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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #40 on: September 16, 2008, 06:46:30 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.
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RicePlateReddy

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Re: The crumbling of US investment banks (NC)
« Reply #41 on: September 16, 2008, 06:55:40 PM »

I read somewhere that Greenspan's actions exemplified the Law of Unintended Consequences. Reducing interest rates consistently to stabilize market enabled short-sighted borrowers to go overboard on easily available money.
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #42 on: September 16, 2008, 07:10:00 PM »

I read somewhere that Greenspan's actions exemplified the Law of Unintended Consequences. Reducing interest rates consistently to stabilize market enabled short-sighted borrowers to go overboard on easily available money.
Funnily enough.. Greenspan when strongly advocating for the gold standard actually said that Central Banks are prone to such errors - errors he made while being at the helm
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #43 on: September 16, 2008, 07:15:28 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.
Yes I am the sure the prospectuses of all mutual funds are read by all who invest in this detail. And the prospectuses are written in a language the average joe understands.

So what you are saying in a perfect world with all people having perfect knowledge of the market, and perfect politicians doing the perfect things, the free market idea works perfectly.

Yet, in the real world, the Dow is back to 2001 levels. Wait, that cannot be due to the lack of regulation on greedy executives, can it?  Further, in real life even highly educated people have time constraints and either choose the friendly neighborhood broker who is no better than the Wall St executives or put their money in some large company mutual fund because they have too many things to do. Other than death and taxes the only constant factor here is the executives making boatloads of money.    
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #44 on: September 16, 2008, 07:34:47 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.
Yes I am the sure the prospectuses of all mutual funds are read by all who invest in this detail. And the prospectuses are written in a language the average joe understands.

So what you are saying in a perfect world with all people having perfect knowledge of the market, and perfect politicians doing the perfect things, the free market idea works perfectly.

Yet, in the real world, the Dow is back to 2001 levels. Wait, that cannot be due to the lack of regulation on greedy executives, can it?  Further, in real life even highly educated people have time constraints and either choose the friendly neighborhood broker who is no better than the Wall St executives or put their money in some large company mutual fund because they have too many things to do. Other than death and taxes the only constant factor here is the executives making boatloads of money.    
I am convinced.. "free markets" are to blame for everything that is wrong in this world and government is to get credit for everything that is right in the world ;D

Now if you can convince about 50m more (here in US).. you (or your candidate) will get the chance of moving every aspect of our lives into the hands of the government. Hallelujah!!
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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #45 on: September 16, 2008, 07:38:12 PM »

Quote
I am convinced.. "free markets" are to blame for everything that is wrong in this world and government is to get credit for everything that is right in the world  ;D

Boss, but Isnt that the same argument you make in reverse --whereby "free markets" are the panacea for all ills of the world!!
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #46 on: September 16, 2008, 07:54:35 PM »

Quote
I am convinced.. "free markets" are to blame for everything that is wrong in this world and government is to get credit for everything that is right in the world  ;D

Boss, but Isnt that the same argument you make in reverse --whereby "free markets" are the panacea for all ills of the world!!
I have never said that.

I have always stated "I would prefer and my bias is for a market solution ..and if it is not feasible (for a variety of real reasons) will accept/explore a non-free market solution".

For example, I believe the market for health insurance doesn't work due to clear evidence of adverse selection. It needs a non free market solution ..perhaps a highly regulated (not one where govt picks the winners and losers..but where the rules are set such that no one can be denied coverage and a certain level of profits - commensurate with the risks of the business - is gauranteed to the insurance companies) market. 
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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #47 on: September 16, 2008, 08:09:31 PM »

Quote
I have always stated "I would prefer and my bias is for a market solution ..and if it is not feasible (for a variety of real reasons) will accept/explore a non-free market solution".

For example, I believe the market for health insurance doesn't work due to clear evidence of adverse selection. It needs a non free market solution ..perhaps a highly regulated (not one where govt picks the winners and losers..but where the rules are set such that no one can be denied coverage and a certain level of profits - commensurate with the risks of the business - is gauranteed to the insurance companies) market.   


Fair enough but let me ask you this --

Is it not conceivable that there are others who dont share that bias --at least to the extent that you do. As a result, they are wary of putting their weight 100% behind the market determined solution (especially in the face of overwhelming and repeated evidence that shows that left to its own devices the market will determine that the market players with leverage will shove aside the ones without to create a pseudo equilibrium which is often accepted by the rest as the true equilibrium ?)

Which then should not be the basis for sarcasm towards that divergent (from your) viewpoint ?

I mean the fact of the matter is that both pure "capitalism" and pure "socialism" are both great theories with severely flawed application implications. Which is why most reasonable economies in the world are mixed economies with the "invisible hand" of the government providing the safety net.

Why then should a legitimate lacunae of the pure capitalist model -- the heroic assumption of perfect information -- when questioned, bring out a sarcastic retort ?

Or do you seriously believe that the common man on the street is financially literate, market savvy or even well informed, forget being "perfectly" informed ?
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #48 on: September 16, 2008, 09:07:10 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.
Yes I am the sure the prospectuses of all mutual funds are read by all who invest in this detail. And the prospectuses are written in a language the average joe understands.

So what you are saying in a perfect world with all people having perfect knowledge of the market, and perfect politicians doing the perfect things, the free market idea works perfectly.

Yet, in the real world, the Dow is back to 2001 levels. Wait, that cannot be due to the lack of regulation on greedy executives, can it?  Further, in real life even highly educated people have time constraints and either choose the friendly neighborhood broker who is no better than the Wall St executives or put their money in some large company mutual fund because they have too many things to do. Other than death and taxes the only constant factor here is the executives making boatloads of money.    
I am convinced.. "free markets" are to blame for everything that is wrong in this world and government is to get credit for everything that is right in the world ;D

Now if you can convince about 50m more (here in US).. you (or your candidate) will get the chance of moving every aspect of our lives into the hands of the government. Hallelujah!!

One has to be for free markets or against them, right?

If you still think "freer" (as in more freeness) markets would have solved the problem what can I say? You need to smell the poop.
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dextrous

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Re: The crumbling of US investment banks (NC)
« Reply #49 on: September 16, 2008, 09:24:54 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.

Let me ask you a simple question--does the average worker get affected by the collapse of these banks? I don't mean the obvious job losses within that company/with investors in that company, etc. but the effect such a collapse has on the economy because of (a) financial magnitude of these institutions and (b) these industries were unregulated somewhere dubiously by then Rep. senator gram (sp?)
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #50 on: September 16, 2008, 09:29:25 PM »

Here are some slight imperfections of the free market model:

Carly Fiorina was fired by HP -
Quote
Shares of HP (Research) jumped 6.9 percent in heavy trading on the New York Stock Exchange Wednesday on the news. But at one point, the stock was up as much as 10.5 percent.

"The stock is up a bit on the fact that nobody liked Carly's leadership all that much," said Robert Cihra, an analyst with Fulcrum Global Partners. "The Street had lost all faith in her and the market's hope is that anyone will be better."


(From  http://money.cnn.com/2005/02/09/technology/hp_fiorina/)

So she was doing a "heck of a job" as per the market. What happened?
Quote
Carly Fiorina walked away with $45 million, including a $21.4 million severance package when she was dismissed by Hewlett Packard in 2005.

http://blogs.abcnews.com/politicalradar/2008/09/mccain-economic.html

I am sure the real problem was with the retirement funds that "were stupid enough" to invest in HP.

