What's wrong with just letting the companies fail?

[manlymatt83]

All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

 

[palehorse]

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

That appears to be the $10 trillion question... and one that I've yet to see answered to my satisfaction, by anyone.

 

[dahunan]

Shit.. look at the comments made about people living in the Gaza strip under the rule of Hamas.. "They voted for them.. let them eat bombs too"

Fuck those companies.. like they are gonna get all nice and benevolent with us later.. lol..

 

[frostedflakes]

Lehman's collapse sent shock waves through the financial sector, and that was just one company. In a healthy market I'd agree with letting bad companies fail, but in this situation I don't really know if it would be prudent to stick by that ideology. The market was going downhill fast, and if a few large banks were allowed to fail it could have caused a domino effect. Not that I really like the bailouts, but I look at them as a necessary evil.

 

[Saga]

I think the sad thing is that it's not even a question of accountability.

The cold hard reality is your tax dollars were spent propping up businesses that don't give a single shit about you and will take your money and run laughing while they continue to hike prices for their products. A legitimate bankruptcy and management restructure would have been far, far better for us in the long run. Too bad nobody cares about the world the next generation will have to deal with.

 

[her209]

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

How many businesses live and die on the credit extended to them?

 

[dawp]

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

I'm not any type of lawyer, but I don't think bankruptcy will replace management, depending on type, it either liquidates assets or gives companies temperary relief from thier creditors and wont nessessarily replace management. so those bozos who drove the company into the ground will still be running it.

 

[dahunan]

they chose to give out predatory loans.. let them die like predatory dinosaurs

 

[Net]

hmmm, well i don't know. how do you get your food? do you hunt or does a company sell it to you?

food
gas
electricity
clothes
toiletries
etc...

which one on the list do we provide for ourselves?

we as a people don't even have enough resources in our own country to provide for everyone.

 

[fskimospy]

Originally posted by: palehorse

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

That appears to be the $10 trillion question... and one that I've yet to see answered to my satisfaction, by anyone.

Fundamentally because the markets are behaving irrationally right now and the value of the assets that the major banks hold is considerably higher than what the world is currently willing to label them as (due to irrational fear). Therefore, rescuing the banks in their current state leads to reasonably small capital investments that prevent far larger capital losses.

Economics 101. This has been explained repeatedly.

 

[Zebo]

Moneyed Lobbies and constituents keep them open making situation worse. Go to congress with your small business and tell them to bail you out and let me know if they stop laughing before bodyguards throw you out.

 

[First]

The size of the banks failing is the issue, not the number. We had far more banks fail during the late 80's S&L crisis than we've had in this current crisis, difference is this one is larger in scope and influence. Bonds that Lehman issued, for example, touched many vital sectors. When people realized they weren't good for it last September, and that they wouldn't be bailed out, there was a definite panic. In fact, it's hard to say letting them fail by not giving them a bailout was the right thing to do given the reaction to it we've seen. As eskimospy pointed out, irrationality takes hold and without bailouts you get a panic, much like we'd get if we didn't have an FDIC to insure bank deposits (now up to 300K), or much like we had in the 1917 bank panic with the run on banks. Without a Fed we'd have absolutely no ability to calm markets, provide guidance, or spur investment. Basically wild west 19th century economics.

Basic question you have to ask is, when in history has "letting the market figure it out" actually worked, more aptly when has it worked in an actual panic. 1917? No. Great Depression? Of course not. Both times, there either weren't enough institutions established to deal with said circumstances, they were inexperienced, or worse they didn't do anything at all; specifically, the Fed doing nothing during the Depression, letting the money supply contract by 30%. That 30's era ideology was based on the same principle that someone, somewhere, is magically going to save the day. Sure, there is a probability someone might come in and save the day independent of any gov't institution. Or, you could take your head out of your ass and simply make sure someone does something 100% of the time during an economic crisis. Yes, that means the "evil" U.S. gov't.

