Economic meltdown!

[SteveThaiBinh]

I thought it would be a good idea to split the debate on the US presidential thread into two, and to have this one focus on the economic crisis in the US and UK (for the moment).

 

<sigh>

 

Once again, current economic troubles do not fit squarely into the narrow views of either ideology. Unregulated capitalism, although it's great for growth and efficiency, creates a pretty regular cycle of booms and panics in financial markets (see: the entirety of U.S. economic history before 1932). Government intervention and regulation, if done well, sacrifices a little bit of growth and efficiency in exchange for more stability and predictability. (Which is usually a good tradeoff for the well-being of the citizenry as a whole when done properly.) In this particular event, the business elites miscalculated, the private-sector checks on them (audits; rating agencies; the business press) failed, and the government similarly failed to notice/address the problem before it boiled over. The bailout is essentially damage control-- to help stop the bleeding and, if possible, minimize the degree to which the financial panic harms the broader economy.

 

A good point. I note however that French and German banks are not in trouble at the moment. Those countries have chosen more regulation and accepted inevitably lower growth as a result. In the past, British and US commentators have dismissed that as simply wrong, rather than a valid alternative. Perhaps we'll get a bit less of that in the future. Nevertheless, isn't it quite likely that over the very long term, the British/US approach generates more wealth?

[Humodour]

Just for the record, because the title could be slightly misleading: the LHC has nothing what so ever to do with the state of the global economy.

 

BTW, is the UK really in trouble due to America? I thought everywhere was riding along without much hassle except America? I know Australia and Brazil are doing fine.

[SteveThaiBinh]

Just for the record, because the title could be slightly misleading: the LHC has nothing what so ever to do with the state of the global economy.

I've removed it. I guess if you didn't follow the LHC thing, it would be confusing.

BTW, is the UK really in trouble due to America? I thought everywhere was riding along without much hassle except America? I know Australia and Brazil are doing fine.

The UK is in trouble, partly because the US is in trouble, but partly because we have adopted a similar high-risk high-growth low-regulation model of finance. There's no real problem with bad mortgages in the UK itself, but we're so closely tied in to the US financial system we can't avoid the effects of their problems. We nationalised a large bank last year and just narrowly avoided the collapse of another last week.

 

I don't think the crisis itself affects most of the world, but if the financial crisis causes a recession in the US, that in turn will cause a global recession most likely.

[Killian Kalthorne]

Guard Dog: Kill, you need to read my explanation of this current banking crisis a few pages back. It could hardly be called capitalisim when the government compels banks to make loans to certain lenders (low income). As far as trying socialisim in my country; only over my dead twitching corpse.

 

I am not advocating pure socialism/communism, Guard Dog. We both know that failed when the USSR fell apart. However, pure capitalism is failing here and it looks like the government is stepping in. Just because you are compelled to do something does not mean you have to do it. What I like to see is a proper balance between socialism and capitalism. For example, the welfare system. We both can probably agree that the welfare system as it is, is very socialistic and needs a major overhaul, but then again there are those who just can't find work. Instead of just have these people live off the government and the taxpayers we set up community service work for these people. It is still socialism, that they are getting aid and funds from the government, but instead of just sitting on the couch they are actually contributing to society and worth, not just in the eyes of the community but perhaps in themselves.

[Humodour]

America is actually one of the few Western countries which is yet to adopt universal welfare and healthcare.

[Killian Kalthorne]

Yay for meltdowns!

 

I'll bring the marshmallows and super mutants.

[Killian Kalthorne]

Socialism on only the essentials, semi-regulated capitalism on everything else!

[Gfted1]

We dont have welfare? Where the hell have my taxes been going all these years?

[Enoch]

It will come to the rest of the world in time.

 

The over-leveraging of the big investment banks was concentrated in the States and Britain (and a few spots in Asia), and the failure of a few of these institutions will of course hit those economies first in immediate ways (i.e., they lay people off; companies that partner and contract with them lay people off, etc.). But the financial industry is global, and a bank doesn't have to fail in your neighborhood for it to be affected by chaos in the financial sector. The greater consequence of the events of the last few weeks will be that credit will simply become very hard to get, all over the world. When businesses can't get loans, the economy is stifled.

