ok i respect your opinion and i think i see where you're coming from, although i read the situation a little differently. Thanks, the feeling is certainly mutual in my opinion, we haven't had a free market system in the US at any point during my lifetime (32). Fair enough, very few things are absolute or pure in the real world. We have seen truly socialist countries like the Soviet Union, North Korea and Cuba and we know that their economic models don't work. We do have a mixed economy but it's much closer to free market than it 's to true socialism where private property and private enterprise are banned. Our economy is consistently ranked (by the Heritage Foundation, no less) among 5 freest economies in the world so it can't be that bad. imo we're only in this situation today because the US government has demonstrated a willingness to backstop "too big to fail" institutions for decades. I frankly see no evidence of that. While the government's willingness to "backstop" has indeed existed for decades as you properly note, we are having problems now after the radical shift towards less regulation, less oversight and hands off approach to the economy and financial industry. It's no coincidence and I don't think it's possible to argue that banks started to give away mortgages to every loser walking into their doors, brokerages decided to securitize and sell things that should not have been securitized and sold and rating agencies rubberstamped these securities of extremely dubious quality as "AAA" rated due to regulations while the government was in fact de-regulating the financial industry and completely refusing to rein in their reckless practices.
Except that the Republicans have achieved less regulation, not more regulation and less intervention, not more intervention.
That also makes little sense, that the market should receive no credit whatsoever for the gains. I would argue that the market should receive some credit, and the government should receive some (albeit less) credit for anything that happens. That's the nature of a mixed economy.
I think maybe we can all agree, just for a second, that something like this was inevitable. Sure blame the republicans for deregulating. Thats fine with me, they should own it too (of course they wont). I think the free markets (I know the term "free is ambiguous, but thats ok too) function the best without much regulation. Americans are smart and we find new a innovative ways to make money. Of course that very same trait is also what leads us inexorably to whats happened today. Maybe its just a cycle: 1. Greed and corruption cripple Wall Street. 2. Fed's come in and regulate. 3. Wall Street learns to deal with the new regs and starts to boom once more. 4. The inevitable loopholes are found and exploited. 1. Greed and corruption cripple Wall Street. 2....You get the point. I'm just saying maybe we can step back for a second a try to comprehend what may be the bigger picture. It's similar to Hamilton Vs. Jefferson. Who was right? Neither. Everything that happened couldn't have happened any other way in the constant tug of war between freedom and government oversight. It's just like the laws of our country. Are we free? Yes, but not free to murder somebody. I hope you can understand what I'm saying and for a second you can recognize the inevitability of what our country is going through now, and how it will never be over...and there is no "bad" guys (bush) or good guys. Just people playing their respective parts in the old hamilton vs. jefferson dilemma.
You assume that there is a problem. I don't see clueless morons going broke as a problem. I do however agree that most people, and most voters, disagree with that statement. Basically humanity as a group is not prepared to endure true merit-based outcomes. When push comes to shove they want to be bailed out when they get fucked over by their own stupidity, and either don't consider it immoral to corral innocent smart people into the mess, or do consider it immoral but don't care. From a more practical perspective, one should remember that one of the main reasons for this mess is the neverending bailouts and de-facto bailouts that occured over the last few decades and especially under the Greenspan Fed. Moral hazard slowly grew, being reinforced by government, until it reached catastrophic levels. Human nature being what it is, bubbles and crashes will happen anyway, but underwriting the consequences of stupid bubble decisions by bailout out crashes just encourages the behaviour to repeat in ever-increasing magnitude and frequency.
