Third Party & Independents Archives

The Root of the Problem

In looking for a reason for our current economic issues it appears that most people think the problem is just a few years old. They find a point that backs their cause and stop looking. Democrats point to Gramm-Leach-Bliley and say ‘look, deregulation!’ Republicans point to the Community Reinvestment Act and say ‘look, social engineering’. And while both are partially right, and partially wrong, they both stopped looking at the real core problems that started in late 1970s that really opened the doors to this mess.

Anthony Randazzo and J. Dustin Pope have found some interesting information that helps to really get to the heart of the problem, America's obsession with ever increasing prosperity at the cost of putting ourselves in much worse shape for future generations. Instead of allowing our economy to move along with ups and downs as they are needed, we have become addicted to having an expanding economy at all costs. And by not allowing the natural ebb and flows of a free market, made free by appropriate and limited governmental regulation, to work as they need to to ensure that ideas and businesses that need to fail should so that newer and better business models come to the take their place, we elect those that can artificially pump up the numbers to make themselves look like the saviors in a political environment engorging on more and more power. All of the while letting future generations pay the cost.

Specifically, in this case. we find that in the late 1970s, the idea of mortgage backed investments were a non-starter. The wouldn't work in the free market so they were abandoned almost immediately after they were conceived.

Ironically, the whole mortgage-backed investment model almost never got off the ground. Lewis Ranieri, a trader at Salomon Brothers (now a part of Citigroup), is credited with first conceiving the idea in 1978. But Salomon Brothers almost canned Ranieri’s whole department because there didn’t seem to be a profitable future for mortgage trading.

Former Salomon broker Michael Lewis writes in his book Liar’s Poker, “The mortgage department wasn't making money. The other mortgage units on Wall Street—Merrill Lynch, First Boston, Goldman Sachs—were stillborn. They closed almost before they had opened. The prevailing wisdom was that mortgages were not for Wall Street.”

That’s when the government stepped in.

You see, were were in an economic contraction in the 1970s. The Fed wanted to manipulate the market to ensure that we would see growth instead of letting the market correct itself and enacted some policies that ended up causing 'stagflation'. So, more action was needed to fix the results of the previous actions.

A side effect of the Fed decision to increase the money supply was an uptick in interest rates after 1979. This negatively impacted mortgage lending at Savings and Loan banks (S&Ls). Under “Regulation Q” of the 1933 Glass-Steagall Act, the government, seeking to promote homeownership, exercised its power to place a ceiling on the interest rate S&Ls could charge a borrower for a mortgage. But this limited their ability to compete with alternative, unregulated funds for capital. The unregulated funds (such as money market funds) could offer a better rate of return for investors

The S&Ls had two options: make no further loans until interests rates went down, leaving them with no revenue, or sell off their loans at a loss and hopefully last long enough for rates to decline. As a result, many S&Ls without enough capital to wait for lower interest rates were forced to shut down.

In late 1981, seeing the error of their ways, Congress offered S&Ls a tax break. As a reward for their advocacy of homeownership, the banks could get up to 10 years of taxes per loan back, if they showed a loss on the sale of that loan. Essentially the government gave S&Ls an incentive to take a loss.

Selling off the mortgages was easy. All S&Ls had to do was call an investment bank and take whatever price they could get. Salomon Brothers and others snapped up the mortgages at rock bottom prices. Then investment banks began bundling these cheaply acquired mortgages into different investment vehicles, and sold them to investors looking for a quick dollar. Suddenly, mortgages were more profitable for Ranieri’s department. Mortgage-backed investments were saved, thanks to Uncle Sam.

The fact is that the free market itself would never have invented credit default swaps on its own. The Fed, trying to fix its past mistakes and artificially engineer 'long term economic growth' created the environment where they could be considered profitable. Then once you couple in the idea of deregulating that market, encouraging home ownership among those who couldn't afford to purchase homes, the results of the fed again trying to artificially increase the economy keeping interest rates low and homeowners looking for a quick buck and refinancing their houses with adjustable rate mortgages during this 'interest rate boon' all at the same time, when the bills came due we were in for trouble.

Trouble that would likely have been avoided by not trying to build an economy on hope and instead letting real growth, and contraction, take place when they are necessary.

Examples of this can be seen throughout the 20th century. The federal economic manipulation of the 1920s led us to the depression. The federal economic manipulation of the 70s led us to the stagflation of the late 70s and early 80s recessions. The federal economic manipulation of the 80s led us to the S&L crisis and market crash of 1987.

And the beat goes on.

Americans need to accept that we cannot, should not, want and expect our economy to always be growing, propped up by putting ourselves in danger in later years. The unintended consequences of attempting to manipulate our economy has always brought about pain to future generations, a lesson we are not learning as we continue to make the same mistakes now as we made then. Most of the principles who caused these very issues are in charge again, leading us down the same road. For example, then Fed Chairman Paul Volcker (now chairman of the President’s Economic Recovery Advisory Board) was instrumental in putting the US into stagflation in the 1970s.

The real desire should be for us to foster a society where individual liberty is the main focus, for good and ill, and allow our economy to expand and contract AS NEEDED in order to allow those liberties to remain. It's not an easy choice, but the right ones usually aren't. Instead, we use the political arena to attempt to provide for us instead of providing for ourselves by growing real wealth, not artificial imagined paper wealth that will, as we have seen again and again, disappear at the slightest loss of faith.

It is only then that we will our country return to being a creator of ideas, of invention and of imagination.

Posted by Rhinehold at April 26, 2009 12:38 PM
Comments
Comment #280948

Rhinehold wrote: “In looking for a reason for our current economic issues it appears that most people think the problem is just a few years old.”

