The Understated Effects of "Cash For Clunkers" and Other Government Idiocy

I'm not ideologically tied to the results of this debate, but I'll gladly play Devil's advocate. How do you explain the 1921 depression, which was basically handled by Commerce Secretary Hoover? A massive depression was turned around in 22 months with a largely hands-off policy, and led directly into the Roaring '20's. The 1929 depression, on the other hand, lasted until WW2 began, under the massive GOV intervention of Roosevelt.

I don't know where you have been, but we had an enormous amount of default and loss of money. Had the banks failed, then every single saver would have loss all of their money just like they use to do before FDIC, and there would have been a run on the banks and we would have spiraled into a situation worse than the Great Depression.

The glorified Free Market worked just as it does. The rich get richer. They buy power and protection. They scam the public and then they put their riches in Swiss Bank accounts. This is the free market. You are just dreaming about some idealized world where free market capitalists don't scam the public and have some ethical code. It doesn't exist. Never did.

Rich

No doubt, I agree. However, those people having a decent job is better than them having no employment, insurance, healthcare, ect.

[QUOTE]Again, I agree. But we must also remember that letting such a company fail will not eliminate that wealthy elite, not even the wealthy elite who run said company. Allowing such a company to fail will not cause serious harm to the elite of the company, but it would cause serious harm to the working class of that company.

Man, I don't like the situation, but we cannot ignore that what is, is.

It pains me to repeat arguments in the face of strings of statements that are not only unsupported but are also often conflicting.

I really wish people would stop saying free market caused this problem because it is the FED's artificial setting interest rates low is NOT FREE MARKET. It is government interfering with prices. If the government would let interest rates free float we wouldn't have this current economy.

so please STOP saying free market caused this. Educate yourself because it's annoying to have to keep pointing this out.

I really wish people would stop saying free market caused this problem because it is the FED's artificial setting interest rates low is NOT FREE MARKET. It is government interfering with prices.... Educate yourself because it's annoying to have to keep pointing this out.

I was not talking about you, I was talking about the employees of General Motors... unless, of course, you happen to be employed by General Motors.

Let us say the company is allowed to fail: the wealthy elite of that company remain millionaires, with vast assets. The rest of the company's employees go home, now without a monthly pay check, without benefits. While the elite go home to luxury and security, the rest of the employees are stripped of their livelihoods. How many of them, do you imagine, live paycheck to paycheck? And how long will they be able to keep a roof over the heads and food on their table in an economy with unemployment rising and approaching 10%? The outlook is bleak to say the least.

Unsupported?? We have one of the greatest economic calamities of all time, and your answer is ... let's have an encore!

Rich

This post and others have never once mentioned the most important consequence of low Fed interest rates in the crisis, which is NOT that it in itself encouraged borrowing by prospective homeowners. The major consequence is it shifted the focus of foreign investment. (See "The Giant Pool of Money" podcast by the Planet Money team at NPR). It happens that the total world GDP and the reserves in the global treasuries has been increasing astronomically in the last decade, and THIS was the prime mover behind the crisis.

Because US Federal interest rates have been very low, and because growth in developing economies has been astronomical, treasurers in especially China have been looking for a lucrative investment other than US treasury bonds. Because securitized mortgages would give a 7-8% return (even with a ~5% default rate), foreign investment (via investment banks) is what really fueled the sub-prime crisis. It was SO lucrative for foreign treasuries and for investment banks that it greatly incentivized them to make high risk mortgages.

Is this a "free market" phenomenon? Who cares. It's a global phenomenon. Economic growth and technological development are nigh impossible without credit markets, credit markets require institutionalization of assets and debt, economies require relationships between such institutions, and economies require regulation.

You miss my point entirely. The control of the Federal bureaucracy as well as corrupt business dealings is a direct result of free market polices of the last 20 years. This is what happens in real life - outside of books and classrooms. The experiment was tried and again it led to a Great Depression (Recession). Should we go for it a third time? I say observe and learn. Free market is a code name for the rich getting richer by allowing them to scam freely.

Rich

So keeping the government out of economic matters is code name for the rich using government in economic matters?

Taken to the other end, we have a bleak outlook as well (think Brave New World). At what point do we stop subjugating the working class because the elite are so important?

Immediately - except, instead of reform that starves the working class such that they would prefer subjugation, we reform the system in such a way that elevates the working class. For example, reverse the Supreme Court decisions that grant corporations personhood. That would be a nice start. Putting the working class out of work, on the streets, without livelihood is nowhere to begin positive reform.

That's exactly my understanding of it as well.

With the additional caveat that as new instruments like the CDS and the mortgage-backed security come into being, it becomes nearly impossible for even regulators (let alone individuals) to understand risk anymore. Turns out the risk was FAR higher than people recognized until Lehman collapsed.

All of this was the free market at work. The government did nothing as trillions of dollars of savings was put at risk. What risk? Building trillions of dollars worth of residential and commercial real estate that either people couldn't afford or didn't need. What should have happened was that the government should have stepped in and stopped it! Stop the run on the bank. They finally did when Lehman went under and they suddenly realized that the whole financial structure of the world economy was at risk if AIG also went under. BTW, all that money that went to AIG ended up in the hands of Goldman, Morgan Stanley, and JP Morgan Chase, so that they would remain solvent.

Rich

Did nothing?! Absolute nonsense!

Ugh.

During the Bush administration government oversight was completely neutered. There was zero intervention. The Madoff scandal was first broken in 2001 by Barrons and there were many articles after that.

Madoff


The SEC did absolutely nothing about it! That is $60 billion in that scam alone. Now, when you consider all the loans that the banks were making to speculators and penniless citizens, who had no money down, no money skin in the game, you can add a few trillion to that.

Everyone know that government oversight could have stopped it, but they refused to step in. Their buddies were making too much money.

Some may call it complete stupidity. But I am much more cynical than that. I prefer to think that wolves got their man into office, and then went wild while the man was vacationing in the ranch. It was fun for them while it lasted - for them.

Rich

Rich, you have avoided the point this entire thread, and that is that this was not a free market. Period.

During the Bush administration government oversight was completely neutered. There was zero intervention. The Madoff scandal was first broken in 2001 by Barrons and there were many articles after that.

Madoff


The SEC did absolutely nothing about it! That is $60 billion in that scam alone. Now, when you consider all the loans that the banks were making to speculators and penniless citizens, who had no money down, no money skin in the game, you can add a few trillion to that.

Everyone know that government oversight could have stopped it, but they refused to step in. Their buddies were making too much money.

Some may call it complete stupidity. But I am much more cynical than that. I prefer to think that wolves got their man into office, and then went wild while the man was vacationing in the ranch. It was fun for them while it lasted - for them.

Rich

So how does increased regulation help?

Would this not just increase the problem, with the wealthy simply using this circumventing this regulation while lesser players get chewed up by it?

As far as I'm concerned, if a system fails, you don't put more faith in it working. You scale it back or cut it out altogether.

We had appropriate regulation of banks and financial institutions from the 1930s to the 1990s. This kept our economy on steady footing for 70 years. The keystone was the Glass-Steagall Act.

Glass-Steagall Act - Wikipedia, the free encyclopedia

In 1999 the Republicans, spearheaded by Phil Gramm, successfully repealed the act, making way for all of the shenanigans which ultimately culminated in the Great Recession of 2008. Basically, financial institutions formed all sorts of off-balance sheet conduits which they leveraged to the hilt (some 80:1). They made loans without any down payments. Created a whole unregulated derivatives market, etc., etc. etc. It was the culmination of free market scoundral markets.

Rich