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An Econ Lesson for those that need it.

SMN Herf

Well-known member
The past gets debated a lot, but at this point finding those with solutions rather than just rhetoric is getting harder and harder to do. I haven't beleived for a long time that Obama has the answers for our economic troubles, and here is why.

I found this the other day and I thought that some of you who actually want to learn something rather than just argue might like to read it. If this guy is right, and I tend to think he is, it is going to be quite a ride the next few years.

http://www.moneyandmarkets.com/an-epic-battle-being-waged-29601

An epic battle being waged
by Jack Crooks 02-07-09


There is a battle being waged now in the world of economics. This battle is fierce. And no matter who wins, the impact will be felt far and wide. I dub this epoch struggle: “Godzilla vs. King Kong”

I’m not sure who will win, but I do have a favorite.

What I’m talking about is the intellectual and tactical battle concerning the best way to deal with the nasty recession engulfing us from a monetary and fiscal policy perspective.

There Are Two Basic
Schools of Thought Here …

King Kong School — Intellectual Leader is Milton Friedman (Money Supply Theory)


Milton Friedman believed that the government should flood the economy with massive amounts of money to enhance and increase consumer demand.
Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must stimulate the economy with massive amounts of money so that we can enhance and increase consumer demand.

This is where Mr. Bernanke and President Obama’s advisors reside.

Godzilla School — Intellectual Leader is Irving Fischer (Debt-Deflation Theory)

Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must step-back and let the invisible cleansing hand of the market wash away the debt before any real economic growth can again take hold in the economy.

Here is the outline for this theory:



Irving Fischer’s Debt-Deflation Theory holds that the government must let the invisible cleansing hand of the market wash away the debt before economic growth can resume.
Debt liquidation leads to distress selling

The amount of deposit currency falls and the velocity of currency in circulation slows

Prices plunge and the dollar rises

Business values fall further

Corporate profits tumble

Output, trade and employment take a header

Pessimism and loss of confidence spread like wildfire

Hoarding becomes commonplace and the velocity of currency circulation comes to a standstill

Complicated disturbances erupt in the rates of interest: a fall in the nominal rates and a rise in the real rates

My Favorite —
The Good Old Godzilla

And for this primary reason …

When debt levels reach such huge proportions in an economy, pumping more money into the system is ineffective because the velocity of money declines.

Let me explain the term “monetary velocity” and how important it is:

Monetary velocity means how fast money is circulated in the economy — the speed in which it is spent. And it is a key measure in the definition of economic growth.



Now stay with me … while I explain this simple equation:

M x V = P x O

M = Money Supply

V= Velocity

P = Price Level

O= Economic Output

Ben Bernanke and those in control of U.S. economic policy believe that if the “M” in this equation is lifted, it will impact prices (reduce the deflationary scare) and output (economic growth) accordingly.

But here’s the rub: When debt levels become so huge, people get scared. They save, hoard and use their money to pay down debt. They don’t take on more debt or run out and spend more just because the money supply has been increased by the government.

In fact, more money pumped into the system only adds to the total debt in the economy, and therefore prolongs the downturn.

The practical policy is to accept the fact that “V” shrinks dramatically at times like these — thus we have the big dip in “O” (output) and “P” (prices).

Here is How the Market
Cleanses the System …

Debts get paid down; reserves are rebuilt with increased consumer and institutional savings. This provides the eventual pool of capital for fresh growth.


At a time of major risk aversion, the world will flock to its reserve currency — the U.S. dollar.
And once the debt is removed, monetary velocity “V” increases to more normal levels; therefore tinkering with money supply isn’t necessary.

Sadly, I think, all governments are on the side of King Kong. And their flood-the-market monetary policies may make this global recession a whole lot worse.

So from a currency perspective I think it means this: We will be locked in a sustained period of risk aversion (rising unemployment, deflation, and sovereign debt defaults) as this crisis plays out. And in a world of major risk aversion, that mantle rests at the feet of the world reserve currency — the U.S. dollar.

Best wishes,

Jack


Obama keeps talking a bout the old ideas that got us into this mess, but I want to point out, massive government spending isn't a new idea and it certainly isn't the solution.
 

TSR

Well-known member
SMN Herf said:
The past gets debated a lot, but at this point finding those with solutions rather than just rhetoric is getting harder and harder to do. I haven't beleived for a long time that Obama has the answers for our economic troubles, and here is why.

