However, I am curious about this. Why would you disband the Army and how would you propose defending our nation?
The Constitution prohibits permanent funding of a standing army (as opposed to the Navy, which it requires). Having that kind of military force just sitting around makes people want to use it. The Founding Fathers were against this.
I'd like to disband the existing Army and National Guard units and take their current personell and funding and give it to the State Defense Forces (Which do still exist. They're under the same laws as the National Guard, except that they can only be Federalized with the consent of the Governor.) I'd likely do something similar with the Air Force, but the Navy is currently dependant on the Air Force for logistical reasons, so that would require more complex rejiggering. (Rejiggering being the technical term.)
Ultimately, the same number of troops would be available if something actually required it (An actual invasion of the United States or its allies, for example.) The Marines (as part of the Navy) would still exist in their role as a rapid response force.
However, in order to go to war somewhere else, the President would either need to convince enough Governors to give him troops, rely on the Marines and Navy, or get special funding from Congress to raise an army. This is how the military worked right up until World War I.
The Constitution prohibits permanent funding of a standing army (as opposed to the Navy, which it requires). Having that kind of military force just sitting around makes people want to use it. The Founding Fathers were against this.
Interesting.
I disagree. Combined arms is difficult enough with different types of units. I can not even imagine the chaos that would ensue attempting to combine 52 different state militias. That is not to mention the political maneuvering the governors would use every time the president wanted to use some troops. I understand that is a feature of the system, not a bug, but I fear it would become so ineffectual that we could not even defend our borders because of the constant bickering.
The world is a different place than when the Founding Fathers established the constitution. Even they were smart enough to foresee the times they are a changing.
I disagree. Combined arms is difficult enough with different types of units. I can not even imagine the chaos that would ensue attempting to combine 52 different state militias. That is not to mention the political maneuvering the governors would use every time the president wanted to use some troops. I understand that is a feature of the system, not a bug, but I fear it would become so ineffectual that we could not even defend our borders because of the constant bickering.
I disagree. First of all, our borders aren't the big issue anyway: Canada and Mexico are unlikely to want to conquer us anytime soon.
Second, combining different state militias can't be any worse than combining different National Guard forces, which is currently done constantly.Anyway, this is quite off topic for this thread. If you're interested in discussing it further, I'd be happy to make a thread containing my 2020 platform, which could then be picked apart. (I'll call it 'vetting'.)
I disagree. First of all, our borders aren't the big issue anyway: Canada and Mexico are unlikely to want to conquer us anytime soon.
I can concede that point.
Second, combining different state militias can't be any worse than combining different National Guard forces, which is currently done constantly.
Anyway, this is quite off topic for this thread. If you're interested in discussing it further, I'd be happy to make a thread containing my 2020 platform, which could then be picked apart. (I'll call it 'vetting'.)
Yes, but how much of our current total fighting force is made up of National Guard units? I do not have the numbers, so I honestly do not know. Maybe it is the majority. Still, are they not simply absorbed into the regular Army essentially? I do not think the National Guard units have the infrastructure that the standing army does.
I would love for America to stop being the world’s police force. In today’s world, I am not convinced it is possible to keep from being drawn into the world stage.
However, I am curious about this. Why would you disband the Army and how would you propose defending our nation?
The Constitution prohibits permanent funding of a standing army (as opposed to the Navy, which it requires). Having that kind of military force just sitting around makes people want to use it. The Founding Fathers were against this.
I'd like to disband the existing Army and National Guard units and take their current personell and funding and give it to the State Defense Forces (Which do still exist. They're under the same laws as the National Guard, except that they can only be Federalized with the consent of the Governor.) I'd likely do something similar with the Air Force, but the Navy is currently dependant on the Air Force for logistical reasons, so that would require more complex rejiggering. (Rejiggering being the technical term.)
Ultimately, the same number of troops would be available if something actually required it (An actual invasion of the United States or its allies, for example.) The Marines (as part of the Navy) would still exist in their role as a rapid response force.
However, in order to go to war somewhere else, the President would either need to convince enough Governors to give him troops, rely on the Marines and Navy, or get special funding from Congress to raise an army. This is how the military worked right up until World War I.
I don't think I'd be keen on giving individual governors that kind of power.
I don't think I'd be keen on giving individual governors that kind of power.
I thought Republicans were supposed to be pro-States Rights.
That's how much power governors had for a long time.Anyway, I'm going to stop discussing this in this thread. Sometime later today or tomorrow, I'll put up a thread with my full platform.
i will be a benevolent dictator.Callous Jack for president. He can not be any worse than the other two.Ain't that the truth.
Yes, dread lord. Tell me who you want to smite. I will bring the infidel to his knees.
I don't think I'd be keen on giving individual governors that kind of power.I thought Republicans were supposed to be pro-States Rights.
That's how much power governors had for a long time.Anyway, I'm going to stop discussing this in this thread. Sometime later today or tomorrow, I'll put up a thread with my full platform.
I'm pro-states rights, but not that much(LOL!). I can see why it changed.
I'm pro-states rights, but not that much(LOL!). I can see why it changed.