Actually, it all began with the expulsion of Adam and Eve from the Garden of Eden where all economic needs were fulfilled by the grace of God.

You can also argue it all began with our species surviving and not the Neanderthals, which would have meant remaining hunter gatherer’s for lack of development of sophisticated language and the universal cooperation that it engenders.

Randazzo and Pope speak to an argument I have written for in the past here at WB, regarding a balanced zero growth economy.

In my view however, all basic life necessities are met for all persons in the country, and if there is economic growth, it is a result of entrepreneurial and private sector enterprise, above and beyond all citizen’s basic needs being met.

Inflation has a cost. And since the 1970’s there have been many causes of a near perpetual and ongoing inflation. That cost shows up as the contrast between a blue collar worker being able to provide a middle class income for their family in the 1950’s and 60’s, compared to the necessity of two blue collar incomes now being required to remain in the middle class income bracket.

But, globalization and the subsequent equalization pressures on wages and costs of production, are now facts of reality which cannot and will not be undone, short of a global event that sends all nation’s back to a semi-agrarian, semi-industrial economic basis for employment and livlihood, or, a society reaching mutual agreement amongst themselves to live on far less choice with commitment to producing their own necessities regardless of cost differential (i.e. a high state of protectionist tariffs).

Posted by: David R. Remer at April 26, 2009 2:51 PM
Comment #280951

Newsflash: Land booms and busts have been around as long as the existence of this country. Vietnam and a few other wars caused inflation and post war contractions.

We’ll forgo the conflation of economic periods and policies, to come to a predetermined solution in this half truth analysis, and just say “OK, You don’t like “unatural” economic expansion”, as though it never existed before the Fed. The problem is the “unatural” bottoms that was our economic reality in the 18th and 19th Centuries.

Yes. The Fed intervened. Yes. It has longer term economic effects. Yes. The Fed fights inflation and expands money supply during contractions. OK. We understand now what the Fed does. Anyone want to chime in as to why, and what history has taught us about when it didn’t? Anyone? Beuler?

Nice try. I still ain’t buyin’ them beans.

Posted by: gergle at April 26, 2009 2:54 PM
Comment #280952
all basic life necessities are met for all persons in the country

What are the basic life necessities, David? And who’s responsibility is it for an individual to obtain those necessities?

Does this include air conditioning, color tvs, cell phones, internet connectivity, cable, multiple cars, etc?

It is relatively easy in this country to obtain the necessities of life, if we include real necessities. It’s a priority issue that we have a problem with IMO. It is what we are expecting to be provided to us, not what we are required to acquire on our own.

Posted by: Rhinehold at April 26, 2009 2:57 PM
Comment #280953

Tell us gergle, give us very precise examples and statistical data, not emotive appeal.

The fact is that the default credit swap market would not have made it as a result of a free market because it wasn’t profitable. It required those unintended consequences that the fed took. There is a big difference in using the power of the government to make real out of the ordinary economic climates not as bad as they could be and monkeying around with the economy on such a constant basis (not for limiting the bad but for squeezing out the good) that ends up creating more problems than positives.

Posted by: Rhinehold at April 26, 2009 3:01 PM
Comment #280954

If we want to really get to the very root of the problem, we only need to look in the mirror.

We have met the enemy, and it is us.

Too much ordinary short-sighted selfishness is the problem.
Too much corruption.
Too much greed.
Too much of the following, are at the root cause of many of our human problems, which have common-sense solutions that are ignored far too long for short-sighted and selfish reasons:

  • laziness; apathy; complacency; resigning to seeming futility; negligence; ignorance;

  • greed, selfishness, lust for power and control, envy, pride, and gluttony, exploitation of others and things (e.g. lawlessness, abuse of power and wealth , usury , wars , unfair taxation , etc.);

  • irrational fear; fear mongering; anger; intolerance; hatred; prejudice of others and things (e.g. based on religion, race, gender, color, ethnicity, etc.);
  • delusion (deception and self-deception); misplaced loyalties; blind partisan loyalties; fueling and wallowing in partisan-warfare; abandoning principles; misplaced compassion; misplaced priorities;

Therefore, I think the root of many of our problems, when broken down to the most fundamental causes, reveals that too much human short-sighted selfishness (i.e. a lack of virtue) is the root cause.

That’s also the root cause of our current fiscal disaster, which is very likely to get much worse as the massive debt-bubble continues to grow (not shrink). The dangers of growing the current massive $11.3 Trillion National Debt much larger is possibly playing chicken with hyperinflation, which could make things much worse (something which 33+ other nations have already discovered the hard way). I can’t prove that theory, but if the debt is not a threat or untenable, why do so many (if not all) of these questions remain unanswered? Can they continue to be ignored, and can we afford to gamble that the answers can continue to be ignored? Since when in history did any nation already deep into debt ever spend its way to prosperity? Especially the biggest debtor nation on the planet? The global warming issue is similar. Can we afford to gamble that we are wrong about the root causes and whether we should try to reduce practices that increase global greenhouse gases and pollution? Are we possibly playing chicken with our own extinction?

The consequences of these problems are obvious.
The end result of too much short-sighted selfishness is more pain and misery (not only for ourselves, but for future generations too).
So, the smart thing to do would simply be to stop doing those things.
However, not to turn this into a class warfare thing, because there is plenty of blame to go around, but money is power, and power corrupts, and absolute power corrupts absolutely.
90% of elections are won by the candidate that spends the most money.
Congress enjoys cu$hy 85%-to-90% re-election rates.
A very tiny 0.3% of all 200 million eligible voters make a whopping 83% of all federal campaign donations of $200 or more.
Government is essentially FOR-SALE, but voters blindly continue to repeatedly re-elect THEIR politicians, despite dismal 9%-to-18% approval ratings for Congress.
Incessant inflation is a sinister tool to gradually extract wealth from the masses and transfer it to the wealthy.
We’ve had incessant inflation for 52 consecutive years.
To make matters worse, several economic statistics are also suspiciously under-reported (e.g. inflation, unemployment, debt, GDP, etc.).
Government is corrupt, but voters are culpable too, since the majority of voters repeatedly reward THEIR incumbent politicians with cu$hy 85%-to-90% re-election rates.
Obviously, enough voters aren’t feeling enough pain and misery yet?
Unfortunately, by the time enough voters do feel enough pain and misery, it will be too late to avoid most of the painful consequences.
But the majority of voters only have themselves to thank for it, since the majority of voters have the government that they voters elected.

