Banking bailout: and so it begins.......

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Originally Posted By: VeeDubb
Originally Posted By: Gary Allan

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But let's speak in relative rather than absolute terms.


Why? It's the concept that's masked the real underlying corruption that's spelled our economic doom as a nation. You faired well, so the scam(s) were okay and you fed into them - participated in them ..and didn't protest them. Meanwhile, your fellow citizen ........and YOU TOO ..were made losers.


Another huge leap of logic. The reason why I bring up relative rather than absolute is because most studies have shown that happiness (and this is our ultimate goal isn't it?) has a lot less to do with absolute wealth and a lot more to do with relative wealth. See this as one example:

http://www.nytimes.com/2008/03/09/busine...xprod=permalink



While "satisfaction" may have some relative aspect to it, I don't think that living nearer the poverty line is any way to achieve it. Happiness generally equates to freedom ..and, as I think you mentioned, it's typically defined with money.

Suffering builds character. If this is true (and I do believe it) ..we'll have a whole lot of character building going on. It (the suffering) won't be in terms of underachieving frustration, but rather in the affordability of housing, medical care, taxation ..etc..etc. We should have many happy people that toil for nothing more than to exist on the planet. All of this could have been avoided ..but was not ..in the most technologically powerful economy in the world.

..or as they said in another part of the globe...

"To work is to be free!".


Oh, and, Yes, my editorial style does tend to pe-ez some off in the whacked backhand insults that it conjures in the minds of those who hear it ring too true. I make a mockery of the hype and the window dressing facades that smooth the rough edges and the "untidy" details of all the great things that people promote and celebrate.

I'm a heretic in the church.
 
Originally Posted By: Gary Allan


Suffering builds character. If this is true (and I do believe it) ..we'll have a whole lot of character building going on. It (the suffering) won't be in terms of underachieving frustration, but rather in the affordability of housing, medical care, taxation ..etc..etc. We should have many happy people that toil for nothing more than to exist on the planet. All of this could have been avoided ..but was not ..in the most technologically powerful economy in the world.



I think current Japan is a better harbinger of our future than the Sudan.

LOL on church heretic. Just be glad they don't set up the stake and build the bonfire anymore.
 
Originally Posted By: VeeDubb
The current crises will be socialized. But let's speak in relative rather than absolute terms. In absolute terms everyone will be taken down a notch. In relative terms, those who prepared and adjusted will not be in the desperate state of those who didn't.


Well written.
 
Here is a great blog on why a banking crises was destined to occur:

http://www.aleablog.com/banks-and-disaster-myopia/

It is a bit technical but the basic points are:

1. It is very difficult to estimate the probabilities of rare but catastrophic events.

2. In fact, the probability estimates are not much better than guesses.

3. As a consequence, anybody who warns upper management about the risks of catastrophic events are written off as chicken littles.

4. There is tremendous pressure on executives, due to competition and short term profits goals for shareholders, to throw caution to the wind and go for the big short term payoff. Hence, there is further erosion of catastrophic risk assessment and safeguards.

5. When everybody has these incentives, the whole system is on a gradually downward spiral.

6. Catastrophic events strike. Nobody has prepared for it. That's all she wrote.

Note to Gary: My guess is you will say that this is very obvious and smart people should have seen it coming. The problem is #4. Executives are under pressure to achieve short term goals. Any executive that decides to be a reformer and tries to save the system is committing career suicide. And these are, after all, profit oriented individuals, not social reformers, which is why they chose the profession they chose. It is the classic public goods, overharvesting problem: if someone else might do it, why should I?
 
And when the inevitable happens, everyone can look blankly at the camera and say "No one ever expected this !!!"
 
Originally Posted By: Shannow
And when the inevitable happens, everyone can look blankly at the camera and say "No one ever expected this !!!"


You got that right.
 
I don't know if this is a banking crisis so much as it's a moron crisis.

On 60 minutes, they had a story about sub prime, where they profiled some folks who bought like an $800,000 shanty in California. Household income was like 60K a year. Their arm reset and they're monthly payment went from like 3K a month (which is too much as is for that level of income) to around 5K a month. And it was all spelled out in the mortgage documents and apparently laid out by the lending officer.

Anyone who does that shouldn't be bailed out, and the bank/investors that are moronic enough to fund that loan should never be bailed out!
 
Drew,

One of my big fears with the Oz economy is that we've had nearly 20 years of enforced savings in Superannuation. Between 6 and 12% of every Aussie's gross income gets funnelled into a compulsory savings scheme.

Last year the schemes made 10-15%...this year will make for a funny balance statement.

At some point, these schemes will (have to) be gambling on two flies crawling up a wall, so that one will have 50% gain, and one will have 50% losses.
 