I found this the other day and I thought that some of you who actually want to learn something rather than just argue might like to read it. If this guy is right, and I tend to think he is, it is going to be quite a ride the next few years.

http://www.moneyandmarkets.com/an-epic-battle-being-waged-29601

An epic battle being waged
by Jack Crooks 02-07-09


There is a battle being waged now in the world of economics. This battle is fierce. And no matter who wins, the impact will be felt far and wide. I dub this epoch struggle: “Godzilla vs. King Kong”

I’m not sure who will win, but I do have a favorite.

What I’m talking about is the intellectual and tactical battle concerning the best way to deal with the nasty recession engulfing us from a monetary and fiscal policy perspective.

There Are Two Basic
Schools of Thought Here …

King Kong School — Intellectual Leader is Milton Friedman (Money Supply Theory)


Milton Friedman believed that the government should flood the economy with massive amounts of money to enhance and increase consumer demand.
Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must stimulate the economy with massive amounts of money so that we can enhance and increase consumer demand.

This is where Mr. Bernanke and President Obama’s advisors reside.

Godzilla School — Intellectual Leader is Irving Fischer (Debt-Deflation Theory)

Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must step-back and let the invisible cleansing hand of the market wash away the debt before any real economic growth can again take hold in the economy.

Here is the outline for this theory:



Irving Fischer’s Debt-Deflation Theory holds that the government must let the invisible cleansing hand of the market wash away the debt before economic growth can resume.
Debt liquidation leads to distress selling

The amount of deposit currency falls and the velocity of currency in circulation slows

Prices plunge and the dollar rises

Business values fall further

Corporate profits tumble

Output, trade and employment take a header

Pessimism and loss of confidence spread like wildfire

Hoarding becomes commonplace and the velocity of currency circulation comes to a standstill

Complicated disturbances erupt in the rates of interest: a fall in the nominal rates and a rise in the real rates

My Favorite —
The Good Old Godzilla

And for this primary reason …

When debt levels reach such huge proportions in an economy, pumping more money into the system is ineffective because the velocity of money declines.

Let me explain the term “monetary velocity” and how important it is:

Monetary velocity means how fast money is circulated in the economy — the speed in which it is spent. And it is a key measure in the definition of economic growth.



Now stay with me … while I explain this simple equation:

M x V = P x O

M = Money Supply

V= Velocity

P = Price Level

O= Economic Output

Ben Bernanke and those in control of U.S. economic policy believe that if the “M” in this equation is lifted, it will impact prices (reduce the deflationary scare) and output (economic growth) accordingly.

But here’s the rub: When debt levels become so huge, people get scared. They save, hoard and use their money to pay down debt. They don’t take on more debt or run out and spend more just because the money supply has been increased by the government.

In fact, more money pumped into the system only adds to the total debt in the economy, and therefore prolongs the downturn.

The practical policy is to accept the fact that “V” shrinks dramatically at times like these — thus we have the big dip in “O” (output) and “P” (prices).

Here is How the Market
Cleanses the System …

Debts get paid down; reserves are rebuilt with increased consumer and institutional savings. This provides the eventual pool of capital for fresh growth.


At a time of major risk aversion, the world will flock to its reserve currency — the U.S. dollar.
And once the debt is removed, monetary velocity “V” increases to more normal levels; therefore tinkering with money supply isn’t necessary.

Sadly, I think, all governments are on the side of King Kong. And their flood-the-market monetary policies may make this global recession a whole lot worse.

So from a currency perspective I think it means this: We will be locked in a sustained period of risk aversion (rising unemployment, deflation, and sovereign debt defaults) as this crisis plays out. And in a world of major risk aversion, that mantle rests at the feet of the world reserve currency — the U.S. dollar.

Best wishes,

Jack


Obama keeps talking a bout the old ideas that got us into this mess, but I want to point out, massive government spending isn't a new idea and it certainly isn't the solution.