We often already have good solutions and good ideas for these problems, but solutions are often very elusive due to excessive short-sighted selfishness.
For example, Congress is where many good ideas and solutions go to die.
So, what’s the solution?
Part of the solution is Education, and the only question that remains is how enough voters will get their education?
Will most voters get their education the smart way, or the hard and painful way (again).
One very important lesson to be learned is that too much short-sighted selfishness is the path to pain and misery for most people.

So, Education is part of the solution, to eventually lead to more Transparency and Accountability, and less Corruption.

  • Responsibility = Power + Virtue + Education + Transparency + Accountability

  • Corruption = Power - Virtue - Education - Transparency - Accountability
And Education may compensate for insufficient Virtue, if enough people finally learn and understand that too much short-sighted selfishness is the path to pain and misery.
Too much short-sighted selfishness is dumb, but don’t ever underestimate the human capacity for doing dumb things.
Progress is very slow (e.g. 2.000 steps forward and 1.999 steps backward), and humans repeat the same things over and over and over.

But, on the bright side, if we fail to learn the smart way, there is possibly a built-in self-correction mechanism: pain and misery.
If we don’t learn the smart way (sooner than later), we will most likely learn the hard and painful way later (again).
Unfortunately, our human nature appears that we have to repeatedly re-learn the same painful lessons over and over (the hard way).
However, we also may not always have the luxury or time to repeatedly re-learn lessons the hard way.

People need to be brutally honest and learn to recognize the many abuses that exist today and have existed for many decades.
These abuses are not that complicated, yet too few people accept their existence, and too few understand how those abuses exploit and harm most people.
Each abuse should be carefully examined.
Each abuse is fueled by too much short-sighted selfishness.

Lastly, it appears to be a cycle.

  • ,-(1) Corruption, oppression, totalitarianism, pain and misery,

  • | (2) courage, Responsibility, rebellion,

  • | (3) liberty, growth, abundance,

  • | (4) selfishness, complacency, fiscal irresponsibility,

  • | (5) apathy, dependency, fiscal & moral bankruptcy,

  • ` - - return to step (1)
If it is a cycle, how do we break that cycle?

We appear to be in the end stages of an era of greed and selfishness (steps (4) and (5) above)?
Again, this reveals the importance of Education (e.g. history, economic, human psychology, math, finance, etc.).
We can learn from the past and try to avoid past mistakes, or we can continue to repeat those same mistakes again and again, until the lack of learning finally becomes too painful, and the pain is finally bad enough and obvious enough to want to avoid repeating.

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at April 26, 2009 3:04 PM
Comment #280956

Your argument for an economy in which government of, by, and for the people, has no say or participatory intervention is completely debunked by the rage of Americans toward Credit Card companies playing out as I type. This industry has been for all practical intents and purposes free of government intervention, oversight, and regulation. And the greed, and dirty tricks, and unfair practices exemplified by this oligopoly, are everywhere evident.

The very idea of credit card companies unilaterally and retroactively changing the contracted terms of the agreement with their customers for no other reason than the customer has no choice in the matter, is PRECISELY why your prescription for an economy without government intervention WILL NEVER BE THE CASE IN AMERICA.

Unfettered Capitalism destroys people’s lives through no fault of their own. Unfettered capitalism is raw greed in power following Darwinian rules of survival and evolution. It is uncivilized. And that is why Libertarian promotion of such economic precepts shall NEVER govern in this country of, by, and for the people, instead of the Capitalists.

Slavery was the product of unfettered capitalism. One of the major objectives of capitalism is to lower the cost of production, and slavery is just about the perfect answer to lowering the cost of production where human labor is required. Thankfully, America had an interventionist government which halted the capitalist concept of slavery.

Capitalism produced indentured servitude, child labor, and the infamous “company stores” which insured that the on-the-job-site costs of livlihood which could only be purchased through the employer’s store, would exceed the employee’s wages, creating a perpetual state of debt for the employee’s to the employer and thereby eliminating the employee’s means and choice to leave the employer until DEATH!

Been there, done that, Rhinehold. Our history books are full of examples of the inhumanity of unfettered capitalism at work. The majority of America wants NO PART of your version of economic reversion to Darwinian principles, thank Buddha.

Posted by: David R. Remer at April 26, 2009 3:07 PM
Comment #280957

Rhinehold asked: “What are the basic life necessities, David? And who’s responsibility is it for an individual to obtain those necessities?”

Wow! No wonder your argument follows the path it does, if you don’t know the answers to those questions, Rhinehold. We are a United States working for a common general welfare and benefit. Not a nation of anarchy and individuals all at war with each other over finite resources and their distribution amidst infinite demand for those resources and distribution.

If a person wants total economic freedom Rhinehold, they should move to a desert island to play out their version of rugged individualist survival. In civilized society, everyone is dependent on everyone else for mutual benefit and synergy of effort and accomplishment of things individuals could not possibly accomplish alone.


Posted by: David R. Remer at April 26, 2009 3:17 PM
Comment #280958

David,

Yes, that is exactly what I was saying, complete removal of government from overseeing the free market.

