"A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression"

Art for Financial Crisis

An Artist who lives in Vienna creates a Sculpture for the current financial Crisis, I think there are some really deep meanings in it.

www.mengcomment.com

People on the left "taking over the bank industry..."

While I'm familiar with the opinions on the right who endorse a laisse-faire "invisible hand" approach to this crisis, I have yet to encounter anybody who wants to "take over the banking industry." I consider myself a few notches left of center on most issues, and I do not know anybody, such as Paul Krugman or Barry Eichengreen, or Brad DeLong, or any other economist of this stripe, that wants to "take over banks."

What we want, and have always wanted, is increased regulation of banks.

regulation

I will be intrigued to see what Posner's take on what form the additional regulation should have been, and how that would have prevented this crisis. One view is that we had a massive bubble in a $20T market (US real estate), and when that popped, there was no avoiding a massive financial crisis. Japan had the same thing, and that economy was (and is) incredibly regulated. Europe is more heavily regulated than we are, and they are in as bad of shape. I work in public/private investment companies, and the more the government tries to regulate the markets I operate in, the more incentives are inefficiently skewed, and unintended consequences arise to screw things up. How much of this past crisis was because of government (low rates, pressure on banks to lend and lower standards, Fannie and Freddie behaving stupidly with a government guarantee) and incompetent officials like Barney Frank and George Bush watching all of this happen. Now we think government needs to get more involved? Wall St. is bad, but they tend to suffer harsh consequences when they screw up. Government officials like Barney Frank get more power when they screw up. We are headed down a bad path.

Bobby of CA?

You say...

"In every era of big government in our nation's economic history, we have seen massive economic success, and an extension of civil rights/liberties. Big government makes capitalism work like capitalism. Less government leads to feudalism or third-world nation- style economics."

Are you kidding? It was the "big government" policies of the Carter administration that lead to stagflation and some of the worst economic times we has seen since the great depression...get a clue before you make statements which are historically inaccurate!

PS:if you actually answer just tell the good folks here what the unemployment rate was in 1979...

Bobby if CA?

You say...

"In every era of big government in our nation's economic history, we have seen massive economic success, and an extension of civil rights/liberties. Big government makes capitalism work like capitalism. Less government leads to feudalism or third-world nation- style economics."

Are you kidding? It was the "big government" policies of the Carter administration that lead to stagflation and some of the worst economic times we has seen since the great depression...get a clue before you make statements which are historically inaccurate!

PS:if you actually answer just tell the good folks here what the unemployment rate was in 1979...

Blame the Regulators?

Everybody has his own idea of who should get "The Blame". It makes more sense to me that there was a perfect storm scenario: all the conditions for a bubble, all the incentive to keep the bubble inflating without end, and too few people who saw the bubble coming and kept themselves at a safe distance.

The short answer is: we all screwed up.

You screwed up if:

* you thought your 401k could never crash even thought it was heavily into stocks,

* you thought 7-15% yearly home price inflation was a thing you could could profit from on a permanent basis,

* you thought Washington could tell banks who to lend to out of charity, and the banks could somehow "just deal with it",

* you thought that you could make decisions that might hurt other people, but that nobody could do the same thing to you,

* you thought aggressive tax cuts and endless spending increases could be combined till Kingdom come,

* you thought "Bill Clinton's economy" happened because of him, and that that "prosperity" was real and legitimate.

Etc, Etc, Etc.

So many people have screwed up in so many ways, I couldn't list them in an hour.

We are just starting to reap the harvest of an orgy of national selfishness. There's plenty of blame to go around.

I'll take my share. Will you take yours?

Bank Deregulation

I love how conservatives, who claim to champion the value of self-responsibility, never take responsibility for the mistakes they made while they were in complete control of the federal government.

Blame the guy the public hired to fix their mess seems to be their modus operandi now.Conservatives openly hope for more...yes more...failure of the economy and foreign relations. Keep repeating that the President is the one at fault, that he's a socialist, and then add in a helping of "teabagging" parties and talk about succeeding from the United States and you have the modern conservative movement in a nutshell(no pun intended).

