Can someone PLEASE explain the source of the current economic mess

[dderidex]

I'm getting two very conflicting perspectives on the meta-cause of this.

One group notes that there has been massive 'deregulation' under Bush's and Clinton's administrations, leading to permissive lending practices that led to the current banking crisis. The argument is that legislation existed that would have prevented many of the lending practices currently ruining us, and merging of business into unstable entities, and this has been systematically dismantled.

The other group (mostly Ayn Rand fans) cries 'foul!' and argues that there are still so many regulations forced on the industry that the 'free market' cannot operate - government 'forcing' banks to make bad loans through policies (etc) - and the meddling due to Fannie and Freddie operating with reckless abandon, apparently sanctioned by the government, is the cause of the mess.

Neither argument appears to cite their sources very well, though, and so I'm left wondering which is more likely correct? Is massive deregulation at fault? Is over-regulation at fault? Was the whole mess inevitable, and nothing any government or private business could have done would have been able to stop it?

 

[dmcowen674]

Originally posted by: dderidex
Topic Title: Can someone PLEASE explain the source of the current economic mess
Topic Summary: Citing sources?

Bill Clinton and Barack Obama

Sources:

Rush, Hannity and ATPN resident Republicans.

 

[TallBill]

Originally posted by: dmcowen674

Originally posted by: dderidex
Topic Title: Can someone PLEASE explain the source of the current economic mess
Topic Summary: Citing sources?

Bill Clinton and Barack Obama

Sources:

Rush, Hannity and ATPN resident Republicans.

Pm sent to Anandtech Moderator, I encourage others to as well. This post clearly violates forum rules.

This isn't Off Topic.

 

[First]

Originally posted by: TallBill

Originally posted by: dmcowen674

Originally posted by: dderidex
Topic Title: Can someone PLEASE explain the source of the current economic mess
Topic Summary: Citing sources?

Bill Clinton and Barack Obama

Sources:

Rush, Hannity and ATPN resident Republicans.

Pm sent to Anandtech Moderator, I encourage others to as well. This post clearly violates forum rules.

This isn't Off Topic.

Yup, agreed. Amazing this troll hasn't been banned.

 

[OrByte]

source: money.

 

[dmcowen674]

Originally posted by: Evan

Originally posted by: TallBill

Originally posted by: dmcowen674

Originally posted by: dderidex
Topic Title: Can someone PLEASE explain the source of the current economic mess
Topic Summary: Citing sources?

Bill Clinton and Barack Obama

Sources:

Rush, Hannity and ATPN resident Republicans.

Pm sent to Anandtech Moderator, I encourage others to as well. This post clearly violates forum rules.

This isn't Off Topic.

Yup, agreed. Amazing this troll hasn't been banned.

Wow, have to add you guys to the list of new owners of AT eh?

 

[sandorski]

First argument is correct. Second is BS. Jimmy Carter gets blamed in the Second Argument, as an example of its' ridiculousness.

 

[dderidex]

Originally posted by: sandorski
First argument is correct. Second is BS. Jimmy Carter gets blamed in the Second Argument, as an example of its' ridiculousness.

Any source to that, though?

For example, which legislation was repealed that caused so much anguish?

The (I'll call them for the time being) Ayn Rand worshipers also argue that the gov't additionally intervened too much by tacitly providing backing for any activity Fannie and Freddie took - so they would offer many sub-prime loans, with unsustainable terms, too risky, too much, etc - on the understanding that if they ever did go too far and blow it, the gov't would just rescue them. The 'private sector' was forced to do the same to stay in the market, only without a gov't bailout ready to go, ended up having loss of investor confidence and resulting failure.

Is there any evidence that their poor business practices were something they came up with entirely on their own - not 'forced to' by 'keeping up with the Joneses' to the gov't 'sponsored' Fannie and Freddie?

 

[alien42]

Originally posted by: dderidex

Originally posted by: sandorski
First argument is correct. Second is BS. Jimmy Carter gets blamed in the Second Argument, as an example of its' ridiculousness.

Any source to that, though?

