My layman’s understanding is that the first mistake in a long series of mistakes that caused this financial crisis was that banks were lending to people without making sure they had adequate income. People say the government’s efforts to force banks to lend to low income families caused this first step towards disaster, but from what I’ve read, once one bank offered a certain high-risk mortgage, many other competing banks would soon offer similar deals out of their own volition. Why? Because the mortages were selling like hotcakes to the larger banks and financial firms and making the bank a lot of money without any of the risks involved in keeping a crappy mortgage on the books! The government wasn’t forcing them to offer these ridiculous mortages; they were offering them because bigger banks were buying the mortages off as fast as they could issue them.

Or am I wrong? What am I missing here?

First of all what about all the people keeping each other in line crap we had heard about? This guy took things that did not quite fit into his lunch pail that he started work with, and no one noticed?

Even worse to me is if he can take, he can give.
He can take your shirt, and he can give you a .45 caliber for the next inspector to find.
He can take your money, and give you a clock with wires leading to some soap.
He can take your child’s B-day present, and give you a clock with wires leading to a blasting cap inside 3 pounds of C4.
When it goes off mid flight over Peoria you can bet they would figure out who that bag belonged to.

Wrong.

It is an example of systemic fraud.

So starting off, we’ve created an environment where a rational financial entity will seek to privatize its gains and socialize its losses.

Next, there’s a reason why boatloads of banks failed in the Depression and S&Ls were seized in the 80s — bad loans. In the Depression, the lenders to banks (aka depositors) got wiped out. As a result of banking regulations, low-information lenders (depositors, still) no longer are required to do massive due diligence on their banking institutions. The regulation providing insurance for small deposits has a downside — encouraging risky behavior — but a huge upside — providing a base level of confidence among millions of depositors. Now, since your average regulator isn’t a complete moron, as a condition of receiving FDIC insurance, the bank must in turn allow the regulator to inspect its portfolio of assets (third-party loans) to ensure that the depositors have a reasonable chance of being paid back. This is commercial banking regulation in a nutshell.

Insurance is, generally, a highly-regulated business. After all, the insurer needs to pay large numbers of claims concurrently only when things go really bad. Since the same people who buy insurance tend to be voters, they elect people who pass laws that require insurers to be able to live up to their obligations, including when things go really bad. Otherwise, the insurer gets to privatize the gain and socialize the loss. State regulation provides the alternative to the continuing due diligence that each policy holder would otherwise need to do on its insurer.

The credit default swap market is a classic example of the failure of unregulated insurance. Insurers are grossly undercapitalized. No one knows who the insurer is on various claims, so no one knows whether claims can get paid if an institution is driven into default. Paralysis has ensued.

Put another way, the last 10 years of regulation of investment banks and the various products they have sold are a perfect example of libertarianism. The failure of the government to provide adequate oversight allowed for institutions to capture gains and externalize, onto the taxpayer, the losses.

I’m not saying the information isn’t out there. Its just that the majority of voters aren’t willing to find a less tainted source of information.

They are worse than communists. They are Marxist Progressives and they are more deceitful than any communist.

Shorter Weisberg: “First comes food, then comes morality.” The guy’s got to eat, you see.

Laws named after kids in Cali:

“Megan’s Law” is a beauty that publicizes child abductions on freeway LED boards, so of course, traffic has to slow to even more of a crawl so people can read it as they idle by. Don’t know to this day if a child has been rescued as a direct result of this method.

“Lanni Law” named after a kid who was killed crossing a street after exiting his school bus. Criminalizes (felony, I believe) school bus drivers who fail to report other drivers who blow through the school bus’ flashing red lights, among other things.

//bigpicture.typepad.com/comments/files/a_memo.pdf

Muahahahahahahahahaha!

He is a fool in that not only is the market not a “free” market–i.e. it is regulated and monitored–but government has been tyring to make sure we don’t have such panics for almost 80 years and so far I’ve lived through 2 (or is it 3) major bubbles/stock market collapses. Excellent track record jackass.

And my beef with government in this latest crisis isn’t as simplistic and moron Weisberg makes it out to be. It isn’t that there was too much deregulation or even too little, but that government usually fooks things up.

Our government relies on discretionary policy–i.e. policy that is shaped to fit whatever problem is currently on the horizon. Further, since we have a democracy (although this isn’t a critical part of the criticism I’m making since the same problem holds in a government with a “benevolent dictator”) it can be manipulated by those who are seeking unearned economic returns–i.e. rents. As such, even if the government manages to hit on the right policy, an heroic assumption, later on the government will likely find it desirable to deviate from that policy.