Quote
Two pension funds with large ownership stakes in Hewlett-Packard Co. filed a lawsuit yesterday against the tech giant over former CEO Carly Fiorina’s severance package.

http://blogs.wsj.com/law/2006/03/07/pension-funds-seek-to-puncture-carly-fiorinas-golden-parachute/

I am sure she will actually refund this "thoroughly deserved" sum and then some more as she cleans up Wall St with McCain. Just for comparison, a school teacher who is more or less equally educated (Masters degree) who retired in 2005 would not have earned 5% of that amount in THEIR LIFETIME, BEFORE TAXES.

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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #51 on: September 16, 2008, 09:51:38 PM »

Quote
I have always stated "I would prefer and my bias is for a market solution ..and if it is not feasible (for a variety of real reasons) will accept/explore a non-free market solution".

For example, I believe the market for health insurance doesn't work due to clear evidence of adverse selection. It needs a non free market solution ..perhaps a highly regulated (not one where govt picks the winners and losers..but where the rules are set such that no one can be denied coverage and a certain level of profits - commensurate with the risks of the business - is gauranteed to the insurance companies) market.   


Fair enough but let me ask you this --

Is it not conceivable that there are others who dont share that bias --at least to the extent that you do. As a result, they are wary of putting their weight 100% behind the market determined solution (especially in the face of overwhelming and repeated evidence that shows that left to its own devices the market will determine that the market players with leverage will shove aside the ones without to create a pseudo equilibrium which is often accepted by the rest as the true equilibrium ?)

Which then should not be the basis for sarcasm towards that divergent (from your) viewpoint ?

I mean the fact of the matter is that both pure "capitalism" and pure "socialism" are both great theories with severely flawed application implications. Which is why most reasonable economies in the world are mixed economies with the "invisible hand" of the government providing the safety net.

Why then should a legitimate lacunae of the pure capitalist model -- the heroic assumption of perfect information -- when questioned, bring out a sarcastic retort ?

Or do you seriously believe that the common man on the street is financially literate, market savvy or even well informed, forget being "perfectly" informed ?
Oh so it is my sarcasm that is bothersome.. wow!

Look.. read this thread again...but for the "free markets suck", "look at the millions paid to those executives", I see nothing posted that demonstrates that why and how the demise of Lehman et al and the "outrageous" executive salaries actually hurts the general economy or is in general bad.

The US has 27million businesses. Of which nearly 20K are large businesses (with > 500 employees). Each year 600K new businesses are created and about 575K are closed. If ("the unfortunate") closure of any business is an indicator of failure of free market system .. we will have 575K reasons each year to say so. NOT.. then we should have 600K reasons to celebrate the free market system too. Lehman brothers is 1 company with approx 12bn revenue in a 12trn economy. Yes, it is a big company.. and it is unfortunate it had to close.. but such is the nature of the market - only the fit survive.

As far as executive salaries (which IMO are bothersome but not necessarily bad for the economy) are concerned.. I do not see this due to "excessive proliferation of unfettered free markets".. it could be a genuine demand/supply problem, it could be the "clubby nature" of the upper-elite corporate executives, it could be "lack of shareholder governance" ..or it could be a combination of factors.. and so far no one (to my knowledge) has been able to identify the reasons as well as come up with an effective approach to addressing these - short of making silly statements like "excessive free markets cause them" and government should ban excessive executive salaries, whatever that means!

Now to address your capitalism vs socialism debate. Frankly, that debate is over. The nitpicking of the flaws of one system over another is not even interesting anymore. Most people now (but for a few laggards countries like Cuba and North Korea and a few "die hard" communists/socialists) understand that, in general, the government should have a little role to play in the day-to-day business of people...and markets work most of the time and the times they don't work government has a role in either facilitating the creation of that market or regulating that market or in extreme & sometimes important cases, providing those services to people.

--
re: your perfectly informed point, it is not important for every participant in the market to be "perfectly informed" for markets to function and common good to happen (see story below). Even if we assume that they need "perfect knowledge" before investing, would you want government to verify/bless/moderate each and every investment decision made by its citizens?

I just read again the "pencil story" in this week's Newsweek.. it is fairly timely for our discussion...
http://www.newsweek.com/id/158752

The student's economics professor, Ruth, rather than attempting to dissuade him, begins leading him and his classmates to an understanding of prices, markets and the marvel of social cooperation. Holding up a Dixon Ticonderoga No. 2, she says: "No one can make a pencil."

Nonsense, her students think—someone made that one. Not really, says Ruth. Loggers felled the cedar trees, truckers hauled them, manufacturers built the machines that cut the wood into five-sided portions to hold graphite mined in Sri Lanka, Mexico, China and Brazil. Miners and smelters produced the aluminum that holds the rubber eraser, produced far away, as were the machines that stamp TICONDEROGA in green paint, made somewhere else, on the finished pencil.

Producing this simple, mundane device is, Ruth says, "an achievement on the order of a jazz quartet improvising a tune when the band members are in separate cities." An unimpressed student says, "So a lot of people work on a pencil. What's the big deal?" Ruth responds: Who commands the millions of people involved in making a pencil? Who is in charge? Where is the pencil czar?

Her point is that markets allow order to emerge without anyone imposing it. The "poetry of the possible" is that things are organized without an organizer. "The graphite miner in Sri Lanka doesn't realize he's cooperating with the cedar farmer in California to serve the pencil customer in Maine." The boss of the pencil factory does not boss very much: He does not decide the prices of the elements of his product—or of his product. No one decides. Everyone buying and selling things does so as prices steer resources hither and yon, harmonizing supplies and demands.

Goods and services, like languages, result from innumerable human actions—but not from any human design
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #52 on: September 16, 2008, 10:07:48 PM »

Here are some slight imperfections of the free market model:

Carly Fiorina was fired by HP -
Quote
Shares of HP (Research) jumped 6.9 percent in heavy trading on the New York Stock Exchange Wednesday on the news. But at one point, the stock was up as much as 10.5 percent.

"The stock is up a bit on the fact that nobody liked Carly's leadership all that much," said Robert Cihra, an analyst with Fulcrum Global Partners. "The Street had lost all faith in her and the market's hope is that anyone will be better."


(From  http://money.cnn.com/2005/02/09/technology/hp_fiorina/)

So she was doing a "heck of a job" as per the market. What happened?
Quote
Carly Fiorina walked away with $45 million, including a $21.4 million severance package when she was dismissed by Hewlett Packard in 2005.

http://blogs.abcnews.com/politicalradar/2008/09/mccain-economic.html

I am sure the real problem was with the retirement funds that "were stupid enough" to invest in HP.

Quote
Two pension funds with large ownership stakes in Hewlett-Packard Co. filed a lawsuit yesterday against the tech giant over former CEO Carly Fiorina’s severance package.

http://blogs.wsj.com/law/2006/03/07/pension-funds-seek-to-puncture-carly-fiorinas-golden-parachute/


OK.. what has this got to do with "free markets"? Competent and incompetent people are hired & fired and paid by businesses of all kinds & all sizes all the time.  How would or could a government have prevented this from happening? (I have personally hired & fired people who I thought were competent and turned out to be incompetent .. and in the process paid a huge price from my standpoint ..I am really interested in your ideas, so that I can recover some of my costs from the government ;D ).

Quote
Just for comparison, a school teacher who is more or less equally educated (Masters degree) who retired in 2005 would not have earned 5% of that amount in THEIR LIFETIME, BEFORE TAXES.
I think it is shameful.. but again what has this got to do with free markets. Did the free market prevent the more or less equally educated school teacher from achieving what Fiorina achieved?
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #53 on: September 16, 2008, 10:15:26 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.

Let me ask you a simple question--does the average worker get affected by the collapse of these banks? I don't mean the obvious job losses within that company/with investors in that company, etc. but the effect such a collapse has on the economy because of (a) financial magnitude of these institutions and (b) these industries were unregulated somewhere dubiously by then Rep. senator gram (sp?)
I seriously do not think so.. Lehman is a large company but still small in the grand scheme of things.. both size and influence wise. Also, the alternative of sustaining the company through taxpayer (which is you and I and the average worker) bailouts would have hurt the "average worker" even more (if at all).

