113
   

Where is the US economy headed?

 
 
okie
 
  1  
Reply Wed 22 Apr, 2009 07:29 am
@parados,
Individuals and businesses have over borrowed, over leveraged, Parados, thats one reason why we are in this pickle. I am for responsible capitalism, which has checks and balances. One check is allowing businesses to go broke. Another is to disallow loans to unqualified borrowers. Fannie Mae and Freddie Mac are two examples of defying the last principal, which is not capitalism or free market, it is government intrusion into it, which creates unintended consequences. The problem is not free markets or capitalism, the problem is not allowing it to operate as it should.
cicerone imposter
 
  1  
Reply Wed 22 Apr, 2009 10:10 am
@okie,
A free market system without any form of oversight will never work. You do understand why monopolies are bad, don't you?
okie
 
  1  
Reply Wed 22 Apr, 2009 11:48 am
@cicerone imposter,
The Bush administration wanted more oversight to Fannie and Freddie, but the effort failed. And Fannie and Freddie were not free market, they were government sponsored, politically skewed organizations, which produced unintended consequences, as such always does.

Now, we see this, indicating there is alot more going on here:

"Freddie Mac CFO Found Dead of Apparent Suicide
The acting chief financial officer of Freddie Mac was found dead in his home Wednesday morning of an apparent suicide, Fairfax, Va., police have confirmed to FOX News."


http://www.foxnews.com/politics/2009/04/22/freddie-mac-cfo-dead-apparent-suicide/
cicerone imposter
 
  1  
Reply Wed 22 Apr, 2009 11:49 am
@okie,
That Bush couldn't get a GOP congress to act is who's fault?
okie
 
  1  
Reply Thu 23 Apr, 2009 01:32 am
@cicerone imposter,
So because the Republicans did not press their argument strong enough to push legislation through to straighten this mess out, in the face of predominantly naysaying by the Democrats, it is then the Republicans fault, ci? Democrats accused Republicans of wanting to institute unnecessary new oversight, when none were necessary, and that Republicans wanted to deprive people of home ownership, etc. Hints of racism were cloaked in these criticisms of Republicans wanting reform.

And so you conclude it was the Republicans fault, not the Democrats? I think you are wrong. I think Republicans did not do enough, but I at least recognize them for recognizing the problem and wanting to do something, but failed to push it through because of Democrats crying foul and opposing it.

Democrats are the most to blame, and even Bill Clinton I think admitted that.
old europe
 
  1  
Reply Thu 23 Apr, 2009 07:14 am
@okie,
okie wrote:
So because the Republicans did not press their argument strong enough to push legislation through to straighten this mess out, in the face of predominantly naysaying by the Democrats, it is then the Republicans fault, ci? Democrats accused Republicans of wanting to institute unnecessary new oversight, when none were necessary, and that Republicans wanted to deprive people of home ownership, etc.


I think that's a very one-sided perspective. I think it's also important to point to the deregulation that tore down legislation in the first place - legislation that was put in place as a consequence of the Great Depression which separated banks, securities companies and insurance companies.

This here is from an article in the New York Times from 1999 about the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933.

Quote:
''The world changes, and we have to change with it,'' said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ''We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.''

In the House debate, Mr. Leach said, ''This is a historic day. The landscape for delivery of financial services will now surely shift.''


Quote:
The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had ''seemed determined to unlearn the lessons from our past mistakes.''

''Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,'' Mr. Wellstone said. ''Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.''
Foxfyre
 