Smn Herf Since these economic troubles appear to be worldwide it might be interesting to see the approaches taken by other governments to solve the problem. This is of course based on the assumption that you can trust those in power, regardless of party affiliation.
 

burnt

Well-known member
Good article, scary though - thanks for posting. Somebody said that when you see you are in a hole, the first thing to do is stop digging! Huge deficit spending is not going to help anyone.
 

don

Well-known member
the trouble is there isn't a politician alive who would say sorry folks we've just got to let this play out and we're all going to get hurt and then it will be over. they have to be seen to be doing something and spending (borrowed) money is all they have to work with. obama, clinton, mccain, democrat or republican it would be playing out the same way.
 
A

Anonymous

Guest
TSR said:
SMN Herf said:
The past gets debated a lot, but at this point finding those with solutions rather than just rhetoric is getting harder and harder to do. I haven't beleived for a long time that Obama has the answers for our economic troubles, and here is why.

I found this the other day and I thought that some of you who actually want to learn something rather than just argue might like to read it. If this guy is right, and I tend to think he is, it is going to be quite a ride the next few years.

http://www.moneyandmarkets.com/an-epic-battle-being-waged-29601

An epic battle being waged
by Jack Crooks 02-07-09


There is a battle being waged now in the world of economics. This battle is fierce. And no matter who wins, the impact will be felt far and wide. I dub this epoch struggle: “Godzilla vs. King Kong”

I’m not sure who will win, but I do have a favorite.

What I’m talking about is the intellectual and tactical battle concerning the best way to deal with the nasty recession engulfing us from a monetary and fiscal policy perspective.

There Are Two Basic
Schools of Thought Here …

King Kong School — Intellectual Leader is Milton Friedman (Money Supply Theory)


Milton Friedman believed that the government should flood the economy with massive amounts of money to enhance and increase consumer demand.
Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must stimulate the economy with massive amounts of money so that we can enhance and increase consumer demand.

This is where Mr. Bernanke and President Obama’s advisors reside.

Godzilla School — Intellectual Leader is Irving Fischer (Debt-Deflation Theory)

Basic Premise: In order to keep the current recession from turning into a depression as we witnessed in 1929, the government must step-back and let the invisible cleansing hand of the market wash away the debt before any real economic growth can again take hold in the economy.

Here is the outline for this theory:



Irving Fischer’s Debt-Deflation Theory holds that the government must let the invisible cleansing hand of the market wash away the debt before economic growth can resume.
Debt liquidation leads to distress selling

The amount of deposit currency falls and the velocity of currency in circulation slows

Prices plunge and the dollar rises

Business values fall further

Corporate profits tumble

Output, trade and employment take a header

Pessimism and loss of confidence spread like wildfire

Hoarding becomes commonplace and the velocity of currency circulation comes to a standstill

Complicated disturbances erupt in the rates of interest: a fall in the nominal rates and a rise in the real rates

My Favorite —
The Good Old Godzilla

And for this primary reason …

When debt levels reach such huge proportions in an economy, pumping more money into the system is ineffective because the velocity of money declines.

Let me explain the term “monetary velocity” and how important it is:

Monetary velocity means how fast money is circulated in the economy — the speed in which it is spent. And it is a key measure in the definition of economic growth.



Now stay with me … while I explain this simple equation:

M x V = P x O

M = Money Supply

V= Velocity

P = Price Level

O= Economic Output

Ben Bernanke and those in control of U.S. economic policy believe that if the “M” in this equation is lifted, it will impact prices (reduce the deflationary scare) and output (economic growth) accordingly.

But here’s the rub: When debt levels become so huge, people get scared. They save, hoard and use their money to pay down debt. They don’t take on more debt or run out and spend more just because the money supply has been increased by the government.

In fact, more money pumped into the system only adds to the total debt in the economy, and therefore prolongs the downturn.

The practical policy is to accept the fact that “V” shrinks dramatically at times like these — thus we have the big dip in “O” (output) and “P” (prices).

Here is How the Market
Cleanses the System …

Debts get paid down; reserves are rebuilt with increased consumer and institutional savings. This provides the eventual pool of capital for fresh growth.


At a time of major risk aversion, the world will flock to its reserve currency — the U.S. dollar.
And once the debt is removed, monetary velocity “V” increases to more normal levels; therefore tinkering with money supply isn’t necessary.

Sadly, I think, all governments are on the side of King Kong. And their flood-the-market monetary policies may make this global recession a whole lot worse.

So from a currency perspective I think it means this: We will be locked in a sustained period of risk aversion (rising unemployment, deflation, and sovereign debt defaults) as this crisis plays out. And in a world of major risk aversion, that mantle rests at the feet of the world reserve currency — the U.S. dollar.