[taks]

However, pure capitalism is failing here and it looks like the government is stepping in.

uh, we don't have anything even close to pure capitalism here. once again, displaying your ignorance. that's exactly the way our politicians want it. makes it easier to take your money when you don't understand the way it works.

 

Unregulated capitalism, although it's great for growth and efficiency, creates a pretty regular cycle of booms and panics in financial markets (see: the entirety of U.S. economic history before 1932).

man, that's a very, very simplistic view that just isn't correct on most levels (except that there are cycles). first, the "entirety of U.S. economic history before 1932" was not entirely unregulated by any stretch of the imagination. next, the US wasn't even close to a typical economy during the industrial revolution. we were swamped with immigrants which made the labor pool huge compared to demand for labor. capitalism was doing fine, but like any system that has feedbacks, it takes a while to adjust. large inputs/changes to a feedback system will cause erratic behavior. the US was, as a whole, growing much faster than any system could manage. not so today.

 

taks

[Humodour]

So how much are they paying you, taks?

[taks]

who? the company i work for?

 

taks

[taks]

seems we really did know this was coming as early as 2001...

http://www.seanet.com/~jimxc/Politics/Sept..._3.html#jrm6531

 

taks

[Gorgon]

To a certain extent we live under the illusion that periodic economic depressions are preventable, especially if it's been more than a decade since the last one, the eggheads start writing theory and 'how to's then surprise, another one occurs.

[theslug]

Taks is an agent of a secret government agency designed to subtly brainwash people into capitalism's perverse ways and destroying the non believers (aka communists).

 

But seriously Taks is right, I think. I didn't read the last thread so I'm only reading this. There is no such thing as pure capitalism except maybe back in the bartering days and perhaps small markets where the government didn't take a cut of the peoples profit but everything now a days is a mixed ecnomony, even the U.S. And capitalism wasn't the cause of this. It was just blatant greed.

 

What do you think of the buy out deal taks? As much as I wish I could say no, I think we kind of need it however there needs to be a clause written in where the executives of all these mortage companies are strung up by piano wire after being hobbled and doused in battery acid.

[SteveThaiBinh]

The question is whether to aspire to a 'pure' unfettered capitalism, believing that is achievable, or to accept that regulation is unavoidable and try to make it work as best we can.

[Gorgon]

I don't know if there are any examples of 'pure' capitalism. Protectionism and other kinds of political intervention are part and parcel of the system. Politicians are responsive to these kinds of demands, they have to be, despite being ever so lasse faire in theory.

 

Taks seems to think an Adam Smith model ideal society is in any way achievable. I disagree.

Edited September 26, 2008 by Gorgon

[taks]

Taks is an agent of a secret government agency designed to subtly brainwash people into capitalism's perverse ways and destroying the non believers (aka communists).

hehe, i'd love to say "you're on to me" but i'm being investigated right now for a... wait. never mind. nothing to see here. move along folks.

 

There is no such thing as pure capitalism except maybe back in the bartering days and perhaps small markets where the government didn't take a cut of the peoples profit but everything now a days is a mixed ecnomony, even the U.S.

there always has to be some regulation, just to prevent fraud, but what we have here is what happens when you try to constrain such a large, dynamic system.

 

And capitalism wasn't the cause of this. It was just blatant greed.

yes and no, i think. no, i agree that this wasn't a result of "capitalism." there were actually laws requiring freddie and fannie to accept loans from high risk clients. it was deemed "discrimination against the poor" to deny them a loan based on their risk. NO KIDDING! they're the ones that can't pay their loans back. they didn't need a house, they needed a freaking apartment! anyway, the "greed" was from politicians. they benefited from this over the years, big time. freddie and fannie lobbied against bush when he wanted to pull in the reigns. they knew they'd get bailed out if it came down bad, and they probably knew it would come down bad, too.