 

[Billb2]

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. ...why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

That plan is much to simplistic. The problem is that there may be so much debt out there that, if that debt isn't repaid, everybody and every thing will go bankrupt. On a personal level (other than loosing your source of income) the trucks that deliver food to your local grocery store may cease to deliver that food, the phones may go dead, gas may go to $100/gal, etc..

The issue now (after the the bailouts/TARP) is that no one really knows how much debt (the toxic debt) won't be repaid. Hence the banks don't want to loan out any money because they have no way to gauge the risk of it not being repaid.

If you, or a company, apply for a loan, no matter how good your credit is now, the bank has no way to tell whether you will be able to repay in the future because they have no idea what effect the defaulting of present loans (again, the toxic debt) will have on the overall economy.

What needs to be done is that a value has to be put on the toxic debt. Then the financial industry can figure out how much debt will default and plan accordingly, be that buisness aas usual all the way to mass economic disruption.

Sometimes a problem can be solved just by a decision being made, it doesn't necessarily have to be the best/right decision, just a decision. That's where we are now.

The SEC (securities and Exchange Comission) has directed that the toxic debt be valued by "mark to market" (ie. value the debt at what you can sell it for today). But that didn't work, because the financial industry knows (or can easily determine) the value of the toxic debt today, but they have no idea what it will be worth in the future (when they actually sell it or when they write off the bad loans).

So here we sit, with credit locked up, the economy slowly tanking, and companies cutting staff or slowly failing, all in anticipation of what is going to happen in the economic future.

What's needed is a number, 10¢ on the dollar, 30¢ on the dollar, 50¢ on the dollar??? Any number will do. The problem is that whomever picks the number will be deciding exactly how much economic disruption there will be...how toxic the toxic debt really is. No one (including congress, the only entity that can possibly mitigate any economic disruptions) is willing to do that.

Just remember these bozos when they run for reelection.
"Hold up your hand if you flew here in a corporate jet" yeah, sure, that's gonna solve the problem.

 

[bamacre]

Originally posted by: Evan
Basic question you have to ask is, when in history has "letting the market figure it out" actually worked?

http://en.wikipedia.org/wiki/1921_recession

The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. The recession was over in one year.

 

[Zebo]

Evan -

How are we going to address the excessive debt loads government and consumers have? And in the case of govt - the ever growing debt-servicing costs? IMO less spending on current consumption and a consequential increase in saving, is a totally rational response to the current economic reality of too much debt, too little savings, and a mismatch between production and consumption. Not to mention a high unemployment, much higher than advertised, simply prevents people from servicing debt leading to banking issues.

I don't buy that we can spend our way out simply because we won't get serious about taxing and thus the ever growing debt-servicing costs leading to reduced government services will have us right back here in short order. And if sovereign funds and Asia decides America is as insolvent as the banks found our consumers to be and cuts off the loans we are in even deeper trouble. While that's happening you have whole expense of massive baby boomers tapping Social Security and Medicaid.

Sorry I would like to believe this is all irrationality but I think there are sound reasons for our devaluation. Called deadbeats in a word.

 

[Zebo]

Originally posted by: bamacre

Originally posted by: Evan
Basic question you have to ask is, when in history has "letting the market figure it out" actually worked?

http://en.wikipedia.org/wiki/1921_recession

The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. The recession was over in one year.

Evan rather have billionaire bankers and favored govt contractors get billions, which they stash in off-shore havens usually so they can't be sued we we find out about their theft from our children and children's children.

rather than short painful but real recovery and rebirth.

 

[Zebo]

Originally posted by: Billb2

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. ...why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

That plan is much to simplistic. The problem is that there may be so much debt out there that, if that debt isn't repaid, everybody and every thing will go bankrupt. On a personal level (other than loosing your source of income) the trucks that deliver food to your local grocery store may cease to deliver that food, the phones may go dead, gas may go to $100/gal, etc..

The issue now (after the the bailouts/TARP) is that no one really knows how much debt (the toxic debt) won't be repaid. Hence the banks don't want to loan out any money because they have no way to gauge the risk of it not being repaid.

If you, or a company, apply for a loan, no matter how good your credit is now, the bank has no way to tell whether you will be able to repay in the future because they have no idea what effect the defaulting of present loans (again, the toxic debt) will have on the overall economy.

