This is a great post but completely pointless as every time Sam is confronted with facts and evidence he runs away. You won’t get an answer, or if you do he’ll run away after one or two exchanges of posts.
I don’t know what you are all complaining about.
I personally made 10 billion dollars betting against the American economy. I have friends who made a lot more. Times are great.
I was momentarily worried I wouldn’t get paid off since far more such bets were accepted than could be paid off, but luckily middle class Americans volunteered to pay us all themselves despite not even having enough money to keep their houses.
Best of all, I’m still going at it. It’s legalized theft here guys, it’s wonderful. The object of the game is to simply take all the money without having to worry about risky things like “business” or “jobs”. And I get to make the rules. Now lower my taxes, give me your wallet, and jump in the ocean.
I’m not so sure. Tell us what these problems would be? I mean, a bank going bust is little different from any other company going bust. Sure the creditors (savers) lose their money, but surely they assume a risk for the return on their capital? Other banks would have stepped in or new banks would have been set up.
“Debt Political Theater Diverts Attention While Americans’ Wealth is Stolen…”
Social Security Didn’t Create the Deficit
As nobody answers any of the facts HE raises, I guess it’s even.
His central point is completely unaddressed and absolutely correct; the reason the U.S. economy still appears to stink is that the level of wealth prior to the housing bubble bursting was totally illusory. The U.S. economy was living the high life on borrowed cash for a solid ten or fifteen years prior to 2008; consumer spending was being driven not by actual growth, but with money borrowed, directly or indirectly, by speculating on real estate.
The U.S. will eventually reach the point where it’s actually as wealthy as it THOUGHT it was in 2007, but it’ll take years.
Contrary to most people’s view of rich people having a vault like Scrooge Mcduck where they can dive into piles of money, what do you think ‘rich’ people do with their money? Leave it in their savings account at the bank?
Oh, they’re probably doing the usual: investing in stocks (US and foreign), bonds (US and foreign), commodities, currencies and real estate, although there’s precious little evidence that anyone is buying real estate.
In theory, the money that the rich are investing in US corporations could in turn be spent on infrastructure improvements and hiring employees – both of which would have beneficial effects on the US economy. But is there any of that going on? We know for sure that corporations aren’t hiring.
No, I don’t. Not unless you’ve got some data to show me. We’ve had this debate many times on this board, and I keep pointing to the actual data showing that the wealth held by the very rich has fluctuated up and down since it’s been recorded, and has been higher than the last recorded numbers at points in just about every decade. It fluctuates up and down by about 3-5% of GDP, and those fluctuations appear to have more to do with the business cycle and the state of the macro economy than they do tax rates or other government policies.
The people who talk about the 'increasing amount of society’s wealth held by the rich" tend to draw their graph starting in the mid 1970’s, which is completely disingenuous because the mid-70’s contained a very low, one-time trough in the wealth held by the rich. Their wealth was hit hard by the combination of inflation and low growth, but it recovered within a few years. If you pick almost any other random time in the last 80 years, you’ll find that the percentage of wealth held by the rich isn’t much different now.
If this had been a recession without government bailouts and special deals cut to benefit the rich, I would be willing to bet that their share of overall wealth had decreased in the last two or three years. But this time I don’t know if that’s true, because so many of them got bailed out, and because this government’s macro policy has primarily benefited the wealthy.
But so far as I know, wealth data for the rich isn’t available for the years past 2007 yet, so we’re just speculating.
I don’t know of any causal connection at all. My personal belief, which I can back up with economic theory, is that attempts to ‘correct’ the problem through forced distribution of wealth will result in less economic growth and more unemployment.
I do know that the U.S. has a whole lot of screwed up regulations that were put in place to benefit the rich and big corporations at the expense of the ‘little guy’ who doesn’t have political clout. Get rid of those, reform the tax code to give everyone an even playing field by eliminating loopholes that big corporations exploit, and the percentage of wealth held by the richest Americans would come down, and the economy would be healthier.
The American government has become a tool for large corporations to use against smaller ones. It’s become a tool for wealthier organized labor to use against poorer unorganized labor. Much of this is done by your side. City and state budgets are being eaten alive by out of control public unions while non-unionized workers suffer tax increases and job losses to pay for it. You raise corporate tax rates, then give the big corporations loopholes to avoid paying it, while the small companies that can’t afford to offshore their finances and hire buildings full of lawyers and accountants pay the full tax.
There are a whole lot of problems in America right now, and it’s not as simple as saying, “The rich have too much money” or “we need more regulation”.
Yes, they have. But you have to drill into the details to understand why. There are plenty of middle class people who have been doing just fine, and getting good wage increases. If there are structural problems in the way the middle class is being incentivized, it gets lost when you consider them in the aggregate as one monolithic group. For example, right now most software companies are having a hard time finding good people, even with a general unemployment rate of 9.2%.
Wrong. The economy is not a zero-sum game.
What a loaded question. And one with a baked in assumption: That proper regulation was possible and being advocated for. You might as well say, “Do you agree or disagree that Japan would have suffered less damage from the tsunami had it evacuated all the affected cities first and removed the piles from its nuclear plants?” The answer is “Yes”, but it begs the question as to whether Japan had the knowledge and ability to take that course of action, which it didn’t.
