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Old 10-18-2008, 01:48 PM
 
Location: WA
4,027 posts, read 12,945,798 times
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Default The cause of the melt down and the wrong medicine…

Great piece from a real expert…

Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job."

The Weekend Interview - WSJ.com
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Old 04-16-2014, 12:15 PM
 
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"So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is 'the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.'" Nicely put. (From the link)

That was then but the issue remains. Well the Fed is buying up the bad debt. But the issue of insolvent borrowers remains. Higher wages create unleveraged income. unleveraged income gets you more debt at low risk.

A much higher minimum wage will create an environment that has the built in expectation of the repayment of debt. wages will be going up so all debts are good. No defaults. No missed payments.

This addresses the underlying issue that drove the slowdown. The way out of the liquidity trap.
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Old 04-16-2014, 02:05 PM
Zot
 
Location: 3rd rock from a nearby star
468 posts, read 218,718 times
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At the moment, the U.S. economy is the best looking horse in the glue factory. When that changes, our experience is likely not going to be positive.
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Old 04-17-2014, 01:46 PM
 
381 posts, read 102,620 times
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Quote:
Originally Posted by Zot View Post
At the moment, the U.S. economy is the best looking horse in the glue factory. When that changes, our experience is likely not going to be positive.
But it will be educational.
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Old 04-19-2014, 12:55 PM
 
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The cause of the meltdown was the result of a congressional policy change regarding bank regulation. First, Congress enacted the Gramm-Leach-Bliley Act of 1999 that repealed the provisions of the Glass-Steagall Act of 1933 prohibiting proprietary trading by member banks; and, second, the enactment of safe harbor provisions of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that exempt derivative contracts from bankruptcy. This enabled banks and their parent holding companies to trade in derivatives (viz. mortgage-backed securities) on the financial markets with immunity. It was the sale of these securitized mortgages, and subsequent default on the repurchase agreements, that triggered the bank failures, the stock market crash, and subsequent recession. President Bush had no choice but to take over the failed banks, and move to stabilize the financial markets to prevent catastrophic economic collapse; however by then it was too late as the damage to the economy had been done. The economic fallout was unprecedented, the bailout unaccountable, and the legal issues unresolved.

The safe harbor provisions for derivative contracts should be repealed, and trading in these high-risk securities by bank entities disallowed. Dodd-Frank and the Volcker Rule (which the banks say goes too far) doesn’t go far enough as it fails to address the derivatives problem effectively; and it will be up to Congress to enact remedial legislation to curb this undisclosed speculation, or what happened before will surely happen again.
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Old 04-21-2014, 11:07 AM
 
381 posts, read 102,620 times
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Quote:
Originally Posted by Wendell Phillips View Post
The cause of the meltdown was the result of a congressional policy change regarding bank regulation. First, Congress enacted the Gramm-Leach-Bliley Act of 1999 that repealed the provisions of the Glass-Steagall Act of 1933 prohibiting proprietary trading by member banks; and, second, the enactment of safe harbor provisions of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that exempt derivative contracts from bankruptcy. This enabled banks and their parent holding companies to trade in derivatives (viz. mortgage-backed securities) on the financial markets with immunity. It was the sale of these securitized mortgages, and subsequent default on the repurchase agreements, that triggered the bank failures, the stock market crash, and subsequent recession. President Bush had no choice but to take over the failed banks, and move to stabilize the financial markets to prevent catastrophic economic collapse; however by then it was too late as the damage to the economy had been done. The economic fallout was unprecedented, the bailout unaccountable, and the legal issues unresolved.

The safe harbor provisions for derivative contracts should be repealed, and trading in these high-risk securities by bank entities disallowed. Dodd-Frank and the Volcker Rule (which the banks say goes too far) doesn’t go far enough as it fails to address the derivatives problem effectively; and it will be up to Congress to enact remedial legislation to curb this undisclosed speculation, or what happened before will surely happen again.
not discounting what you've said the issue starts a bit earlier than you stated. It goes back to RR and supply side economics. We started a debt bubble then that has kept blowing. Effective regulation is paramount. But balancing the books economically can't be over looked as well. Our manufacturing base is a shadow of its former self. We need the jobs that are left to pay what the ones that have gone use to.
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Old 04-21-2014, 11:14 AM
 
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Yes, you're right. The problem with regulating banking only underscores what's wrong with our economy. To put it simply: We need to get back to an economy that based on making things, and not just making deals.
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Old 04-21-2014, 11:21 AM
 
381 posts, read 102,620 times
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Quote:
Originally Posted by Wendell Phillips View Post
Yes, you're right. The problem with regulating banking only underscores what's wrong with our economy. To put it simply: We need to get back to an economy that based on making things, and not just making deals.
Making things has too much overhead and not enough profit margin. The total debt is too high. the Dead weight from it is pushing actual productive things out of the economy. We need to restructure our total debt before we can make headway on rebuilding our economy.

Option one.

write off 50% of our debt.

Option two

inflate way 50% of our debts value.


It would do the banks good to write off that much debt and watch them fail.

That much wage driven inflation is kinder on the bottom end and I'm about at the bottom of it. My preference is for the inflation.
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Old 04-21-2014, 11:47 AM
 
2,590 posts, read 1,716,003 times
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No, there's no "write off". We don't have the luxury to watch the banks fail for the simple reason that we will pay for it in the end. (Banks are not eligible for bankruptcy; an insolvent bank is taken over by the FDIC that insures deposit accounts from loss; and the short-fall will have to be made up with taxpayer money.) That's what happened - and will happen again, unless Congress establishes regulatory control over banking and financial markets. That was the reason for Glass-Steagall; that was the reason for the Volcker Rule; that is the reason why banks should get back to banking - viz., lending money and servicing loans - and not speculating on the financial markets.
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Old 04-21-2014, 06:44 PM
 
866 posts, read 295,259 times
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Quote:
Originally Posted by cdelena View Post
Great piece from a real expert…

Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job."

The Weekend Interview - WSJ.com
cause of the melt down = too much debt and too much greedy by

banksters politicians real estate agents and the home buyers.

to compensate for their greed the
REAL medicine if they wanted to save everyone

would be to give everyone and their grandma 100k+ dollars for every man woman and child that is a citizen of the United States of America.

yes it would have cost 30+ trillion
but BIG F WHOOP

the FED just GAVE 20 trillion away at 0% to other banks shortly after 2008 anyway.
they may as well just give it to USA citizens it is after all OUR CENTRAL BANK NOT THE WORLD CENTRAL BANK

if they will steal 20 trillion from every man woman and child of the USA I would rather the FED give the 30 trillion to us instead.

that would have instantly solved the problem and inflated everything. but it would have solved the problem temporarily. of course.

now it is the WORST OF BOTH WORLDS.
because they are bailing out only thieves.
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