For example, which legislation was repealed that caused so much anguish?

The (I'll call them for the time being) Ayn Rand worshipers also argue that the gov't additionally intervened too much by tacitly providing backing for any activity Fannie and Freddie took - so they would offer many sub-prime loans, with unsustainable terms, too risky, too much, etc - on the understanding that if they ever did go too far and blow it, the gov't would just rescue them. The 'private sector' was forced to do the same to stay in the market, only without a gov't bailout ready to go, ended up having loss of investor confidence and resulting failure.

Is there any evidence that their poor business practices were something they came up with entirely on their own - not 'forced to' by 'keeping up with the Joneses' to the gov't 'sponsored' Fannie and Freddie?

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

that is what tied the banks to high risk investments.

 

[miketheidiot]

paging vic and legend killer, i'm sick of these threads.

 

[Quixfire]

I've been reading and watching videos about the source of the financial market crisis or the lack of available credit to the business sector. I have found the following two links to be very helpful to understand the parties at fault.

How the Democrats Created the Financial Crisis: Kevin Hassett

Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

Quixfire

 

[miketheidiot]

Originally posted by: Quixfire
I've been reading and watching videos about the source of the financial market crisis or the lack of available credit to the business sector. I have found the following two links to be very helpful to understand the parties at fault.

How the Democrats Created the Financial Crisis: Kevin Hassett

Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

Quixfire

too bad they both got it completely wrong. If someone is blaming everything on one single person or group, then they are doing it wrong. The blame for this cannot be laid on either democrats or fannie/freddie, any more than it can be on greenspan, bush, poor regulation, foreign investment capital, chinese currency manipulation, etc.

 

[miketheidiot]

also citing youtube videos generally make you look like an idiot

 

[ElFenix]

banks made loans to people that couldn't really repay them, especially not when gas went up to $4+ a gallon and the cost of food shot up.

/thread

 

[Linux23]

Bush


/thread

 

[TallBill]

Originally posted by: miketheidiot
also citing youtube videos generally make you look like an idiot

Wat? *scratches head*

 

[ITJunkie]

The movie "Wall Street" and its mantra "Greed is Good"...

 

[Quixfire]

Originally posted by: miketheidiot

Originally posted by: Quixfire
I've been reading and watching videos about the source of the financial market crisis or the lack of available credit to the business sector. I have found the following two links to be very helpful to understand the parties at fault.

How the Democrats Created the Financial Crisis: Kevin Hassett

Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

Quixfire

too bad they both got it completely wrong. If someone is blaming everything on one single person or group, then they are doing it wrong. The blame for this cannot be laid on either democrats or fannie/freddie, any more than it can be on greenspan, bush, poor regulation, foreign investment capital, chinese currency manipulation, etc.

Yes it can, because no one can prove that Bush or the Republicans caused any of the mess. All the information I have read leads me to blame the Demcrats in Congress for hiding the problems in Fannie Mae ad Freddie Mac until it was too late. The only thing I can blame Bush for is having faith in those crooks to begin with and not replacing the Clinton appointed regulators when he had the chance.

 

[jpeyton]

G
W
B

 

[dlx22]

the average american is as responsible as anyone else. We americans view out home(s) as our castle. What does the the average american do when they get more money? invest, start a business? heck no they go out buy a bigger house or improve the house that they have thinking its a safe investment; this does not bode well for the long run health of our economy. Many economists have been suspicious of the negative influence of the housing market on the economy long before the the market went bust. I'm not saying the finance companies don't share in the blame but if you sit back and and think about it the the average person helps themselves and not the economy.

 

[glenn1]

Originally posted by: dderidex
I'm getting two very conflicting perspectives on the meta-cause of this.

One group notes that there has been massive 'deregulation' under Bush's and Clinton's administrations, leading to permissive lending practices that led to the current banking crisis. The argument is that legislation existed that would have prevented many of the lending practices currently ruining us, and merging of business into unstable entities, and this has been systematically dismantled.