On regulation, I think you are referring to the repeal of Glass-steagal act. I think the jury is out on whether that was the main reason for this.. the DGians working in IB industry can perhaps give us a better perspective on this. I am not sure, if that act completely "unregulated" the industry..but at the same time, I am not sure "what regulation" could have prevented a Bears Stern/Lehman from collapsing (if at all that was a desirable outcome)!
« Last Edit: September 16, 2008, 10:21:16 PM by winningnow »
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dextrous

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Re: The crumbling of US investment banks (NC)
« Reply #54 on: September 16, 2008, 10:27:39 PM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.

Let me ask you a simple question--does the average worker get affected by the collapse of these banks? I don't mean the obvious job losses within that company/with investors in that company, etc. but the effect such a collapse has on the economy because of (a) financial magnitude of these institutions and (b) these industries were unregulated somewhere dubiously by then Rep. senator gram (sp?)
I seriously do not think so.. Lehman is a large company but still small in the grand scheme of things.. both size and influence wise. Also, the alternative of sustaining the company through taxpayer (which is you and I and the average worker) bailouts would have hurt the "average worker" even more (if at all).

On regulation, I think you are referring to the repeal of Glass-steagal act. I think the jury is out on whether that was the main reason for this.. the DGians working in IB industry can perhaps give us a better perspective on this. I am not sure, if that act completely "unregulated" the industry..but at the same time, I am not sure "what regulation" could have prevented a Bears Stern/Lehman from collapsing (if at all that was a desirable outcome)!

Look, I'm not arguing for whether or not the bailout is a good/bad thing. However, what I'm saying (and we fundamentally disagree on this issue) is that when an institution like Lehman brother collapses, the effects are far more severe than the collapse of an auto company, which just affects the employees of that company. In this case, the effect creates great panic in the economy and the final result is an economy that is worse for the average worker--as obviously, a bad economy means fewer hires, paycuts, jobcuts, etc.
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #55 on: September 16, 2008, 10:42:17 PM »

Here are some slight imperfections of the free market model:

Carly Fiorina was fired by HP -
Quote
Shares of HP (Research) jumped 6.9 percent in heavy trading on the New York Stock Exchange Wednesday on the news. But at one point, the stock was up as much as 10.5 percent.

"The stock is up a bit on the fact that nobody liked Carly's leadership all that much," said Robert Cihra, an analyst with Fulcrum Global Partners. "The Street had lost all faith in her and the market's hope is that anyone will be better."


(From  http://money.cnn.com/2005/02/09/technology/hp_fiorina/)

So she was doing a "heck of a job" as per the market. What happened?
Quote
Carly Fiorina walked away with $45 million, including a $21.4 million severance package when she was dismissed by Hewlett Packard in 2005.

http://blogs.abcnews.com/politicalradar/2008/09/mccain-economic.html

I am sure the real problem was with the retirement funds that "were stupid enough" to invest in HP.

Quote
Two pension funds with large ownership stakes in Hewlett-Packard Co. filed a lawsuit yesterday against the tech giant over former CEO Carly Fiorina’s severance package.

http://blogs.wsj.com/law/2006/03/07/pension-funds-seek-to-puncture-carly-fiorinas-golden-parachute/


OK.. what has this got to do with "free markets"? Competent and incompetent people are hired & fired and paid by businesses of all kinds & all sizes all the time.  How would or could a government have prevented this from happening? (I have personally hired & fired people who I thought were competent and turned out to be incompetent .. and in the process paid a huge price from my standpoint ..I am really interested in your ideas, so that I can recover some of my costs from the government ;D ).


So in other words there is nothing wrong with the picture. Note that there is a difference between "completely free markets are not appropriate" and "govt should regulate individual salaries" -- even though you have worked very hard to obfuscate the difference.

Quote
Quote
Just for comparison, a school teacher who is more or less equally educated (Masters degree) who retired in 2005 would not have earned 5% of that amount in THEIR LIFETIME, BEFORE TAXES.
I think it is shameful.. but again what has this got to do with free markets. Did the free market prevent the more or less equally educated school teacher from achieving what Fiorina achieved?

Yes. The day you understand that, the "free market" myth will be obvious to you. For you it appears that all the successes of free markets are great, and all failures are due to minor imperfections in the implementation of the noble idea. To me the teachers' salary and CEO overpayment are not different issues, nor are they mere artifacts. They are both fundamental consequences of unregulated markets.

And by the way if you have paid your employees large severance packages, well, my condolences. You were taken for a ride.

« Last Edit: September 16, 2008, 10:43:52 PM by prfsr »
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #56 on: September 16, 2008, 10:58:52 PM »

Someone who knows a wee bit more than me, Paul Krugman, MONTHS BACK,

http://www.nytimes.com/2008/03/24/opinion/24krugman.html?_r=2&scp=1&sq=krugman+gramm&st=nyt&oref=slogin&oref=slogin

Taming the Beast
 
By PAUL KRUGMAN
Published: March 24, 2008
We’re now in the midst of an epic financial crisis, which ought to be at the center of the election debate. But it isn’t.

Now, I don’t expect presidential campaigns to have all the answers to our current crisis — even financial experts are scrambling to keep up with events. But I do think we’re entitled to more answers, and in particular a clearer commitment to financial reform, than we’re getting so far.

In truth, I don’t expect much from John McCain, who has both admitted not knowing much about economics and denied having ever said that. Anyway, lately he’s been busy demonstrating that he doesn’t know much about the Middle East, either.

Yet the McCain campaign’s silence on the financial crisis has disappointed even my low expectations.

And when Mr. McCain’s economic advisers do speak up about the economy’s problems, they don’t inspire confidence. For example, last week one McCain economic adviser — Kevin Hassett, the co-author of “Dow 36,000” — insisted that everything would have been fine if state and local governments hadn’t tried to limit urban sprawl. Honest.

On the Democratic side, it’s somewhat disappointing that Barack Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton’s initial support, has tried to score a twofer by suggesting that the war, in addition to all its other costs, is responsible for our economic troubles.

The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public. But it’s just wrong to blame the war for our current economic mess: in the short run, wartime spending actually stimulates the economy. Remember, the lowest unemployment rate America has experienced over the last half-century came at the height of the Vietnam War.

Hillary Clinton has not, as far as I can tell, made any comparably problematic economic claims. But she, like Mr. Obama, has been disappointingly quiet about the key issue: the need to reform our out-of-control financial system.

Let me explain.

America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.

Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.

Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

But will that logic prevail politically?

Not if Mr. McCain makes it to the White House. His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Both Democrats, by contrast, are running more or less populist campaigns. But at least so far, neither Democrat has made a clear commitment to financial reform.

Is that simply an omission? Or is it an ominous omen? Recent history offers reason to worry.

In retrospect, it’s clear that the Clinton administration went along too easily with moves to deregulate the financial industry. And it’s hard to avoid the suspicion that big contributions from Wall Street helped grease the rails.

Last year, there was no question at all about the way Wall Street’s financial contributions to the new Democratic majority in Congress helped preserve, at least for now, the tax loophole that lets hedge fund managers pay a lower tax rate than their secretaries.

Now, the securities and investment industry is pouring money into both Mr. Obama’s and Mrs. Clinton’s coffers. And these donors surely believe that they’re buying something in return.

Let’s hope they’re wrong.

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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #57 on: September 16, 2008, 11:20:30 PM »

Quote
Oh so it is my sarcasm that is bothersome.. wow!

Its bothersome only to the extent that it presupposes the lack of merit in the opposing viewpoint. I hope you realize what it is I objected to.

