Did the 2008 Financial Crisis Mark the End of Free-Market Economics?

[WheelsRCool]

Unfortunately, it seems that the Bush Administration is enacting an actual literal bailout of financial institutions, not just protecting the customers' money but letting the institutions themselves fail, but bailing out the institutions themselves.

This is bad.

It's also hilarious in a twisted sense, in that the true Reagan Republicans are going to have to then be in agreement with Nancy Pelosi (definitely NOT any Reagan Republican!), who said that what we are seeing is privatized profit with nationalized risk.

And if Senator Obama agrees with this bailout, he will be agreeing with President Bush.

Crazy times. And against what President Bush campaigned on as well.

If this was a Democrat proposing all this, the Republicans would all be highly critical, but since it is a Republican proposing it, and since all of Wall Street is calling for favors from their friends in Congress (Democrats and Republicans I'd guess) as well, the Republicans are going along with it.

No Republican should be supporting ANY actual bailout of Wall Street.

OTOH though, if it was actual regulations that caused much of these institutions to move in the direction towards failure, one cannot entirely fault the bailout either.

Another reason to keep the government as far out of the financial markets as possible, so that when institutions fail, it's the institutions' fault, and no bailout can have the slightest justification.

One example of regulation failing is Sarbannes-Oxley, which has made it much more expensive and far less attractive for a company to go public, so that now there are apparently no new IPOs:

http://blog.wired.com/business/2008/09/andreessen-on-f.html

The interesting thing is that this guy supports Senator Obama, which he also says many of his Silicon Valley friends do not; he says he thinks Senator Obama is far more centrist than many think though. If Senator Obama is elected, I do hope he is correct.

One other thing to think about: Sarbannes-Oxley was meant precisely to make companies more "transparent" to prevent the very financial collapses we are seeing now, and yet Sarbannes-Oxley has proven completely inept at doing so. No one saw this coming at all.

Another example of well-meaning regulation that

1) Failed completely to do its intended job
2) Is having the unintended effects of making public companies far less attractive.

What is dangerous is that our government, in its panic, may make the situation take longer to fully become clear. The Japanese, after their real-estate bust, remained with a stagnant economy for fourteen years because their government couldn't get itself to acknowledge the situation and drive on. We want this crises to become completely clear as quickly as possible, so we can move on and get back to a growing economy.

 

[quadraphonics]

Sarbanes-Oxley is not an example of financial market regulation. It's an accounting regulation designed to prevent fraud through improved auditing and disclosure requirements. I.e., to prevent Enron-style hijinks, which it appears to have done successfully. The current problems are related to liquidity; i.e., the actual cash that banks have on hand relative to their obligations.

Liquidity is the kind of thing mandated in actual financial regulations. Unlike in the area of accounting regulations, where the US is pretty highly regulated (thanks to Bush), American liquidity regulation is lax for investment banks. For deposit-taking banks, there are stricter liquidity requirements in place to prevent panics and bank runs. Given that it is exactly the investment banks which have failed, and that the few who survived voluntarily became deposit-taking banks, it would seem that the market has spoken pretty definitively in favor of the liquidity regulations imposed on deposit-taking banks.

If anything, SOX helped in the current situation, as nobody was able to hide this stuff under the rug. We got pretty much all the advance notice you could hope for, which can only ease and speed the adjustments.

 

[OrbitalPower]

Prior to these latest "fiscal conservative" disasters, Reagan was the biggest corporate welfare whore of all time. Now, Bush holds that record. Bush now has been in charge of one of the largest bailouts in history - as Chris Matthews put it. I wouldn't say he was in charge of the largest government program in history, that was Eisenhower - who's National Highway DEFENSE (?) System was the largest social engineering project in history.

The tyrannical Reagan administration even engaged in massive protection of corporation, by their own ADMISSION.

Conservatives = big government. I really don't know what else to call it other than what Ron Paul called it, fascism.

I was watching the Rachel Maddow show just a few minutes ago (it repeats), at the bottom of the screen they had written: Bush Legacy: 9-11, Katrina, Iraq War, Financial Mess.

I agree. What a mess the country is in. The question is will democrats be able to bail us out again like they had to under FDR, like Clinton had to pull us out of the Reagan mess.

 

[Astronuc]

Experts See a Need for Punitive Action in Bailout
http://www.nytimes.com/2008/09/23/business/23skeptics.html

As economists puzzle over the proposed details of what may be the biggest financial bailout in American history, the initial skepticism that greeted its unveiling has only deepened.

Some are horrified at the prospect of putting $700 billion in public money on the line. Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure.

