drsmooth wrote:

Philly the Kid wrote:I sent this to my mom, who is a world reknown economist... here is her response:

"...It's the ideology of deregulation more than any single thing that led to
today's financial crisis. .....
But back to your question. Alan Greenspan is an acolyte of Ayn Rand and a
libertarian......
Okay -- so my general point is that the Chairman of the Fed has many tools
at his disposal.....
Another piece of this story
..."

indeed the acorn, ahhh, does not fall far from the tree

Woody wrote:ptk deep down we love you. don't ever change

the fact that Democrats are on board with this scheme means absolutely nothing. When it comes to things the Bush administration wants, Congressional Democrats don't say "no" to anything. They say "yes" to everything. That's what they're for.

They say "yes" regardless of whether they understand what they're endorsing. They say "yes" regardless of whether they've been told even the most basic facts about what they're being told to endorse. They say "yes" anytime doing so is politically less risky than saying "no," which is essentially always and is certainly the case here. They say "yes" whenever the political establishment -- meaning establishment media outlets and the corporate class that funds them -- wants them to say "yes," which is the case here. And they say "yes" with particular speed and eagerness when told to do so by the Serious Trans-Partisan Republican Experts like Hank Paulson and Ben Bernake (or Mike McConnell and Robert Gates and, before them, Donald Rumsfeld and Colin Powell).

So nothing could be less reassuring or more meaningless than the fact that the Democratic leadership has announced that what they heard scared them so much that they are certain all of this is necessary -- whatever "all this" might be (and does anyone think that they know what "this" even is?). It may be "necessary" or may not be, but the fact that Congressional Democrats are saying this is irrelevant, since they would not have done anything else -- they're incapable of doing anything else -- other than giving their stamp of approval when they're told to.

House Republican Leader John A. Boehner (Ohio) warned his rank and file against turning their backs on Treasury's $700 billion economic rescue plan in the name of conservative orthodoxy.

"This is not a time for ideological purity," Boehner said on ABC's "This Week."

Asked specifically about Indiana Rep. Mike Pence, an outspoken conservative who issued a statement Saturday night opposing Treasury's bailout proposal, Boehner said, "If this were about a company here or there failing, I wouldn't be for intervening in any way shape or form. This is about our way of life, our society, our economy. ... This isn't about Wall Street."

"This could be the most serious financial crisis that the world has ever dealt with," Boehner said, using the same grave language he has employed since a dramatic Thursday night briefing at the Capitol with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

Philly the Kid wrote:

Mountainphan wrote:IBD's Disspelling the Deregulation Myth:

OK, we'll say it if no one else will: Thank heaven for Gramm-Leach-Bliley. If you've been listening to the fulminations from Congress and the campaign trail, you know that we're talking about the 1999 law that dismantled the Depression-era barriers between commercial and investment banking.

Democrats largely supported it at the time, and one of their own, Bill Clinton, signed it. Now they frame it as a Republican bill that helped send the nation on the path to perdition.

In this respect, Gramm-Leach-Bliley has turned out to be smart policy indeed. By repealing the rule against banks owning investment firms, it has led to at least two crucial mergers — JPMorgan Chase absorbing Bear Stearns and Bank of America merging with Merrill Lynch. Morgan Stanley may be the next investment house to find shelter in a well-capitalized commercial bank.

You can spot the theme here: By taking down an outmoded firewall, the law is helping the financial industry cope with a once-in-a-lifetime crisis. Far from being the cause, this instance of deregulation, or whatever you call it, is part of the cure.

