meanwhile, back in reality (bank crisis round 2) - Tilted Forum Project - TFP - Sexuality, Philosophy and Political Discussion

roachboy · 09-15-2008, 05:24 AM

look pretty much anywhere this morning and you will see the collapse of lehman brothers, the collapse and absorption of merrill lynch, the

Quote:

Wall Street in turmoil

By Francesco Guerrera in London, Krishna Guha in Washington and Greg Farrell in New York

Published: September 14 2008 23:48 | Last updated: September 15 2008 10:24

Wall Street was in turmoil on Monday after Lehman Brothers said it would file for bankruptcy protection and Merrill Lynch agreed a $50bn takeover by Bank of America.

BofA’s bold bid for Merrill came as the world’s top banks abandoned efforts to save Lehman and set out to build a firewall against further financial chaos with a $70bn liquidity pool to support other vulnerable institutions.

The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street history and set the scene for a volatile day on global capital markets.

The Federal Reserve said it was making it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday.

It widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.

The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.

The weekend’s dramatic events undermined confidence in financial stocks across Europe. Banks and insurance companies were the heaviest fallers on Monday while gold prices jumped higher as investors sought the safety of the precious metal.

The Markit iTraxx Crossover index, which measures the cost of insuring European junk-rated credit derivatives, widened 17 per cent on Monday to 640 basis points as the likelihood of defaults was perceived to be higher.

Monday’s market reaction will be closely watched by regulators and banking executives to gauge investor sentiment towards the credit crunch that has wreaked havoc on the financial sector for more than a year.

BofA’s rapid U-turn, which saw it abandon talks to buy Lehman and move to Merrill in the space of a few hours, will throw the spotlight on Morgan Stanley and Goldman Sachs. The two could soon become the only independent investment banks in the US.

Merrill’s board voted on Sunday night to approve BofA’s takeover all-stock bid, which was pitched at $29 a share. That is a premium of 70 per cent on Friday’s closing price of $17.05. Merrill’s shares have fallen nearly 70 per cent this year.

The sudden and dramatic turn of events came at the end of a weekend which saw top Wall Street executives locked in increasingly desperate talks over the future of Lehman and the state of the financial sector with Hank Paulson, US Treasury secretary, and Tim Geithner, president of the New York Federal Reserve.

However, bankers familiar with the talks said a rescue plan for Lehman had been seriously undermined after suitors Barclays of the UK and BofA, had walked away. Barclays pulled out in the afternoon after the US government refused to provide a guarantee to enable Lehman to continue trading until a deal had been completed.

Lehman, a 158-year-old firm that is one of the biggest names on Wall Street, said during the New York night that it would file for bankruptcy.

The filing is likely to cause thousands of job losses among Lehman’s 25,000-strong staff. On Sunday night a number of employees were seen leaving Lehman’s Manhattan headquarters with boxes stacked with their possessions, stationery and even some paintings.

In a separate move, regulators had prepared the ground for a Lehman bankruptcy by asking its derivatives counterparties to settle trades between themselves in a special trading session in the afternoon.

Merrill’s decision to enter talks with BofA, which has long coveted its rival’s large retail brokerage business, came after it became apparent that Lehman’s woes could spread to the rest of the investment banking sector in the coming weeks.

John Thain, Merrill's chief executive, who was attending the Lehman crisis talks, approached some rivals asking them whether they would be interested in bidding for his firm, according to people close to the situation.

Morgan Stanley, BofA and some foreign banks were contacted but many of them declined to pursue the talks because they had insufficient time to pore over Merrill’s complex trading books, they added. Merrill, Morgan Stanley and BofA declined to comment.

A takeover of Merrill would be a victory for Ken Lewis, BofA’s chief executive, who has long wanted to combine the lender’s commercial banking operations with Merrill’s army of retail brokers.

However, a deal could saddle BofA with more troubled assets. The bank bought the stricken mortgage-lender Countrywide and a purchase of Merrill would force it to clean up the bank’s trading books, which have already cost Merrill some $52bn in writedowns and credit losses.

Mr Thain, the former Goldman Sachs executive and former head of the New York Stock Exchange who joined Merrill last year after the departure of Stan O’Neal, is almost certain to leave the firm if the BofA takeover goes through.

He is a fervent supporter of John McCain, the Republican presidential candidate, and some experts expect him to seek a political career.