It's not like it would give Texas the right to invade anyone. All it would do is give Governors the right to say 'Heck no' if the President wants to put their citizens in harms way.
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Plus it would move funding military forces to the state level instead of the federal level allowing one of the largest portions of our deficit spending (defense) to be used for all those silly programs that are currently underfunded. Hey If you will privatize the post office system I'll vote for you. Oh wait, what is your position on drug enforcement?
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Yes, dread lord. Tell me who you want to smite. I will bring the infidel to his knees.i will be a benevolent dictator.Callous Jack for president. He can not be any worse than the other two.Ain't that the truth.
Ross Byers, my future competition, will be the first example of my merciful ways.
Just kneecap him... and then maybe a little brain damage while you're at it...
I'm pro-states rights, but not that much(LOL!). I can see why it changed.It's not like it would give Texas the right to invade anyone. All it would do is give Governors the right to say 'Heck no' if the President wants to put their citizens in harms way.
I wouldn't worry about Texas invading anyone. I think the president should have the power to order troops directly. He is our commander-in-chief. Defense should be a federal responsibility, not a state's.
Hey If you will privatize the post office system I'll vote for you. Oh wait, what is your position on drug enforcement?
The Post Office is semi-Privatized already. And I think that the 'War on Drugs' has gone exactly as well as Prohibition did, in that it has gotten countless people injured and killed, funneled a huge amount of money into crime and organized crime, and introduced a fundamental distrust of authority in a lot of people. So I'm for legalization, regulation, and taxation of a number of recreational drugs. (For the record, I don't use drugs. I don't even drink.)
He is our commander-in-chief.
He's the commander-in-chief of Federal forces. Which, in peacetime, under my system, would mean the Navy, Marines, and the Army and Air Force officer cadre, and in Wartime would be identical to the situation as it stands now.
Actually, since the Constitution grants the Federal Government power to regulate the Militia, it would make sense to pass a law that would automatically federalize state militias if an actual War is declared (which can only be done by Congress.) Which would make the restriction that Congress must declare War relevant again. (Since neither Vietnam nor Iraq has officially been a 'War'.) See, you're helping improve my platform.
Damnit. I wasn't going to discuss this in this thread anymore.
I have work to do. When I come back, I'll post the other thread.
Yes, dread lord. Tell me who you want to smite. I will bring the infidel to his knees.i will be a benevolent dictator.Callous Jack for president. He can not be any worse than the other two.Ain't that the truth.Ross Byers, my future competition, will be the first example of my merciful ways.
Just kneecap him... and then maybe a little brain damage while you're at it...
Will do, dread lord.
I wouldn't worry about Texas invading anyone.
Don’t make Chuck Norris come looking for you.
I wouldn't worry about Texas invading anyone.Don’t make Chuck Norris come looking for you.
Yeah, I know
You sound like a libertarian at heart Ross, and I know it's semi-privatized, it needs to be Completely Privatized.
I'm a libertarian in the sense of 'Keep the government out of my personal life'. I'm a socialist in the sense that I think that any American should be able to simply walk into a hospital and be treated, and never see a bill, and that no American should ever, ever starve.
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Yes, dread lord. Tell me who you want to smite. I will bring the infidel to his knees.i will be a benevolent dictator.Callous Jack for president. He can not be any worse than the other two.Ain't that the truth.
[sarcasm]*unsheathes his blade* I am Lord Jack's right hand man, not you, you feindish imposter. Bow before the might of my poodle slaying blade.[/sarcasm]
[sarcasm]*unsheathes his blade* I am Lord Jack's right hand man, not you, you feindish imposter. Bow before the might of my poodle slaying blade.[/sarcasm]Yes, dread lord. Tell me who you want to smite. I will bring the infidel to his knees.i will be a benevolent dictator.Callous Jack for president. He can not be any worse than the other two.Ain't that the truth.
How dare u challenge me! You could not even rid this board of the Hellbeast-Poodle and you think you can stand against my might! Have at thee Knave!
If a third party gets enough votes, it can get federal funding and participate in the debates. I for one am sick of the chokehold the two parties have on politics.That's why I support an instant-runoff system for elections. That way you would not be left with the choice between perpetuating the two-party system or allowing a Nader-type election swing.
Ooh, my favourite form of democracy as well. People should be able to vote for the person or party that best represents their values and not have that essentially become actually voting for the person who least represents ones values.
The danger is that this leads to dozens, maybe even hundreds of parties and they spend all their time bickering with each other and very little time getting anything done.
Personally I'd like to see instant run off voting and mandatory 3 or 4 year elections. The problem with minority governments (and we've had a couple in Canada recently) is that the parties spend most of their time grand standing and preparing for the next election. Mandatory fixed elections would encourage the parties to spend more time debating bills and having votes.
Why would you disband the Army and how would you propose defending our nation?
Who's going to invade? Mexico? Canada? Cuba maybe?
Isn’t part of the problem with democracy that instead of leadership being granted based on merit and selflessness, it is granted based on popularity?
