Since when has the Federal Reserve and Treasury Department EVER proposed putting a bid under "Tier-3" level assets in the banking system? Talk about a "microwave society in your brain" . . . Get your facts straight. Typical ET logic.
Another myth. Fannie and Freddie were already extremely inefficient, corrupt quasi-government agencies. They're a far cry from profit-driven companies that operate best in a laissez faire environment. Their upper management's salaries weren't tied at all to profits or operational efficiency. And look which politicians they threw the most money at....none other than Sen. Dodd and B. H. Obama.
Too bad we can't get even half of all Americans to ponder this thought... I suspect most of us would say, "this is America.. can't happen here". Yet if you've read world financial history at all, you know that not only is this possible even to the mightiest of the time, it's even LIKELY! (My wife is very educated and intelligent.. and she can't accept even the possibility.)
You imply that Fannie and Freddie were "regulated" . . . You can't be serious. Please feel free to tell me who it was that allowed 33:1 leverage on mortgage-backed securities in the profit-driven, laissez faire environment of Wall Street?
Your logic is good, but your specifics are flawed. The Fed and Treasury have bailed out banks before, to what end? Debt to the taxpayers. The Fed and Treasury now propose trillions to bail out more banks, to what end? More debt to the taxpayers. Look up the words axiomatic and exponential. You may see the relationship between national economic health and debt, and how America has gone from being the world's leading creditor nation to the greatest debtor nation. Then again, you might not. Oh, and fuck you, too. Ignored.
Sounds like I struck a "nerve" in your failed logic and naive generalizations. And to top it all off, you resort to having to use a profanity to make your point. This is why this website has little to no value anymore . . . People that offer nothing more than illogical claims, grand generalizations, and expletives. I see that you are new to ET, as of last month. Welcome! You "fit" right in. Another member goes on Ignore. Congratulations.
No, I said they were "extremely inefficient, corrupt quasi-government agencies." 33:1 was crazy, but they should be allowed to suffer the consequences of their actions. If Lehman, et. al. knew there would be no put from Greenspan/Bernanke/Paulson/whoever, they'd know better or would've gone under long ago. You seem to be saying that we needed a bunch of new regulations (instead of enforcing what's out there), but now we should bail out those who made stupid trading decisions. No, let them pay the price for their actions. Did you support Sarbane-Oxley as well? It's made life miserable and more inefficient everywhere I've worked (from the miliatry to the natural gas industry), while doing nothing to stop something like this. You don't seem to understand the law of unintended consequences or why the proliferation of regulations does so little good.
There were no "regulations" in the OTC mortgage-backed securities market to begin with! That was why there was 33:1 leverage used by investment funds. It was the use of leverage that took down the banking system; counter-parties and all. I don't believe that anyone actually thought for a minute that there was a Greenspan/Bernanke/Paulson "put" out there . . . but what people here on ET fail to realize is just how the capital markets work, and what the effects of failed "trades" have on counter-party risk and the market place in general. It is highly naive to simply claim or think that this is about people who put a bad "trade" on. See AIG.
An article on the Great Depression http://www.econlib.org/LIBRARY/Enc/GreatDepression.html Some excerpts I thought interesting: "The best-known [explanation], advanced by economists Milton Friedman and Anna Schwartz in A Monetary History of the United States, 1867-1960, blames the Federal Reserve for permitting two-fifths of the nation's banks to fail between 1929 and 1933 (or 10,797 of the 25,568 banks in 1929). Since deposits were not insured then, the bank failures wiped out savings and shrank the money supply. From 1929 to 1933 the money supply dropped by one-third, choking off credit and making it impossible for many individuals and businesses to spend or invest. Friedman and Schwartz argue that it was this drop in the money supply that strangled the economy." So even conservative icon Milton Friedman himself thinks that keeping money supply high is a priority and blamed the Fed of the era for a lack of intervention. "The depression is often blamed on the passivity of President Hoover and the Federal Reserve. This view is simplistic. True, Hoover's commitment to a balanced budgetâthe orthodoxy of the dayâprecluded big new spending programs. And his decision in 1932 to combat a budget deficit by raising taxes sharply is widely viewed as a major blunder. But it is not true that Hoover and the Federal Reserve stood idly by and did nothing as the depression worsened. After the crash Hoover instituted a tax cut equal to 4 percent of federal revenues. He urged state and local governments to raise their spending on public works projects. Hoover also created the Reconstruction Finance Corporation, which provided loans to shaky banks, utilities, and railroads. In 1931 he suspended collection of foreign-debt payments to the United States, which he thought were impeding recovery of the international economy. Nor was the Federal Reserve entirely passive. During the crash the Fed lent liberally to banks so they could sustain securities lending. Interest rates were allowed to drop rapidly. The discount rate (the rate at which the Federal Reserve lends to commercial banks) fell from 6 percent in October 1929 to 2.5 percent in June 1930. The money supply (cash in circulation plus checking and time deposits at banks) declined only slightly in the next year. Tighter Federal Reserve policy in 1928 and early 1929âintended to check stock market speculationâmay have helped trigger the economic downturn. But the Federal Reserve was not stingy in early 1930 and was not driving the economy into depression at that time. It was not until 1931 and later that the Federal Reserve failed to act as the "lender of last resort" and allowed so many banks to fail. " My interpretation: ordinary standard measures are not enough. Note also that the orthodoxy of Hoover's day seems similar to the mentality of many people here on ET and Americans in general who have a strong naive belief in free markets. "The truth is that, until the summer or early fall of 1930, almost everyone expected the economy to recover, just as it had in 1921. Unfortunately, almost everyone underestimated the forces pulling the economy down. One was the drop in trade that resulted from collapsing commodity prices. Kindleberger has argued that the price collapse was worsened by the stock market crash. The connection lay in a drying up of credit. Many loans used to buy stock had come from foreigners and big corporations, and they demanded repayment when stock prices plummeted. New York banks assumed some of the loans, but they cut loans to the importers of raw materials. Demand for these products (rubber, cocoa, coffee) dropped, and prices fell. Strapped for funds, countries that exported commodities reduced their imports of manufactured goods from industrial nations. The drop in trade was deepened by Smoot-Hawley, which provoked massive retaliation by other nations. " I see similarities with the current situation. People still thinking it isn't serious and expecting it to blow over after some correction. Hopefully that's all that will happen but there is too much uncertainty and signs of danger to be complacent.