Yes, there was deregulation, but also government guarantees were in place for all downside risk. Is the guy who crashed WAMU financially hurting right now? He was playing a game with 0 downside risk, and walked out a massive financial winner. IMO, 100% of his assets should go to the stock holders, he should be thrown in jail for 5 years, he should spend his life paying back the share holders, and the company should be sold to reimburse the sharheholders.

IOW, the problem was created by improper regulation–which is very different from UNDER-REGULATION.

The bankers didn’t create this mess, the government did.

Thank You Deran. You may get attacked here, and have it pointed out that the government is the cause of all our problems, and it’s all because we don’t have a truly free market.
But having a truly free market will happen when we have true anarchism, and I mean that in a positive way, we’re just not there yet.
Letting corporations get ” too big to fail” means that the foxes are guarding the hen house.

Banks: my opinion is that most are all techincally insolvent. There numbers looks good, but that is only due to accounting falacies (repeal of mark to market).

Bailouts: Bush did help the banks, but that was not a Bush decision- it was a Ben Bernanake issue. He did the opposite of what Hebert Hoover did in the late 1920s…which is let all the banks fail and created the GD.

Obama: I generally like Obama…but don’t let your love for him cloud your objectivity. The Obama stimulus has been pathetic thus far. Obama has nothing to do with China improving…China is improving because they have a much better economy than the US, and they are going to dictate a lot of Americas decisions moving forward.

What to invest in now: I’m very bearish still. I buy things that are inverse dollar denominated on dips (ie. FCX with exposure to Gold and Cooper; MEE, and other commodities that rise as the dollar falls). When the market is up, I’ll buy SRS (2x Commercial Real Estate Short, and a handful of other Real Estate, and Tech names). Its definitely a traders market.

I agree that we need to produce more things and the US should strive to be a leader in alternative energy. I disagree that the govt should lead this effort. I think private enterprise should lead the way.

The only conclusion that has been clear to me is that we need to pay down consumer debt. That includes mortgages.

Banks are irrelevant at this point, or as relevant as you want to make them. Banks have money. Corporations have money. There is cash every where.

The best part is that the Obama stimulus package was intended to do something. The Bush package was a government give away. George Bush gave a gift to the banking industry on his way out of office and left Obama to clean up his mess.

Obama has done an absolutely fantastic job, both here, and abroad. So much so that the Chinese economy is improving. They are the only long term investors who took advantage of a once in a life time opportunity to buy into the United States.

From here and moving forward those cash reserves or investment dollars will be hard to spend. What would you trust at this point? We have been on a wild ride. Tech, bio tech, computer, health care, pharmaceutical, real estate, banking, securities, insurance, oil, and what else in the span of 13 years? How much more money can you get for doing absolutely nothing?

I’m just saying we may be in a period where we have to produce something and people talk like it’s the end of the world.

Why not take the crises and completely overhaul the economic system? Make it more environmentally and economically sustainable. Abolish most derivatives, break up all the surviving financial institutions into their constituent parts, create a Bank of the US out of the wreckage of the banksters instead of keeping them afloat. Let the central bank handle all home mortgages, count that debt as investment.

Globalist “free trade” has been an obvious disaster. It is environmentally deadly and exacerbates social/class divisions.

I know this may seem frightening to those hoping to return to the casino capitalism of yore, but, come on; why not take the opportunity and put to sleep the neo-liberal economics that has brought the world to this catastrophe?

Thanks for the compliment. For the most part, I think we are on the same, and I agree that in a perfect world we should print money to improve our economy.

That said, our actions will have consequences. We’re printing money to sustain our lifestlyes, and passing the bill onto our kids and grandkids.

It is my fear that the global economy (naotably China and the EU) will one day vote to change the reserve currency away from the dollar. If that happens, the dollar fall off a cliff, and we will be in HUGE trouble.

The idea that you can ever prevent speculative asset bubbles ignores more than 400 years of bubbles and the subsequent regulations which in most cases caused the next bubble.

Maybe not in every asset (e.g. Pet Rocks), but with changes to appraisal rules you could prevent them in housing.

Let me preface this comment by saying you usually have good points.

Banks created mortgages to sell to investors. Real Estate prices rose as debt rose. Credit cards became a currency and the 18%, 24%, and 30% interest became income.

Debt consolidation loans went to 125% of market price and off we went. Debt, and the servicing of debt became an industry.

Chase, a leader in consumer credit markets, now owns Washington Mutual which was one of the largest banks in America. Bank of America has a very diverse portfolio of both secured and unsecured debt.

Debt instruments are the most hotly traded investments in the world.

The key word is debt.

The debt industry is unsustainable. It’s finite and not renewable. Debt, and creating debt, to service debt, is rapidly coming to an end. Banks won’t stop, and the government can’t stop it. People still create a half million dollars in debt to live in a house, so the consumer seems oblivious.

The stimulus package has to do with creating jobs. People need money to pay off what they already owe.

