I may be completely off-base in what I'm about to say, so Sponger or other knowledgeable people correct me if I am wrong.
To me the reasons these derivatives had appeal was due to the spreading of risk. Lending to someone who will have a hard time repaying will require a high interest rate to cover the risk. However, if you take 1,000 such loans, you figure that some people will be able to pay the loan back, and some won't therefore making it less risky than the single loan and in turn requiring a lower interest premium. Apparently, investors thought that this risk spreading was so efficient that these derivatives were at a bargain price.
Investors had not valued in the risk of a housing market bubble burst. Now that this has occured, the values of these derivatives have to be written down which is how all these banks are losing value.
Thanks sponger, drifting and lesbelges for answering my question. I don't feel bad for not completely understanding it now if a derivative professor has trouble doing it, but I do have a clearer understanding.
Note to self: make sure any investments in the future don't include derivatives.
Thanks sponger, drifting and lesbelges for answering my question. I don't feel bad for not completely understanding it now if a derivative professor has trouble doing it, but I do have a clearer understanding.
Note to self: make sure any investments in the future don't include derivatives.
What a mess we are in.
Note to n2integrity:
just to clarify, derivatives is somewhat of a generic term.
What sponger meant when he said, these loans were packaged into something called "derivatives" was probably to say "derivative mortgage backed securities", which itself is a general category of investments.
Further,
derivatives CAN be a GOOD thing.
"Futures" and "Options" are both common derivatives, and along with mortgage derivatives even, are very often used by institutions to HEDGE their portfolios.
In other words, if i am betting the market will go up, and have large sums of money on that bet, i would find comfort in having an OPTION placed AGAINST the direction of my major trade (in this case, down), so that if the market does ruin the equity in my main position, i have the OPTION -- which i only paid a fractional price for -- of claiming a gain in the counter-move.
Any how,
i just wanted to illustrate that, less we muddy the water and have lots of folks on here now thinking that derivatives in general are the devil. Certainly they are "misused" quite a bit for rampant speculative profit (and losses!), but they have a valuable purpose as well.
If I was to smile and I held out my hand
If I opened it now would you not understand?
Note to n2integrity:
just to clarify, derivatives is somewhat of a generic term.
What sponger meant when he said, these loans were packaged into something called "derivatives" was probably to say "derivative mortgage backed securities", which itself is a general category of investments.
Further,
derivatives CAN be a GOOD thing.
"Futures" and "Options" are both common derivatives, and along with mortgage derivatives even, are very often used by institutions to HEDGE their portfolios.
In other words, if i am betting the market will go up, and have large sums of money on that bet, i would find comfort in having an OPTION placed AGAINST the direction of my major trade (in this case, down), so that if the market does ruin the equity in my main position, i have the OPTION -- which i only paid a fractional price for -- of claiming a gain in the counter-move.
Any how,
i just wanted to illustrate that, less we muddy the water and have lots of folks on here now thinking that derivatives in general are the devil. Certainly they are "misused" quite a bit for rampant speculative profit (and losses!), but they have a valuable purpose as well.
Wow! Thanks drifting, sponger and all- this has been very informative and also to OP for posting the question. I was trying to make sense of it myself- and this helped a lot.
Yes, mortgage backed securities are in a family of investment instruments known as derivatives.
The word derivative basically implies that an investment is being derived from another investment.
Also, I think Lesbelges offered up an excellent analysis as to why investors so carelessly gobbled up those securities in spite of the inherent risks.
But also worth mentioning is that there was a mistaken belief among many investors that mortgage backed securities purchased from Fannie Mae or Freddie Mac were guaranteed by the government.
Freddie Mac and Fannie Mae used to be actual government programs that at one time were in fact guaranteed by the government. However, they became independent corporations at some point, and for some reason their reputation of being associated with the government still stuck.
So, many investors purchased these risky security instruments from Fannie Mae and Freddie Mac while thinking that they couldn't lose.
But, Fannie Mae and Freddie Mac are, in fact, not guaranteed by the government, and in early September the government took control of both entities as it became evident that insolvency was on the horizon -meaning that they were imploding just like every other bank out there. It's still unknown as to whether or not the government will end up guaranteeing those loans after all.
But, like lesbelges was saying, no one foresaw the coming implosion.
Note to n2integrity:
just to clarify, derivatives is somewhat of a generic term.
What sponger meant when he said, these loans were packaged into something called "derivatives" was probably to say "derivative mortgage backed securities", which itself is a general category of investments.
Further,
derivatives CAN be a GOOD thing.
"Futures" and "Options" are both common derivatives, and along with mortgage derivatives even, are very often used by institutions to HEDGE their portfolios.
In other words, if i am betting the market will go up, and have large sums of money on that bet, i would find comfort in having an OPTION placed AGAINST the direction of my major trade (in this case, down), so that if the market does ruin the equity in my main position, i have the OPTION -- which i only paid a fractional price for -- of claiming a gain in the counter-move.
