Categories Uncategorized Oh My God! We’re Nationalizing Businesses! Post author By John Scalzi Post date September 17, 2008 95 Comments on Oh My God! We’re Nationalizing Businesses! Are we socialists yet? No, no. Relax. We couldn’t possibly be socialists. Socialists only nationalize successful businesses. Share: By John Scalzi I enjoy pie. View Archive → ← Whatever X, Day XVII → The Last Colony, Now In Readable Electron Form 95 replies on “Oh My God! We’re Nationalizing Businesses!” What is this, Atlas Shrugged? Soon we’ll be calling ourselves The People’s State of America. If you find John Galt, kick his ass for me, please. Who? (B’dum tish) Eh. This isn’t nationalization. Freddie and Fannie, THAT was nationalization. Actually, I thought socialists nationalized those industries where profit-taking was in opposition to providing a necessary service for the people. “Too Big To Fail” has become the corporate motto. Pretty lame. Because when the government universally runs all services and companies, business and service will universally suck for everybody. business and service will universally suck for everybody As opposed to now? Oh, also, I saw John Galt, and he was all like, pissed and stuff at the Fed. Of course, he was also being led around on a collar and chain by a man speaking Mandarin. Some messed up S&M, yo. I’ll never understand the fear many folks have for words like “socialist.” I mean, it is an -ist word, which is automatically bad, I guess. But the “social” part sounds like a good idea to me. Then again, I grew up in a fiscally (small-c) conservative social democrat milieu, where having governments that offer basic safety net services is considered a good thing. See, even if you don’t care about your neighbours, the idea is that it still saves all kinds of public resources in the long run if you assist them during hard times. In this case we might have yet another example of corporate welfare, but since when has /that/ changed? It doesn’t matter which side of the political false dichotomy you play on in this respect; corporations always get special treatment. Ok, I’ll admit we have a game we play with our extended family that lives in the US: we use ordinary words like “liberal”, “conservative” and “socialist” in conversation just to see them react. It’s fun for the whole family. These word are so loaded for most Americans that it’s like swearing out of context, or using racial epithets. Not to piss too much in the pool, but can it really be called nationalization in the cases of FanMae and FredMac, since they were government-established entities in the first place? From FanMae ‘about’ page: The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home. From FredMac ‘about’ page: Freddie Mac’s mission is to provide liquidity, stability and affordability to the housing market. Congress defined this mission in our 1970 charter, which lays the foundation of our business and the ideals that power our goals. In Atlas Shrugged, the blackout of NYC was the signal for failure of the system. This time, it will be every damned ATM not working. I hope all of you have a pile of cash. Man, I sure hope the Democrats win this election so they can stop this creeping Republican Socialism! (That sound you just heard was gears stripping and springs popping in the clockwork brains of ossified conservatives) I look forward to an Atlas Shrugged for the 21st century, starring a bold and handsome young actuary who walked away from his job at a state-subsidized conglomerate and rocked the financial world with his revolutionary new algorithm for calculating the expected value of securities derivatives. On second thought, actually, I don’t. IIUC the main reason Freddie & Fannie were semiprivatized in the first place was so that their debts wouldn’t show up on the government’s balance sheet. This was back when the total national debt was on the order of $500 million, i.e., about the value of this year’s expected deficit. You can just whack him across the head a few times with Atlas Shrugged. That’ll do in most people. Mike Cane: I’ll assume you were joking. Because while AIG is big and has Cthuluian tentacles in all sorts of places, from my research, we ain’t anywhere near a place where banks are going to get ran on. A lot of the recent furor revolves around people with a lot of wealth watching substantial parts of it disappear. The “average” person isn’t nearly as affected by it. I thought I saw John Galt sitting with John Scalvi in a bar — they had a big pile of twenties from an ATM between them and were, shot by shot, working their way through the top shelf brands of scotch. Scalvi was trying to get the woman bartender to accept this plain, unadorned green metal bracelet, but he wouldn’t tell her where he got it or what it was made of. She wasn’t having any of it — said it felt too light and fake, and she’d stick with gold jewelry. True story. Dr. Phil Well, it may be a *bit* socialist, but to be *really* socialist, the government would have to start explicitly sending everybody cash. . . . . wait a minute. Never mind. Let me remind people who’s in charge of this nationalization. The Federal Reserve, who’s chairman was appointed by Bush. In other words, conservative