  1  
Reply Thu 23 Apr, 2009 07:50 am
@old europe,
Here's who voted for repeal of Glass-Steagall:

Alabama
Aye AL Sessions, Jefferson [R]
Aye AL Shelby, Richard [R]
Alaska
Aye AK Murkowski, Frank [R]
Aye AK Stevens, Ted [R]
Arizona
Aye AZ Kyl, Jon [R]
Aye AZ McCain, John [R]
Arkansas
Aye AR Hutchinson, Tim [R]
Nay AR Lincoln, Blanche [D]
California
Nay CA Boxer, Barbara [D]
Nay CA Feinstein, Dianne [D]
Colorado
Aye CO Allard, Wayne [R]
Aye CO Campbell, Ben [R]
Connecticut
Nay CT Dodd, Christopher [D]
Nay CT Lieberman, Joseph
Delaware
Aye DE Roth, William [D]
Nay DE Biden, Joseph [D]
Florida
Aye FL Mack, Connie [R]
Nay FL Graham, Bob [D]
Georgia
Aye GA Coverdell, Paul [R]
Nay GA Cleland, J. [D]
Hawaii
Nay HI Akaka, Daniel [D]
Nay HI Inouye, Daniel [D]
Idaho
Aye ID Craig, Larry [R]
Aye ID Crapo, Michael [R]
Illinois
Nay IL Durbin, Richard [D]
Present IL Fitzgerald, Peter [R]
Indiana
Aye IN Lugar, Richard [R]
Nay IN Bayh, B. [D]
Iowa
Aye IA Grassley, Charles [R]
Nay IA Harkin, Thomas [D]
Kansas
Aye KS Brownback, Samuel [R]
Aye KS Roberts, Pat [R]
Kentucky
Aye KY Bunning, Jim [R]
Aye KY McConnell, Mitch [R]
Louisiana
Nay LA Breaux, John [D]
Nay LA Landrieu, Mary [D]
Maine
Aye ME Collins, Susan [R]
Aye ME Snowe, Olympia [R]
Maryland
Nay MD Mikulski, Barbara [D]
Nay MD Sarbanes, Paul [D]
Massachusetts
Nay MA Kennedy, Edward [D]
Nay MA Kerry, John [D]
Michigan
Aye MI Abraham, Spencer [?]
Nay MI Levin, Carl [D]
Minnesota
Aye MN Grams, Rod [?]
Nay MN Wellstone, Paul [D]
Mississippi
Aye MS Cochran, Thad [R]
Aye MS Lott, Trent [R]
Missouri
Aye MO Ashcroft, John [?]
Aye MO Bond, Christopher [R]
Montana
Aye MT Burns, Conrad [R]
Nay MT Baucus, Max [D]
Nebraska
Aye NE Hagel, Charles [R]
Nay NE Kerrey, J. [?]
Nevada
Nay NV Bryan, Richard [?]
Nay NV Reid, Harry [D]
New Hampshire
Aye NH Gregg, Judd [R]
Aye NH Smith, Bob [R]
New Jersey
Nay NJ Lautenberg, Frank [D]
Nay NJ Torricelli, Robert [D]
New Mexico
Aye NM Domenici, Pete [R]
Nay NM Bingaman, Jeff [D]
New York
Nay NY Moynihan, Daniel [?]
Nay NY Schumer, Charles [D]
North Carolina
Aye NC Helms, Jesse [R]
Nay NC Edwards, John [D]
North Dakota
Nay ND Conrad, Kent [D]
Nay ND Dorgan, Byron [D]
Ohio
Aye OH DeWine, Michael [R]
Aye OH Voinovich, George [R]
Oklahoma
Aye OK Nickles, Don [R]
No Vote OK Inhofe, James [R]
Oregon
Aye OR Smith, Gordon [R]
Nay OR Wyden, Ron [D]
Pennsylvania
Aye PA Santorum, Richard [R]
Aye PA Specter, Arlen [R]
Rhode Island
Aye RI Chafee, John [?]
Nay RI Reed, John [D]
South Carolina
Aye SC Hollings, Ernest [D]
Aye SC Thurmond, J. [R]
South Dakota
Nay SD Daschle, Thomas [D]
Nay SD Johnson, Tim [D]
Tennessee
Aye TN Frist, William [R]
Aye TN Thompson, Fred [R]
Texas
Aye TX Gramm, Phil [R]
Aye TX Hutchison, Kay [R]
Utah
Aye UT Bennett, Robert [R]
Aye UT Hatch, Orrin [R]
Vermont
Aye VT Jeffords, James
Nay VT Leahy, Patrick [D]
Virginia
Aye VA Warner, John [R]
Nay VA Robb, Charles [?]
Washington
Aye WA Gorton, T. [?]
Nay WA Murray, Patty [D]
West Virginia
Nay WV Byrd, Robert [D]
Nay WV Rockefeller, John [D]
Wisconsin
Nay WI Feingold, Russell [D]
Nay WI Kohl, Herbert [D]
Wyoming
Aye WY Enzi, Michael [R]
Aye WY Thomas, Craig [R]

After which Bill Clinton signed Gramm-Leach-Bliley into law.

It is easy to point to repeal of Glass-Steagall as the culprit. But in fact, if it had not been government, promoted by both Democrats and Republicans, to encourage, even require, financial institutions to abandon sound banking principles, the repeal of Glass-Steagall would have scarcely been noticed. To not repeal it would only have concentrated the problem among fewer institutions, but it would still have occurred.

The fact is, our elected leaders abdicated their responsibility to exercise good stewardship of the people's money. No matter who you try to hang it on out of political expediency, the responsibility is squarely there.
old europe
 
  1  
Reply Thu 23 Apr, 2009 08:18 am
@Foxfyre,
Foxfyre wrote:
It is easy to point to repeal of Glass-Steagall as the culprit.


