Letters to the Editor
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" Capitalism got bailed out. " No! Debt Based Leveraged Banking Got Bailed Out. (The Fed)
That's why we are in this mess, leverage.
Capitalism can exist perfectly well without the banks being able to leverage their capital at 10 to 1 or 30 to 1. It was the bankers that forced companies into leveraged debt through the tax codes.
And Greenspan didn't have a lot to do with this? Dear Alan saw a securities market of less than 10 trillion ten years ago grow to $500 trillion before his eyes wrapping the banks in ever more leverage and counter-party risk yet never lifted a finger to ensure loan underwriting standards were regulated even after Congress told him to and Ed Gramlich begged him to. This $500 trillion market wouldn't have any bearing on the banking system? Give me a break.
Now tax payers can look forward to the further destruction of their dollar through inflation while guilty bankers will have to console themselves with their hundreds of millions.
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credit derivatives
I was listening to fresh air on the radio today and a report on wall street made my ears curl.
http://www.npr.org/templates/story/story.php?storyId=89338743
I heard how Phil Gramm (now one of McCain's economic advisors) added an amendment to a budget bill in 2000 legalizing these 'credit derivatives'. No one paid attention, and it turned out to be one big bomb that is just beginning to explode - in the heart of our financial system.
Basically it's a gambling racket. Instead of investing by owning say a baseball team, you invest on betting on the results of the game. Credit derivatives are bets on bonds, interest rates, etc. They are PRIVATE. There is no public exchange. It's like a mafia bookie, except the BANKS are in up to their necks!!
This market is totally unregulated and much bigger than the American stock and bond market.
Banks can participate and these 'bets' are off their balance sheets!!
Basically, banks are in deep doo-doo because they bet that people with mortgages would pay those mortgages. Now with the foreclosure epidemic, they are losing their shirts in the credit derivatives market.
Scary!!!!!!!!!!!!!!!
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Where, oh Where, are the Free Marketeers?
I don't know about the rest of the readers here, but I have become concerned that that group of zealous advocates for "hands off" government have lately gone missing. Perhaps they've fallen and can no longer get up!
Of course, much like Bear Stearns, I am sure that the advocates of "non-interference" with the "invisible hand" are quietly thriving, secure and self-confident in their hardy self-reliance.
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Wall Street Welfare Queens
"Ben Bernanke's comment, later in the session, "If you want to say we bailed out the market in general, I guess that's true. But we felt that was necessary, in the interest of the American economy."
Looks like the folks on wall street have figured out how to milk the government with orchestrated failures.
If we don't pay them, they'll just come around and rob us in person.
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How many times to the alarmists have to be right before we'll be taken seriously?
We crazy lefties were absolutely, one hundred percent right about global warming, back when there was still an Ongoing Debate. (That's back in 1991, by the way. I know the world is furiously backpedaling and trying to pretend there was no way of knowing until about 2001. Ach, ve didn't know! Keine Nazi hier!)
We kooky, nutty liberals (ooh, those rotten no-good liberals! With their flag-burning and their America-hating and their... their... their LEARNING FRENCH!) were right when we said George Bush would be a terrible president, that he would use 9/11 to completely destroy the rule of law and to start one or more wars, that he was lying about WMD's. We were right, right, right, absolutely right. Told you so!
Now we're right again. A system where one big investor's success is his and his alone (he Took The Risk! and so he Reaps The Reward! Condolences, Mr. Lebowski--the bums lost!) is protected from failure by 6.7 billion human shields.
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Spreading the risk
...the argument that new derivative instruments, such as credit default swaps, would increase the stability of the overall financial system by spreading risk more broadly. We all now know how ridiculous that argument turned out to be.
When you think about it, the idea that Bear Stearns was too interlinked to fail actually kind of supports the idea that the risk was spread around. The problem is the leverage didn't add risk, it multiplied risk, and all those smart guys (ment to be gender neutral term) never seem to get that now or in the past.
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Socialized!
Now that we socialized the losses, do we get to socialize the profits until the taxpayers are paid back, or do we let the officers who now run Bear Sterns start taking multi-million dollar bonuses again?
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Clinton and Bush failed.
Oddly enough, both of them plan on running for re-election. Indirectly through surrogates, of course. But it's almost farcical to think that HRC and J. McCain wouldn't attempt to embrace and continue the policies of their respective predecessors. indeed, HRC wants to return to the "prosperity" of the 90's (which, as we get further and further away, we've begun to question whether the cost of that prosperity was worth the gain), and McCain wants to keep holding the baby's head under the bathwater by cutting taxes on the wealthy.
Oddly enough, while Barack Obama hasn't been too incredibly specific about his plans to right the economic ship, his solution of "C) None of the Above" is looking more and more appealing each day.
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Spreading the risk...
Well,the way this has played out, it seems more like the risk has been centralized, not spread.
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@ Electro Robot
Purely or highly socialist economies either don't take those risks and don't grow in the first place, or, they live with permanently high strutural unemployment as a result, which typically leads the same place.
Any specific examples? As presented here this sounds like a fact free talking point which says nothing more than "yeah, but socialism is worse." And what is a "purely socialist" and what is a "highly socialist" economy? "Socialist" is one of the most misused and misunderstood terms, thanks to years of propaganda from the capitalist Right--who use the term to describe everything from communism to a single-payer health care system--so it's impossible to know what is meant by the term without some definition.
At any rate, as a counterexample, I shall point out that the Scandinavian countries have largely socialist systems in place with mixed economies (kind of like Keynesianism on steroids) and have prospered. In fact, Sweden was one of the countries that suffered the least during the Great Depression, largely due to the aggressive economic intervention undertaken by their socialist government. Sweden continues to prosper, and I don't doubt that yet again they will emerge less damaged by this crisis than we will.