The other group (mostly Ayn Rand fans) cries 'foul!' and argues that there are still so many regulations forced on the industry that the 'free market' cannot operate - government 'forcing' banks to make bad loans through policies (etc) - and the meddling due to Fannie and Freddie operating with reckless abandon, apparently sanctioned by the government, is the cause of the mess.

Neither argument appears to cite their sources very well, though, and so I'm left wondering which is more likely correct? Is massive deregulation at fault? Is over-regulation at fault? Was the whole mess inevitable, and nothing any government or private business could have done would have been able to stop it?

Both are somewhat correct, yet are still misleading.

First, the amount of regulations don't matter so much as what they cover, and how willing the participants are to obey them. There were and are plenty of rules against fraud, yet still Enron happened - not a fault of lax regulations, but rather of dishonest people willing to intentionally break the law.

Secondly, in the case of the current crisis, it wasn't a lack of regulations so much as a complete breakdown in the assumptions everyone was using. One of the results of a former crisis (Enron again) was that regulators required companies to institute risk modeling and control measures. Well, it wound up that everyone on the Street was using the same model, and when it failed it failed catastrophically due to faulty premises.

Lastly, it's become apparent recently that regulatory decisions which were rational at the level of the individual broker-dealer, collapsed completely at an aggregate level when stresses are placed on the market due to failures of products such as Auction Rate Securities. Couple that with a hidebound "rules based" rather than "principles based" regulatory structure that couldn't keep up with events as they unfolded, and you have a complete meltdown.

 

[dderidex]

Originally posted by: alien42

Originally posted by: dderidex

Originally posted by: sandorski
First argument is correct. Second is BS. Jimmy Carter gets blamed in the Second Argument, as an example of its' ridiculousness.

Any source to that, though?

For example, which legislation was repealed that caused so much anguish?

The (I'll call them for the time being) Ayn Rand worshipers also argue that the gov't additionally intervened too much by tacitly providing backing for any activity Fannie and Freddie took - so they would offer many sub-prime loans, with unsustainable terms, too risky, too much, etc - on the understanding that if they ever did go too far and blow it, the gov't would just rescue them. The 'private sector' was forced to do the same to stay in the market, only without a gov't bailout ready to go, ended up having loss of investor confidence and resulting failure.

Is there any evidence that their poor business practices were something they came up with entirely on their own - not 'forced to' by 'keeping up with the Joneses' to the gov't 'sponsored' Fannie and Freddie?

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

that is what tied the banks to high risk investments.

I see that, but...really? That's it? The whole thing? As soon as investment banks and commercial banks could merge, they did, and promptly started making bad decisions on their own that led to this mess?

I dunno, the linked Wiki article seems to argue against that:

Much consolidation occurred in the financial services industry since, but not at the scale some had expected. Retail banks, for example, do not tend to buy insurance underwriters, as they seek to engage in a more profitable business of insurance brokerage by selling products of other insurance companies. Other retail banks were slow to market investments and insurance products and package those products in a convincing way. Brokerage companies had a hard time getting into banking, because they do not have a large branch and backshop footprint. Banks have recently tended to buy other banks, such as the 2004 Bank of America and Fleet Boston merger, yet they have had less success integrating with investment and insurance companies. Many banks have expanded into investment banking, but have found it hard to package it with their banking services, without resorting to questionable tie-ins which caused scandals at Smith Barney.

 

[squirrel dog]

banks made loans to people that couldn't really repay them, especially not when gas went up to $4+ a gallon and the cost of food shot up.

Hello .

 

[dderidex]

Originally posted by: glenn1

Originally posted by: dderidex
I'm getting two very conflicting perspectives on the meta-cause of this.

One group notes that there has been massive 'deregulation' under Bush's and Clinton's administrations, leading to permissive lending practices that led to the current banking crisis. The argument is that legislation existed that would have prevented many of the lending practices currently ruining us, and merging of business into unstable entities, and this has been systematically dismantled.

The other group (mostly Ayn Rand fans) cries 'foul!' and argues that there are still so many regulations forced on the industry that the 'free market' cannot operate - government 'forcing' banks to make bad loans through policies (etc) - and the meddling due to Fannie and Freddie operating with reckless abandon, apparently sanctioned by the government, is the cause of the mess.