Any how,
i just wanted to illustrate that, less we muddy the water and have lots of folks on here now thinking that derivatives in general are the devil. Certainly they are "misused" quite a bit for rampant speculative profit (and losses!), but they have a valuable purpose as well.
so, in the end, isn't this essentially rich people gambling and losing then asking us to help them out? i know that some of the middle class is getting caught up in this, but, in all reality don't we need to let this crash hit? is fixing it with a "bailout", similar to the gov's response to standard and loans scandal of the 80s (which included all of the Bush's, even one's you didn't know existed, and McCain), going to cause a large amount of inflation, essentially destroying the value of the already plummeting dollar?
just wondering what our 'experts' are thinking on this.
Yes, mortgage backed securities are in a family of investment instruments known as derivatives.
But, like lesbelges was saying, no one foresaw the coming implosion.
wasn't it more like if you saw the coming implosion and talked about the evils of the free market, and speculative gambling...err investing, then you were referred to as a commy, red, unamerican bastard, who didn't understand the greatness of free market corporate capitalism? I mean people have been writing about this shit for years, Henry Giroux, Lawrence Grossberg, David Harvey, Peter McLaren, and so on, and they've been ridiculed for it.
wasn't it more like if you saw the coming implosion and talked about the evils of the free market, and speculative gambling...err investing, then you were referred to as a commy, red, unamerican bastard, who didn't understand the greatness of free market corporate capitalism? I mean people have been writing about this shit for years, Henry Giroux, Lawrence Grossberg, David Harvey, Peter McLaren, and so on, and they've been ridiculed for it.
I wouldn't call that seeing the coming implosion. I'd call that writing off capitalism in general as being too volatile for a harmonious society.
You could use instances like the current crisis as an argument against capitalism, but that is not how I personally feel about it.
No matter what style of government or society you choose, there are always going to be problems with the individual people who make decisions that affect other people.
This crisis was not unforeseen by everybody. There were politicians like Ron Paul and underpaid financial workers like yours truly who knew something was terribly wrong with the way the housing market was structured.
In fact, when I was flying home from a business trip last winter, I was sitting next to a guy who was in charge of all California sales for the pharmaceutical company he worked for.
We both had the same exact views about where the economy was going. I said, "Right now interest rates.." and he goes, "too low."
But no one listened. This is because everybody was profiting and buying ferraris with all the excess. Seriously...I think the number of ferraris, lambos, and porches in Orange County went up significantly soon after the boom.
Things might look bleak now, but I like to think that we can walk away from this as a lesson learned.
That is to say that capitalism isn't perfect. That's because nothing in life is perfect. But, just as with all things, we can roll with the punches and try to make things better as we go along.
I wouldn't call that seeing the coming implosion. I'd call that writing off capitalism in general as being too volatile for a harmonious society.
You could use instances like the current crisis as an argument against capitalism, but that is not how I personally feel about it.
No matter what style of government or society you choose, there are always going to be problems with the individual people who make decisions that affect other people.
This crisis was not unforeseen by everybody. There were politicians like Ron Paul and underpaid financial workers like yours truly who knew something was terribly wrong with the way the housing market was structured.
In fact, when I was flying home from a business trip last winter, I was sitting next to a guy who was in charge of all California sales for the pharmaceutical company he worked for.
We both had the same exact views about where the economy was going. I said, "Right now interest rates.." and he goes, "too low."
But no one listened. This is because everybody was profiting and buying ferraris with all the excess. Seriously...I think the number of ferraris, lambos, and porches in Orange County went up significantly soon after the boom.
Things might look bleak now, but I like to think that we can walk away from this as a lesson learned.
That is to say that capitalism isn't perfect. That's because nothing in life is perfect. But, just as with all things, we can roll with the punches and try to make things better as we go along.
i wasn't being smart when i wrote 'experts', and just realized that it may have come across like that. i was actually wondering if those things in the first were actually going to happen? then i was kind of being smart by posting the part that this wasn't a surprise, b/c (edit) they are professors in the "ivory tower" with 'little to no connection with reality'...kind of funny now isn't it?
i teach a lecture called 'capitalism has never worked' and it goes along the lines of what you are saying. no system is ever perfect, and capitalism is part of it (in fact free market capitalism has failed in every case but the united states), but there are better forms of capitalism that can be used. we just aren't doing that, in my opinion, by bailing banks out. BUT i was legitimately wondering if i was wrong with my statements in the first post.
i wasn't being smart when i wrote 'experts', and just realized that it may have come across like that. i was actually wondering if those things in the first were actually going to happen? then i was kind of being smart by posting the part that this wasn't a surprise, b/c (edit) they are professors in the "ivory tower" with 'little to no connection with reality'...kind of funny now isn't it?
i teach a lecture called 'capitalism has never worked' and it goes along the lines of what you are saying. no system is ever perfect, and capitalism is part of it (in fact free market capitalism has failed in every case but the united states), but there are better forms of capitalism that can be used. we just aren't doing that, in my opinion, by bailing banks out. BUT i was legitimately wondering if i was wrong with my statements in the first post.
I was not offended. In fact, I'm sort of scratching my head somewhat.
I agree that the bailout plan went against the principles of capitalism as we know it. In fact, I remember reading that just before the house voted, a republican spoke to the house and said something like, "Vote what you know in your heart is right if you believe in capitalism - in small government."
