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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.
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.
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.
.(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.)
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?
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.
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.
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.
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.
Who taught you that?
I'm going to give you a very basic version of what actually happened for you,
In the 1920's, as you know, we went through an economic boom.
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....
Aaah here we go. So discount rates were kept low? Well who influences these discount rates? You and I?
Because credit was so easily avalible to invest in these company's since discount rates were kept lower than they should have been.
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.
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)
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.
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).
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.
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.
“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.”
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.
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.
On October 9 , 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)."
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.
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?
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.
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.
If you cannot understand how stopping AIG from going bankrupt helped everyone, then don't bother talking about economics.
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.
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.”
"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."
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?
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.
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%.
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.
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.
If government just "butts out" this speculative market will destroy itself entirely.
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.
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.
Oh it does does it? This chart below contradicts that idea.
Fiat currency works. You may not like it, but it works.
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.
It is necessary for the survival of this economy that the Fed do what is necessary.
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.
They couldn't increase the money supply during the great depression because of the gold standard, and as a result the economy collapsed.
Yes I am blaming the FED for their actions, it is historically proven that they caused it, and made things worse.
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.
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.
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.
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?
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.
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.
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.