Republicans. You know. Those people who’ve been calling liberals socialists for years. And guess what? McSame is now in favor of banking regulation. yes, McCain of the Keating 5 fame is now telling us that we need market regulation. “Government has a clear responsibility to act in defense of the public interest, and that’s exactly what I intend to do,” a fiery McCain said at a rally in Tampa yesterday. “In my administration, we’re going to hold people on Wall Street responsible. And we’re going to enact and enforce reforms to make sure that these outrages never happen in the first place.” This is the guy who voted for the Gramm-Leach-Bliley Act. The act that deregulated in the first place. Oh, and to preemptively head off anyone trying to derail the topic by bringing up the fact that Bill Clinton signed it, yes, I blame him too. I’d be happy to talk about Obama’s fiscal policy, and any problems with it, but one thing he does not have is a history of voting for federal banking deregulation. And Biden voted against Gramm-Leach-Bliley. Sub Odeon @ #6 – Instead of the government running corporations, we’ve got corporations running the government. Todd@16 That’s my read of it too, though the primary impact regular folks are feeling right now is watching their 401k and related plans have a nice downslope line, despite regular contributions all year. That has a nice negative impact to perceived senses of wealth, even if it doesn’t impact the day to day sense of security. That said, I suspect WaMu going down would be felt by a lot more day to day savers, which is why we’re seeing lots of talk of the fed encouraging a bigger bank to eat WaMu to keep it out of bankruptcy should it go that direction. “…unadorned green metal bracelet…” Ah, Scalvi metal. I hear it’s indestructable. Well, it may be a *bit* socialist, but to be *really* socialist, the government would have to start explicitly sending everybody cash. Hrm. Spring, this year? Or Alaska? I mean how many of you guys out there are economists (I’m not saying I am)? Seriously AIG COULD not be left to die! Am I happy about it, NO, but it had to be done. Todd, I suggest that you wander over to Yahoo finance and glance at the balance sheets of the major banks. WaMU would be a good place to start. They are right at their required capital ratios, which means that they are out of margin and any further deterioration could tip them into the lap of the FDIC. In the long run this is a very neccessary and healthy correction in the short run it will hurt a lot of small investors. No one should have more than $100,000 in any one bank right now, I don’t care how high the teaser CD rates are. The bank’s are overpaying for deposits for a reason. ( and no, the FDIC is not in danger of running out of money). GLB did not cause this mess. Government meddling and regulation ( CRA) caused this mess. The answer is less regulation not more. However that’s not going to happen. As for AIG, I’m not sure how I feel about the US government now being the majority shareholder of Manchester United. Are they good enough to make the playoffs this year? Also it should be remembered that Elliott Spitzer hounded the very capable senior management of AIG into retirement with a smear campaign that was later shown to be without merit. Thanks Elliott. Finally, the great depression taught us that while a truly free and unregulated market works great on paper, it is death for any political party that tries to ride through a major correction without meddling. It’s not socialism it’s political expediency which is worse. GLB did not cause this mess. Government meddling and regulation ( CRA) caused this mess. Bwah hah hah hah! Josh, GLB did not cause this problem. If anything it is helping to cushion the impact. Bear Stearns and Merrill Lynch could not have been sold prior to GLB, they would have gone belly up like Lehman Brothers. GLB allowed individual companies to sell a broader range of products and services. A very poor analogy would be allowing wallmart to sell gas and groceries if there had previously been a law preventing that. You can’t blame the recent rise in gas prices on Wallmart entering the market anymore than you can blame poor credit practices on GLB. They are not connected. This mess is the result of bad credit policies and stupid bets by the “masters of the universe” aided and abetted by some really stupid government mandates. And as you noted there are as many democrats on wall street as there are republicans. This is a bi-partisan mess. I get a bit confused with American terminology (being a Brit) where the right-wing adopt a liberal approach on regulations, big govt., community support, healthcare and so on, whilst those accused of being liberals have conservative policies about the ability of people and corporations being able to mess up their (and other people’s ) lives. So I would normally say “Yes, this is a bit of (necessary) Socialism”, but I get the impression that the ‘S’-word equals Communism on that side of the pond……so…….what are we talking about ? Gwangung, If it is so obvious that GLB caused this mess, then please enlighten me. Exactly what about repealing Glass Steagal led to the current melt down? and for extra credit please