, their financial advicers need - as I said - a good kick in the derriere for costing the company a truckload of money.

I've long realized that price usually has little to do with cost on many, many products. You only have to read Consumer Reports for awhile to find that many products price is based on their marketing strategy and sometimes having the higher price is actually better since most people firmly believe that higher price is always linked to higher quality.

My point is, if the loss in sales is something which the company considers to be worth it, then it's not very smart of them not to have raised the price already before the cost increase. Wouldn't you agree?

Also see Panamah's post above (the one starting with her thinking everyone's been oversimplifying things). The post explains it regarding passing savings on to customers, but serves as a good explanation regarding when they'll pass increased cost onto consumers and when they won't as well.

If they can sell 10 units at 10 dollars a piece, but only 9 units if they raise the price to 11, there is absolutely no financially sound reason to raise the price.

However, if they could raise the price to 12 and still sell 10 units, and could've done so also before the increased production cost, their financial advicers need - as I said - a good kick in the derriere for costing the company a truckload of money.

To an extent this is true. It depends on what is being sold, if the company has their product at maximum price per a unit then the cost gets shifted to the middle class employee. If there is flex in the market for a price increase then they will increase the cost of the product or both increase the cost of the product and decrease the money spent on the employee. It's not always that simple though when marketing gets involved. Take a T.V. service provider for example. Your price will almost always go up on an annual basis if not more often. Could they have been charging the full amount the entire time and still gotten good business....yes of course but the goal is to under sell the competition then increase the price. Which as a result you get a product for cheaper than you were willing to pay. This is a good thing, this means you as the consumer save money. When extra expenses are implemented to the company then you save less money. The important thing to remember is the people who are making massive amounts of money in the corporation are the ones calling the shots. Do you think they are going to take a pay cut before they can figure out a way to pass the expense on? I think not. There is no such thing as a pay cut to the higher ups in most corporations, most of the time it's either fix it or they will find some one else who will.

However none of that really matters, since that's not the logical way to fix an issue any how. Throwing more money at the issue isn't going to fix any thing. The only thing that is going to help is limiting the spending.

Could they have been charging the full amount the entire time and still gotten good business.

You're talking about "good business". Pam and I are talking about "optimal profit". There's a difference.

Good business often leads to optimal profit. That's why your cable companies can raise your price and you still keep the product :P

Good business often leads to optimal profit. That's why your cable companies can raise your price and you still keep the product :P

I think you've missed the word "if" in the first and third paragraph in post 73 and suspect that is why you're still on this "look, I can find an example of the oposite"-tirade.

My point is, if the loss in sales is something which the company considers to be worth it, then it's not very smart of them not to have raised the price already before the cost increase. Wouldn't you agree?

You asked me a question in "post 73" and I answered it. You shouldn't ask questions if you don't want them answered.

You asked me a question in "post 73" and I answered it. You shouldn't ask questions if you don't want them answered.

I was sure you'd missed the "if" since I thought "not always" was a somewhat odd reply to "IF it's worth it, isn't it then smart?". But ok. If you think it's not always smart even IF it is the path to the greatest profit, then I guess I won't hire you as my financial advisor ;)

Well, I guess Phil Gramm (http://www.nytimes.com/2008/11/17/business/economy/17gramm.html?_r=1&hp&oref=slogin) is still pretty unrepentant about his work.
In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

Well, I guess Phil Gramm (http://www.nytimes.com/2008/11/17/business/economy/17gramm.html?_r=1&hp&oref=slogin) is still pretty unrepentant about his work.

Why shouldn't he be?

Because a bunch of democrats during an election campaign wanted to tie McCain to Gramm (who was a part of the McCain campaign)'s deregulation to win votes?... without including a substantive argument about how Gramm's paticular deregulation(s) caused the problem.

I also find it funny how people don't care that Clinton signed all of Gramm's deregulation. Than again people just want to ignore what laws actually passed during the Clinton years and just say "that economic growth happened because there was a democrat in office," nevermind the fact that nothing passed during the Clinton years was paticularly economically left-wing.

I don't know about you, but when I think 'left-wing' I don't think of the 3rd lowest capital gains tax rate (after GWB, Reagan), the 2nd most "deregulations" passed (after Reagan), and the largest free-trade agreement. But hey, in LiberalLogicLand (TM), what actually happened isn't as important as what the president said he wanted to happened whilst he was campaigning. And according to the left, if we want to create another Clinton-style economic boom, we should followed the policies Clinton wanted to pass but never did rather the policies that actually passed.

The free market is a good thing, but it need to have regulation to keep it running.

-Else you will finish to have secrets transactions that will profit to only fews and a lots will lose money.