It’s like you don’t even read what I write and just have this list of nonsense floating around in bits that you regurgitate whenever someone questions your statist views.

I’ll repost the relevant paragraph with the highlighted text that you must of somehow ‘missed’ in your ‘reading’ of the article

And by not allowing the natural ebb and flows of a free market, made free by appropriate and limited governmental regulation, to work as they need to to ensure that ideas and businesses that need to fail should so that newer and better business models come to the take their place, we elect those that can artificially pump up the numbers to make themselves look like the saviors in a political environment engorging on more and more power. All of the while letting future generations pay the cost.

A free market cannot be free when individuals are allowed to skew it. THAT is where our government should be involved. NOT in trying to manipulate the market, but to ensure that no one is committing fraud or unfair business practices on others. You are right, the credit card companies are a prime example of why a government should be protecting the individual from other individuals to ensure the markets stay free. Fraud, monopolies, collusion, etc. All of these things should be monitored and blocked.

And the government might be able to do that were it not colluding with those entities to attempt to prop up an economy that may need to contract a bit before being able to grow naturally again.

Alas, when you introduce politics into the management and direction of the economy you end up with the issues I have described. And that you can’t identify the differences between what I wrote and the notion of an anarco-capitalist utopia are evidence of that.

Posted by: Rhinehold at April 26, 2009 3:19 PM
Comment #280959

Oh, and another sighting of the ‘rugged individualist’ bull that you spout when you ignore what I write and seek to denigrate all who disagree as anarchists.

Posted by: Rhinehold at April 26, 2009 3:20 PM
Comment #280961

d.a.n said: “Therefore, I think the root of many of our problems, when broken down to the most fundamental causes, reveals that too much human short-sighted selfishness (i.e. a lack of virtue) is the root cause. “

BINGO! That is precisely what Adam Smith would argue. Adam Smith went to great lengths to elucidate the difference between greed and enlightened self-interest as having little at all in common. Greed requires no education, intelligence, or sophistication of strategy or tactics and wants no part of discussion of ethics. Enlightened self-interest, on the other hand, constantly looks to the present and future reaction to, and consequences of, one’s own decisions and actions and weighs these in a longer term cost-benefit analysis of whether or not this decision or action will truly provide the greatest benefit.

Had credit card companies pursued a course of enlightened self-interest as opposed to greed, they would have ensured that their customer base was satisfied and felt themselves justly treated by the credit card issuer, thereby avoiding the otherwise inevitable public outcry for government intervention, regulation, and oversight of the credit card companies, on behalf of an outraged public of credit card consumers.

I look forward to America’s first non-profit credit card issuer, whose only motives and incentives are customer satisfaction and breaking even over the long term. We are moving in that direction as a result of the excesses of capitalism’s greed.

My wife works for an insurance company whose policy holders are the shareholders. Quality service and customer satisfaction are paired with sound financial condition present and future as the entire focus of this company. The executive’s salaries and positions are contingent upon customer surveys and approval of operations and company policies. It just doesn’t get any better.

This company began as a collective of military officers insuring themselves overseas, and has grown to become the 5th largest insurance company in the U.S. on these non-profit principles.

Posted by: David R. Remer at April 26, 2009 3:35 PM
Comment #280962

David,

That still won’t resolve the issue that people are not taught good financial methods that would eliminate most needs for credit cards. I don’t use them myself because I realize, finally, that what I end up paying for an item is much more that it should be by using credit. By simply saving the money to purchase what I desire, instead of having it now and paying more for it as a result, the cost of owning that highly depcreciating object is illogical.

But we don’t teach that in our governmentally controlled schools now because it doesn’t help the government, does it? Why, the economy might not grow year after year consistently…

Purchasing a house, and possibly a car (though it is debatable), because they appreciate in value, is a generally sound idea. But purchasing, say, a new flatscreen tv, at credit card interest rates, is UNFATHOMLY stupid. Just because the credit card issuer is not for profit won’t help this problem that the US has now.

Education, proper education, is needed and where we should be focusing. If that were the case, the credit card companies would have been out of business long ago.

Posted by: Rhinehold at April 26, 2009 3:42 PM
Comment #280966

There’s a certain logic to your point. No mortgage securities, no crisis!

But the existence of Mortgage securities by themselves did not cause this problem to happen. If Predatory lending had not been allowed to get out of control, if home equity loans were not sold to nearly everybody under the sun, if derivatives weren’t allowed to boom without any kind of limitations on how they could be traded.

Those are just a few of the contributing factors.

The problem isn’t regulation, deregulation, or whatever. It’s the composite effect of the rules that are there, the rules that aren’t, the unwritten rules systems and people follow, and the written ones people ignore either because of their difficulty or lack of enforcement.

Together, this pattern of behavior decides whether we have unstable volatility, or relatively stable robustness.

The insistence on free market philosophy in rulemaking leads people to put a naive faith in the market’s ability to police itself. People keep too many secrets, and harbor too much greed for us to just hope that the competitive in the market will do the right things simply by default.

Posted by: Stephen Daugherty at April 26, 2009 6:19 PM
Comment #280969
But the existence of Mortgage securities by themselves did not cause this problem to happen.

And I state that quite clearly. It was a ‘perfect storm’ of issues that put us where we are today, not just ‘the failures of capitalism’ as we are told by those wishing to change our economic system.

The insistence on free market philosophy in rulemaking leads people to put a naive faith in the market’s ability to police itself.

No, most people do not have a problem with the government doing it’s primary job of ensuring that the free market stay free. It is when the government expands beyond that role and starts tinkering, thinking that just a few tweaks here and there can make the system work BETTER for, well, whoever has the ear of whoever is in charge at the time.