explain why GLB had a greater impact than the fraud at Freddie and Fannie. Thanks …starring a bold and handsome young actuary who walked away from his job at a state-subsidized conglomerate and rocked the financial world with his revolutionary new algorithm for calculating the expected value of securities derivatives. You know, this was me five years ago. Except I failed every actuarial exam I ever took. Also I worked for a family owned company and I walked away from my job to bum around Australia and New Zealand for 6 months. But it’s basically the same story. Oh, and the bold and handsome bit needed some work too. “Are we socialists yet? No, no. Relax. We couldn’t possibly be socialists. Socialists only nationalize successful businesses.” Oh, snap! (BTW, “too big to fail” is souding more and more like “…until we fail so big we take everybody else with us”.) Nope. First thing socialists do is nationalize energy production and communications, not financial institutions. Exxon/Mobil is still free and we’re still subjected to bad Alltel commercials so I think we’re good for now. 2 things. 1: Freddie & Fannie were established by the U.S. Gov’t, they were not run by it. Their profits did not go into U.S. Gov’t hands, and they were not controlled by public servants. Were… 2: I’m not sure I know how to read the newspaper, but it looks like the U.S. Government acquired $800Billion in AIG assets (to be chopped up and sold forthwith) for the price of LENDING $85Billion. How does this deal sound to you? “I’ll give you $100 now. In return, you have to pay back that $100 (plus interest), and give me 80% of your worldly assets. Also, if I’m not mistaken, the U.S. gov’t won’t be running AIG or any of it’s subsidiaries, it will merely own 80% of them until they’re sold. (Personally, I’d rather own a rich, profitable organization, than run one). propguru @28: ‘Muricanism Tutorial Socialists: Our friends Britain and Canada Communists: Not our friends. Like Russia China N. Korea. Some of us here remember what happened in CA when the energy market was deregulated. It’s a good example of how businesses react to deregulation – they will attempt to create situations in which they can screw people out of money by creating fake emergencies, fake value, or fake anything. There was a season of fake blackouts that newly deregulated energy trading companies created to jack up prices. Now we’ve got fake valuable investments that the deregulated banking/finance industry used to con people out of money. This is in essence what happened to the financial market. And eventually, the rolling mess of overvalued crap that was allowed to be created by deregulation was noticed by investors as a rolling mess of overvalued crap. Actually, Steve Brust’s book “Orca” deals with this pretty well in fiction. Which is interesting, because Steve is a Trotskyite :-) “Socialists only nationalize successful businesses” True, of course, at that point they stop being successful, goverment being incapable of running anything well. Seriously, though, if, say, two years from now all that’s happened is that the Fed has overseen an orderly dissolution of the company, I’m basically ok with the deal. On the other hand, if they’re still in the insurance business and showing no signs of getting out of it, then we have a real problem. @ Drew Common sense seems to say that this crisis in liquidity has been caused by the government letting the financials do whatever they damn-well please. I don’t see how not regulating them has stopped or could have prevented this, quite the contrary in fact. There’s also a nifty little article linked at Wikipedia that says better than I could why the repeal of Glass-Steagle was such a bad idea… http://www.prospect.org/cs/articles?article=the_bubble_economy And the fact that Bill Clinton signed GSA’s death warrant goes to prove us political cynics right. When it comes down to it, we’ve got two puppets controlled by the same master, the corporate elite. Brett L @ 34 Thanks. Now that makes sense to me. Cuba and Venezuela ? I’m not sure my understanding of the AIG deal is the same as Scotts (I’ve relied on the Financial Times for my understanding), but my reaction was that the US Govt negotiated themselves a pretty good deal whilst saving worldwide financial markets from meltdown. Finally, something to be proud of, internationally ! There will be some pain for a while for US taxpayers, but they should benefit eventually. BTW, much of AIG is very profitable – it was their dabbling in the banking markets (particularly derivatives) that sunk them. Drew – from my perspective on the matter, you just made a circular argument. Banking/Credit institutions were insulated from the idiotic speculation in bad mortgage futures that created the ARG mess before GLB allowed them to start creating huge amounts of paper castles. Do we have enough TLAs here? It looks like everyone is talking about some sort of regulation to prevent this from happening again. McCain included. And now Obama gets to use “He was against regulation before he was for it”. Though if you were talking about the creation of subprime lending to home buyers with bad credit, I agree, that was a really damn stupid mistake on the part of anyone