Copyright The Financial Times Limited 2008

FT.com / In depth - Wall Street in turmoil

Wall Street's bloody Sunday

Quote:

The crisis gripping the US financial markets shows no signs of ending after an unprecedented weekend of drama

* Richard Adams

Has Wall Street ever seen a weekend like the one it has just been through? Perhaps, in the depths of the great depression - but nothing in recent memory, not even the collapse of the hedge fund LTCM 10 years ago, comes close to the drama and crisis that the US financial system is going through.

In case you haven't been paying attention, here's what's happening. Lehman Brothers, one of the largest and oldest US investment banks, is going bust, barring an unlikely last-minute government bailout. Merrill Lynch, for years one of the titans of Wall Street, hocked itself in a firesale to a rival, Bank of America. And AIG, one of the world's largest insurance firms, is begging for a $40bn emergency loan from the US government to stave off its own destruction. In the words of the Wall Street Journal: "The American financial system was shaken to its core".

And that was just on Sunday. It doesn't pay to take the weekend off on Wall Street these days – it was just last Sunday that the US Treasury confirmed it was taking control of Fannie Mae and Freddie Mac – the vast American mortgage agencies – at a cost to the taxpayer estimated to eventually range between zero dollars and a few hundred billion.

And as the minutes ticked over from Sunday to Monday on the US east coast, Lehman Brothers finally threw in its towel and filed for bankruptcy. In one way or another it will be the end for a bank that started in Alabama back in 1844 – a sticky end considering that last year it had sales of $57bn and only a few months ago was named by Business Week magazine in its 50 top performing companies for 2008. (Business Week's citation, in hindsight, looks wise: "Still, the firm is highly leveraged. The final throes of the global credit contraction will test just how good it really is." Now we know.)

What links all these once-buoyant institutions? All of them – from Fannie Mae to AIG – have been caught up in the bonfire of the vanities that was the US housing market, the same underlying cause that six months ago saw the combined forces of Wall Street and Washington rush to prop up and then dismember another former investment banking stalwart, Bear Stearns.

As the housing market turned toxic, so the loans that Bear Stearns, Lehman Brothers, Fannie Mae et al, had cheerfully advanced, bought up, repackaged and insured, lost value. The Federal Reserve, abetted by the US Treasury, pumped cash into the financial markets to prevent them seizing up. But their efforts were hampered by the very financial instruments that the masters of Wall Street had invented. The blizzard of options and derivatives the banks have used in recent years are byzantine in their complexity, making it very difficult to value the potential losses on the books.

That's why the emergence of AIG may be the most troubling event of Wall Street's Bloody Sunday. While the fall of Lehman Brothers was no surprise – in recent weeks the bank has desperately tried to raise fresh capital and sell its most profitable arms – AIG is in a different league as (until recently) one of the largest financial institutions in the world of any type. It has (or it did have) a trillion dollars worth of assets. But despite all that, it too is suffering from the shaky mortgages it holds, as well as the mortgage insurance contracts it has underwritten. Now it needs to borrow money on the financial markets on anything other than punitive terms – and this is the root cause of its problem.

To raise funds AIG needs to show potential lenders what its assets are – and so is forced to put price tags on the swamp of mortgages and derivatives it is holding. As the New York Times reports, AIG has been valuing its mortgage junk bonds at far higher than the likes of Lehman Brothers, and so the hole in its accounts is bigger than expected.

If that's the case at AIG and Lehman Brothers, then the existential question facing Wall Street this morning – as it has on so many recent mornings – is how do you put a value on something that no one wants to buy? You can wait, and hope that something (a housing market recovery?) turns up. You can hope the government gets you out of the jam. But otherwise: when no one wants to buy something, its value diminishes towards nought. And until that problem is solved, next Sunday could be just as exciting as the last two. But we won't even have to wait that long: today is shaping up to be hectic as well, with credit rating agencies poised to downgrade AIG, and stock markets around the world opening to the sound of "sell" orders whizzing through the ethernet.

Richard Adams: The mortgage monster created by US bankers is getting its revenge | Comment is free | guardian.co.uk

there is a simple bottom line, and there is the more complex one.

the simple bottom line is that this should be the end of the neoliberal world: o sure, you can export the worst features of industrial capitalism and shift roduction facilities place to place in search of the lowest wages and most politically pulverized workforce, and so long as cheap consumer goods keep showing up in the stores, there's no problem. "markets remain rational" to the extent that capitalist ideology has never been very good at taking account of what it actually correlates to in the world and besides working people are just extensions of machines in any event.