What needs to be done is that a value has to be put on the toxic debt. Then the financial industry can figure out how much debt will default and plan accordingly, be that buisness aas usual all the way to mass economic disruption.

Sometimes a problem can be solved just by a decision being made, it doesn't necessarily have to be the best/right decision, just a decision. That's where we are now.

The SEC (securities and Exchange Comission) has directed that the toxic debt be valued by "mark to market" (ie. value the debt at what you can sell it for today). But that didn't work, because the financial industry knows (or can easily determine) the value of the toxic debt today, but they have no idea what it will be worth in the future (when they actually sell it or when they write off the bad loans).

So here we sit, with credit locked up, the economy slowly tanking, and companies cutting staff or slowly failing, all in anticipation of what is going to happen in the economic future.

What's needed is a number, 10¢ on the dollar, 30¢ on the dollar, 50¢ on the dollar??? Any number will do. The problem is that whomever picks the number will be deciding exactly how much economic disruption there will be...how toxic the toxic debt really is. No one (including congress, the only entity that can possibly mitigate any economic disruptions) is willing to do that.

Just remember these bozos when they run for reelection.
"Hold up your hand if you flew here in a corporate jet" yeah, sure, that's gonna solve the problem.

Nice post. Do they even have money to lend? I thought they were too busy snapping up fire sales on other institutions and paying FAT bonuses to themselves to bother with consumers?

 

[First]

Originally posted by: bamacre

Originally posted by: Evan
Basic question you have to ask is, when in history has "letting the market figure it out" actually worked?

http://en.wikipedia.org/wiki/1921_recession

The recession of 1921-1923 proved to be the sharpest economic downturn since the emergence of the business cycle in the early 19th century, but it also was one of the shortest reversals. The government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. The recession was over in one year.

Unemployment was at nearly 20% and the deflation experienced from 20 to 21 was the deepest and most terrible on record. That's hardly worthy of reference, by today's standards that would be an unmitigated disaster. Besides, it was partially caused by a decrease in demand and increase in supply (returning soldiers from WWI).

So no, swing and a miss.

 

[First]

Originally posted by: Zebo
Evan -

How are we going to address the excessive debt loads government and consumers have? And in the case of govt - the ever growing debt-servicing costs? IMO less spending on current consumption and a consequential increase in saving, is a totally rational response to the current economic reality of too much debt, too little savings, and a mismatch between production and consumption. Not to mention a high unemployment, much higher than advertised, simply prevents people from servicing debt leading to banking issues.

People are saving more and spending less, have been for 7 months now. We've been in a recession since December 07. People are trying to get out of debt, it's already happening. The gov't is merely there to soften the blow and keep it from becoming a mini-depression. And unemployment is accurately reported, you just have to know how to read it.

I don't buy that we can spend our way out simply because we won't get serious about taxing and thus the ever growing debt-servicing costs leading to reduced government services will have us right back here in short order. And if sovereign funds and Asia decides America is as insolvent as the banks found our consumers to be and cuts off the loans we are in even deeper trouble. While that's happening you have whole expense of massive baby boomers tapping Social Security and Medicaid.

Asia will do no such thing, it's not in their interest. They cannot function without a prosperous United States, they are tied to the U.S. There's nothing insolvent about the U.S., Americans and banks alike simply borrowed and over-leveraged more than they should have. This has been happening since the founding of the country. Happened during the 20's era boom, too. This time we won't just sit back and watch deflation take hold.

 

[chess9]

I think we should let banks fail. If they don't fail, and are constantly bailed out, when and how will they learn? As a corrolary to letting them fail, however, we must also regulate banks tightly. Repeal of Glass-Steagall was obviously one of our big mistakes.

Ditto for Wall Street firms, but regulate them tightly.

Ignore Libertarians, and most Republicans, when it comes to regulation of business. Otherwise you get this indeciveness and the inevitable compromises that weaken regulation.