-You will get exclusive clubs where decission are made and will become public only years after.

-Some greed can be good, but when it is too much and the PDG begin to lie about what is happening inside their compagny.

-When compagny begin to be too big to fall, but that is directed to generate money at all cost because the PDG get bigger pay and begin to see 1 year in the futur as the eternity.

When you lack competition in the market, it can't be realy free. Monopoly tend to slow down the apparition of new initiatives and new products.

Totaly free market whitout any regulation is possible as long that everyone play by the same rules and that information is also free (and everyone know that is the defaut setting for every human, right? (/sarcasme)). But when some players decide that they need need some advantage over the other players and that their actions do that billions of dollard go smoke without real cost to them; it show that you need some rules to level the playing field.

But the oposite, too much rules is also bad. The genius is to find the right spot of enough but not to much rules (and witch rules too).

Eridalafar

I read part of an article by Eliot Spitzer (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/13/AR2008111303634.html) about how he warned that AIG was making up assets to cover their insurance business. That's the problem with total deregulation. We have rules in place so insurance companies can't go out and insure everyone (no matter their risk) and then when the **** hits the fan, they can't meet their insurance obligations.

But without proper oversight and regulation this is exactly what is happening and why we now have to bail out AIG.

Here's an example of what he found in the current Republican regime:
When my office, along with the Department of Justice, warned that some of American International Group's reinsurance transactions were little more than efforts to create the false impression of extra capital on the company's balance sheet, we were jeered at for attacking one of the nation's great insurance companies, which surely knew how to balance risk and reward.

And when the attorneys general of all 50 states sought to investigate subprime lending, believing that some lending practices might be toxic, we were blocked by a coalition of the major banks and the Bush administration, which invoked a rarely used statute to preempt the states' ability to probe. The administration claimed that it had the situation under control and that our inquiry was unnecessary.

Here's the reality check that Libertarians, and many Republicans, fail:
Time and again, whether at the state level, in Congress or at the Securities and Exchange Commission under Bill Donaldson, those who tried to enforce the basic principles that would allow the market to survive were told that the "invisible hand" of the market and self-regulation could handle the task alone.

The reality is that unregulated competition drives corporate behavior and risk-taking to unacceptable levels. This is simply one of the ways in which some market participants try to gain a competitive advantage. As one lawyer for a company charged with malfeasance stated in a meeting in my office (amazingly, this was intended as a winning defense): "You're right about our behavior, but we're not as bad as our competitors." Excellent article! I can't quite see how some people fail to see the problem of unregulated markets. It just seems so bloody obvious to me. You have to be incredibly tone deaf to human nature not to understand the consequences of unregulated markets.

Would you want to fly on an airlines if they were unregulated? Nooooo thanks! Part of the reason I trust flying, for the most part, is because I know that when the airlines are cutting costs, they can't just stop inspecting and maintaining their planes. Would they if they could? I have absolutely no doubt that a company would rather continue to fly and make money even if they couldn't afford to inspect and maintain their planes.

In the same way the rest of the world flew the USA markets because they believed they were solid and that regulators were doing their jobs. What they didn't know was they weren't doing their job because the Republicans in office wouldn't let them.

One of the great advantages U.S. capital markets have enjoyed over the decades has been the view -- held worldwide -- that there was an underlying integrity to the representations market participants made, because the regulatory framework in which they were made was believed to provide genuine oversight. But as we all know, the laws requiring such integrity are meaningless without a government dedicated to enforcing them.

We deserve to lose credibility in our markets. We let the airlines (markets) of USA go uninspected, unmaintained, unrepaired until it crashed because some people thought the markets could somehow regulate themselves.

Free enterprise is really good stuff, but it isn't perfect. It needs to be guided so that competition doesn't destroy confidence and credibility by making people get too risky.

I read Panamah's post and some of the other posts.

I would like to point out what a hedge fund manager said during testimony to congress about our fincial situation and that is the problem companies ARE the regulated companies. Insurance is a regulated industry. That said, the failure came about because these companies pushed for profit in an unprofitable industry which was caused by regulation.

The start of the problem was lending standards were reduced so that poor people could buy homes with nothing down and monthly payments above 30% of their income. This pushed up the price of housing which caused the reduction in prices afterwards. Once an owner becomes underwater on their mortage, there is little to keep them in their house.

This reduction in housing prices caused defaults on mortages and the mortage insurance written by unregulated entities was under captalized to the support defaults. This was made worse by issuance of credit default swaps which spreads the risk of a single default in a single region and combines high risk mortgage default risks( chance of poor people defaulting) with multiple regions.