I was not offended. In fact, I'm sort of scratching my head somewhat.
I agree that the bailout plan went against the principles of capitalism as we know it. In fact, I remember reading that just before the house voted, a republican spoke to the house and said something like, "Vote what you know in your heart is right if you believe in capitalism - in small government."
well isn't that the interesting part about this all...the democrats can vote against it b/c they say are for the people, and the republicans can vote against it b/c it's for capitalism? maybe for the first time corporate constituents are getting the shaft in favor of the people. isn't it funny do that corporate newspapers are calling it gridlock and not government coming together?
sorry i was half paying attention when i wrote. what i was saying is that giroux, grossberg, harvey, etc. were professors that have often been chided by those in support of corporate capitalism as "living in the ivory tower" and not being "in touch with reality". isn't it kind of funny now that they were actually spot on with what was going to happen...maybe we should listen to smart people once in awhile.
well isn't that the interesting part about this all...the democrats can vote against it b/c they say are for the people, and the republicans can vote against it b/c it's for capitalism? maybe for the first time corporate constituents are getting the shaft in favor of the people. isn't it funny do that corporate newspapers are calling it gridlock and not government coming together?
What I thought was funny was how people had their own reasons for disliking the bill.
I think the bill was unpopular because it carried the perception of bailing out fat cats.
And other people opposed it simply because it wouldn't solve anything anyway -fat cats or no fat cats.
What I thought was funny was how people had their own reasons for disliking the bill.
I think the bill was unpopular because it carried the perception of bailing out fat cats.
And other people opposed it simply because it wouldn't solve anything anyway -fat cats or no fat cats.
Yes, it's all so ironic, really.
and you still love capitalism? . i guess my main point is that this whole 'crisis' is but another in a laundry list of examples that demonstrate how capitalism doesn't work. i mean isn't argentina enough evidence that we can keep doing things the way we are? chile? new zealand?
and you still love capitalism? . i guess my main point is that this whole 'crisis' is but another in a laundry list of examples that demonstrate how capitalism doesn't work. i mean isn't argentina enough evidence that we can keep doing things the way we are? chile? new zealand?
Actually, no. I don't think it's proof that capitalism doesn't work. I think it just has a long way to go before it eventually becomes an efficient system of wealth distribution that pulls mankind forward in his quest toward infinite self-improvement.
Your approach to this issue sort of reminds me of pointing out auto accident statistics and suggesting that we all use public transportation.
good point...but if you look at how history has played out hasn't every version of capitalism that has been utilized failed? by that i mean the way it's run today is that trying to make more money that yesterday is the bottom line, and that cannot possibly sustain itself. we could go for changing that or we could become socialist like norway, sweden, iceland, etc...i mean they have great health care systems, no murder, welfare, etc to me that's kind of compelling. to me that's the difference between saying riding public transportation should be used even though its not all that great b/c auto accidents are so deadly, and presenting a long list of evidence of why public transportation has allowed for a a sustainable transportation system that has worked time and again and driving a car will always kill you but could work if we 'fixed it'.
good point...but if you look at how history has played out hasn't every version of capitalism that has been utilized failed? by that i mean the way it's run today is that trying to make more money that yesterday is the bottom line, and that cannot possibly sustain itself. we could go for changing that or we could become socialist like norway, sweden, iceland, etc...i mean they have great health care systems, no murder, welfare, etc to me that's kind of compelling. to me that's the difference between saying riding public transportation should be used even though its not all that great b/c auto accidents are so deadly, and presenting a long list of evidence of why public transportation has allowed for a a sustainable transportation system that has worked time and again and driving a car will always kill you but could work if we 'fixed it'.
But, to me, the right to drive my own vehicle is worth taking that chance, and even if it is a beat up old Ford Pinto, I'd rather that than leave it in the hands of a bus driver.
Those countries that you refer to are not true socialist countries, IMO. They're more or less hybrid capitalist countries like Canada and Holland. They still consist of a great many private enterprises from which the citizens collect a salary.
None of those countries are invulnerable to market down-turns, so I'm not sure where you're going with this. If anything, the current mess will in some ways affect the GDP of those nations.
Consider the fact that over the course of the last 100 years or so, there have been three or four major market down-turns.
From each downturn, economists learn lessons. And those lessons are applied to future downtowns. An example is the 1987 crash, which was actually twice the crash of 1929. However, from lessons learned in 1929, the market quickly rebounded in 1987. Sure there was a recession that followed, but it was certainly far from a depression.
Think of capitalism as a science. We learn as we go. And like I said, hybrid-capitalist nations like those that you mentioned are not less susceptible to the unpredictability of a free market.
But, to me, the right to drive my own vehicle is worth taking that chance, and even if it is a beat up old Ford Pinto, I'd rather that than leave it in the hands of a bus driver.
Those countries that you refer to are not true socialist countries, IMO. They're more or less hybrid capitalist countries like Canada and Holland. They still consist of a great many private enterprises from which the citizens collect a salary.
None of those countries are invulnerable to market down-turns, so I'm not sure where you're going with this. If anything, the current mess will in some ways affect the GDP of those nations.