but here we have yet another wave of crisis at the level of capital itself, one which follows directly from the assumption that markets are rational, that regulation is an impediment, that left to themselves market actors make reasonable decisions because there's something magical that happens when capital is at stake, all fog goes away and even the most idiotic person suddenly becomes a rational actor--unless they do not hold capital, in which case they are of no consequence. the deregulation of banks has resulted in crisis upon crisis, beginning with the s&l problem of the bush administration and culminating so far in the disasters of the past couple weeks. the generation of financial arcana that circulates in transnational markets which have a shadow existence and no regulation whatsoever---institutions turn profits, shareholders and happy, executives derive obscene salaries and when the shit hits the fan...

no-one is responsible, the state steps in, market fundamentalism goes out the window, these actors are "too big to allow to fail" and here we are in the brave old work of capitalist oligarchy and it's lovely friend crisis, which is one of the features capitalism is most adept at producing.

it'll be interesting to see how this gets spun, how continuity is asserted in the face of it.

in "the harder they fall" there is a conversation between the main cop and the head of the fictional equivalent of studio one about the hunt for the "bad guy" who is played, i think, by jimmy cliff. the cops want to put an apb on the radio during top of the pops. the head of studio one says---you interrupt top of the pops for that and you better catch him. you disrupt the continuity of entertainment and you create a Problem.

what do you make of this?
surprised this monday morning?
what do you think the political consequences of this will be?
if none, how is that possible?

jorgelito · 09-15-2008, 05:47 AM

The sky is not falling. Repeat, the sky is not falling. No need to panic or declare the end of capitalism every time the market undergoes a correction. It is my hope people will learn to exercise fiscal discipline and to live within their means. My main complaint is the government stepping in to bail out companies. Fannie and Freddie should have been left to fall on their own and not get a bailout. Corporate welfare is just as disgusting as social welfare. The market will sort itself out. The private sector has already taken measures to mitigate the impact of the bankruptcy.

ratbastid · 09-15-2008, 05:57 AM

Quote:

Originally Posted by jorgelito

It is my hope people will learn to exercise fiscal discipline and to live within their means.

And you've lived in America HOW long?

Quote:

Originally Posted by jorgelito

My main complaint is the government stepping in to bail out companies. Fannie and Freddie should have been left to fall on their own and not get a bailout. Corporate welfare is just as disgusting as social welfare. The market will sort itself out. The private sector has already taken measures to mitigate the impact of the bankruptcy.

The MARKET will sort itself out. Mom and Pop Homeowner, however, will be well and truly fucked without some sort of protection. I'm not interested in helping failing banks--they buttered their own bread on this one. I'm REAL interested in protecting homeowners from the failure of those banks.

roachboy · 09-15-2008, 06:04 AM

o i don't think the sky is falling. i think this is a massive demonstration of the inadequacy at both the descriptive and normative levels of neoliberalism--markets do not "do" anything--agents within markets, understood as sets of constraints, do things. there is no invisible hand, there is no god at the far end of the invisible hand--there is no rationality that assures adequate or beneficial functioning. this is a self-evident feature of capitalist operations in historical terms---and the only source of information that makes any sense is the history of actually existing capitalism.

capitalism produces crisis as one of its primary features. patterns of regulation emerge to restabilize the system, redirect it, reorient it---these regulation are state-driven in the absence of meaningful political pressure that comes from elsewhere. crisis is then one of the systems principle products as system. it has been like this for much of the history of modern nation-states, much of the history of capitalism--which has never performed as neoliberal market-fundamentalism would have you think---an ideological system that presupposes a wholesale ignorance of history which issues into a wholly metaphysical view of the present.

i would think that ideology should be done now by *any* rational standard.
because this nonsense is a perfect example of what neo-liberalism really does best--generates vast income for the top tier of financial institution, treats responsibility as an externality--and in the end, leaves the public, by way of the state, holding the bag.

btw i think your equation of "social welfare" and "corporate welfare" kind of obscene. we could have it out about this, but in another thread....suffice it to say: "wtf?"

aside---it's kinda funny to see a libertarian viewpoint adopt the same relation to the reality it purports to describe as a trotskyite adopts vis-a-vis the coming proletarian revolution--o dont think so much about this version of the world--we havent *really* done what we're talking about yet. so the viewpoint--the insanity of libertarian ideology--abstracts itself from problems by positioning itself in a dreamworld.

Charlatan · 09-15-2008, 06:21 AM

I have to wonder if those who let the "market correct itself" are ready for what it would do to America's economy? I am with ratbastid on this...

Poppinjay · 09-15-2008, 06:39 AM

My broker is EF Hutton, and EF Hutton says he went out of business in 1980 due to check kiting. He will gladly pay you wednesday for a hamburger today.

