Some thoughts on the subprime/banking crises

people talk about the subprime crisis and the banking crisis and the energy crisis but what about the moral crisis thats behind all this

There is plenty of blame to go around in this mess. First was the passage of the Gramm-Leach-Bliley Act under the Clinton administration which repealed a provision of the Glass-Steagall Act that prevented one bank from offering investment, commercial banking, and insurance services. Second was the failure of the passage of a Fannie and Freddie Mac reform bill in 2005.

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BRTD said:

People talk about the subprime crisis and the banking crisis and the energy crisis but what about the moral crisis thats behind all this

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You mean the moral crisis in which the possibility is that we are going to bail out every single company that's "too big to fail" and give corporate welfare?

http://www.salon.com/comics/tomo/2008/09/23/tomo/
(I know it's "liberal" but eh.)

But Red is right, their's plenty of blame to go around. From the consumer (for biting more than we could chew) to the government (for not anticipating that the bubble was going to burst and accepting De-regulation) to Wall. St (You know why...)

But eh that's life....

I see no moral crisis. What blasphemy is this?

OPPOSE!

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke want to force through a $1+ TRILLION bailout plan that we are told is "absolutely necessary" to "avoid another Great Depression", and to "save the middle class".

This plan will NOT help the middle class. All that money for the bailout is just going to be printed out thin air-credit expansion by the Federal Reserve-destruction of the dollar-resulting in hyperinflation that will show up especially in the grocery store and gas pumps.

What's even worse is this provision, known as Section 8:

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

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This is a COMPLETE VIOLATION of our constitutional principles of Judicial Review and Checks and Balances-which are Core Democratic Values that we were told about way back in elementary school!
Crisis or not, there is NO provision whatsoever in the Constitution authorizing this dictatorial power grab by a Cabinet Agency!

We are told by the media and the political establishment that this bill is needed right now to "save the middle class" from "economic Armageddon"-thereby giving us the choice of either not passing this bill-which will allow the markets to "crash" and start a 1930s-style deflationary spiral, or pass it and plunge into long-term hyperinflation-just like the 1920s Weimar Republic and Zimbabwe. The Democratic Congressional leadership, the White House, The Fed, Treasury, and the media would rather have the latter. (The media always harps on how "deflation is always bad" and that the government must step in to prop up prices as high as possible.)
If printing more money out of thin air backed by absolutely nothing were really the solution to all economic problems, then Zimbabwe would be prosperous right now!

Federal Reserve monetary policy, determined primarily by manipulating interest rates, allows for expansion of cheap credit, encouraging many to invest in a certain sector of the economy or asset class whenever the central bank cuts rates. The Congress and White House support policies that contribute to such an investment boom. The mainstream media also goes along saying that prices will keep rising forever and ever, and financial experts proclaim that "this time, it's different".
When it comes time the Fed hikes rates, people start pulling out of the investments, causing the bubble to burst, leaving a potentially devastating fallout-including recessions and a Great Depression!

Just as we were told other inflationary measures, such as stimulus checks, massive interest rate cuts, and liquidity injections were needed to "save families from foreclosure" and "reduce our trade deficit", all they did was push food and oil prices to record highs, boost our petro-trade deficit, while foreclosures continue surging. This plan will be no different.

There is no "quick and easy" way to allow for any economic recovery-and this plan certainly will not allow it. It will definitely not prevent a recession or avoid another Great Depression. All it will do is delay the inevitable crash, while making us pay for it in the form of ever-skyrocketing food and gas prices-and make the ultimate crash even worse.

As for all the defaulted mortgages, credit default swaps (CDSs), collateralized debt obligations (CDOs), and mortgage-backed securities (MBS) that the Fed wants resold/repurchased at inflated prices-that will not help matters much at all. These defaulted mortgages should be written off as losses and "discarded". They are junk. Worthless. Trash. Garbage. Refuse. Lost Inventory. Destroyed. Damaged Beyond Repair.

Debt is an obligation to repay the issuer of the loan (creator of the debt). It is a substantial liability. It is NOT an "asset" or "security" to be invested in expecting huge returns from.

The problem with the stock market is not that of "illiquidity" or "insolvency", but of TOO MUCH liquidity. Investors and companies, especially in the banking sector, need to liquidate or write off all their bad positions .


Now, many of you might believe this was unexpected, but many people predicted this financial disaster was coming-especially Representative Ron Paul (R-Surfside, TX)
Here are some links to his articles, speeches, and testimony regarding bad monetary policy at the Fed, and how it contributed to this crisis:

• The Economy and Inflation
• Foolishness of Fiat
• Congress Ignores its Responsibility Regarding Monetary Poilcy
• Government Mortgage Schemes Distort the Housing Market
• The Folly of Fed Interest Rates
• Big Government Responsible for Housing Bubble

Senator Jim Bunning (R-Kentucky) has introduced legislation to strip the Federal Reserve of its bailout powers after the controversial $85 billion bailout of American International Group (AIG). (Even better would be to just abolish the Fed altogether)

Representative Marcy Kaptur (D-Toledo, OH) offers scathing criticism of Wall Street's greed and their running up to the Treasury and Fed for bailouts every time they suffer major losses.