Thus, claims to do things like not manipulate the inflation rate to try an influence the unemployment rate (i.e. taking advantage of the Phillips curve unemployment-inflation trade-off) break down. People figure out what the government is doing or will do, and hence don’t believe current announcements to reduce inflation.

Same thing here. The people investing in Wall Street know that during a bubble things look good. People are giddy, unemployment is falling, incomes are rising, GDP is growing, inflation might be a minor issue at best, and income tax revenues are going up. Everything a politician likes. Why prick the bubble early on? Toss on the bailouts that basically reinforce bad decision making and you are laying the seeds for the next crisis. For example, Fannie Mae and Freddie Mac they go back to….the Great Depression (at least Fannie Mae although it had a different name back then).

My problem isn’t a simpe one of “too much deregulation/free markets are utopia”. It is that the idea that we can get just the right amount of regulation on markets to make a utopia is a fools dream. There are people on all sides that want to manipulate the regulations for their own agendas. Those agendas can be profits, greater market share, re-election, etc.

Discretionary policy has been shown to be lacking both theoretically (Kydland and Prescott’s Nobel prize was based on this theoretical work) as well as empirically. We have had failures at preventing serious market meltdowns both here and abroad. Government has enacted unsustainable policies (e.g. Medicare). Government, as a general rule, can’t run a surplus during boom times an a deficit during down turns. Instead it runs deficits pretty much all the time. Every country has health care systems that are unsustainable and one of the big reasons is government interference (Gammon’s Law). It isn’t the type of government interference in the latter case, just that the government is involved.

France’s health care system: unsustainable
Canada’s health care system: unsustainable
U.S.A.’s health care system: unsustainable
England’s health care system: unsustainable

I have yet to find a health care system that is sustainable that has large scale government involvement.

Paraphrasing Ronald Reagan, “Government isn’t the solution, government is the problem.”

When there is nothing remotely Libertarian about our economy, as Radley alluded to, blaming our ideas for the recession is like blaming peace advocates for the violence in the world. WTF.

“But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong.”

Bullshit. The evidence is overwhelming that deregulation had nothing to do with this. It was brought on by the cooperative actions of corporations and the government to meddle with the financial system. There is nothing remotely free market about government and corporations working hand in hand to manipulate the market.

He doesn’t even explain why the “libertarian apologetics” are wrong. Just states they are and leaves it at that. I guess you can’t lose an argument if you don’t fucking make one.

“One line of argument casts as villain the Community Reinvestment Act, which prevents banks from “redlining” minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee.”

Yeah, you could say that. No one was “redlined.” If they didn’t have the means to pay a fucking mortgage, sorry, that’s a good reason not to issue one. Doing it anyway has just given a lot of these “redlined” minorities a bankruptcy and a foreclosed house that will fuck their credit forever. Libertarians never would have allowed the poor to have been mislead and used so mortgage company execs could get their payouts with the help of politicians re-writing the regulations. But hey, the politically connected made their money, and the politicians got their lobbyist money. Nothing Libertarian about that whatsoever.

“Blame Greenspan for making the case that the exploding trade in derivatives was a benign way of hedging against risk. Blame Gramm for making sure derivatives weren’t covered by the Commodity Futures Modernization Act, a bill he shepherded through Congress in 2000. Blame Cox for championing Bush’s policy of “voluntary” regulation of investment banks at the SEC.”

How about if we blame assholes like you who championed the policies that undermined the mortgage backed derivates that lead compromised the transparency necessary for investors to know what the hell they were investing in. Derivatives aren’t the problem, its the government practices that forced the derivatives market to overvalue the mortgage backed securities the gov’t helped to produce. NOTHING LIBERTARIAN OR FREE MARKET ABOUT THAT!

He is right that ignoring the facts is what ideologues do. And he aught to know all about that.

BTW, Free Markets are the most efficient allocator of resources over the long run (and usually over the short run, too). The allocations of a free market MAY NOT be what a morally elite might want: such as supplying free cheese for redheads. “Right” and “Wrong” are not concepts that I prescribe to a Free Market; however government policies are mostly “wrong” in that their results are usually in conflict with their stated goals…due mostly to ineptness. Mr. Paulson, you may step forward now as an example.

Today, I only check what I have to, and it’s never anything that can be broken or I would mind losing.

How many, “Honey, I thought you packed the camera…” arguments do you think this guy caused?

I love it that the problem’s with ‘one agent’… This has been going on since the TSA was established.