who supported it. Still, I’m not an economist, so I’m not presenting a deeply educated argument. I’m reminded of Robert Anton Wilson saying… “When you’re up to your ass in alligators it’s hard to remember why you started to drain the swamp” Hunker down people… @ Todd Stull to say “The “average” person isn’t nearly as affected by it” is grossly inaccurate. Many of the baby bombers portfolios have been devastated by recent events. While they may not have lost as much money, it actually has a greater overall effect. If I’m not mistaken, the Government loaned AIG a bunch of money. And I remember (and perhaps none of you young ‘uns here do) back in 1979 the Government loaned Chrysler a whole bunch of money so it wouldn’t fail. Let’s see, who would have been President back then? Oh I remember, Jimmy Carter. Chrysler got it’s act together and paid all the money back with interest. Continuing to show my age, I remember when the Federal Government had to bail out New York City to prevent it from going bankrupt. I’m thinking this kind of thing isn’t new or unusual and it certainly isn’t Socialism. My guess is AIG will pay the money back and remain a private company. And Fanny and Freddie should be divorced from their government umbilical all together once they get well and be forced not to act like a Government agency. I mean, all they have been is a cash cow for individual Congress-folk. Privatizing them would help there too. Just giving a bit of perspective. Austin, You seem to be suggesting that financial institutions are currently unregulated. I’m not sure how to break this to you but they are actually very heavily regulated to the point of absurdity. The debate is currently about how well that regulation has worked and whether the solution is to increase the level of government intrusion or to back off. It is because they couldn’t do “whatever they wanted” that we are in this mess. There is a strong case to be made that the current regulations led to market practices that over emphasised mortgage backed securities. In particular there was a movement in the 80’s to extend home loans into underprivledged areas and to non tradtional borrowers. This began with the community reinvestment act and was further fueled by policies at Freddie and Fannie. As it turns out not loaning to people with bad credit and no income wasn’t red lining it was good business practice. Avoid the rush and start calling everybody Comrade NOW ! John, I find it amusing that you are in favor of socialising health insurance but you balk at this. There is a strong case to be made that the current regulations led to market practices that over emphasised mortgage backed securities. That may be. However, you’re not presenting it particularly well. Drew @45 I find it amusing that you are in favor of socialising health insurance but you balk at this. And I would further argue that what happened to Fanny and Freddie further examples of just why Socializing anything is a bad idea. The VA debacle of while ago should also go a long way towards arguing against government-run health care in particular. #32 Steve Buchheit: Nope. First thing socialists do is nationalize energy production and communications, not financial institutions. Exxon/Mobil is still free and we’re still subjected to bad Alltel commercials so I think we’re good for now. Man, those Republicans even screw up going Socialist…. is there anything they can do successfully? The VA debacle of while ago should also go a long way towards arguing against government-run health care in particular. US government, at least. That may not apply to the Taiwanese, South Korean, Japanese, French, etc. governments. Drew: “I find it amusing that you are in favor of socialising health insurance but you balk at this.” I’m not aware of actually having expressed an opinion here on the wisdom of the Fed’s intervention in this case. You’re making an assumption on facts not in evidence. To clarify, since apparently it’s needed: This is snark. Frank @ 42, it’s interesting you mention the Chrysler bail-out. An opinion in the NYT references it also: http://www.nytimes.com/2008/09/17/business/17leonhardt.html Basically the thesis is that we got paid back, but maybe prevented dealing with the underlying problems that Chrysler and the big three faced. Drew: “As for AIG, I’m not sure how I feel about the US government now being the majority shareholder of Manchester United. Are they good enough to make the playoffs this year?” This would be interesting if true. A fellow named Malcolm Glazer owns the controlling interest in Man. U. (28.7% from Wikipedia) and his fortune comes from an outfit called First Allied Corporation. So probably not true. Imagine if it were. When Glazer took over Man. U. there was lots of Sturm und Drang over the takeover amongst the fan base. Looking at it from over here, I got the impression that most of the arguments boiled to “we don’t want an American running Man. U.”