Best wishes,

Jack


Obama keeps talking a bout the old ideas that got us into this mess, but I want to point out, massive government spending isn't a new idea and it certainly isn't the solution.

Smn Herf Since these economic troubles appear to be worldwide it might be interesting to see the approaches taken by other governments to solve the problem. This is of course based on the assumption that you can trust those in power, regardless of party affiliation.

The British/EU and others have taken steps to prop up their banks just like the US TARP... The British are going to implement a massive JOBS and STIMULUS bill like the US one....

There are two big competing theories of generally how economies work in stiff recessions. One is the classical theory that the economy contracts, but eventually money becomes cheap enough (as deflation convinces lenders to give it away for 0% interest presumably) that borrowing ticks back up in the private sector, new ventures form, existing ventures expand, and the economy gets moving again.

The competing theory is the Keynesian theory, which is that you basically end up in a downward spiral of tightwaddedness. Everyone gets too nervous about their own economic situation to spend money. Lenders become worried about people with bad credit and pull in loans. Even as money becomes cheaper, no one wants to extend loans at low interest rates for fear that if they misjudge the coming growth, they'll get screwed. Fear and uncertainty rein.

So the assumption of the Keynesians is that you need to do some predictable short- and medium-term government spending in order to get money moving in the economy again...

Most of the economists now think that the old classical theory is not as valid in this world where true capitalism, true free trade, and a true free markets system doesn't exist anymore- because all are so heavily influenced by government...And they believe this recession/depression is much deeper than any we've had before- and its going to take the newer Keynesian economic theory of government influx of money to get people back to work, get money circulating again, free up credit, etc. etc.- before the billionaires and wealthy investor class will again let loose of any of their money and start the private sector moving...Just like they did with oil earlier- now they are hoarding funds...

Interestingly- Yesterday I watched the hearings Congress had with the Bank CEO's that had taken TARP funds....Nobody trusts a bank or banker anymore was the general theme-- BUT all 7 Bankers agreed they thought that the TARP funding had shored up their Banks to the point they could/would keep operating- and that with the governments guarantee standing behind them they all felt they would be able to repay the TARP money by 2012...They ALL also agreed that it was going to take more than that alone to jumpstart this economy and free up the cash being hoarded--and all agreed that the Stimulus/Jobs package going thru Congress was needed too...
 

Tex

Well-known member
Banks are not the only ones that should not be trusted. We didn't get to this place without a little (okay, a lot) of corruption or incompetence:


http://www.opensecrets.org/news/2009/02/financial-services-members-to.html
 

TexasBred

Well-known member
The banks should be able to pay back by 2012...many didn't need it to begin with but were threatened IF they didn't accept it....even down on the more local levels.
 

SMN Herf

Well-known member
don said:
the trouble is there isn't a politician alive who would say sorry folks we've just got to let this play out and we're all going to get hurt and then it will be over. they have to be seen to be doing something and spending (borrowed) money is all they have to work with. obama, clinton, mccain, democrat or republican it would be playing out the same way.

I agree to some extent. There would be those that scream like a pig under a gate, but a good leader could educate and convince the public that they have their best interests at heart. Too many people think that the gov't can solve all their problems or that the govt can solve all their problems.

If the Republicans tried this, I would be criticizing it too.

Brian
 
A

Anonymous

Guest
TexasBred said:
The banks should be able to pay back by 2012...many didn't need it to begin with but were threatened IF they didn't accept it....even down on the more local levels.

Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- and all would have crashed if everyone started calling in their notes....The TARP money put most back to where they had money to operate with- and with the image that the government was standing behind them kept enough confidence that run on them didn't happen- yet anyway...

It was interesting yesterday in the hearings- that several of the Republican Congressmen were throwing GW under the bus-- wanting to make it quite clear that much of this did not come about because of deregulation by Congress- but nonenforcement of any regulation or laws by the Bush regime..

Like one Congressman told the bankers- first thing to do is find out who in your Banks developed all this risky trading schemes- and fire him...It was also brought up by some that they believed some of the differing trading schemes developed and utilized by these Banks was absolutely illegal on its face- should never have been allowed to continue- and was more risky than a Vegas roulette wheel....
 