The sad thing about the current Congress's approach, endorsed by Bush and Obama, is they don't really know what the result will be of their interventions. Every economic problem has a complex solution. Mis-steps are very costly. Should you do nothing? Should you do something? If so, what kind of something. It's a very complex problem.

I would do nothing, and follow Hippocrates advice: "First, do no harm."

-Robert

 

[smack Down]

Originally posted by: eskimospy

Originally posted by: palehorse

Originally posted by: manlymatt83
All of these banks. All of these companies that made mistakes. What ever happened to Free Trade? I'm not 100% in support of free trade, because from what I've learned, it eventually causes economic abuse, shutdown of small businesses, garbage dumping in 3rd world countries, etc... but for the most part, why can't we just let the companies that did poor jobs fail, go into bankruptcy, and let them come out restructured under new, proper management?

That appears to be the $10 trillion question... and one that I've yet to see answered to my satisfaction, by anyone.

Fundamentally because the markets are behaving irrationally right now and the value of the assets that the major banks hold is considerably higher than what the world is currently willing to label them as (due to irrational fear). Therefore, rescuing the banks in their current state leads to reasonably small capital investments that prevent far larger capital losses.

Economics 101. This has been explained repeatedly.

This may have been asserted repeatedly but there is zero evidence that the market is acting irrational. Additional it doesn't really matter how much the losses are on the assets when you use 30 to 1 leverage like the investment banks even a 1 to 2 percent loss and the bank is bankrupt.

 

[smack Down]

Originally posted by: Evan
The size of the banks failing is the issue, not the number. We had far more banks fail during the late 80's S&L crisis than we've had in this current crisis, difference is this one is larger in scope and influence. Bonds that Lehman issued, for example, touched many vital sectors. When people realized they weren't good for it last September, and that they wouldn't be bailed out, there was a definite panic. In fact, it's hard to say letting them fail by not giving them a bailout was the right thing to do given the reaction to it we've seen. As eskimospy pointed out, irrationality takes hold and without bailouts you get a panic, much like we'd get if we didn't have an FDIC to insure bank deposits (now up to 300K), or much like we had in the 1917 bank panic with the run on banks. Without a Fed we'd have absolutely no ability to calm markets, provide guidance, or spur investment. Basically wild west 19th century economics.

Basic question you have to ask is, when in history has "letting the market figure it out" actually worked, more aptly when has it worked in an actual panic. 1917? No. Great Depression? Of course not. Both times, there either weren't enough institutions established to deal with said circumstances, they were inexperienced, or worse they didn't do anything at all; specifically, the Fed doing nothing during the Depression, letting the money supply contract by 30%. That 30's era ideology was based on the same principle that someone, somewhere, is magically going to save the day. Sure, there is a probability someone might come in and save the day independent of any gov't institution. Or, you could take your head out of your ass and simply make sure someone does something 100% of the time during an economic crisis. Yes, that means the "evil" U.S. gov't.

I don't think anyone is saying do nothing.

The fed should stop handing money to failed banks just because their buddies work there

 

[Zebo]

Originally posted by: Evan

Originally posted by: Zebo
Evan -

How are we going to address the excessive debt loads government and consumers have? And in the case of govt - the ever growing debt-servicing costs? IMO less spending on current consumption and a consequential increase in saving, is a totally rational response to the current economic reality of too much debt, too little savings, and a mismatch between production and consumption. Not to mention a high unemployment, much higher than advertised, simply prevents people from servicing debt leading to banking issues.

People are saving more and spending less, have been for 7 months now. We've been in a recession since December 07. People are trying to get out of debt, it's already happening. The gov't is merely there to soften the blow and keep it from becoming a mini-depression. And unemployment is accurately reported, you just have to know how to read it.

I don't buy that we can spend our way out simply because we won't get serious about taxing and thus the ever growing debt-servicing costs leading to reduced government services will have us right back here in short order. And if sovereign funds and Asia decides America is as insolvent as the banks found our consumers to be and cuts off the loans we are in even deeper trouble. While that's happening you have whole expense of massive baby boomers tapping Social Security and Medicaid.