As for consumers, none of us who knew to save and not take on so much debt should have to pay for other people's greed. Those who got greedy during the housing (and dot-com) bubble(s) should have to pay entirely for their mistakes (which means bankruptcy). Especially those who maxed out their credit cards as much as they could or took out loans and mortgages they couldn't afford to pay back.
A house is supposed to be SHELTER, not an "investment" that permanently appreciates for investors to cash out on or for homeowners to cash out equity constantly as if it were some giant ATM!

Over this weekend I've sent numerous e-mails to my House Representative (Candice Miller, R-Harrison Twp), and both my Senators (Carl Levin and Debbie Stabenow) explaining why this proposal must be voted down.

Bottom Line-Cheap credit and inflationary policies such as that of the Federal Reserve (and other central banks across the world) encourage overinvestment, excess speculation, malinvestment, dangerously high leverage ratios, hoarding, and the like. Continuing to expand cheap credit and legislate government intervention to support bubble prices, such as the attempts made in the past several months to prop up the housing market will not solve the problem

Note: I would write more, but this post is getting a bit too long

Hey!!!

To extend Otter-Miikun's rant...

NO
Write and call your representative and senators plus Nancy Pelosi and Harry Reid this morning and tell them to tell the Bush administration NO on their proposed $700 billion handout to Wall Street. Congress obviously can propose a much better plan of its own, but the first thing to do is kill this monstrosity.
Congress main line
(202) 224-3121
Write your representative
Write your senators
Nancy Pelosi
(202) 225-0100
Write Pelosi
Harry Reid
(202) 224-3542
Write Reid

Nanako Nanashima said:

I see no moral crisis. What blasphemy is this?

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You don't see a moral crisis? If there's no moral crisis then why are... (to put this politely) homosexuals arguing for the right to sanctify their blasphemous unions? Why are people from barbarian shores entering Christendom?

Um, that's got nothing to do with the banking crisis, so don't go off topic.

If you want a moral crisis behind all this, I'd bring up that families will be left homeless and many may resort to crime in order to maintain a standard of living.

I think that the welfare of the population is more concerning than gay marriage ... and whatever that last part was about. So no more of it.

here's more

Red1530 said:

First was the passage of the Gramm-Leach-Bliley Act under the Clinton administration which repealed a provision of the Glass-Steagall Act that prevented one bank from offering investment, commercial banking, and insurance services.

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Wouldn't you know... the "deregulation" which tore down Glass-Steagall's separation of investment and commercial banking, as well as "deregulation" schemes that abolished oversight of credit default swaps, allowed certain forms of energy trading to occur without any oversight-even allowing certain transactions to be routed overseas for clearing are all the brainchild of crooked industry lobbyists and one ex-Senator whose wife was on the Board of Directors of one of the most corrupt corporations in history and now claims this "mental" recession is "all in our heads"?

According to economists Robert B. Ekelund and Mark Thornton at the Ludwig von Mises Institute:

The Financial Services Modernization Act of 1999 would make perfect sense in a world regulated by a gold standard, 100% full reserve banking, and no FDIC deposit insurance; but in the world as it is, this "deregulation" amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly."

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With the FSMA, the banks got their way with the "deregulation" and merged into larger entities and began speculating with people's deposits again just as they did in the 20's, now that the bubble has burst-many banks are failing, the FDIC is strapped thin, and now these bankers-the same ones who supported the "deregulation" in the first place-are calling for a huge bailout as a result-saying all these institutions like Bear Stearns, AIG, Fannie and Freddie, are "too big to fail". It's bad enough the fractional-reserve banking standard and high leverage ratios increased this risk.
I'd like to make something absolutely clear. No bank, brokerage, mortgage lender, or any other financial institution is "too big to fail". In fact, the bigger some institutions are, the more likely they are to fail and the more catastrophic these failures will be.

Instead of being a capitalist society, we've become one of neo-fascism-"privatize the gains, socialize the losses".

Using other people's bank deposits for speculation is not only very risky-it's THEFT!

Officials in the current Administration, including Secretary Paulson and Fed chief Bernanke must be held accountable. Better yet, they both should resign-in disgrace (along with President Bush and VP Cheney).