Most economists accept that the nation’s financial crisis — the worst since the Great Depression — has reached such perilous proportions that an expensive intervention is required. But considerable disagreement centers on how to go about it. The Treasury’s proposal for a bailout, now being negotiated with Congress, is being challenged as fundamentally deficient.

“At first it was, ‘thank goodness the cavalry is coming,’ but what exactly is the cavalry going to do?” asked Douglas W. Elmendorf, a former Treasury and Federal Reserve Board economist, and now a fellow at the Brookings Institution in Washington. “What I worry about is that the Treasury has acted very quickly, without having the time to solicit enough opinions.”

The common denominator to many reactions is a visceral discomfort with giving Treasury Secretary Henry Paulson Jr. — himself a product of Wall Street — carte blanche to relieve major financial institutions of bad loans choking their balance sheets, all on the taxpayer’s bill.

There are substantive reasons for this discomfort, not least concerns that Mr. Paulson will pay too much, thus subsidizing giant financial institutions. Many economists argue that taxpayers ought to get more than avoidance of the apocalypse for their dollars: they ought to get an ownership stake in the companies on the receiving end.

It's amazing to read this stuff! But then I'm not surprised at the gravity of the situation. I guess I'm more surprised that so many people in positions of responsibility did not see this coming. Was it a matter of denial?

I think taxpayers would be rightfully upset if their tax money is used to save the various financial companies, but those companies remain in the hands of those who caused the problems in the first place.

IMO, there is no free-market economy. There's always been some manipulation.

 

[mheslep]

Prior to these latest "fiscal conservative" disasters, Reagan was the biggest corporate welfare whore of all time. Now, Bush holds that record. Bush now has been in charge of one of the largest bailouts in history - as Chris Matthews put it. I wouldn't say he was in charge of the largest government program in history, that was Eisenhower - who's National Highway DEFENSE (?) System was the largest social engineering project in history.
...
I agree. What a mess the country is in. The question is will democrats be able to bail us out again like they had to under FDR, like Clinton had to pull us out of the Reagan mess.

Rubbish. SSN $554B/year 2006, every year and growing. Medicare $343B/year 2006, every year and growing faster. Nothing else even comes close including the present bailout whatever form it takes.
https://www.physicsforums.com/attachment.php?attachmentid=15311&d=1220739676

 

[OrbitalPower]

Those are not "corporate welfare programs." Social security is a trust fund and medicare is an entitlement program.

 

[mheslep]

Those are not "corporate welfare programs." Social security is a trust fund and medicare is an entitlement program.

SSN is not a trust fund in reality, only in name. Medicare has plenty of "corporate welfare." Anyway, you used the phrase "largest social engineering project" and they are both certainly that.

 

[Ivan Seeking]

Unbelievable! We are asked to fund almost a trillion dollars [note that there is at least one more shoe to drop as the crisis flows downhill] without any oversight; they want a blank check? This is just more of what caused the crisis in the first place. I have no doubt that this is a crisis, but this is ridiculous. I smell a rat; in fact a whole nest of rats. It makes me wonder who might intend to exploit the greatest economic crisis in history as a smoke screen for the greatest scam in history.

...According to Section 8 of the proposal, the decisions are "non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

That "prevents judicial action could allow the protection of decisions that create false marks, hide prior marks, or could be used to prevent civil or criminal prosecution in situations where a management knowingly provided false marks that aided the growth of this crisis of confidence," Rosner said in a note to clients.

It's bad enough that U.S. taxpayers are on the hook to mop up this financial mess. That's why we can't afford to let anything else be pulled over our eyes.

http://ap.google.com/article/ALeqM5gca54s0LCP-1CIz0sSK5QWjOCzbgD93CKMNG0

 

[LowlyPion]

Unbelievable! We are asked to fund almost a trillion dollars [note that there is at least one more shoe to drop as the crisis flows downhill] without any oversight; they want a blank check? This is just more of what caused the crisis in the first place. I have no doubt that this is a crisis, but this is ridiculous. I smell a rat; in fact a whole nest of rats. It makes me wonder who might intend to exploit the greatest economic crisis in history as a smoke screen for the greatest scam in history.

Crisis = Opportunity

 

[lisab]

Crisis = Opportunity

Yes, you're right. But it's an opportunity for whom? Who is profitting from this crisis?

I've just started reading "The Shock Doctrine: The Rise of Disaster Capitalism ," by Naomi Klein.

From Amazon.com reviews:

Naomi Klein's The Shock Doctrine advances a truly unnerving argument: historically, while people were reeling from natural disasters, wars and economic upheavals, savvy politicians and industry leaders nefariously implemented policies that would never have passed during less muddled times. As Klein demonstrates, this reprehensible game of bait-and-switch isn't just some relic from the bad old days. It's alive and well in contemporary society, and coming soon to a disaster area near you.

