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

[Ivan Seeking]

...PAUL SOLMAN: Well, you know, market skeptics have always said "market failure." You know, that's a common phrase. Free market fundamentalism does not work.

I talked to Bob Glauber, who ran the Resolution Trust, this morning. And he's a finance professor, a regulator. He characterized himself as deeply depressed.

Deeply depressed why? Because what he believes in -- markets clearing, markets working, markets managing by themselves -- doesn't seem to work. And it's sort of a repudiation -- I used that word with him -- repudiation of what a guy like him and thousands of others like him have been teaching all these years...

http://www.pbs.org/newshour/bb/business/july-dec08/billanalysis_10-03.html

 

[mheslep]

McCain Health plan numbers: family of four-$80k/year comes out $2500 ahead.

McCain’s plan eliminates the exclusion but does nothing to the deduction. Here’s how it works:
Say you’re a family of four making $80,000 per year and your employer provides health insurance valued at $10,000 per year. By eliminating the exclusion, you now owe taxes on $90,000 instead of $80,000 (because your health benefit in now included as income). In the 25% tax bracket, you owe $2500 in additional taxes on the $10,000 in extra income.

But McCain’s plan also gives that same family a $5,000 health care tax credit, leaving them with an extra $2500 in their pockets.

http://www.weeklystandard.com/weblogs/TWSFP/2008/10/misrepresenting_mccains_health_1.asp

More importantly this plan should put downward pressures on costs, as people start to have the option to look for there own health care plans.

 

[LowlyPion]

McCain Health plan numbers: family of four-$80k/year comes out $2500 ahead.
http://www.weeklystandard.com/weblogs/TWSFP/2008/10/misrepresenting_mccains_health_1.asp

More importantly this plan should put downward pressures on costs, as people start to have the option to look for there own health care plans.

You conveniently left out the other part of McCain's schemes.

At the same time, Mr. McCain would deregulate insurance, leaving insurance companies free to deny coverage to those with health problems — and his proposal for a “high-risk pool” for hard cases would provide little help.

Undoubtedly this will satisfy his Country Club buddies that will enrich themselves by only choosing to insure the healthy. And like McCain's other pet source of lobby money, banking, there will undoubtedly be another bailout event to deal with yet another crisis caused by this kind of thoughtless deregulation that McCain has romanced his public career.

Privatize the profits into his cronies hands, but socialize all the risks.

 

[Jimmy Snyder]

Here's the view from the People's Democratic Republic of the United States of America. We are a capitalistic country that has no capital. Our government is in the business of buying commercial paper. Ivan Seeking has got his wish, we all live in Scandinavia now. Is it any wonder that the Treasury won't tell us what they are paying for the loan packages? Too high? Too low? Who knows, we no longer have a market to tell us what the price should be. There was never a need for this bailout, and now that we have it the market has spoken. Thumbs down. Can I have my $700 billion and my country back now?

 

[Astronuc]

Here's the view from the People's Democratic Republic of the United States of America. We are a capitalistic country that has no capital. Our government is in the business of buying commercial paper. Ivan Seeking has got his wish, we all live in Scandinavia now. Is it any wonder that the Treasury won't tell us what they are paying for the loan packages? Too high? Too low? Who knows, we no longer have a market to tell us what the price should be. There was never a need for this bailout, and now that we have it the market has spoken. Thumbs down. Can I have my $700 billion and my country back now?

I don't think Ivan Seeking got his wish. This is not Scandanavia.

It's more like Republicanistan.

 

[turbo]

Still hoping for a recession, Jimmy? (instead of a full-blown depression?)

 

[Jimmy Snyder]

Still hoping for a recession, Jimmy? (instead of a full-blown depression?)

No, I'm reporting on the failure of free-market economics. You'll get your bowl of porridge, don't worry. But at what price?

 

[turbo]

No, I'm reporting on the failure of free-market economics. You'll get your bowl of porridge, don't worry. But at what price?

Free-market? We are in a market that is far from free. A free market presupposes that all investors are on an equal footing (as in no insider trading.) Do you honestly believe that executives with stock options don't leverage inside information to enrich themselves at the expense of the common stock-holder? A free market presupposes that all players face risks and challenges more-or-less equally and can rise and fall on their merits. Do you not believe that huge fortunes have been made or lost based on connections bought with money or influence? In one of the largest military contracts, recently, we had Boeing and Airbus competing to replace our aging fleet of tankers. Do you remember any prominent politicians injecting himself in that process? (Hint. He might be running for president.)

This is a failure of a governmental collusion with a financial system that is stripping value from our economy at a frightening rate. Do you really think that being a CEO of an investment bank is such a difficult job that you should be paid a thousand times as much as an average employee? Yeah.