This is the result of unbridled real estate speculation. I only wish they had replaced the term "exotic loans" with "dumb-ass fucking the country loans".

Speculation is the root of all stupidity. Well, except for the erroneous report last Monday that UAL was declaring bankrupcty. That was an evil kind of stupid that caused a $1 (b) billion loss. Can't wait to see the lawsuits from that. If they end up with a structered settlement, maybe UAL will take that agreement to JG Wentworth and get cash immediately for 40 cents on the dollar.

loquitur · 09-15-2008, 07:06 AM

RB, it's nothing of the sort. Part of capitalism, or neoliberalism as you call it, is that those who make bad decisions will fail. That's why I generally disapprove of bailouts, because they reduce moral hazard. Let me repeat that in a different way: failure of firms demonstrates the integrity of the system. You have it precisely backwards. Schumpeter would be wagging his finger at you disapprovingly.

roachboy · 09-15-2008, 07:58 AM

schumpeter--another metaphysician---"creative destruction" is simultaneously an example of the teleological fallacy and an evacuation of anything like a space for responsibility---the zeitgeist enters this way, a reassuring continuity of narrative, such that the story of capitalism is unbreakable and no-one ever does anything that is not functional, not even this:

Quote:

Wall Street crisis: Is this the death knell for derivatives?

On page 62 of last year's accounts, under the heading "off balance sheet arrangements" Lehman had derivative contracts with a face value of $738bn

* Nils Pratley
*

If this is the death of Wall Street as we know it, the tombstone will read: killed by complexity.

Derivatives in their baffling modern forms – collateralised debt obligations, credit default swaps and so on – lie at the heart of the failure of Lehman, Bear Stearns, Fannie and Freddie, and even our own Northern Rock.

The philosophy that underpins the growth of derivatives is the idea that risk can be transferred to institutions more able to take the strain. In theory, it's a terrific scheme – the weak can get rid of risks they can't handle, and the financial system should be stronger as a result.

The practice is very different, as Warren Buffett worked out years ago. His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as "financial weapons of mass destruction". The passage comprised only a couple of pages of the lengthy letter but read it again today - it is the best guide to understanding how Wall Street has arrived at today's mess.

Here is Buffett on General Re Securities, a derivatives dealer that Berkshire inherited with its purchase of insurer General Re. "At year-end (after ten months of winding down its operation) it had 14,384 contracts outstanding, involving 672 counterparties around the world. Each contract has a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions."

Now consider Lehman Brothers balance sheet. On page 62 of last year's accounts, under the heading "off balance sheet arrangements" you will find a staggering figure. Lehman had derivative contracts with a face value of $738bn.

The notes, fairly, make the point that the fair value is smaller than the notional amount – Lehman believed the figure was $36.8bn. Even so, "mind-boggling complexity" perfectly describes Lehman's business

How can you hope to sell such a business over a weekend? You can't, unless the state is willing to underwrite the risk. This time, the US Treasury, said "no". Quite right, too: the US taxpayers are on the hook for too much already.

Complexity breeds other faults, as Buffett described. Derivatives, because they are so hard to value, make it easier for traders and chief executives to inflate earnings. They exacerbate problems if a company, for unrelated reasons, suffers a credit downgrade that requires it to post collateral with counterparties – "a spiral that can lead to a corporate meltdown," he wrote. They create a "daisy chain" of risk as the troubles of one company infect another.

Buffett made a gloomy prediction half a decade ago. "The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear," he said. "Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts."

That event has duly arrived. Lehman Brothers has declared bankruptcy. Merrill Lynch has rushed into the arms of Bank of America. AIG, once the US's largest insurer, is pleading with the Fed for funds.

Unwinding a big derivatives book is no easy task - like Hell, derivatives are easy to enter and impossible to exit, said Buffett. That's why the failure of a firm the size of Lehman presents such a risk to the financial system – we don't know how many other firms will be brought down as the body is extracted from the financial web.

In the long run, though, financial regulators must now know what must happen: it's time for them to bring down the curtain on the era of opaque financial derivatives.

Wall Street crisis: Is this the death knell for derivatives? | Business | guardian.co.uk

the original links to warren buffet's 2002 letter....

in the end, no-one is responsible for anything, the dynamic everything. so schumpeter ends up being as crude a dialectician as stalin.

even greenspan, who oppose the freddie and fanny bailouts on the same lines as you, loquitor, is now saying that this is too big for schumpterian rationalizations.

ASU2003 · 09-15-2008, 09:21 AM

I'm happy today.

Maybe this will be the wakeup call we need to start regulating stuff and putting in safety nets to prevent this kind of stuff from happening.