Quote
Look.. read this thread again...but for the "free markets suck", "look at the millions paid to those executives", I see nothing posted that demonstrates that why and how the demise of Lehman et al and the "outrageous" executive salaries actually hurts the general economy or is in general bad.

The US has 27million businesses. Of which nearly 20K are large businesses (with > 500 employees). Each year 600K new businesses are created and about 575K are closed. If ("the unfortunate") closure of any business is an indicator of failure of free market system .. we will have 575K reasons each year to say so. NOT.. then we should have 600K reasons to celebrate the free market system too. Lehman brothers is 1 company with approx 12bn revenue in a 12trn economy. Yes, it is a big company.. and it is unfortunate it had to close.. but such is the nature of the market - only the fit survive.


Lets see why it is bad --note I am not blaming the free markets necessarily but I do believe improper regulation -- i.e., an unfettered concept of a free market is utopian, and has numerous problems in implementation, hence my comment about the failure of pure capitalism or pure socialism from an implementation standpoint, but more about the socialism part later.

The result of an improperly regulated "free" market is the current mess we are in --where the regulators turned facilitators. With outrageous monetary policy decisions over a period of 3+ years, hand in hand with the executive branch promoting equally disastrous fiscal policies as well as pushing universal homeownership as a laudable ideal -- all in a bid to get an economy growing on the faux strength of an artificially inflated real estate market.

The ones who benefitted are the banks and lending and financial institutions, many of whom resorted to practices which qualify as predatory lending while the regulators looked the other way.

Today, when a company like lehman fails, do you stand back and wonder what that fall  is actually predicated on ? I am not talking about just a billion dollar entity failing due to a poor and non performing asset base, I am talking about what lies beneath the failure of that asset base.

What lies beneath that asset base are thousands of RE or homeowners who lured by easy credit, teaser interest rates and near predatory lending practices got into a deal and then got sandbagged into losing the home, losing money, losing credit, all on the way to possible bankruptcy. The common man who earns a fraction of what a giant like Lehman earns was the one who was hit first before entities like lehman, WAMU, merrill, Bear Stearns, AIG etc got hit.

And while the giants made merry while the sun shone (as did its employees), and some giants are still making merry, the common person didnt get the payoff before the shaft.

So while the macro vision of the markets working -- Lehman failed because the market corrected itself and lehman got punished for having invested in and held onto sour assets presents a neat story, what this does not tell you is what the unregulated market did to the small guys. The small guys are the ones who live in the world of pseudo market equilibrium as set by the players with clout, in the absence of proper regulation.

And with regards to executive pay -- a study of US executive pay vs that of other industrialized countries might be a good starting point.

A second point might be to consider why a company which pays its top executives in millions annually first turns towards its lower rung for cost cutting measures and accomplishes that via aggressive headcount reduction, and then gets promptly rewarded for that on the Street via an increase in the stock price (which also benefits the executive since the executives' compensation is partially tied to stock /stock options). See the point about the inefficiency of the market --who it penalizes and who it punishes, especially in its wildly unregulated form.

A third point to consider might be the concept of outsourcing -- saving a few million by outsourcing (and in the process eliminating jobs) could just as equally if not more effectively accomplished by curbing executive pay. Now ask the question again --how executive pay hurts the common man.

I posit to you -- and this is a very cynical view-- that there is practically little difference between who wields power in a free market system (the utopian implementation without regulation) and that of a socialist one (the implementable version) if you substitute the executive with the million dollar pay, limo and yacht with the politburo member with a private car, secret Swiss Bank accounts, and a dacha on the Volga.

In both cases, its a hierarchical power structure where the elite take care of themselves and their own while the common man is left to fend for himself. The only difference is in who constitutes the elite -- in the free market system, theoretically anyone can be that elite whereas in the socialist implementation, its only the government who holds such power. But then again, theoretically, if you spent your time trying to be a party man (as much as the common man tried to becaome a corporate man), its conceivable you would become a member of the politburo at about the same time the commoner would become a CEO -- permutations of opportunity and luck remaining constant.  :P


Quote
As far as executive salaries (which IMO are bothersome but not necessarily bad for the economy) are concerned.. I do not see this due to "excessive proliferation of unfettered free markets".. it could be a genuine demand/supply problem, it could be the "clubby nature" of the upper-elite corporate executives, it could be "lack of shareholder governance" ..or it could be a combination of factors.. and so far no one (to my knowledge) has been able to identify the reasons as well as come up with an effective approach to addressing these - short of making silly statements like "excessive free markets cause them" and government should ban excessive executive salaries, whatever that means!

See above

Quote
Now to address your capitalism vs socialism debate. Frankly, that debate is over.

No, that debate is over only from an implementation standpoint.

It has been conclusively proved that a practical implementation of socialistic ideals is not possible because it runs contrary to the basic human grain of selfishness and greed -- and for equitable distribution, a certain reapportionment of resources are required, reapportioning that would not be voluntary given human nature, which then results in the need for a command structure (in the form of heavy government involvement). the command structure initself lays the foundation for power, power which corrupts.

However, as an ideal, it still remains a higher one than that of capitalism which cares only about the indivisual and his / her rights to the exclusion of the larger effects of such action on the rest of the scoiety.

Quote
The nitpicking of the flaws of one system over another is not even interesting anymore.


Depends on the depth of your analysis --  if substituting one power hierarchy (govt) with another (the priveleged money club) is acceptable, only because the latter offers the theoretical carrot to the common man of one day rising to be a member of the "money club", then sure. The question is aside from the small possibility of that theoretical hope translating to reality, is it much different for the common man comparatively speaking ?

I acknowledge that the free market person will get to keep his deserved earnings while the socialist commoner will get his govt apportioned share rather than the true earnings hios work commands, but my question above is different. In each of their respective societies, is the common man any better than a pawn left to the whims of the elite ?

Quote
Most people now (but for a few laggards countries like Cuba and North Korea and a few "die hard" communists/socialists) understand that, in general, the government should have a little role to play in the day-to-day business of people...and markets work most of the time and the times they don't work government has a role in either facilitating the creation of that market or regulating that market or in extreme & sometimes important cases, providing those services to people.

And you just laid out the problem in your own words.

1) your caveat shows the failure of the free market system without governmental / regulatory safeguards -- remember my original point -- pure capitalism has implementation problems just as pure socialism has.

2) your caveat also highlights whats wrong with this market system , and is at the root of the current crisis --its poorly regulated, regulators work hand in hand rather than being independent, and the regulation framework is up for sale to the highest bidder (think lobbyists).

In all of this the person who gets screwed is the common man. Same as in pure communism or socialism, give or take a few degress of reapportionment of resources.

As for your example about the pencil, you seem to ignore one thing -- socialism does not eschew the market mechanism. It accepts the market mechanism, but only as the starting point, reasoning that the market apportionment needs fine tuning to ensure equitable balance. Ironically, the same role, albeit at a lower scale, that you have assigned to the government in the capitalist free market model,

which brings us back full circle to the point I made -- both these systems in their purest form are useless. They need modifications (ironically from each other) to create what is called a mixed economy model. Today, the amount of the mix is what determines what is called "capitalist" vs what is called "socialist", when in reality, neither represent the pure bloodline of the founding ideals.
« Last Edit: September 17, 2008, 01:31:07 AM by kban1 »
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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #58 on: September 17, 2008, 01:16:43 AM »

Government announces $85 billion loan to save AIG
 
WASHINGTON - The U.S. government has agreed to provide an $85 billion emergency loan to rescue the huge insurer AIG, the The Federal Reserve said Tuesday. The Fed said the U.S. Treasury Department was in full support of the decision.

 
The Fed determined that a "disorderly failure" of AIG could undermine already fragile financial markets.