The only income you can get from cash is a return on investment. Once you take debt out of the equation the pickings are pretty slim. You would need to buy something you can sell. You would need to have a business that generates income.

You would need to have products and services people need to buy or at least want to buy.

The talking head was making points about getting money back to banks as fast as possible so we can go back to the way we were. The problem is that it is unsustainable.

Our government is offering energy, education, and health care as viable, sustainable, income generating alternatives. That seems more workable to me.

That being said, you can certainly make the ground less fertile for the resulting lunacy. The best way to do that is to do nothing. Look no further than Dubya’s “Ownership Society” or Barney Frank’s lovefest with Fannie and Freddie to see why things got out of control.

JON, READ MY BLOG ABOVE

Then imagine “when the population catches up with the supply” and with no jobs for the current population…..for some reason it reminds me of Charles Dickens’ Scrooge, oh the excess population should just go away or live in poor houses…..China and India are perfect Scrooge countries, the ditches are the excess populations’ homes.

But perhaps I’m too much of a Dr Doom for you? After-all, once the excess population arrives the jobs will magically appear and yes, real estate will return to the Pink Pony levels of 2006 then and all the homeowners will live happily ever after….

And the unemployment benefit extentions for a half a million Americans [many are home owners and rentors in Seattle] are about to run out by year’s end.

Maybe they can live with mom or dad, [or mom or dad can live with their kids...LOL], and go back to college to get more degrees….that will bring the jobs back [LOL]. Imagine the foreclosure rates by years end, where the soon to be “lost unemployment income” allowed the household to barely eke out the monthly mortgage payment….

Its going to be interesting [albeit horrifying] to read Tim’s blog this Christmas…..but cheer up, once their unemployment runs out and they can’t find work, we don’t include them in the unemployment statistics anymore….that should cheer up the pink pony enthusiasts, by making the economy look rosy anyway [and they call us Dr. Dooms for being pragmatic].

However, I think smoothing things out until population catches up with oversupply may be the least disruptive way to go forward over the next year or two. The alternative would cause a lot of unemployment and so would reduce our standard of living, on average, for the duration.

Agreed, but…
When the market was overheated and in a frenzy, nothing was done to cool it off, and out of control housing costs were being praised as some kind of success. No government entity was there to warn buyers that the scavengers , hyenas, and leeches in the real estate/mortgage industries weren’t acting in their best interests trying to sustain an unsustainable market.
But yes, while government can’t control the economy in a capitalist system, they have historically tried to influence it with mixed results, and that’s very unlikely to change.

Generally, I wouldn’t stop it, but I’d make some limitations.

That said, I would outlaw CDOs, SIVs, etc so that the holder of the note has to do better due diligence and be on the hook. If the banks had to worry about counter party risk, they wouldn’t have made those loans in the first place!

Do you realize how socialistic your comments sounds?…’lets manage the economy’, ‘try to smooth things out’….now don’t get me wrong, I know many smart people that make strong arguments for socialism, but personally, its not the way that I would like to go.

Personally, I believe that the risk of bankruptcy, and failure is the best way to insure that risk is properly managed. This may sound contradictory, but I do agree that the govt did the right thing in keeping the larger banks solvent to avoid the next Great Depression. Where they screwed up is not breaking them up, and selling assets to more efficient banks. As is, we’ve created a system of zombie banks with no incentive to grow or lend.

And this stimulus plan is joke…I have major issues with the amount of waste involved. Its basically giving states, and munis an excuse to continue their wasteful ways.

Finally, how close to you think we are to full economic recovery? Obviously, I think we are many years away. If you think that we are close, I can certainly see why you would take the stance you are taking.

No more time-bomb loans to people who are sure to default.

Back to a society where the amount of “stuff” people have is proportional to how hard they work!

The one quirk in that is that logic is that guns are easily accessible here. So if the marginal part of society who today gets a free ride on credit/bankruptcy suddenly is forced to earn money to eat… we may have a huge violence problem!

Not managing the economy because of a simplistic way of thinking about things (we need to let it heal on it’s own) is just foolhardy, IMHO. Let to its own, the economy will over-react both directions. We’ll never be able to totally control the economy, but that doesn’t mean we shouldn’t try to smooth things out (both the highs and the lows).

If taking Aspirin allows the illness to linger for decades, rather than years, then I’ll pass and take the pain.

We’re not going to recover until we let all this debt unwind. As a society, we screwed up. We are going to pay the price whether it be this year, next or 10 years from now.

Look at the readers of this site for example. If prices were allowed to drop to where they should be, there are dozens of people that would buy a home, and probably hire people to improve it. Since the govt/ banks won’t let price get to a realistic levels, we all continue to sit on our hands, and watch thecrash in slow motion.