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1. It is very difficult to estimate the probabilities of rare but catastrophic events.


Oh, really? S&L (includes a more soundly based housing bubble), DOT.COM bubble, etc..etc.

Quote:
2. In fact, the probability estimates are not much better than guesses.


I guess that they're too well qualified and too close to the situation
smirk2.gif


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3. As a consequence, anybody who warns upper management about the risks of catastrophic events are written off as chicken littles.


This I can relate to. Too funny. The bosses ..the icons are the jerks ..and the hysterical types are the real blame for not being assertive enough.

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4. There is tremendous pressure on executives, due to competition and short term profits goals for shareholders, to throw caution to the wind and go for the big short term payoff. Hence, there is further erosion of catastrophic risk assessment and safeguards.


Gambling. The contemporary model for gain is to get in and out before the crash. It mandates that there's a crash. It turns into an assured degenerative grab bag where the real winners have long left the game. It then turns into a hot potato that is then socialized against the population's wallet.

Sounds like a very senseless activity. "Hey, let's see who we can leave standing when this round of the music stops!!"

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5. When everybody has these incentives, the whole system is on a gradually downward spiral.


..and as of yet, I don't see anyone inhibiting or prohibiting such incentives. No cautions ..no whatever. Just the same players getting in on the future losses NOW and not worrying about it at all, since the thing, regardless of how it turns out, will be born by the entire society. It's a competition for who can stick it to the society and come out the most gainful.

I'd love to see this course offered in our more prestigious institutions along side some ethics courses.

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6. Catastrophic events strike. Nobody has prepared for it.


I don't agree. Yes, catastrophic events strike. I think that the notion is that you're competing for avoided losses. Hence the race to the ultimate crash/finish line.

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And these are, after all, profit oriented individuals


Agreed. That's what they're there for. They're not in it to break even.

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, not social reformers, which is why they chose the profession they chose.


I disagree. They may not be so intentionally, but they surely reform our society and for the worse.
 
Originally Posted By: Gary Allan


I'd love to see this course offered in our more prestigious institutions along side some ethics courses.



Just a quick point of clarification. The Laissez Faire deregulatory philosophy is primary a brain child of the University of Chicago. There is a great methodological divide between the Chicago approach and other top schools like MIT and Berkeley. The Chicago folks do not believe market failures exist and even if they do, private parties have private incentives to resolve them (which according to most empirical studies, is a fantasy). MIT/Berkeley assumes that market failure are everywhere and therefore need to be corrected through some form of regulation. What you are witnessing over the last couple decades is Chicago's great social experiment based on a lot of faith and not much empirical confirmation.
 
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Originally Posted By: oilyriser
Are government officials magically immune to the myopia which leads to over-exuberance in market systems?


Government officials for the most part, aren't experts. So they rely on experts. Problem is, since the mid-60s to late 80s, the Chicago school of economics acquired almost a cult following so the "experts" put their faith in that basket. E.g. Alan Greenspan doesn't even have a real Ph.D. in economics. He was later granted one but never did a dissertation. So Greenspan became an easy patsy for the real academics and these academics loved Chicago economics because it was elegant, precise, rigorous and led to many counter-intuitive and yet intuitive insights......not much different from Marxism in the sense of pie-in the sky idealism. Social experiments based on idealism never work out. Social idealists seem to fail to realize that the real world is not as elegant and precise as their theories.
 
Did Bill Gates or Warren buffed have PhD's in ecenomics? They seemed to do much better than the learned types. The problem with relying on formulas or systems to run the economy is that they are predictable. When something becomes predictable, someone can exploit that predictability, and suck resources from the system. It is the unpredictability of true laissez-faire that makes it more efficient at generating wealth than anything else. It puts more brains to work.
 
Originally Posted By: oilyriser
Did Bill Gates or Warren buffed have PhD's in ecenomics? They seemed to do much better than the learned types. The problem with relying on formulas or systems to run the economy is that they are predictable. When something becomes predictable, someone can exploit that predictability, and suck resources from the system. It is the unpredictability of true laissez-faire that makes it more efficient at generating wealth than anything else. It puts more brains to work.


Bill gates and Warren Buffett can focus on one objective: their own business. The Fed has to deal with multiple objectives. Running a business takes one skill set and running an economy takes another, although I admit there is some overlap.

As for true Laissez Faire, I'm not opposed to it in principle and I don't mean to give the impression that central planning is the answer. But the Laissez Faire dogmatists forgot that a market still needs to be supported by a legal system that prevents fraud. Without property rights protection (i.e. regulation against predatory behavior, screwing over of investors, lack of transparency that allows criminals to operate without risk), markets do not flourish. That's why no stock markets ever emerge in Somalia, the Sudan and the Wild Wild West.
 
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