Enough is enough, we need to keep the free market free by enforcing anti-trust laws, fraud, etc and ensure that everyone who is participating in a transaction in the market has adequate and full informed consent of each and every transaction. Beyond that, all we do with government’s ham-fisted attempts to save ourselves with economic manipulation needs to end now, it will not, ever, work properly.

Posted by: Rhinehold at April 26, 2009 6:58 PM
Comment #280972

Rhinehold said: “But we don’t teach that in our governmentally controlled schools now because it doesn’t help the government, does it? Why, the economy might not grow year after year consistently…”

Many public schools don’t teach that BECAUSE government does NOT control the schools. There is no national standard for education in America. And a great many private schools don’t teach it either. My daughter took home economics (actually called “Life Skills” at her school), in high school and DID learn the basics of cash purchases being superior to credit purchases in terms of cost and stretching one’s earnings. But, it is an elective course. And NOT mandated by government.

When you interject hyperbole into the discussion with statements that are clearly false in their implication, like public schools being controlled by government, it is hard to have a rational debate. Government standardized schools is what China, India, and Viet Nam have. And two of those 3 nations are going to be America’s chief economic competitors for the rest of this century, partly because of their having government standardized education, and why American corporations now seek H1B visas for their students to come work here.

Posted by: David R. Remer at April 26, 2009 8:20 PM
Comment #280973

Rhinehold, this is a catch-22 statement: “No, most people do not have a problem with the government doing it’s primary job of ensuring that the free market stay free.”

The instant government attempts to regulate the private sector, by anti-trust laws for example, free market purists insist the market is no longer free. And they have a point. So, the term ‘free market’ is a misnomer if differing political and economic ideologies hold differing definitions for the same term.

What do you mean, exactly, by free market in your quote above? On the one hand you define it as free of government over sight. On the other you say government should regulate the market place as in the 2 quotes below:

“Yes, that is exactly what I was saying, complete removal of government from overseeing the free market.”

“Enough is enough, we need to keep the free market free by enforcing anti-trust laws, fraud, etc and ensure that everyone who is participating in a transaction in the market has adequate and full informed consent of each and every transaction. “

Posted by: David R. Remer at April 26, 2009 8:26 PM
Comment #280974

The purpose of the free market is for competition to ensure that the laws of supply and demand bring about the appropriate price for any good or service. However, if one person is ‘tricked’ into an agreement by fraudulent means, that violates those tenets.

Likewise, if one single entity is able to artificially set a price with no competition to allow for it to be countered by another entity, then that also violates the ideals of a free flowing market of those goods or services.

The government, in ensuring that the market stay free from coercion and fraud, should be ensuring that this free flow of goods and services not be ‘plugged’ into the hands of one entity, whether the monopoly be government sponsored or not. If this happens, too much power is given to the entity allowing them to artificially increase the cost of the product or service while not having to worry about the demand falling to another competitor.

Even wikipedia mentions coerced monopolies, it’s not really a strange concept, is it?

Posted by: Rhinehold at April 26, 2009 8:38 PM
Comment #280976
On the one hand you define it as free of government over sight. On the other you say government should regulate the market place as in the 2 quotes below:

“Yes, that is exactly what I was saying, complete removal of government from overseeing the free market.”

Sorry, that was supposed to be ‘ironic’. Since that was not what I said, but you suggested I was saying it…

Perhaps we need an ‘irony’ tag? Or maybe a ‘roll eyes’?

Posted by: Rhinehold at April 26, 2009 8:41 PM
Comment #280980

The question is, what do you want people to have the freedom to do? Let’s separate the issue of macroeconomic manipulations like the stimulus plan from the regulatory side.

The truth is, there’s some merit to secondary markets for credit, so long as there is a clear way for people to distinguish securities with good collateral from those with bad. It also helps if your credit rating people aren’t lying out the locations where the good Lord split them.

We have to judge whether folks will voluntarily learn the lesson, or just wait for things to cool off to start pulling the same crap again. We need to shape regulations and the lack of same to deal with those places where we can be reasonably sure that the greedy and the corner cutters will cause inordinate amounts of damage through their bad behavior, and where the market’s functions are most compromised.

Posted by: Stephen Daugherty at April 27, 2009 12:41 AM
Comment #280982

RH
I do not want to set a negative tone but in reality it is a lot easier to to accept slow or negative economic growth rates when you are in a position of wealth. For people on the edge it is a very different story. There are lots of different reasons people can be on the edge. Perhaps it is their own doing,perhaps not. There are also considerations of population growth. The US has a fairly stable population growth but it is still rising. Globaly population is still rising rapidly. The ideal economy rises at least in synch. Whether the government gets involved in trying to increase growth rates is not even a question. A prime directive of government is stability. It must be there tommorrow. Failure to adopt polices that promote growth to help provide some measure economic viability for large segments of a people for a length of time run counter to that directive. A better debate is what and how government should intervene.

PS Not to worry much about Volcker. I read a piece recently(sorry,can’t source it) that he is pretty much a figure head. As of the writing he had not been to one meeting.

Posted by: bills at April 27, 2009 2:26 AM
Comment #280989

bills, at current rates, the human population will increase by 50% by 2040-2050, just 31 to 41 years from now. It is cruelty and inhumanity on a global scale to permit population growth to outpace the resources and distribution system’s capacity to provide healthy food, water, air, decent housing, employment, and health care to such a growing population.

But, let’s be clear. The resources to support this increase in population are decreasing, not increasing commensurately. Humankind is directing itself toward an another holocaust, this time on an unprecedented global scale. It will be the greatest single failing of human civilization, ever. And dare I say it, religions and their influence on political systems will be the primary cause of, and obstacle to averting, this coming holocaust.