It is, because it was put into place as a consequence of the Great Depression to prevent another meltdown of financial markets due to aggregating higher and higher risk spreading across the various financial sectors.


Foxfyre wrote:
But in fact, if it had not been government, promoted by both Democrats and Republicans, to encourage, even require, financial institutions to abandon sound banking principles, the repeal of Glass-Steagall would have scarcely been noticed.


Hundreds of billions of dollars of risk and, eventually, of deficits were run up by companies that were in no way subject to the CRA. Those companies were certainly not required by government to abandon best business practises. They saw their chance to make fantastic profits by branching out into sectors that the Glass-Steagall Act had prevented them from. If you want to call that "encouraging" the violation of sound banking principles, then you arguably have a point.


Foxfyre wrote:
To not repeal it would only have concentrated the problem among fewer institutions, but it would still have occurred.


Exactly. We're talking about the difference between a housing bubble and a meltdown of the entire financial sector.


Foxfyre wrote:
The fact is, our elected leaders abdicated their responsibility to exercise good stewardship of the people's money. No matter who you try to hang it on out of political expediency, the responsibility is squarely there.


Oh, sure. I'm well aware who sponsored, who voted for and who signed the Gramm-Leach-Bliley Act. I find it silly to exclusively blame one or the other party for the financial meltdown.
Foxfyre
 
  1  
Reply Thu 23 Apr, 2009 09:31 am
@old europe,
It is easy to say that it is easy to forego easy profits--legal profits--when they are there for the taking. It is easy to say that those businesses should have had the discipline/integrity to pass them up.

But it is also easy to say that the housing bubble would most likely have not been created to such unsustainable levels had financial institutions not been allowed to make risky loans to people who had no ability to repay them and/or no reliable track record of paying their bills. The CRA did not cause that, but it was Congress taking advantage of loopholes/principles in the CRA that provided the impetus to do so, and it was Congress that failed to act when it became apparent that we had a serious problem--those in the best position to act in fact denied that there was a serious problem.

I( do not blame business for taking gifts handed to them by an irresponsible government. Had those businesses been advised of the risk they were taking, most almost certainly would not have taken it. They were not so advised.
Cycloptichorn
 
  1  
Reply Thu 23 Apr, 2009 09:35 am
@Foxfyre,
Quote:
It is easy to say that those businesses should have had the discipline/integrity to pass them up.


Sure, it's easy to say this; because it is true. You know the old saying, 'if it looks too good to be true, it probably is?' Well?

Don't kid yourself, Fox. These companies knew the risks they were taking. They all knew. They just didn't care, because the rewards to those running the businesses were so great.

Cycloptichorn
old europe
 
  2  
Reply Thu 23 Apr, 2009 09:48 am
@Foxfyre,
Foxfyre wrote:
It is easy to say that it is easy to forego easy profits--legal profits--when they are there for the taking. It is easy to say that those businesses should have had the discipline/integrity to pass them up.


If you want to argue that repealing the Glass-Steagall Act practically forced institutions to forego best business practices, be my guest.

Of course, that's essentially saying that the market is not capable of regulating itself because, given the chance, companies will always rather violate best business practices in order to make short-term profits than act cautiously and forego potential multi-billion profits.

I don't disagree with that.


Foxfyre wrote:
But it is also easy to say that the housing bubble would most likely have not been created to such unsustainable levels had financial institutions not been allowed to make risky loans to people who had no ability to repay them and/or no reliable track record of paying their bills.


Yes, it's easy to say that, because that's what happened. Again, it seems that if more regulation had been in place, this could have been avoided.


Foxfyre wrote:
The CRA did not cause that, but it was Congress taking advantage of loopholes/principles in the CRA that provided the impetus to do so,


I'm sorry, but I don't understand what you're trying to say here. Maybe just a language thing.

What "loopholes" in the CRA was Congress taking advantage of, and what impetus to do what exactly did that provide???


Foxfyre wrote:
and it was Congress that failed to act when it became apparent that we had a serious problem--those in the best position to act in fact denied that there was a serious problem.


Are we talking about the housing bubble, or the meltdown of the financial markets? Anyways, I mostly agree with that either way....


Foxfyre wrote:
I( do not blame business for taking gifts handed to them by an irresponsible government.


Well, that's a bit like saying that if there was no law to punish murder, killing somebody wouldn't be morally wrong.

On the other hand, I agree that failure to act was irresponsible on the side of the government.


Foxfyre wrote:
Had those businesses been advised of the risk they were taking, most almost certainly would not have taken it. They were not so advised.