Consider the fact that over the course of the last 100 years or so, there have been three or four major market down-turns.
From each downturn, economists learn lessons. And those lessons are applied to future downtowns. An example is the 1987 crash, which was actually twice the crash of 1929. However, from lessons learned in 1929, the market quickly rebounded in 1987. Sure there was a recession that followed, but it was certainly far from a depression.
Think of capitalism as a science. We learn as we go. And like I said, hybrid-capitalist nations like those that you mentioned are not less susceptible to the unpredictability of a free market.
aren't you free to drive your own car to an extent in those countries? anyway what we've learned in every single market downturn is that the best way out is to go blow up people...nothing helps the american economy like a good war right? i suppose that's what i'm saying with the socialist/capitalist hybrids is that none of those countries need to resort to that in order to turn around the economy in times of trouble.
and you still love capitalism? . i guess my main point is that this whole 'crisis' is but another in a laundry list of examples that demonstrate how capitalism doesn't work.
I think this whole crisis is a better example of how GOVERNMENT INTERVENTION, socialism, and a MANAGED ECONOMY do not work.
Not to mention the utter failures of Keneysian economics.
But to me it doesn't bring one credible point to bare on "capitalism" itself.
It just simply illustrates quite lucidly that if you set up a system designed to minimize bank responsibility and bail them out with taxpayer money, then guess what?
You'll get a lot of irresponsible banks that need to be bailed out with taxpayer money.
Huh.
Imagine that.
Watch this film.
It has nothing to do with failed capitalism.
It has to do with failed central banking.
Period.
If I was to smile and I held out my hand
If I opened it now would you not understand?
As painful as it may seem, the clock needs to be turned back and people either need to start losing their homes due to overextending themselves, or they need to suffer though a tremendous downward surge in property values.
These things need to happen for the sake of mankind.
Thank you sponger for all of your insight on this mess. And a special thanks to the quote above. I don't hear many people willing to admit that.
Cheers.
Walking can be a real trip
***********************
"We've laid the groundwork. It's like planting the seeds. And next year, it's spring." - Nader
***********************
Prepare for tending to your garden, America.
Here is the real reason things went wrong.
Call em conspiracy theorists folks, but they were president and mayor of new york around the time of this mess getting started, and it might behoove you to take it with more than just a grain of salt, for these are "they" whom run the banks, THE bank, and also "your" government:
"These international bankers and Rockefeller-Standard Oil interests control the majority of newspapers and the columns of these papers to club into submission or drive out of public office officials who refuse to do the bidding of the powerful corrupt cliques which compose the invisible government."
"The warning of Theodore Roosevelt has much timeliness today, for the real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over city, state, and nation ... It seizes in its long and powerful tentacles our executive officers, our legislative bodies, our schools, our courts, our newspapers,and every agency created for the public protection...
To depart from mere generalizations, let me say that at the head of this octopus are the Rockefeller-Standard Oil interest and a small group of powerful banking houses generally referred to as the international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes.
They practically control both parties, write political platforms, make catspaws of party leaders, use the leading men of private organizations, and resort to every device to place in nomination for high public office only such candidates as will be amenable to the dictates of corrupt big business ...
These international bankers and Rockefeller-Standard Oil interests control the majority of newspapers and magazines in this country."
-- John Hylan, Mayor of New York
New York Times, March 26, 1922
On the subject of the stock market crash & great depression:
"It was not accidental. It was a carefully contrived occurrence... The internatinoal bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all."
-- Congressman Louis T. McFadden, Chairman of House Banking Committee
and in Feb of 1931, seemingly prophesizing about the yet to come gold confiscation of 1933, but speaking generally of the conditions of the country during the depression, and the great "loss" (read: transfer) of wealth:
"I think it can hardly be disputed that the statesmen and financiers of Europe are ready to take almost any means to reacquire rapidly the gold stock which Europe lost to America as the result of World War I."
- Rep. Louis T. McFadden
And one of the most esteemed economists in history?
President Roosevelt...clearly he was just nuts and making it up on wild and vague assumptions...what would the president of a country then know more than the average joe sitting on the couch living now...
Progress is not made by everyone joining some new fad,
and reveling in it's loyalty. It's made by forming coalitions
over specific principles, goals, and policies.
President Roosevelt...clearly he was just nuts and making it up on wild and vague assumptions...what would the president of a country then know more than the average joe sitting on the couch living now...
but come now Roland.
"Invisible government"?
Pfft.
:rolleyes:
Everyone knows America has a "Democracy".
:cool:
If I was to smile and I held out my hand
If I opened it now would you not understand?
There's no such thing as private "private" interests...just the will of the people....nothing more...this is how it works, and the media tells us so. The media is owned by the people right...non partisan....honest reporting and all that good stuff.
ask any armchair analyst with a bag of doritos...they know what's up inbetween commercials
multiple Presidents, mayors, officials.....what the hell do they know?
clearly they were all nuts, and now is reality.
Progress is not made by everyone joining some new fad,
and reveling in it's loyalty. It's made by forming coalitions
over specific principles, goals, and policies.