. Imagine if it weren’t an American running Man. U., but the American Government; I think your average Mancunian would froth at the mouth. Think of European play. A.C. Milan is owned by Silvio Berlusconi; his day job is prime minister of Italy. If A.C. Milan and Man. U. met in European play would you have the president and the prime minister hobnobbing together in the directors box. Maybe they could engage in Italo-American diplomacy and call it a “soccer summit”. It gets even weirder if you imagine Obama winning the election. I believe that Senator Obama has family in London England. He has spent some time with his family in London and has developed an interest in Premier league football. Like the London Obama’s, Senator Obama is a “Hammer”. For those not conversant with English soccer speak he is a support of Westham. Draw your own conclusions. Like I said, not true, but it would be interesting if true. Cheers Andrew Drew: Health CARE should replace health INSURANCE. There is a difference. Insurance is used when something goes wrong, this is an overly expensive and not particularly intelligent way of seeing to a populaces health. It is much more effective to catch health problems in their early stages than treat them once they develop into a full blown crisis. So yes, by all means, let’s do away with health insurance. Besides, the idea that people make millions by refusing health care to dying people is, well, sick. I’m not sure who originally said it — I read somewhere it was Trump, but I think it’s been around longer than that — but there’s a quote to the effect that “If you owe the bank ten thousand dollars and can’t pay, you have a problem; if you owe the bank ten million dollars and can’t pay, the bank has a problem.” To which I’d now add: If you owe the bank ten billion dollars and can’t pay, the government has a problem. If you owe the bank ten billion dollars and can’t pay, the government has a problem. Nope, everybody has a problem. It isn’t a socialist nationalisation. The Party would usually take control of the media first. It isn’t as if the media is a mouthpiece for the republican party. Their coverage is fair & balanced… um… Paolo @51 Basically the thesis is that we got paid back, but maybe prevented dealing with the underlying problems that Chrysler and the big three faced. Well and there is something to be said for that argument. And bailing out Chrysler was one of many solutions possible. Was it the best? Who knows. It mostly worked out OK. I would point out though that Detroit failed, and continues to fail because of Detroit….and Michigan. There is reason why when the Japanese (for instance) want to open a new automobile facility in America they avoid Michigan even though they obviously have a surplus of skilled autoworkers. Along with DC, there are no places in America who’s Government incorporates most of the strategies espoused by the Democratic Party. Didn’t I read something somewhere about what you call it when business corporations and the government become integrated with each other? Pretty sure “socialism” is in there somewhere… In our part of the world we call ’em public bailouts. It happens. We deal with it. However, I do detect a distinct hint of antipathy here towards the “S” word. Off topic, the latest research on the VA suggests it now provides some of the best health care in the US (detailed discussion and multiple citations to peer reviewed medical literature in the 2007 book “Best Care Anywhere”). Their electronic medical record system alone is the most cutting-edge in the world–I work at a medical center that would give millions just to duplicate their medication error rate, which is basically zero. Apparently the difference between government health care and private health care is the former actually fixes its mistakes. So where is this strong case to be made that people were forced to make bad loans because of CRA? Keep in mind when you answer that, according to the president of the San Francisco Fed, businesses that *weren’t* subject to CRA scrutiny made more subprime loans than the those that *were*. See http://www.frbsf.org/news/speeches/2008/0331.html which states in a footnote: “According to the 2006 HMDA data, 19 percent of the conventional first lien mortgage loans originated by depository institutions were higher-priced, compared to 23 percent by bank subsidiaries, 38 percent by other bank affiliates, and more than 40 percent by independent mortgage companies.” Depository institutions are subject to the CRA; independent mortgage companies are not. If we’re to believe the right-wing talking point that it’s all the fault of the liberals forcing honest businesspeople to loan to those icky “underprivileged areas”, then we should expect to see lots more loans come out of the places subject to CRA than those that weren’t. But instead we see the opposite. There are also indications that these “underprivileged areas” were disproportionately steered to subprime loans, which were more profitable to brokers but nastier to the customers (and, as eventually transpired, disastrous to the lenders that took them on). Another footnote in the same report: “For home-purchase loans in 2006, the gross mean incidence of higher-priced lending was 53.7 percent for blacks and 17.7 percent for non-Hispanic whites, a difference of 36.0 percentage points.” These stark differences can’t easily be explained away by saying “well, maybe those minorities just had much shakier finances to begin with”. Studies have shown that a