Is there still a crisis? If so, how urgent?

Great Debates
1

We’ve been hearing for weeks how dire things were in the finance industry. A couple of big companies were bought out cheap and a couple of others bailed out.

Then all of a sudden it seemed people were crying that a huge government bailout of hundreds of trillions of $s needed to be done YESTERDAY! For the last couple of days we’ve seen all kinds of grandstanding by all kinds of players seemingly around the theme that something big had to be done immediately. Seemingly we rolled right past the discussion of whether or not to bailout, to what form the bailout should take.

It seems odd to me that for a situation as complex and long-in-coming as this, that any one particular moment would be the tipping point. Or even if there were, that we would recognize it until it were well past.

I guess what I’m getting at is, is there reason to believe that a massive government action is needed at this time, essentially rewriting what we’ve considered to be the free markets? Or isn’t this a classic example of a situation that came about incrementally, and that would be best addressed incrementally. Perhaps the simple fact that the gov’t has acknowledged this situation and will not allow business to continue as usual may be enough to stave off a freefall.

While we definitely wish to avoid a crushing worldwide depression, a corrective recession might not necessarily be the worst thing that might happen. Wouldn’t it be a good thing for at least the most reckless institutions to face large losses, including potentially being sold off for pennies on the dollar? Oughtn’t someone pay costs associated with risks? And a recession might well be of shorter duration that whatever huge government program gets cobbled together in todays crisis mode.

As of this moment, is the current situation a financial crisis, or a political one?

2

Well, I think it’s scare-mongering. Banks are declaring bankruptcy, oh no. This means they can avoid paying back all of what they owe. It’s a stinking money game.

3

It is a crisis, but that doesn’t mean it is all bad. I am in agreement with some of your opinions. A good correction, leaving us in a recession for a bit is not the end of the world. I do not think a bailout will help much, if nothing else I think it may hurt because it only encourages the reckless behavior of creating magic money. And if your endeavor fails, Uncle Sam will open his wallet for you.
Yeah they can write up new oversights and all sorts a new shit, but loopholes will be found and abused.

4

Well, this crisis didn’t suddenly show up, things didn’t really go from “fundamentally sound” to “critical” over a few days.

The crisis is by most accounts real. The world’s economies run with credit as their lubricant; seize up credit and it all goes to hell.

But the critical urgency, the must be by before market open on Monday, is a psychological urgency and only exacerbated by the injection of partisanship that has occurred over the past several days.

There is no reason to believe that there is not time to do it in a manner that is thoughtful and deliberate.

5

OK, there isn’t an economic crisis in the usual sense. We’re probably not looking at a depression, and definitely not a Great Depression. Companies are producing goods. People are buying them.

Several years ago, however, financiers basically drilled a hole in their brains and are now shocked, shocked that their grey matter drippled out. They saw an great source of capital and took it. Despite all the yammering about how “deregulation” is the cause, there was really a long sequence of complicated events which led to this, and anything might have disrupted the chain.

!1) (and least) is the problem of Naked Shorting. Naked Shorting is a bad idea, and I have no idea why the SEC allowed it. In normal shorting, you borrow shares, sell them, then must buy them bakc by a given date and time to return them. Well, Going Naked on a Short is the same… but you don’t borrow them! When the market started to fall, some people smelled blood, and they simply sold huge numbers of shares they dind’t own.

I have no idea why this was allowed. Normal shorting helps the market accurately price shares of stock. Naked shorting is… controversial, to put it mildly.

(2) Freddie and Fannie Mae have been built on lies and political malfeasance for a long time. When they were spuin off, the government decided (in its infinite wisdom :rolleyes:) that it would be Rele Purdy Nice if they could get something for nothing. So they sorta hinted they might guarrantee FM&FM. Investors noticed this and the two were coming up ganbusters. They took inordinate risk, knowing the Feds were likely to guarrantee any failure.

Ths was compounded because the pair get their leadership group from bureaucrats with connections all over the government. This gruesomely incestuous relationship was targeted by a lot of people over the years, but no one had the clout to do anything about it. Even Bush and McCain got nowhere with their attempts to do anything about it, and both dropped the issue since it couldn’t even come up for debate The debate couldn’t even get started because FM&FM were buying influence with extremely unsavory “donations” left and right (pun intended).

(3) Politicians (yeah, mostly leftist, but also conservatives who thought they could gain off of it) pushed banks to lend more to minorities (and specifically, poor ones). Banks loosened their rules. Problem is, many poor people manage money unwisely, which is why they are poor. Or they may have a high icnome, but be finscally imprudent. To make matters wors,e Banks didn’t classify customers by race, so they actually lent more to bad credit risks who were white (or asian or whatever) as well as blacks and hispanics.

(4) Combine this unreasonably cheap credit with a real estate bubble and you have the makings of a credit crunch. Businesses need credit simply to operate, because they sometimes have short-term cash flow issues. They never quite know precisely how much they need in the short term (They want their moolah constantly out there making more, right? Right.), so they frequently take out quickly-repaid loans to cover any temporary shortfall. That’s much less available now, and banks and lenders are pulling back on it. Likewise, it’s hard to get long-term loans for expansion and so forth, too, which limits long-term productivity.

More specifically, this happened because once the real estate bubble burst, investors who bought up mortgages without actually looking at what was in them found they were going broke. With market price going down, the mortgages are, if not worthless, then pretty weak. Of course, it was their own fault for not doing their homework, but it affects the rest of us. But anyway, BAM: lenders are having cash-flow troublse themselves and don’t want to lend out.

The good news is that any trouble is likely to be temporary, but it could make for a very ugly year or two, where everyone involved points fingers at everyone else. As much as disagree with Bush’s economic policies, he isn’t the cause, and was arguably one of the more sensible leaders we have right now. I’m not I agree with the bailout plan, either, but it does make a certain amount of sense.

In theory, the bailout doesn’t cost Americans anything. What it does is lend cash to the financial institutions so they can restore their “liquidity”, or the relative ability to get cash in the short run.

Also, despite the credit crunch and mortgage fiasco, it’s not a bad time to get a home loan. If the bank thinks you are a good credit risk, you can get a very nice deal now.