Government, Not Free Market, Caused Subprime Crisis

[BBSA]

The war between proponents of the free market and those of socialism is the key economic conflict of the next decade. Hostilities broke out in the credit crisis.

Declaring the crisis a "failure of the free market," many analysts, including former free market advocate Alan Greenspan, are pushing for increased government control of the economy through tightened regulations and increased bureaucracy. But it's wrong to write an obituary for the free market.

To blame the current crisis on a lack of regulation is not only inaccurate, it's dishonest. The true failure of the meltdown in the financial sector lies with the institutions of government that are now attempting to regulate themselves out of the mess they made of the economy. After years of interest rate manipulation, the government's micromanagers of the economy-the Federal Reserve and the Treasury Department-are now gaining greater power through the subprime crisis they helped to create.

Over the past few years the U.S. economy relied heavily on the housing market as an economic engine, and the Fed tailored its policies to sustain the housing boom. Freddie Mac and Fannie Mae, after all, are socialized mechanisms for financing houses. Through these government-sponsored enterprises, the government makes taxpayers assume the risk of individuals' purchases of homes. This puts the government-sponsored agencies under an increased risk of failure due to the volatile nature of lower-priced mortgage loans. The result of the expansion is all risk and no reward for American taxpayers.

This may prove to be a critical error in the long run. An economy cannot grow and evolve unless investment and capital are allowed to move freely where they can be deployed most efficiently. Those who made bad investments during heady times will learn from their mistakes, and those who were not fatally wounded will be more cautious-and hence better-investors in the future.

Despite the quagmire of mismanagement at the federal level, evidence of the market's wisdom remains abundant. After the fall of Fannie Mae and Freddie Mac, banks became increasingly risk-averse, which led to an increase in the overnight lending rate, the rate individual banks charge one another for loans. Many banks also raised the interest rates they paid to depositors, to attract more capital.

This was the fiscally responsible thing to do. Raising the interest rate leads consumers to save more, which makes more capital available to banks. This is the market's way of increasing capital-and it doesn't require a gargantuan bailout at the expense of taxpayers.

The government should not be in the business of subsidizing risks of borrowers and lenders at the expense of current and future taxpayers. The federal government should back off, and allow the market to run its course. The market has a spectacularly better record of success than any government agency.

link

 

[alloytoo]

link

Well D'uh. Lack of regulation is government's fault.

The sub-Prime crisis is a natural consequence of the laws of supply and demand. The free ride had to end somewhere.

 

[Sherbang]

Well D'uh. Lack of regulation is government's fault.

The sub-Prime crisis is a natural consequence of the laws of supply, demand and greed. The free ride had to end somewhere.

Fixed it for you...

 

[unsecluded]

joelus

Originally Posted by alloytoo View Post
Well D'uh. Lack of regulation is government's fault.

The sub-Prime crisis is a natural consequence of the laws of supply, demand and greed. The free ride had to end somewhere.

Fixed it for you...

+1 but bear in mind that in this oligopoly, which it is, they would have to make a bundle aside from the envelopment of the smaller fish, hence the bail-out milking. Keynes would argue that government bears the brunt but in reality it was the recklessness of the corporations. Let's not misunderstand that the 'Federal Reserve' is more private than public. Banks hedge their bets in wars, no matter who wins, they always do! There's a simple way of putting it into perspective: the oligopoly is nothing more than those Lords and Ladies of yester-year. Government is middle-management. the people are the labourers. We're all on an elaborate farm and while we milk the cows, we get milked by middle-management for the financial elite.

On November 21, 1933, President Franklin Roosevelt wrote a letter to Col. Edward Mandell
House, President Woodrow Wilson's close advisor:
"The real truth of the matter is, as you and I know, that a financial element in
the larger centers has owned the Government every since the days of Andrew
Jackson..."

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
- Henry Ford

“Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again... If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.”
- Sir Josiah Stamp, Director, Bank of England, 1940.

"The few who understand the system, will either be so interested from it's profits or so dependent on it's favors, that there will be no opposition from that class." - Mayer Amschel Bauer Rothschild - Rothschild Bank

“The money power preys on the nation in times of peace, and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes.” - Abraham Lincoln

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” - Thomas Jefferson

“The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale.”
- Thomas Jefferson

“The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”
- Prof. Carroll Quigley in Tragedy and Hope

“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” – James Madison

“In March, 1915, the J.P. Morgan interests, the steel, shipbuilding, and powder interest, and their subsidiary organizations, got together 12 men high up in the newspaper world and employed them to select the most influential newspapers in the United States and sufficient number of them to control generally the policy of the daily press....They found it was only necessary to purchase the control of 25 of the greatest papers. "An agreement was reached; the policy of the papers was bought, to be paid for by the month; an editor was furnished for each paper to properly supervise and edit information regarding the questions of preparedness, militarism, financial policies, and other things of national and international nature considered vital to the interests of the purchasers."
- U.S. Congressman Oscar Callaway, 191

“Most Americans have no real understanding of the operations of the international moneylenders... the accounts of the Federal Reserve have never been audited. It operates outside the control of Congress and ... manipulates the credit of the United States”
- Sen. Barry Goldwater (R. –AZ)

"Speculation, where everyone could earn money without work, was the pipe dream … this led to growth of special interests that did not coincide with the interests of the nation as a whole. We cannot allow economic life to be controlled by a small group of men … tinctured by the fact that they can make huge profits, not from production, but from lending money and marketing securities … we cannot tolerate this opportunistic, selfish attitude …" - Franklin Roosevelt memo to trade commissioner Landis Nov. 1933

 

[alloytoo]

Fixed it for you...