The government will receive an 79.9 percent equity stake in AIG, the Fed said

http://news.yahoo.com/s/ap/ap_on_bi_ge/aig
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Cover Point

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Re: The crumbling of US investment banks (NC)
« Reply #59 on: September 17, 2008, 02:41:12 AM »

They are charging a 11.9% interest rate. I guess it is a fair then
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #60 on: September 17, 2008, 02:55:18 AM »

Holy crap.. we are heading for a recession and a bumpy ride.
----
http://blogs.wsj.com/economics/2008/09/16/fed-statement-on-aig/

Fed Statement on AIG

Text of the Federal Reserve’s statement on AIG.

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.

The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points[/b]. AIG will be permitted to draw up to $85 billion under the facility.

The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #61 on: September 17, 2008, 04:01:29 AM »

Barclays to buy Lehman banking divisions for $250M

By JOE BEL BRUNO and STEPHEN BERNARD, AP Business Writers


NEW YORK - Two days after walking away from a deal to purchase all of Lehman Brothers, Barclays PLC said Tuesday it had agreed to acquire Lehman's North American investment banking and capital markets businesses for $250 million in cash.

The British bank will also purchase Lehman's New York headquarters and its two data centers in New Jersey for $1.5 billion.

Lehman's parent company Lehman Brothers Holdings Inc.'s filed for bankruptcy protection on Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid a continued downturn in the credit markets.

The deals require approval from the bankruptcy court.

Meanwhile, Lehman executives continue to negotiate a potential sale of its prized investment management division, which includes money manager Neuberger Berman. The division was once valued by as much as $10 billion by Wall Street analysts, but now could fetch much less considering Lehman's bankruptcy proceedings.

A person familiar with the negotiations, who spoke on the condition of anonymity because the talks are ongoing, said Lehman was focusing on trying to sell the business to private-equity firms. The sale is expected to happen in a matter of days, the person said.

Bain Capital and Hellman & Friedman are the two top private-equity shops bidding on the investment management division, the person said, but Kohlberg Kravis Roberts & Co. is still in the running.

Barclays said it will acquire Lehman's North American banking operations, which include fixed income and equities sales, trading and research and investment banking business. The deal throws a lifeline to about 10,000 employees working in the divisions.

Barclays and Lehman reached the agreement hours after Lehman's first bankruptcy hearing in a crowded courtroom at the U.S. bankruptcy court in Manhattan, just steps away from Wall Street's iconic bull statue.

JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York. The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.

Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.

"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.

Judge James Peck approved a motion that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings. The issue arose over the past two days, when JPMorgan made the advances to Lehman to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.

Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing. It asked Lehman Chief Executive Richard Fuld to testify before the committee.

____

http://news.yahoo.com/s/ap/lehman_barclays_deal
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keep-it-cool

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Re: The crumbling of US investment banks (NC)
« Reply #62 on: September 17, 2008, 04:18:08 AM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.

Not really. I am not calling for companies to self regulate. I am calling for regulators to regulate and companies to act within those regulations.

The problems arise when either the regulators fail to regulate well or when they try to bail out companies who are in trouble because of their actions.
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #63 on: September 17, 2008, 04:32:55 AM »

I wonder how this affects the election... given that McCain lacks any understanding whatsoever and has Phil Gramm as his advisor.
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keep-it-cool

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Re: The crumbling of US investment banks (NC)
« Reply #64 on: September 17, 2008, 04:37:03 AM »

This goes to show why free market is not necessarily the best thing for the people. Companies that gives out million dollar bonuses shouldn't be bailed out with public money. Although perhaps government needed to have regulated this industry better to start with; if not, now, the whole thing will collapse.

This has got nothing to do with a free or not free market.

In fact, a free market would entail exactly what you are saying - the government will not step in and bail these entities out with its own money. Unfortunately, the US Fed blinked first by bailing Bear Stearns and then Freddie Mac and Fannie Mae - setting a dangerous precedent.

I dont subscribe to the general view or scenario that is being created that one or two banks going bust will end up damaging the entire economy for good - yes, there will be some period of pain, but it is vastly exaggerated in my view and there are self correcting mechanisms.

For instance, the moment it started getting clear that Lehman will not be bailed out, Merrill immediately sold out to Bank of America ... a bailout would probably have meant that Merrill carries on and becomes the next bailout candidate.



What you're suggesting is a hypothetical situation that goes along the lines of lets hope companies regulate themselves, executives aren't greedy, etc. and if they fail, well so be it...market will balance itself out.

Sure, we'll play your hypothetical game of libertarian triumph. Even if that were the case, exactly what happens to the everyday guy who is now trapped in a bad place because of these companies? It isn't the CEO who gets affected--he still has the $25 million tucked away on the side. I know...libertarians don't care...still.
What bad place is the everyday guy trapped in? Can you give specifics.
--
If the everyday guy needs a loan..
and if he is creditworthy and/or has sufficient collateral - he will get it and is getting it. It just is taking longer to "close the loan" due to a more detailed due-diligence in place.
If he is neither .. he deservedly is not getting the loan. Which he probably would have got in the past and shouldnt have gotten to begin with.

As for the losses to his investment portfolio, if he picked these individual stocks.. cant blame anybody but himself. If he picked a fund that was invested in these companies, he knew going in the investment philosophies of those funds - and perhaps benefited from them when the going was good.

Let me ask you a simple question--does the average worker get affected by the collapse of these banks? I don't mean the obvious job losses within that company/with investors in that company, etc. but the effect such a collapse has on the economy because of (a) financial magnitude of these institutions and (b) these industries were unregulated somewhere dubiously by then Rep. senator gram (sp?)
I seriously do not think so.. Lehman is a large company but still small in the grand scheme of things.. both size and influence wise. Also, the alternative of sustaining the company through taxpayer (which is you and I and the average worker) bailouts would have hurt the "average worker" even more (if at all).

On regulation, I think you are referring to the repeal of Glass-steagal act. I think the jury is out on whether that was the main reason for this.. the DGians working in IB industry can perhaps give us a better perspective on this. I am not sure, if that act completely "unregulated" the industry..but at the same time, I am not sure "what regulation" could have prevented a Bears Stern/Lehman from collapsing (if at all that was a desirable outcome)!

Look, I'm not arguing for whether or not the bailout is a good/bad thing. However, what I'm saying (and we fundamentally disagree on this issue) is that when an institution like Lehman brother collapses, the effects are far more severe than the collapse of an auto company, which just affects the employees of that company. In this case, the effect creates great panic in the economy and the final result is an economy that is worse for the average worker--as obviously, a bad economy means fewer hires, paycuts, jobcuts, etc.

In my view, this panic is created by the same people who hope the Fed / government will step in and bail them out. A firm stance to the contrary at the very outset will see such panic / concerns receding very fast. The US government unfortunately was not firm from the very beginning - thus creating a moral hazard and keeping the hopes of Lehmann high till the very end that come what may, we have a safety net. Had they not done this, Lehmann would have been much more active in curtailing their activities and / or seeking a buyer before it was too late.

Any system - and this has nothing to do with financials alone - needs a strong regulator. And the government should - directly or indirectly - play a role there. If the regulation is not firm, excesses will take place - again, not just in one field.
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ruchir

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Re: The crumbling of US investment banks (NC)
« Reply #66 on: September 17, 2008, 03:11:38 PM »

I wonder how this affects the election... given that McCain lacks any understanding whatsoever and has Phil Gramm as his advisor.

It's a pity how woefully lack your knowledge is about presidential candidates... McCain had warned about Fannie/Freddie collapse as way back as in 2006. He even co-sponsored a bill to stop similar stuff from happening, but the Democrat-ruled Congress blocked his bill (did not allow voting). So, who is to be blamed for the financial mess?