Sandhusker

Well-known member
OT, "Problem is- during the 8 years of nonenforcement of regulation..."

That is complete horsecrap, OT. We've been hit over the head with regulations. Regulations have gotten so bad that we've had to hire a person who's only job is to deal with regulations, and I'm positive that we're not the only ones. Truth is that there's so dang many regulations - and they ARE being enforced, that it's increasingly harder to help people.

If you libs had stayed the hell out of lending, we wouldn't be in the sorry state that we're in. That's the truth, too. I don't understand what is to be gained by ignoring the facts and making up fantasies.
 

SMN Herf

Well-known member
Oldtimer said:
The British/EU and others have taken steps to prop up their banks just like the US TARP... The British are going to implement a massive JOBS and STIMULUS bill like the US one....

There are two big competing theories of generally how economies work in stiff recessions. One is the classical theory that the economy contracts, but eventually money becomes cheap enough (as deflation convinces lenders to give it away for 0% interest presumably) that borrowing ticks back up in the private sector, new ventures form, existing ventures expand, and the economy gets moving again.

The competing theory is the Keynesian theory, which is that you basically end up in a downward spiral of tightwaddedness. Everyone gets too nervous about their own economic situation to spend money. Lenders become worried about people with bad credit and pull in loans. Even as money becomes cheaper, no one wants to extend loans at low interest rates for fear that if they misjudge the coming growth, they'll get screwed. Fear and uncertainty rein.

So the assumption of the Keynesians is that you need to do some predictable short- and medium-term government spending in order to get money moving in the economy again...

Most of the economists now think that the old classical theory is not as valid in this world where true capitalism, true free trade, and a true free markets system doesn't exist anymore- because all are so heavily influenced by government...And they believe this recession/depression is much deeper than any we've had before- and its going to take the newer Keynesian economic theory of government influx of money to get people back to work, get money circulating again, free up credit, etc. etc.- before the billionaires and wealthy investor class will again let loose of any of their money and start the private sector moving...Just like they did with oil earlier- now they are hoarding funds...

Interestingly- Yesterday I watched the hearings Congress had with the Bank CEO's that had taken TARP funds....Nobody trusts a bank or banker anymore was the general theme-- BUT all 7 Bankers agreed they thought that the TARP funding had shored up their Banks to the point they could/would keep operating- and that with the governments guarantee standing behind them they all felt they would be able to repay the TARP money by 2012...They ALL also agreed that it was going to take more than that alone to jumpstart this economy and free up the cash being hoarded--and all agreed that the Stimulus/Jobs package going thru Congress was needed too...

Well if the British and the EU do it it must be the thing to do. :lol: :lol:

I am familiar with the Keynesian theory. It basically says and this is what our current administration is baseing their bill on is that any spending in any form stimulates the economy.

The point I am makeing is that they are ignoring the 20 ton gorilla in the room and that is the huge federal defecit we already have. We have been running defecits for several years now, why will more spending fix it? That is like saying the Bush administration should have spent more in the past 4 years to prevent us from getting into this recession.

The bottom line is that the market has to correct enough for commerce to occur again. The market is always right in the long term. It sometimes gets overheated and then has to correct to the point where people do business again. Government Sponsored Enterprises (GSEs) created the housing bubble and when it bursted it created the recession we are all in. The more gov't interfers with the market getting back to real value, the longer the recovery will take.

The hearings with the bank CEOs is a waste of time. Their words mean nothing. They want more TARP money so they certainly aren't going to say the first 350 billion was wasted. They are simply telling the members of Congress what they want to hear rather than what they truely think. Their actions will speak louder than their words.
 
A

Anonymous

Guest
Sandhusker said:
OT, "Problem is- during the 8 years of nonenforcement of regulation..."

That is complete horsecrap, OT. We've been hit over the head with regulations. Regulations have gotten so bad that we've had to hire a person who's only job is to deal with regulations, and I'm positive that we're not the only ones. Truth is that there's so dang many regulations - and they ARE being enforced, that it's increasingly harder to help people.

If you libs had stayed the hell out of lending, we wouldn't be in the sorry state that we're in. That's the truth, too. I don't understand what is to be gained by ignoring the facts and making up fantasies.

Well those Big bank folks yesterday disagree with you- and say they do need some more regulation and laws to prevent what happened...