I think this whole crisis is a better example of how GOVERNMENT INTERVENTION, socialism, and a MANAGED ECONOMY do not work.
Not to mention the utter failures of Keneysian economics.
But to me it doesn't bring one credible point to bare on "capitalism" itself.
It just simply illustrates quite lucidly that if you set up a system designed to minimize bank responsibility and bail them out with taxpayer money, then guess what?
You'll get a lot of irresponsible banks that need to be bailed out with taxpayer money.
Huh.
Imagine that.
Watch this film.
It has nothing to do with failed capitalism.
It has to do with failed central banking.
Period.
i guess this is the argument you can have. you can't do anything half assed right...if we are going to deregulate everything then lets do it. further commodifying everything the way rote capitalists would like it could possibly work if particular action's value was fairly evaluated (housework, prostitution, child labor, etc.)...the problem with this is that capital=power, and, as such, those who have capital have the power to determine the worth of particular activities - thus far this has never worked. In fact, Argentina, which was the closest to being a deregulated market economy crashed...why? Was it government intervention or is an economy based on the greed of individuals always doomed to failure? In other words, the idea of capitalism is just as compelling as the idea of communism, but in practice it never works.
Conversely, hybrid models using some forms of socialism and strong governments, along with some levels of freedom have almost always worked. In America why hasn't this been suggested? Who has the most to lose from a highly regulated market? Oh the rich motherfuckers who own most of our means of communication...so they are going to keep feeding us this bullshit about the greatness of corporate capitalism so we can keep them comfortable. but go ahead watch it fail time and again and wait for the FDR's and Obama's to fix shit that Ronald Reagan, Bush I, Clinton, and W, in conjunction with the World Bank and IMF, can fuck up.
i guess this is the argument you can have. you can't do anything half assed right...if we are going to deregulate everything then lets do it. further commodifying everything the way rote capitalists would like it could possibly work if particular action's value was fairly evaluated (housework, prostitution, child labor, etc.)...the problem with this is that capital=power, and, as such, those who have capital have the power to determine the worth of particular activities - thus far this has never worked. In fact, Argentina, which was the closest to being a deregulated market economy crashed...why? Was it government intervention or is an economy based on the greed of individuals always doomed to failure? In other words, the idea of capitalism is just as compelling as the idea of communism, but in practice it never works.
Conversely, hybrid models using some forms of socialism and strong governments, along with some levels of freedom have almost always worked. In America why hasn't this been suggested? Who has the most to lose from a highly regulated market? Oh the rich motherfuckers who own most of our means of communication...so they are going to keep feeding us this bullshit about the greatness of corporate capitalism so we can keep them comfortable. but go ahead watch it fail time and again and wait for the FDR's and Obama's to fix shit that Ronald Reagan, Bush I, Clinton, and W, in conjunction with the World Bank and IMF, can fuck up.
You seem to have some of your facts backwards.
Argentina didn't fail because of "deregulation" it failed because of MASSIVE interference by the IMF itself. The very institution you laid blame upon in your last sentence.
Just so you know, i don't really have a problem with much of what you are saying ... in general i think you have the right idea.
Although i think it is misguided to think Obama is going to save us.
And it is REALLY misguided to think that FDR was our savior.
For fucks sake, he is responsible for the CREATION of the FDIC ... one of the very programs largely responsible for the mess we are in. [not to mention he created Social Security, and the SEC - which i'm sure you are a big fan of ]
It is called government intervention, and by taking deposit insurance off of the free market, and charging a flat rate to all institutions regardless of the risk they take is arguably one of the MAIN reasons for our current "crisis".
That and the non-market interest rates "set" by the Federal Reserve itself.
In short,
i think talking about regulation vs. deregulation is of little value if we aren't going to take on the bigger problem of central banking manipulation of the economy.
Do you follow at all?
Because i'm trying to reach some sort of consensus with folks here, not just argue endlessly for no reason.
???
If I was to smile and I held out my hand
If I opened it now would you not understand?
You seem to have some of your facts backwards.
Argentina didn't fail because of "deregulation" it failed because of MASSIVE interference by the IMF itself. The very institution you laid blame upon in your last sentence.
Just so you know, i don't really have a problem with much of what you are saying ... in general i think you have the right idea.
Although i think it is misguided to think Obama is going to save us.
And it is REALLY misguided to think that FDR was our savior.
For fucks sake, he is responsible for the CREATION of the FDIC ... one of the very programs largely responsible for the mess we are in. [not to mention he created Social Security, and the SEC - which i'm sure you are a big fan of ]
It is called government intervention, and by taking deposit insurance off of the free market, and charging a flat rate to all institutions regardless of the risk they take is arguably one of the MAIN reasons for our current "crisis".
That and the non-market interest rates "set" by the Federal Reserve itself.
In short,
i think talking about regulation vs. deregulation is of little value if we aren't going to take on the bigger problem of central banking manipulation of the economy.
Do you follow at all?
Because i'm trying to reach some sort of consensus with folks here, not just argue endlessly for no reason.
???
