Going gets tough, so Bush tries socialism

Originally posted by GatewayShould taxpayers also "loan" out money to the Auto Industry, the Airline Industry, or the Steel Industry? Because their industry may collapse? Having public money being loaned out to industries that are shaky to begin with, is anti-free market. These industries have it in their interest to save themselves, they can work out agreements with private banks or lenders. Though they don't have to, because they know they can come to D.C. and cash in the political favors due to them.

Technically the Fed is a private bank...

reply to post by Lucid Lunacy


Yeah taxes are pretty much socialism. If it is not going to national defense and resolving disputes and commerce between the states. What other role should the federal government have?

They sure as heck shouldnt be paying for roads and bridges, defining how schools should be ran, distributing welfare, doing social security or medicare/medicaid etc.. That is all socialism. Now if the states want to do that then that is up to them, but it shouldnt be dictated by the federal government.

[edit on 19-9-2008 by justsomeboreddude]

Originally posted by grimreaper797
Oh goodey, is this where we get to play the blame game? Lets all bash the government and refuse it's help because it play A FACTOR in the position we are in now.

Example: If a doctor informs you that you have cirrhosis of the liver, will you ONLY sit there long enough for your doctor to give you, your prescription medication and then out the door you go? Or will you sit there long enough to listen to what he has to say about the root cause of your problems? And yes, perhaps it will be a real drag or a bummer to you and your drinking buddies, to have to hear the doctor play the "Blame Game" as you aptly put it about how Jack Daniels and Wild Turkey over many decades had a complicit roll in your illness, but determining the root cause of problems is a step in the right direction to get your life in order, so to speak.

Now, substitute "you" for fractional reserve banks and "alcohol" for easy money over several years and you have the problems we have today.

Therefore it is imperative that we must shed light and speak on the root cause if we want to solve our problems.

.(it is not the cause, as there were definately multiple causes to the situation we are in. They are complex, and to dumb it down to "it is the Feds fault for keeping the rates below market" is an insult to every ATSers intelligence.)

No, it's that simple. I guess, I'll have to explain. The begging of 2001 we all were fortunate enough to witness the unwinding of the "Stock Market" and the slowdown in economic growth spurred on by yet AGAIN easy credit, which created what we all look back and fondly refer to the DOTCOMs. As the economy continued to take its unfortunate, but necessary downward correction, in order to clear the market of companies that were gimmicky, produced nothing, and had ridiculous price earnings ratio. Unfortunately, we did not complete this "business cycle", because we then had 9/11 occur. This brought havoc into both the capital and equities markets, and sent commodities through the roof. Your hero Greenspan met with Bush and capitulated, instead of letting the market recover from the DOTCOM mess and the accounting scandal, he proved his stupidity and lowered the FED FUNDS RATE TO an unprecedented 1.25% in 2002 Source:NYFED

So here we have the FED interfering and setting the rate of interest below the market. When I say below, I mean below, since otherwise the market would have sent those rates above 1.25%, would you not agree? Therefore by this very definition the RATE OF INTEREST WAS SET BELOW WHAT THE MARKET WOULD HAVE BEEN OTHERWISE.

Now, when you have the market rate of interest being set at this NEVER BEFORE SEEN rate, what do you expect? People act like rational agents and borrow!! They'll borrow for new cars, school loans, credit cards, you name it...but particularly people saw an opportunity to refinance their homes, add to this mix new first time home buyers encouraged by laws such as the Community Reinvestment Act, which compels banks to make loans to low-income borrowers, thereby encouraged people who probably would have never thought about taking ARMS did so to buy homes. Then we have Fannie and Freddie who enjoy implicit guarantees of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby further fueling the housing boom.

So I have laid it out for you as simply as I could; The ROOT cause for our problems today; THE FEDERAL RESERVE BANK.

This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.

It has nothing to do with saving all the institutions all the time. It has to do with knowing when to step away, and when to step in.

Oh yeah, and who will preform this "duty of knowing" when to STEP-in as you put it? The FEDERAL RESERVE? The same folks who knew better than the market, by setting interest rates at 1% and setting the coarse for this entire mess?

Here, you don't want to listen to the doctor; the doctor here being HISTORY, and so using the analogy above; Instead of listening to history and thus the doctor, you want to run out with your buddies and get drunk. "To hell with the cirrhosis...tequila here I come!!"