Our government was formed for "We the People", not "We the Well-Connected in Business". or "We the Corporations". The farther we drift into little/no regulatory oversight of businesses while letting businesses funnel millions of dollars into the pockets of our politicians, the more certain our doom.

 

[mheslep]

Tom Wolfe would never have thought this guy believable as a character in "Bonfire..."

Lehman's Fuld: Where was our bailout?
WASHINGTON (Reuters) - Richard Fuld, the disgraced head of Lehman Brothers, said he would wonder "until they put me in the ground" why the U.S. government did not rescue the 158-year-old Wall Street...

http://www.reuters.com/article/newsOne/idUSTRE4954DL20081006
I heard him say it on C-Span, thumping the desk w/ every syllable. He was quite indignant.
He was entitled! Now we are all truly victims.

 

[mheslep]

I don't think Ivan Seeking got his wish. This is not Scandanavia

Yeah? What's the difference? They have lower taxes in some categories.

 

[Gokul43201]

The point being that McCain attempted to restrict the GSEs, spoke against the GSE system on the floor, while Sen. Obama embraced them.

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

 

[mheslep]

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

Replied earlier:
https://www.physicsforums.com/showpost.php?p=1898191&postcount=140

 

[mheslep]

Obama was embracing GSEs back in '06. How?

Incidentally, someone else has been getting embraced by the top brass at Fannie/Freddie.

Regards this NYT contribution list: Mudd contributed $5k/year, every year, to the Fannie Mae PAC; it in turn has contributed heavily to Sen Obama as posted above.
http://www.newsmeat.com/ceo_political_donations/Daniel_Mudd.php

 

[chemisttree]

Food for thought...

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES
Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' ...

 

[Greg Bernhardt]

Any thoughts on the supply of homes when baby boomers start dying or heading to old folks homes?

 

[BobG]

Any thoughts on the supply of homes when baby boomers start dying or heading to old folks homes?

Just one - reverse mortgages.

Talk about being committed to the idea that home prices will always rise no matter what.

 

[CaptainQuasar]

Regards this NYT contribution list: Mudd contributed $5k/year, every year, to the Fannie Mae PAC; it in turn has contributed heavily to Sen Obama as posted above.

If you're referring to the "Open Secrets" link in [post=1898191]this post[/post], you appear to be misquoting your own source. According to that page, almost all of the money donated to Obama came from individuals (employees of the GSE's, I guess? It doesn't say), NOT from PACs. (Apologies if you were referring to a different source.)

⚛​

 

[jal]

Just one - reverse mortgages.

Yep!
Spend every cent you have and don't give any $ to loved ones. Do a reverse mortgage and give everything to a stranger.

 

[mheslep]

If you're referring to the "Open Secrets" link in [post=1898191]this post[/post], you appear to be misquoting your own source. According to that page, almost all of the money donated to Obama came from individuals (employees of the GSE's, I guess? It doesn't say), NOT from PACs. (Apologies if you were referring to a different source.)

⚛​

Yes you are correct. My point was that the NYT table above is misleading, it shows contributions to Obama as zero from Mudd when obviously he has been sending money indirectly through Fannie Mae PACs.

 

[OrbitalPower]

Anti-Democratic Nature of Capitalied (failed system) being exposed:

http://www.commondreams.org/view/2008/10/10-4

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

These were free-market liberalizations that caused the failures.

Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.

Government intervention is often employed in order to save failed conservative, market-oriented policies on the backs of the tax payers.

The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.

Capitalist "externalities" -- their force and damage against individuals -- are ignored by capitalistic ideologues.

The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.

...

But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".

When Democracy increases, market forces and private tyrannies are decreased.

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.

Founder of modern economics held anti-capitalist sentiments.


Lots of wisdom from Chomsky and those scholars alone in that article.

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Democrats better than Republicans for families like mine:


http://www.commondreams.org/view/2008/10/10-4

 

[Ivan Seeking]

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Indeed. Has the great illusion of prosperity under Republicans finally been exposed?

Don't buy the lie that in two years the Dems managed to do all of this. It was a complete system failure.

Democrats better than Republicans for families like mine:

Indeed!

There is another facet to all of this: Corporations have no national loyalties. There is no reason to equate business health with personal wealth. My would-be money trickled down to China.

 

[Ivan Seeking]

Ivan Seeking has got his wish, we all live in Scandinavia now.

My wish? My wish was that the Republican model would not destroy the economy. Oh well.

I wish Reagan [David Stockman] had been right. I wish free-market fundamentalism worked. But we all know better now, don't we.

 

[Ivan Seeking]

...As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined...

http://blogs.wsj.com/economics/2008/10/23/greenspan-testimony-on-sources-of-financial-crisis/

From Alan Greenspan's prepared remarks for the House Committee of Government Oversight and Reform.