Yeah...I think we have a consensus, but feel the solutions are different. Isn't it kind of a chicken-egg debate? You could just as easily argue that the IMF and World Bank were put in place by those who have come to power in our society b/c they have used the current form of capitalism to serve their own interests. Central Banking certainly has to go, but I think that its part of the symptom/process of contemporary neoliberal capitalism.
Also I was mostly joking about Obama, though he's going to make some changes for the people I suspect. FDR was pretty helpful in getting us out of the first depression...though WWII was just as helpful. More importantly is that he was behind objective accounting firms on banks, which lasted all the way until the early 1980s when Reagan decided to deregulate that. In so doing it allowed corporations to pay for accountants to find numbers that they wanted...if they didn't they would just fire them and hire a new one that would. Hence the S and L scandal of the 1980s...the dot coms in the 90's, and housing now.
anyway what we've learned in every single market downturn is that the best way out is to go blow up people...nothing helps the american economy like a good war right? i suppose that's what i'm saying with the socialist/capitalist hybrids is that none of those countries need to resort to that in order to turn around the economy in times of trouble.
The 1987 downturn was not solved with war. The Gulf War did little to bring the nation out of a recession. In fact, the economy didn't come out of the recession until the late 90's when tech stocks started to take hold.
Fast forward to 2002. Many economists believe that the wars in Afghanistan and Iraq are actually draining the economy as government funds that normally would've gone to stimulate small business has now been diverted overseas.
In fact, it's unlikely that Greenspan would've lowered interest rates if wars weren't draining the economy. Low interest rates propped up the economy to compensate for the drain.
It's true the wars tend to stimulate an economy out of recession, but the term "every single time" just doesn't apply.
Besides, Norway, Sweden, and Iceland are relatively small countries with population sizes that pale in comparison to the United States. They are each countries with their own vast supply of natural resources. Norway, for example, relies heavily on seaford exports. Can you imagine the US having to rely that much on seafood exports?
And, again, it isn't an argument against capitalism. The reason being is that as far as markets go, those countries and the US are very similar.
The pattern I'm seeing is that you just have a bone to pick with the US, and that you aren't interested in talking economics so much as you are interested in finding ways to put down a country you strongly dislike.
And, again, it isn't an argument against capitalism.
Agreed, more likely it is a tragic failure of republican values.
Our republic did not fail us, we failed it.
I have seen every sign i need to see that tells me great men were screaming bloody murder. But it is we, the constituents of this once proud republic, that have failed to maintain the appropriate virtues of order.
Our country degenerated as we the rightful rulers have allowed ourselves to be spun in to a fantasy world turned to nightmare.
But if you blink for long enough, someone is always going to try to pull a switch on you. its just how it goes. You can't blame a perfectly valid concept (a market) for a simple and immutable truth.
a different question might be,
what institution would you trust better than the market?
its like saying you've found something better than nature.
If I was to smile and I held out my hand
If I opened it now would you not understand?
Comments
Thanks sponger, drifting and lesbelges for answering my question. I don't feel bad for not completely understanding it now if a derivative professor has trouble doing it, but I do have a clearer understanding.
Note to self: make sure any investments in the future don't include derivatives.
What a mess we are in.
Note to n2integrity:
just to clarify, derivatives is somewhat of a generic term.
What sponger meant when he said, these loans were packaged into something called "derivatives" was probably to say "derivative mortgage backed securities", which itself is a general category of investments.
Further,
derivatives CAN be a GOOD thing.
"Futures" and "Options" are both common derivatives, and along with mortgage derivatives even, are very often used by institutions to HEDGE their portfolios.
In other words, if i am betting the market will go up, and have large sums of money on that bet, i would find comfort in having an OPTION placed AGAINST the direction of my major trade (in this case, down), so that if the market does ruin the equity in my main position, i have the OPTION -- which i only paid a fractional price for -- of claiming a gain in the counter-move.
Any how,
i just wanted to illustrate that, less we muddy the water and have lots of folks on here now thinking that derivatives in general are the devil. Certainly they are "misused" quite a bit for rampant speculative profit (and losses!), but they have a valuable purpose as well.
If I opened it now would you not understand?
Wow! Thanks drifting, sponger and all- this has been very informative and also to OP for posting the question. I was trying to make sense of it myself- and this helped a lot.
So Thanks
The word derivative basically implies that an investment is being derived from another investment.
Also, I think Lesbelges offered up an excellent analysis as to why investors so carelessly gobbled up those securities in spite of the inherent risks.
But also worth mentioning is that there was a mistaken belief among many investors that mortgage backed securities purchased from Fannie Mae or Freddie Mac were guaranteed by the government.
Freddie Mac and Fannie Mae used to be actual government programs that at one time were in fact guaranteed by the government. However, they became independent corporations at some point, and for some reason their reputation of being associated with the government still stuck.
So, many investors purchased these risky security instruments from Fannie Mae and Freddie Mac while thinking that they couldn't lose.
But, Fannie Mae and Freddie Mac are, in fact, not guaranteed by the government, and in early September the government took control of both entities as it became evident that insolvency was on the horizon -meaning that they were imploding just like every other bank out there. It's still unknown as to whether or not the government will end up guaranteeing those loans after all.