And now comes along a noted libertarian who dares to tell the truth about how the banks got to the point they are at today and what do our conservative friends have to say? Well of course it was the governments fault! Yeah, that's right friends, the government somehow managed to deregulate the banking industry, but also force them to conceive sub-prime mortgages and disperse them among ....wait for it...minorities! Yes!

Never mind the fact that according to the Wall Street Journal and other sources, over 75% of those given these sub-prime mortgages qualified for better mortgages but where sold these mortgages by the banking industry because the money they made off of them.

Conservatives will never return to any lasting prominence until they accept responsibility for what they've done. No amount of Fox News talking points is going to make people want to vote for blame-shifting, fact-averse, traitors.

For those of you that aren't familiar with Posner....

I suggest that you look up who he is, what he stands for, and the like before stating that he is a "liberal hack" or whatever. A classmate of mine drew my attention to this article, and I was shocked to see him say anything against deregulation.

On most issues, his opinions (if you feel that things must be categorized) are more similar to libertarian positions. Here is a quote from Wikipedia:

Along with Robert Bork, Posner helped shape the antitrust policy changes of the 1970s through his idea that 1960s antitrust laws were in fact making prices higher for the consumer rather than lower, while he viewed lower prices as the essential end goal of any antitrust policy.

Today, although generally considered a figure of the right, Posner's pragmatism, his qualified moral relativism and moral skepticism, and his affection for the thought of Friedrich Nietzsche set him apart from most American conservatives.

Quite honestly, I don't know enough about it to espouse my own opinion on deregulation of the banks, but if Posner is for regulation of anything, I'm sure he has a good reason for it.

Um, yeah.

We didn't go far enough in deregulating the banks. We should have dumped the regulations that pushed them into subprime mortgaging. We also should have dumped Fannie and Freddie, highly corrupt institutions who weren't under market forces since they were backed by the government.

With the government backing the risks of Fannie and Freddie, and banks selling their risky loans to Fannie and Freddie, the players involved had every reason to behave recklessly because 1)they could make a profit, 2) the government wanted them to give out the subprime loans, and 3) if it all went south the government would bail them out.

The government has done nothing to correct any of this. It just through Chinese money at the problem, bailed out the people with subprime loans (stupid, stupid, stupid), and started setting up our next crisis.

What's our next crisis? The collapse of the dollar...we print money to throw at our problems, we are in debt up to our eyeballs, we are looking at trillion dollar deficits for the forseeable future, social security and medicare are 50 trillion dollars short of their promised entitlements, the baby boomers are retiring, we have huge trade deficits, and frankly, we've become a lazy, entitled country that doesn't want to work for anything or take responsibility.

We are heading for a perfect economic storm, and the socialist Barack Obama is our captain. God help us.

Brian

Banks didn't suddenly decide one day to give out loans to people who couldn't pay them back. Such a plan would be incredibly foolish. They were required to do so by government regulations--or else.

Even after Fannie and Freddie were gripped by scandals, politicians like Barney Frank continued to push them to increase their subprime loans, and as a result over the last several years subprime loans went from 8% to 20% of new originations.

Do believe the garbage put forward by Posner, you would have to ignore the facts that: 1) liberal regulations pushed banks into subprime loans, 2) the banking and housing industries were heavily regulated, 3) regulations actually went up under Bush, 4) liberals defeated Republican efforts to bring Fannie/Freddie under control, 5) the beneficaries of subprime loans were liberal voters, and 6) markets won't self-regulate when the government is implicitly (through Fannie/Freddie) accepting the risk of the bad loans.

If the govnernment HADN'T forced bad lending standards and HADN'T tampered with the banking and housing industries you never would have had subprime mortgaging because banks would never loan money to people with no income, no job, and no assets. Why? BECAUSE THEY WOULDN'T GET PAID BACK!!!