When they get too greedy and want growth at any cost to make the numbers (and the fundamentals aren't there) this kind of stuff will occur.

loquitur · 09-15-2008, 11:04 AM

Quote:

Originally Posted by roachboy

even greenspan, who oppose the freddie and fanny bailouts on the same lines as you, loquitor, is now saying that this is too big for schumpterian rationalizations.

Greenspan participated in creating the clusterfuck that caused overheated home prices and led to the current meltdown. Obviously he's feeling twinges of regret.

Pretty much everything that we think is wrong will end up being reflected in pricing, which is what is supposed to happen. And lots of people are going to be analyzing the correctness of their computer models.

I have a client who lost a hump of money trading derivatives a few years ago. His issue was that the small probability ended up coming true - which of course tends to happen if enough time passes; you just don't know on which trade the small probability will happen. We can argue about whether it was the model or the judgment or both, of course.

My question for you, RB, is this: if govt created the current regulatory environment and that led to the current imbroglio, what makes you so confident that the next regulatory scheme isn't going to carry the seeds of its own destruction too? See, I'm old enough to remember the S&L fiasco and the role the govt had in creating it, as well as the horrendous job it did cleaning it up. You might not like certain aspects of capitalism but you can't possibly establish that the govt will do better. In fact, Buchanan and (to some extent) Coase pretty much established that in most cases it can't.

kangaeru · 09-15-2008, 12:38 PM

Roachboy: What alternative system do you propose to replace capitalism? We've seen plenty of historical precedent that reinforces that despite its volatility, capitalism ultimately creates more wealth and prosperity than any other economic system.

I agree with you that economists look at things from a very heartless perspective; to give an oversimplified example, a policy which takes -9$ from the pockets of the poor/middle class and puts $10 in the pockets of the rich would be viewed as a +1$ net again and therefore economically efficient, with the theory that the winners can compensate losers never becoming more than just that--theory.

Despite these shortcomings, and maybe I'm just cynical, capitalism harnesses human greed for the greater good in a way which no other system can. People, in general, will NOT work as hard for the betterment of someone else or the society in which they live than they will for benefits that directly impact them personally. Sorry--I won't budge on this one--I believe it wholeheartedly to be true. I believe that although under capitalism many are left better off at the expense of many left worse off, we would ALL be worse off under any other system. It's hard to argue against big pharma when the drugs they sell wouldn't have been created and available to anyone at all had the incentives which motivated investment in to creating the drug in the first place been absent.

This is not the end of capitalism--if anything, Henry Paulson has proven that he is willing to let the Int'l Finance industry take its medicine, and with the Fed's safety net withdrawn, you're seeing the market work itself out ala BoA buying Merill Lynch yesterday. The true test of the system is how it operates under extreme pressure and duress, and so far I would say that considering the Dow is only down 290 pts (2.55%) as I write this, it's passing the stress-test so far.

ASU2003 · 09-15-2008, 01:37 PM

It's not that all capitalism is bad, that's not it at all. But there needs to be checks and balances to make sure people aren't cheating to make a quick buck.

Some real estate speculating is ok, but it should be limited to buying old homes and fixing them up. Not buying new construction and selling it for tens of thousands over the base price before it is even finished using a 80/20 interest only loan with 0 down (and never having the intention of moving in).

Necrosis · 09-15-2008, 01:46 PM

Quote:

Originally Posted by jorgelito

The sky is not falling. Repeat, the sky is not falling. No need to panic or declare the end of capitalism every time the market undergoes a correction. It is my hope people will learn to exercise fiscal discipline and to live within their means. My main complaint is the government stepping in to bail out companies. Fannie and Freddie should have been left to fall on their own and not get a bailout. Corporate welfare is just as disgusting as social welfare. The market will sort itself out. The private sector has already taken measures to mitigate the impact of the bankruptcy.

QFT.

Quote:

Originally Posted by ratbastid

And you've lived in America HOW long?

The MARKET will sort itself out. Mom and Pop Homeowner, however, will be well and truly fucked without some sort of protection. I'm not interested in helping failing banks--they buttered their own bread on this one. I'm REAL interested in protecting homeowners from the failure of those banks.

A bank failure will not affect those who are making their mortgage payments. The clerk at Walgreen's who decided they could afford a $600,000 house, and who is clamoring for undeserved "protection," is another story. Much like those in Galveston who refused to leave, are now clamoring for help, and who can't wait to sue FEMA.