large number of folks who took subprime mortgages they were offered would have qualified for prime. And a 2002 paper by Federal Reserve and Wharton analysts (http://realestate.wharton.upenn.edu/pdf/404.pdf) that tried to adjust for neighborhood financial profiles still concluded: “Even after inclusion of the full set of explanatory variables in the tract-level regressions, however, the percent of African American homeowners [in a neighborhood] is strongly, positively correlated with subprime share of neighborhood loans…” I don’t know what it looks like to you, but it looks like to me that a bunch of financial businesspeople thought they could make lots of profits by steering “underprivileged” folks into loans that would blow up in their faces, they got hit by the blowback, and now some of them are trying to blame the victims and regulators for their own greed and shortsightedness. Barclays Premier League has no play-offs. The team with the best record wins the Premiership. Will Manchester United (whose shirt sponsor is AIG) win it again this year? I like to hope not. It should be noted that ManU is owned by Malcolm Glazer (and his family) who also owns the Tampa Bay Buccaneers. Jeff Zugale @ 57 And it is a “national” problem. I’ve been telling people for years that the policy and mechanical issues the banks and other financial outfits were operating under were now functionally identical (albeit named differently) to the conditions (created under Reagan/Bush) that the S&Ls had when they *cough Keating 5 cough* crashed and burned. And took large sums out of everybody’s pocket to fix. My wife had been working for Nevada S&L for several years at the time and I am quite aware just why they were one of the few that did not need any assistance at that time. The republicans screwed this up big time trying to help their corporate buddies steal more money. Dishonest revisionism and finger pointing notwithstanding, once again they have blatently enriched their “base” at the expense of the rest of the country. John Mark Ockerbloom @ # 60 – More to the point, who forced the finance sector to repackage assloads of bad loans into “Structured Investment Vehicles”, trade them as if they were a good investment, and then create a market for companies to send them more packages of bad debt to trade? Bear Sterns never loaned anyone money to buy a house. Maybe now that the Chinese are making everything we buy we should invite then to run our government. Can they do worse? Remember the Lippo Group? http://www.wnd.com/news/article.asp?ARTICLE_ID=20644 Multiple Choice (1) We are in: (a) Worst financial crisis since World War II; (b) Worst financial crisis since Great Depression; (c) Worst financial crisis in a century; (d) Worst financial crisis in US History; (a) Worst financial crisis in human History. (2) When Secretary of the Treasury Henry M. Paulson, Jr. announced the Fannie/Freddie bailout, and he said that they were now as safe as “Uncle Sam” it meant: (a) What’s sauce for the goose is sauce for the gander; (b) The blind leading the blind; (c) The Domino Theory; (d) Prostitution is safe sex; (e) Uncle Sam is looking mighty shakey. (3) When Senator John McCain says that the fundamentals of the U.S. Economy are sound, he means: (a) This will all blow over once his deregulations take full effect; (b) There is no need for a community organizer; (c) There was no sound economy in Vietnam for him; (d) If a tree falls in ANWAR while we drill, drill, drill, and there’s nobody there to hear it, does it make a sound? (e) Line forms here for Mooseburgers. (4) Essay: “What is to be done?” Ah, so that’s the problem with the US health care system! It’s too successful to be nationalized!! Partial sarcasm, but only partial. Lauretta The subtext of Drew’s statements seems to be that he thinks the current stock market meltdown was caused by an altruistic, *but obvious foolish* desire to help poor people buy houses. See, that’s what happens to wise, practical conservatives when they let themselves be swayed by soft-headed liberals. Is the current crisis the result of rapacious wealthy lenders jumping to increase their short-term profit–in the absence of federal restrictions that restrict questionable business practice? Don’t be silly. It’s not greedy, short-sighted lenders who are to blame. It’s giving in to Democrats and their misguided attempts to provide welfare for the poor–as always. Compassionate Conservatism at its finest. At times like these I feel compelled to exhort others to remember what happened to the last superpower who thought that state planning was somehow better than the free market. We are socializing the losses while keeping the profits private. Josh Jasper @63 More to the point, who forced the finance sector to repackage assloads of bad loans into “Structured Investment Vehicles”, trade them as if they were a good investment, and then create a market for companies to send them more packages of bad debt to trade? This is a good point, but like all the rest, it’s only a part. And anyone who says they know what went wrong is blowing smoke. It was not the fault of the Bush Administration any more than Enron was the fault of Clinton. Sub-prime mortgages and that which drove