Neither argument appears to cite their sources very well, though, and so I'm left wondering which is more likely correct? Is massive deregulation at fault? Is over-regulation at fault? Was the whole mess inevitable, and nothing any government or private business could have done would have been able to stop it?

Both are somewhat correct, yet are still misleading.

First, the amount of regulations don't matter so much as what they cover, and how willing the participants are to obey them. There were and are plenty of rules against fraud, yet still Enron happened - not a fault of lax regulations, but rather of dishonest people willing to intentionally break the law.

Secondly, in the case of the current crisis, it wasn't a lack of regulations so much as a complete breakdown in the assumptions everyone was using. One of the results of a former crisis (Enron again) was that regulators required companies to institute risk modeling and control measures. Well, it wound up that everyone on the Street was using the same model, and when it failed it failed catastrophically due to faulty premises.

Lastly, it's become apparent recently that regulatory decisions which were rational at the level of the individual broker-dealer, collapsed completely at an aggregate level when stresses are placed on the market due to failures of products such as Auction Rate Securities. Couple that with a hidebound "rules based" rather than "principles based" regulatory structure that couldn't keep up with events as they unfolded, and you have a complete meltdown.

I understand what you are saying, but it doesn't really address the...let me pull a combo from above..."meta argument".

Specifically, Ayn Rand followers (also: most Libertarians, etc) tend to argue "no legislation is best - companies poorly run will fail, making room for more space in the market for more competitive smaller companies. Lower prices for all, better jobs, and harder work is better rewarded."

One of your comments I could ask to be expanded on that might help address this:

it wound up that everyone on the Street was using the same model, and when it failed it failed catastrophically due to faulty premises.

...what are these 'faulty premises', and how did 'everyone' end up using them? Is it possible these are related to the post-Enron legislation you mention? In that the argument could be made 'if not for government intervention forcing a certain policy on companies, they would all have found their own model, and the financial failure wouldn't have been as bad or widespread'.

Not saying it's my argument - but I am familiar enough with the other side to see them jumping right to that. Seems like any time you would point out collective behavior, the argument becomes 'this is only because of government intervention, left to their own devices, each company would come up with its own behavior'.

 

[WhipperSnapper]

Originally posted by: dderidex

The (I'll call them for the time being) Ayn Rand worshipers...

Ayn Rand founded a philosophy called Objectivism, so the correct term for someone who lives according to that philosophy is "Objectivist" and not "Ayn Rand worshiper".

The real source of our nation's economic problem is two-fold:

(1) Global Labor Arbitrage -- this is an economic phenomena where workers' wages and standard of living essentially average out with those of other nations. (In the case of the USA, the rest of the world.) Consequently, standards of living in those nation's tend to average out as businesses seek out locations that have the least expensive cost of doing business (environmental, regulatory, labor). Workers in a first world nation might thus be laid off as a business relocates its production facilities to third world countries for the purposes of producing goods and services to be imported into the first world country.

Global Labor Arbitrage can take several forms--foreign outsourcing, the importation of foreigners to displace domestic workers using work visas (such as the H-1B or L-1 visa, aka, "My job was bombed by the H-1B"), and mass immigration--the importation of impoverished labor to displace domestic workers and drive down wages.

This is a large component of the wealthy class's war on the American middle class.

(2) Global and Local Malthusian Crisis -- as population increases, or at least as the population of people who use resources increases, the demand for finite natural resources, including energy resources, also increases, essentially reducing everyone's standard of living. The world's population has exploded and the United States' population is also exploding, resulting in higher prices for gasoline, food, and real estate.

Prices might decrease during an economic depression, but they'd be even lower if we had a lower population.

----------

That's basically the source of our nation's current economic mess. However, it is a very politically incorrect explanation and any solutions (trade protectionism, moratorium on immigration, birth control) are also very politically incorrect and radical which is why the politicians and the news media won't dare mention it.