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16 Responses to “3… 2… 1… ok, wide awake, now… *snap* coming Fully Awake…”
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September 29th, 2008 at 1:17 pm
I’m of the opinion that thirty years worth of deregulation of the markets starting with Reagan and continuing onward through Clinton’s terms until now caused the financial crisis we find ourselves in.
While I agree with Paul about non-solutions like the over printing of currency, I completely disagree that the free market will adjust itself without government oversight. It never does.
September 29th, 2008 at 3:19 pm
Hey John, good to hear from you. 5 pages comin’ up…
I’m not sure the market’s ever been given the chance to work itself out.
Here’s how I see the whole mess… after the dot-com bubble burst, folks that should have taken their just deserts avoided those penalties by taking advantage of market manipulation by Greenspan and the federal reserve.
That is, when interest rates should have been naturally high to slow down the economy after such a period of expansion, Greenspan and the fed kept rates low. Call it ‘artificially low’ if you want, because a market left to its own would have slowed if allowed to act freely.
Anyway, that was one part of the problem. Another facet was in the buying and selling of mortgage-backed securities. In a sensible scenario, and traditionally, the bank loaning you money is going to safeguard their own exposure by ensuring you’re a reasonable credit risk. I grew up wondering if I would ever own a home because a mortgage was a difficult thing to get.
When it became the case that the bank could sell the mortgage off to someone else, they weren’t so particular, and focus shifted to closing as many loans as they could pump through. Mortgage brokers were making a fair penny, and so were the banks in interest, fees and closing costs. And as I recall, they were working pretty hard at it, too.
Well, loaning money wasn’t just limited to mortgages- the banks were pushing out the money at a fast pace. And it’s not like in the olden days where giving money to someone meant bringing money from over here and giving it out over there… the money being lent out didn’t exist previously. The federal reserve was just printing it and it was being distributed through the banks as loans.
You and I and others we associate with are generally careful people when it comes to money and debt, but I think there are an awful lot of people who were willing to take on huge loans thinking that tomorrow would never come, or interest rates would continue to go down or whatever. The trouble is, that when the exposure they took on manifested as reality, they realized they were in over their heads, and the only option was to default. This would be ok if it were on a smaller scale, but the scale of this is massive.
Who owns your house if the company who loaned you the money goes bankrupt? Anyway, I’m getting off of my point. With all the ready credit pumping money into the economy, we started feeling the effects of our diluted currency in our day to day living. Add all this to the price tag of that already bloated expenditure over in Iraq and all the military spending around the globe and our dollar has really taken a beating.
Some folks like to divert attention away from the real cause and say “it’s oil prices” even though most of our oil comes from Canada and Venezuela, and OPEC is complaining that the price of Oil has been kept low for too long. Sure, food and clothing prices went up because of the shipping costs because of the oil? Why did Gold go up? Oh, cause that’s *really* heavy to ship….
No, it’s because the dollar lost value. Against foreign currencies, against gold and every other commodity, the dollar is down. Those things are mostly static in relation to each other, except as affected by adjustments in the dollar.
Soooo…. my point is, that putting another 700 billion dollars into our already cash-flooded economy may give us a very short window to get our affairs in order, but it’s going to exacerbate the problem exponentially.
September 29th, 2008 at 5:04 pm
Dave, Hi Dude! BTW, I love your long responses! Really!
I agree with your last point about the Wall Street bail-out. I think it rewards the greedy bastards that got us into this and does not contain enough protections for the average tax payer. As we are.
That said, I also agree with mostly all of your other points about Iraq as a money waster, Opec, Gold, the Dollar,etc.
However, I don’t agree fully with this point:
“You and I and others we associate with are generally careful people when it comes to money and debt, but I think there are an awful lot of people who were willing to take on huge loans thinking that tomorrow would never come, or interest rates would continue to go down or whatever. The trouble is, that when the exposure they took on manifested as reality, they realized they were in over their heads, and the only option was to default. This would be ok if it were on a smaller scale, but the scale of this is massive.”
You seem to be blaming the borrower. And while I don’t advocate for all borrowers who were naive enough to think the housing bubble would go no place but up. How would you, I ask, defend the Lenders?
Although, I know that you weren’t defending them in your previous paragraphs.
I’m confused, is it the borrower or lender or both?
Cement your opinion on this. Don’t be so milque-toast.:)
September 29th, 2008 at 5:47 pm
I only have a moment here, but want to clarify. I have a manageable mortgage with not so much outstanding that I would be homeless if my loan were called. I could come up with the money, though it would be pretty inconvenient.
Although I could have borrowed more with no money down, I chose to buy a smaller, more affordable home in order to have 20% equity and avoid PMI. My closets are small, and it was hard to work out a comfortable spot for my office. I settled for a little bit higher interest rate in order to keep the payments fixed, not knowing what the state of my affairs would be if I had opted for a balloon payment. In short, I was careful with my financial affairs. I also, if you recall, moved to Mississippi in order to afford my first home in this way, then moved to North Carolina where the standard of living was a little better but prices were still moderate.