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You sound like a libertarian at heart Ross, and I know it's semi-privatized, it needs to be Completely Privatized.I'm a libertarian in the sense of 'Keep the government out of my personal life'. I'm a socialist in the sense that I think that any American should be able to simply walk into a hospital and be treated, and never see a bill, and that no American should ever, ever starve.
sorry, one comes with the other. what you're saying, in essense, is: "i want the freedoms I think are important, but the things that actually make people free (i.e. economic freedom) are unimportant to me".
if you think every person should be allowed to walk into a hospital, get treated, and never see a bill, then I want the government to enforce proper diets, ban (and prosecute) tobacco use, ban unsafe sex, and a whole litany of other unhealthy "personal life" decisions, you know, if you think you have a right to dip further into MY money...
(as for the starving part, you'd have to work damned hard to starve in this country right now, frankly. there are so many programs already in place to help people who need food no one should be going without...)
if you think every person should be allowed to walk into a hospital, get treated, and never see a bill, then I want the government to enforce proper diets, ban (and prosecute) tobacco use, ban unsafe sex, and a whole litany of other unhealthy "personal life" decisions, you know, if you think you have a right to dip further into MY money...
While I understand your point, I would rather pay for someone’s penicillin shot than a bridge¹ in Alaska that some 50 people might use.
¹This is not a shot at Sara. It is just a useful, commonly known, potential waste of tax payers money.
Personally, I’m pleased to see Capitalism die an ignoble death. Time to usher in some social democracy, although Congress appears to have zero clue how to go about this (let’s throw the money at the people who screwed things up, yeah, that’ll fix it). Someone please call the French and the Irish and pick up some tips! The whole “crisis” makes me a little ill, as someone who has always been very careful with what little cash / debt he has. Rampant speculation, improper financial management on the part of consumers, and easing of banking restrictions put in place for this exact reason. Was anyone surprised when it tanked?You do realize that France, Sweden, and most of the other social democrat nations are starting to move away from it because it is costing too much money?
Well, European countries cut back the excesses of their social systems because of the excessive costs. But they don´t plan on abandoning them alltogether, because the social market economy is an integral part of our society these days.
Stefan
if you think every person should be allowed to walk into a hospital, get treated, and never see a bill, then I want the government to enforce proper diets, ban (and prosecute) tobacco use, ban unsafe sex, and a whole litany of other unhealthy "personal life" decisions, you know, if you think you have a right to dip further into MY money...
At first brush you'd think it would be good to force such people to act in a healthy manner but its actually the reverse. If one wants to save money on taxes in this area you want to institute a policy of forcing people to smoke three packs a day, eat horribly and never exercise.
These kinds of policies will increase the mortality among the population. Conveniently they'll likely die right around the end of their useful work life, which is good because it means they die right around the point when they would stop contributing to the tax base.
Healthy people are actually a bigger problem because they are hard to kill. They don't normally off themselves with massive heart attacks are undiagnosed lung cancer. Instead they just keep on kicking even as several of their organs begin to fail. Long after they have meaningfully given any money to the tax base they refuse to die. They are essentially money sinks needing all sorts of specialized treatments and drugs but capable of living so long as they get these due to the healthy life style they maintained.
Contributor, RPG Superstar 2008 Top 6
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The private sector and lack of regulations are not the cause of these problems. Guys like Barney Frank were the problem. The problems were caused by political greed, not corporate greed.
Greed in the private sector has everything to do with the mortgage meltdown. I'd be interested how you can blame trillions in dumb leveraging decisions on Congress - especially when business lobbied so hard to let the free market reign.
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Contributor, RPG Superstar 2008 Top 6
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Healthy people are actually a bigger problem because they are hard to kill. They don't normally off themselves with massive heart attacks are undiagnosed lung cancer. Instead they just keep on kicking even as several of their organs begin to fail. Long after they have meaningfully given any money to the tax base they refuse to die. They are essentially money sinks needing all sorts of specialized treatments and drugs but capable of living so long as they get these due to the healthy life style they maintained.
There are ample examples of smokers who've died slow, lingering deaths from cancer. I'm not sure where your idea that "unhealthy lifestyle" equals "cheap death" comes from.
I could not resist posting on the original subject:
So these golden boys from wall street lost their play money (hurled it in the next gully), and now Uncle Sam comes and bails them out by giving them new play money? And the treasury secretary even has the nerve to ask other countries to help out? And just how this money is going to be used will not be revisable by any court?
Have they gone mad altogether? The U.S. already pumped about 300 billion US$ into this failing economy in August, and now they make it a full trillion US$ of money they burn away like this? The whole national budget of Germany has been about 400 billion US$ per year.
I say, let these banks die - rather a fast death now than dying the next ten years. It will be a major upheaval in the worlds economics, and the small people will suffer - but those ex-house-owners whose credits failed recently are broke now anyway, and the pensions in the US have largely turned into air already. So what is there to lose?
(yes I`m cynical on this - how else can you cope with this madness?)
OTOH, if the US gov´t gives away one trillion US$, where do they take this money from? Loans? How will these be repaid? My guess would be by raised taxes. The most tax money comes in from all those small people, who pay a myriad of taxes just by living. Just raise this and that tax a little, and soon you have more money raised. With the effect that normal people have even less free money than today, and consume less - with leads to a downward spiral damaging the economy.