Our current economy is a joke . We’ve repealed market to market so there is no transparency in the banks, interest rates are unsustainably low, we’ve got an 8k buyers credit that will soon run its course, and inefficient banks like BofA are allowed to prosper. All of this, and we’re still in a terrible situation. We simply can not artificially prop this market up forever. Eventually, the fundamentals control. Its going to hurt, but I’m for letting it happen, assessing the carnage, and moving forward. I know I am not the only one ready to pounce with capital that will create jobs if we simply let the market run its course. (see phoenix…homes on the outskirts are being bought, and jobs created as prices have fallen 80%).

Actions are taken to modify the economy because capitalism is inherently unstable. To not try to restrict the downside makes no more sense than to not try to control the upside, and I doubt many here are in favor of the latter.

I’ve got an idea…let capitalism work!! Bring back mark to market…let bad banks go BK.

The sooner we take our medicine, the sooner we recover.

It seems to me that banks could purchase something akin to FDIC on the private insurance market. Especially in a climate like we have now, people would far prefer to bank with an institution that has this insurance. Individuals would be able to purchase this as well.

This would have the effect of the underwriters making the appropriate parties pay for risk. WIth the current crisis the FDIC has asked the sensible banks for more money to fund the stupid ones.

The private system would have the underwriters examine the books of the banks and see what shape they are in. Banks that are run better would pay less for insurance, and therefore be able to offer less fees or higher return on CDs. Therefore there would be an incentive for banks to be run better.

It amazes me that Americans complain about how much regulation is in the EU when you consider that the federal government here provides a backstop for individual deposits, bails out all large banks rather than letting them fail, and strangles the market with regulation that prevents market differentiation. The feedback loop is totally broken.

So what happens when the FedGov has underwritten all these new, reduced loans (at stellar interest rates), and they begin to RAPIDLY foreclose and sell off all the homes that didn’t make the cut? Another major round of home price declines. Now all those folks with their new loans see that their home values are plummeting below their fresh new loan amounts, courtesy of the Feds new foreclosure program!

I think we should do the foreclosure part and forget about trying to help those who can qualify for these new loans. The Feds have given away way too much to homeowners already.

Decent explanation of G.S. influence.

However, we don’t want to throw the proverbial baby out with the bath water. I haven’t seen any evidence that the FDIC backing caused a part of the financial crisis. If anything, it seemed to me to do its job as intended. To keep levels of confidence in the banks, so depositors didn’t make a run on them. Remember IndyMac a few months ago? Our country’s banking system was inching closer at that point to loss of confidence by the average depositor. Fortunately, fears were calmed by reminding people about their FDIC insurance (sure, theoretically they wouldn’t be able to cover a massive bank run, but it did its job by keeping people from panicking). Imagine if our country didn’t have FDIC and banking panic spread through the country. CNN would outdo their Michael Jackson coverage by showing lines of people outside of banks demanding their money. And, just as we saw in “It’s a Wonderful Life”, there really isn’t enough money inside the bank to give to everyone if they demanded it. It would only take a week of national panic to destroy our banking system. It’s all built on confidence, which, once lost, can’t be easily restored.

We will continue down the road we’re on until the government is bankrupt, or revolution fills the streets. Given the complacency of the people, my money is on a federal collapse followed by a long, drawn out depression, much like Japan. It may take a decade to set in though.

90 days before foreclosures sounds harsh [but necessary IMO] and keeping risk in the banks sounds like the 60s and 70s anyway [when Washington Mutual was a local Ma and Pa bank]. When did toxic waste loans get hidden in a bunch of globalist alphabet soup acronyms [I'm not going to even pretend I understand it, because talking to banking professionals and financial advisors, they don't either]?

I believe this banking mess was started about the time when Seattle protestors were wrongfully arrested during the late 90s WTO brainwashing to get the IMF funded for globalism and let China produce with no environmental or wage restrictions. It was also about the time NAFTA was touted as the godsend for Mexico/America and subsequently China grabbed all the jobs we sent Mexico anyway [that we lost], subsequently sending unemployed Latino into America in hoards to work for our globalist bent slave labor employers and put more and more regular American citiizens on the unemployed lists.

Of course most of the horrifying unemployment of globalism in America was covered up around the late 90s when the unemployment rate no longer counted those forced into severely lower wages or severely lower hrs/week. Very convenient timing for the whole Ponzi Scheme to fool most of us.

Forcing the banks to foreclose and dispose of the inventory in a short period of time will result in many/most institutions realizing they are insolvent and lead to a 1930s style banking crisis.

It is easy to criticize the current piecemeal bailouts of zombie banking institutions, but the alternative may be the end of society as we know it. I agree with pundits such as Peter Schiff that we are prolonging the pain, perhaps for generations, but there may be so much pain that our fragile society cannot withstand it.

Glass-Seagal sounds good in theory but with no backstops we get the same effect. People won’t put their money somewhere where it has no reputation and there is too much risk.

I’ve given up on any hope the government and banks will forge a concensus any more than I think Democrats and Republicans can work together for the common good.

The only point I took away from the video is that we need to get away from Wall Street and back to main street.

I think there is a higher return on investing in your community than buying stocks.