The failure of the system (systemic failure) occured when housing values dropped by 20% or more in all regions where these risky mortages were issued. The potential loss of banks around the world is 20% of the value of US housing value for mortages issued 2005 and after. This cost is being absorbed by AIG and other fincial instutions.

The problem, in my opinion, came in two places. First were the loans made to people that could not afford the monthly payment. Second, was the issuance of contracts that act as payment default insurance for hundereds of houses.

Correcting these failures should be fairly straight forward although States have covered insurance and bundling insurance of multilple house in multiple States can only be regulated by the Federal government. This is a major change in regulation.

It is unfortunate that local lending standards dropped so far that a creation of a whole new set of regulation is required.

Weoden, how do you explain that CDO's and CDS's and failure to regulate insurance (like AIG) properly isn't part of the problem here? We've thrown something like 100 billion now to AIG. Anyone with half a brain would surely realize that you shouldn't insure a sub-prime mortgage. And there was a terrific amount of predatory lending that went on. People were given mortgages that they didn't qualify for.

I'm sure you've all heard about the various plans to stop foreclosures and renegotiate the mortgages. Only problem is they can't figure out who owns the mortgages. Because the mortgages were bundled up and sold and sliced and diced and sold again and again. The servicer can't go to the owner of the mortgage and ask that it be renegotiated. So the hemorrhaging could be stopped if mortgages could be renegotiated. The lenders would lose money, but less than if the property went into foreclosure.

Weoden, how do you explain that CDO's and CDS's and failure to regulate insurance (like AIG) properly isn't part of the problem here? We've thrown something like 100 billion now to AIG. Anyone with half a brain would surely realize that you shouldn't insure a sub-prime mortgage. And there was a terrific amount of predatory lending that went on. People were given mortgages that they didn't qualify for.

LOL, I had to read wiki definition of CDO's and CDS's to verify that I knew what I thought I knew... These contracts were not written by AIG insurance but were written by others and AIG bought the contract. The contract was not technically considered insurance at the time but a contract. AIG recieved a "premium" payment and agreed to payout like an insurance policy in the case of default. Also, the underlying assets represented something like 32 houses in 10 states which crosses state borders and therefore is clearly out of the jurisdiction of state regulation.

Sub-prime requires insurance! All high risk situations should have insurnace. Take for example, fire insurance for southern Cali or flood insurance for New Orleans or auto insurance for a 16 year old driver... Should these situations not be insured?

The underlying problem or failure occured in apprasing or revealing the risk. The mechanisms at play were some fraud on revealing the income of the individual and raising the over all credit rating of 32 houses located in 10 states based on the notion of geographic diversification. That is one would reason that recessions will occur in certain areas and not broadly.

The mispriced risk rests on the rating agencies ( 3 of them ) for having the ratings too high. Unfortunately, these agencies ratings are considered an OPINION and they are considered part of the press AND claim constutional protections of the press... In other words, the agencies can not be held responsible for being absoutely wrong!!!




I'm sure you've all heard about the various plans to stop foreclosures and renegotiate the mortgages. Only problem is they can't figure out who owns the mortgages. Because the mortgages were bundled up and sold and sliced and diced and sold again and again. The servicer can't go to the owner of the mortgage and ask that it be renegotiated. So the hemorrhaging could be stopped if mortgages could be renegotiated. The lenders would lose money, but less than if the property went into foreclosure.

You are right but so what? If congress wants to reduce the forclosure rate then they can give fannie mae and freddie mac authorization to issue loans to those with monthly payments above 30% of their monthly income. This could be done with 30 year fixed mortages underwritten by the federal govt and at federal govt interest rates of around 4%. This could reduce the monthly payment 50% of the home owner.

This will not solve forclosure due to unemployment or someone walking away from their house because they are underwater on the mortage.

Secondly, libertarians aren't trying to say that lack of regulation had nothing to do with this. What they are trying to say is that people who blame this on "deregulation" are being intellectually ignorant.

I have no time for going into just how wrong you are. Suffice to say that I'll rely on my reputation on here for being most certainly not intellectually ignorant.

I could on for page after page on detailing how the deregulations enacted over the past 8-12 year played primary roles in our current economic fiasco. Regulations which were originally emplaced in order to prevent another Depression...and lo and behold, now we are embroiled in the worst economic crisis since that time.

From the loosening of restrictions seperating commerical and investment banks to the virtual elimination of regulations over the debt/capital ratio held by types of financial institutions to the de facto elimination of SEC oversight and investigation of the books of certain financial institutions, this crisis is the result of deregulation.

Those who persist in defending unfettered corporate capitalism are the ones exhibiting a distinct intellectual bankruptcy.