I'm highly skeptical about the speed that the administration wants to implement this policy. This book adds to my skepticism.

Yes I know we're in a serious crisis situation, but after living through the last 7-3/4 years I don't trust my government to look after my best interests.

 

[WheelsRCool]

The tyrannical Reagan administration even engaged in massive protection of corporation, by their own ADMISSION.

Under Reagan, we opened up to more free-trade and Wall Street was opened up to actual competition. There was very little protectionism for Big Business under Reagan.

Conservatives = big government. I really don't know what else to call it other than what Ron Paul called it, fascism.

This is a nonsensical argument. Under Reagan, we saw the growth of government as a percentage of GDP stop for the first time in decades.

I was watching the Rachel Maddow show just a few minutes ago (it repeats), at the bottom of the screen they had written: Bush Legacy: 9-11, Katrina, Iraq War, Financial Mess.

9/11, hmm...so Clinton had nothing to do with this considering much of the planning for this occurred during his own administration? 9/11 could not have occurred during the Clinton Administration? This is simplistic thinking.

I agree. What a mess the country is in. The question is will democrats be able to bail us out again like they had to under FDR, like Clinton had to pull us out of the Reagan mess.

FDR never "pulled" us out of anything. His New Deal was a disaster of epic proportions that only lengthened and deepened the Great Depression. It allowed violation of the Sherman Antitrust Act, food to rot, and when income taxes were significantly raised in 1932, going from 25% to 63%, the real GDP dropped by 13.3% and unemployment rose from 15.9% to 23.6%.

I don't now why you debate these things though. While accusing other people of engaging in "junk scholarship," you yourself seem to have no problem refusing to read books recommended with a viewpoint alternate to your own regarding economics and fascism. If that isn't "junk scholarship," I do not know what is.

BTW, you once said that Jonah Goldberg, author of "Liberal Fascism," had "no qualifications." Yet you recommend the book "The Rise and Fall of the Third Reich," written by a man with the same level of qualifications as Goldberg. He too was a journalist.

Nor did Clinton pull us out of any "mess" from Reagan (the recession was actually because Bush Sr. had increased taxes, not anything from Reagan). The economy then went into a speculative boom very similar to the 1920s economic boom, fueled this time by the technology sector and the growth of the financial industry (both because of the deregulation enacted by Ronald Reagan; without him, no such developments in these sectors would have occurred to the extent that it did).

The markets peaked in 2000, then crashed spectacularly (all under Clinton). But of course while Clintonites like to "credit" Clinton for those so-called "good times," they do not at all want to accuse him of the Dot Com crash. Of course they have no trouble blaiming President Bush for a financial crash.

President Bush inherited an economy bordering on recession after Clinton, and he cut taxes, which helped prevent it; it did technically enter a "recession," but it was the smallest recession we've ever had if you consider it that.

I've just started reading "The Shock Doctrine: The Rise of Disaster Capitalism,"

This book is riddled with lies and misconceptions about various things. Read up on some of the criticism of her work.

 

[WheelsRCool]

Sarbanes-Oxley is not an example of financial market regulation. It's an accounting regulation designed to prevent fraud through improved auditing and disclosure requirements. I.e., to prevent Enron-style hijinks, which it appears to have done successfully. The current problems are related to liquidity; i.e., the actual cash that banks have on hand relative to their obligations.

Accounting is what allows us to see how money is flowing into and out of these big institutions though.

Liquidity is the kind of thing mandated in actual financial regulations. Unlike in the area of accounting regulations, where the US is pretty highly regulated (thanks to Bush), American liquidity regulation is lax for investment banks. For deposit-taking banks, there are stricter liquidity requirements in place to prevent panics and bank runs.

Banks are only required to hold 10% of their assets on hand. To protect against runs and panics we have the Federal Reserve system.

Given that it is exactly the investment banks which have failed, and that the few who survived voluntarily became deposit-taking banks, it would seem that the market has spoken pretty definitively in favor of the liquidity regulations imposed on deposit-taking banks.

If anything, SOX helped in the current situation, as nobody was able to hide this stuff under the rug. We got pretty much all the advance notice you could hope for, which can only ease and speed the adjustments.

It doesn't seem to have helped much though. The institutions still crashed and are now being investigated for fraud.

 

[OrbitalPower]

Under Reagan, we opened up to more free-trade and Wall Street was opened up to actual competition. There was very little protectionism for Big Business under Reagan.