people to think they were a good idea are a part of what went wrong. Predatory mortgage lenders are a part. “Structured Investment Vehicles” and the whole pantheon of too-complicated-to-understand investment instruments designed to spread the risk around are a part. The interconnectedness of the financial markets are yet another, complex part. And then there is, to quote Rumsfeld, the stuff we know that we do not know. One fallout is that oil prices are coming down. Many Banks and investment firms had invested in oil as a hedge and when things started going South, they divested. Big time. The fact of the matter is, McCain’s idea of a Commission to investigate what went wrong is a damn good idea. Because I’m pretty damn sure that even the institutions involved don’t know all of what happened. And we need information to craft good policy. Of course, asking our political class to come up with good policy is probably asking too much. Enron resulted in the disastrous Sarbane-Oxley Act and the reason for the failure of Enron was a whole lot easier to postmortem than this will be. But having good information is a good start regardless. Even if it is pearls before swine (which is not a lipstick joke). Drew: I am without words. How could you possibly come to the conclusion that less government regulation is the correct solution? The banks and major financial institutions were fooling themselves thinking that housing prices would continue going upwards indefinitely…and besides, they could buy insurance from places like AIG, so even if people did default on mortgages, they’d get paid out on it anyways. If there had been a regulator who had said “You guys are fucking crazy, no bubble expands indefinitely, and there’s no rational reason to believe that your notional value of these assets is actually based in reality”, maybe we could have put the brakes on this debacle. Seriously man, how can we even debate that greed was spurring on these companies, and only a regulator with oversight could have stopped them from doing this kind of crap? They certainly weren’t going to stop on their own. Drew @ 25. That AIG have any proprietary interest in Manchester United will come as a surprise to the Glaser family, who actually own the club, and thought AIG were only paying several million a year to have their name on the front of the millions of replica shirts sold worldwide. As for play-offs, the Premier League is 38 games in a season, the team that gets the most points wins. No play-offs. Hope your knowledge of economics is a little more extensive. Todd Stull They certainly weren’t going to stop on their own. Um, they stopped, when the bubble burst. That’s the harsh corrective. And in some people’s minds, the best corrective. “You takes the risk, sometimes you get burned. And if you are shielded from getting burned, you don’t learn. Them’s that survive get better and stronger.” The problem, of course, is that in some cases, Chrysler, New York City, S&L, etc. there’s too much collateral damage and people feel compelled to mitigate the pain. Right or wrong, that’s the way we’re built in America. Socialists only nationalize successful businesses. Ah, this is just our new, more efficient government. Why nationalize a a successful business, then run it in to the ground, when we can save time by nationalizing a failed business? Today I went to sleep in the US and awoke in Venezuela. Mark Corey at 41 – Sorry, I should be more clear. I don’t consider baby boomers with portofolios to be the “average”. By your definition, I trust you are correct. Drew, http://www.prospect.org/cs/articles?article=seven_deadly_sins_of_deregulation_and_three_necessary_reforms are you certain that we’re just not incompetent socialists? At times like these I feel compelled to exhort others to remember what happened to the last superpower who thought that state planning was somehow better than the free market. I don’t know why you Americans keep that big expensive Navy; if only the government would stop their socialist defence policy the free market would provide a cheaper, more efficent solution. (I also notice that the US Postal Service continues to maintain it’s government monopoly) Frank @ 72,75 No Frank, it really -is- that simple. They thought they had a free pass to steal money and jumped on it. Personally, I think all golden parachutes out of these unethical businesses should get confisticated and portioned out among all those who got “preditory loaned” as a way to put the pain where it belongs. To all that referenced “Atlas Shrugged” – It’s been a while since I read it, but I seem to remember something about the main form of transportation being trains… And here in Atlanta, as well as around the country, as gas prices rise, so does commuter ridership on trains & buses. To the point that train schedule frequency on the system was just increased and buses have been added to handle the additional riders. Hmmm…maybe John Galt knew more than he let on… Hello Amazon, I need to order a book… Seth Gordon @14 – the expected deficit these days is around 400 billion, not million. What’s a few orders of magnitude? I’d recommend listening to the people who predicted this meltdown, rather than those who poo-poo’d it. I’m