People blaming this mess on deregulation remind me of people blaming commodity futures deregulation on the oil spike. 50% of the increase in the price of oil alone was explained directly by the devaluing dollar. Of the other 50% of price increase, there are many other reasons than raw speculation to explain it. And of the speculation, only a fraction of it could be explained by deregulation. So, a law that may have been responsible for 10% of the increase got 100% blame. Welcome to the sound byte age.

Never attempt to attribute free market principles to explain the oil market. Free market principles rely on supply being based on production costs and ability. The supply lines for oil are almost entirely dictated by edict. It is little different than the diamond market, in that respect, except the diamond market is even more egregious in artificially restricting supply in order to manipulate and control prices.

In large part the spike in oil was due to speculation. In larger part it was due, directly, to oil companies manipulating the market in order to accrue unfathomable profit while they still had enough control over our government to get away with it.

On the other hand...now that the Dems are going to control both the white whose and congress, its good to see gas below 2 bucks a gallon again.

It is not Libertarianism that is to blame for the current crisis.

It is the Republicans with their worship of "Free Markets".
.

The Economic collapse has been due to people who have stopped paying their mortgages.

It has been Democrats which since 2000 have been putting pressure on mortgage lenders to give bad loans to people who have bad income and bad credit. Barney Frank especially.

This has nothing to do with Libertarianism or Republicans.

It has everything to do with the Democrats who wanted to get poor people into homes, poor people who could not afford them. And pressuring FMay or FMac to do so, or conversely them pressuring CONGRESS to push it.

The economic collapse is due to deadbeats. People who have borrowed money that they can not repay, and have defaulted on what THEY owe.

Simple as that.

A friend of mine recommended this site for explaining this current economic crisis and how we got into it.

http://baselinescenario.com/

Here's another one:
http://baselinescenario.com/financial-crisis-for-beginners/ (Financial crisis for beginners)

The authors are
Peter Boone is chair of Effective Intervention, a UK-based charity, and an Associate at the Centre for Economic Performance, London School of Economics.

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is a co-founder of The Baseline Scenario.

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.Yeah, not plumbers so I'm sure the Republicans will find an issue with their credentials.

I'd recommend reading the beginner site first.

Here's where I think some of y'all are wrong:

The problems in the U.S. housing market were not themselves big enough to generate the current financial crisis.

The housing market is not the sole cause of the issue. Read the beginner link to find out why.

People blaming this mess on deregulation remind me of people blaming commodity futures deregulation on the oil spike. 50% of the increase in the price of oil alone was explained directly by the devaluing dollar. Of the other 50% of price increase, there are many other reasons than raw speculation to explain it. And of the speculation, only a fraction of it could be explained by deregulation. So, a law that may have been responsible for 10% of the increase got 100% blame. Welcome to the sound byte age.
Never attempt to attribute free market principles to explain the oil market. Free market principles rely on supply being based on production costs and ability. The supply lines for oil are almost entirely dictated by edict. It is little different than the diamond market, in that respect, except the diamond market is even more egregious in artificially restricting supply in order to manipulate and control prices.

In large part the spike in oil was due to speculation. In larger part it was due, directly, to oil companies manipulating the market in order to accrue unfathomable profit while they still had enough control over our government to get away with it.
Where did I say that free market principles explained 100% of the price?

I said that very little of the price increase was due to the commodities futures modernization act. "If" you are right and that the oil companies are largely to blame for the price increase, you could ban futures contracts all together and they'd still be able to speculate on the price of oil.

On the other hand...now that the Dems are going to control both the white whose and congress, its good to see gas below 2 bucks a gallon again.
That's not something to get excited about. The reason why oil is plummeting is because the market thinks the world economy (and therefore oil demand) is going to crash in the near future. That's not a shot at democrats, because our elections have very little to do with the price. Just saying that wouldn't be something to be proud of "if" it were true.

Originally Posted by Kamion

Secondly, libertarians aren't trying to say that lack of regulation had nothing to do with this. What they are trying to say is that people who blame this on "deregulation" are being intellectually ignorant.

I have no time for going into just how wrong you are. Suffice to say that I'll rely on my reputation on here for being most certainly not intellectually ignorant.

What's intellectually ignorant is the insistence that only 1 thing can explain an event. The vibe I get from liberals when arguing with libertarians is something like "Upgrades to the community reinvestment act in the 1990s can't explain 100% of the housing bubble therefore its not a factor." There are many factors that explain maybe 5% of the housing bubble, they shouldn't ignored. A complex problem requires complex causality, that's the point that libertarians are trying to drive home.

The other problem with liberals is that they consider a laws "intentions," rather than just its results. (ie) The "Community Reinvestment Act" had good intentions, therefore it couldn't have possibly caused problems.