Either way, the global economics takes serious damage. IMO unavoidable anyway. So why would you burn tax money to stabilize those poker players? Who profits from this money in the end? Not the average tax payer, that´s for sure.
And concerning help from other countries: Why should we? Would we get this help if one of our banks crashes, because american investment banks explode? I don´t think so. It is not a task for the government to save companies nearing bankruptcy because of their own faults with tax money.
Spending hundreds of billions without this being court revisable is highly undemocratic. It is one of the hallmarks of democracy that government actions and legislations are revisable at court, and that there are courts like the Supreme Court (or the Bundesverfassungsgericht in Germany) that can and will check any legislation if it is reconcilable with the Constitution or however these laws are called. If some legislation is written as to be not revisable, this reeks quite foul, especially if we talk about this unimaginable sum of money intended to be use to save privately owned companies.
Stefan,
Having written way too much now
The private sector and lack of regulations are not the cause of these problems. Guys like Barney Frank were the problem. The problems were caused by political greed, not corporate greed.Greed in the private sector has everything to do with the mortgage meltdown. I'd be interested how you can blame trillions in dumb leveraging decisions on Congress - especially when business lobbied so hard to let the free market reign.
I'll reference you to what Houstonderek said on page 2 of this thread. He sums it up better than what I can.
"mccain (and bush) saw it coming.
the problem in the housing market WAS the regulation, specifically the democrat pushed policy of punishing banks who didn't lend to "sub-optimal" borrowers and open branches in economically distressed areas. there were serious regulations in place to prevent banks from securing certain types of loans and offering some services if they continued to act in a "racist" manner by not giving mortgage loans to people who really couldn't afford them. and fannie mae/freddie mac, being quasi-government agencies in the first place, were the biggest pushers of loans to people who couldn't afford them, all in the name of "fairness" and "equality".
but, you know, dems and socialists can do no worng...
(as an aside, you should read some of the stories about the tenements that some of the beneficiaries of obama's largess when he was a state senator - includung his current campaign manager - ran. several were foreclosed, some condemned for being unfit for human habitation.)"
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... then I want the government to enforce proper diets, ban (and prosecute) tobacco use, ban unsafe sex, and a whole litany of other unhealthy "personal life" decisions, you know, if you think you have a right to dip further into MY money...
Sounds a lot like "Demolition Man" -- "Anything not good for has be deemed 'bad' hence 'illegal'..."
Of course in that movie, they talked about the Schwarzenegger Presidential Library as well. At this point, it can't hurt...
The private sector and lack of regulations are not the cause of these problems. Guys like Barney Frank were the problem. The problems were caused by political greed, not corporate greed.Greed in the private sector has everything to do with the mortgage meltdown. I'd be interested how you can blame trillions in dumb leveraging decisions on Congress - especially when business lobbied so hard to let the free market reign.
I was skimming this thread -- read about the bailout at the beginning and then the armed forces near the end -- and almost didn't post because of the whip-snap crackling dance of topics.
You witty folks throw me off my stride sometimes! :)
But seriously, I'm confused about what people think has happened and why they think there is a bailout on the table to begin with. From where I'm sitting congressional deregulation is definitely the original cause, compounded and amplified by a ton of bad decisions in a variety of sectors across the economy.
EDIT: This turned out to be stupid long, so I'm spoilering it.
IRCC, in 1999 congress and the senate voted to deregulate investment banking to the extent that they were permitted to trade in mortgage backed securities. In addition to the standard invisible hand and market self-regulation arguments (not that they are necessarily invalid, just commonly touted), reduced risk due to the availability of securitization and resale on the secondary market was adduced as why it was ok to deregulate in this fashion. More specifically, a law of large numbers argument was made that, by wrapping many multiples of mortgages into a risk adjusted portfolio that could then be securitized (or sold on the secondary market and securitized by Frannie/Ginnie), the risk associated with any given risk-balanced portfolio of mortgages made them more like securities and less like loans to consumers. So, there was no need for the investment bank community to be kept out any longer.
IMO - mistake.
The increased appetite for buying packaged mortgages meant commercial banks were willing to write more mortgages and write more risky mortgages. Why? Because they would immediately (so it was thought) be off the banks' balance sheets and risk management tables. Why? Because they could "always" be sold on the secondary market. Why? Because the risk/value equation for housing was something considered to be at the "near zero" risk-of-changing end-of-the-spectrum, in short -- understood and dependably valued -- especially if packaged and securitized.
I figure we're all starting to see the circle in here. (1) We've made it less risky, by packaging things. (2) Awesome, then we'll buy more and more. (3) Awesome, then we'll make more and more -- and to get the volume, they'll be more risky ones. (4) Awesome, we'll package them so they're less risky.
Commercial banking regulation, IIRC (and speaking simplistically), requires commercial banks to have only a certain percentage of their loan portfolio in a "risky" category at any one time. Being able to push those loans off on a secondary market -- which in turn could sell them through investment banks as, for instance, mortgage REITS or ETFs -- at a predictable rate allowed the commercial banks, in a sense, to bypass -- quite legitimately -- precisely this regulation.