/threadjack

Quote:

Originally Posted by loquitur

RB, it's nothing of the sort. Part of capitalism, or neoliberalism as you call it, is that those who make bad decisions will fail. That's why I generally disapprove of bailouts, because they reduce moral hazard. Let me repeat that in a different way: failure of firms demonstrates the integrity of the system. You have it precisely backwards. Schumpeter would be wagging his finger at you disapprovingly.

Correct. The original post seems to be a call for socialism, due to the failure of capitalism. Capitalism's failure, like the rumors of Mark Twain's death, is greatly exaggerated.

Willravel · 09-15-2008, 02:14 PM

Quote:

Originally Posted by roachboy

what do you make of this?

I almost hate to say it, but this has been on it's way for a while. It's really sad, and I can't see an honestly good option for us right this second. All that we can do is try to prevent this in the future by ending this idea that the government interfering with the market is the debil. Fannie and Freddie were having accounting problems years back. I told my grandmother to move her investments out of them and into more stable accounts (I think she's doing her investment through something religious now, like Thrivent).

Quote:

Originally Posted by roachboy

surprised this monday morning?

It was a bigger drop than I expected, but overall not really.

Quote:

Originally Posted by roachboy

what do you think the political consequences of this will be?

There will be rampant partisanship and ideologue-ing, which won't get us anywhere. If it's as bad as I think it will be, we won't even learn from our mistakes and it will happen again.

There's already a line forming outside Washington D.C. of industries wanting a bailout.

Someone asked a funny question either this morning or yesterday, "Why is it that the US supposedly has no money for universal health care but is more than happy to come up with a few billion to save a bank or two?"

jorgelito · 09-15-2008, 02:44 PM

Quote:

Originally Posted by ratbastid

And you've lived in America HOW long?

Yeah I know, tell me about it. This is one area we could use a nationwide basic finance education mandate.

Quote:

Originally Posted by ratbastid

The MARKET will sort itself out. Mom and Pop Homeowner, however, will be well and truly fucked without some sort of protection. I'm not interested in helping failing banks--they buttered their own bread on this one. I'm REAL interested in protecting homeowners from the failure of those banks.

I agree, but I'm not ready to count mom and pop out just yet. They are a lot stronger than you think. But point taken, I would lean towards mom and pop protections too.
-----Added 15/9/2008 at 04 : 46 : 43-----

Quote:

Originally Posted by roachboy

o i don't think the sky is falling. i think this is a massive demonstration of the inadequacy at both the descriptive and normative levels of neoliberalism--markets do not "do" anything--agents within markets, understood as sets of constraints, do things. there is no invisible hand, there is no god at the far end of the invisible hand--there is no rationality that assures adequate or beneficial functioning. this is a self-evident feature of capitalist operations in historical terms---and the only source of information that makes any sense is the history of actually existing capitalism.

capitalism produces crisis as one of its primary features. patterns of regulation emerge to restabilize the system, redirect it, reorient it---these regulation are state-driven in the absence of meaningful political pressure that comes from elsewhere. crisis is then one of the systems principle products as system. it has been like this for much of the history of modern nation-states, much of the history of capitalism--which has never performed as neoliberal market-fundamentalism would have you think---an ideological system that presupposes a wholesale ignorance of history which issues into a wholly metaphysical view of the present.

i would think that ideology should be done now by *any* rational standard.
because this nonsense is a perfect example of what neo-liberalism really does best--generates vast income for the top tier of financial institution, treats responsibility as an externality--and in the end, leaves the public, by way of the state, holding the bag.

Yes, I would agree the current system still needs some work.

Quote:

Originally Posted by roachboy

btw i think your equation of "social welfare" and "corporate welfare" kind of obscene. we could have it out about this, but in another thread....suffice it to say: "wtf?"

Why? I am against both. At least in it's current form.

Rekna · 09-15-2008, 02:47 PM

The problem of optimizing the total wealth/benefit is a difficult non-linear problem. Individuals working only in their own self interests will likely not achieve global optimization and are likely to get stuck in a local optimization. In order to get past these local optimizations one needs an independent entity to help control the market and that is where the government comes in.

Anyone who believes that individuals acting completely alone in their own self interests serves the most good to society is naive.

jorgelito · 09-15-2008, 02:50 PM

Quote:

Originally Posted by ASU2003

It's not that all capitalism is bad, that's not it at all. But there needs to be checks and balances to make sure people aren't cheating to make a quick buck.

Yep, agreed. This pretty much sums up my feeling.

Quote:

Originally Posted by ASU2003

Some real estate speculating is ok, but it should be limited to buying old homes and fixing them up. Not buying new construction and selling it for tens of thousands over the base price before it is even finished using a 80/20 interest only loan with 0 down (and never having the intention of moving in).