We didn't save Lehman Brothers, and that is because although it would be negative for the market, it wouldn't cause any potential wide spread damage like AIG was going to do because of the WAY it was going to collapse. We didn't save AIG because it made us feel good. We did it because we could not allow them to go bankrupt. It simply was not in the best interest of our government, our economy, the world economy, the stockholders, and most importantly, the taxpayer who would have been most negatively impacted by the RESULTS of an AIG collapse.

Here, I don't understand your argument, and frankly I'm not sure you do either; you say that if the AIG fails then the TAX payer would be hurt. But, you fail to understand that the TAX Payer is already hurt because money we've had to pony-up money that we don't have, and money that has just been created out of thin air has been given to save AIG.

Who taught you that?

Some of the good professors that I've had the pleasure of learning from, and knowing on a personal level, as an under and grad student.

I'm going to give you a very basic version of what actually happened for you,

You can certainly try, so far I'm not impressed.

In the 1920's, as you know, we went through an economic boom.

Did the boom happen in a vacuum? Did nothing spurned it? Did people just come into possession of excess cash for the purchase of goods and services out of thin air? Did production just kick itself into overdrive for no apparent reason?

Do you know why we had a boom in the 20s? The Federal Reserve was printing the money presses to pay for a little war we got involved in April 6, 1917. See below...

[edit on 19-9-2008 by Gateway]

reply to post by grimreaper797

CONSUMER PRICE INDEX AND M2 MONEY SUPPLY: 1800-2003
(M2 in billions of dollars)


Year CPI-U M2
---- ----- ------ ------ ------- ------ ------
1917 38.4 24.37 16.88 7.86
1918 45.1 26.73 9.68 8.96
1919 51.8 31.01 16.01 9.48
1920 60.0 34.80 12.22 10.18
1921 53.6 32.85 -5.60 9.04
1922 50.2 33.72 2.65 8.59
1923 51.1 36.60 8.54 9.04
1924 51.2 38.58 5.41 9.17
1925 52.5 42.05 8.99 9.33
1926 53.0 43.68 3.88 7.87
1927 52.0 44.73 2.40 6.42
1928 51.3 46.42 3.78 5.83
1929 51.3 46.60 0.39 4.27
1930 50.0 45.73 -1.87 2.86
1931 45.6 42.69 -6.65 2.75
1932 40.9 36.05 -15.55 0.93
1933 38.8 32.22 -10.62 -0.98
1934 40.1 34.36 6.64 -0.86
1935 41.1 39.07 13.71 -0.39
1936 41.5 43.48 11.29 0.35
1937 43.0 45.68 5.06 0.62
1938 42.2 45.51 -0.37 0.20
1939 41.6 49.27 8.26 0.99
1940 42.0 55.20 12.04 2.38

Source:CPI/M2 Money Supply

I'm going to make this very simple for you. I removed unnecessary figures which may confuse you. The first column on the right is the years, the second column represents CPI, the third M2, which is the supply of money, (M3 was not really prevalent at the time) by the way what matters for the economy is total money supply and not the monetary base. As you can see from the chart above starting from 1917 on through about 1929 M2 money supply was steadily rising to as I said 1929 to 46.60. This increase in the money supply provided excess money which drove production, and began to cause the malinvestment in the economy, just like we have today, which led to the speculative bubble in the Stock Market. And like today, back then there was growing inflation, see the first column see the CPI rising in 1917 38.4, till 1929 51.3. After 1929 we had slight deflation or prices falling, but pay close attention the prices generally hovered and really didn't come down too much. Why? Because as I've already pointed out the Federal government imposed certain restrictions which didn't allowed for prices to decrease as they should have.

How the hell are people supposed to eat when prices are curiously staying the same and in the case of some years actually going up, when their is A DEPRESSION GOING ON?? I'll tell you why, BECAUSE AGAIN government is interfering and making things worse. Instead of letting prices come down for food, clothing, and shelter as they should have during a depression for those that needed it most, government propped up certain businesses (THINK AGI, OR FINANCIAL BUSINESS OF TODAY) with tariffs and other forms of trade restrictions.

I don't know if you are astute enough to have read Milton Friedman's, A Monetary History of the United States, 1867-1960, but in this book he has outlined the mistakes that the FED made that:
a) Caused the Crash
b) Turned a recession into a Depression.

A main factor for this was the fact that productivity increase around 30% while wages only increase 5-10%. What you have is a much higher productivity, and that produced a bigger profit for the company. The problem? Down the road there became simply too much. The market was flooded. Many people were spending all there money on consumer products, and....