To your question - if a lender minimized the financial risk that comes with some mortgages, the lender is irresponsible and criminal. Honesty in lending is very important, and dishonesty not to be tolerated.
If a borrower entered into a contract without knowing the potential repercussions of the deal or took on risk that they hadn’t thought through, it’s not without pity that I say they still should take responsibility for that. One presented a document to sign but didn’t explain what it was or meant, the other signed it without reading and understanding it. There’s culpability on both sides of the transaction.
I don’t feel that I should be expected to foot the bill for others’ mistakes, especially when I’ve been so careful to avoid making my own.
Milque-Toast my ass.
September 29th, 2008 at 7:27 pm
http://en.wikipedia.org/wiki/Resolution_Trust_Company
September 30th, 2008 at 11:38 pm
“I’m not sure the market’s ever been given the chance to work itself out.”
28 years later dude. It ain’t happening.
October 1st, 2008 at 6:52 am
You miss my point with regard to this statement, John. Because the market is manipulated by the actions of the Federal Reserve, it has never had the opportunity to function as a Free Market should.
Money should always flow to where there is value. Do you remember the Alan Watts lecture - I think it was ‘the veil of thoughts’ - anyway, it’s the one where he talks about Money as a system of measurement designed to facilitate the more cumbersome aspects of barter and being of the same ‘nature of reality’ as inches, pounds and degrees of temperature. He characterized it as an error of thinking to give money an independent reality all its own, which is a confusion of symbol and object. This is where we find ourselves today.
No monetary system that can generate money out of thin air is ever going to work in the long run. I’m not sure we disagree, but I’d ask you to be more clear about where you think the problem is. From my point of view, it’s the Federal Reserve system which is inherently flawed, and especially so when it’s not subject to control by the people via an elected government.
October 1st, 2008 at 11:24 pm
Dave, I just spent an hour on a post and and logged out on accident. Could you please move the fucking logout button to the far right or something? Sorry but I don’t feel like rewriting it right now.
October 2nd, 2008 at 9:56 am
It’s a very smart system. Maybe it was trying to tell you something…
October 2nd, 2008 at 4:39 pm
Units of physical measurement, such as the inches, pounds and degrees of temperature that Dave mentioned, are objective quantities.
However, value (expressed in dollars) is a subjective notion because worth is always a guess of what someone will pay for something.
October 2nd, 2008 at 4:45 pm
So what is a dollar worth?
A bar of soap?
Four cigarettess?
A pint of gasoline?
October 2nd, 2008 at 5:51 pm
You touch on an important point, Mr. Nibbles.
Value is a subjective notion, though without venturing too far into semantics I would consider it different from worth. (Diamonds are valuable, water has worth). Both of these are subjective, and must be entirely judged within a context. The value of a product will change depending on the circumstances in which it is evaluated.
To me, the important notion is that if the value of my bar of soap and the value of your pint of gasoline have not shifted since last week - relative to each other- then the difference in their value should be expressed in the same amount of dollars.
If we were to identify a set of ten commodities whose values relative to each other tend to be static, we could aggregate them and express the value of a dollar as some fraction of that aggregate.
Lets say that someone wanted to pinch the skin on your lower back, or poke you in the rib with with a pizza crust, or tug at the hair on the back of your neck. None of these is especially life-threatening, so the value of avoiding any one of them is about the same as the value of avoiding any other. Granted, if you had a broken rib, you might find the value of avoiding that greater because of the context, but on average, and when taken as a set, they’re relatively static.
So I might say, if you give me one dollar, I will neither rib-poke, skin-pinch or hair-pull, and you would be well pleased. This is a good value for a dollar. If I were to say, give me four dollars, you might curse me and say be damned, do your worst. So, we have the value of a dollar.
Now, how much for that pint of gasoline? Will you give me the pint if I don’t poke you in the ribs with the pizza crust? No? Then it’s probably worth more than a dollar. If it were a pint of water, though, you might hand it over more readily, so we find that the value of the gasoline is greater than that of the water.
October 3rd, 2008 at 12:56 am
“So what is a dollar worth?
A bar of soap?
Four cigarettes?
A pint of gasoline?”
Sorry to hear you’re in the “Lock-Up” Mr. Nibbles. Is your cellmate ‘Leroy’ treating you O.K?
BTW, a bar of soap is Not to be dropped at any cost! Four cigarettes is what you’re traded for.
And Leroy is probably hip to the pint of gasoline you plan on igniting him with. Be careful! Good Luck!
October 3rd, 2008 at 6:19 am
Leroy? What the…?
John, I ought to poke you in your ribs with a pizza crust.
http://www.realtor.com/search/listingdetail.aspx?zp=90210&mnp=55&typ=1&sid=21ba36b45c2b4050adcd63e4d1805be6&sdir=0&sby=2&lid=1102314230&lsn=2&srcnt=35#Photo
October 3rd, 2008 at 9:56 am
“…But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States…”
14th amendment
U.S. Constitution
So, does this mean that if there’s a connection between any of the recipients of the bailout and any foreign combatant, we don’t have to pay taxes because the bailout would be an infringement of the 14th amendment?
Wish me luck.
October 3rd, 2008 at 10:29 am
Good luck.