I don't agree with limiting real estate here. The speculation will go up and eventually come down. We need to be more disciplined on our purchases. That's why I haven't bought a home in a 'hot market' yet. Because I resisted the temptation to take a out a bad loan. I will patiently wait it out and most likely buy a foreclosed property or two for a great price. Most of my friends and acquaintances are similarly disciplined.
-----Added 15/9/2008 at 04 : 53 : 47-----

Quote:

Originally Posted by Willravel

I almost hate to say it, but this has been on it's way for a while. It's really sad, and I can't see an honestly good option for us right this second. All that we can do is try to prevent this in the future by ending this idea that the government interfering with the market is the debil. Fannie and Freddie were having accounting problems years back. I told my grandmother to move her investments out of them and into more stable accounts (I think she's doing her investment through something religious now, like Thrivent).

It was a bigger drop than I expected, but overall not really.

Same here. I wasn't really surprised. I have been expecting this correction to happen for a while now. There will be some more coming up too. It's like a healthy purge. Glad to hear your grandma made some good financial choices, good on you for looking out for her.

Quote:

Originally Posted by Willravel

There will be rampant partisanship and ideologue-ing, which won't get us anywhere. If it's as bad as I think it will be, we won't even learn from our mistakes and it will happen again.

There's already a line forming outside Washington D.C. of industries wanting a bailout.

Unfortunately, you may be right. This disgusts me.

Quote:

Originally Posted by Willravel

09-15-2008, 05:47 AM	#2 (permalink)
jorgelito All important elusive independent swing voter... Join Date: Aug 2004 Location: People's Republic of KKKalifornia	The sky is not falling. Repeat, the sky is not falling. No need to panic or declare the end of capitalism every time the market undergoes a correction. It is my hope people will learn to exercise fiscal discipline and to live within their means. My main complaint is the government stepping in to bail out companies. Fannie and Freddie should have been left to fall on their own and not get a bailout. Corporate welfare is just as disgusting as social welfare. The market will sort itself out. The private sector has already taken measures to mitigate the impact of the bankruptcy. __________________ "The race is not always to the swift, nor battle to the strong, but to the one that endures to the end." "Demand more from yourself, more than anyone else could ever ask!" - My recruiter

09-15-2008, 06:04 AM	#4 (permalink)
roachboy Super Moderator Join Date: Apr 2004 Location: chicago	o i don't think the sky is falling. i think this is a massive demonstration of the inadequacy at both the descriptive and normative levels of neoliberalism--markets do not "do" anything--agents within markets, understood as sets of constraints, do things. there is no invisible hand, there is no god at the far end of the invisible hand--there is no rationality that assures adequate or beneficial functioning. this is a self-evident feature of capitalist operations in historical terms---and the only source of information that makes any sense is the history of actually existing capitalism. capitalism produces crisis as one of its primary features. patterns of regulation emerge to restabilize the system, redirect it, reorient it---these regulation are state-driven in the absence of meaningful political pressure that comes from elsewhere. crisis is then one of the systems principle products as system. it has been like this for much of the history of modern nation-states, much of the history of capitalism--which has never performed as neoliberal market-fundamentalism would have you think---an ideological system that presupposes a wholesale ignorance of history which issues into a wholly metaphysical view of the present. i would think that ideology should be done now by any rational standard. because this nonsense is a perfect example of what neo-liberalism really does best--generates vast income for the top tier of financial institution, treats responsibility as an externality--and in the end, leaves the public, by way of the state, holding the bag. btw i think your equation of "social welfare" and "corporate welfare" kind of obscene. we could have it out about this, but in another thread....suffice it to say: "wtf?" aside---it's kinda funny to see a libertarian viewpoint adopt the same relation to the reality it purports to describe as a trotskyite adopts vis-a-vis the coming proletarian revolution--o dont think so much about this version of the world--we havent really done what we're talking about yet. so the viewpoint--the insanity of libertarian ideology--abstracts itself from problems by positioning itself in a dreamworld. __________________ a gramophone its corrugated trumpet silver handle spinning dog. such faithfulness it hear it make you sick. -kamau brathwaite

09-15-2008, 06:21 AM	#5 (permalink)
Charlatan Drinking Your Milkshake Super Moderator Join Date: Apr 2003 Location: Lion City	I have to wonder if those who let the "market correct itself" are ready for what it would do to America's economy? I am with ratbastid on this... __________________ “I like paying taxes. With them I buy civilization.” - Justice Oliver Wendell Holmes