Under Reagan there was more corporate protectionism than under any other American President and, because of the S&L scandal and other corporate welfare projects, such as licensing the use of federally funded technology on an exclusive basis, he was indeed the biggest corporate protectionist in years.

There were also trade restrictions under Reagan and trade was opened up under Clinton, not Reagan, which was problematic because trade should come with equal conditions for some things, such as the environment.

This is a nonsensical argument. Under Reagan, we saw the growth of government as a percentage of GDP stop for the first time in decades. [p/quote]

This makes absolutely no sense. Reaganism saw the largest expansion of the federal budget up to that time and he tripled the deficit in one term.

9/11, hmm...so Clinton had nothing to do with this considering much of the planning for this occurred during his own administration? 9/11 could not have occurred during the Clinton Administration? This is simplistic thinking.

No, Clinton had nothing to do with it.

FDR never "pulled" us out of anything. His New Deal was a disaster of epic proportions that only lengthened and deepened the Great Depression. It allowed violation of the Sherman Antitrust Act, food to rot, and when income taxes were significantly raised in 1932, going from 25% to 63%, the real GDP dropped by 13.3% and unemployment rose from 15.9% to 23.6%.

We've already been over this. You have not been able to provide a SINGLE, MAINSTREAM source for this claim.

Because the GDP only dropped ONCE during his term but he had an average growth rate that was one of the fastest in US history. Certainly the average GDP growth rate was higher under FDR than it was under Reagan. (Keep in mind when an economy drops to the extent it did in the great depression, it's hard for it to recover.)

You either misinterpret the data provided in the other thread -- with explanation of GDP prior to the Great Depression, and up to World War II -- or are deliberately making things up. There is no other explanation.

And by the way the New Deal programs didn't even start until 1933, not in 1932, and a recovery began almost immediately.

The New Deal was a great growth rate, and it, the economy skyrocketted and the US had more stability and a progressive economy for its longest period in history, while taxing the rich at a very high rate, certainly higher than now.

While accusing other people of engaging in "junk scholarship," you yourself seem to have no problem refusing to read books recommended with a viewpoint alternate to your own regarding economics and fascism. If that isn't "junk scholarship," I do not know what is.

That's because they are still scholars in the academic sense. Paxton, who I cited in that "fascism" thread, was a scholar. The other thing I was referencing was a paper published by the University of Barcelona, both scholarly sources.

And so on. The vast amount of historians and even economists disagree with you.

BTW, you once said that Jonah Goldberg, author of "Liberal Fascism," had "no qualifications." Yet you recommend the book "The Rise and Fall of the Third Reich," written by a man with the same level of qualifications as Goldberg. He too was a journalist.

He was a journalist, but, he had access to the Nazi archives (opened up after World War II), he lived in Nazi Germany, and generally he cites relevant Nazi documents and policy when making his claims (like a real historian does). His only agenda was also to expose Nazi Germany, and how it functioned.

Sure, there are problems with his book. But it's easy enough to find evidence to support his general themes.

By contrast Goldberg is a popular writer appealing to Conservatives in much the same way Sean Hannity or Bill O'Reilly does, he is not a scholarly source. I only cited him to give an overview of the Nazi Charter of Labor as well and it's pro-corporatism as well.

Nor did Clinton pull us out of any "mess" from Reagan (the recession was actually because Bush Sr. had increased taxes, not anything from Reagan).

He certainly did. He reversed the enormous, federal deficit that Reagan had accumulated, thus helping to curb in flation in the US.

He generally tried to fund certain industries to get them going, rather than bailing out failed ones to the tune of 500 billion dollars like Reagan did.

He also didn't have the US involved in illegal, secret wars across Latin America and he didn't trade arms with official US enemies in order to launder blood money to the contras.

President Bush inherited an economy bordering on recession after Clinton, and he cut taxes, which helped prevent it; it did technically enter a "recession," but it was the smallest recession we've ever had if you consider it that.

Sources? Evidence? The only thing Bush's tax cuts did is help to reverse the progress Clinton had made in reducing the Federal deficit.

A three year old could tell you that when you don't have enough money coming in, you'll eventually reverse course and wind up in the red again.

This book is riddled with lies and misconceptions about various things. Read up on some of the criticism of her work.

Such as? And I don't want a link to the Lew Rockwell institute.

It's well known history capitalism was implemented after disasterous "shocks" in the Third world and rammed through time and time again.

This is also why free-market policies have been rejected by many in the third world, even causing riots and rebellions from time to time.

Again, it's easy to provide a list of Latin American shoclars who've noted all this - and one was provided last time we had this debate. (Grandin et al.)