But, like lesbelges was saying, no one foresaw the coming implosion.
http://forums.pearljam.com/showthread.php?t=272825
just wondering what our 'experts' are thinking on this.
I wouldn't call that seeing the coming implosion. I'd call that writing off capitalism in general as being too volatile for a harmonious society.
You could use instances like the current crisis as an argument against capitalism, but that is not how I personally feel about it.
No matter what style of government or society you choose, there are always going to be problems with the individual people who make decisions that affect other people.
This crisis was not unforeseen by everybody. There were politicians like Ron Paul and underpaid financial workers like yours truly who knew something was terribly wrong with the way the housing market was structured.
In fact, when I was flying home from a business trip last winter, I was sitting next to a guy who was in charge of all California sales for the pharmaceutical company he worked for.
We both had the same exact views about where the economy was going. I said, "Right now interest rates.." and he goes, "too low."
But no one listened. This is because everybody was profiting and buying ferraris with all the excess. Seriously...I think the number of ferraris, lambos, and porches in Orange County went up significantly soon after the boom.
Things might look bleak now, but I like to think that we can walk away from this as a lesson learned.
That is to say that capitalism isn't perfect. That's because nothing in life is perfect. But, just as with all things, we can roll with the punches and try to make things better as we go along.
http://forums.pearljam.com/showthread.php?t=272825
i teach a lecture called 'capitalism has never worked' and it goes along the lines of what you are saying. no system is ever perfect, and capitalism is part of it (in fact free market capitalism has failed in every case but the united states), but there are better forms of capitalism that can be used. we just aren't doing that, in my opinion, by bailing banks out. BUT i was legitimately wondering if i was wrong with my statements in the first post.
I was not offended. In fact, I'm sort of scratching my head somewhat.
I agree that the bailout plan went against the principles of capitalism as we know it. In fact, I remember reading that just before the house voted, a republican spoke to the house and said something like, "Vote what you know in your heart is right if you believe in capitalism - in small government."
http://forums.pearljam.com/showthread.php?t=272825
What I thought was funny was how people had their own reasons for disliking the bill.
I think the bill was unpopular because it carried the perception of bailing out fat cats.
And other people opposed it simply because it wouldn't solve anything anyway -fat cats or no fat cats.
Yes, it's all so ironic, really.
http://forums.pearljam.com/showthread.php?t=272825
Actually, no. I don't think it's proof that capitalism doesn't work. I think it just has a long way to go before it eventually becomes an efficient system of wealth distribution that pulls mankind forward in his quest toward infinite self-improvement.
Your approach to this issue sort of reminds me of pointing out auto accident statistics and suggesting that we all use public transportation.
http://forums.pearljam.com/showthread.php?t=272825
But, to me, the right to drive my own vehicle is worth taking that chance, and even if it is a beat up old Ford Pinto, I'd rather that than leave it in the hands of a bus driver.
Those countries that you refer to are not true socialist countries, IMO. They're more or less hybrid capitalist countries like Canada and Holland. They still consist of a great many private enterprises from which the citizens collect a salary.
None of those countries are invulnerable to market down-turns, so I'm not sure where you're going with this. If anything, the current mess will in some ways affect the GDP of those nations.
Consider the fact that over the course of the last 100 years or so, there have been three or four major market down-turns.
From each downturn, economists learn lessons. And those lessons are applied to future downtowns. An example is the 1987 crash, which was actually twice the crash of 1929. However, from lessons learned in 1929, the market quickly rebounded in 1987. Sure there was a recession that followed, but it was certainly far from a depression.
Think of capitalism as a science. We learn as we go. And like I said, hybrid-capitalist nations like those that you mentioned are not less susceptible to the unpredictability of a free market.
http://forums.pearljam.com/showthread.php?t=272825
I think this whole crisis is a better example of how GOVERNMENT INTERVENTION, socialism, and a MANAGED ECONOMY do not work.
Not to mention the utter failures of Keneysian economics.
But to me it doesn't bring one credible point to bare on "capitalism" itself.
It just simply illustrates quite lucidly that if you set up a system designed to minimize bank responsibility and bail them out with taxpayer money, then guess what?
You'll get a lot of irresponsible banks that need to be bailed out with taxpayer money.
Huh.
Imagine that.
Watch this film.
It has nothing to do with failed capitalism.
It has to do with failed central banking.
Period.
If I opened it now would you not understand?
Thank you sponger for all of your insight on this mess. And a special thanks to the quote above. I don't hear many people willing to admit that.
Cheers.
***********************
"We've laid the groundwork. It's like planting the seeds. And next year, it's spring." - Nader
***********************
Prepare for tending to your garden, America.
Call em conspiracy theorists folks, but they were president and mayor of new york around the time of this mess getting started, and it might behoove you to take it with more than just a grain of salt, for these are "they" whom run the banks, THE bank, and also "your" government:
On the subject of the stock market crash & great depression:
and in Feb of 1931, seemingly prophesizing about the yet to come gold confiscation of 1933, but speaking generally of the conditions of the country during the depression, and the great "loss" (read: transfer) of wealth:
And one of the most esteemed economists in history?