09-15-2008, 06:39 AM	#6 (permalink)
Poppinjay You had me at hello Join Date: May 2004 Location: DC/Coastal VA	My broker is EF Hutton, and EF Hutton says he went out of business in 1980 due to check kiting. He will gladly pay you wednesday for a hamburger today. This is the result of unbridled real estate speculation. I only wish they had replaced the term "exotic loans" with "dumb-ass fucking the country loans". Speculation is the root of all stupidity. Well, except for the erroneous report last Monday that UAL was declaring bankrupcty. That was an evil kind of stupid that caused a $1 (b) billion loss. Can't wait to see the lawsuits from that. If they end up with a structered settlement, maybe UAL will take that agreement to JG Wentworth and get cash immediately for 40 cents on the dollar. __________________ I think the Apocalypse is happening all around us. We go on eating desserts and watching TV. I know I do. I wish we were more capable of sustained passion and sustained resistance. We should be screaming and what we do is gossip. -Lydia Millet

09-15-2008, 12:38 PM	#11 (permalink)
kangaeru Crazy Join Date: Mar 2005 Location: on the road to where I want to be...	Roachboy: What alternative system do you propose to replace capitalism? We've seen plenty of historical precedent that reinforces that despite its volatility, capitalism ultimately creates more wealth and prosperity than any other economic system. I agree with you that economists look at things from a very heartless perspective; to give an oversimplified example, a policy which takes -9$ from the pockets of the poor/middle class and puts $10 in the pockets of the rich would be viewed as a +1$ net again and therefore economically efficient, with the theory that the winners can compensate losers never becoming more than just that--theory. Despite these shortcomings, and maybe I'm just cynical, capitalism harnesses human greed for the greater good in a way which no other system can. People, in general, will NOT work as hard for the betterment of someone else or the society in which they live than they will for benefits that directly impact them personally. Sorry--I won't budge on this one--I believe it wholeheartedly to be true. I believe that although under capitalism many are left better off at the expense of many left worse off, we would ALL be worse off under any other system. It's hard to argue against big pharma when the drugs they sell wouldn't have been created and available to anyone at all had the incentives which motivated investment in to creating the drug in the first place been absent. This is not the end of capitalism--if anything, Henry Paulson has proven that he is willing to let the Int'l Finance industry take its medicine, and with the Fed's safety net withdrawn, you're seeing the market work itself out ala BoA buying Merill Lynch yesterday. The true test of the system is how it operates under extreme pressure and duress, and so far I would say that considering the Dow is only down 290 pts (2.55%) as I write this, it's passing the stress-test so far. __________________ Dont be afraid to change who you are for what you could become Last edited by kangaeru; 09-15-2008 at 12:58 PM.

09-15-2008, 07:06 AM	#7 (permalink)
loquitur Junkie Join Date: Apr 2003 Location: NYC	RB, it's nothing of the sort. Part of capitalism, or neoliberalism as you call it, is that those who make bad decisions will fail. That's why I generally disapprove of bailouts, because they reduce moral hazard. Let me repeat that in a different way: failure of firms demonstrates the integrity of the system. You have it precisely backwards. Schumpeter would be wagging his finger at you disapprovingly.

09-15-2008, 09:21 AM	#9 (permalink)
ASU2003 immoral minority Join Date: Jan 2006 Location: possibly ohio	I'm happy today. Maybe this will be the wakeup call we need to start regulating stuff and putting in safety nets to prevent this kind of stuff from happening. When they get too greedy and want growth at any cost to make the numbers (and the fundamentals aren't there) this kind of stuff will occur.

09-15-2008, 01:37 PM	#12 (permalink)
ASU2003 immoral minority Join Date: Jan 2006 Location: possibly ohio	It's not that all capitalism is bad, that's not it at all. But there needs to be checks and balances to make sure people aren't cheating to make a quick buck. Some real estate speculating is ok, but it should be limited to buying old homes and fixing them up. Not buying new construction and selling it for tens of thousands over the base price before it is even finished using a 80/20 interest only loan with 0 down (and never having the intention of moving in).

09-15-2008, 02:47 PM	#16 (permalink)
Rekna Junkie Join Date: Nov 2003	The problem of optimizing the total wealth/benefit is a difficult non-linear problem. Individuals working only in their own self interests will likely not achieve global optimization and are likely to get stuck in a local optimization. In order to get past these local optimizations one needs an independent entity to help control the market and that is where the government comes in. Anyone who believes that individuals acting completely alone in their own self interests serves the most good to society is naive.