Spending does not answer the root cause, that I've outlined above. The rest of your post according to you JUST happens, in a vacuum as if no cause and effect, as if we all lived in the twilight zone. Statements such as down the road, about vehicle purchases, speculators...buzz words which ignored what even the Monetarist have been talking about.

Because credit was so easily avalible to invest in these company's since discount rates were kept lower than they should have been.

Aaah here we go. So discount rates were kept low? Well who influences these discount rates? You and I?

This situation was made worse when the government raised bigger trade barriers in 1930, causing foreign investors and buyers to stop buying. That just made the inability to sell product worse.

Really? You don't say?...you mean government makes things worse off? Who'd of known? Here I am arguing that government makes things worse, and you are saying that government is here to make things worse too. Well, it's about time half way into your rant, you make some sense.

As for the Federal Reserve you are here blaming for putting liquidity into the market causing the great depression, well that is completely ridiculous. In fact, the OPPOSITE was true. The failure to act on behalf of the Federal Reserve bank is what cause the market crash.

No, no, no, my padawan lerner. The Federal Reserve caused the Market to crash, and then made things worse off by shrinking the money supply. But don't take my word for it...read it here for your self. From the FEDs own website, quoting Friedman's book: (read next post)

Friedman and Schwartz emphasized at least four major errors by U.S. monetary policymakers. The Fed's first grave mistake, in their view, was the tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929 (see Hamilton, 1987, or Bernanke, 2002a, for further discussion).

Source:www.federalreserve.gov...

Friedman rightly blames the Fed for the crash and its decrease in the money supply which turned a recession into a depression, but he being the Chicago Monetarist that he is left out the root cause of the increase in money supply that led up to the crash. The full explanation for this can be credited to a man greater than Friedman, by the name of Ludwig Von Mises.

The Bank of The United States crashed, fueling fear and speculative selling, which destroyed the market on the short term. That is EXACTLY why I have been so for the Fed saving AIG, because we would have faced a similiar situation if they didn't.

Sellers are not the cause of the bubbles, speculators act and sell assets that have been inflated by the FED. Speculators are not the ones to blame for dumping the shares of AIG, they are dumping the shares of AIG because AIG made poor investment choices driven by the easy credit the FED provided. You are blaming the wrong people here...

You have a lot of things I'm going to refute, but I have a job outside of ATS, and I have to get some rest. I will continue my lesson on basic economics tomorrow and refute the rest of your post, when time permits itself.

To be continued...

[edit on 19-9-2008 by Gateway]

Socialism and fascism are different things....but I wish some socialist policies would actually be intergrated into american politics.

reply to post by grimreaper797


Continuing on...

The Bank of The United States crashed, fueling fear and speculative selling, which destroyed the market on the short term. That is EXACTLY why I have been so for the Fed saving AIG, because we would have faced a similiar situation if they didn't. We almost did anyway.

Again, here you make the assumptions of things occurring without any cause. The failure of The Bank of The United States was after the market crashing. Again, the market boom was driven by easy credit from the FED, which drove production and the malinvestment throughout the economy, this spread into the Stock Market investor really thought this production was being driven by “REAL” investment, the FED, undertook a new policy, and realized that assets were over inflated and began raising rates. Here’s a quote from Bernake, quoting Friedman:

“The first episode analyzed by Friedman and Schwartz was the deliberate tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929.”

Source:www.federalreserve.gov...

Again the chronology of event, roughly are as follows:
1917 Onward The FED decreasing of Interest rates, thus increasing the money supply
1928 Fed reversed coarse, and Increased the Rates
1929 Oct, 28th & 29th The Market Crashes
1930 December 11th The Bank of the U.S. goes insolvent, and fails

Now, The reason for the failure of the Bank of the U.S. is also quite simple, it occurred because like everyone else during the years that the FED lowered these interest rates it took on riskier assets (Think Moral Hazard) particularly its balance sheet contained loans against mortgages, first and second as well as third mortgages as collateral. Now after the crash and the tightening of money by the fed it caused a shook the market for first mortgages, and thereby wiped-out any possible market for 2nd and 3rd mortgage loans. This caused the price for this stock to plummet even further, this made depositors very uneasy and began withdrawal of funds for this Bank, hence the Bank run.