You have not been able to combat any of the actual facts I presented, you've only made vague references to Libertarians and Libertarian like beliefs - who only make up about 15% of economists (the majority of whom are "progressive" and in economics when a policy hurts the poor while benefiting the rich, it's called a "regressive" action, such as tax increases the poorest 15% experienced under the Reagan regime), and who have less than 1% precense in all the other social sciences and humanities.

Libertarians, like Civil War revisionists, are a small, tiny minority in academia and scholarship, including in the "dismal science" of economics, and are not meant to be taken seriously. I assume that they're smart enough to know what they write is propaganda.

As Paul Krugman said, a mainstream economist, there are no atheists in the Fox Holes, there are no Libertarians in financial crises. (He means the real world, not the forum at the von Mises homepage.)

And yah, that's true. Deregulation (and that's why these institutions were making these spurious loans) has once again driven the economy into the ground and it'll take massive government to fix it.

 

[OrbitalPower]

By the way, what is Goldberg's degree even in? The only thing I can find he was a graduate of "goucher college", whatever that is. What did he major in?

 

[kronon]

"I guess I'm more surprised that so many people in positions of responsibility did not see this coming. Was it a matter of denial?"

This is an important point.

They DID see it coming.

Its hard to imagine that during those frenzied days someone didnt nudge the regulators and say "hey, you may want to take a look at this". In fact i know they were told.

But they (meaning the FED, Treasury, SEC and Basel) simply ignored the warning signs that others were pointing out, dismissed advice, and just carried on without doing a single thing. I find it outrageous.

Its not about hindsight or 30 sigma events, they knew while it was going on that it was a problem.

The real question is what was restraining them politically. Thats where it gets speculative, but I have my guesses...

 

[mheslep]

Yes, you're right. But it's an opportunity for whom? Who is profitting from this crisis?

I've just started reading "The Shock Doctrine: The Rise of Disaster Capitalism ," by Naomi Klein.

From Amazon.com reviews:

From Amazon.com reviews:

...The Shock Doctrine, and the film by the same name, uses a number of specious rhetorical techniques, such as slippery slope, post hoc ergo proptor hoc reasoning, and blatant pathetic appeals. The film mimics the style of conspiracy theorist films (see "Spare Change")
...
Klein apparently wants some kind of mixed system of free market economics with socialist policies and guarantees. This describes France, where the unemployment rate has been consistently around 8-12% for the last 10 years (double the U.S. rate), young people are basically barred from the workforce, ethnic discontent and violence is rising (lots of burning cars and riots), and productivity is falling. And yes, France has plenty of corruption.

The text is at best anecdotal and polemical. When one finally gets through the 400 pages, they may quickly recall G.K. Chesterton's remark:

"The reformer is always right about what is wrong, but seldom right about what is right."...

"

 

[OrbitalPower]

Interesting that the author doesn't name these supposed fallacies - and in France, if you're unemployed, at least you're not starving to death and can still easily have access to healthcare, unlike in the states, which is becoming more and more a speculative economy as well.

 

[OrbitalPower]

""The reformer is always right about what is wrong, but seldom right about what is right."

An apt quote, applicable mostly to American Libertarian "reformers," confederates, etc.

 

[lisab]

Regarding "Shock Doctrine"...

Yes, the book isn't without its faults. I recognized that early into it. But a careful reader - I would imagine anyone here - would be able to separate the author's choice of writing style from the point she's trying to make.

The reveiwer you posted, mheslep, appears to be reading an awful lot into the book that so far, I don't see. Frankly, that review comes across as a bit Francophobic.

The book makes some good observations about how our government - specifically the congress - was stunned into submission when it agreed to invade Iraq.

I'm hoping that the same "shock and awe" tactics won't work now, with regard to the $700 billion bailout with no oversight allowed.

 

[jal]

My Two cents.
The problem started some 40 years ago when they started to give credit cards to students and giving out student loans.
It created a mentality that it was okay to spend money that belonged to someone else even if you could not pay it back.
As a result, The next shoe to drop will be credit cards that cannot be paid back.
---------
As far as the bail out...
A few questions?
Those who have money are in a position to start buying out those low value assets.
Where does someone keep 8B dollars to be able to buy a bank?
Where does someone keep billions of dollars to do a buyback of the shares of their company?
What would make you happier to see ... a Check made out to a bank holding subprime papers or a check made out to a billionaire holding subprime papers?
Does the FBI have permanent highly paid specialized accountants on its payroll or did it get the recommendations of someone to hire “my accountant and his firm” to do the digging?
Etc. ….. ….. ….

 

[quadraphonics]

Accounting is what allows us to see how money is flowing into and out of these big institutions though.

Indeed it does. That still doesn't make it a financial regulation. That we have a better idea of where the money is has nothing to do with whether the activities of the businesses in question are a good idea or not.