I could on for page after page on detailing how the deregulations enacted over the past 8-12 year played primary roles in our current economic fiasco. Regulations which were originally emplaced in order to prevent another Depression...and lo and behold, now we are embroiled in the worst economic crisis since that time.

From the loosening of restrictions seperating commerical and investment banks to the virtual elimination of regulations over the debt/capital ratio held by types of financial institutions to the de facto elimination of SEC oversight and investigation of the books of certain financial institutions, this crisis is the result of deregulation.

I have yet to see a convincing argument about the repeal of Glass-Steagall being a 'net bad.'

And Defacto elimination of oversight of books? We passed the most comprehensive accounting regulations, ever, in 2002 after the Enron crisis -- Sarbanes-Oxley.

Those who persist in defending unfettered corporate capitalism are the ones exhibiting a distinct intellectual bankruptcy.

Wrong, once again. The notion that many liberals have that "deregulation=pro corporate" and "regulation=anti corporate" is rather absurd. With any piece of deregulation or regulation, there are corporations that benefits and onces that don't.

The railroad barons are the one who lobbied to regulate the railroads back in the 1800s - they used government regulations to knee cap the competition. Pan Am used that same law (the Interstate Commerence Comission) to knee cap the other airlines until airlines were deregulated in the 70s. One of the biggest lobbiers for co2 cap-and-trade was Enron.

Anti-trust? 90%+ of anti-trust lawsuits are filed by corporations out of financial self interest. Steel companies broke up the Alcoa aluminum monopoly, for running its business too efficient and passing too much savings onto its customers. The XM-Sirius merger was held up by AM/FM radio interests trying to keep them seperate so they would evenutally fail. Our anti-trust laws ignore the concept of "subsitute products," so corporations of similar products will use that loophole to knee cap their competitors.

A friend of mine recommended this site for explaining this current economic crisis and how we got into it.

http://baselinescenario.com/ It is a non threaded blog. What part of it are you talking about.


The problems in the U.S. housing market were not themselves big enough to generate the current financial crisis. Of course it it.

Let us try a little intuition.
Pan, take a look at your street. Your house, you know how much your home is. What, it was like 2-300K or so when you bought it. It went up to 800-900, or more, at the peak(2006). Add that up by each of the houses on your street. That is like 20 million dollars just for a small little street of 25 or so houses.

There are just 4 houses on my little culdesac. At 2006 prices they were selling for 500K, that is 2 million in assets, just in 4 small cheap assed KB homes. Which is great for me, because I rent. And rent at the interest amount that the owner got back in 2001 when the home was built.

Now just add up all the homes in the US. Which did the very same thing.
Of course the housing market is big enough. In terms of total assets, can you think of a larger industry? If you added up all the skyscrapers in all the cities of the US, it would be dwarfed by the sheer immense value of the housing market.

If you added up all the assets of all the airlines, it would not come close. Adding still, the entire net assets of the US Military(all 5 branches), you are still not going to get close.

And now 25% of them have values less than what is owed on them. And that is just the ones that people are still in. Not considering all those already foreclosed upon.

Didn't anyone else question, who the hell is buying these homes, what are they doing to make the kind of money to get into them, and how are they affording them? I did, since at least 2002; and asked them here. Those of you who have been here that long, must remember me raising questions of how they were increasing in price so fast, what were the causes. How many of you remember my rants against the Homeowner Mortgage Deduction?

I don't have a degree in Economics, nor am I a Nobel Laureate; but I certainly knew that something was broke, and the bubble was going to pop.

The Homeowner Mortgage Deduction was a major factor in this mess. Any of you old timers, must surely remember my continued rants on that. Houses stopped being homes, and became mere tools to shelter consumer credit and car loans. Get a refi, deduct the interest on your new flat screen or your new 2003 Mustang. And the IRS turned a blind eye to all that credit card debt, open lines of equity, and consumer loans being deducted under refis. Because it spurred economic consumer growth.

Now compound that with Jumbo loans, sub prime, ARMs, and interest only loans. Just caused a predictable Adam Smith exponential growth in the cost of houses. More buyers(otherwise unqualified) and speculators just ran up the value of sold homes faster than incomes increased to pay for them. Increased supply of cheap(some say bad, and most say not really cheap) loans, increased demand for houses, increasing their cost.