Capitalism=greed

 

[BTTB]

Fractional Reserve Banking and Modern Money Mechanics

Oooh boy don't get me started on this topic.

The government should not be in the business of subsidizing risks of borrowers and lenders at the expense of current and future taxpayers. The federal government should back off, and allow the market to run its course. The market has a spectacularly better record of success than any government agency

While I agree that Government should not be involved with monetary issues it is the US Government that created the monster of money manipulators in the first place with the enactment of the Federal Reserve Act of 1913.

The Central Bank of America known as the Federal Reserve and a number of other Central Banks across the globe control the money supply and the interest rates that we all depend on. These Bankers have over time, almost 100 years in the case of the Federal Reserve entrenched themselves in enough financial jargon, fronts (people and committees), paperwork (modern money mechanics) and the like that I dare say that even Economists skilled in the field of Finance haven't a clue what is actually going on with the World Banking System.

The simple fact that money is created with interest attached to it is the fundamental flaw in the US Banking System as this interest can only be repaid with more money creation, thus debasing the currency (money becomes worth less over time) to the point that the US Dollar has lost 96% of it's value since the inception of the Federal Reserve in 1913.

President Jackson almost knew what was going on back in the 1830's and he spent his entire political life trying to destroy the Central Bank so that Government could rather create the currency for the country at no interest. But what Jackson did not understand was Fractional Reserve Banking. How a Bank can create money out of nothing under the guise of keeping a portion (Usually 10-20%) of a loan as reserve and then in turn loaning it to another bank who in turn do the same thing. See chart on wiki link.

FRB is part and parcel of why we are where we are today in regards to the Sub Prime Saga goes. Creating huge amounts of money out of nothing, lending it to high risk clients under the notion that the value of property always goes up. Repacking these Mortgages/Paper into AAA quality Bonds and then reselling it all over the world. The person or agent that sold the mortgage got his commission so he could not care, the person that loaned the money got given 100 - 120 of the deemed value of the property with no deposit so he is happy, the Financial Institution got Loans that looked superb on paper.

All was Ok until the Federal Reserve slowly started to increase the Federal Funds Rate (Interest Rate) from a low of 1% in 2002/3 to a high of just over 5% come 2006. Something had to break here!!!
My question is was this Interest Rate manipulation/movement warranted or was it all orchestrated to entrap people to loan money when rates are cheap only to squeeze them a couple of years later when they rise so that things do go belly up.

The theory then would be, who gets to benefit from these ups and downs. The never ending Business Cycle which we are told/taught is apparently normal. I say it is all BS!
The economic elite who made huge amounts of money lending money to Governments across the world need to place this money into tangible assets and who wants to buy assets when they are expensive. Rather create a Financial Crisis and when the blood is running in the streets buy up at give away prices. And this is how our world it run. The constant manipulation of money and the greed thereof. The current generation of people are almost oblivious to what is going on around us today.
Does the average man on the street know how money is created? If he did I am quite sure he would not fall for the notion that money is scarce.

I actually think there is an oversupply of money.

 

[BBSA]

Well D'uh. Lack of regulation is government's fault.

The sub-Prime crisis is a natural consequence of the laws of supply and demand. The free ride had to end somewhere.

...... The article clearly indicate that the crisis is because of government involvement in the free market and not the lake of it.

Less involvement = better markets

 

[alloytoo]

...... The article clearly indicate that the crisis is because of government involvement in the free market and not the lake of it.

Less involvement = better markets

Lack of regulation <> better markets

 

[Arthur]

Watch Money, Banking and the Federal Reserve

The sooner we abolish central banks the better, though it's too late now to stop the massive correction coming in the next few years (this last September was a little flutter).

 

[BBSA]

Lack of regulation <> better markets

Please read the article again; that is NOT that it is saying.

 

[alloytoo]

Please read the article again; that is NOT that it is saying.

No, that's what I'm saying.

The dismantlement of regulation in the Reagan years, coupled with the expectation of supernormal profits (an expectation arising from the unusual profits that the dismantlement of the Soviet Union provided) resulted in an increased appetite for risk with US bankers.

Higher risk = higher reward, until lady luck turns against you.

The higher risk was enabled by a LACK of regulation (and certainly encouraged by lower lending rates from the Fed)

Interest rate policies of the Federal reserve <> regulation, they equal monetary policy.