Banks are only required to hold 10% of their assets on hand. To protect against runs and panics we have the Federal Reserve system.

We have a number of mechanisms that work in concert to prevent banks runs. One is the Federal Reserve, which can adjust liquidity to prevent them. Another important one is the FDIC, which insures deposits. And another is the liquidity requirements for banks, which guarantees they have at least a minimal amount of capital on hand (and so also limits the degree of leverage such banks can pursue).

It doesn't seem to have helped much though. The institutions still crashed and are now being investigated for fraud.

Given that SOX was not designed to prevent any such crisis (i.e., one driven by overleveraging, and not fraud per se), I don't see that as much of a criticism. Similarly, just because people still die in car crashes doesn't mean that the laws against speeding aren't working, or aren't a good idea.

 

[Ivan Seeking]

As for who supported this, let's be clear: The architect has been serving as McCain's financial advisor. Clinton had just been impeached and was trying to get through legislation that would serve poor black communities. And even then, the vote was mostly down party lines.
http://www.senate.gov/legislative/L...ote_cfm.cfm?congress=106&session=1&vote=00105

The Clinton White House threatened to veto the bill if CRA provisions were substantially weakened, in response to heavy pressure from the Congressional Black Caucus and the Reverend Jesse Jackson, whose Operation PUSH has made extensive use of CRA in its campaigns to pressure corporations and banks for more opportunities for black businessmen. But eventually the White House caved into Gramm, accepting his amendments so long as the program remained formally in place...

http://piggington.com/clinton_republicans_agree_to_deregulation_of_us_financial_system

Alphabetical by Senator Name
Abraham (R-MI), Yea
Akaka (D-HI), Nay
Allard (R-CO), Yea
Ashcroft (R-MO), Yea
Baucus (D-MT), Nay
Bayh (D-IN), Nay
Bennett (R-UT), Yea
Biden (D-DE), Nay
Bingaman (D-NM), Nay
Bond (R-MO), Yea
Boxer (D-CA), Nay
Breaux (D-LA), Nay
Brownback (R-KS), Yea
Bryan (D-NV), Nay
Bunning (R-KY), Yea
Burns (R-MT), Yea
Byrd (D-WV), Nay
Campbell (R-CO), Yea
Chafee, J. (R-RI), Yea
Cleland (D-GA), Nay
Cochran (R-MS), Yea
Collins (R-ME), Yea
Conrad (D-ND), Nay
Coverdell (R-GA), Yea
Craig (R-ID), Yea
Crapo (R-ID), Yea
Daschle (D-SD), Nay
DeWine (R-OH), Yea
Dodd (D-CT), Nay
Domenici (R-NM), Yea
Dorgan (D-ND), Nay
Durbin (D-IL), Nay
Edwards (D-NC), Nay
Enzi (R-WY), Yea
Feingold (D-WI), Nay
Feinstein (D-CA), Nay
Fitzgerald (R-IL), Present
Frist (R-TN), Yea
Gorton (R-WA), Yea
Graham (D-FL), Nay
Gramm (R-TX), Yea
Grams (R-MN), Yea
Grassley (R-IA), Yea
Gregg (R-NH), Yea
Hagel (R-NE), Yea
Harkin (D-IA), Nay
Hatch (R-UT), Yea
Helms (R-NC), Yea
Hollings (D-SC), Yea
Hutchinson (R-AR), Yea
Hutchison (R-TX), Yea
Inhofe (R-OK), Not Voting
Inouye (D-HI), Nay
Jeffords (R-VT), Yea
Johnson (D-SD), Nay
Kennedy (D-MA), Nay
Kerrey (D-NE), Nay
Kerry (D-MA), Nay
Kohl (D-WI), Nay
Kyl (R-AZ), Yea
Landrieu (D-LA), Nay
Lautenberg (D-NJ), Nay
Leahy (D-VT), Nay
Levin (D-MI), Nay
Lieberman (D-CT), Nay
Lincoln (D-AR), Nay
Lott (R-MS), Yea
Lugar (R-IN), Yea
Mack (R-FL), Yea
McCain (R-AZ), Yea
McConnell (R-KY), Yea
Mikulski (D-MD), Nay
Moynihan (D-NY), Nay
Murkowski (R-AK), Yea
Murray (D-WA), Nay
Nickles (R-OK), Yea
Reed (D-RI), Nay
Reid (D-NV), Nay
Robb (D-VA), Nay
Roberts (R-KS), Yea
Rockefeller (D-WV), Nay
Roth (R-DE), Yea
Santorum (R-PA), Yea
Sarbanes (D-MD), Nay
Schumer (D-NY), Nay
Sessions (R-AL), Yea
Shelby (R-AL), Yea
Smith (R-NH), Yea
Smith (R-OR), Yea
Snowe (R-ME), Yea
Specter (R-PA), Yea
Stevens (R-AK), Yea
Thomas (R-WY), Yea
Thompson (R-TN), Yea
Thurmond (R-SC), Yea
Torricelli (D-NJ), Nay
Voinovich (R-OH), Yea
Warner (R-VA), Yea
Wellstone (D-MN), Nay
Wyden (D-OR), Nay