And the Repubs (actually members of both parties) were putting a whole lot of the blame on GW's crew for turning their heads and doing no oversight/enforcement until things were way too late...

SMN hereford--I too wish Bush wouldn't have spent like a drunken sailor- and sunk all our money into building the GW superhighway in Baghdad :(
But the problem with the old economic theories is that they worked in the 1800's and early 1900's when everyone built their own shack-and produced their own food and at least wouldn't starve- and in third world countries, where they just let them starve...But in this day, and where we're a First World country (hopefully :???: ) we are not going to let people freeze- or starve----so its going to take massive government aid-- either in the lines of welfare, or in a Jobs/Credit Stimulus...Either way government will be paying for these folks....

I'd rather it was in jobs rebuilding infrastructure, developing new technologies, educating/training our young folks, etc., etc.-- than in welfare checks and Hoovervilles....
 

Sandhusker

Well-known member
You're basing your arguements on politicians pointing their fingers and blaming other politicians?

When has Bend-over Barney and Chris "Friend of Angelo" Dodd manned up to their roles in this mess?
 

Tex

Well-known member
OT:
Well those Big bank folks yesterday disagree with you- and say they do need some more regulation and laws to prevent what happened...

The problem is that if you don't stop known bad practices, the price you pay for them grows huge because in the competition game, the bad practices seem to work in the short term and don't count all the damage in the equation of who continues in business to be able to compete.

IBP/Tyson is in its same form because we have a political and judicial system that is busy selling out the laws on the books (the Packers and Stockyards Act, hiring illegals) for their self interest. IBP/Tyson lost their court case, not because of an incompetent jury, but because an incompetent or corrupt judicial and political system that could not enforce its own laws on the books. When crooks get away with crimes, they continue them and exploit the political/social system to satisfy their own greed.

http://www.pbs.org/now/shows/250/meat-packing.html

Sandhusker, if your bank is not going under like many of the other banks are, is it because your bank didn't relax all the lending rules and/or get caught up in a bubbles the industry lending created? There are a lot of banks that did not get caught up in the problems, over leverage and the such. You can't put all the banks in one group.

You will have to admit the lines between commercial banks and investment banks did get blurred and had a negative impact. So did the ability of insurance companies like AIG, and other investment banks, to write insurance without the assets to back them up. Everything was/is too leveraged.

Good banks did have to compete for capital with these more leveraged models and as long as things were going up, the leverage worked in favor of the leveragers and smaller banks were bought up.
 

aplusmnt

Well-known member
Oldtimer said:
Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- ...

Only non regulation that matters is the one that Clinton signed back before Bush. You take away that swipe of his pen and do not combine commercial and investment banking and this problem does not exist.

How was Bush to regulate in a way that Clinton took away the power to do so? He did warn of the problem but Clinton took the power away.

Also funny how Clinton was the one that let oil companies merge into the giants everyone blames for problems today.

Come on OT you are smarter than this, maybe you should take up Solitaire game instead of Devils advocate game.
 

Sandhusker

Well-known member
Tex, "Sandhusker, if your bank is not going under like many of the other banks are, is it because your bank didn't relax all the lending rules and/or get caught up in a bubbles the industry lending created? There are a lot of banks that did not get caught up in the problems, over leverage and the such. You can't put all the banks in one group. "

We followed the rules and made sure people could afford the payments. It doesn't do you or your customers any service to set them up for failure.
 

TexasBred

Well-known member
Oldtimer said:
TexasBred said:
The banks should be able to pay back by 2012...many didn't need it to begin with but were threatened IF they didn't accept it....even down on the more local levels.

Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- and all would have crashed if everyone started calling in their notes....The TARP money put most back to where they had money to operate with- and with the image that the government was standing behind them kept enough confidence that run on them didn't happen- yet anyway...

It was interesting yesterday in the hearings- that several of the Republican Congressmen were throwing GW under the bus-- wanting to make it quite clear that much of this did not come about because of deregulation by Congress- but nonenforcement of any regulation or laws by the Bush regime..

Like one Congressman told the bankers- first thing to do is find out who in your Banks developed all this risky trading schemes- and fire him...It was also brought up by some that they believed some of the differing trading schemes developed and utilized by these Banks was absolutely illegal on its face- should never have been allowed to continue- and was more risky than a Vegas roulette wheel....