---------------------------------------------

http://race42008.com/2008/09/16/mccain-warned-of-fannie-mae-accounting-scandal-sought-reform-in-2006/

McCain warned of Fannie Mae “accounting scandal,” sought reform, in 2006

There’s been a lot of posturing by the Obama campaign the past couple of days over the hits to the financial industry, and questioning of whether John McCain “gets it.”  He got it, all right.  The following is a statement made by Sen. McCain on the floor of the Senate on May 25, 2006, regarding the need to reform the housing finance industry, and particularly to bring greater accountability to Fannie Mae.

In summary, the bill, S. 190, of which John McCain was one of only four co-authors (Sen. Obama being none of the other three), proposed to amend the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish an independent Federal Housing Enterprise Regulatory Agency which would have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). 

       Mr. McCAIN. Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

       The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

       The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

       For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

       I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

       I urge my colleagues to support swift action on this GSE reform legislation.

http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190#sMonofilemx003Ammx002Fmmx002Fmmx002Fmhomemx002Fmgovtrackmx002Fmdatamx002Fmusmx002Fm109mx002Fmcrmx002Fms20060525-16.xmlElementm0m0m0m

--------------------------------------

When BHO says that John McCain "does not get it", BHO show how ignorant he is, how much he is ready to lie in order to win presidency, how little he know about John McCain. When BHO says that McCain will continue with Bush policies, he doesn't even know what he is talking about because is the great Ignoramus. Barrackus Ignoramus Obamus. Some one should ask him what was he doing during the time this bill was presented in Senate? He was a US Senator. Why did HE not push for voting on this bill, if he is/was so worried about common man and US economy? Oh... he was probably busy starting his Presidential campaign at that time. No time to waste on small matters like these. BTW, has BHO written or co-sponsored any financial reform bill? Just asking, 'cause people seem to think that BHO will be a better person to take care of the economy. I fail to understand how Democrats can be depended upon to do ANYTHING, when they blocked voting on an important piece of legislation. Do we still remember that Nancy Pelosi shut off power in Capitol Hill to go on vacation while Republicans wanted to debate an energy bill? What was BHO doing at that time? Oh... he was in the middle of his presidential campaign. He can't be bothered about small stuff like energy problem, while his own party goes on vacation. Long live Democratic party...  :notworthy: :notworthy: :notworthy:

-----------------------------------------

Everyone is jumping up and down, trying to pin the blame of financial troubles on Bush and Republicans. I wonder if they know that there are 2 Committees that exist to provide oversight on Housing and Financial markets. President has no oversight on these areas. What are these committees?

House Financial Services Committee -- Headed by Barney Franks (Dem).
http://financialservices.house.gov/who.html

Senate Committee on Banking, Housing and Urban Affairs -- Headed by Chris Dodd (Dem)
http://banking.senate.gov/public/

May we ask what these two fine specimen of gentlemen were doing since taking over in 2006? Were they sleeping or were they simply ignoring all problems and issues while taking money from Fannie, Freddie, Lehman and whatnot? They are supposed to be the first reactors to all Housing and Financial problems, not president or Republicans. Why did they not hold any kind of investigations on any irregularities they found? It is their responsibility, not presidential or Republican responsibility. And what is their reaction and their leader's (BHO) reaction? Blame Bush, blame Republicans, blame McCain. Blame anyone and everyone except themselves, when they are the ones to be blamed. And we still think Democrats will do a better job in next 4 years, when in past 2 years they allowed the financial and housing market to go down the drain and did not bother lifting even a thumb to do anything.
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chinaman

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Re: The crumbling of US investment banks (NC)
« Reply #67 on: September 17, 2008, 03:43:28 PM »


McCain warned of Fannie Mae “accounting scandal,” sought reform, in 2006


In wot respekt charlee?
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #68 on: September 17, 2008, 04:08:37 PM »

You really want to talk about McCain Ruchir? The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm? The same McCain that supported deregulation elsewhere? Or are you supporting the McCain that is today in favor of regulation?

You want to hear who else says McCain does not understand economics? I was not posting much here on McCain recently because you were the only one supporting McCain but if you want to learn, let's do it.
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ruchir

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Re: The crumbling of US investment banks (NC)
« Reply #69 on: September 17, 2008, 04:11:06 PM »

Reid th abov.
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LosingNow

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Re: The crumbling of US investment banks (NC)
« Reply #70 on: September 17, 2008, 04:13:34 PM »

The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm?
http://en.wikipedia.org/wiki/Glass-Steagall_Act
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933."
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ruchir

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Re: The crumbling of US investment banks (NC)
« Reply #71 on: September 17, 2008, 04:19:54 PM »

You really want to talk about McCain Ruchir? The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm? The same McCain that supported deregulation elsewhere? Or are you supporting the McCain that is today in favor of regulation?

You want to hear who else says McCain does not understand economics? I was not posting much here on McCain recently because you were the only one supporting McCain but if you want to learn, let's do it.

Who says McCain wants regulations everywhere? Did you even read what McCain wanted to do in 2006? He wanted regulations specifically on GSE (Govt sponsored enterprise). He does not want to regulate everything, only the govt supported business entities; and it is these two entities that started the slide. BTW, I think it was the great Democratic president Bill Clinton who signed the repealing of Glass-Steagall Act. So are you saying that Clinton too did not understand economy like McCain doesn't?
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #72 on: September 17, 2008, 04:24:04 PM »

http://www.nytimes.com/2008/09/16/us/politics/16record.html?_r=2&hp=&pagewanted=all&oref=slogin&oref=slogin

"But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation and relying more on market forces than on the government to exert discipline.

While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms. "

......


I’m always for less regulation,” he told The Wall Street Journal last March, “but I am aware of the view that there is a need for government oversight” in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year. He concluded, “but I am fundamentally a deregulator.”

Later that month, he gave a speech on the housing crisis in which he called for less regulation, saying, “Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

-----------------------------------------------------------------------------



Other tidbits:
--------------

McC on Jan 10:  “I don’t believe we’re headed into a recession,” he said, “I believe the fundamentals of this economy are strong and I believe they will remain strong. This is a rough patch, but I think America’s greatness lies ahead of us.” (http://blogs.wsj.com/washwire/2008/01/10/are-we-headed-toward-a-recession/)

http://www.aflcio.org/issues/politics/mccain_economy.cfm
McCain Dismissed Concerns on Mortgage Crisis and Economy. While campaigning in Florida, McCain dismissed concerns about the economy. “Even if the economy is the, quote, No. 1 issue, the real issue will remain America’s security,” McCain said. “And if they choose to say, ‘Look, I do not need this guy because he’s not as good on home loan mortgages or whatever it is, I understand about that, I will accept that verdict. I am running because of the transcendental challenge of the 21st century, which is radical Islamic extremism.” (The New York Times, 1/28/08)

McCain Says He Wants Tough Lender Standards—But Votes Against Them. McCain has called for strict standards and greater transparency for lenders and for cracking down on predatory lenders. But he voted against a measure to discourage predatory lending practices and failed to vote on a bill that would overhaul the mortgage lending practices of the Federal Housing Administration. (McCain’s Remarks on Economic Woes, 3/25/08; St. Petersburg Times, 1/24/08; S. 256, Vote #22, 3/3/05; S. 2338, Vote #432, 12/14/07)

http://firstread.msnbc.msn.com/archive/2008/09/15/1399191.aspx
Sep 15: Addressing today’s news of upheaval in America’s financial markets, McCain said this morning that, despite fears over the "turmoil" on Wall Street, “the fundamentals of our economy are strong.”