 

[LowlyPion]

The book makes some good observations about how our government - specifically the congress - was stunned into submission when it agreed to invade Iraq.

I'm hoping that the same "shock and awe" tactics won't work now, with regard to the $700 billion bailout with no oversight allowed.

Indeed this is likewise being marketed to the public similarly.

The bailout won't cost the money put at risk. The US could even make a profit.

Yeah and Iraq was supposed to turn around its oil production and the US would get "paid" for liberating it too.

 

[Ivan Seeking]

The bailout won't cost the money put at risk. The US could even make a profit.

Obviously! That's why we have a crisis in the first place.

With the S&L fiasco, I think we made about 0.25/1.00.

 

[mheslep]

As for who supported this, let's be clear: The architect has been serving as McCain's financial advisor. Clinton had just been impeached and was trying to get through legislation that would serve poor black communities. And even then, the vote was mostly down party lines.
http://www.senate.gov/legislative/L...ote_cfm.cfm?congress=106&session=1&vote=00105

http://piggington.com/clinton_republicans_agree_to_deregulation_of_us_financial_system

'This' is the Gramm-Leach-Bliley bill? Aside from the CRA, how does this have any significant impact on, or connection to the current problem with subprime mortgages bundled as securities? That is, can you point out how, if GLB had never happened, that Fannie/Freddie would not buy garbage mortgages from a Countrywide, bundle them and then hold or sell them on the market?

 

[Greg Bernhardt]

This just is: JPM buys WM

 

[Gokul43201]

'This' is the Gramm-Leach-Bliley bill? Aside from the CRA, how does this have any significant impact on, or connection to the current problem with subprime mortgages bundled as securities?

Not sure if we're all talking about the same bill, but here you go ... from the wiki: Commodity Futures Modernization Act of 2000

The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron Loophole," 7 U.S.C. §2(h)(3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by Enron Lobbyists working with senator Phil Gramm[3] seeking a deregulated atmosphere for their new experiment, "Enron On-line".

Several Democratic Legislators introduced legislation to close the loophole from 2000-2006[4][5], but were unsuccessful.

In September 2007, Senator Carl Levin (D-MI) introduced Senate Bill S.2058 to specifically close the "Enron Loophole" [6] This bill was later attached to H.R. 6124, the Food, Conservation, and Energy Act of 2008, aka "The 2008 Farm Bill". President Bush vetoed the bill, but was overridden by both the House and Senate, and on June 18th, 2008 the bill was enacted into law.[7].
...
The act specifically banned regulation of credit default swaps. These unregulated instruments, insurance policies against default on risky investments like mortgage backed securities, necessitated the government bailout of insurer A.I.G.

 

[OmCheeto]

This just is: JPM buys WM

What? My double mortgage payments to WM over the last 3 years didn't bail them out?

I hope they don't cancel my maxed out credit card. I'd be lost without paying $300 a month for my excesses over the last 4 years.

and btw, does anyone know the address of JPM? The bill is due in 6 days...

 

[WhoWee]

Consider this...during the investigation into the S & L crisis, investigators discovered the pension funds were in BIG trouble...more than the S & L's. They stopped the investigation.

However, it was also discovered that savings accounts, CD's and money market deposits were at a relatively strong level. So, what did the Fed do? They slashed interest rates and drove all our savings into the stock market. The DOW was around $4,500 (where it belongs) at the time. Now our savings are at an all time low.

As a result, the pensions and institutions were bailed out when they sold their risky investments and "shared" them with (really the same people who will ultimately derive benefits from the pension funds...novel idea...sell the bad paper back to the owners?).

It was also around this time that derivates trading became popular. The SEC chairman testified this week that our troubled banks hold about $183 TRILLION DOLLARS worth of this paper at present...that's a scary number...given the trading isn't regulated (much).

Now we're all watching helplessly as our elected leaders try to figure out what to do with our troubled system. I find it hard to believe that anyone could have a problem with John McCain (or anyone) not wanting to rush into an uninformed decision of this magnitude!