 

[mheslep]

You conveniently left out the other part of McCain's schemes.

Its readily available - McCain calls for Guaranteed Access Plans (GAPs), or high risk pools. The idea is nobody gets left out with a pre-condition. The Fed steps into subsidize these policies (at about half). Lewin estimates Fed cost at about $23B/year.
http://www.lewin.com/content/Files/The_Lewin_Group_McCain-Obama_Health_Reform_Report_and_Appendix.pdf (Figure 13)

... And like McCain's other pet source of lobby money, banking, there will undoubtedly be another bailout event to deal with yet another crisis caused by this kind of thoughtless deregulation that McCain has romanced his public career.

How is the ability to buy insurance out of state 'thoughtless deregulation', which would allow people the ability to take their plans with them when they move?

There is a good parallel to the current credit bailout. In the case of health care, the government gets in the health business in the amount $300B/year for the employer based tax deduction, which reminds me of federal stimulation to the housing market provided by disaster masters Freddie Mac and Fannie Mae. Also add $500B/yr Medicare, $300B/yr Medicaid. Then it was housing, now it is health care that is the booming industry! Both have had unsustainable cost increases (9%/year health).

 

[LowlyPion]

Its readily available - McCain calls for Guaranteed Access Plans (GAPs), or high risk pools. The idea is nobody gets left out with a pre-condition.

Right that's the fig leaf of the idea anyway.

The fact remains, the Lewin 173 page letter notwithstanding, that if people can shop around, that very fact alone, the healthy low risk groups will inevitably pool themselves wherever they can and the public will be stuck with the burden of the higher risk. Water inevitably flows to the lowest potential.

I'm unconvinced by the letter. I continue to think that it's just another regime of privatizing profits and socializing costs - the very same kind of enabling that Bush has been engaging in these last 8 years.

Without wanting to sound any much more like an Obama commercial I don't think another 4 years of this kind of profiteering is what the country needs.

 

[mheslep]

Right that's the fig leaf of the idea anyway.

The fact remains, the Lewin 173 page letter notwithstanding, that if people can shop around, that very fact alone, the healthy low risk groups will inevitably pool themselves wherever they can and the public will be stuck with the burden of the higher risk. Water inevitably flows to the lowest potential.

I'm unconvinced by the letter. I continue to think that it's just another regime of privatizing profits and socializing costs - the very same kind of enabling that Bush has been engaging in these last 8 years.

Without wanting to sound any much more like an Obama commercial I don't think another 4 years of this kind of profiteering is what the country needs.

I'd say profiteering is what we have now w/ the employer based system. Nobody is watching the store, they just pay the $20 copay, they don't care what it costs.

I just don't see how one gets to the privatizing profits / socializing costs in this case. That is a description of when A takes a risk, upon success A takes the profits, but in the event of failure A is allowed to spread the loss around. In the case of health care/McCain plan A=insurance companies. If you stay healthy they win, if you get sick they pay, not the government. If the people buying the policies are healthier as a group, then the people can demand lower cost plans or just go somewhere else (under McCain) anywhere in the country. (Thats the key: for the costs to come down in health care people have got have cost transparency and shop around). The chronically ill, which by definition should not be buying 'insurance', would be covered by the government backed GAPs - they're not a win/lose 'risk', they're condition is already known.

 

[turbo]

Please talk to a doctor about health insurance. Insurance companies are middle-men. They provide no services apart from a distribution of risk. They are a HUGE drag on health-care because the longer they can delay or deny payment of claims, the more money they make on their investments. Doctors in private practice have to hire coding specialists who familiarize themselves with the coding requirements for each insurance company whose coverage they agree to accept. If these coding specialists do not do their job correctly (and it can be daunting), insurance payments fall behind, and the practice's receivables get aged to the point at which banks will no longer loan the practice money to repair equipment, pay staff, buy supplies, etc.

The cost of health-care will fall if the US goes to a single-payer system with ONE set of coding standards, and ONE payment schedule. Private medical practices will be more profitable, even with lower payment schedules because their administrative overhead will be slashed. Every industrialized country regards health insurance as a right, except the US. Nay-sayers claim that we can't afford it, when the opposite is true. Universal health-care coverage, including preventive care, would save the US a fortune.

 

[LowlyPion]

Nobody is watching the store, they just pay the $20 copay, they don't care what it costs.

You can't be serious. I think you have to have an MD to be able to "watch the store".

Deciding health issues "on shopping around" is just a silly idea. What price do you put on a good outcome when you go shopping for your health? Just how informed do you think people can possibly be about care they have yet to receive, and then it's too late when they actually get stricken?

How is someone to assess the differences between plans that place different emphasis on different benefits and procedures? There are so many subtle ways that insurance companies can shift risk and deny coverage. And in the end, those costs that fall out the bottom get socialized or those problems simply go unaddressed and people suffer.