I highly doubt that. People inside companies like AIG warned against the extremely high risk of this line of business, only to be overruled by people who wanted to make more money.

But again - if business seems to be unable to regulate itself in a way that doesn't lead to a financial meltdown, then it's obviously up to the government to put more regulation in place.
0 Replies
 
Lightwizard
 
  1  
Reply Thu 23 Apr, 2009 09:49 am
@Cycloptichorn,
A frenzy of unbridled avarice has no rational excuses.
0 Replies
 
Foxfyre
 
  1  
Reply Thu 23 Apr, 2009 09:51 am
@Cycloptichorn,
Nobody doesn't care if their company goes from great prosperity to the verge of bankruptcy in a matter of weeks or months. To say they didn't care is absurd. They took a calculated risk, sometimes unknowingly took a risk, based on their belief (and assurances given) that Fannie Mae and Freddie Mac were sound which made the risk acceptable. It was specifically a large number of loan defaults--loans mostly backed by Fannie Mae and Freddie Mac--that collapsed the housing bubble and froze up credit which ground everything to a halt.

But here's two sides of the argument. Which do you think is the most convincing?



Cycloptichorn
 
  1  
Reply Thu 23 Apr, 2009 09:54 am
@Foxfyre,
Foxfyre wrote:

Nobody doesn't care if their company goes from great prosperity to the verge of bankruptcy in a matter of weeks or months. To say they didn't care is absurd. They took a calculated risk, sometimes unknowingly took a risk, based on their belief (and assurances given) that Fannie Mae and Freddie Mac were sound which made the risk acceptable.


Actually, the risk that our financial companies and banks were exposed to had very little to do with Fannie and Freddie at all. It had everything to do with Credit Default Swaps and the Adjustable Rate Mortgages they were based on in large part.

I still think you basically misunderstand the situation, Fox. You are still blaming the wrong people for the problem.

OE is correct; those who make millions, tens of millions, per year, do not care if their company crashes in the fashion that others do. It is meaningless to them. They will go on being rich no matter what happens. This gives them very little incentive to play it safe and a lot of incentive to do stupid, yet highly profitable, things.

Cycloptichorn
0 Replies
 
cicerone imposter
 
  1  
Reply Thu 23 Apr, 2009 09:55 am
@old europe,
oe, That is the key issue; no legislation gave the banks license to gamble on risky loans. They forgot their fiduciary responsibility to the customers who invested in their banks, and gambled it to show profits where none existed. Bankers should know better, and blaming federal legislation shows how stupid their argument is. Freedom to do anything must be done in responsible ways.

Consumers are allowed to spend all their money as they earn it, but that is irresponsible behavior. That's also the reason many have gone bankrupt and lost their homes.

Freedoms without practicing responsible behavior can't be blamed on government legislation. People should know better.
0 Replies
 
old europe
 
  1  
Reply Thu 23 Apr, 2009 09:58 am
@Foxfyre,
Foxfyre wrote:
Nobody doesn't care if their company goes from great prosperity to the verge of bankruptcy in a matter of weeks or months. To say they didn't care is absurd.


What do you base your opinion on? Is there a penalty for a CEO who drives his company into bankruptcy? I don't think so. There's no feedback involved. If you don't take risks, you don't make as much money as you possibly could. If you take higher risks, you make more money. And if you take risks that bankrupt your company, you get to keep your money.

Lightwizard
 
  1  
Reply Thu 23 Apr, 2009 10:04 am
@old europe,
To be fair, it's the Board of Directors who drive companies into bankruptcy. Of course, a camel is still a horse designed by a committee.
0 Replies
 
Foxfyre
 
  1  
Reply Thu 23 Apr, 2009 10:09 am
Those with little to lose are certainly more likely to take greater risks than otherwise would be the case. But to assume that any executive wants to 'retire' as a failure or with the stigma that he drove his company into the ground flies in the face of everything I know about human nature.

And what is the CEO to do? Just ignore the massive profits and prospering stock of their competitors and lose their own stockholders who are impressed by those big profits? Or do they get on the bandwagon and ride the tide?

I do not think I am misplacing the blame at all. Yes we could expect all those executives to ignore assurances from their government that all was well. We could expect them to be smarter are more on top of things than the people we elect to provide oversight. Or we could expect the government to do its job and tell it like it is and THEN blame the executives if they ignored the warnings.



cicerone imposter
 
  1  
Reply Thu 23 Apr, 2009 10:12 am
@Foxfyre,
There's a thing called ethics and doing the right thing.
Foxfyre
 
  1  
Reply Thu 23 Apr, 2009 10:14 am
@cicerone imposter,
Exactly. And our government forgot that principle.
 

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