Congressional permission thus effectively overturned (or at least significantly modified) regulation put into effect after the Great Depression to prevent just this problem.
The vastly increased number of mortgages that commercial banks were willing to write -- along with some zany goings on in the 30 year treasury bill market, currency markets, and an inverted yield curve -- drove down mortgage rates to the point where they were selling like hotcakes -- to anyone. Why? Again, because the bank wouldn't need to keep the damn things, so who cared about the risk?
With so much ready money available for houses, house building went wild and prices soared (ready money = demand = high price). Along the way there was some complicity by, oh, just about every American homeowner out there, because who doesn't want their house prices to rise? Along come instruments like HELCs, the risks of which can also be securitized away, and *poof* everyone is a speculator (I hate blaming speculators - drives me crazy it's such BS, semantic blame-shifting), amplifying the problem.
There were other amplifying factors, but I'm typing too much already.
OK. House prices run crazy, and the scenario all the risk models (the ones that sold congress on deregulation back in 1999, and the ones the big investment banks relied on, and the ones Freddie/Ginnie counted on) turn out to be wrong -- or at least not terribly useful. Why? because the bubble up in housing prices generates the very "nah -- it'll never happen" or "so low a chance who cares" scenario no one thought could happen.
Way way too many of the houses underlying those mortgages in the securitization packets are abruptly revalued. So the risk rating and valuation of what I'm calling 'packets' is, one morning, totally wrong. So the money for buying them is suddenly gone. Why? Because the investment houses (and others) are buying these things on margin (loans). They make their money on the spread between what the loans cost them and what they can resell them for as part of a risk reduced packaged. If the riks valuation is wrong, no one knows what these thigns are worth any more. Worse the ones they already bought and haven't sold may suddenly drop in value, creating a loss. The whole book of business is in question. So, wham! no one does that business any more.
And, the banks that had these mortgages waiting in a queue to be sold off and packaged, abruptly, one morning, are stuck with them (the much touted write-downs).
And who was buying these securitized, derivative things? All of us. Probably all of you, too, if you've got a 401K. Pension funds, individual investors, 401K funds, funds that buy other funds that get bought by retirement funds, the government retirement funds, the treasury, other banks, hedge funds. Because they thought they understood the risk scenario and that it was a solid return for a low, low risk. And everyone was making sooooo much effing money off them. And everyone thought, if the music does stop -- and it won't -- I won't be the one without a chair.
So why the bailout? Well, so many of these things have been bought by so many people and organizations and been used to fiance growth and job creation that financial instutions across the world could go belly up if more of them suddenly became worthless. Which would mean millions of people homeless. And probably dying, even starving. It would be a f*cking disaster, nation wide, the kind to put Katrina to shame (not that that wasn't a whole different sort of shame!). Not to mention the long term effect on millions upon millions of retiring seniors (and don't discount the AARP as a lobby block!) etc., etc.
So how the bailout? The fed controls -- has controlled for decades -- close to $800 billion in treasury bond writing power. AFIK, and unlike what another poster said, writing a treasury bond decreases the money supply (the fed collects the price and pays the yield over time), and therefore is a deflationary pressure through the term of the 30 year bond. So they write the bonds (which also, theoretically creates jobs through increased gov't spending), but they don't write them willy nilly, they write them as needed, if needed.
Take AIG, for example. AIG was the underwriter for the next layer of risk management on securitization of mortgages. Basically, insurance. The Fed, in return for options to acquire as collateral (not in return for) has promised to loan[i] [i]up to (not to definitely loan in a lump sum) -- what was it? $80 billion? to AIG in the event that the securitized mortgage packages it has insured become so punctured by defaulted mortgages that their revised risk equations give them new, significantly lower valuations. The kind of valuations that trigger the insurance contracts. Which is not to say that they will default that badly, or at what rate they will default. AIG was squawking because as the rate of default began to clarify on the horizon it became afraid it might not have the cash to cover the disaster.
No one knows at this juncture how much of that $80 billion will be tapped or if it will be enough or if it will really be needed.
What the fed move with AIG does is restore confidence in the securitized mortgages avoiding (hopefully) the kind of massive sell-off that will reduce all of them (good mortgages in the packages and bad) to near $zero. Which event would, itself, create Great Depression 2 scenario with millions of homeless Americans, vanished savings, people dying, world economic disasters, etc. etc.
It restores up to $80 billion in confidence because if AIG gets left holding the bag, the government has committed to calling its options and stepping in to loan -- at ruinous rates -- up $80 billion to cover the calling-in of insurance contracts.
Same with the proposed $700bil package. It's a commitment (but not an actual $700billion dollar check -- no one does that) to support the collapse of these mortgages for up to that amount. As needed. If needed. And its aimed at avoiding a panicked sell-off of these securities, because they have been so wound into the essential health and financing of our overall economic growth (ie new job creation) over the past decade.
Truth is, no one knows how far housing prices will drop, or which ones, or for how long; so no one knows how much "write down" will happen across the banking industry. Just that it looks ugly.