Playing devil's advocate here: The counter-argument to that is to point out that principle-agent problems and short-term (<5-10 years) payoff systems create traders' options at the CEO & board level. Thus rewarding risk-taking during boom years and socializing losses during busts. This ensures that businesses will always take more risk than is prudent, and thus the economy will always be more unstable under a fully free market system. Basically the limited liability character of corporations, and the corporate veil preventing clawback of losses from CEOs/management means that it's "heads I win, tails you lose". Thus they will always take far more risk than a prudent trader/investor/businessman running their own money. Even if this problem is circumvented, the fact is that most people are poor risk managers and take too much risk, since they underestimate the prevalence of outlier events. Under a free market system, we would just let all these firms go bust and endure a nasty but short recession while the market cleared and capital went from the dumb to the smart. The Bank of Buffett would be the new titan on Wall Street. However, I think it's empirically pretty clear that voters in democracies are easily panicked and at the time don't believe crashes will pass; also, they are not prepared to suffer losses themselves if they perceive them to have been generated by other people's irresponsible conduct. They will not sit back whilst half the S&P 500 goes broke, and say "them's the breaks", even if in the long-run that might be the best outcome. Never mind caveat emptor and the idea of risk being the flip side of return - Joe Sixpack does not care about that and will not view himself as personally accountable for his own decisions. The number of people who think that way are maybe 2-20% of the population at most in the USA, the most capitalist country. In the rest of the world it's even less likely. So basically in a free market democracy, voters will always demand bailout after a crash. This then creates moral hazard and keeps the establishment (who caused, oversaw, or twiddled their thumbs re the bust) in charge for the cycle to repeat. Even with no moral hazard, people are poor judges of risk and thus will misallocate capital egregiously during booms. A moral utilitarian (which most people and politicians are) will therefore have no qualms about demanding regulation on the system. If this is to be done, the logical approach is to ban excessive leverage, insist on pay being linked to long-term rather than short-term performance, and impose punitive penalties for people who do go bust in spectacular fashion. Short version: free market causes perverse incentives that encourages boom/bust cycles, human nature also guarantees this; people are also not willing to take the consequences of a recession without demanding socialist measures. Therefore to preserve broad capitalism one must water it down and regulate to keep leverage at sensible levels, reward success and punish failure. The average guy (in USA at least) is ok to support capitalism if people get rich from success & hard-work, and he gets some trickle down benefits from that; he is not going to support people getting rich from failure AND from fucking up the system and making him poorer. Capitalists and supporters of liberty and going to have to work pretty hard on making and promoting a populist defence of their policies, and there will need to be some substantive change in the system. Convincing the ivory towers and political elite is not going to be enough. Failure means back to FDR days.
Poor analogy. The economy does not "die" during a recession. A recession gets rid of bad businesses, useless jobs, and excessive leverage. The economy is almost always stronger after a recession has cleaned out the system. A recession is more like cutting out a tumour, thus saving the patient and allowing healthy cells to grow back in its place. Your claim that there would likely be a second great depression is not supported by any facts. However, I agree with your implicit statement that it is easier and less costly to prevent financial crises in advance rather than to have to fix them once they are upon us. The question is how to do so. Serial bubble-blowing and bailouts have been demonstrated during the Greenspan and Bernanke era to have substantially encouraged excessive risk taking, which has caused the current mess. Your prescription is essentially "even more of the same" - a bit like trying to put out a fire by pouring on more petrol.
She has some good qualities, unfortunately she is embarrassingly clueless about world affairs, low IQ, her economic knowledge is even worse than McCain's, and she has some bizarrely unscientific beliefs about evolution and religion (pentecostal lol - speak in tongues baby!), and employs the same political culture of secrecy and loyalty above all that made the Bush administration so disastrous. You might as well admit it, there are no convincing Republicans at the moment. Almost none of them are intelligent enough to understand the current economic predicament, even when advised properly (and they haven't even sought out any competent advisors). The people who actually understand the current predicament are firmly in the Dem camp e.g. Buffett, Soros, and in many cases they are personally advising Obama. The Republicans have lost the mantle of the party that understand the economy. Bill Clinton struck the first blow and now Obama is going to plunge the knife in just as Bush & McCain commit financial seppuku.
Refreshing post. I think you overlooked one major issue though: The greed and profits of few are causing the suffering of many. I'll tell you this much, I lost six figures is real estate a couple months back. A drop in the bucket yes, but as 20 year old, it was all I had. I deserved it. I was leveraged to the hilt and I made a lot more than I lost. But my losses didn't affect other people (except maybe the local mall and car dealerships . The CEO's run public companies, owned by everyday joe's. They also are so large that their bad decisions have an adverse affect on people who simply had nothing to do with them or their decisions and had no share in the profits. I'm talking in terms of housing prices and inflation; 2 areas that affect everyday middle class families that have been affected adversely by these large companies. I would be all for letting them burn if they weren't going to be obvious and large consequences for everyone else. I think the government is doing the right thing and that's curbing the impact on the innocent. When the smoke clears we can sick the lynch mobs on those responsible.