Asia will do no such thing, it's not in their interest. They cannot function without a prosperous United States, they are tied to the U.S. There's nothing insolvent about the U.S., Americans and banks alike simply borrowed and over-leveraged more than they should have. This has been happening since the founding of the country. Happened during the 20's era boom, too. This time we won't just sit back and watch deflation take hold.

I can buy some of that.... but how do we address problem of ever increasing debt-servicing costs as a percentage of tax receipts? It's going up by 2 basis points a year and will soon take 50% of all tax revenues to pay just interest to rich foreign bond holders not services we can use. Furthermore, we are already getting all these foreigners excess cash, they can't loan anymore more to us - frankly I'll be interested to see where the treasury gets the 3 trillion needed this year. Have you seen how shitty the tax recipets are so far? down like 25% from last year!! Maybe 4 trillion needed before the year is out.

Ponzi scheme if I ever saw one, least the government can print it's own money unlike Made OFF.

 

[boomerang]

Originally posted by: Zebo

Originally posted by: Evan

Originally posted by: Zebo
Evan -

How are we going to address the excessive debt loads government and consumers have? And in the case of govt - the ever growing debt-servicing costs? IMO less spending on current consumption and a consequential increase in saving, is a totally rational response to the current economic reality of too much debt, too little savings, and a mismatch between production and consumption. Not to mention a high unemployment, much higher than advertised, simply prevents people from servicing debt leading to banking issues.

People are saving more and spending less, have been for 7 months now. We've been in a recession since December 07. People are trying to get out of debt, it's already happening. The gov't is merely there to soften the blow and keep it from becoming a mini-depression. And unemployment is accurately reported, you just have to know how to read it.

I don't buy that we can spend our way out simply because we won't get serious about taxing and thus the ever growing debt-servicing costs leading to reduced government services will have us right back here in short order. And if sovereign funds and Asia decides America is as insolvent as the banks found our consumers to be and cuts off the loans we are in even deeper trouble. While that's happening you have whole expense of massive baby boomers tapping Social Security and Medicaid.

Asia will do no such thing, it's not in their interest. They cannot function without a prosperous United States, they are tied to the U.S. There's nothing insolvent about the U.S., Americans and banks alike simply borrowed and over-leveraged more than they should have. This has been happening since the founding of the country. Happened during the 20's era boom, too. This time we won't just sit back and watch deflation take hold.

I can buy some of that.... but how do we address problem of ever increasing debt-servicing costs as a percentage of tax receipts? It's going up by 2 basis points a year and will soon take 50% of all tax revenues to pay just interest to rich foreign bond holders not services we can use. Furthermore, we are already getting all these foreigners excess cash, they can't loan anymore more to us - frankly I'll be interested to see where the treasury gets the 3 trillion needed this year. Have you seen how shitty the tax recipets are so far? down like 25% from last year!! Maybe 4 trillion needed before the year is out.

Ponzi scheme if I ever saw one, least the government can print it's own money unlike Made OFF.

So, you're starting to think that maybe we're not going to pull out of this? You've got a ringside seat for the downfall of what was once the most powerful nation on the planet. The fall was inevitable, I was hoping it would happen after I'd passed on though.

I'm middle aged, overweight and out of shape. On top of that, I don't know when to keep my mouth shut. Regardless of who takes over, I won't last long. I won't be facing East in prayer numerous times a day, that's for certain.

 

[Zebo]

I don't know. I'm 50/50 exactly. I sure hope we do pull out. But fact is - lost of economists, even govt ones like David Walker, have been predicting imminent bankruptcy awile now, and that was before all this new spending shit and bubbles of last year shortening time frame!

I am prepared though, or as prepared as I can be without having access to secret VIP underground compounds...live rural with acres and stocked pond and so on. I damn sure can't keep my mouth shut either, thats what the 2nd and ammo is for...to protect the First

Anyway you could start running... even if shit does not hit the fan, it's never too late to live longer, have more energy, less stress etc. BTW what's middle aged mean anyway? I'm 37 only run 4 but dads 69 and runs 7 miles a day...old man kicks my ass it's embarrassing.