Perhaps flu pandemics are nature’s way of compensating for and arresting human hubris and failures to achieve enlightened self-interest in its decision making.

Posted by: David R. Remer at April 27, 2009 9:02 AM
Comment #280990

Rhinehold said: “The purpose of the free market is for competition to ensure that the laws of supply and demand”

I understand that is your and other’s ideologically definition of ‘free markets’. And that ideology is precisely what prevents a failed system from changing into one vastly more productive, which posits that the purpose of the free market is for competition and cooperation to marry toward the long term survival of humankind and therefore, the marketplace and players themselves and their progeny.

Your brand of ideology subscribes to only 1/2 of a theory of economics. When Adam Smith wrote of competition in the Wealth of Nations, he did so in conjunction with, and on top of, the presumption of a society’s having an appropriate moral sentiment (from his preceding work, The Theory of Moral Sentiments. We know this because in the Wealth of Nations he refers to the invisible hand of enlightened self-interest (NOT GREED), which he defines in The Theory of Moral Sentiments.

This is such an historically monumental source of ignorance amongst half or more of economists and economicians, to have never read nor understood nor desired to learn the other half of Adam Smith’s theory of economics. And this is where Friedman gets it wrong, and Keynes gets it more right. And why Democrats won the election in 2008 and Republicans lost huge. It’s the economy - and people will seek that moral sentiment absent in Republican and conservative mechanistic definition of numbers driven economics, every time, when the economy is failing the people.

Adam Smith’s genius was not in inventing new economics math and relationships. His genius lay in his powers of observation of human behavior at the individual and sociological levels and acknowledging an economic system that would be a natural and logical outcome of our better natures shaped by enlightened self-interest. Which left only the task to future generations to insure the preservation and fostering of our better natures brought about by education of enlightened self-interest principles built upon natural noble moral sentiments.

Those sentiments in turn acknowledge and accept that what is good for the society and its individuals constitutes sounder economic decisions than decisions which serve only the individual and bring retribution for its short-sightedness from the society as a consequence to personal gain. What we are witnessing in our society today, as I type, in the form of hate toward banks and credit card issuers.

Your not alone by any means, Rhinehold, in participating in only a half developed and half understanding of the greatest works on economics ever written. Conservatives almost to a person get their half baked economic theories from Smith’s Wealth of Nations, and most have never heard of The Theory of Moral Sentiments, let alone read it, and of those who have read it, far fewer have grasped its import and foundational construction for what is presented in The Wealth of Nations.

Might as well build a mansion on top a peat bog, as observe an economic theory based solely on The Wealth of Nations leaving much of its terminology and understandings misconstrued and erroneously interpreted for lack of literacy in The Theory of Moral Sentiments.

Posted by: David R. Remer at April 27, 2009 9:31 AM
Comment #280991

Rhinehold, thanks for the clarification of the apparent contradiction. Yeah, those emoticons have a useful purpose. Too bad they are not implemented here.

Posted by: David R. Remer at April 27, 2009 9:32 AM
Comment #280992

Rinehold,Can you even find a CRT (cathode ray tube) TV set ? I didn’t see any ,And if you have noticed a new Plasma flat screen is about 30-40% less than 14 months ago dirt cheap and have 100,000 hour half lifes the LCD’S are way down in price to and they wear out also. The 32 inch LCDS are about the same price as a old CRT factored for inflation.

Posted by: Rodney Brown at April 27, 2009 10:02 AM
Comment #280993

Rhinehold,

There were many booms and busts in the 18th and 19th centuries, of which I’m quite sure, you and most posters here, are well aware. It was the impetus for the creation of National Banks and eventually the Fed.

But You, in your wisdom, have a better idea. Like you accuse David, you toss up the limited government swerve, whenever people point out your argument is full of non-reality and holes.
Yet, in reading most of your posts, I find your idea of limited government to be of the same ilk as Grover Norquist’s saying he wants to shrink government down to where it’s small enough to be drowned in a bathtub.

There is a reason Ron Paul was laughed out of the room. It wasn’t his reasoned approach to US intervention. It’s not his desire for freedom. It was mostly his complete fiction about economics and small government pandering.

We don’t, and have never lived in an idealized laboratory of perfect economic situation. This country would not exist without the government sanctioned slaughter of Indians that created most of the land booms of the 19th century. Spain, England or France would have dominated this nation without government intervention. Government mostly is the majority of people acting in self interest. Sometimes it is special interest that dominates. That is reality. Power is always a double edged sword. Yes, government does bad and dumb things. So do unorganized mobs.
On the whole, the economic lot of Americans has risen since the inception of the Fed. Like it or not, that is reality.

The Key factor in America has been free speech, including yours. It is the constant re-evaluation of ideas that keeps America on keel. By all means keep trying, convince us, but you’ll have to do more than blame the depression on the weak Fed of the 20’s, or blaming the Fed for the creation of the business cycle.

Posted by: gergle at April 27, 2009 10:03 AM
Comment #280994

Rodney,
I have three of them in my house. Wanna great deal:)?

Posted by: gergle at April 27, 2009 10:06 AM
Comment #280995

CRT’S no thanks gerg :) I have a few left over to i gave one to a cousin and I’ll donate one- And one I’ll keep it has a Dvd player and vhs player built in it i found it last year for half off, The last of them. I finally got a plasma after all these years 1080p Love it.