OT, outside enforcement is not necessary if a good CEO is working for his stockholders, has their best interest at the center of everything he does, has an enforceable internal audit program and removes those beneath him who do not work within the confines of the banks underwriting standards. You don't need outside "enforcers" if you do it "IN HOUSE" the way honest bankers have always run the bank for the stockholders. Just because the gov't deregulates something does not mean YOU have to take advantage of it. Some of the strongest locally owned banks I know have totally ignored "deregulation" since it was instituted in the '80's. Just because you get a license to kill or steal doesn't mean you have to do it.
 

TSR

Well-known member
aplusmnt said:
Oldtimer said:
Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- ...

Only non regulation that matters is the one that Clinton signed back before Bush. You take away that swipe of his pen and do not combine commercial and investment banking and this problem does not exist.

How was Bush to regulate in a way that Clinton took away the power to do so? He did warn of the problem but Clinton took the power away.

Also funny how Clinton was the one that let oil companies merge into the giants everyone blames for problems today.

Come on OT you are smarter than this, maybe you should take up Solitaire game instead of Devils advocate game.

I knew it would be all Clinton's fault if Aplus authored it. For what, 12 of the last 14 yrs. the Republicans have been in power. Are you telling me that during that time the Republican president couldn't have gone on national tv and told the public about this problem and garnered support to get some new bills passed which would have replaced the one you refer to which wasauthored by Gramm a republican? Of course there was no merging under the Republicans was it?
 

TSR

Well-known member
TexasBred said:
Oldtimer said:
TexasBred said:
The banks should be able to pay back by 2012...many didn't need it to begin with but were threatened IF they didn't accept it....even down on the more local levels.

Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- and all would have crashed if everyone started calling in their notes....The TARP money put most back to where they had money to operate with- and with the image that the government was standing behind them kept enough confidence that run on them didn't happen- yet anyway...

It was interesting yesterday in the hearings- that several of the Republican Congressmen were throwing GW under the bus-- wanting to make it quite clear that much of this did not come about because of deregulation by Congress- but nonenforcement of any regulation or laws by the Bush regime..

Like one Congressman told the bankers- first thing to do is find out who in your Banks developed all this risky trading schemes- and fire him...It was also brought up by some that they believed some of the differing trading schemes developed and utilized by these Banks was absolutely illegal on its face- should never have been allowed to continue- and was more risky than a Vegas roulette wheel....

OT, outside enforcement is not necessary if a good CEO is working for his stockholders, has their best interest at the center of everything he does, has an enforceable internal audit program and removes those beneath him who do not work within the confines of the banks underwriting standards. You don't need outside "enforcers" if you do it "IN HOUSE" the way honest bankers have always run the bank for the stockholders. Just because the gov't deregulates something does not mean YOU have to take advantage of it. Some of the strongest locally owned banks I know have totally ignored "deregulation" since it was instituted in the '80's. Just because you get a license to kill or steal doesn't mean you have to do it.

Come on now TBred there are dishonest bankers just like dishonest people. Some have stolen through deception.
 

Mike

Well-known member
TSR said:
aplusmnt said:
Oldtimer said:
Problem is- during the 8 years of nonenforcement of regulation/law they got leveraged so bad- that they in no way had the funding to cover all their debts- ...

Only non regulation that matters is the one that Clinton signed back before Bush. You take away that swipe of his pen and do not combine commercial and investment banking and this problem does not exist.

How was Bush to regulate in a way that Clinton took away the power to do so? He did warn of the problem but Clinton took the power away.

Also funny how Clinton was the one that let oil companies merge into the giants everyone blames for problems today.

Come on OT you are smarter than this, maybe you should take up Solitaire game instead of Devils advocate game.

I knew it would be all Clinton's fault if Aplus authored it. For what, 12 of the last 14 yrs. the Republicans have been in power. Are you telling me that during that time the Republican president couldn't have gone on national tv and told the public about this problem and garnered support to get some new bills passed which would have replaced the one you refer to which wasauthored by Gramm a republican? Of course there was no merging under the Republicans was it?

For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

2001

April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (”Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03).

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03).

2004

February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to “not take [the financial market's] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04).

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04).

2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05).

2007

July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07).

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07).

2008

January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08).

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08).

April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08).

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

“Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08).
“[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08).
“Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08).
June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08).

July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.
 
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