I sent this to my mom, who is a world reknown economist... here is her response:

"...It's the ideology of deregulation more than any single thing that led to
today's financial crisis. The Gramm Bill that repealed Glass Steagall was
a clear signal to Wall St. that anything goes, the foxes were now guarding
the chicken coop, that government and the regulators were not to be
feared, and that if markets rewarded behavior, that behavior must be good.
Markets rule, markets are efficient, markets are never wrong, there is no
such thing as a bubble. If the market says your dinky apartment is worth
$5,000 a month and there is someone out there willing to pay it, then
that's what it's worth -- and will always be worth that much or more. Rent
control just gets in the way of markets making smart people rich, and who
cares where ordinary people are going to live. Let the social workers
figure that out -- that's not the job of the market. This is what they
mean by "market fundamentalism". As Joe Stiglitz said, the fall of Wall
St. is to market fundamentalism what the fall of the Berlin Wall was to
communism.

But back to your question. Alan Greenspan is an acolyte of Ayn Rand and a
libertarian. Certainly did not believe in the efficacy of regulation. He
was the head of the Fed and a cheerleader for market fundamentalism during
the build up of the stock market bubble and the housing bubble. Despite
Glass-Steagall, he still had many arrows in his quiver for letting the air
out of the bubbles before they grew too big. But he chose not to use them.
He could have insisted on a clearing house for credit default swaps (a
kind of insurance policy in case a corporate bond that you bought -- that
is, a loan that you made since that is what you are doing when you buy a
bond -- goes bad and can't be repaid). This is a $70 trillion dollar
market insuring $40 trillion in actual assets -- it's like everyone in
America bought two fire insurance policies for their one house. What the
heck was going on? Clearly, a lot of this was some form of gambling. But
there is no clearing house and no one knows exactly who owns this $70
trillion dollars of insurance, who is on the hook to pay (that is, who the
counterparties are) when these bonds go bad as theyare now. That's what
happened to giant insurer AIG -- it made tons of money on the fees
(insurance premiums) it collected with these credit default swaps, but it
didn't actually have the assets to make good when lots of these bonds
failed at the same time. Some of the buyers of these bonds were money
market funds -- supposed to be safe as money -- and they thought they were
safe because they purchased insurance in the form of a credit default swap
from AIG. No one knows who else is on the hook to pay out on this type of
insurance and how much they are likely to owe. So no one is willing to
provide capital (that is, buy stock) in companies like Lehman Bros. that
just went bankrupt. Not even the Sovereign Wealth funds of places like
Dubai want to own a piece of Wall St now.

Okay -- so my general point is that the Chairman of the Fed has many tools
at his disposal and the latitude to invent others as needed. Just witness
Ben Bernanke in the past couple of weeks. Greenspan didn't even do the
simple things, like insist on transparency and a clearing house so that
government regulators like himself could know who owns what and what the
dangers are, could have seen that AIG was writing insurance in the form of
credit default swaps, basically on the assumption that very little was
likely to go wrong, and not prepared for a worse case scenario.

And who is buying those credit default swaps? It's banks and pension funds
and all kinds of financial institutions buying those new-fangled
mortgage-backed securities (a kind of bond) based on mortgages to people
who couldn't afford them to buy houses with sky-high prices that couldn't
be sustained. Everyone (except me and Dean and a few of our friends)
professed to be surprised that there was a housing bubble and that it
burst -- didn't think it was possible, didn't know it was going to happen.
So why were they buying insurance against defaults on these securities? By
the way, the shareholders of AIG have been virtually wiped out in the
nationalization of AIG (govt now owns 80%, shareholders left with only 20%
of what they had before). But the buyers of this credit default swap
insurance, who were gambling on the market, are the ones being saved.
Should they be saved? You would like to punish them as well for turning
the US financial system into a Las Vegas casino. But that's daddy's
pension fund and my money market account they were gambling with. If they
go down, so do we. Neither of us would have any retirement left. so what's
our choice? We have to save them.

So that's another thing that Greenspan could have done. He could have
required financial institutions that were buying up assets (bonds are
assets to the people who own them and will collect interest and eventually
get their principal back and liabilities to the homeowners and others who
owe money on them -- my mortgage is an asset to the bank and a liability
to me)to hold reserves against them. That way, if some debtors defaulted
and did not pay back the interest and principal on the bond, the bank or
insurance company would NOT go bankrupt, but would have enough reserves to
absorb the losses. But he didn't.