Posted by: Rodney Brown at April 27, 2009 10:21 AM
Comment #280996

DR
We digress some but living in the RP is an eye opener. Abortion is against the law constitutionally. Birth control,though available, is hard to get and unobtainable for the people that need it most. The political struggles to help provide birth control to the poor are always opposed by the very powerful RC on moral grounds. What is the morality of having children pick through refuse dumps to get food to eat? The current president ,supported by the church, claims that “natural birth control” will work. Gee,hows that going so far? The RP sits on islands of the approximate land mass as Arizona. There are 90-100 million people here. About %20 of the population is working overseas,the Philippine diasphora. The remittance level is reported on the financial pages like hog futures. We are not in a technical recession yet with an annual growth rate projected at %.5, downgraded from %3 recently. Its sometimes darkly entertaining to observe the great debate going on in the US about regulation vs free market etc. The evil ghost of Malthus still stalks much of the world and we just don’t have time for such sophistry. What works,works and the idea of just giving free market principles more time and take our lumps is absurd. There is no time. Economic triage is what is needed,emergency procedures or we will face the whorl wind.

Posted by: bills at April 27, 2009 10:25 AM
Comment #280998

bills, as I recount them, there are 3 main arguments regarding population control. 2 of them are false arguments with ulterior motives.

First, is the argument that any attempt to address population growth requires government control of individual choice over whether or not one may have a child or more. This is a red herring argument, for reasons that will become apparent in the third route, proffered by the anti-government pro-individual anarchists.

The Second argument is the religious one, which makes it a crime against God to control population, loosely based on patriarchal notions that God endowed man with an insatiable reproductive appetite as part of his grand cosmic plan. False argument from an empirical standpoint and utterly fails to balance the major religions injunctions against causing willful harm to others, which overpopulation of the planet surely entails.

The third and only valid route to address overpopulation as far as I can see, is a global economic education program entered into by all, or nearly all the world’s nations, in which governments provide real empirical information regarding progeny costs and benefits, economically, environmentally, and individually and allow the people of the world to make up their own minds based on the empirical data.

This 3rd route will NOT result in zero growth. However, it will very likely result in dramatic drops in the projected growth rate, and buy human systems time to better develop and evolve economic and ecological - technological systems to better and more humanely support the world’s people. Very likely, nature will pick up the slack and zero out population growth for a period, at the rate we are going in congesting millions upon millions of people into urban sardine cans.

This 3rd route neither entails abridgment of individual or religious choice on the one hand, nor does it ignore the inhuman consequences of unchecked population growth. Combined with the urgency now becoming focused on reforming and updating public ecological and environmental designs of sustainable human communities, the much slower growth in population as a result of this route, can very likely be accommodated while diminishing the natural consequences of human congestion, by decentralizing populations into more sustainable environmentally supportive locations.

It is a massive undertaking, but, the global intergovernmental infrastructure is in place to implement such an approach with the W.H.O., United Nations, and regional and global economic councils. China, India, and the U.S. are the major hurdles to implementing such an approach, each for their own differing reasons. China will resist such a free choice approach. But, its forced population control moves their country in the same direction. India has a caste system and a democracy at odds with each other, and such an approach will likely be politically twisted as directed primarily at the poor and be resisted by the majority. The U.S. has a religious minority that would oppose such a route on purely religious ideological grounds. Fortunately, religiously dominated anti-empiricism political organizations in this country are on the wane, and therefore will not likely be able to control such an agenda toward an educational program based on providing empirical cost - benefit analysis of child bearing, leaving choice intact.

All that is lacking is an international will to make over-population a top economic priority for saving the world’s economic and environmental systems from partial or complete collapse.

This is hardly one of those economic situations that the free marketplace, as defined by Rhinehold and conservatives in general, is capable of addressing in a humane and ethical fashion; resting as it does, on Darwinistic competitive survival of the fittest and let the rest suffer, foundations.

Posted by: David R. Remer at April 27, 2009 11:04 AM
Comment #281004

For Rhinehold and others that need a list,

http://en.wikipedia.org/wiki/List_of_banking_crises

Posted by: gergle at April 27, 2009 2:21 PM
Comment #281007

Gerg, David , Rine and d.a.n. though not as big it did make a impact and very much tells a story of rampant greed of silver speculation. http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt

Posted by: Rodney Brown at April 27, 2009 4:17 PM
Comment #281012

Rodney, thanks. That was going on with a lot of commodities including oil, copper, aluminum and other metals. All speculated up on China and India’s rampant economic growth since the mid-1990’s, but, most stridently from 2002 thru 2008 if I recall my dates correctly.

Posted by: David R. Remer at April 27, 2009 6:22 PM
Comment #281013

FYI, a good example:

The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It’s a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse.

In the name of containing “systemic risk,” our regulators spread it. In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders. And in the name of restoring financial confidence, they have so mistreated Bank of America that bank executives everywhere have concluded that neither Treasury nor the Federal Reserve can be trusted. […]

Evaluating the policy of Messrs. Bernanke and Paulson on their own terms, this transaction fundamentally increased systemic risk. In order to save a Wall Street brokerage, the feds spread the risk to one of the country’s largest deposit-taking banks. If they were convinced that Merrill [Lynch] had to be saved, then they should have made the public case for it. And the first obligation of due diligence is to make sure that their Merrill “rescuer” of choice — BofA — had the capacity to bear the losses. Instead they transplanted the Merrill risk to BofA shareholders, the bank’s depositors and the taxpayers who ensure those deposits. And then they had to bail out BofA too.

The political class has spent the last few months blaming bankers for everything that has gone wrong in the financial system, and no doubt many banks have earned public scorn. But Washington has been complicit every step of the way, from the Fed’s easy money to the nurturing of Fannie Mae and Freddie Mac, and since last autumn with regulatory and Congressional panic that is making financial repair that much harder. The men who nearly ruined Bank of America have some explaining to do.

Transparency? Integrity? No, whatever means necessary as long as the desired end result is achieved.

