Yes, the problems to be worked out this time seem scarier than most. And watching institutions like Bear and Lehman fail, and Merrill Lynch taken over just like that, doesn't inspire confidence.
But they're no different from other investment firms of the past that have paid the price for making too many bad decisions or taking too many risks in what is already a high-risk business.
How long all this will last is anyone's guess. But this a big country, with a highly liquid market and a still-strong economy. We'll get through it.
The turmoil in the financial markets will reorganize the financial landscape. But this does not mean the financial industry will shrink dramatically. In fact the current crisis could well lead to an increase in the demand for financial services, as the world grapples with the need for new financial instruments, new risk management techniques, and the increasing complexity of the financial world.
We can argue about who was responsible for the overleveraging of the financial industry and the poor to nonexistent credit standards that prevailed in real estate. Certainly the regulatory agencies, including the Federal Reserve, should have sounded a warning. But the lion's share of the blame must go to the heads of the financial firms that issued and held these flawed credit instruments and then, in many cases, "doubled down" by buying more when their price was falling.
It is shocking that firms that withstood the Great Depression are now failing in what economists might not even call a recession. But their failure was not caused by lack of demand for their services. It was caused by management's unwillingness to understand and face the risks of the investments they made. The names of the players will change, but the future growth of the financial services industry is assured.
In our capitalist system there are losers as well as winners. There are failures as well as successes. Harking back to the eminent economist Joseph Schumpeter, the old failures will be replaced by new enterprises.
Obama is on the campaign trail predictably charging that a lack of regulations during the Bush era is responsible for the current mess. But he’s misreading history. As George Mason economist Tyler Cowen wrote in the New York Times, one of the problems with the U.S. financial system is not a lack of regulation, but a lack of smart and effective regulation.
It’s easy to be overly pessimistic right now. But that negativism is not written in stone. Mr. Paulson talks about a housing and financial recovery in terms of months, not years. And I think he’s right. But his courageous action to put a stop to bailout fever will do as much as anything to move the nation toward recovery.
Referring to "Obama" as the next FDR might be quite the misnomer.
"...War ended the Depression simply because of increased government spending, an intensified version of what Roosevelt was already doing with the WPA and similar programs.. Responding to the external threats posed by the Axis Powers (Germany, Japan and Italy) Roosevelt and the Congress threw fiscal caution to the wind and spent what was necessary to win the war. In so doing, they also achieved pre-Depression levels of employment and prosperity.
What then is the legacy of the New Deal as a whole? Would it have ended the Depression? The best answer to that is that it went a long way toward alleviating the worst suffering of the Depression while still being captive to the conventional thinking (political, fiscal, racial) of the day. We cannot answer that question of whether it could have ended the Depression based on historical facts. World War II interrupted the process.
What are the other long-term consequences of the Depression and New Deal? The rise of the "Roosevelt Coalition" of farmers, union members, working class people, Northern blacks and liberals made the Democratic Party the nation's dominant party for almost sixty years. Further, the political consensus that developed after World War II held that never again should the government allow another depression to take hold. Thus, there followed an unprecedented level of federal economic intervention. This huge expansion in the role, size and power of government in American social and economic life is aptly summed up in Republican President Richard Nixon's famous 1971 remark, "We're all Keynesians now."'--Source
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"God, send me anywhere, only go with me. Lay any burden on me, only sustain me. And sever any tie in my heart except the tie that binds my heart to Yours."
--David Livingstone
"To see no being, not God’s or any, but you also go thither,
To see no possession but you may possess it—enjoying all without labor or purchase—
abstracting the feast, yet not abstracting one particle of it;…."
--Walt Whitman, Leaves of Grass, Song of the Open Road
Hmmm...my mother was born into the depression, and she has quite a different point of view. She says, (and I quote), "FDR saved the day by opening up jobs for poor people." Now, she's a good Republican (moreso than I am), but in her 75-year-old opinion, FDR was a good president for that reason alone.
I'm just pointing out that it may seem different to those who actually experienced an economy downfall, and know what it's like to have food rations and dirt floors.
If I thought Obama could actually solve the economy's ills, I might vote for him. But he really doesn't have any good plans, other than "alleviating" extra work during tax season by streamlining paperwork. (Oh, and his proposal discussed under "I want what's best for you" would also do the following: Allow the government to pull your financial information for your taxes directly from your bank accounts, AND it would put may tax preparers out of a job. Sure. Great for the economy, and great for my privacy.)
That's just one little section of his "plans" to help the economy. (But almost all his points are equally trivial and stupid.) Thanks, but no thanks. That would be like a president addressing the war by suggesting we send the soldiers more comfortable shoes. Obama is NO FDR.
My grandfather was born in 1910 and was a principle during the great depression.
He was a life long democrat and voted against FDR every single time. As a grown educated man, papa told me many times that FDR caused more problems than he solved.
Papa was also was president of the democratic executive commettee in our parish for somewhere around 60 years.
Thats a little different perspective on the great depression.
__________________ If I do something stupid blame the Lortab!
I'm not sure where you stand on deregulation, but I've personally had enough of it. The problem was the goverment deregulated to the point that we got the sub-prime mortgage lending and adjustable rate mortgages.
I'm ready for government to regulate for a change and clean some of this mess up. That's not popular with conservatives but their deregulation has failed miserably.
Quote:
Originally Posted by OP_Carl
I may be a conservative but I'm not an anarchist! Free markets require regulation, anti-trust, and monopoly laws.