Some claim that a gold-backed currency resulted in the Great Depression and prolonged it.
The fact is, Federal Reserve currency and interest rate manipulation such as what is taking place now is the real cause-and this time will be no different.
Forget about claims by the mainstream media and establishment politicians that "we need a Federal Reserve" to keep our economy running properly-the fact is, since the creation of the Federal Reserve System in late 1913, the dollar's value has eroded by at least 96%-all while causing the economy to move at an unsustainably fast pace by creating boom-bust cycles that always lead to recessions and sometimes even full-blown depressions-including stock market bubbles, housing bubbles, and now the credit bubble.

There was not one thing wrong with allowing the DOW to "plunge" 500+ points. It was a necessary correction. There have been even bigger dips, percentage-wise.
The "terrible" fall in home prices also is a necessary correction. Propping up prices with "liquidity injections", interest rate cuts, and bailouts will not solve the problem-only aggravate the situation.

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

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Hahaha I can't believe this is real

I am against the bailout because the free market person in me believes that all of the bailed-out business should of been allowed to fail. Also that section eight gives me chills.

The "mental recession" statement is technically true because there has not been two economic quarters of negative GDP growth which is the definition of recession.

Economy....Section 8?

Red1530 said:

I am against the bailout because the free market person in me believes that all of the bailed-out business should of been allowed to fail. Also that section eight gives me chills.

The "mental recession" statement is technically true because there has not been two economic quarters of negative GDP growth which is the definition of recession.

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At least this time most of us can agree on something...

But that "mental recession" statement has been insulting to some people...

Did anybody watch President Bush's primetime address last night? Just a simple re-itieration of the Administrations bail-out and laying out the "offical" account on how this crisis occured...

BRTD said:

You don't see a moral crisis? If there's no moral crisis then why are... (to put this politely) homosexuals arguing for the right to sanctify their blasphemous unions? Why are people from barbarian shores entering Christendom?

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... lol. I should think that's because times have changed: This is the age of justice, no longer the age of righteousness — Christians can't anymore go around killing pagans and homosexuals without receiving their own due punishment.

Amachi said:

If you want a moral crisis behind all this, I'd bring up that families will be left homeless and many may resort to crime in order to maintain a standard of living.

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Ah. Then this seems to be something only affecting the US to such a degree.

this battle's just getting started

The finalized bailout ("rescue") plan failed the House 205-228, 1 non-voting.

Dow plunged nearly 800 points, NASDAQ down 200, S&P 500 down 100 points. Gold soared back above $900/oz, yet oil lost more than $10/barrel.
All despite the FED pumping another $690 billion into financial markets. (and poised to pump out more, but I somehow doubt any gains in the stock markets as a result can stay for too long-heck why else would $3 TRILLION dollars/21 trillion yuan get wiped from the Chinese stock market in the past year?)

The days of cheap credit and excessively over-extended debt caused by fiat money controlled by central banking look to be numbered (without sparking hyperinflation like in Zimbabwe and 1920s Weimar)...

This battle is FAR FROM OVER. In fact, it's barely getting started. Next thing to do is to get rid of the Federal Reserve System and end the global military intervention nation-building imperialist foreign policy once and for all!
No time to give up now! The Fed is doing everything they can to keep this unsustainable credit bubble going!

Representative Dennis Kucinich, (D-Cleveland, OH) sharply criticized this plan's failure to help the struggling middle class and slammed the Federal Reserve's monetary manipulation policy.

Ron Paul warned of the ramifications of passing the bailout, including certain destruction of the dollar in testimony on the House Floor.
He also gave a statement outside the Capitol Building after the vote was completed.

A set of articles on the credit bubble and crash—the "Recession Reader"—has been compiled by LewRockwell.com (I read LewRockwell.com articles on a daily basis.)

It has impacted the global economy and inflation is high and companies started laying off people.

myinvestorsplace said:

It has impacted the global economy and inflation is high and companies started laying off people.

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Actually this recession may actually decrease the pressure of inflation.

So...

Red1530 said:

Actually this recession may actually decrease the pressure of inflation.

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Were officially calling this a recession now? I'm not an economist, all I know is that a recession starts when there is a successive 6 month downturn on the economy. I'm still grappling with the issue of the economy like many Americans and they don't really teach much about the economy in basic Algebra 2...:P

Allstories said:

Hahaha I can't believe this is real

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I read that in the newspaper eating breakfast. I was like wtf lol? Wait...what? Isn't this like a serious issue? Why the hell would you randomly pick a big number?

Reminds me of the simpsons movie. "I was elected to lead not to read"
._. I don't do politics and stuff but I can't see how randomly picking big numbers can help the international economy?

Netto Azure said:

Were officially calling this a recession now? I'm not an economist, all I know is that a recession starts when there is a successive 6 month downturn on the economy. I'm still grappling with the issue of the economy like many Americans and they don't really teach much about the economy in basic Algebra 2...:P

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Most economist that I heard on CNBC believe that we are now in the first quarter of the recession. It won't be official till six months from now.