Posted by: Rhinehold at April 27, 2009 6:42 PM
Comment #281014

David That’s true, There are a few less billionaires in Russia today! Why do the keep repeating that madness it just leads to more bubbles and chaos.

Posted by: Rodney Brown at April 27, 2009 7:25 PM
Comment #281015

Rhinehold, well, that’s one side of the story, anyway.

Posted by: David R. Remer at April 27, 2009 7:33 PM
Comment #281028

DR
An important part of solution #3 is access to birth control products to go along with education. In the RP, for example. BC is available but priced far beyond the ability of the people that need it most.
The IMF is predicting that as a direct result of the current downturn, another 55 million people will slip into life threatening poverty. Suggestions that we do nothing about it and just let the magic market or God or what ever take care of it are brutal,evil and suicidal. We are not immune from what goes on in the rest of the world.

Posted by: bills at April 27, 2009 11:20 PM
Comment #281030

You know, I wonder sometimes if people look things up before they write them?

http://drmelissaclouthier.blogspot.com/2006/05/birth-rate-decline-discussing-parent.html

Reading the stats on Birth Rates in Europe, Italy and Spain fair the worst, while Germany isn’t doing much better, and then hearing today about the birthrates in the United States (which is much better than in Europe but still only at 2.08 versus 2.1 needed for economic replacement value) causes concern. One wonders why people aren’t having more kids.

Which, of course, makes SS all the more of a problem…

Posted by: Rhinehold at April 27, 2009 11:46 PM
Comment #281031
The IMF is predicting that as a direct result of the current downturn, another 55 million people will slip into life threatening poverty. Suggestions that we do nothing about it and just let the magic market or God or what ever take care of it are brutal,evil and suicidal. We are not immune from what goes on in the rest of the world.

Ah, the chicken little argument, I haven’t seen that one all afternoon.

By all means, let’s tear down the one economic mechanism that has eliminated more poverty and class structure than any before, all the while increasing liberty of those individuals.

Instead, why don’t we look at the people who are living in poverty, the majority of them NOT in an economic free market, and figure out a way to get them there so that they can have liberty as well.

I mean, if we really care about them instead of wanting to use them as pawns in a game of political chess.

Posted by: Rhinehold at April 27, 2009 11:48 PM
Comment #281089

Rodney Brown,

Thanks for the link.

Yes, I remember Silver Thursday and the run-up of silver prices in the 1970s. I remember it every time I drive by the Hunt Towers in Fort Worth, Texas. I know people who made a good profit selling silver just before the silver market crashed.

    From Wikipedia: Beginning in the early 1970s, Hunt and his brother William Herbert Hunt began accumulating large amounts of silver. By 1979, they had nearly cornered the global market.[6] In the last nine months of 1979, the brothers earned an estimated $2 billion to $4 billion in silver speculation, with estimated silver holdings of 100 million ounces. During the Hunt brothers’ accumulation of the precious metal, prices of silver futures contracts and silver bullion during 1979 and 1980 silver prices rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later.

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at April 28, 2009 10:52 PM
Comment #281121

You’re welcome d.a.n. anytime my Friend, A lot of folks were melting down there silver dollars and coins.

Posted by: Rodney Brown at April 29, 2009 5:13 PM
Comment #281141

AP sources: Chrysler to file for bankruptcy protection as credit talks crumble overnight http://finance.yahoo.com/news/AP-sources-Chrysler-to-file-apf-15085313.html

Posted by: Rodney Brown at April 30, 2009 10:49 AM
Comment #281172

I hope Fiat is better than the Fiat i remember in the Late 1970s and early 1980s because they were not built for the long haul back then fingers crossed. http://blogs.wsj.com/environmentalcapital/2009/04/30/buongiorno-with-fiats-fuel-sippers-a-bankrupt-chrysler-will-be-viable/

Posted by: Rodney Brown at April 30, 2009 10:59 PM
Comment #281201

Here’s what I believe: The purpose of market regulation has to have two sides.

First, we must have a mode of regulation that optimizes the market economy when it’s functional, making sure the tricks used to hide weakness are fewer, disclosure is greater, and that market economics is used to relatively productive ends, rather than merely being financial self-abuse for a class of folks who just sit around giving each other a whole bunch of capital.

The Second mode of government regulation should be to prevent market-destructive practices, or in the worst-case scenario, to prevent market destructive behavior’s consequences from running out of control.

No such system is possible so long as we subscribe to a purely self-regulating paradigm of economics.

It is not a mere possibility or figment of our imagination that people cheat the system. This is a constant reality. Does the market filter them out? No. Our current crisis tells us definitively that it not only has not, but a dominating sector of the financial markets has been run by these people.

It is not a mere possibility or figment of our imagination that folks inflate the value of their companies, hide weaknesses, or even create complete shams of businesses. From Enron to Bernie Madoff, we’ve seen this as a reality.

It is not a mere possibility or figment of the imagination, that given the chance, certain people will manipulate the markets to create speculative gains, with results that in the end gut markets. From the Housing bubble to Enron’s manipulations in California, we’ve seen it happen.

We’ve seen Businesses consolidate promising savings and economies of scales, only to raise the price of their products. We’ve seen energy deregulators claim that they’d save people money, and then hike rates on their utility’s customers.

We’ve been promised that the market by itself could bring about the desired positive changes, and nothing of the sort has happened.

We don’t need a government endlessly meddling and micromanaging in the economy. We need, though, somebody to bring the order to the market that it needs, with room allowed for the markets to have the freedom to do their their things. We need to realize that while some unconscious expressions of Adam Smith’s invisible hand do take place, that a market is like any other party of society: it requires the restraint of the rule of law to keep people honest, accountable, and responsible.

Posted by: Stephen Daugherty at May 1, 2009 8:30 PM
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