Another piece of this story -- and here the Gramm bill that repealed Glass
Steagall is part of the story -- is that investment banks, hedge funds and
others were buying fancy financial instruments (fancy kinds of bonds) --
collatoralized debt obligation (CDOs), structured investment vehicles
(SIVS), derivatives -- with borrowed money. They used money borrowed at
low interest rates (we have had low interest rates for more than a decade
in this country) and put it into risky, fancy financial instruments that
paid much higher rates of interest. Before the repeal of Glass Steagall,
there were limits on how big this house of cards could be. Generally, the
ratio of borrowed funds to assets was around 12. Financial institutions
could borrow up to 12 times the amount of equity they had. That has been
relaxed. When Lehman went bankrupt, it had a ratio of about 30. It had $1
of equity for every $30 it owed. It used the borrowed money to buy risky
assets that paid high rates of interest. But when some of those risky
assets went bad, Lehman couldn't absorb the losses and pay back the money
it had borrowed to buy those assets. It needed more equity -- that is, it
needed to raise capital. But it couldn't find anyone who wanted to invest
in Lehman, buy shares in the company, give it more capital. And that's
because no one (probably not even Lehman) knew exactly how much of these
risky assets Lehman -- in its various departments and global operations --
actually owned and how much they could be on the hook for.

Greenspan could have issued rules specifying a limit of borrowing to
equity, but he didn't believe in regulation. He favored the general
relaxation of rules in financial markets that repeal of Glass Steagall
facilitated.

Greenspan could have warned against the housing bubble, told people they
were foolish to buy houses at these inflated prices. He could have
insisted on institutions that make mortgage loans requiring reasonable
down payments and careful credit checks (no more liar loans) for
mortgages. Bernanke has done this now, after the horse is out of the barn.

The problems are even deeper, of course. With so much money to be made on
Wall St. and foks in finance getting so rich and skimming so much out of
the economy, we had a terrible misallocation of resources. We failed to
invest in infrastructure -- farmers and steel mills need freight trains
and track and trucks and highwayst in good repair to move products to
market. But Wasll St. fianciers? There was money galore for speculation,
but not to invest in manufacturing capacity. National health care? Those
making the decisions don't need it. We need to dig our way out of this if
we are going to have a rising standard of living and a chance for a decent
life for ordinary people in this country.

There's more -- but I'm out of time. I worry that the rescue package being
jammed through congress might not work, but agree we need to do something
or we will end up where we were in 1929.

..."

Old Mother Kid wrote:There's more -- but I'm out of time. I worry that the rescue package being
jammed through congress might not work, but agree we need to do somethig or we will end up where we were in 1929...."

drsmooth wrote:

Philly the Kid wrote:I sent this to my mom, who is a world reknown economist... here is her response:

"...It's the ideology of deregulation more than any single thing that led to
today's financial crisis. .....
But back to your question. Alan Greenspan is an acolyte of Ayn Rand and a
libertarian......
Okay -- so my general point is that the Chairman of the Fed has many tools
at his disposal.....
Another piece of this story
..."

indeed the acorn, ahhh, does not fall far from the tree

dajafi wrote:Robert Reich weighs in on the deal. He doesn't like it, but he thinks it's going through--so Congress should set some terms:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

My initial reaction to #1 was "that's too close to socialism for me to feel comfortable with." Then again, if we're bailing these $#@! out from the consequences of their bad judgment, that's socialism's ugliest face. So why not at least get something of value out of it?

TenuredVulture wrote:Another thing to keep in mind--lots (though by no means all) of these wall street types are pretty close to evil. They most certainly cannot be trusted to do what is best.

jerseyhoya wrote:http://www.politico.com/news/stories/0908/13706.html

dajafi, the Dems are at least sending signals at this point that you should find favorable.

But Mr. Paulson said that he was concerned that imposing limits on the compensation of executives could discourage companies from participating in the program.