And then compound that with the loss of stigma associated with foreclosure now. Hey, everyone is doing it. Even when these deadbeats get back on their feet, and apply for a new loan in 2010 or whatever, all they will have to do is write a letter explaining their 2008 foreclosure. Everyone else was doing it, no biggie. I have friends right now, who are intentionally not paying their 2006 mortgages because everyone else is doing it, and they can do it, and it allows them to get in contact with their mortgage companies(and their attentions), hey, let's rewrite this loan now. The stigma of 60 days past due, or 90, or even foreclosure is relatively mitigated and attenuated right now. That is only adding to the sum total of recessionary forces. In 2010 or 2012, I can hear the loan officers all over the country now, "That is ok, Mr or Ms Deadbeat, we forgive you with your foreclosure, everyone else was doing it, and we know that it was not really your fault", "You are forgiven, here is your money for your new home".


Of course the housing market had, and has, the size to generate this economic crisis. The recession of 91-92 was caused just by a decrease in consumer items purchasing. People stopped buying washer and dryers and new Posturepedic beds, and ironing boards, and towels. And that caused a recession. You are saying that the largest single economic base of assets and equity could not cause this one? All the homes in the US, and all the dirt on which they sit, you are saying is too small to wreak this amount of havok?

Where did I say that free market principles explained 100% of the price?
.
It was not a free market.

It had stimulus from the FEDs and the tax code. Which allowed buyers to deduct from their taxes the interest on the houses. As well as roll over credit card debt, consumer loans, and equity lines.

Homeowners viewed this as free money. Tax free free money.

Take a 200K home in 2000. Because of demand caused from freer lending practices and government backing of the risk of the debt, the home is 350K in 2003 or so. Get an equity line, for 80-100K or so. Pay off school loans, pay off the new 2003 Mustang, pay off all the new furniture, pay off all the consumer debt tax free. Roll it over into the price of the house. Tell me that you don't have friends or family who did not do exactly this, tell me that you did not do it. I dare you.

But now the homeowner has a cost basis increase in his or her mental value. The home really really is worth 300K to them as their cost basis. In 3 years they have not really put in any real equity, but the value still gives them equity of 50K. They 'could' have sold it for 300 or less, and still made money on the sale, but they now have a mental block of doing so. And so on, until 2007.

Everyone leap frogged their home values up this way. Or even exceeding it's real market value with high loan to value seconds and refis, utilizing liberal home value appraisers.

Until the equity was exceeded by value. And therefore, homeowners had nothing to lose by foreclosure. Nothing to lose except mortgage payments which over ran their income increases. If you have nothing to lose by foreclosure, none of your real money at stake, then WHY NOT let it go back to the bank, especially when you know that it will be years before you ever are above water again? And your ARM is choking you to death each month.

It was not a free market.

It had stimulus from the FEDs and the tax code. Which allowed buyers to deduct from their taxes the interest on the houses. As well as roll over credit card debt, consumer loans, and equity lines.

Homeowners viewed this as free money. Tax free free money.

Take a 200K home in 2000. Because of demand caused from freer lending practices and government backing of the risk of the debt, the home is 350K in 2003 or so. Get an equity line, for 80-100K or so. Pay off school loans, pay off the new 2003 Mustang, pay off all the new furniture, pay off all the consumer debt tax free. Roll it over into the price of the house. Tell me that you don't have friends or family who did not do exactly this, tell me that you did not do it. I dare you.

But now the homeowner has a cost basis increase in his or her mental value. The home really really is worth 300K to them as their cost basis. In 3 years they have not really put in any real equity, but the value still gives them equity of 50K. They 'could' have sold it for 300 or less, and still made money on the sale, but they now have a mental block of doing so. And so on, until 2007.

Everyone leap frogged their home values up this way. Or even exceeding it's real market value with high loan to value seconds and refis, utilizing liberal home value appraisers.

Until the equity was exceeded by value. And therefore, homeowners had nothing to lose by foreclosure. Nothing to lose except mortgage payments which over ran their income increases. If you have nothing to lose by foreclosure, none of your real money at stake, then WHY NOT let it go back to the bank, especially when you know that it will be years before you ever are above water again? And your ARM is choking you to death each month.

I am not saying you're wrong in your assessment, but no one I personally knew did that. Most of my friends and family are forced to listen to the litany of economic doom'n'gloom I constantly tell anyone that will listen. A debt based economy cannot sustain itself forever.

I pay my credit cards off each month; I pay deferred principal payments on a 15 year fixed mortgage. I don't buy new cars and I don't buy new books. I do buy new clothes, but they are factory closeout clothes online at places like Sierra Trading Post.

It's quite simple.

/climbs on his soapbox

We would not be in this mess if everyone strictly lived within their means, as I do. They need to understand this universal truth: To avoid debt, don't spend more than you take in. Period. Same goes for the government. Income = spending (or less).

If income < spending, cut spending until income = spending.
It is much easier to decrease spending than to increase income in most cases. You can only work so many hours in a day, but you can always cut back on buying things.