A more sophisticated question would be, “In hindsight, how could the financial collapse have been avoided given the information available at the time, and could that information be used to avoid similar problems in the future?” Asked that way, it becomes much more difficult to answer. Of course, knowing the exact failure mode now, we can glibly state that if we had just avoided that failure mode through regulation, the crash wouldn’t have happened. The question is whether the failure mode was clear to see before the crash, and whether there was anything that could be done about it. You also have to ask if another failure mode would have cropped up had that particular one been plugged.
See, the root problem was too much money seeking too few places to productively invest. The Fed was holding interest rates artificially low, making it unwise to simply save. China was flooding the west with money due to its forced savings policy. Enter the Mortgage-Backed-Security, which promised high returns. Enter Fannie Mae and Freddie Mac, which acted as a clearing house for MBS’s and a tool to offload risk from the buyer to the system as a whole. Enter government policy that explicitly told banks to lend money to people with poor credit, and through Fannie and Freddie provided them the means to do so without incurring the risk.
The result was a boom in housing and crappy mortgages, and economic growth from the ‘wealth effect’. And when that happens, good luck finding a politician who is willing to stop the party due to future risk. But had someone stopped the practice of securitizing mortgages, the underlying fiscal imbalance still would have been creating all kinds of pressure for that money to find a home. We probably would have seen some other form of bubble instead. Tulip mania, maybe. Or crappy internet pet companies with a sock puppet mascot.
I’ve done a lot of research into the issue, and the only people I’ve found who raised any kind of alarm at all in government were Bush administration officials, who went to Congress several times to warn them of potential problems. But Congress wasn’t listening. The Democrats certainly weren’t listening, and in fact Chris Dodd and Barney Frank were the two biggest cheerleaders for the status quo, as they felt it was a social program to open up housing to the poor.
So where was this magic regulation coming from? Some people point to the deregulation of credit default swaps, but did you know that the reason they were deregulated was because regulators thought that they were a good thing because they lowered risk? The S&L crisis had regulators looking for a way to avoid bank defaults in the future, and CDS’s were seen as a way to spread the risk around to make the system more stable. After that point, regulators were perfectly happy with CDS’s - they weren’t seen as a problem needing regulation at all - not until the instability of the entire system made everyone sit up and take notice, at which point it was too late.
Also, you didn’t ask the question, “In what way did regulations cause the problem?” It’s clear that some regulations passed by government at least made the problem worse. For example, Fannie and Freddie are quasi-government organizations, and they used that status and the market’s knowledge that they were implicitly backed by the full faith and credit of the U.S. government to engage in arbitrage with MBS’s. They made billions, and their CEOs made a fortune, and what made this possible was their status as specially-regulated financial institutions.
In addition, the Basel II accords have been implicated in making the problem worse, because it requires banks to increase their capital reserves as risks rise. This sounds eminently reasonable, but in this case as system risk increased across the entire financial system, the result was banks refusing to lend money, which helped shut down the financial system.
Another potential culprit is Sarbanes-Oxley, passed in the wake of the Enron scandal, which had the unintended consequence of choking off IPO’s as more companies stayed private to avoid having to meet expensive Sarbox regulatory coompliance requirements. That choked off an avenue for all that capital, and it made corporate America less transparent because private companies don’t have the kind of reporting requirements public ones do. Perhaps without Sarbox, we would instead of seeing a mortgage explosion seen an explosion of IPOs and a redirection of capital into technology investments. But we’ll never know.
Stepping away from the past, let’s look at the future: We KNOW there are big fiscal problems coming for the U.S. Deficit spending is out of control, and entitlements and health care spending are growing much faster than GDP growth. Yet, the U.S. government can’t even come close to a deal. Obama’s big ‘compromise’ plan only includes 2 billion dollars in direct spending cuts next year. The tax increase he wants amounts to about 1 trillion over ten years, when the deficit is currently 1.5 trillion per year.
In the meantime, the Republicans won’t accept any tax increases, having been burned by the “raise taxes now, and we’ll cut spending later - we promise” gambit three or four times since 1980. And even their ‘draconian’ cuts to the government only amount to maybe half of what the accumulated deficit is predicted to be.
So if government can’t solve its own problems that have very clear causes and very clear deadlines and solutions, what gives you faith that they are capable of regulating a global financial system that is hellishly complex and affected by many things outside of their control?
Seriously, for all the bitching about how the markets need to be regulated by government, why don’t you just step back and look at how poorly governments themselves are performing around the world? California is close to bankruptcy. Most states are dramatically under-funding their own pension programs. The U.S. Congress hasn’t even passed a budget in two years. Greece, Portugal, Spain, Italy, and other countries are facing insolvency. The war in Libya is a mess run by a committee of feckless politicians.
Your faith in government is touching, but frankly I don’t know how any objective observer can look at the performance of government before and during this crisis and draw any conclusion other than that you should be very wary of giving them any more power over people’s lives.
Dick Dastardly, this is a personal attack and not an argument. You’ve been warned about this before. Don’t do it again.