Addressing today’s news of upheaval in America’s financial markets, McCain said this morning that, despite fears over the "turmoil" on Wall Street, “the fundamentals of our economy are strong.”

http://www.boston.com/news/politics/politicalintelligence/2008/01/mccains_previou.html

MCCAIN: Actually, I don't know where you got that quote from. I'm very well versed in economics. I was there at the Reagan revolution. I was there when we enacted the first -- or just after we enacted the first tax cuts and the restraints on spending.

http://www.boston.com/news/nation/articles/2008/01/26/mccain_tested_on_economy/

"I'm going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated," McCain told the Wall Street Journal in late November.

In December he said, "The issue of economics is not something I've understood as well as I should," as the Globe reported on its "Political Intelligence" blog at the time.




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kban1

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Re: The crumbling of US investment banks (NC)
« Reply #73 on: September 17, 2008, 04:25:28 PM »

Quote
It's a pity how woefully lack your knowledge is about presidential candidates... McCain had warned about Fannie/Freddie collapse as way back as in 2006. He even co-sponsored a bill to stop similar stuff from happening, but the Democrat-ruled Congress blocked his bill (did not allow voting). So, who is to be blamed for the financial mess?

Actually, its your lack of knowledge which is astounding.

The Bill that you refer to was dated May 2006. Congress was controlled by the Republicans till January 2007 when Democrats took over - see below.

**************************************************************************************************************
Democrats Take Control on Hill

By Jonathan Weisman and Shailagh Murray
Washington Post Staff Writers

Friday, January 5, 2007;

Rep. Nancy Pelosi (D-Calif.) was elected America's first female speaker of the House yesterday in a raucous, bipartisan celebration of a historic breakthrough, and hours later she presided over passage of the broadest ethics and lobbying revision since the Watergate era.
Democrats took control of the House and Senate after 12 years of nearly unbroken Republican rule, with resolute calls for bipartisan comity and a pledge to move quickly on an agenda of health-care, homeland security, education and energy proposals.

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/04/AR2007010400802.html

**************************************************************************************************************

Furthermore, read on

**************************************************************************************************************
Fannie Mae, Freddie Mac, and Federal Home Loan Bank Mission, Regulation, and GSE Status

In recent years, several legislative proposals have been introduced that would restructure the present regulatory structure for Fannie Mae, Freddie Mac, and the FHLBanks. Congressional scrutiny of the GSEs was heightened following revelations in 2003 and 2004 of improper management decisions, accounting practices, and earnings smoothing at Freddie Mac and Fannie Mae.

NAHB supports congressional efforts to strengthen the financial safety and soundness and the housing mission regulation of the GSEs. The building industry believes oversight of these two areas must be balanced. Unfortunately, there are many who would like to take this opportunity to diminish or eliminate the advantages of the GSEs, treating them more as banking organizations. NAHB is concerned that changes to the GSE regulatory framework could harm these entities’ critical role in housing finance and, ultimately, raise mortgage borrowing costs.

Legislation reforming the regulatory oversight of the housing GSEs was considered by the 109th Congress , << Headed by republicans>> but ultimately died due to policy differences between the House and Senate reform packages, in many key areas, most notably: affordable housing requirements, portfolio limits, and program/product approval. NAHB supported the House-passed bill H.R. 1461, which was a balanced bill that included many of NAHB’s priorities in key areas and did not include several adverse provisions sought by those seeking to restrict GSE activities.

In contrast, the Senate bill, S. 190, contained many restrictive provisions that could harm the nation’s housing finance system, including: restrictions on asset holdings, discretion to raise minimum capital, burdensome program approval process, and a regulatory structure tilted away from housing. In addition, S. 190 did not require Fannie Mae and Freddie Mac to set aside monies to fund affordable housing initiatives, as provided in the House-passed bill.


Debate on GSE reform has resumed in the 110th Congress. However, with a change in party control in both the House and Senate, the dynamic for consensus has changed significantly. Indeed, the House Financial Services Committee considered and passed a bipartisan GSE reform bill in early 2007 based on the House-passed bill from the 109th Congress and negotiations with the Department of the Treasury during year-end negotiations in 2006. The bill, the Federal Housing Finance Reform Act of 2007 (H.R. 1427), creates a strong independent regulator with oversight for the three housing GSEs – Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. It also establishes an Affordable Housing Fund (AHF) that will, in its first year, disburse grants for the construction of affordable housing in areas affected by Hurricane Katrina. In the second through fifth years (after which the fund terminates), the fund will be used for affordable housing projects nationwide. Significantly, the bill ensures a level playing field for both for-profit and not-for-profit entities in the allocation of AHF funds. The bill also does not contain restrictive portfolio and capital provisions, such as those in the 109th Congress’ Senate bill.

Companion legislation has not been introduced in the Senate, <<< Hmmm, using your logic, looks like someone else was too busy with his presidential run  ::)>>> but the Democrat-led Senate Banking Committee is expected to consider GSE reform legislation, similar to that moving in the House. Thus, any GSE legislation passed in the 110th Congress is more likely to be similar to the House bills and would not include strict portfolio caps, but would include an affordable housing fund component – a significant departure from previous Senate versions

http://www.nahb.org/generic.aspx?genericContentID=9016
************************************************************************************************************


Quote
When BHO says that John McCain "does not get it", BHO show how ignorant he is, how much he is ready to lie in order to win presidency, how little he know about John McCain. When BHO says that McCain will continue with Bush policies, he doesn't even know what he is talking about because is the great Ignoramus. Barrackus Ignoramus Obamus. Some one should ask him what was he doing during the time this bill was presented in Senate? He was a US Senator. Why did HE not push for voting on this bill, if he is/was so worried about common man and US economy? Oh... he was probably busy starting his Presidential campaign at that time. No time to waste on small matters like these. BTW, has BHO written or co-sponsored any financial reform bill? Just asking, 'cause people seem to think that BHO will be a better person to take care of the economy. I fail to understand how Democrats can be depended upon to do ANYTHING, when they blocked voting on an important piece of legislation. Do we still remember that Nancy Pelosi shut off power in Capitol Hill to go on vacation while Republicans wanted to debate an energy bill? What was BHO doing at that time? Oh... he was in the middle of his presidential campaign. He can't be bothered about small stuff like energy problem, while his own party goes on vacation. Long live Democratic party...     :notworthy: :notworthy: :notworthy:

Again, the ignorance here is astounding.

Usually, in the House and Senate, members are part of committess and subcommittees that deal with specific issues. Barack Obama, as US Senator was not involved in any committee which oversaw Finance or Financial institutions. before you ask why, let me educate you -- some committee and sub committee appointments are deemed worthy enough for only senior members of Congress --Finance, Intelligence & Security fall within that grasp. As the junior senator from IL, BHO would be pretty low down the order for appointment consideration in those committees.

Neither was Barrack Obama a member of the Energy Committees. Nor was S. 190, the Senate Bill introduced by McCain brought up for discussion in a Democratic controlled Congress (see earlier explanations).

here is BHO's Senate biography:
***************************************************************************************************************

Sworn into office January 4, 2005, Senator Obama serves on the Health, Education, Labor and Pensions Committee, which oversees our nation’s health care, schools, employment, and retirement programs. He is a member of the Foreign Relations Committee, which plays a vital role in shaping American policy around the world, including our policy in Iraq. And Senator Obama serves on the Veterans’ Affairs Committee, which is focused on providing our brave veterans with the care and services they deserve. In 2005 and 2006, he served on the Environment and Public Works Committee, which safeguards our environment and provides funding for our highways

http://obama.senate.gov/about/
***************************************************************************************************************

Quote
Everyone is jumping up and down, trying to pin the blame of financial troubles on Bush and Republicans. I wonder if they know that there are 2 Committees that exist to provide oversight on Housing and Financial markets. President has no oversight on these areas. What are these committees?

