Moved from D1 forum

[kandrathe]

You know where I stand. I don't want central planners with too much power, and I fear in the US we've strayed too far in allowing our federal commissars control over our economy. No, I don't trust Tim Geitner, or our central banking system. We are probably at a point where we need to peg the value of a dollar to commodity index.

If nothing else, your posts can provide a chuckle and a renewed admiration for your perseverance.

So how, then, was it that excessive federal control over your economy allowed a financial industry melt-down that our regulated economy managed to miss?

Keep the jokes coming, please!

Oh, that's an easy one.

Partially you can look at Fannie Mae, and Freddy Mac. You have the authority of Federal protection without any of the reality, so you can go ahead and underwrite loans without much hope of getting the money back, supported by the illusion that the Congress will bail you out if you go into the red ink. But, private banks also went along with the fast and loose nature of the "free" credit market prior to 2008. Lehman Brothers’ collapse is traced back to Fannie Mae and Freddie Mac, the two big mortgage banks that got a federal bailouts of upwards of $400 billion in the recent crisis. Freddie and Fannie used huge lobbying budgets and political contributions to keep regulators off their backs. A group called the center for responsive politics keeps track of which politicians get Fannie and Freddie political contributions.

I can blame former Fed Chairman, Alan Greenspan for keeping interest rates too low, for too long after the economy recovered from the tech bubble bursting. It immediately re-inflated a bubble in housing, but rather than affecting just the resilient tech sector, it reached into a foundational part of the economy, housing.

Check out the failed Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190. A direct result of a crony "corporation" that is allowed to bribe the group that is charged to oversee them, and the their failed leaders, like Franklin Raines or Jim Johnson, are given lucrative golden parachutes when the proverbial excrement ultimately hits the whirling bladed thing.

And, to be fair, I can blame the government (and it's crony capitalist buddies) for failing to regulate a new product, Credit Default Swaps. In an unregulated market, people would be careful to protect themselves (buyer beware), but in a mostly regulated market there is an illusion of safety. It was Warren Buffet who labeled these derivatives as "Weapons of Financial Mass Destruction", but when the congress was ready to write the regulations covering derivatives, he was the one who stopped that within the same week. There were some US financial institutions that stayed away, and they benefited by not being in the blast radius. Some British, and other foreign CDS investors got very burned. So, here is your answer. Your banks properly stayed away from the craziness that originated with Bear Stearns, destroyed them, forced Lehman to bankruptcy and almost destroyed Goldman Sachs (and would have had the US government not slid billions of newly minted money to them).

The joke, my dear ShadowHM, is that we have done nothing to change anything that existed before the meltdown. CDS remain unregulated*, the interest rates are pegged to zero, and the government in the name of stimulus is still actively promoting lending to those who cannot afford it. One factor of the latest reform bill, making lending institutions double down on reserve currency, has trimmed temporarily the zeal of lending institutions.

* Although, the industry group ISDA has implemented standards and has established private sector Exchanges for the CDS market. About 10 years of progress was made in 2009 in catching up the CDS product with audits and controls.

Beyond that, every funding bill through our Congress in the past three years has been a newspeak version of greasing the palms of the financiers of their elections. While partisans are blackwhite engaged in a propaganda war which eases slightly between election cycles culminating at hateweek, the first week in November.


This is what I mean by Central Federal power. What was the chain of command in agreeing to expand the monetary base so drastically? What is the downside to devaluing the US dollar by 50% in one year?

Some good insights --> Why investors favour Canada For many, the impression is that Canada's economy is more regulated, but I think that is inaccurate. You beat us handily in the index of economic freedom at #6. You are not #1 like Hong Kong, but then, you are not #9, like the US either.

And, a final thought. You can look at certain micro-economies in the US for what they are doing correctly, such as Texas. Canada and Texas benefit greatly being heavily in the Fossil Fuels market, just when world demand for oil returns to 2008 levels. 30% of Canada's GDP are exports, and 60% of your exports are natural resources. Did you miss the part where I said Deebye was wise (other than his unbridled support for the Nihilist Spasm Band)?