You know typing the last paragraph above is almost like typing a “Bio” for AIG, anyway as you can see, the FED here caused the crash and turned the recession into a depression.

Also I don't know if you remember this, but the gold standard was still around back then, and the Fed has pretty much reached the limit of credit they could loan out with the gold standard. Many modern investors blame the Feds inaction of stopping major bankruptcy's which allowed fear to dominate the market.

No, again the problem occurred when yet again the FED interfered. More specifically, as the Markets around the word began to unravel because investors were finally getting wise to the FED and its shenanigans fled their currencies to the safety of Commodities, which they should. The English went off the gold standard temporarily at the time, because investors were rightly fleeing the fiat currency and buying up gold and silver. Investors then suspected that the U.S. would also follow these steps and flee the gold standard started buying up gold and getting rid of their fiat to protect themselves. The Fed trying to stem the outflow of U.S. gold raised interest rates yet again.

On October 9 [1931], the Reserve Bank of New York raised its rediscount rate to 2-1/2 per cent, and on October 16, to 3-1/2 per cent--the sharpest rise within so brief a period in the whole history of the System, before or since (p. 317)."

Source:www.federalreserve.gov...

That logic is completely flawed. The company's owners are being outed, and the average american was thrown a lifeline by not having the market crash as a result of fear and speculation.

No, you mean the company’s management is being outed. Instead of all stockholders holding on to a worthless company stock, and bond holders picking up the pieces of what’s left. The FED stepped in and took a 79% stake in the company, which means the large 21% remainder of the SHAREHOLDERS as well as the bondholders will get to keep their shares, and continue to reap the benefits of the LOAN without having to pay the piper.

Again, the tax payers will make money off this situation so long as AIG lives up to its agreement. It is a solvent company, so it wont have a problem coming up with capital.

Well, if it’s so profitable for taxpayers then perhaps the government should be in the business of commercial lending fulltime, rather than warmongering. Actually, by the looks of it we are currently doing both, and not raising taxes…the miracle of the printing presses, isn’t it fabulous that we can have our cake and eat it too in this country with no consequences?

If you cannot understand how stopping AIG from going bankrupt helped everyone, then don't bother talking about economics.

I think I’m a little more then qualified talking about economics, and free-markets. You on the other hand appear to be qualified to speak on issues such as the glory of corporatism or fascism.

Anyone that knows anything about economics feels the same way I do. It is only people that have no idea of what kind of effects result from actions made in the market that are complaining.

The only type of people that are talking like you are other political hacks who welcome further State Intervention, the likes of Obama and Mcain come to mind who have zero idea what capitalism is much less how the economy as a whole functions.

I’d rather listen to more informed economists who talk about other ways which this situation could have been resolved, than by throwing taxpayer money at the problem.

Cato's Alan Reynolds writes: “Left alone, financial markets usually work out the best possible deals among competing interests. Whenever the feds have gotten involved, by contrast, they've taken sides in the tension between stockholders and creditors - invariably throwing stockholders overboard.”

Source:www.cato.org...

reply to post by grimreaper797


Or this proposed solution written in that same article, would have been better than having the FED socialize AIG at taxpayer's expense.

"It's probably true that 'something had to be done' in the case of AIG, the nation's largest insurance company with operations in 130-plus countries. But doing something could have meant doing something else - such as offering a secured bridge loan while AIG engaged in some orderly asset sales."

Source: www.cato.org...

Well that is nice and all, but thats not what is going on. That is just your paranoid personality slipping through. Regulation is what has stopped monopolies from raping you and your way of life, not build them.

Let me get this straight, so without regulation planes would fall from the sky because of no-FAA, since airline companies have no incentives to keep their planes working properly, without the FDA we would all die of food poising, because food manufacturers would not give care about what they sold us, and without the FED to protect us from bankers, we would have all bought ARMs and be losing our homes?

Regulations are written by Industry experts at the behest of their interest and to limit competition. You think, regulation was demanded and written by a savvy public seeking protection from bad businessmen? I think you are being a little naïve here, if you think Industries have no say in legislation when they lobby or influence in regulation?

Also since when does more regulation, equal more consumer choices? What is it about the word REGULATE that you don’t understand? It is created to limit or regulate an industry and therefore choices.

Um, no, it wasn't. It was caused by speculation, greed which led to poor business choices, and an over relaxation of government regulation on the market during Bush's presidency, which led to the housing bubble.