House Financial Services Committee -- Headed by Barney Franks (Dem).
http://financialservices.house.gov/who.html

Senate Committee on Banking, Housing and Urban Affairs -- Headed by Chris Dodd (Dem)
http://banking.senate.gov/public/

Again, absolutely erroneous and an assertion with little basis in knowledge.

The Housing market crisis was reasonably full blown by 2006 and exploded in late 2006, early 2007. The policies that set that in motion were set back in 2002 -2005.

Congress was controlled by Republicans during this time (till the end of 2006).

The House Financial Services Committee was headed by
SENATOR MICHAEL G. OXLEY (R – OHIO)

Senate Committee on Banking, Housing and Urban Affairs was headed by
SENATOR RICHARD SHELBY (R – ALABAMA)
Chair, Senate Committee on Banking, Housing, and Urban Affair

and before him by

PHIL GRAMM (R-TEXAS),
CHAIR-man of the Senate Committee on Banking, Housing and Urban Affairs

Quote
May we ask what these two fine specimen of gentlemen were doing since taking over in 2006?


2007, not 2006. get your facts right. The damage had already been done by then.

Quote
Were they sleeping or were they simply ignoring all problems and issues while taking money from Fannie, Freddie, Lehman and whatnot?


Inaccurate rantings

One of the members, Barney Frank, who you have mentioned, was instrumental (even when he was not the chair in a Republican Congress) along with the republican Chair Oxley in helping House Bill 1461 pass (the bill that advocated stricter control of the GSE's - Fannie, Freddie, and FHLB's) in Congress. McCain's Bill S. 190 was the Senate counterparty to this. Read on

************************************************************************************************************
Oxley, Frank Praise OFHEO Acting Director Blumenthal's Comments on House GSE Bill

Washington, DC- Today, House Financial Services Committee Chairman MICHAEL G. OXLEY (OH) and Ranking Member Barney Frank (MA) praised the recent comments made by Stephen Blumenthal, acting director of the Office of Federal Housing Enterprise Oversight (OFHEO), regarding the House bill to strengthen regulation of the Government Sponsored Enterprises (GSEs).  The House bill gives the new regulator significant safety and soundness authority.

Chairman Oxley said, "I appreciate Mr. Blumenthal's comments, particularly his recognition that the House-passed bill would result in vastly improved regulation of Fannie Mae and Freddie Mac, which is our goal.  Those who recommend holding back on final congressional action because of a difference on this provision or that do so at the risk of deepening the problems at the enterprises.  In my view, we have seen the results of the regulatory status quo, and the status quo is not an acceptable option."

Ranking Member Frank said, "I welcome Mr. Blumenthal's supportive comments that the House bill is comprehensive legislation that provides OFHEO with significant new authority.  The House bill puts the financial safety and soundness of the GSEs in the hands of one of the most powerful financial regulators in the government.  The regulator created under the House bill will have authority to establish capital requirements and safety and soundness standards that meets or exceeds the authority of the federal banking agencies, while increasing the transparency of enterprise operations."

In a speech yesterday to the Global Bond Summit, Mr. Blumenthal said, "It is important, however, to commend the actions of the House in passing a comprehensive bill that will significantly improve the regulatory climate for GSE supervision. It is worth noting that under the House-passed bill, the agency will receive significant new authority as well as a stable source of funding independent of the congressional appropriations process. These are both needed changes that have been identified as such by numerous studies and congressional hearings over the years and endorsed by the Administration. While the House bill can certainly be improved, the important point is that Congress act - and soon - before this current pro-reform climate passes. If Congress does not act, OFHEO will continue to do its job, but it will face the increasing pressure of inadequate regulatory authority and an unpredictable funding mechanism that makes planning and management extremely difficult."

In October, the House passed H.R. 1461 to strengthen the regulation of the GSEs.  The bill passed both the Financial Services Committee and the House with overwhelming bipartisan votes.
*************************************************************************************************************


Quote
They are supposed to be the first reactors to all Housing and Financial problems, not president or Republicans. Why did they not hold any kind of investigations on any irregularities they found? It is their responsibility, not presidential or Republican responsibility. 
And what is their reaction and their leader's (BHO) reaction? Blame Bush, blame Republicans, blame McCain. Blame anyone and everyone except themselves, when they are the ones to be blamed. And we still think Democrats will do a better job in next 4 years, when in past 2 years they allowed the financial and housing market to go down the drain and did not bother lifting even a thumb to do anything.

Irrelevant. You have miles to go yet.
« Last Edit: September 17, 2008, 04:37:56 PM by kban1 »
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #74 on: September 17, 2008, 04:26:15 PM »

The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm?
http://en.wikipedia.org/wiki/Glass-Steagall_Act
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933."

Yes, and the point is? When have I said everything Clinton did was good? But that is not relevant here....
Are you asking why he did not veto it?
« Last Edit: September 17, 2008, 04:28:47 PM by prfsr »
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RicePlateReddy

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Re: The crumbling of US investment banks (NC)
« Reply #75 on: September 17, 2008, 04:44:43 PM »

I think that blaming this current crisis on a Repub president or Dem president is missing the real culprits and cause. This happened because of human greed and a culture that rewarded that greed in dangerous, extremely short sighted ways. This culture and its proponents transcended the repub / dem divide. Stupid policies and lack of caution were not the sole attributes of one side.

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dextrous

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Re: The crumbling of US investment banks (NC)
« Reply #76 on: September 17, 2008, 04:45:19 PM »

The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm?
http://en.wikipedia.org/wiki/Glass-Steagall_Act
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933."

If I'm not mistaken Gramm sneaked this into a must pass budget bill, which is how it snuck past
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prfsr

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Re: The crumbling of US investment banks (NC)
« Reply #77 on: September 17, 2008, 04:48:22 PM »

I think that blaming this current crisis on a Repub president or Dem president is missing the real culprits and cause. This happened because of human greed and a culture that rewarded that greed in dangerous, extremely short sighted ways. This culture and its proponents transcended the repub / dem divide. Stupid policies and lack of caution were not the sole attributes of one side.



Agreed fully  :icon_thumleft: That is why I was discussing the free market assumptions and not Dem/Rep until Ruchir decided to defend McCain.
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dextrous

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Re: The crumbling of US investment banks (NC)
« Reply #78 on: September 17, 2008, 04:49:00 PM »

The same McCain that supported repealing of the Glass-Steagel Act sponsored by his advisor Gramm?
http://en.wikipedia.org/wiki/Glass-Steagall_Act
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933."

If I'm not mistaken Gramm sneaked this into a must pass budget bill, which is how it snuck past
Lurking in the background of this weekend's collapse of two of Wall Street's biggest names, is a $62 trillion segment of the $450 trillion market for derivatives that grew huge thanks to John McCain's chief economic advisor, Phil "Americans are Whiners" Gramm. That's because in December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment to a government re-authorization bill that created what is now the $62 trillion market for credit default swaps (CDSs).
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RicePlateReddy

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Re: The crumbling of US investment banks (NC)
« Reply #79 on: September 17, 2008, 04:59:40 PM »

"In the wake of the subprime mortgage and credit crisis in 2007, Greenspan admitted that there was a bubble in the US housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect." However, Greenspan also noted, “I really didn't get it until very late in 2005 and 2006".

From Greenspan's wikipedia writeup.

If a sentient being lived in the US but didn't realize there was a massive housing bubble until as late as 2005-2006, and that sentient being serves as Chairman of the Federal Reserve --basically the head of economic policy of the US, you are asking for disaster to strike. [god]
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I balance, I weave, I dodge, I frolic, and my bills are all paid. On weekends, to let off steam, I participate in full-contact origami. Years ago I discovered the meaning of life but forgot to write it down. - (thanks, Hugh Gallagher)
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