If I opened it now would you not understand?
and reveling in it's loyalty. It's made by forming coalitions
over specific principles, goals, and policies.
http://i36.tinypic.com/66j31x.jpg
(\__/)
( o.O)
(")_(")
but come now Roland.
"Invisible government"?
Pfft.
:rolleyes:
Everyone knows America has a "Democracy".
:cool:
If I opened it now would you not understand?
There's no such thing as private "private" interests...just the will of the people....nothing more...this is how it works, and the media tells us so. The media is owned by the people right...non partisan....honest reporting and all that good stuff.
ask any armchair analyst with a bag of doritos...they know what's up inbetween commercials
multiple Presidents, mayors, officials.....what the hell do they know?
clearly they were all nuts, and now is reality.
and reveling in it's loyalty. It's made by forming coalitions
over specific principles, goals, and policies.
http://i36.tinypic.com/66j31x.jpg
(\__/)
( o.O)
(")_(")
Conversely, hybrid models using some forms of socialism and strong governments, along with some levels of freedom have almost always worked. In America why hasn't this been suggested? Who has the most to lose from a highly regulated market? Oh the rich motherfuckers who own most of our means of communication...so they are going to keep feeding us this bullshit about the greatness of corporate capitalism so we can keep them comfortable. but go ahead watch it fail time and again and wait for the FDR's and Obama's to fix shit that Ronald Reagan, Bush I, Clinton, and W, in conjunction with the World Bank and IMF, can fuck up.
You seem to have some of your facts backwards.
Argentina didn't fail because of "deregulation" it failed because of MASSIVE interference by the IMF itself. The very institution you laid blame upon in your last sentence.
Here is a good basic article on it for you, straight from the BBC:
Argentina blames IMF for crisis
.
Just so you know, i don't really have a problem with much of what you are saying ... in general i think you have the right idea.
Although i think it is misguided to think Obama is going to save us.
And it is REALLY misguided to think that FDR was our savior.
For fucks sake, he is responsible for the CREATION of the FDIC ... one of the very programs largely responsible for the mess we are in. [not to mention he created Social Security, and the SEC - which i'm sure you are a big fan of
It is called government intervention, and by taking deposit insurance off of the free market, and charging a flat rate to all institutions regardless of the risk they take is arguably one of the MAIN reasons for our current "crisis".
That and the non-market interest rates "set" by the Federal Reserve itself.
In short,
i think talking about regulation vs. deregulation is of little value if we aren't going to take on the bigger problem of central banking manipulation of the economy.
Do you follow at all?
Because i'm trying to reach some sort of consensus with folks here, not just argue endlessly for no reason.
???
If I opened it now would you not understand?
Also I was mostly joking about Obama, though he's going to make some changes for the people I suspect. FDR was pretty helpful in getting us out of the first depression...though WWII was just as helpful. More importantly is that he was behind objective accounting firms on banks, which lasted all the way until the early 1980s when Reagan decided to deregulate that. In so doing it allowed corporations to pay for accountants to find numbers that they wanted...if they didn't they would just fire them and hire a new one that would. Hence the S and L scandal of the 1980s...the dot coms in the 90's, and housing now.
As I mentioned earlier, they aren't socialist countries. Besides, the cars and buses things was a metaphor, and was not meant to be taken literally.
The 1987 downturn was not solved with war. The Gulf War did little to bring the nation out of a recession. In fact, the economy didn't come out of the recession until the late 90's when tech stocks started to take hold.
Fast forward to 2002. Many economists believe that the wars in Afghanistan and Iraq are actually draining the economy as government funds that normally would've gone to stimulate small business has now been diverted overseas.
In fact, it's unlikely that Greenspan would've lowered interest rates if wars weren't draining the economy. Low interest rates propped up the economy to compensate for the drain.
It's true the wars tend to stimulate an economy out of recession, but the term "every single time" just doesn't apply.
Besides, Norway, Sweden, and Iceland are relatively small countries with population sizes that pale in comparison to the United States. They are each countries with their own vast supply of natural resources. Norway, for example, relies heavily on seaford exports. Can you imagine the US having to rely that much on seafood exports?
And, again, it isn't an argument against capitalism. The reason being is that as far as markets go, those countries and the US are very similar.
The pattern I'm seeing is that you just have a bone to pick with the US, and that you aren't interested in talking economics so much as you are interested in finding ways to put down a country you strongly dislike.
http://forums.pearljam.com/showthread.php?t=272825
Agreed, more likely it is a tragic failure of republican values.
Our republic did not fail us, we failed it.
I have seen every sign i need to see that tells me great men were screaming bloody murder. But it is we, the constituents of this once proud republic, that have failed to maintain the appropriate virtues of order.
Our country degenerated as we the rightful rulers have allowed ourselves to be spun in to a fantasy world turned to nightmare.
But if you blink for long enough, someone is always going to try to pull a switch on you. its just how it goes. You can't blame a perfectly valid concept (a market) for a simple and immutable truth.
a different question might be,
what institution would you trust better than the market?
its like saying you've found something better than nature.
If I opened it now would you not understand?