not saying they’re guaranteed to be right, but I’m more inclined to listen to them than people spouting “no one could have expected…” arguments. So America is now leading the way in the nationalisation of debt? I thought you guys had been doing that for ssome years now. The GOP’s dream…. Privatize the profits while socializing the bailouts (losses). Jeff at 12:52 — There’s another word for when the corporations and government brcome integrated…”fascism” (see Wikipedia). What makes me nuts with what’s happening with the sub-prime debacle and its fallout (referred to by some bloggers as “the big shitpile”) is that while a lot of people are losing their homes, the current administration is continuing to do what Republicans seem to do best: privatize profits and socialize losses. In other words, the guys at the top get to play the game by saying “Heads I win, Tails you lose.” Rest assured, the top management of AIG will not go hungry or homeless; some of the people who had their pensions invested with them, might. Thomas Allen@71 Huh? The U.S. Gov’t LOANS AIG $85B, which it will get back with interest. The U.S. Gov’t RECEIVES 80% ownership in AIG, estimated value (of that 80%)? $800B. How THAT qualifies as private profits and public losses is utterly beyond me. For those who are unaware, AIG has a positive balance sheet, but doesn’t have enough liquid money to FEEL SAFE in the unstable securities market right now. They do not even OWE people the money they were begging for. If it had gotten that far, the sky would have fallen, so they did the proper thing and asked for the money, so they could have it, in case more stuff went bad. (in case you’re further unaware of this, AIG insures securities (among tons of other things), so they are directly out money when a security type bellies up and becomes worthless, they had a very strong reason to fear more immediate payables) nisleib @53 We already tried that, it was called “HMO” and nobody liked it. You have a doctor working for a company with a financial interest in keeping you healthy (rather than a financial interest in performing services). Mostly, people don’t like them. HMO doctors won’t prescribe antibiotics when you have a cold… Costs the company money, doesn’t help you. That sort of thing annoys people, because they have a “the customer is always right” mentality when they’re very very far from right. Frank – Enron resulted in the disastrous Sarbane-Oxley Act Enron was a disaster. The housing bubble collapse was a disaster. The sub-prime investment related collapse was an even bigger disaster. Sarbane-Oxley is an annoyance. Sarbane-Oxley hasn’t lost hundreds of billions (is it trillions yet?) of market liquidity. I’m not blaming the investment banks packaging bad loans and trading them as hot stocks on on Bush or Clinton in full. Many politicians bear culpability for deregulating the market to allow the insurance/investment unholy crossover. And the bankers who packaged the loans, and the banks that offered them, and at a much smaller level the people who took them out, though in terms of amount of damage done, they’re at the bottom. There’s enough blame to go around. FungiFromYuggoth @84 I’d recommend listening to the people who predicted this meltdown, rather than those who poo-poo’d it. I agree. From the floor of the Senate, the Congressional Record for May 25th, 2005 has John McCain saying the following: Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal. The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac. The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation. Frank, noticing that Freddie and Fannie were having problems in 2005 does not count as prescient. Would you care to link to McCain’s proposed reforms, and explain for the class what the former chairman of the Commerce Committee did to predict and prevent this and other recent financial debacles? As a counter to the “This is all so complicated that no one understands what’s going on” position, there was one SEC regulation change in 2004 that increased debt-to-net-capital rules for five firms: Morgan Stanley, Goldman Sachs, Merrill Lynch, Bear Stearns, and Lehman Brothers. That’s a fairly compelling happenstance, I have to say. Frank at 90: Yeah great, so John McCain supported this particular bill. Wasn’t he one of the Keating Five as well? If so, it just seems to indicate that he doesn’t have a good consistent grasp on economics. LOL. Let’s see how this plays out…. Todd Stull @ 92 McCain has a consistent grasp on economics: consistently bad. That’s why he uses his long term buddy Phil Gramm’s. The fact that -that- is consistently counterproductive for the country just underscores the fact that McCain really doesn’t understand. Keating 5? The fact that he also tried to help his buddy Keating gain a monopolistic control over water access in the desert state he was supposed to be working for, well, that simply shows that McCain has great ethical and moral shortcomings in addition to his other lacks. So funny. So true. One of the funniest comments I’ve seen so far. I put up a cartoon about this right here:http://splendidmarbles.com/2008/09/24/cartoons/banker-brigade/. Who needs a military when you’ve got these guys. Comments are closed.