Why millions of Americans and 538 Congresscritters cannot understand this simple and plain fact perplexes me daily.

If I can do it, and have been doing it for the 15 years I've been out in the rat race, so can anyone else.

Anyone who defaults on their mortgage should be unable to buy a house for 10 years. They can rent from people like me who have managed to control their greed to the point of not ruining my credit ratings.

/climbs down from soapbox

Here's where I think some of y'all are wrong:

The problems in the U.S. housing market were not themselves big enough to generate the current financial crisis.

The housing market is not the sole cause of the issue. Read the beginner link to find out why.

Your links are very good and I want to add one:
http://www.charlierose.com/

Check out the interview with CITI banks CEO Vikram Pandit and ( I am watching it now on TV ) the interview with Sen. Chris Dodd.

I do think that the housing market WAS the first domino to fall that rippled through the economy. If you read the linked articles posted by Panamah, you will see an article on recapitalization. If ( dealing with AIG ) you have a a loan and the underlying assests go down then the default value goes down. Alternately, if 10% of current loans are expected to default with a 30% loss per loan then the owners of the loans(AIG) can expect to lose 30% of the principal on the defaulted loans. This requires AIG to borrow or sell stock to make up that short fall.

Now, if AIG were to buy these CDS which insure the high risk loans and 50% of the high risk loans default with a 30% loss per loan... AIG can be liable for that 30% loss on half of their CDS. This can be a very big amount very quickly. In order to cover these losses, AIG would have to borrow to cover this cost and use existing reserves. Unfortunately, who would want to loan AIG money to cover this cost? LOL

Ok, I do not want to argue that preventing housing price drops is something that the government should become involved with. I do think that certain lending standards were ignored such as Zero down or loans exceeding 30% of a person's monthly income. In addition, the companies that owned the CDS (liable to pay out if the loan defaults) did not have the capital to cover the insurance.

There are a number of interesting notions that come out of this... Since CDS are not regulated as insurance and acts like insurance... You can take a CDS out on a bank that you deal with and then start spreading rumors that they can not meet their debts. What this does is scare off all bussiness. After all, who wants to have insurance with AIG if it can't pay their insurace. This in turn drives that company into bankruptacy which allows the guy who started the rumor to profit from the CDS they took out on the company. Normal insurance prohibits taking insurance out on someone just before you kill them. =P

Last, banks work differently than insurance but CITI got involved with CDS inorder to increase earnings. Robert Rubin, one of the Clinton gang, was on the board when CITI started to ramp up their risk by holding CDS. There were a number of critera that he set down inorder to reduce or mitigate the risk involved with these contracts. In the Charlie Rose interview, Vikram Pandit explained that he estimated losses from housing values would be 15%. As explained above, if CITI owned ( and I am pretty sure they did ) CDS then their losses could have been 15% of the insured value... Assuming things don't get worse. Couple that with the ability of people to take out CDS on CITI and the various rumors of their inability to pay out on the CDS... Credit to CITI and all deposits would disappear.

There are a number of other issues involved with runs on banks and stuff... but that does not cover the slimey things that people are talking about. I do know that these problems will end when unemployment stops going up and housing prices stop going down. Both of those things will increase confidence and will encourage people to spend money.

Hrm, on the point of spending money... I am hearing various things about lending... Because credit card companies are fincial instutions, these companies are open to rumors and CDS just like insurance and banks. These companies do not want to increase their risk which means they are willing to issue credits cards but at higher rates. Other types of short term lending is affected such as small bussiness that need ingredients to make bread has to pay a higher interest rate if someone will lend them money... If short term lending becomes available then more goods can be made available and people will be more inclined to buy them.

We would not be in this mess if everyone strictly lived within their means, as I do.

How can you do that?

De facto, when you buy a mortgage to get a house, you already acknowledge that you can't afford it.

It is not like you cough up the cash for it.

Who does that?

Libertarianism is dead (or should be)Was it ever alive?

Libertarians are people who want all the benefits of society but don't want to pay their share of the costs (relating to both finances and freedom). They want to be the lone man in the desert, as long as the rest of us manicure that desert, protect it, and water the fields.

It's unfortunate that libertarians have never tried backtesting their ideology, because they'd realize that, had we followed it from the beginning, we'd likely be extinct as a species by now, and even if we made it, we would certainly not be very developed.

Libertarianism also flies in the face of our biology. We're effectively born socialist, it's in our genes, which is why the effective long-term governments are socialist too.

Oops, was this a thread about the recent economic collapse?