This is nonsense. I’ve already outline the culprit in this mess, you, Obama, Mcain, Krugman, and others who are clamoring for more socialism want to blame the Market and its agents who act RATIONALLY when presented with IRRATIONAL BELOW MARKET RATES OF INTERESTS of 1%.

If government just "butts out" this speculative market will destroy itself entirely.

It’s not over, the ramifications of the FED’s actions take time to filter down into the economy. And just like have made things worse during the depression expect to feel the sting of its actions not today or tomorrow but in a few years.

This speculative market cannot handle such a quick "correction". Such a correction would lead the government into massive termoil. We cannot allow businesses to crash so fast in a speculative market. Learn something about the great depression.

If the market was allowed to correct itself during the great depression, we would have had only a recession instead we were given a depression of “16 YEARS” because of government interference. Maybe it’s time YOU learned something about the great depression. About what havoc the Fed plays when it distorts interest rates, and then government makes things worse as ALWAYS with bad policy.

Fiat currency works. You may not like it, but it works.

Oh it does does it? This chart below contradicts that idea.


That means we have been fed a constant and sometimes excessive stream of money into the system, making what you and I purchase more expensive. This is inflation. Because your beloved fiat is not backed by anything except empty promises by our politicians that claim they will not increase the money supply, to fund their WELFARE WARFARE STATE.

It is necessary for the survival of this economy that the Fed do what is necessary.

Which means I take it, the continuation of propping-up inflated assets, bailing-out financially connected investment banks, and loaning out billions to unsound corporations, all the while paying for it with money that doesn’t exist. Yes, truly they are looking out for the average American.

They couldn't increase the money supply during the great depression because of the gold standard, and as a result the economy collapsed.

No, they didn’t want to increase the money supply, because they wanted the overheated “Roaring 20s” Stock Market to cool down, the assets were already over inflated, malinvestment was strewn throughout the economy, adding gasoline to fire would have not helped. Think of Greenspan and his “Irrational Over exuberance”, he wanted to let the air out of the bubble in the Dotcoms which he caused in the first place, so he had to raise interest rates. The same thing occurred during the 1920s, that’s why the FED raised their rates in 1928 and continued to do so, but they continued to do it and thus shrunk the money supply.

You are blaming the actions of the Fed for the great depression, when it reality it was the inaction to blame them for. I am glad they are action this time around and learned from their mistakes.

Yes I am blaming the FED for their actions, it is historically proven that they caused it, and made things worse.

1) They increased the money supply to create the speculative bubble which caused the malinvestments.
2) Then they shrunk the money supply, thought-out the recession to make things worse.

And before you start telling me about Keynes and monetarism, you can forget it. It has been disproved, the mid-seventies was a clear example that Keyens and the Chicagoist’s monetary theory is flawed. If you want to transition into this topic, I’ll explain.

Please, stop talking about the great depression. You are under this crazy idea that the Fed is to blame for its actions during the 1920's when it was their inaction and non-intervention that allowed it to crash.

I brought up the FED and their abysmal past to show you that they are not the ones that will solve financial crises, but the ones that have caused it. The only way to learn is to learn from your mistakes, clearly we have learned nothing, instead of taking power from the culprit that have sent us down this road, we have increased it.

And again, I’ve already showed you above that the FED did act, TWICE even.

Yes prices do need to come down, but not so fast. It resulted in a freefall because the inaction of the Fed. The government raised tarriffs thinking it would boost purchases from US companies, thus helping the economy. It didn't. That has nothing to do with money supply or regulation on the market itself.

Again, here you ignore the bigger picture, and your argument of prices coming down slowly was the argument made after the crash, so as “not to make it worse”. Asset prices were kept up in the 20s and after the crash, asset prices are also being propped-up again in ’00, is not the FED doing this?

then you lack the knowledge to know how to do so because what you condone is exactly what caused the great depression. Allowing company's to freefall in bankruptcy, have the fed sit by, and let the speculative market fears destroy the market in the name of "free market". I'm sorry, but you just don't know what you are talking about.

I don’t know if you got what I’m saying. I guess I’ll say it again….I’m saying that first of all we don’t have free markets because the fed is dictating interest rates, causing the malinvestment, and hence the business cycles, of BOOMS AND BUSTS, and then we have the FED and the Government turning around and blaming the markets for 1)Inflation and 2) Recessions.

You guys that clamor for more government intervention don’t want to understand what has happened in the past, and want to continue making the same mistakes.