That said, the bailout is money the fed agency already controls through bond writing (incidentally, the existence of new bonds should also prove an upward pressure on the yield curve), so I don't see it being a tax issue. Bond issueance is deflationary and may lead to new jobs (maybe).
If, on the other hand, we simply let the investment banks fail, then retirement accounts, homes, financial instruments that support the economy as a whole (corporate bonds), gdp growth for the forseeable future, job creation -- all go in the toilet of recession for nobody knows how bad and nobody knows how long. Just that it looks ugly as sh*t.
Interestingly, the federal gov't doesn't appear to be going it alone on this. They are tapping -- at least that's how I read it -- the two surviving American investment banks (Morgan and Goldman) by permitting (requiring? hard to know what's going on behind closed doors) them to open commercial banking arms for dealing with formerly commercial banking arenas -- like mortgages and mortgage securitization.
The gov't appears to be permitting this because with official commercial banking arms, those divisions will be under commercial banking rules (which haven't changed, AFIK). That means the standard things like, for every $10 in deposit money they can only loan $1, etc. rules still apply. Which inherently caps the ability to write and securitize mortgages, for example (which in turn, depending on the relative demand curves, may be an upward pressure on mortgage rates).
I'm not sure if this is a compromise measure in congress and senate, but it definitely makes the private sector take up some of the burden by allowing them to capitalize (big new business in deposits) in a way they couldn't before. Presumably they then won't need future bailouts if things go in the crapper even further, because of the cash they'll be socking away from those new divisions. Ie When Morgan and Goldman buy commercial arms (say, by snapping up WaMu off the auction block), they will also be buying the portfolio of degenerating mortages but will have much (or all) of the money needed to bail themselves out in the event we haven't seen the end of the downward spiral in home prices. Or at least any future bailout will be lessened. That's the theory behind that move, IMO, anyway.
So I don't see, as one poster suggested, that a bailout is inherently some sort of limitless slippery slope to more bailouts. In fact, the recent actions of congress vis a vis Morgan and Goldman speak to exactly the opposite.
What I'm concerned about is that I haven't heard anyone talking about how to unwind the American (and the world) financial systems from its dependence on Mortgage Backed Securities.
Ok. I think I shot my wad. For now. Will be interesting to see how this mess unfolds.
PS I do find I have to wonder why Bear Stearns got a bailout, but Lehman -- in substantially the same role vis a vis mortgage securitization - did not. That's a head scratcher for me, and I'd appreciate any insight y'all got on that.
There certainly is plenty of blame to go around for both Democrats and Republicans. But keep in mind that more so than a political point of view, it is the underlying system that is the problem.
So even though "politicaly correct" mortgage law was passed around 2003 to require more bank loans to people that were more likely to be poor and more likely to default, political correctness was not the sole motivation.
What law are you talking about? Are you talking about expansion of the FHA?
The essential motivation was that the Federal Reserve was desperate to paper over the last big bubble, which was the tech stock crash in 2000. During the late 90s the Federal Reserve created a stock market bubble which eventually crashed. At that point, the economy was poised to tip over into a recession. Greenspan cranked out even more fiat money, and managed to get the economy racing again, but at the cost of creating an even bigger bubble, this time in real estate.
Bunch of things in here, I don't get NPC Dave.
How did the fed create a stock market bubble?
Why does the fed care about a past bubble?
Why do they want to 'paper' it over? What does that even mean?
The federal reserve isn't on the hook for stock market performance, nor are they politically accountable in that way, AFIK.
Fiat money? What was that? Do you mean treasury bonds? They tend to reduce the money supply if bought locally. Greenspan, of course, doesn't print money or issue credit. He did reduce the overnight lending rate so commercial banks could help each other cover any shortfalls in deposit retention compliance. Overnight. And he lowered the fed funds rate, making cheaper credit available to businesses. That was an inflation fighting move and had a tendency to create jobs. But it didn't make credit available to individual borrowers, and AFIK the investment banking world wasn't borrowing from the commercial banking world to finance securitization; so, again, I'm not seeing the Greenspan connection, here.
How do you think treasury bonds caused the real estate bubble?
At some point, there was so much credit available that there were no longer enough home buyers to lend to, there was more credit than borrowers that qualified.The solution, "Well, since we already lent money to everyone who could afford it, let's start lending money to people who can't. They are an untapped pool."
That worked, for awhile, with real estate prices approaching fairyland in some places, until the bubble burst again. Defaults start to knock holes in banks that overlent, and now things are crashing again.
Sort of. A sudden revaluation in prices started to knock holes in everything that had incorporated a mortgage backed security (which means pretty much everything, including retirement funds and 401Ks) and commercial banks started getting holes in the mortgage portfolios they suddenly couldn't sell off. Commercial banks could lend more, not so much because they had more to lend, but because they could (for a time) reliably sell off their mortgages onto the secondary market, thus sidestepping the regulatory restrictions on loan volume and loan quantity put in place, post Great Depression. The commercial banks had a suddenly expanded market to sell off into, in part due to congressional deregulation of investment banking in 1999.