We would not be in this mess if everyone strictly lived within their means, as I do.If everyone lived as you do, our economy would have stagnated long ago, and as a minor nation we would've been conquered by Canada or some other neighbor.

mhmm

Of course the housing market is big enough. In terms of total assets, can you think of a larger industry? If you added up all the skyscrapers in all the cities of the US, it would be dwarfed by the sheer immense value of the housing market.Simple math: 55 million single family homes x ~$270K each (last year) or ~$183K each (now) = $14.8 or $10 trillion, respectively.

The federal government only makes (err, made) $2.5 trillion a year, total.

Of course the subprime mess set the ball rolling for this collapse.

What do your numbers represent?
Where did you get them?

The house next door to me is selling. 2 weeks on the market now.
Comp pricing in the neighborhood put it at 500K in 2006-7 before the foreclosure bust/boom.
It is priced for a short sale at 280 right now. Which I think is too high of course. I think that everyone can agree that the problem has come from NEW homes, and certainly new home purchases. That is to say that people who bought in the 70s(or earlier), and paid off their homes by now really are not the problem.

That is a loss of almost half the value.

If we use your 55 million, and my next door neighbors house as example. That is

From
27,500,000,000,000

To
15,400,000,000,000

The biggest problems are coming from communities like Mountain House. Which I am sure you have heard about. It is a bedroom community for SF.

It was a town specifically made for San Franciscan and Bay Area workers, so they had a place to stay.

http://en.wikipedia.org/wiki/Mountain_House,_California
http://mountainhouseca.com/
http://www.wallstrip.com/2008/11/11/underwater-in-mountain-house-california/

It is the most 'underwater' community in the country. Bay Area people buying 600 or 800K+ houses, speculating that they will increase in value. With Jumbos and interest only mortgages. 90 percent them owe more than their houses are worth. Those that bought interest only mortgages are looking at 12,000 monthly accelerated payments.

If we take just 10K homes in Mountain House. At 500K.
That is 5,000,000,000. 5 Billion in just one small 15 year old community. 10 Billion just 2 years ago.

What do your numbers represent?
Where did you get them?U.S. Census (http://www.census.gov/Press-Release/www/releases/archives/census_2000/001113.html) - about 55 million homes.
U.S. Census (http://www.census.gov/const/uspriceann.pdf) - average home values until 2007 (my $270K figure was wrong, it was $313K).
Your local newspaper - current prices are $183K.

It's a crude measurement (e.g., the $183K is median not mean, 55 million is 8 years old, etc.), not designed to be exact but to illustrate the point.If we use your 55 million, and my next door neighbors house as example.The average sales price in California is WAY higher than the average sales price across the country. If all real estate were as valuable as California's we'd be a very rich nation indeed.The biggest problems are coming from communities like Mountain House. Which I am sure you have heard about. It is a bedroom community for SF.Yep. If you bought a house in a Bay Area McSuburb a year or two ago you're really, really screwed, and those are among the hardest hit communities in the country.

But, if you were smart like me and bought the real thing, in San Francisco, you'd never know there was a housing crisis unless you read about it in the newspaper. My house is worth about the same as it was a year or two ago, and houses in my neighborhood still fetch the same prices. And sales are up actually.

I am pretty sure that we are agreeing with one another about the point, though.

That the housing market IS sufficiently large to have caused this recession when it collapsed.

That the housing market IS sufficiently large to have caused this recession when it collapsed.Yes, although even without the subprime mess things wouldn't have been rosy.

I am pretty sure that we are agreeing with one another about the point, though.

That the housing market IS sufficiently large to have caused this recession when it collapsed.

There were a number of tax changes that encouraged people to buy a second home with the intent to speculate... Also, Jumbo mortages (above 400k) are not backed by Fannie and Freddie which means that you have to pay much more in interest now... So, the government's feel good ways (to encorage home ownership) led to an oversupply of homes which will be with us for some time to come.

The govenment may be on the hook for all losses to all mortages below 400k plus losses held by AIG. Nobody knows what percentage of the current mortgages will go into default. I did hear that around 7% of the mortgages in default were people walking away from their homes.

Also, on the census site, there is a pdf:
http://www.census.gov/const/newressales.pdf
This pfd shows new home sales and the delta price change. The change is around -40% of the home value a year ago... so a 1million dollar home is now 600k.

I'll state what should be obvious but it seems like no one thinks about:

Not everyone owes more on their house than it is worth.

Not everyone has a mortgage on their home, some have paid them off.

Not all the 55 million SFD's were bought in the last few years when prices skyrocketed. I bought mine at the bottom of the last cycle.

When someone walks away from a house, the house isn't worth $0.

Here's some actual data about foreclosures from 2007: http://realestate.msn.com/buying/article2.aspx?cp-documentid=6119868

All good and true points, Pan.