I agree with Sam Stone. The worst think we can do is to go protectionist in an attempt to force the dollars to stay in our vaults (like Britain did to Iceland). That never works in the long term.
What I’m worried about more than the economy is the possibility of the mainstream political consciousness mis-attributing the economic downturn to “the failure of capitalism” and going to a more socialist system. Hopefully we will learn the right lessons, but what I’ve heard so far does not sound promising (“Unregulated bankers running wild!!!”).
Valete,
Vox Imperatoris
PS: As I was typing this, the song “Material Girl” came up on Pandora.
No. Then we would miss out on a wonderful learning opportunity.
We’re trying to fight ignorance here on the SDMB. And there is a staggering amount of it when it comes to how the banking system works. As well as the basics of the private economy in general…but we’ll leave that alone for another day.
Unfortunately there is also an equal amount of volume demanding that the government ‘do something’ about the banking system, which they have done plenty enough of already.
It’s actually very, very simple. It’s not complicated at all.
Why doesn’t the failure of Madoff pose a systemic risk to the financial system?
Why does the failure of a similarly-sized bank pose a systemic risk?
There are several better candidates to be considered as “main causes”:
[ul]
[li]the country’s over-reliance on debt (instead of real productivity) to fuel economic growth.[/ul][/li][/quote]
And who, exactly, lends money to people that they can’t afford to pay back?
There’s a lot of blame to spread around, but you can’t specifically target our over-reliance on debt while also excluding from consideration the very system that deliberately created and sustained that over-reliance. It is the responsibility of banks to not lend money out when there’s no reasonable expectation that people can pay it back. While it’d be nice if people wouldn’t borrow too much, it’s ludicrous to trust to borrowers that they understand the intricacies of finance as well as the professionals. If an over-reliance on debt is a problem, then the system that created that over-reliance is indeed to blame.
The failure of our private financial system becomes even more clear when we look at how easily the government itself can borrow money. T-bills are being issued for 0% interest. People trust us so much to pay back their money that they are literally giving it to us for free. Why? Because they don’t trust the idiot bankers. Our economy as a whole can, for the present, sustain more debt. It’s just the financial system that’s been corrupted. That is not in the slightest a Ft. Sumter example.
What’s even worse is that the banks are over-compensating now in the opposite direction. They’re drawing back even on worthy credit risks. The dumb sons of bitches just can’t get anything right.
Once again, I believe that everyone besides **Sam Stone **has no idea of what they are talking about. People who use terms like “armegeddon” or “apocylypse” or “capitalism is dead” sound like ridiculous fearmongers. These are not useful terms to describe the economic landscape and are products of imaginative writers trying to sell magazines.
I mean where do you see the country in 5-10 years? Do you envision there won’t be investment banks anymore? That we won’t have a need to provide financing for mergers and acquisitions? That the entire country will fall apart and there will be millions of homeless people clogging the Interstates living under overpasses? So what will you do to prepare? Stock up on shotgun shells and canned goods? Quit your job (assuming you aren’t a student and have a real job) and find a cabin upstate to hole up in for a decade?
We’ve had banking failures before. We’ve had market crashes before. We’ve had periods of relatively high unemployment before. What is it about this particular failure that makes people so much more worried than the 2001 crash? Or the recessions of the early 90s? Or the 80s? Or the 70s?
Oh wait, people predicted the end of the world then too. The tech sector was over. Japan would dominate the new century. Capitalism was dead.
When I read these magazine, I can’t help but think how good they are at predicting the present and projecting it into infinity. Anyone remember the “new economy” in the 90s? How about that home prices only go up?
I don’t think my opinion has really changed. I still think we need to get back to trying to maintain sustainable growth and financial habits and stop trying to create “get rich quick” schemes to create fortunes out of nothing. Back in the day, people became wealthy through inventing a better freakin mousetrap or something. Now it seems people become rich by coming up with more and more convoluted ways to push numbers around an Excel spreadsheet.
I don’t know much about the Davis-Bacon act but I don’t think the other regulations are enough of a burden to repeal. I think a case could be made that Detroit would be doing better if we had pushed for more strident EPA regulations ten years ago. I don’t want to make that mistake again. I’m generally a free-market capitalist (I cringe at the auto bail-outs) but I don’t think all regulations must go.
I didn’t say all. I’m saying you could do a cost-benefit analysis and see if some regulations might be eased, given the new realities of the difficult business environment. For example, if you really want to spend a lot of money on infrastructure to stimulate the economy, you might consider easing up on the environmental regulations surrounding such projects. Or rules that prevent the hiring of non-union workers or even the minimum wage laws, if necessary. Whatever it takes. Regulations cost the economy several trillion dollars a year in lost productivity. Relieving it of some of that burden is just as much an economic stimulus as throwing cash at it. Except now you’re just making the building of everything a little cheaper, and not targeting special industries cherry picked by the government as worthy of saving.
They’ve always done that, too. Most of the “robber barons” you hear about when people deride unregulated capitalism actually got and/or kept their money through corruption and taking advantage of government aid.
But they also created companies like Standard Oil, US Steel, Edison General Electric (the precursor to GE) and others. Nowadays, everyone wants to be lawyers and hedge fund managers.
Building an industrial giant by stitching up a growth market and forcing the entire country to pay through the nose for access to critical goods and technology does generally give you opportunities to build nice big firms, it is true.
However I’m not sure that it’s much better than raiding the pork-barrel from an economic perspective.
Take a look at the 20-30 year chart of prices, quality and availability of
Oil
Steel
Household Electricity
during the time those firms were growing rapidly in the late 1800s and early 1900s and supposedly ‘forcing the country to pay through the nose’ for those goods.
And then decide whether or not you would like to retract your statement.
We have not come close to bottoming out on the original problem of mortgage defaults. There are a lot of mortgages getting ready to reset. That will just make it worse. Paulson said he would deal with this problem and decided not to. It could be he knows that swaps are still going to destroy us anyway. House values continue to drop and will for a long time. There have been 25 bank failures and many more to come. Dumping billions in the financial industry to bail out those who did the dirty deed is wasteful. They have not freed up the lending which was what Paulson wanted to do.
The unemployment increase will add to the defaults. We have not faced the ugly truth. It is going to get a lot worse.