Right now Paulson is saying that we can talk reform later, first we have an emergency to bail out. Don't believe him. First, he is obviously making a power grab to bail out his peers(he is the former CEO of Goldman Sachs) without having to answer to the rest of the government. Second, no one wanted to talk reform when Ron Paul raised these issues during the Presidential primaries. If this bailout passes Paulson and the White House will try and kill any reform by claiming the crisis is passed and it is time to move forward.
Goldman isn't in a crisis or getting a bailout, last I heard. In fact, they're one of the two remaining investment banking firms that largely rejected mortgage backed securities as a bad investment, and they are as financially healthy as they've ever been. Paulson being their ex-CEO is a mark in favor of his acumen, in my book. But since Goldman don't benefit from a bailout, I'm not sure what power grab you're talking about.
If you mean his power to finance a bailout to begin with, the fed and treasury have had that power for decades.
Regardless, you seem to want to let the entire US economy go up in flames. possibly dragging the world enconomy down into Great Depression 2s-ville, because the goverment pledging money to shore up confidence may mean no banking reform in the future? In short, hold the economy hostage to future reforms? That doesn't seem right.
No, let me restate - that would be an effing disaster. And we'd all suffer.
They make money on the system at the expense of the rest of us. They don't want that system to change, they want to paper things over and get back to bilking us and then cash out before the whole thing crashes again even harder a couple of years or so down the line. Don't let them, call your congressman today and tell them to oppose this.
Which "they" are you talking about?
What criteria are you using to seperate "us" from "them"?
How do you know which Paizoan is a "them"?
How are "they" making an unethical or illegal buck off of "us"? For example the supermarket makes money at my expense every week, so I figure that's not quite what you mean.
What "whole thing" do you mean will crash again in a couple of years?
How is the bailout bilking us, if its funded with fed treasury bonds?
It's likely the new fed treasury bonds will be bought with overseas capital and, if not, act in a deflationary capacity. So what specific provision of the not-yet-finalized bailout should I tell my congressman is "bilking" me?
Not trying to be a d*ck, but I'm having trouble parsing your post.
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There is a lot of spin and analysis going on right now to try and figure this all out and quite frankly, historians and economists will be debating about this for years or even decades (since there is still argument regarding the Great Depression which is now about 80 years in the past) These debates will have some sort of value and it is good to have them now when things are still able to be influenced but ultimately we'll see what happens after some time has passed, so we'll just need to be careful about apparently overly certain predictions. Hopefully, whatever course is taken, we (the entire western world) will take steps to continue to allow markets to work but also potentially cap the ability of certain individuals and groups to distort them in ways that are great short term, but ultimately disastrous. I don't know exactly where the balance lies but with plenty of creative minds we'll muddle our way to the best we can do.
There are ample examples of smokers who've died slow, lingering deaths from cancer. I'm not sure where your idea that "unhealthy lifestyle" equals "cheap death" comes from.
Technically it originates with a tobacco scandal from the early 80's. It was revealed at that time that governments in Canada and the US had historically been in cahoots with the Tobacco industry to create stronger cigarettes. High taxes on Tobacco combined with the significant decrease in life expectancy of users meant that there was a strong incentive for the government to get the populace to light up. Note that the practise had already been discontinued significantly before it this came to light.
While I'm sure that there are examples of people dieing slow lingering deaths from long cancer its not the norm. Lung Cancer is rarely diagnosed before its essentially terminal. The individual rarely lasts much more then six months to a year after its diagnosed. There is little that can really be done for them hence the burden on the medical system is minimal.
The same thing applies with stuff like obesity and death by heart attack or stroke. Certainly some don't die but many die young and swiftly. The reality is we are all going to die but the tax burden is significantly larger for some one who lives into their early '90s spending decades contributing little to the countries tax base (in fact seniors generally take from the tax base as opposed to contribute to it) and utilizing the medical system far more extensively the younger people.
Beyond this I'll note that every major westernized industrial nation on earth, Japan, Switzerland, Canada, The US etc. is currently facing a major health care crisis as costs spiral out of control. Fundamentally the problem is aging population - we live to long and the longer we live the more health care we consume. At the extremes a women in her 60's and beyond costs the Australian Government about 10 times what a boy between 5 and 14 per capita per year (women in general cost the health care system more then men).
a huge post full of fascinating well thought out points
Really interesting. Thanks.
Driving this past weekend, I've heard ads from a mortgage bank offering sub-prime home loans. Proof that people don't learn...
Driving this past weekend, I've heard ads from a mortgage bank offering sub-prime home loans. Proof that people don't learn...
Maybe, maybe not. 'sub-prime' technically just means below the prime rate (typically the WSJ Prime Rate). It doesn't necessarily mean they are offering below prime rates to people who are sh*tty loan risks. That's become kind of a slang usage for 'sub-prime' since many banks, in the past, did just that.
a huge post full of fascinating well thought out pointsReally interesting. Thanks.
No sweat. Thanks to you for actually reading all that!