 

What do you think of the buy out deal taks? As much as I wish I could say no, I think we kind of need it however there needs to be a clause written in where the executives of all these mortage companies are strung up by piano wire after being hobbled and doused in battery acid.

it's bad, real bad, but i don't know what else to do. what scares me is that the idiots in charge are the ones the put into motion the very things that caused this mess. the fox is guarding the henhouse. dems want to gripe about mccain injecting politics into the discussion, but the problem is a result of politics in the first place. hypocrisy.

 

taks

[taks]

Taks seems to think an Adam Smith model ideal society is in any way achievable. I disagree.

that's not true at all, but what is achievable is far less regulation than we have now. government, however, is bound by obligation to seek a means to "smooth" everything out. not that it is mandated explicitly, but it always seems to strive towards saving us from ourselves by measures such as these. it's just not possible. poke here and you get an anomaly there, poke there and something strange happens here. the system needs to regulate itself, which it will do if government would get the heck out of it.

 

it is not surprising that the smaller, local/state banks are all doing well. the banks that were not required to hand out subprimes are all fine... why is that? ahem.

 

taks

[SteveThaiBinh]

yes and no, i think. no, i agree that this wasn't a result of "capitalism." there were actually laws requiring freddie and fannie to accept loans from high risk clients. it was deemed "discrimination against the poor" to deny them a loan based on their risk. NO KIDDING! they're the ones that can't pay their loans back. they didn't need a house, they needed a freaking apartment! anyway, the "greed" was from politicians. they benefited from this over the years, big time. freddie and fannie lobbied against bush when he wanted to pull in the reigns. they knew they'd get bailed out if it came down bad, and they probably knew it would come down bad, too.

That's a valid point. There are people over here saying this is all a failure of capitalism - no-one's saying it's a failure of democracy. So is this a failing of the American style of democracy, of too many checks and balances and too much inbuilt inertia?

[taks]

So is this a failing of the American style of democracy, of too many checks and balances and too much inbuilt inertia?

it's got nothing to do with democracy, either. the same kinda thing can happen in a totalitarian government. also, there weren't any checks or balances on freddie and fannie, at least not many. mccain and bush both tried to limit their growth. obviously that didn't happen.

 

these sorts of controls just don't work. they ultimately inhibit the system's capability to self-adjust. instead, we get the adjustment in one fell swoop. these loans shouldn't have been given out, period. btw, i was the beneficiary of a killer loan, but i'm also responsible enough to know where my limits are. we just went adjustable this year and guess what... no problems.

 

taks

[taks]

There are people over here saying this is all a failure of capitalism

btw, THIS is the circular argument i mentioned previously. how can this even be related to capitalism when laws were passed requiring freddie and fannie to hand out loans to high-risk clients? this is pure socialism. but the media over there won't report that, will they... nope.

 

taks

[taks]

btw, enoch, there are those that would argue the cycles of inflation (growth) and deflation (recession) are planned precisely for what we are seeing now. should their conspiracies prove true, it is a means to implement full socialist control over the US without actually admitting what is happening.

 

taks

[SteveThaiBinh]

From the other thread:

so far the "deal" looks like the american taxpayer gets to bail out yet another government failure. yes, this is a government failure. they try, try and try again to force some regularity into the economic system and it just.doesn'.t.work. companies have zero incentive to behave as they should since they know uncle sam will come running to the rescue. maybe mccain did screw up the deal. maybe that was a good thing.

If this is, as you seem so sure, entirely a government failure, then surely it's right that the taxpayer should pick up the tab. After all, they, the voters, put these politicians into power and failed to punish them for their mistakes. I hope that helps you feel better about this deal, taks.

 

I personally find it marvellous that when the most deregulated laissez-faire right-wing financial system in the world goes belly-up, and the rest of the world doesn't, somehow that's because the United States isn't deregulated, laissez-faire or right-wing enough. And conspiracies? Socialist takeover? I certainly hope you're not about to blame the liberal European secular elite, because we're too busy faking global warming to take down the banks.

[Gorgon]

The rest of the world is going to feel the US depression alright. No one is insulated, globalism and all that.