 

[mheslep]

Hopefully the every other country claim will eventually end as knowledge of health systems elsewhere spreads. As far as I can tell, universal government health care does not exist anywhere in the world. Either government care coexists with a large private health system (as is the case currently in the US), or the government monopoly health system just starts rationing the system so that people are triaged out of the system or wait 4-6 months. Either way, there's nothing 'universal' about those systems.

 

[mheslep]

You can't be serious. I think you have to have an MD to be able to "watch the store".

Deciding health issues "on shopping around" is just a silly idea. What price do you put on a good outcome when you go shopping for your health? Just how informed do you think people can possibly be about care they have yet to receive, and then it's too late when they actually get stricken?

How is someone to assess the differences between plans that place different emphasis on different benefits and procedures? There are so many subtle ways that insurance companies can shift risk and deny coverage. And in the end, those costs that fall out the bottom get socialized or those problems simply go unaddressed and people suffer.

One does not require an MD to pick a health plan. Also, you're singling out all health choices as if they have no peer in importance. We make decisions about food purchases, choose spouses, sit on juries, and decide on on the upbringing of children everyday without exclaiming that its all to complicated and must be abdicated to the government. These things may all warrant some consultation with the wise, experts, to get 'Good Housekeeping' seals and the like, perhaps government guidelines and rules. There's evidence that people do quite well at this in health care - see the Rand study.

 

[turbo]

As I suggested, talk to a doctor in private practice about health insurance. Most doctors that I know would welcome a single-payer system. This is a rural area, and small practices (2-4 doctors) cannot afford to keep billing specialists on staff, so they have to contract their billing out to companies specializing in billing. The insurance companies get rich and the billing companies do very well, thank you, because they have the private practices by the short hairs. There is so much "friction" in the process of providing and paying for health care, that the ordinary person has no idea what the costs are. I was the network administrator for a large, multi-location ophthalmic practice for a number of years, and I have a pretty good understanding of the problem and the magnitude of its drain on the money available for health care. Medical practices are businesses, and they are forced into a business model in the US that is quite perverse.

 

[mheslep]

Please talk to a doctor about health insurance.

I have, and I read this doctor's book:
THE CURE, by David Gratzner
Gratzer has been an MD in both Canada and the US. He details the gulag like practice he saw in Canada. Testimony on the Hill
budget.house.gov/hearings/2008/07.16gratzer.pd

Insurance companies are middle-men.

Yes, exactly right. There's nothing wrong with middle men as long as there is price signals are past through them so they if attempt to get fat people squeeze them out. Right now they're not subject to any price discipline due to the employer tax deduction, and the middle men run amuck.

 

[mheslep]

As I suggested, talk to a doctor in private practice about health insurance. Most doctors that I know would welcome a single-payer system. This is a rural area, and small practices (2-4 doctors) cannot afford to keep billing specialists on staff, so they have to contract their billing out to companies specializing in billing. The insurance companies get rich and the billing companies do very well, thank you, because they have the private practices by the short hairs. ...

As I posted some time back, up in Maine that is in part the fault of the legislature that drove off most of the insurers. Now as I understand it, there's really only one large insurer left in Maine? I am sure you are right and that insurer is very expensive. Note that the state boundary/ monopoly goes away w/ the McCain proposal.

 

[LowlyPion]

One does not require an MD to pick a health plan. Also, you're singling out all health choices as if they have no peer in importance.

Oh, people can certainly make ignorant choices on their own and that's the point. They can certainly not have the wherewithal to properly assess their situations or understand what exactly the patch quilts of coverage terms may offer.

The one thing we do know though is that human nature being what it is and the gravitational constant towards profit being what it is, I think we can be certain that there will be no amount of regulation that will protect those that will have mistakenly thought they were covered only to find out they are homeless if they want to continue to live. McCain's love affair with lobbyist money simply insures that there will be no cops on the beat when people are getting mugged.

 

[mheslep]

Oh, people can certainly make ignorant choices on their own and that's the point. They can certainly not have the wherewithal to properly assess their situations or understand what exactly the patch quilts of coverage terms may offer.

The one thing we do know though is that human nature being what it is and the gravitational constant towards profit being what it is, I think we can be certain that there will be no amount of regulation that will protect those that will have mistakenly thought they were covered only to find out they are homeless if they want to continue to live. McCain's love affair with lobbyist money simply insures that there will be no cops on the beat when people are getting mugged.

I get you don't trust Sen. McCain. No problem. I hope if Sen. Obama were to come around to some kind health plan with less government involvement (dropping the employer tax deduction) that you would be open to it? I could vaguely see that happening way down the road if it were marketed as a copy of the Dutch system or similar.