Here's the problem...let's say they decide to infuse $1 TRILLION DOLLARS into the Fed and put into place lots of regulations and even figure out where to find the funds.

The next topic is tax cuts...capital gains tax cuts...everybody wants them. The only thing propping up the market is high taxes on capital gains...it's cheaper to let it ride. If tax cuts are passed...there will be a big sell off.

The market needs to correct itself. The P/E ratios are astronomical. I'll give an example. An earnings multiple of 50 to 100 has become acceptable in certain industries...such as fast food chains. The example is easy...if a pizza shop with $20,000 worth of equipment/assets located in a leased storefront generates $30,000 in income annually (for 10 years) and has lease options extending for another 40 years...what is the market value of the pizza shop?

In the real world...2 to 3 times earnings with little attention paid to the value of equipment = $75,000 to $100,000 with owner financing (maybe).

However, if that same shop was a publicly traded company...the same shop would be valued at ($30,000 x (50 to 100)) = $1,500,000 to $3,000,000. Are you laughing or crying? Don't believe me...go do some research.

If the Fed tries to stop the correction with another bailout...we WILL be done...as a country.

The Fed has far too much power...they CAUSED most of these problems...how can they be trusted?

 

[mheslep]

Not sure if we're all talking about the same bill, but here you go ... from the wiki: Commodity Futures Modernization Act of 2000

Different bills though Gramm also sponsored CFM.
S.900 Gramm Leach Bliley, 1999 (referenced in IvanS's link initially)
http://www.govtrack.us/congress/bill.xpd?bill=s106-900

H.R. 5660 Commodity Futures Modernization Act of 2000
http://www.govtrack.us/congress/bill.xpd?bill=h106-5660

Now, I wouldn't defend/promote either of the bills for the energy or commodities issues they directly concern; I've only scanned them. I do contend they had little do w/ the subprime mortgage collapse. Derivatives may be a problem, but they are not THE problem. Problems w/ CDS are mainly from the bogus mortages on which they are based.

 

[mheslep]

...what is the market value of the pizza shop?

In the real world...2 to 3 times earnings with little attention paid to the value of equipment

7 times earnings is the usual valuation in smaller, mature companies.

 

[russ_watters]

Obviously! That's why we have a crisis in the first place.

With the S&L fiasco, I think we made about 0.25/1.00.

Difference? The S&L investments were federally insured. So the government had to pay face value for assets worth only a fraction of it. In this situation, it's reversed. The government is free to set the price of the bailout.

 

[russ_watters]

Interesting that the author doesn't name these supposed fallacies - and in France, if you're unemployed, at least you're not starving to death and can still easily have access to healthcare, unlike in the states, which is becoming more and more a speculative economy as well.

Speaking of fallacies, you threw out to big ones: There is no starvation problem in the US and the unemployed still receive a great deal of medical care.

 

[russ_watters]

No, Clinton had nothing to do with it.

Well... you might say that if by that you meant Clinton did nothing about it, since Bin Laden had quite an active career during the Clinton Presidency, including the first bombing of the WTC and the run-up to the second, among many other things.

But yeah, I know that's not what you mean. You mean regardless of whatever came before, a President is completely responsible if an incident happens on a date when he's President, regardless of how long the incident was in the works. That's a rediculously simplistic statement you've made.

 

[WhoWee]

I agree, a 7 times multiple is a usual valuation of a small mature company...IF management is part of the deal and/or there are more/better assets...in the case of a pizza shop...the "earnings" are the owners paycheck. I don't believe anyone would pay $200,000 for $20,000 in assets and a $30,000 paycheck. Maybe an unfair example?

However, 7 times still makes the point of an over-priced stock market. Some high flying fast foods have soared to 200 to 300 times...based on unrealistic future growth...which requires the company to grow faster than it should and borrow as much as possible and pay too much for locations.

To continue my comparison, the pizza shop owner with a $2,000 per month rent obligation and otherwise debt free...who earns $30,000 per year (on revenues of $150k to $200,000/year) working the business himself, would be INSANE to open a second unit with a $4,000+ per month rent and $2,500 in new debt service (to gross $300,000/yr?)...and have to hire someone to run (which?) one of the shops in order to make an additional...$30,000(maybe?) per year.

Chains do this routinely...to please the market craving for growth...their occupancy cost is often times $20,000+ per month on gross revenues (and investment) of $1.5 and operating income of 8%. One of the favorite strategies of the major chains is to do sale/leasebacks to create "earnings" and put older debt free properties (with lower occupancy costs) at risk.

Most of the larger chains that have failed...didn't fail because people didn't like their food/concept. They failed because they tried to expand too quickly and borrowed more than they could service...most of the time they made these decisions to support or increase their market value.