The de-regulation of the banks and commodities firms by the Bush Administration are directly responsible for this mess. Putting Henry Paulson, former CEO of Goldman-Sachs (one of the two remaining large investment banks, what a coincidence! ) in as Treasury Secretary was like handing an axe to the fox guarding the chickens.
This might be fun. Can either of you tell me exactly what deregulations GWB and crew did that led to this failure in the banking industry?
__________________ If I do something stupid blame the Lortab!
My grandfather was born in 1910 and was a principle during the great depression.
He was a life long democrat and voted against FDR every single time. As a grown educated man, papa told me many times that FDR caused more problems than he solved.
Papa was also was president of the democratic executive commettee in our parish for somewhere around 60 years.
Thats a little different perspective on the great depression.
Well, my Grandpa was a die-hard democrat who voted for FDR.
Obviously there were differing views even back in the day, but the reality is that whether it was the war that ended the depression or FDR policies, resolution occurred during FDR's presidency, ergo, he (and his policies) get the credit. Hoover may have had good ideas, but since he didn't have a chance to implement them, we can't know for sure if they were good solutions. Perception is everything, when it comes to politics.
__________________
"God, send me anywhere, only go with me. Lay any burden on me, only sustain me. And sever any tie in my heart except the tie that binds my heart to Yours."
--David Livingstone
"To see no being, not God’s or any, but you also go thither,
To see no possession but you may possess it—enjoying all without labor or purchase—
abstracting the feast, yet not abstracting one particle of it;…."
--Walt Whitman, Leaves of Grass, Song of the Open Road
This might be fun. Can either of you tell me exactly what deregulations GWB and crew did that led to this failure in the banking industry?
No they cannot. Somehow that seems to be a problem with libs. They have more faith than anyone....they will continue to believe in the Harry Reid crowd..and GWB is the evil antichrist with no facts at all. ???
The facts are the banking system began to go ary---hindsight is 20/20 under Clinton when traditional banks were seperated from investment banks. This fact was admitted by Reish (remember Clintons labor sec. and now Osama's econ. advisor) in a TV interview on MSNBC. But it cannot be laid on the Pres. It was the Fed and not so much degreg but the lack of new regs when now financial instruments were created to overleverage these firms. Greenspan and the FED was alseep at the wheel.
This might be fun. Can either of you tell me exactly what deregulations GWB and crew did that led to this failure in the banking industry?
The article indicates that derivatives are not subject to banking regulator oversight (my apology for any repetition for those who read the authors words).
Reading it from my unlearned condition.....
these banks (Citi, Morgan, BoA, Wichovia, ?) started being insurance underwriters where policies pay out depending on which way interest rates move in the short term. It was a new market from which to gain revenue because of security of your capital holdings. IMO, an aspect of a regulated side (capital holdings) has been a surety involving an unregulated business activity (derivatives).
As a relatively new industry/business sector, conceived to hedge exposure to potential rate volitility within financial markets and brokerages, it functioned independantly of banking rules. So when a derivative holder (insurer?) is the same company that gets demolished in another market (real estate / mortgage holders), the company can not cover its exposure as an insurance underwriter because it does not have any real capital because of a the imploding real estate sector.
So it seems that once again, a highly technical industry's cleverness (or greed) develops a new game using some kind of an undetected VIRTUAL backstop using vaporware/fictional substance (think: Enron), but when a 50 year storm comes along, the foundation is revealed to be sand.
I am very interested in seeing how each of us adapt and cope with inconvenience. It does seem that this cycle has the capability to shake whatever can be shaken.
So we have now seen the fall of Brokerage Lehman(?).
BoA has acquired (at a discount) a large scale potential for sickness.
If one of the top five banks fails, we will get to see if panic is still the public enemy No.1.
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Wherefore, my beloved brethren, let every man be swift to hear, slow to speak, slow to wrath [James 1:19]
The article indicates that derivatives are not subject to banking regulator oversight (my apology for any repetition for those who read the authors words).
Reading it from my unlearned condition.....
these banks (Citi, Morgan, BoA, Wichovia, ?) started being insurance underwriters where policies pay out depending on which way interest rates move in the short term. It was a new market from which to gain revenue because of security of your capital holdings. IMO, an aspect of a regulated side (capital holdings) has been a surety involving an unregulated business activity (derivatives).
As a relatively new industry/business sector, conceived to hedge exposure to potential rate volitility within financial markets and brokerages, it functioned independantly of banking rules. So when a derivative holder (insurer?) is the same company that gets demolished in another market (real estate / mortgage holders), the company can not cover its exposure as an insurance underwriter because it does not have any real capital because of a the imploding real estate sector.
So it seems that once again, a highly technical industry's cleverness (or greed) develops a new game using some kind of an undetected VIRTUAL backstop using vaporware/fictional substance (think: Enron), but when a 50 year storm comes along, the foundation is revealed to be sand.
I am very interested in seeing how each of us adapt and cope with inconvenience. It does seem that this cycle has the capability to shake whatever can be shaken.
So we have now seen the fall of Brokerage Lehman(?).
BoA has acquired (at a discount) a large scale potential for sickness.
If one of the top five banks fails, we will get to see if panic is still the public enemy No.1.
wonderful post. I agree this played some roll (and not a small roll) in this mess.
but I think it illistrates a point here.
A couple of people are talking about deregulation by the Bush Adminstration being a cause of the mess. I still would like someone (anyone) to point to speicific legislation pushed by GWB and company, or a set of rule changes made by GWB and company that equals deregulation.
__________________ If I do something stupid blame the Lortab!
Obama is NO FDR.
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