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PS I do find I have to wonder why Bear Stearns got a bailout, but Lehman -- in substantially the same role vis a vis mortgage securitization - did not. That's a head scratcher for me, and I'd appreciate any insight y'all got on that.
I heard something about a large Korean bank trying to buy up Lehman, the deal falling through, and this pissing of the feds (not making the deal and trying to get a bail out instead). But it was just some people grousing over some beers, so...
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PS I do find I have to wonder why Bear Stearns got a bailout, but Lehman -- in substantially the same role vis a vis mortgage securitization - did not. That's a head scratcher for me, and I'd appreciate any insight y'all got on that.
No one really expected Bears to go bust - it was the first of the big banks to look wobbly and it happened quite quickly. Also, Bears is heavily interconnected through the credit derivative market with other banks, and there was a fear that if these derivative contracts went sour it would have a knock-on effect on other institutions.
Lehmans was the obvious ticking bomb after Bears, being in a similar business and a similar size. It was closely watched and sort of went bust in slow motion, up until the final weekend. Other institutions, as a consequence, will have had time to hedge their positions and reduce their exposure to Lehmans, and so (to some extent) it was safer to let it go bust than it was Bears.
Also, there is the issue of timing. The state had bailed out a series of institutions, but one of the things which bothers governments bailing out banks is the issue of moral hazard: if the state bails out banks which do stupid things all the time, they have no incentive to mend their ways. They can do stupid things in the good times, and pocket the bonuses (and share price increases, for the shareholders) and then in the bad times just hand the problem to the government and walk away. The US Treasury and the Fed were probably fairly keen to avoid giving the impression that moral hazard was being ignored, and so were prepared to let Lehmans go in order to encourage the others the get on with fixing their problems (like Merrills did, the same day, and Goldmans and Morgan Stanley are in becoming deposit-taking institutions) and not asking for state money (all of the potential buyers of Lehmans, over that final weekend, wanted government guarantees, and when they didn't get them they refused the deals). And, maybe, the cost of the bailout was too big.
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Heck, China saved that up putting melamine in their milk....I just want to know where we get this 700 billion from? We are currently in massive debt (although we had a surplus before Bush got in 8 years ago). What do we borrow 700 billion dollars from some country? Who? China? Russia? Who has that kind of dough to lend us?
And exporting it....
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Driving this past weekend, I've heard ads from a mortgage bank offering sub-prime home loans. Proof that people don't learn...
Maybe, maybe not. 'sub-prime' technically just means below the prime rate (typically the WSJ Prime Rate). It doesn't necessarily mean they are offering below prime rates to people who are sh*tty loan risks. That's become kind of a slang usage for 'sub-prime' since many banks, in the past, did just that.
Not as far as I know. I've been in mortgage lending for 10 years so this topic hits very close to home for me.
"Sub-Prime" loans have pretty much nothing to do with the Prime rate. For that matter, Prime rate almost has nothing to do with mortgage loans (directly) aside from HELOCs. Prime rate is a (somewhat) arbitrary number that the Federal Government comes up with that is directly related to the rate at which they lend to financial institutions. Mortgage rates are much more determined by the popularity (plus or minus) of Mortgage Backed Securities on Wall Street. "Prime Loans" are essentially "A-Paper" loans or loans that can be sold directly to Fannie Mae, Freddie Mac and/or GNMA (FHA and VA loans). There are certain things that they look for to approve these loans -- years employed at the same job, debt to income ratio, financial reserves, etc. -- pretty much anything outside of those guidelines became "sub-prime". (Jumbo loans are kind of outside this.)
Subprime loans aren't necessarily "bad" -- they are just higher risk. Someone with a financial disaster with medical bills, a self-employed borrower, etc. Part of the problem with this whole thing is that these loans were serious money makers -- in (at least) two ways. 1) Because they are higher risk, the interest rates can be higher -- often times much higher -- so investors were very interested in getting a higher return on their dollar. and 2) Because they weren't as highly regulated as standard FNMA and Freddie products, it was easier to get people qualified for them and brokers could also make A LOT more money on these products. Financial institutions came out with more and more creative ways to get people "qualified" (100% low FICO loans, etc.) and again it all seemed great because the paper returns on these were rather significant.
Enter fear.
People take all their money out of these types of investments. This leaves financial institutions in a position where they have no money to lend out so they have to take away these programs. It is interesting to note that subprime loans are still performing statistically better than the FNMA and Freddie Mac products -- not that it matters. The financial institutions still have no money to lend out.
Some sub-prime isn't "bad". But people need to understand and know the mortgage product that they are getting into. I have a friend who sells stuff on Amazon.com and e-bay for a living. That's all he does. He writes off most (all?) his housing expense as that is also his storage, etc. (You should see his place.) He makes good money doing what he does but because of what he writes off on his taxes, he doesn't show that he makes enough for his payments. It would be incredibly difficult for me to get him a new loan right now. He pays all his bills on time, he has excellent credit scores, he even has really good cash reserves but in order for me to get him a new loan the new rate would make it such that it wouldn't be a viable option. He would need a subprime loan and he really isn't that much of a risk.
It's a pendulum swing. It will come back. I just hope that the swing is a little tighter next time.