Whether the monetary policy was good or bad is irrelevant, the abnormal risks like NINJA (No Income, No Job) loans were enabled by a lack of regulation.

A few simple regulations like limiting the banks ability to lend beyond a fixed ratio of it's deposits held and it's reserves, and stricter lending critera (much like our new credit act) would have possibly prevented much of the carnage.

The bankers were stupid, sure the Fed encouraged it, but ultimately the bankers enjoyed almost two decades of super profits.

The fact that the Fed told the bankers to stick there heads in the oven and they did, doesn't justify claiming non-existant regulation didn't work.

The free market did exactly was it was supposed to do, it punished risk takers who took it too far. The objective of regulation is to moderate market forces prevent the extremes in market corrections that hurt the innocent.

 

[BBSA]

No, that's what I'm saying.

The dismantlement of regulation in the Reagan years, coupled with the expectation of supernormal profits (an expectation arising from the unusual profits that the dismantlement of the Soviet Union provided) resulted in an increased appetite for risk with US bankers.

Higher risk = higher reward, until lady luck turns against you.

The higher risk was enabled by a LACK of regulation (and certainly encouraged by lower lending rates from the Fed)

Interest rate policies of the Federal reserve <> regulation, they equal monetary policy.

Whether the monetary policy was good or bad is irrelevant, the abnormal risks like NINJA (No Income, No Job) loans were enabled by a lack of regulation.

A few simple regulations like limiting the banks ability to lend beyond a fixed ratio of it's deposits held and it's reserves, and stricter lending critera (much like our new credit act) would have possibly prevented much of the carnage.

The bankers were stupid, sure the Fed encouraged it, but ultimately the bankers enjoyed almost two decades of super profits.

The fact that the Fed told the bankers to stick there heads in the oven and they did, doesn't justify claiming non-existant regulation didn't work.

The free market did exactly was it was supposed to do, it punished risk takers who took it too far. The objective of regulation is to moderate market forces prevent the extremes in market corrections that hurt the innocent.

Personally I feel our education system must change to make the broader society more financially intelligent. If people can make intelligent financial decisions we would not need all these regulations to protect the "innocent".

Risk taking is the cornerstone of a free market. Should the Government decide how much risk we can take? I do not think so. The free market is much more efficient than any government.

 

[krycor]

Then why does gov have to bail them out? if it effects the country adversely you cannot expect gov to not regulate it

 

[BBSA]

Then why does gov have to bail them out? if it effects the country adversely you cannot expect gov to not regulate it

Because gov created the problem.

 

[alloytoo]

Personally I feel our education system must change to make the broader society more financially intelligent. If people can make intelligent financial decisions we would not need all these regulations to protect the "innocent".

Our education wasn't the problem. (That's not to say it isn't a problem)

Risk taking is the cornerstone of a free market. Should the Government decide how much risk we can take? I do not think so. The free market is much more efficient than any government.

The free market is only efficient in the long term. In the short term it is very prone to excesses.

That said, the regulation should be in place to ensure the consumer that the risk profile he's chosen is adhered to by financial services providers.

If you place your savings in the bank, with a moderate to small return the regulation should insure that the risks the FSP takes are moderate to small.

 

[bigicy]

The problem is also the greed of the bankers to make fictitious profits to earn big bonuses.

 

[alloytoo]

Because gov created the problem.

Specifically it allowed the problem to occur because of a lack of banking regulation.

 

[BBSA]

Our education wasn't the problem. (That's not to say it isn't a problem).

I never said it was, I said goverment was the problem.

The free market is only efficient in the long term. In the short term it is very prone to excesses..

Free market is not perfect but it is defently more efficiant than any goverment.

That said, the regulation should be in place to ensure the consumer that the risk profile he's chosen is adhered to by financial services providers.

If you place your savings in the bank, with a moderate to small return the regulation should insure that the risks the FSP takes are moderate to small

The financial services providers should determine the amount of risk not government. Yes, you should be made aware of the risk and if the FSP deviate then he must be held accountable.

 

[BBSA]

Specifically it allowed the problem to occur because of a lack of banking regulation.

Not true, I quote from the article:

Over the past few years the U.S. economy relied heavily on the housing market as an economic engine, and the Fed tailored its policies to sustain the housing boom. Freddie Mac and Fannie Mae, after all, are socialized mechanisms for financing houses. Through these government-sponsored enterprises, the government makes taxpayers assume the risk of individuals' purchases of homes. This puts the government-sponsored agencies under an increased risk of failure due to the volatile nature of lower-priced mortgage loans. The result of the expansion is all risk and no reward for American taxpayers.

It was not the lack of banking regulations but government involvement in the market that caused the problem.

 

[alloytoo]

Not true, I quote from the article:



It was not the lack of banking regulations but government involvement in the market that caused the problem.

the Fed tailored its policies to sustain the housing boom.

That's poor monetary policy.

The LACK of regulation allowed the rise in risky lending.